Company Reports

Commodity prices generally fell in the September-ending quarter, except for gold. Concerns about weak China end-user steel demand affected iron ore and other steelmaking commodities, while base metals prices fell on worries over slower economic growth in China and elsewhere.

No-moat Evolution Mining’s fiscal 2024 result was a material improvement on last year and better than we expected. Adjusted EBITDA of about AUD 1.5 billion increased by two thirds on fiscal 2023. Increased gold and copper sales volumes along with higher prices for both metals more than offset a modest 2% increase in unit costs. Adjusted net profit after tax of about AUD 480 million, or AUD 0.25 per share, more than doubled. The balance sheet is sound, with net debt/EBITDA of 1.1 times down from 1.7 times at end-December 2023. Shareholders were rewarded with an AUD 5 cents per-share fully franked final dividend—up 150% on last year and to be paid in October 2024—for a total fully franked dividend of AUD 7 cents in fiscal 2024, up 75% on last year. The strong result and large increase in the final dividend are likely why the shares have risen 8% today at the time of writing.

Evolution Mining owns 100% of four gold mines in Australia and one in Canada. In December 2023 it also bought an 80% stake in the Northparkes copper and gold mine in New South Wales. Its portfolio is the result of numerous transactions since forming in 2011 via the merger of Conquest Mining and Catalpa Resources and the purchase of Newcrest Mining’s Mt Rawdon and Cracow mines. Cowal and Mungari were purchased in 2015, with an initial interest in Glencore’s Ernest Henry mine following in 2016, Red Lake in Canada in 2020, the rest of Ernest Henry in 2022, and a majority stake in Northparkes in 2023. Cracow was sold in 2020.

Shares of most of our global mining coverage fell during the quarter, and the average price/fair value estimate has fallen modestly to 1.05 at July 8, 2024 from 1.07 last quarter. While our coverage is close to fairly valued on average, there is a wide dispersion, with no-moat mineral sands miner Iluka the cheapest, trading 30% below fair value at that date. Mineral sands prices are lower, on reduced demand from China’s property sector. Rising interest rates and slowing housing markets in the West are also a near-term headwind. However, longer-term, maturing mines and a lack of large, high-grade, undeveloped resources are likely to support mineral sands prices. Its proposed rare earths refinery in Eneabba is an option, on elevated rare earths prices and potential Western tariffs on Chinese production.

Base metals prices surged earlier in the June quarter of 2024 before partially reversing due to concerns over China’s economy. Iron ore prices are broadly stable despite China's struggling property market and weak infrastructure spending, leading to questions over China's steel demand. After updating our commodity price assumptions, no-moat Iluka is the cheapest miner we cover, trading 31% below its unchanged fair value estimate of AUD 9.50.

Commodity prices diverged in the quarter. Despite solid China steel production, iron ore and metallurgical coal prices are down, while copper rose on supply issues and hopes of faster global growth. However, prices are elevated compared with history and cost-curve support.

Iron ore prices are lower on concerns over China steel demand due to its struggling property market and weak infrastructure spending. However, gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 51. It remains the cheapest miner we cover, trading 27% below fair value.

Evolution Mining owns 100% of four gold mines in Australia and one in Canada. In December 2023 it also bought an 80% stake in the Northparkes copper and gold mine in New South Wales. Its portfolio is the result of numerous transactions since forming in 2011 via the merger of Conquest Mining and Catalpa Resources and the purchase of Newcrest Mining’s Mt Rawdon and Cracow mines. Cowal and Mungari were purchased in 2015, with an initial interest in Glencore’s Ernest Henry mine following in 2016, Red Lake in Canada in 2020, the rest of Ernest Henry in 2022, and a majority stake in Northparkes in 2023. Cracow was sold in 2020.

Demand growth from China has been the main driver of rising commodity prices in the past two decades. More recently, though, most commodity prices have fallen from highs set with Russia’s invasion of Ukraine, the subsequent sanctions on Russia, and the rerouting of supply chains. Prices, nevertheless, are generally elevated versus the 20-year average, as well as relative to cost support.

No-moat Evolution Mining’s first half fiscal 2024 result was weaker than we expected. Adjusted EBITDA increased on the first half of fiscal 2023 by 28% to about AUD 570 million, driven by higher gold prices and sales volumes, partially offset by increased unit cash costs. Adjusted net profit after tax of about AUD 160 million also rose, up 53% on last year. However, underlying earnings per share fell to roughly AUD 5.2 cents per share, down from roughly AUD 5.5 cents, due to a higher share count driven by Evolution’s purchase of an 80% stake in the Northparkes copper and gold mine in December 2023. Despite lower EPS, Evolution will pay an unchanged AUD 2 cents per share, a fully franked interim dividend, in April 2024. With net debt of roughly AUD 1.7 billion or around 1.7 times trailing 12 months EBITDA modestly higher than the level we feel comfortable with, we prefer the company focuses on deleveraging before considering increasing returns to shareholders.

Evolution Mining owns 100% of four gold mines in Australia and one in Canada. In December 2023 it also bought an 80% stake in the Northparkes copper and gold mine in New South Wales. Its portfolio is the result of numerous transactions since forming in 2011 via the merger of Conquest Mining and Catalpa Resources and the purchase of Newcrest Mining’s Mt Rawdon and Cracow mines. Cowal and Mungari were purchased in 2015, with an initial interest in Glencore’s Ernest Henry mine following in 2016, Red Lake in Canada in 2020, the rest of Ernest Henry in 2022, and a majority stake in Northparkes in 2023. Cracow was sold in 2020.

Near-term iron ore prices are higher on strong China steel production. Gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 54. It is the cheapest we cover, trading 30% below fair value.

Commodity prices diverged in the quarter with strong China steel production driving iron ore and metallurgical coal prices up, while base metals prices dropped on worries of a Western recession. Even so, prices are elevated versus history and cost-curve support.

We commence coverage of Australia-based gold miners Northern Star, Evolution Mining, and Perseus Mining with fair value estimates of AUD 11.30, AUD 3.00, and AUD 2.00 per share, respectively. We initiate with no-moat and High Morningstar Uncertainty Ratings for all of these stocks. We think the shares of Northern Star and Evolution are overvalued, trading at premiums of 8% and 17%, respectively, while Perseus shares currently trade close to fair value.

Evolution Mining owns 100% of four gold mines in Australia and one in Canada. In early December 2023 it also agreed to buy an 80% stake in the Northparkes copper and gold mine in New South Wales. Its portfolio is the result of numerous transactions since forming in 2011 via the merger of Conquest Mining and Catalpa Resources and the purchase of Newcrest Mining’s Mt Rawdon and Cracow mines. Cowal and Mungari were purchased in 2015, with an initial interest in Glencore’s Ernest Henry mine following in 2016, Red Lake in Canada in 2020, and the rest of Ernest Henry in 2022. Cracow was sold in 2020, and its deal to buy a majority stake in Northparkes is likely to close around January 2024.