Evolution Mining Limited (EVN.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Evolution Mining FY '25 Full Year Financial Results. [Operator Instructions] I would now like to hand the conference over to Mr. Lawrie Conway, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, Kaley, and good morning, everyone. I'm joined on the call today by Matt O'Neill, our Chief Operating Officer; and Peter O'Connor, our GM, Investor Relations. Today, we released our FY '25 full year financial results and an excellent set of results they are with many new records established and increased returns for our shareholders. These results were achieved through the efforts of our employees and contractors who I sincerely thank for their contribution during the year. To release our financial results today has also taken many long hours by the Finance and Investor Relations team, so an extra special thanks to them. I'll be talking to the presentation we released on the ASX this morning. Slide 3 summarizes well the benefits of safely delivering to guidance, maintaining a strong cost and capital discipline and banking the cash in a high middle price environment. Our statutory profit was up 119% to $926 million, and our underlying profit doubled to $958 million. Our earnings per share of $0.46 per share was up 111%. All of these are records. EBITDA or operating cash flow was also a record at $2.2 billion at a very strong margin of 51%. Our group cash flow of nearly $800 million was a record and an improvement of 114% on last year against only a 35% increase in the gold price. With the improvement in cash flows in the balance sheet position, we have today announced a final dividend of $0.13 per share fully franked, which is about 3x last year's dividend. Therefore, our shareholders are benefiting for the quality of our portfolio, including the successful progressing of key projects at Mungari and Cowal, which enable us to sustain these types of returns. I'll remind you that these record results have been delivered at an achieved gold price that was $800 per ounce below the spot price, which is very promising for FY '26. Moving to Slide 4. We've said this for many years now that sustainability is integrated into everything we do, and the results in FY '25 show that this work is paying off. Our TRIF of 5 improved 35% over the prior year and reached its lowest point, meaning we delivered our plan with a strong focus on safety. We are tracking well on our net-zero commitment. We are now over halfway towards our 30% reduction by 2030 at 16%. We're also making sure that the communities where we operate are benefiting from our presence and our success through the delivery of at least 6 high-impact community projects over the last year. Turning to Slide 5. And this is probably the -- one of the best slides in the deck. We're continuing to demonstrate that our margin over ounces approach is working with high margins at all levels, be that EBITDA, operating mine cash flow, net mine cash flow and group cash flow. The chart on the top right shows that we are banking the upside of the high price achieved last year with a margin ranging from $1,050 (sic) [ $1,049 ] to $3,050 (sic) [ $3,049 ] per ounce. As I said earlier, these were all delivered at an achieved price that was $800 per ounce below the current spot. Every $100 per ounce equates to $70 million to $80 million additional cash flow and remember that 50% of this goes to shareholders per our dividend policy. Importantly, our portfolio is delivering great cash margins with an EBITDA margin ranging from 37% to 64% and the group average of 51%. Some highlights for the year included our cash Cowal operation generating $885 million. Northparkes has delivered $182 million of net cash in the first 18 months of ownership, while Red Lake had a full year net positive cash flow of $74 million. Most importantly, with an average mine life of 18 years and a sector-leading cost position we can sustain these margins and cash flows over the long term. To Slide 6. We said last year as our gearing improved from 33% to 25% and we would start increasing our returns to shareholders. We have met that commitment. Our 25th consecutive dividend of $0.13 per share fully franked is a record as is the full year dividend of $0.20 per share. Both are about 3x last year's dividend. It equates to about $400 million, which is approximately 32% of the total of all dividends up to 2024 being paid in 1 year. The DRP will be available for this dividend. Our balance sheet is in excellent shape with our investment-grade rating reaffirmed last month in the normal annual review process. Our record financial performance improved our gearing to 15%, and we are back into the normal operating gearing range. We should remember that our gearing was 25% at the start of the year which means we have improved by 10 percentage points or reduced it by 40%. We are basically unhedged, meaning we benefit from the current spot price, and then with our low-cost position, we can adequately withstand a drop in the gold price. Moving to guidance on Slide 7. Our group guidance was previously announced last month. Today, we have provided detailed guidance by operations, and this is contained in the appendix of the presentation pack. As I said last month, FY '26 is expected to be similar to FY '25, where we are planning to safely deliver high margin, significant cash flow. I'm not going to go through the details again, but do want to reiterate a few things. Our all-in sustaining cost will see us remain as one of the lowest cost producers in the sector, and we continue to control our costs. Our group capital investment will be around $200 million and $100 million lower than our FY '25 investment at the midpoint and top end of guidance, respectively. We continue to have discipline in sequencing our capital projects. Our 5-year planned total capital investment remains unchanged at $750 million to $950 million per annum. However, the most important thing I want to highlight on this slide is the cash flow opportunity. At the midpoint of guidance and at the current spot price, we would generate over $2.75 billion and $2.5 billion of operating mine cash flow and mine cash flow before major capital, respectively. This is about 20% higher than FY '25. And remember, our shareholders would receive half of that extra $500 million cash flow in dividends over and above the $400 million that we declared for FY '25. I think it is very clear that we are ensuring our shareholders are going to benefit from this cycle. Finally, on Slide 8. I just talked about the rewards we're able to provide for our shareholders. This is because of our continued focus on safe and reliable delivery to plan margin over ounces and making sure the cash from the higher metal prices hit the bank account. By doing that, we've declared dividend that is 3x last year's dividend. We have a balance sheet with far greater flexibility but with the overarching discipline of sequencing the notable growth projects appropriately. Lastly, though we are going to be able to sustain this for many years, given we have an 18-year mine life from a high-margin portfolio of assets. With that, Kaley, please open the line for questions.

[Operator Instructions] Your first question comes from Kate McCutcheon with Citi.

Congrats on the results. And we like a concise load of opening comments. Can I just narrow in on FY '26 guidance at Northparkes, please. Can you just talk through the moving pieces for the lower gold production. You've got the open cuts that ended E48 sub-level cave coming this half. Is the lower gold to function of deliberate mine scheduling to maximize copper? And how do we think about that profile looking ahead?

Thanks, Kate. I'll give Matt the opportunity to speak on the call, but I'll just open it by saying that the lower gold production is linked predominantly to E31 and that is that there were 2 pits there. The gold dominant one was mainly processed in '25. And then the stockpiles, which will be the lower grade will come through in '26 and it won't be for the full year. Matt, do you want to just talk about the other mining areas going forward?

Yes. I mean like you said, that's the driver of the gold production. We still finishing off the E26 area and the E48 sub-level cave comes online. So the gold production is just really a sequence in that mining operation. It's not a conscious process at this stage in terms of trying to do that, but that's where it sits and then we'll work out what goes forward from there.

Okay. Cool. And then a similar question on Ernest Henry, I guess. Is that production lower a function of tonnes because of where you are in the cave this year? Or is it grade? Or I guess, how much ore do you expect to pull out from the 6.5 million tonne per annum shaft this year?

Yes. You want me to cover that one off, Lawrie?

Yes, Matt.

Yes. So [ this is the function of ] grade, not volume. The driver there is there's a section of the cave that we're working through that's got a barren part in it. And obviously, as a cave, you need to pull all of that. So it's just purely grade that's driving that variance at this stage. And it comes back as we come back over the next couple of years as well. It's not a permanent thing. It's just that when we work through those levels, we pull that through.

Okay. And just finally, so just the debt, the $280 million term debt that you've got left, what's the appetite to repay that early given the free cash flow? How do you think about that?

I'll take that one, Matt. Kate, the appetite there is strong. I mean, we've demonstrated that we're balancing investing in the business, paying down debt and increasing dividends. So you should expect that we'll continue to reduce that.

Your next question comes from Hugo Nicolaci with Goldman Sachs.

Congrats on a strong FY '25 and all the records that you set. First one for me, just the major project spend you've outlined for tailings storage facilities, vent raises and that sort of thing maybe just across the group, can you call out which of those major projects wrap up in FY '26? And what we should expect continues on into FY '27 and beyond?

Yes. Hugo, if I look at it, those ones, the Northparkes one will be over a couple of years. Ernest Henry will also be over a couple of years. And the metals work and tailings at Red Lake are more in FY '26 and a little bit in FY '27.

Got it. That's helpful, Lawrie. And then just one on exploration. I think you noted at the site visit Mungari is getting the largest share, but what is the group exploration budget for FY '26?

I'll come back to you through Rocky, but my view remembrance is that it's around $75 million for the year.

Got it. And do you expect that to sort of stay at that level going forward as you sort of drill out some more of these projects and fair amount of studies and things?

Yes. I think if we look at it at Mungari -- and from the previous site visits, people would understand the underground, you've got to keep reinvesting every year to have that incremental growth. So I think you won't see much of a change there. When we look at similarly at Red Lake, similar, it's very much like Mungari, where you've got to keep that drilling going. And at Cowal and Ernest Henry, it's really going to be based on where we are in the mines, particularly the underground where is it Northparkes, I think it will just be constant every year there.

Got it. And if I can squeeze in one more. So a similar line of question to Kate's around early debt repayments. You've also got the stream there. Is that something you'd consider consolidating back in as well and simplifying that arrangement at Northparkes?

No, I think if you look at it for Triple Flag, it's one of their most valuable streams. And so it's not something that we'd look to bring into there. I think we'll continue to work as we have with them collaboratively about what role the stream has in what we do with that operation and where we mine and what role they've got to play.

Your next question comes from Al Harvey with JPMorgan.

Another one on Northparkes. I suppose we are heading towards completion of the hybrid study in the coming months. Are you guys able to put a time frame on that. And I suppose just how you're thinking about the gold copper trade-off from going for a block cave versus sublevel cave. And then just a bit of a refresher on if -- how much of either scenario is incorporated into your $750 million to $950 million CapEx guidance over the next 5 years?

Thanks, Al. Good to see we've moved to looking forward in the financial results. So E22, look, the study is finished. We're discussing that with the Board now in the coming months and when we've made a decision or anything on that, we'll let it know -- we'll let the market know. In terms of our capital guidance of the $750 million to $950 million, we've allowed for that to be as a block cave for the feasibility study that finished last year, and that hasn't changed at this point. And that is because it allows for the higher capital intensity into our forecasting.

Great. Thanks, Lawrie. And apologies then. Another forward-looking one. Just with Mt Rawdon, low-grade stocks. Any help here on the throughput rate. Is it front-end loaded? And also if you've got any guide on when the ounces that might come out of a pump hydro cut back would flow through. I mean it's a fair bit longer dated, but just trying to get a steer here.

Yes, Jake, I'll be very glad that you asked about pumped hydro. So the second one, that is -- that's a few years off and it really relates to the work that Jake and the team are doing with the Queensland government around the solution for that project, which is advancing well with the government, and we expect that to sort of come to fruition in this financial year in terms of an outcome. In terms of this year, I mean, as you see in the guidance range, it's not a lot of production, that will run through probably until Q3, and it will just be consistent rates through until Q3.

Your next question comes from Matthew Frydman with MST Financial.

A couple of questions. I might firstly continue on Al's question on Mt Rawdon. Can you give us a bit more of a steer on I guess what the all-in sustaining cost for that asset looks like through FY '26, I guess, given that it's excluded from FY '26 guidance and maybe making a comment on -- obviously, all-in sustaining cost is one thing, but presumably, there's a lot of inventory charge in there. So what the actual sort of cash cost might look like? And then maybe also on timing, I mean, is there kind of an end date for the operation there and then sort of any care and maintenance costs that we should consider beyond that?

Yes, Matt. Look, firstly, the Mt Rawdon is not going to be deemed as a continuing operation for us. So we're not actually reporting the all-in sustaining cost because it's going to be extremely high, and it should not impact on the group AISC because it's using low-grade stockpiles and then your [indiscernible] asset in one year. So I'm not going to give you a number on that because we won't be reporting it. What I can say is that the cash contribution out of it, given it is all noncash on 15,000 to 20,000 ounces, you should expect that it will probably make about $1,000 an ounce based on our guidance assumption price and that will be pretty steady throughout the year. In terms of closure and rehab, we'll do a little bit in the back end of this year, but not a lot, and it will be in the future years in terms of that. But what I would say around that is that is very much linked to the pumped hydro because as a part of the agreement we're working with the government, those closure and rehab costs would be covered by the proceeds we receive for selling the pumped hydro project.

Yes, I understand. Okay. And thanks for the sort of steer on the cash margins there. Obviously, the risk is that analysts put the revenues from your production guidance in there, but not put any sort of cash costs associated with that production as well. So that's quite helpful. The second question and maybe looking at Slide 7. So obviously, a big kind of theme in the presentation today, which is understandable is -- the cash generation that you're expecting in FY '26? And clearly, on Slide 7 here, even if we back out growth CapEx and the corporate and central costs that aren't necessarily included in those bars, clearly, very significant cash generation to expect in FY '26 and no debt repayments. But I guess the question is that even if you return half of that through a dividend, the cash position is still going to clearly increase significantly. So I'm really trying to understand the rationale that drives the capital management decisions in the business. So firstly, where do you see cash as being accessed to your reinvestment needs given the context of that cash generation that you're expecting? And then how do you weigh up the attractiveness of using that excess cash to repay debt, relatively low cost debt, which you've highlighted as a priority compared to doing a buyback. Why isn't a buyback attractive but a discounted DRP and repaying relatively low-cost debt is attractive?

Yes, Matt. So question in short was what's our capital management plan. Is that what you're saying?

Yes. But more -- I understand that clearly, you're saying that you're going to prioritize repaying debt and that a 50% dividend is attractive. But I'm just trying to understand where you see that cash as being accessed to needs and why other options aren't more attractive than repaying that debt.

Sorry, Matt, I should have kept going, it was rhetorical. The focus is on that term debt facilities because it is our highest cost debt. So we'll continue to pay that. Then when we look at it as the USPPs come in and you can't prepay those. We've got one large lump sum that's due in FY '28. So we've got to make sure that no matter what the gold price is, we meet that repayment. So we always take that into consideration. We then also make sure that we've got adequate cash for if we have any issues similar to, say, the Ernest Henry outage we had a couple of years ago. So that's why we always want to make sure we've got that buffer. And we also want to make sure that we don't have to hold any of these projects as they get approved to go into execution because we want to make sure that Cowal OPC $430 million over the next 7 years, it's actually able to run unhindered by what's going on with the balance sheet. So therefore, we still believe that 50% of our cash flow back to shareholders is well liked by the shareholders. And as I said earlier on the call, we want to make sure that through this high-price cycle, that, that cash does flow back to them. we're able to invest in the business at the same time that the shareholders are going to see that this is sustainable through our 18-year mine life. And then as -- if the gold price stays at $5,100 for the next 12 months, it's a good problem for us to have when we're sitting down with the Board in 6 and 12 months' time to say, what's the next thing we do in terms of our capital management. But right now, we're not changing from that position of reinvest for the growth, pay off the debt and return 50% to shareholders.

Your next question comes from Daniel Morgan with Barrenjoey.

My question relates to Cowal and guidance. Might seem small, but I think Cowal is a little bit better on the production and the guidance and I think many had thought maybe perhaps yourself a few months ago. Can we just talk about what you're seeing at Cowal regarding the Stage H cutback, how that interplays with grade sequencing through the year? And is it slightly better than your expectations maybe a few months ago?

Thanks, Dan. I will hand to Matt other than to say that it's not really on the grade expectations. I think as we finished the year, we did well both from the open pit and the underground, and that gave us a good outcome. And then I think as we go into this year, we expect the Stage H into the March quarter, so probably a little bit longer. But Matt, do you want to maybe talk through Stage H into the cut back to Stage I stockpiles and the underground?

Yes. No, that's fine. I think what Lawrie just noted there, Dan, compared to maybe some of the early conversations Stage H is performing a little better for us. And so it will run through into that quarter, and you'll see a little bit extra above on that. The other items in terms of stockpile when we start to draw down on that after Stage H and then the underground are all pretty much in line, I think, with where we thought they'd be, underground has come up well and continues to do that. It's going to be a focus for us this year and over the future. It's where I think we can see some growth. So that's probably the key focus for us there. But in terms of variance to where you thought it might be, that's probably the only one is the Stage H has performed a little better over the back half of '25, and we expect that, like we said, to run through until March quarter.

So just drawing a little bit more on that. I imagine that you'll be mining more than you can process on Stage H during the first 9 months of this year, and so you'll have some high-grade stockpiles generated during that period which you'll unwind in perhaps the next couple of quarters after that? Is that a fair summation?

It is. A lot of the high-grade stockpiles again in relative terms but we do put the high grade through first and then the -- we'll work through the stockpiles after that. But yes, we we'll have -- we'll be working through those stockpiles. And look, you'll see -- you'll run those for 3 quarters, maybe a bit longer actually after that.

Yes, Dan, I mean, the short answer there is that highest grade material will go through the plant this year. We are not going to leave it on the ground as we finish Stage H and draw down the stockpiles, whatever comes out of Stage H, we'll end up predominantly through the plant this year. The highest grade will go first. And that's what's driving the all-in sustaining costs for the year.

And last question, just anything lumpy to note in your guidance through the year. I mean, obviously, you had a major shut at Cowal last year, which was sort of struggled that March, April period. Is there anything material that you'd like to call out that maybe people should think about on just sequencing grade or shots or anything through the year.

Matt, do you want to just touch on the key shutdowns because I don't think there's anything material other than that. Have we lost you, Matt?

My apologies Yes. No, I had -- still had my button pressed on mute in front of me. No, there's nothing that's materially lumpy as the normal shutdown processes every couple of months at the different plants probably one of the bigger items might be the Red Lake tails treatment plan, but -- and that was largely in the first quarter of this year. Outside of that, there's nothing that stands out. OPC will continue as per normal through the course of the year. Northparkes, we've got a couple of tailings lift in terms of the infill. But again, it should be relatively steady. And then Mungari would be the same Castle Hill and the normal bits and pieces. So no, nothing hugely lumpy, Dan.

The only thing just to take there, Dan, is the second half of the year. Mungari is when it ramps to the $200 million. So you see a pickup there. And then you obviously see some slightly lower at, say, Cowal and certainly at Northparkes as they finish processing the E31 material. So that's the only sort of thing you'd see second half versus first half. But when we look at a quarter-on-quarter at a group level, there's not going to be a lot of variability.

So our next question comes from Andrew Bowler with Macquarie.

I think you've answered most of the operational questions I had. So maybe just moving to some financial ones and noted that you might have to take some notice. But just sort of looking at your guidance for D&A for FY '26 up a little bit on a per ounce basis from last year. Can you just give us a bit of an indication as to where that will be for the next few years? Is that something you expect to be up at around $1,000 an ounce for the next few years? Or is there a roll-off expected to take place in terms of D&A, please?

Thanks, Andrew. The -- my answer to that is it would be good that we can continue to grow the resource base and therefore, you amortize it over a longer period. So that will be the one key driver to it. I think what you're seeing there is you've got the higher rates at Red Lake and Northparkes. But I think as we can grow the resource base, it will come down. I don't see it changing until that's in place. There's nothing else that's going to drive the D&A profile more than that.

Your question comes from Baden Moore with CLSA.

Thanks for the great results. I just noticed a lot of questions from the sector around -- or investors on cost inflation. And you've highlighted you've managed to control costs to sort of 4%. I was wondering if you had any comments on how you see costs moving more broadly in the global sector, whether you're sort of -- how much do you think you're outperforming or what are the key drivers from that perspective? And then just a second one would be just around your growth CapEx pipeline. I mean, you've got a lot of cash coming in. Do you think your plate is full in terms of your CapEx pipeline from an organic perspective at this point?

Thanks, Baden. In terms of cost inflation, I think when we look at it, labor is 50% of our cost base. We've got assets on the East Coast of Australia, West Coast and Canada. And they are a little bit different in terms of what's happening in the market. But overall, we'll see that moving 3.5%, 4.5% and it's 50% of our cost base. What will happen in the next 1 to 2 years after this year is going to depend on where inflation is in each of the economies and what is happening in terms of demand in the industry. So we believe that, that is about right. I mean our focus is heavily on the variable component. So we're able to keep it within a tight band that's linked to the inflation rates. There are other costs. We've seen some costs coming down in the last few months, but we're certainly seeing other costs keeping at or below CPI. So our expectations 4% this year, it was 5% last year on our operating costs, we would see it's probably going to be around the 3% to 4% for the next couple of years. And our focus is more around productivity. In terms of the CapEx, yes, we've got the capacity, yes, the prices are holding up. But I think our projects are well sequenced and that $750 million to $950 million isn't change as Mungari is just finished, Cowal will ramp up then next year, we've got a decision on Northparkes. So those projects are more around when we need to do them, not just because we've got the money and that's going to be the discipline we keep applying to it.

Your next question comes from David Coates with Bell Potter Securities.

Congratulations on a record set of results and expansion. Speaking of capital management, it's a bit of a philosophical question, but maybe an opportunity to, I guess, reinforce that message a bit. But we've seen some of your peers increasing -- sorry, lowering cutoff grades to extend mine lives or increased production, but potentially sacrificing margins. How do you guys kind of consider that sort of temptation, I guess, in the higher gold price environment?

Yes. Look, for us, that's not something that we heavily focus on, Dave. I mean we've lifted our MROR pricing this year in line with what's happened with inflation and the capital that's needed to bring those ounces on. But other than that, or $2,500 an ounce and spots $5,000 plus we're not doing that. Now as we mine out areas, certainly, we'll take material that if it's economic right now and put that through, but we're not really changing dramatically our mine plans just because of where the price is today.

Cool. And is that really just sort of that focus on maintaining margins as you sort of talked about a couple of times, quite a bit on the call?

Yes, I think that's right, Dave. If we look at it over the last 10 years, we've been able to outperform our peers in terms of margin year in, year out, and that's going to be maintained going forward.

There are no further questions at this time. I'll now hand back to Mr. Conway for closing remarks.

Thank you, Kaley, and thank you for everyone for joining us on the call today. We're very pleased to have delivered an excellent set of results for FY '25 and said about doing the same but at a higher gold price, delivering more cash this year and doing it safely. So thank you for your time.

That does conclude our conference for today. Thank you for participating. You may now disconnect.