Survival of the fittest
What's new Evolution Mining delivered a record level of gold production in fiscal 2013, up 13 per cent year-on-year to 392,920 gold equivalent ounces. Production for the year was at the upper end of management's prior guidance of 370,000 to 410,000 gold equivalent ounces. As with all gold companies in this volatile pricing environment, Evolution has been trying to cut costs. Direct cash costs in 2013 were contained, rising by 2.5 per cent on 2012, to $US790 per gold equivalent ounce. In 2014 the company expects its direct cash costs to fall by about $770 to $820 per gold equivalent ounce. With the gold price in Australian dollars trading at about $1430 an ounce, it should generate ample operating margins.
Evolution Mining paid a maiden dividend of 1¢ in 2013, following the board's decision to establish a gold-linked royalty payout policy. We are confident of the company's ability to continue paying future dividends. Gearing is just 13 per cent.
Outlook For 2014, the company has provided production guidance in the range of 400,000 to 450,000 gold equivalent ounces. Furthermore, management expects to maintain a positive cash flow position, now the peak in capital spending for Mt Carlton has passed. After capital spending hit $375 million in 2013, it is expected to drop to $160 million to $185 million in 2014. Furthermore, cost saving initiatives will continue to be introduced in 2014.
Price Evolution Mining's share price has not been immune to the "gold price rout" that hit the gold sector earlier this year.
Worth Buying? Evolution Mining has a diversified asset base. As capital expenditures tail away, we expect the company's free cash flow to improve significantly. Furthermore, the company boasts the balance sheet capacity to fund the latent exploration potential to expand all its project sites. Consequently, we believe stock is worth buying at around the current level.
Greg Smith is managing director at Fat Prophets sharemarket research. To receive a recent Fat Prophets report, call 1300 881 177 or email firstname.lastname@example.org.