Evolution Mining Limited (EVN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. It's 11:00 in Sydney. And as we have a quorum present on the online platform, I'll declare the meeting open. My name is Jake Klein, and I'm Evolution's Executive Chairman. On behalf of the Board, it is my pleasure to welcome our shareholders, proxy holders and guests and employees to the first virtual AGM of Evolution Mining, especially those attending our AGM for the first time. It has been a remarkable year, COVID, the trauma, the tragedy. I really do hope you're all doing well. Your families are managing through this with you and your colleagues. I really hope you're well and healthy. It has necessitated the virtual nature of today's proceedings, which is unprecedented, and we're doing so in the interest of the health and safety of you, our shareholders, and our people and in line with the current regulatory guidance. Evolution respects and supports the indigenous communities in which we operate, both in Australia and Canada. And I acknowledge the Gadigal people of the Eora nation on whose land we meet today. I pay my respects to their elders, past and present, and also to all aboriginal and Torres Strait islander people here today. Firstly, I would like to introduce your Board members. With me in Sydney, and he really is live and exclusive, is our Finance Director, Lawrie Conway, and Chief Financial Officer. The rest of the Board are joining us virtually and will demonstrate that we really are a global Board. Jim Askew is on the line from Denver, Colorado. Tommy McKeith and Andrea Hall are joining us from the Republic of Western Australia in Perth. These directors are all up for reelection this year. Jason Attew is dialing in from his hometown in Vancouver, Canada, apparently closed due -- in lockdown at the moment. Vicky Binns is joining us from Sydney, and Pete Smith is on the line from sunny Queensland and assured me that he will be wearing a suit today. All 3 of these directors joined the company after the last AGM and are up for election today. With us in Sydney also live is our company Secretary, Evan Elstein. Evan is also the VP Information Technology. Evan, you will hear from in a few minutes, and he'll outline the procedural and technology aspects of the meeting shortly. Bryan O'Hara, also here live and present is our GM Investor Relations, who will moderate shareholder questions throughout the AGM. Joining us virtually today are many of our employees who proudly wear an Evolution shirt each day are, in fact, also almost all shareholders of our company. From our Red Lake gold mine in Ontario, Canada and right across our great continents in Australia, Cowal in New South Wales, Mt Carlton and Mt Rawdon in Queensland, Mungari in Western Australia and our group office here in Sydney. Also attending today's meeting in person is Marc Upcroft from PwC, our external auditor. Marc will be available to answer any questions you have about the audit of the financial statements later in the meeting. My understanding from speaking to Marc earlier is he has not yet had a question from shareholders in all his time as the audit partner at PwC and is looking forward to one today. The order of proceedings for today will be as follows. We will work through the formal business of the meeting pursuant to the agenda set out in the Notice of the Meeting that was issued on the 23rd of October 2020. After all of the agenda items have been dealt with, we will address any other general questions from shareholders before closing the meeting. Before my address and the formal business of the meeting, I will hand over to our company Secretary, Evan Elstein, to note some of the procedural and technology matters for today's meeting. Thanks, Evan.

Good morning, everyone. An online virtual meeting guide, which explains how shareholders may participate in the meeting, was released to the market on 23 October 2020 and is available on the Evolution Mining website. If you are participating via the AGM online platform, you will see a screen showing a video stream on the left and presentation slides on the right. [Operator Instructions] At the bottom of the screen, there are 3 boxes. These allow you to get a voting card, ask a question and download the Notice of Meeting and Evolution Mining Annual Report for 2020. The buttons, Get a Voting Card and Ask a Question, are replicated at the top of the page in red. Thank you to those shareholders who have submitted questions prior to the meeting. We will address these later in the meeting after the formal business has been concluded. [Operator Instructions] There is a character limit of 512 for written questions. To ensure you have enough time to type and submit your question, you are encouraged to type this now instead of waiting until later in the meeting. We will, however, save asking each question until the relevant item of business. Questions that are relevant to the business of this meeting will be read aloud to the Chairman and the meeting by Bryan O'Hara, General Manager, Investor Relations. We may choose to aggregate questions if we receive multiple questions on the same topic. I'll now summarize the voting procedures. All items of business will be voted on by a poll, which is now open. If you did not cast your vote prior to the meeting, you may cast a live vote using the online platform at any time during the meeting. Please click on the, Get a Voting Card button. Live voting on the online platform will close 5 minutes after the close of the meeting. The Chairman will give you a warning when this 5-minute period starts. At the conclusion of the AGM, you will see a red bar appear along the top of the online platform with a countdown timer of how long you have remaining to cast your vote. You must be logged into the online platform to cast a live vote. Please complete your vote by selecting the required voting instruction, that is the: for, against or abstain voting buttons. The total number of votes that you are entitled to will be listed under each resolution. When you enter the number of votes, it will automatically tell you how many votes you have left. Proxy holder votes will only be applied to undirected votes. Directed votes will be applied as per the voting instructions provided by the shareholder. Once you have finished voting on each resolution put to the meeting, scroll down to the bottom of the box and click on Submit Vote. Once voting has closed, all voting cards will automatically be submitted and cannot be changed. I confirm that where undirected proxies have been given to the Chairman, he intends to vote in favor of the resolution to the extent permitted. During the meeting, we will display on the presentation slides a number of direct and proxy votes received prior to the meeting on each resolution. These numbers will be as at the closing time for receipt of proxies, which was 11:00 a.m. Sydney time on Tuesday, 24 November 2020. The final results will be released to the market as soon as they are available. If we experience any difficulties using the online platform, a help line number is displayed at the top of the page. That number is 1 (800) 990-363. Link Market Services is the returning officer for this meeting, and I will now hand the meeting back to Jake to deliver the Chairman's address.

Thanks, Evan. At our recent Investor Day, on 1st of September 2020, we made the case for a rising gold price. Even before the outbreak of COVID-19, fiat currencies have continuously been debased as government deficits around the world have grown. This COVID-19 pandemic has undoubtedly exacerbated this issue and has resulted in massive fiscal and monetary response in an attempt to address the devastating economic impact. Recent progress in developing an effective vaccine is great news for everyone. Although the gold price has sold off in response to this news, the hopes of an accelerated economic recovery for -- in the hopes of an accelerated economic recovery, we believe the long-term case for gold remains robust with ongoing government support still required across many of the world's major economies. Notwithstanding this very positive outlook for gold, I do believe that the industry needs to be laying the foundations today for stronger, more resilient, more profitable gold companies in the future. This objective is at the core of Evolution's strategy. Our strategy recognizes that we're investing your money, shareholders', and for every dollar we spend, we need to achieve an appropriate risk-weighted return. If we cannot be confident of delivering this, we should not be making the investment. The gold industry's track record has been particularly poor in this area as capital has been allocated to marginal projects that only deliver returns if the gold price continues rising. At Evolution, we seek to differentiate ourselves by focusing on delivering the best, long-term, sustainable returns via both capital growth and dividends. We predominantly focus on the bottom line cash flow metrics rather than top line production growth. It is the bottom line where long-term shareholder returns are created, not the top line. The sustainability of these returns is determined by the quality of the company's assets. And our calculation of resource and reserves using a very conservative gold price of AUD 1,450 an ounce for ore reserves and AUD 2,000 an ounce for mineral resources ensures that when we are mining gold, we are generating appropriate returns on the ounces we produce. Our strategy is centered around our ambition, to be the premier mid-tier gold mining company, operating 6 to 8 high-quality assets in tier 1 jurisdictions. We do not have ambitions to become a gold major because the mid-tier space offers the best returns to shareholders. This is based on the premise that mid-tier gold companies generate enough cash flow to fund their own growth and returns dividends to shareholders, yet they are also small enough where a discovery can make a significant difference to the company's value. It is a simple strategy and is founded on 4 key underpinning philosophies: people and culture, sustainability, location and quality. I'll briefly cover each of these areas separately now. Firstly, people and culture. The most important asset our company has is our people. We are indeed fortunate to have a group of passionate, hard-working, talented people, who, together, make Evolution a very special company. Keeping every person safe must continue to be our highest priority. At Evolution, we aspire to make every person's time at our company, no matter what their job, a highlight of their career. This requires providing opportunity for our people to develop and grow. I'm particularly pleased and proud that in the 2020 financial year, over 50% of our appointments have been from internal candidates stepping into new, bigger roles. Our graduate program that has been running for the last 7 years has been identifying and developing the future leaders of our company and the industry. At Red Lake, we are developing a winning team for this very important asset. Today, I'm delighted to announce that Kirsty Liddicoat has been appointed as our new General Manager. At the same time, I want to acknowledge the outstanding job that Amber Adams has done for us. When we acquired the asset, Amber put a hand up to be the interim General Manager and has guided the mine through its first phase as an Evolution site, courageously implementing a number of important organizational changes that will support the long-term future and success of the operation. Amber will revert to her role as the Commercial Manager. Kirsty joins us with over 15 years as a Mine and Operations Manager for major mining, oil and gas companies in Canada and Australia. She has extensive experience in both open pit and underground operations in gold, iron ore, copper, coal and bauxite with a track record of improving culture and productivity while implementing major cost reductions and efficiency improvements. Next, I'd like to discuss sustainability. We recognize expectations are changing from our 3 key stakeholder groups: our shareholders, the communities in which we operate and our employees. In the global context, this is both reasonable and appropriate. We are ready, and our approach will continue to be adaptive and responsive. The focus on ESG issues is rapidly increasing, and I do think that the industry's response to this is pivotal to its long-term future. If you overlay this onto the reality that making major, new gold discoveries is becoming increasingly more challenging and gold mines are becoming more expensive to build and operate, in our view, the solution should maybe be a sector that is accepting that its future may be best served by producing fewer ounces with a focus on quality rather than quantity. The great work we are doing in building a sustainable business is getting greater recognition, including in our recent inclusion in the Dow Jones Sustainability Index Australia, where our performance scores continue to climb, and we remain one of only 2 gold companies in this index. Thirdly, as the old adage goes, "Location, location, location." We live in a world where significant geopolitical fault lines are undeniably growing. The cooperative globalization phase that has been present since the end of the Cold War appears over, and the reemergence of populism and nationalism should concern every investor. The past playbook of gold companies looking to expand their business has been to seek this growth in developing countries, places where the geology is considered prospective and underexplored and where labor costs are cheap. This is often a successful strategy in an orderly world. Today, an investor must consider not only the discontent and instability that has been exacerbated by the COVID-19 pandemic in many developing countries but also the growing influence of China, both at a government level and as a competitor at a corporate level, particularly in Africa. All seasoned participants in this sector have seen multiple examples of massive shareholder value destruction because of unanticipated government intervention. We have seen it in many countries, including Indonesia, the Philippines, Tanzania, PNG, the DRC and, more recently, in Mali. Avoiding these risks is at the core of Evolution's decision to exclusively focus on the tier 1 jurisdictions of Australia and Canada, where the rule of law can be relied on. And finally, at the core of our strategy is quality, a belief that margin matters most. This, as you know, is a cyclical industry, and in the good times, we need to be making exceptional profits like we are today. But when the gold price is lower, we still need to be making an above-average return on our shareholders' capital. This is no different to any other business. Every dollar of your money, our shareholders, that we invest must generate a return commensurate with the risk we are taking, not because the gold price has gone up, but because we have invested wisely and have added value. Resources per share, reserves per share and dividends per share are great indicators of value creation. The quality of our assets and discipline on margin are reflected on our performance with all of these important metrics showing a strong, positive trend. Shareholders should directly benefit from value creation, not only through capital growth, but also from their share of cash flow. At Evolution, we have paid 15 consecutive dividends. In the 2020 financial year, we generated AUD 726 in cash flow for every ounce we produced and returned $365 per ounce, a little over half of that cash flow, to our shareholders. Cumulatively, we have returned $732 million in dividends over 7.5 years. We have built our company by executing a clear and consistent M&A strategy, and we will continue our search for acquisition opportunities that improve the quality of our portfolio but, importantly, are also accretive to you, our shareholders. During the 2020 financial year, we continued to advance the strategy, which resulted in a record net profit after tax of just over $300 million from the production of 746,000 ounces of gold. Our all-in sustaining cost of AUD 1,043 an ounce, or USD 700 an ounce, for the year ranks Evolution as one of the lowest-cost gold producers in the world. Total dividends of $0.16 a share or $273 million was returned to shareholders based on our policy of aiming to pay out 50% of free cash flow to shareholders wherever possible. Highlights for the FY '20 year across our business included an 18% reduction in our total recordable injury frequency, more exciting exploration results and resource growth at Cowal, record cash flow from Mungari and exceptional cash generation from Ernest Henry. Critically and very importantly, we were able to successfully respond to the risks posed by this COVID-19 pandemic with professionalism and resilience, preventing the virus from having any material impact at any of our sites. We continue to upgrade the quality of our portfolio through the acquisition of Red Lake in Ontario, Canada, actually a deal announced 1 year exactly to the day, and the divestment of the shorter life -- mine life asset, Cracow, in Queensland. Soon after the completion of the Red Lake acquisition, we updated the mineral resource to comply with the JORC Code, which resulted in a major upgrade to 11 million ounces. Red Lake is now the largest and highest-grade asset in our portfolio, and our long-term objective is to produce 300,000 to 500,000 ounces per annum from this operation on a sustainable basis. In conclusion, at Evolution, we have a strong clarity of our vision and purpose. Our commitment to ethical values ensures we demonstrate respect for our people, communities and stakeholders. We have a culture that is inclusive and celebrates our differences, always acting with integrity and maintaining humility in our successes. We have a strong understanding of our core DNA. We know who we are. We know our strengths and our weaknesses, how we want to act and what we want to achieve. This is embodied in our people and our culture. I'd like to thank Cobb Johnstone who stepped down from the Board in March 2020. We sincerely appreciate the significant contribution Cobb made to the company during his time as a director, including several years in the role of Lead Independent Director and wish him all the best for the future. I'd also like to warmly welcome Jason Attew, Vicky Binns and re-welcome Peter Smith back to the Board. They all joined the Board as nonexecutive directors during the year. Ladies and gentlemen, thank you for your ongoing support of our company. As I've just outlined, we are confident in our belief that we have a clear strategy and pathway for the ongoing success of Evolution Mining. I'll now proceed to the ordinary business of the meeting as set out in the agenda, which appears in the Notice of the Meeting. The notice was dispatched to shareholders on Friday, the 23rd of October 2020. And accordingly, this meeting is deemed to have been properly convened. As a reminder, if you have a question that you would like to ask, you may type your question into the online platform at any time, adhering to the character limit of, what, 530 characters. The first item on -- for the first item on the agenda is to receive and consider the financial statement of the company for the year ended 30 June 2020. The annual financial report of the company for the year ended 30 June 2020, together with the associated reports of the directors and auditors, has been made available to all shareholders electronically or in hard copy. I will ask the company Secretary to record that the report was tabled at the meeting. As noted before, the company's auditor, PwC, is represented today by audit partner, Marc Upcroft. And if there are any questions specific to the conduct of the audit, the preparation and content of the auditor's report, accounting policies adopted by the company in relation to the preparation of its financial statements and the independence of the auditor in relation to the conduct of the audit. There is a separate agenda item dealing with the remuneration report, and I will address any questions about remuneration matters when we consider that item of business. I will now take questions received through the online platform on the financial statements, the performance of the company over the year, the directors' reports or the auditor's report. Bryan O'Hara, our General Manager, Investor Relations, will read out any questions. Bryan, are there any questions?

Jake, there are no questions on this item.

Marc, it seems like you got off lightly again. As there are no questions on the financial statements, I will now proceed to the resolutions as set out in the Notice of the Meeting. We'll display the presentation slide -- on the presentation slides the number of direct and proxy votes received prior to the meeting on each resolution. I now go to resolution 1 of the agenda. The resolution to adopt the remuneration report is set out in full on the screen and in the Notice of the Meeting. I will take the resolution as read. Bryan, are there any questions?

Jake, we do have a question on this first resolution. "What measures have you taken to retain liquidity during the pandemic?"

Is that liquidity of...

The balance sheet.

The balance sheet. Lawrie, I may turn that over to you if you'd like to answer that question.

Thanks, Jake, and good morning, everyone. During the pandemic, at the start of it, we took a detailed review of our balance sheet to make sure that we have liquidity. We've got a -- pardon me, a $300 million revolver facility that is fully undrawn. We looked at what would be the impact of any of our operations going into a suspension mode and how much cash we would require, and we, obviously, also had a significant cash balance in the bank at the time of the pandemic starting. And through all of those testings of the balance sheet, we were able to show that we had sufficient liquidity through this. And in the last 6 months, our cash balances continued to build, getting closer up to $400 million as at now, and we've still got the undrawn revolver. Thanks.

Thanks, Lawrie. There's no further questions on this item.

Thanks. As there are no further questions, and that was a great question, it got Lawrie up to the podium, I'll now proceed to the next resolution. Resolution 2 has been withdrawn as it was conditional on resolution 1, which received overwhelming proxy vote support and is therefore not required to be put to the meeting. The next few agenda items relate to the election or reelection of directors. We have 3 new directors appointed since the last AGM, who complement and add to the existing skill -- mix of skills, experience and expertise on the Board to represent and serve your best interests. There are a number of resolutions to go through over here, and that means that this meeting is probably longer than next year's meeting is likely to be. I now go to resolution 3 of the agenda. The resolution to appoint and to elect Mr. Jason Attew as a director of the company is set out in full on the screen and in the Notice of the Meeting. Jason, having been appointed as a director since the last Annual General Meeting and who retires in accordance with clause 8.1(c) of the constitution of the company and being eligible for election is seeking election as a director. Jason was appointed to the Board as a nonexecutive director on the 1st of December 2019 and serves as a member of the Audit and the Nomination and Remuneration committees. Jason brings great knowledge, experience and understanding of Canada and the whole global mining sector, and I can assure you has already made a very significant contribution in his short time on the Board. A biography of Jason is provided in the Notice of the Meeting, and I now invite Jason to say a few words in support of his election.

Thank you, Jake. My name is Jason Attew, and I'm pleased to join you from Canada. This is my second Evolution Annual General Meeting but my first in an official capacity having been appointed to the Board on the 1st of December of last year and having stepped into the very big shoes left by the retirement of Mr. Graham Freestone, who, as most of you know, was one of the inaugural directors of Evolution. By way of background, I've dedicated over 25 years to the metals and mining sector, having been both across from some of the most formative and transformational merger and acquisitions in the sector, including the largest precious metal transaction by value in the Newmont-Goldcorp merger. Not only have I served in an advisory capacity during my many years in investment banking but also bring a wealth of operational knowledge from my C-suite role at Goldcorp, a leading North American senior gold producer prior to its acquisition by Newmont. The operational role provides expertise and a value-added lens to Evolution in areas of capital management and governance, financial controls and reporting, risk management, integrated value assurance, stakeholder consultation, capital markets and regulatory compliance. It has been and is a genuine privilege and honor to serve on a Board whose leadership and diversity and composition fosters an environment that not only encourages an open discussion on all issues but also provides the ability to provide a dissenting view in the spirit of cooperative exploration. This, in my mind, has been the reason that Evolution has succeeded in the steady value creation that shareholders have benefited from to date and will continue to benefit from in the future. Jake?

Thank you, Jason. I'll now address any questions on this item of business. Bryan, are there any questions?

There are no questions for Jason.

As there are no questions on this item of business, I will now proceed to the next resolution. I'll now go to resolution 4 of the agenda. The resolution to elect Mr. Peter Smith as a director of the company is set out in full on the screen and in the Notice of the Meeting. Pete has been appointed as a director since the last Annual General Meeting and retires in accordance with clause 8.1(c) of the constitution of the company being eligible for election is seeking election as a director. Pete originally served on our Board as a founding director, and I'm extremely pleased that he has agreed to rejoin us. A biography of Pete is provided in the Notice of Meeting, and I will now invite Peter to say a few words in support of his election. Pete is on the phone from his hometown in sunny Queensland.

Thank you, Jake, and good morning all. My name is Peter Smith. As you may be aware, and as Jake has related to you, I was a foundation member of the Board of Evolution when the company was initially constituted in 2011. That position was created as a Newcrest nominee. On leaving Newcrest, it was appropriate in the circumstances that I resigned my position with Evolution. Having now retired from executive management work, I'm extremely delighted that the Board has seen fit to offer me the opportunity to return as a nonexecutive director. I've been in the resources industry all of my working life, having started work as an underground coal miner back in 1976 with CRA and progressing to a mining manager level before making the transition out of coal and into the hard rock industry in 1995. A broad summary of the past 25 years looks like 10 years in general management leadership positions with WMC and Ensham Resources; Chief Operating Officer of Lihir Gold; Executive General Manager, Operations for Newcrest, responsibilities for the Australian, African and Indonesian operations; Executive Vice President of ICL Potash Global based in Israel; and finally, CEO of Kestrel Coal Resources. I believe that I have the skills and experience across all facets of the Evolution business that will support the future development of the company and contribute to ensuring the highest standards of corporate governance and social acceptable behavior achieved from all of our stakeholders. Thank you, Jake.

Thanks, Peter. I really do believe we're indeed fortunate that you've agreed to rejoin the Board. I'll now address any questions on this item of business. Bryan, are there any questions?

Jake, there's no questions for Peter.

As there are no questions on this item of business, I will now proceed to the next resolution. I now go to resolution 5 of the agenda. The resolution to elect Ms. Vicky Binns as a director of the company set out in full on the screen and in the Notice of the Meeting. Ms. Binns, having been appointed as a director since the last Annual General Meeting and who retires in accordance with clause 8.1(c) of the constitution of the company, being eligible for election, is seeking election as a director. Vicky was appointed by the Board as a nonexecutive director on the 1st of April 2020, that was the day we actually got ownership of Red Lake, and serves as a member of the Audit Committee. Vicky brings to the Board over 35 years of experience in global resources and financial services sector. I think I met Vicky for the first time when we were at Macquarie together when we were both a lot younger and is a very valuable addition to the Board. A short biography of Vicky is provided in the Notice of the Meeting, and I now invite Vicky to say a few words in support of her election, calling from Sydney.

Thank you, Jake, and good morning to everybody. My name is Vicky Binns, and I'm delighted to have been asked to join the Evolution Mining Board and be up for election today. I look forward to serving Evolution shareholders and our other key stakeholders, including our employees, our customers, our suppliers and the communities in which we operate. I was drawn to Evolution by its entrepreneurial spirit, its countercyclical investing and its value, traits that very much mirror my own value. I'm a mining engineer by background and have had more than 35 years' experience in the resources and financial services sector, including 6 years as a petroleum engineer and an oil trader with Esso, 15 years as a resources equity analyst with Macquarie Bank, followed by Merrill Lynch, including stints as the Australian Head of Research and the Global Head of Mining, Metals and Steel Research when I was at Merrill Lynch. I then had more than 10 years in various senior leadership roles based in Singapore with BHP, culminating in leading the marketing minerals business, where we generated annual revenue more than USD 40 billion. I believe my technical, financial, strategic and commercial experience gives me a unique perspective on issues that Evolution will face in its future and add value to the debate around the Evolution Board table. Jake?

Thanks, Vicky. Bryan, are there any questions?

There's no questions for Vicky.

As there are no further questions or no questions on this item of business, I will now proceed to the next resolution. I now go to resolution 6 of the agenda. The resolution to reelect Mr. Jim Askew as a director of the company is set out in full on the screen and in the Notice of the Meeting. Jim, being a director who retires in accordance with clause 8.1(d) of the constitution of the company and being eligible for reelection, is seeking reelection as a director. Jim was first appointed to the Board in October 2011. Prior to that, he was on the Board of Conquest. He serves at Evolution on the Chair of the Risk and Sustainability Committee. Jim has been a personal friend and mentor, probably the most influential person to me in my career for over 2 decades, and I cannot thank him enough for that. I, together with the Board, appreciate his wide-ranging contribution to the Board discussions, and I can assure you that we are incredibly fortunate to have Jim's perspective on so many issues at the company. The biography of Jim is provided in the Notice of Meeting, and I now invite Jim to say a few words in support of his election. Jim is on the phone from Denver, Colorado.

Thanks, Jake, and good morning, everybody. I'm Jim Askew, and as Jake mentioned, I'm a founding director of the company and of Conquest, the predecessor company. I'm seeking reelection on the basis of my career in the global mining business, encompassing leadership and Board roles, and that I remain very actively -- active internationally in the gold industry. In my nonexecutive director capacity at Evolution, I have championed management focus on operation, leadership, all matters ESG and growth of the company. I'm very proud of the achievements of our management, their professionalism, team spirit, rounded values and their integrity. And believe me, they're just getting started. Thank you, Jake. Sorry, I can't be with you today. Thanks.

Thanks, Jim. I believe you're headed to quarantine shortly when you come back to Australia. We may send you some food parcels. Bryan, are there any questions on this resolution?

There's no questions for Jim.