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Evolution share price higher on US$375 million Red Lake acquisition

James Mickleboro
M&A Letters

In morning trade the Evolution Mining Ltd (ASX: EVN) share price is pushing higher after announcing an acquisition.

At the time of writing the gold miner’s shares are up 1% to $3.85.

What did Evolution announce?

This morning Evolution Mining announced that it has entered into an agreement with Newmont Goldcorp Corporation to acquire 100% of the Red Lake gold complex.

Red Lake is an underground gold mining complex in western Ontario, Canada. It comprises the Red Lake and Campbell complexes and the Cochenour mine.

In the 2018 calendar year the mine produced 276,000 ounces of gold at an all-in sustaining cost (AISC) of US$988 per ounce. Whereas in the current calendar year it is forecast to produce 150,000 – 160,000 ounces of gold at an AISC of approximately US$1,600 per ounce.

Evolution has agreed to pay Newmont Goldcorp US$375 million in cash upon closing of the transaction and up to an additional US$100 million payable upon new resource discovery.

The gold miner has also committed to invest US$100 million on existing operations and an additional US$50 million in exploration at Red Lake over the first three-year period following completion of the transaction.

This will be funded by a new five-year A$600 million senior unsecured term loan through Evolution’s syndicate of lending banks.

The future.

Whilst Red Lake’s forecast to produce 150,000 – 160,000 ounces of gold at an AISC of ~US$1,600 per ounce in 2019 is hardly attractive, management is confident it can bring its costs down materially.

Following a three-year proposed turnaround phase, it is aiming for Red Lake to become a cornerstone asset in its portfolio with annual production in excess of 200,000 ounces at an AISC below US$1,000 per ounce.

Evolution’s executive chairman, Jake Klein, explained: “Evolution is excited to be adding Red Lake to its portfolio, providing the Company with a high-grade, long life gold mine in Canada. We have been actively looking at assets in Canada since 2017 as we believe it is a country with low geopolitical risk, high geological prospectivity and a strong mining culture. Red Lake is an undercapitalised asset which, through a committed investment in development and exploration, is intended to become a cornerstone asset in the Evolution portfolio.”

“We have identified a range of opportunities to deliver an operational turnaround of the asset which is expected to create significant value for our shareholders and improve the quality of our portfolio. The camp has significant exploration potential which, coupled with its relatively unexplored recent past, provides significant upside potential for Evolution to extend the longevity of the operation well beyond its current 13-year life of mine plan,” he added.

Elsewhere in the industry today, the Newcrest Mining Limited (ASX: NCM) share price is trading lower after Goldman Sachs retained its sell rating on its shares. Its analysts also trimmed their price target to $25.50 following a site visit.

The post Evolution share price higher on US$375 million Red Lake acquisition appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019