Markets: An asset devolution

Gold miner Evolution Mining is boosting its 2014 gold production by 15 per cent as it writes off the value of its gold deposits by as much as $400 million amid a depressed gold price that has left some analysts sceptical of chairman Joel Klein’s claim the company is “cash flow neutral”.

Evolution joins companies such as Newmont and Barrick Gold that have written of as much as $US15 billion of assets in the last two months after the price of bullion recorded its steepest quarterly drop in more than 90 years, according to Bloomberg data, Spot gold fell to $US1200.65 an ounce on June 27 after being as high as $US1474.07 on May 8 – a fall of 18.5 per cent, according to Bloomberg.

The 21 per cent drop in the spot gold price this year has forced an impairment charge at Evolution, reducing the book value of its gold assets to between $860-$910 million, from $1.26 billion.

The writedown in assets will not trigger any contravention of Evolution’s loan facilities, says the company. Evolution’s total debt as of June 30 was $126.8 million. Cash in the bank was $13.7 million.

Klein, on a conference call with analysts today, says Evolution’s total costs are between $1300-$1370 an ounce. At 1210 AEST spot gold was at $US1327.26, according to Bloomberg. Klein expects the gold price to average $US1400 in the 12 months to June 30, 2014.

That leaves a pretty thin margin for Evolution. Analysts questioned whether Klein can claim the company is “cash flow neutral”. Evolution, which has five gold and silver mines in Queensland and Western Australia, says it wants to boost gold production to as much as 450,000 ounces, from 392,920 ounces, in its 2013 financial year.

Evolution was formed in 2011 as a result of a merger between Catalpa Resources and Conquest Mining. At 1217 AEST the company’s shares were down 3 cents, or 3.6 per cent, to 80.5 cents, after falling as much as 6 per cent to 78.5 cents. Evolution has lost more than half its market value so far this year as its stock has fallen 53 per cent.