There’s a compelling way to make money in mining right now: produce gold and copper.
Both metals are fetching high prices on global markets.
One company doing exactly that is Evolution Mining (ASX:EVN). It has just released its full-year results, with record earnings, cash flow, and dividends.
Of course, Evolution is primarily a gold producer, but it also benefits from high-value copper byproduct production at its Ernest Henry and Northparkes mines.
The company’s revenue is derived approximately 77% from gold, 22% from copper, and 1% from silver.
Higher commodity prices boost Evolution’s cash flow
Evolution could receive another boost this financial year, all else being equal, as it is now completely unhedged.
Last financial year the company was contractually obliged to sell 50,000 ounces of gold at $3,140 per ounce. The market price for gold was around $6,000 per ounce at the time.
Those hedges are finished now.
The company also had an adverse weather event in December that reduced production from its Ernest Henry mine for three months.
The mine could therefore perform better this financial year, subject to weather and production conditions.
Evolution’s financial results also came despite lower gold, silver, and copper production across the group. Higher commodity prices delivered the windfall.
That dynamic could continue in FY27.
Gold in Australian dollars is still around $6,200 per ounce. This means Evolution is beginning the new financial year with a similarly strong commodity-price environment to the one it experienced last financial year.
Evolution is guiding a similar range of production to what it did this year. At current gold and copper spot prices, its operating cash flow is expected to increase by $200 million.
That said, there’s a long way to go until 30 June 2027. Commodities like gold and copper are volatile by nature, and Evolution is fully exposed to the market price.
It will also have to contend with higher fuel costs if current trends in the oil product market persist. Labour and other costs are also under inflationary pressure.
The company shows its sensitivity to these variables in today’s presentation:
Evolution’s cash generation strengthens balance sheet
Evolution is running an extremely profitable business right now.
John Forwood of Lowell Resources Fund (ASX:LRT) showed in a recent presentation that EVN had the highest net cash position among Australian gold producers as at 30 June.
The comparison excludes Perseus Mining (ASX:PRU), which is based in West Africa.
This is likely one reason why the company is now paying out an even higher percentage of group cash flow, with the payout ratio rising to 60% from 50%.
“The record financial performance is on the back of safe, consistent, and reliable operational delivery, complemented by our disciplined approach to cost and capital management. Our high-margin business is generating significant cash flow with a record group cash flow of nearly $1.4 billion,” says Evolution CEO Lawrie Conway.
Write to Callum Newman at Mining.com.au
Images: Unsplash
