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The mining company whose value has tripled in four years

evolution mining gold

Key statistics: ASX: EVN
Closing share price 17.07.18: $3.165
52-week high: $3.615
52-week low: $2.145
Most recent dividend: 3.500c
Annual dividend yield: 2.05%
Franking: 100%

Jake Klein has lead an incredible transition at Evolution Mining (ASX: EVN), where he is executive chairman, and over the past four years the company’s valuation from an Enterprise Value to EBITDA ratio has tripled from sub 3X to nearly 9X to reflect this.

In the latter half of 2011, Evolution Mining was formed through the merger of Catalpa Resources and Conquest Mining and the concurrent purchase of Newcrest Mining’s interest in the Cracow and Mount Rawdon gold mines in Queensland. EVN had raised $152 million and was on target to produce 350,000 ounces of gold.

In 2015, EVN made its second company transformational acquisition – the La Mancha Australian assets, west of Kalgoorlie in Western Australia. This added around 150,000 ounces of lower cost annual production.

Soon after, EVN made a $60 million takeover bid for Phoenix Gold (ASX: PXG) – 47% of which was funded from EVN scrip – and given it adjoined the La Mancha’s ground, it made commercial and geological logic.

Before the ink was dry on the La Mancha deal, Evolution acquired the Cowal gold mine in mid-2015, for close to $A750 million from Barrick Mining.

Then came the 30% economic interest in the Ernest Henry copper gold operation for $A880 million, purchased from Glencore in September 2016.

In addition, Evolution has a 49% interest in all gold, copper and silver production outside of the designated mine area.

Apart from the above transactions, Evolution enjoyed two wonderful tailwinds. The first tailwind was the decline in the Australian dollar from $US0.94 to $US0.74 over the past four years, and this equated to a 27% increase in the $A gold price, assuming the $US gold price was flat.

Second, the timing of purchasing the Ernest Henry interest was just about perfect with the 40% increase in the copper price in the ensuing two years.

Evolution now has 14.24 million resource ounces of gold, 7.05 million reserve ounces, an average nine-year mine life and the company is spending selectively to strengthen its outlook.

Jake Klein doesn’t like sitting still, and given the very low indebtedness and strong cash flow, we are likely to see more corporate deals.

Written by Roger Montgomery

Roger Montgomery

Roger Montgomery is the chairman and CIO of Montgomery Investment Management.

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