Australia’s third-biggest gold miner Evolution Mining (ASX:EVN) is finally getting the expansion of one of its cornerstone mines, Mungari, underway with the aim to be in production by 2026-27.
Evolution (EVN) says the project – which was delayed last year by Covid and the pandemic restricting the availability of labour – will cost around a quarter of a billion dollars.
The aim is to double production by 2026 at the mine – located near Kalgoorlie – as part of the company’s plans to boost gold production from its mines in Australia and Canada to 2 million ounces a year by 2026, from an expected 600,000 ounces in 2022-23.
The timing of for Evolution to reach 2 million ounces a year looks like being later than the original 2026 target because of the delay to the Mungari project and the final timing for the massive expansion of the Ernest Henry mine in north Queensland.
Evolution estimates the cost of the expansion at Ernest Henry will be close on $500 million and said this week “the majority of this capital is not required until FY27 and FY28”. That means the doubling of gold output will probably take a little longer than expected last year.
As Evolution prepares to start work on growing Mungari, its WA rival, Northern Star is moving closer to the $A1 billion expansion of its 100% owned SuperPit (near Kalgoorlie) via a project called Fimiston South.
Northern Star is in the final stages of its studies to work out if the much-anticipated expansion will be a goer. It is tipped to give the greenlight by the end of the year now that Evolution has decided to proceed with the Mungari project having been convinced the labour availability (and cost) issues last year, have gone.
Evolution says the expansion plan for Mungari will see the mine’s annual capacity pushed to 4.2 million tonnes a year from the current 2 million tonne limit.
That will see gold output rise from around 135,000 ounces a year to over 200,000 ounces when the expansion is completed in 2026.
It’s the same project that the company wanted to start in 2022 but delayed because of a shortage of labour and costs.
The project will ramp up during the September quarter of this year with a 30-month construction period, including long- lead items and approvals, for commissioning by the end of the March 2026 quarter.
The expansion will see the Mungari mine’s life expanded by 15 years to 2038.
The investment decision comes two years after Evolution spent $400 million buying the Kundana mines at Kalgoorlie in 2021.
Evolution Mining’s executive chairman Jake Klein said the expansion would make Mungari “one of the longest-life mines in the Goldfields”.
Work is set to begin in the December quarter and is expected to take 30 months to complete, with commissioning scheduled for mid-2026.
Evolution Mining CEO Lawrie Conway said the capital cost estimate had been “rigorously tested” and the company was “confident in our capacity to deliver this project on time and budget”.
The expansion will reduce Mungari’s All in Sustaining Cost by $340 to $1,759 an ounce.
Mr Conway said that the expansion has always envisaged and “formed part of our due diligence when we acquired the Kundana and East Kundana properties in 2021.
“Having successfully integrated the operations, this is now the next logical phase of making Mungari a cornerstone asset of Evolution.”
Evolution said further exploration will be done on the areas to delineate more resources for Mungari.
“There is significant potential for further discovery in this world-renowned greenstone gold terrane with Mungari’s strong project pipeline to increase the resource base beyond 5 million ounces,” the company said this week.
“The focus over the next few years will be on discovering sufficient material to maintain production at 200,000 ounces per annum for the entire mine life.
“To protect the balance sheet against downside price risk while executing the Mungari expansion, a prudent approach was adopted of hedging 120,000 ounces at $3,185/oz for delivery from FY24 to FY26 (construction period).
“This is the only metal hedging Evolution has in place and represents approximately 5% of group production leaving more than 95% unhedged,” the company said in the ASX statement.
To help finance this project and the feasibility study on expanding Ernest Henry in North Queensland, Evolution says it has restructured its debt maturity profile to increase balance sheet flexibility.
It said this has been done with a $US200 million private placement and the replacement of the existing $A590-million term loan facilities with a reduced $A300 million four-year term loan facility.
The result of this restructure and rescheduling will be an additional $A445 million of liquidity available over the next three years that was previously scheduled for term loan repayments.
Evolution said the changes meant there are no increase to its overall debt level.
…………
And while Evolution will be investing heavily on brownfields expansion of its mines, executive chair, Jake Klein says it will be on the lookout for deals.
“I would preface these comments by saying that you need to be flexible and open to the opportunity that presents,” he said this week.
“In our case, we are open to gold, copper-gold and copper opportunities with the proviso that it needs to be accretive to shareholders and it needs to improve the quality of our portfolio.
“Rather than giving you a direction as to whether copper is now a higher priority than gold or gold-copper, it’s not, they’re all equal priorities. We’d love to get more assets subject to us being able to buy them wholesale and to value them as retail assets.”
The mining sector is watching to see if any of Newcrest’s assets in Australia or Canada become surplus after Newmont closes its takeover.
Evolution, Northern Star and Rio Tinto could all be interested, even if they are investing in existing mines.