Evolution Mining Limited (EVN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Evolution Mining Limited June 2026 Quarter 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, Ashley, and good morning, everyone. I'm joined on the call today by Matt O'Neill, our Chief Operating Officer; Fran Summerhayes, our Chief Financial Officer; and Peter Rocky O'Connor, our GM, Investor Relations. Today, we released our June quarterly report on the ASX, and this will be the reference point for the call. The June quarter rounded out a great year for Evolution. FY '26 saw us deliver into our group guidance, deliver record cash flows, move to a net cash position. And at the end of June, we are now fully unhedged. Our growth projects are on track and budget. We captured the benefits of the high metal prices while maintaining our discipline on costs and capital to be one of the lowest cost producers in the sector. We delivered the quarter and the year safely with our total recordable injury frequency of 5.9 remaining low. FY '26 built on the improved consistent performance of the past couple of years. We produced 715,000 ounces of gold and 66,000 tonnes of copper at an all-in sustaining cost of $1,717 per ounce. Combined production equates to around 910,000 to 920,000 gold equivalent ounces. We achieved group gold all-in sustaining cost and capital guidance for the year. The all-in sustaining cost was within the improved guidance issued during the year and below the low end of our original guidance. Our copper production was slightly below guidance due to the weather event in December at Ernest Henry. However, when you look at Ernest Henry's performance in the June quarter, it's best for the year, including record cash flow, it shows the true quality of this operation. The operational performance for the year included another good quarter in June, where we produced 180,000 ounces of gold and 19,000 tonnes of copper at an all-in sustaining cost of $1,706 per ounce, which is an improvement of 23% on the March quarter. We generated a record group cash flow for the year at just under $1.4 billion with $374 million delivered during the June quarter. The quarterly cash flow was generated against an achieved gold price that was 13% lower than the March quarter. The FY '26 group cash flow was on the back of record mine cash flows of $3.4 billion and $2.1 billion of operating and net mine cash flows, respectively. All operations were net cash positive for the year and the quarter. Looking at our cash flow on a margin basis is where you do see the quality of the portfolio. The chart on Page 1 of the report clearly shows our high margins, with our all-in sustaining cost margin at 71% and our group cash flow margin at 33%. These were achieved at a gold price slightly above the current spot price. For the year, this equates to a group cash flow of around $2,000 per ounce, which is extremely healthy margin considering this is after investing in our high-return organic growth projects. Even more important is that these margins are sustainable given our group reserve life of 15 years. Another benefit the margin chart shows is the diversification of metal. Copper comprises approximately 22% of our revenue. Our all-in sustaining cost margin improved from 67% to 71% between the March and June quarters. Quarter-on-quarter, the gold price achieved was 13% lower, while the achieved copper price was 3% higher and Ernest Henry was back to full production. This product mix definitely does help smooth our margin profile. Our cash balance at the end of June was $1.35 billion after paying our record interim dividend of $406 million during the quarter. We have no debt repayments due until FY '29. We head into FY '27 as an unhedged producer, having delivered the last of our hedged production during the June quarter. As mentioned earlier, all projects remain on schedule and budget. The Cowal Open Pit Continuation project sees mining advancing in the main open pit and work about to commence on the Southern Protection Bund. We'll be ramping up development of the E22 block cave at Northparkes and Bert at Ernest Henry. We will release our FY '27 guidance with our full year results on 19 August. As we finalize our plans, we can provide some information on the FY '27 outlook. No material changes to production capacity are planned other than the previously announced cessation of production at Mt Rawdon. Inflation remains elevated, and we are expecting a 4% to 5% impact on our FY '27 all-in sustaining costs equal to about $150 to $160 per ounce. With all operations having organic growth options and a group mine life of 15 years, we want to ensure long-term sustained operational reliability. To achieve this, now is the right time to allocate additional investment in fleet replacement and infrastructure. Our sustaining capital investment is likely to be $50 million to $60 million above FY '26. This capital was not in our previous outlook range, and we expect to invest at this rate for the next few years. Mine development will ramp up in FY '27 to support additional ore delivery from FY '29. The development will mainly be at Northparkes, Cowal and Ernest Henry, as mentioned earlier. Major mine development is expected to be $130 million to $160 million above the FY '26 level. However, this is timing related since this capital is within the original project budgets. Having finished FY '26 in a solid high-margin position, we're still on track to remain one of the lowest cost producers in the sector with good cost and capital discipline that will reward our shareholders through dividends in addition to the high returns to be generated from our organic growth pipeline. With that, I'll now hand over to Matt to take us through the operational performance.

Thanks, Lawrie. As already mentioned, the June quarter was another good quarter, resulting in us achieving full year guidance for gold, all-in sustaining cost and capital investment. And whilst our copper production was just below guidance, I am proud of the performance of the Ernest Henry operation, which is our major driver for copper. Over the June quarter, the operation delivered record operating cash flows and its highest quarterly production of copper for the year; all of this while completing recovery activities and dewatering the mine after the December rain event. Perhaps the aspect of this work that I'm most pleased with is that all of this was done without a single recordable incident, which is a testament to the team at Ernest Henry and the way they go about their work. Pleasingly, across all our portfolio, our safety performance remains in a healthy position, thanks to the tireless efforts of everyone in the business, and we will continue to maintain a keen focus in this area. At Cowal, we delivered record operating and net mine cash flows of over $1.2 billion and $852 million for the financial year. Gold production for the quarter reflected an increased volume of stockpiled ore processed due to higher-than-forecast rainfall and an additional mill shutdown, which will partially reduce shutdown time in the next financial year. During the quarter, we successfully completed mining E42 Stage H, commenced the next cutback for E42 and progressed the new E46 pit ahead of plan. Over the next 18 months, we will see minor impacts at Cowal from the transition in E42 to Stage I through an increased volume of stockpiled ore processed. Development of the second underground portal at Cowal is on track for completion by the start of the second half of the next financial year. The completion of this portal will create opportunity for further productivity improvements from the underground mine. Red Lake and Northparkes had solid quarters and strong fiscal years, consistently delivering in line with plan with both generating record operating and net mine cash flows over the year. At Northparkes, the organic growth projects progressed well, and we completed our planned maintenance shutdown in the processing plant. The highlight for Red Lake has been its consistent performance and cost control over the last few years. Red Lake has now produced greater than 30,000 ounces and have been net cash positive for the past 5 quarters. It generated $286 million of net cash flow for the year, meaning it delivered around a 20% payback of total capital invested to date in 1 year. Mungari finished the financial year with record gold output on the back of the successful ramp-up of the mill. The key drivers for the June quarter's performance were the planned mill shutdown and the continued power outages in the region. Over the quarter, we also saw costs impacted by diesel increases and ore sorting trial and an increase in sustaining capital with the delivery of replacement mobile fleet. In wrapping up the operational performance for financial year '26, we delivered to guidance on our key metrics, which allowed us to generate record cash flows on the back of strong gold and copper markets. Looking forward to the '27 financial year, we look to continue the theme of reliably delivering to plan. I'll now hand back to Ashley so she can open the line for questions.

[Operator Instructions] Your first question today comes from Kate McCutcheon with Bank of America.

So we've got some FY '27 CapEx expectations and on my math, it will be above the top end of that $1.1 billion range you gave us earlier, excluding exploration, even if I stripped out that sustaining cap. Can you just talk me through that delta and spend what's being pulled forward? That would be great.

Yes. Sure, Kate. Thank you. So I'll start with the mine development. That capital next year, as I said, around up to $160 million is actually the development that's needed for us to get to the ore in FY '29 for those projects at Cowal, Northparkes and Ernest Henry. So that is timing in terms of it's spent next year so that we get the ore. So that's within that $1 billion to $1.1 billion capital over the next 3 years. So that's timing. If I look at sustaining capital, the $50 million to $60 million that we've talked about, that is new. And then in terms of the studies capital that we're looking at for projects for beyond FY '30, that is also new. And that's the 2 main ones that come into the capital guidance range for next year when we finalize it.

Okay. Cool. And then you called out organic growth options in your '27 LOM with that $70 million to $90 million that you're going to spend. What are those studies? Or is there anything new and I guess, exciting that we're not familiar with that we might not be thinking about?

Look, I mean, I think if we look at it, as we know with Cowal, as we advance through in the underground drilling results that we're seeing there, the work that we're doing between E41 and E42, therefore, it gives us an option to look at plant capacity at Cowal. I think there's other options at Ernest Henry around making sure we can keep filling that mill. And then we're certainly looking at some upside potential at Mungari based on the drilling results we're seeing over there in terms of the mix of underground and open pit material. And then I think across the entire portfolio, where Nancy and the team are looking at is how can we get better recoveries than what we're currently achieving. So there's a mix of all of those sorts of projects that we're looking at.

Your next question comes from Jonathon Sharp with JPMorgan.

Congratulations on the year. My first question, just Ernest Henry. So hoisting is expected to be around 10% below capacity next year or this year as you catch up in development. Can you just quantify the likely impact on gold and copper production, explain whether it's concentrated in the first half and just maybe confirm when you expect to return to full capacity?

Yes. I'll get Matt to talk through what we're doing there operationally. But I think if you look at it year-on-year, given that we were out for a quarter in FY '26, and we're planning to operate for the full quarters this year -- that's what Matt's told me, then you'd probably see more than an offset there. But do you want to just talk about the development focus, Matt?

Yes. So essentially from the rain event, what we saw was that we had the lower levels where our development was flooded, not the production levels. So we've caught back up and we've dewatered those areas. We now need to focus in on the development to get ourselves in front on the next few levels. The mining method at Ernest Henry is a sublevel cave. So what we want to get back into is having 3 levels operating concurrently. With the restrictions we had over the -- after the rain event, we are running at 2, and we want to get our development ahead and our levels developed out in front. So there'll be some more development activities over at least in the next 12 or 18 months, which will impact what comes through the hoist. We will hoist the waste, but it obviously doesn't have a lot of grade in it. So that's -- the hoist is fine. It's just that some of the product coming out of it won't have the gold or the copper that we wanted. So you'll see that, like I said, for probably about 18 months before we get back to normal run rates from there.

Okay. That explains it. And just second question on Cowal. You managed the quarter's rainfall. I saw there's quite a bit of rainfall in May with stockpile processing and pulled a December '26 shutdown forward. How does that leave FY '27 first half Cowal running? Is it above underlying rate? And maybe just how much stockpiling is left if there's another wet weather event?

Yes. In terms of the impact on '27, for one, it probably helped us a little bit in the first quarter in that we've still got some of Stage H left to go through the mill. We've taken it all out of the pit, but it's still sitting in front of the mill. And in terms of the stockpiles, our original plan for the next 18 months or so at Cowal, while we do the cutback on E42 was to start processing stockpiles or ore stockpiles. So you're not going to see a material impact as a result of what we talked about with the rain in the June quarter. Everything will still continue to plan there.

Your next question comes from Levi Spry with UBS.

Maybe just following on from that. So at Cowal for next year, can you talk a little bit more to the grade profile and how we should think about production levels? And then I guess, the second decline, how we should think about what the quantum of the sort of productivity benefits of having 2 accesses to underground from '28 onwards, I guess?

Yes. Yes, I'll cover that one, yes. So in terms of the grade profile, you will see the grade come off a little. In terms of timing quarters-on-quarter, you'll still see the major shuts probably being the key driver. The production or productivity increase that we're wanting from the second portal, the Regal portal, we're expecting to see that start to come through in the final quarter of the financial year. So we're targeting a little bit of an increase in quarter 4 on the basis of really the trucking and the way that we're doing it. We're currently limited by the trucking through that single portal, and that second portal will allow us to reroute the trucks and the way that we take the ore out of the mine. So we're looking for a reasonable improvement out of that. But again, remembering the underground ore is sort of 2.4, 2.5. So it's not the whole feed for the mine.

Yes, just in terms of how we should think about productivity levels longer term, is there a percentage of extra tonnes you can get out because of entries?

You sound like Lawrie. Yes, there is, yes. But in terms of what we would put forward, we're wanting to increase on what we've got today. In terms of what our target is, we're working through that once we've modeled it. We want to see how it works in reality.

Okay. And then just for FY '27 guidance overall, thanks for the extra detail. But I guess the year has started. So can you talk to what are the elements that maybe you're still sharpening the pencil on? Is it around cost? Or is it certain parts of the short-term mine plan?

Well, firstly, Levi, we normally put it out in August. What we've got to do is close out FY '26. And one of them is to see where each of the -- particularly the growth projects have finished and then now they're updated schedule for FY '27. So that's one of them. Two, as sort of Matt talked about with Cowal in particular, we had to do the shut. We finished in Stage H. It's not all through. So just finalizing what the full year looks like there. But they're all of the things, but we do normally issue our guidance in August.

The next question comes from David Radclyffe with Global Mining Research.

Just maybe a first question, follow-up to Levi's one coming back to Carol on the underground there. I mean if you annualize the rate from the last quarter, which was the strongest, I think you've achieved, you're closer to 2.8 million tonnes, and I thought the target was at sort of 2.4, 2.5 million. So was this just everything going right for the quarter? Or is this a better indication of what we expect the rate to be going forward and then with upside with obviously the new portal, et cetera?

Yes, Dave, I thank you and Levi for asking a good question. So yes, no, it was a good finish for the underground, but maybe you want to talk through. 2.4 is where we were targeted at, and now we're looking at how we improve a bit above that.

It is. It was a really good quarter. We had a transition in the mining contract on site. So we had a couple of extra resources around to do some of that work. That said, you'll get the normal technical answer of sequencing. But we are targeting somewhere around trying to maintain that rate if we -- if that's what we -- we wanted to at least do that out of the Regal portal. We will still see regular variances with sequencing as we go, depending on where we are with the stopes. But the productivity uplift that you're talking about there, that's a reasonable target.

Okay. Cool. And then maybe if I can focus a follow-up, I guess, coming back to Ernest Henry because I don't think we kind of answered that. It sounds like the impact of the rain was worse than initially thought. If we think of your guidance, I think you said 4,000 to 5,000 tonne impact. But now if there's an impact into this year, that's obviously more than that. Am I right in assuming there's no stockpiles left, so there's no way to kind of make that back? And then just on that, then you have talked in the past about trying to secure potentially other ore sources or toll treating opportunities ahead of coming in, in '29. Has there been any progress made on those?

I'll answer the second part first, Dave, and then hand to Matt just to clarify a bit further on Ernest Henry. But Kieren and the team are continuing to look. There are operators out there that are looking for material to come through the plant. And I do think 12 months, we'll be able to find some alternative ore sources there. And also, the Corella project, we've started drilling up there, whilst it may not be in the next sort of 18 months, 2 years, but it is something that we've already identified in addition to Bert to going above the current mining and processing rates of the existing cave. Just on the weather event, it wasn't that it was worse than we had predicted. What we had identified was that we knew we would be out for most of March and then to get back into production. We needed to see what the impact was on the development levels, which weren't going to impact on '26. And so we knew there was because that's where all the water flow and Matt and the team needed to get down there and get all that water out and see what the impact is. But do you want to then to talk about the development?

And essentially, that is the case. Now that we've dewatered the areas that we've got open. We've had to do some repairs on the infrastructure down there. We've also had to do some modifications on the ventilation circuit. So those are sort of key technical things. When I talk about the development of mine, those are the things that I'm talking to. So to get ourselves back into that 3 levels and another level sitting in front of us, that's the focus. When you've got those, the operation is quite stable, consistent and reliable. So I don't want us to not focus on that and put ourselves into a sort of hand-to-mouth scenario. So that's really the work, like I said, the 18 months is to open up the extra levels and finalize the ventilation circuit to get the operation up and running in '26. We did use some ventilation circuit capacity that we had planned for the future. We're now replacing some of that as well. So those activities weren't firmed up, if you like, in '26 once we dewater, got down and had a look at what it all looked like. That's sort of where we've ended up landing with the plan.

Your next question comes from Hugo Nicolaci with Goldman Sachs.

Look, firstly, following on from Cowal. Just expectations next year had obviously been falling just as you were moving more to stockpile material. But from what you've highlighted today, your underground productivity is higher, the satellite pits are progressing well. You still got Stage H stock sitting there and you now have one less shut to do in the year. Is 300,000 ounces out of that asset achievable again for FY '27?

Hugo, this is why we haven't finished getting Board approval on the budget. You're joining the line of asking Matt good questions. Look, I think it's fair to say we had originally at the halfway mark had that it was going to be a 10% lower production over '27 over '26. As Matt said, we've got some of the Stage H material that sort of didn't come out until the back end of the June quarter that was previously planned to come into this year. That shut that we decided to do in April to reduce, it's not -- so the 2 major shuts in the September and March quarters will still happen. This was a smaller shut that was planned in December. So we get some benefit there, and we are looking at getting some upside in the underground. I think when you look at the guidance, when we do finalize the plan, it won't be that 10% lower than what we've achieved in '26, but we're just working through that now.

Sorry to add to the preempting guidance questions. And then secondly, more of a strategic one on Rawdon. With the Hydro Project no longer being prioritized by the government, what do you do with that asset from here? I mean if there's a mill, there's gold in the ground, do you sell it to someone else, let them do the cutback and get that liability off your books?

Yes. Look, that was a little bit disappointing in terms of where that project ended. But as we've sort of said, it's not going to have a material impact on our plan for Rawdon. We move to closure and rehabilitation mode now. But we do look at those options knowing, as you've said, there's a mill there. There is some gold in the ground, and there's a large pit that's already been developed. But our focus in the next 6 months is on getting into that closure rehab mode.

And are there any costs sort of associated in that closure rehab mode to be aware of for '27?

Yes. Look, that's another one that we are finalizing right now, and we'll let you know in August. But we've previously sort of it's -- it was probably around $100 million closure and rehab estimate. We'll update that as well. But it won't be a material amount of money spent this year compared to what we're doing over the next sort of 5 to 10 years.