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  1. 1. Evolution Miningbest gold stocks
  2. 2. Will be an Australian mid-tier leader We continue to be encouragedby the progress being made across the project portfolio at EvolutionMining (EVN) Evolution currently operates four gold mines inAustralia and is currently developing a fifth in Queensland EVN istargeting 335-375k oz of production in the current financial year,moving to 410-465k oz of gold equivalent production in FY13 Ifthese targets are achieved this will place EVN as the 3rd largestAustralian gold producer behind both Newcrest and Alacer goldEvolution was formed by the merger of Catalpa and Conquest lastyear, and since the deal we have seen some very significantmanagement and board changes The most important being theappointment of Jake Klein who has taken on the role of ExecutiveChairman and MD of the group The MD was formerly the head ofCatalpa, Bruce McFadzean Jake Klein has a an impressive trackrecord particularly with Sino Gold which he took from being a juniorminer into a multi-billion dollar market cap company which wassubsequently taken over by global gold major Eldorado GoldFinancials Evolution Mining released its maiden First Half 2012result in February, reporting a headline net loss of A$17 9 million forthe half The result was primarily driven by a A$29
  3. 3. 4 million charge arising from the merger, in late 2011, betweenCatalpa Resources and Conquest Mining to form Evolution MiningHowever underlying profit of A$20 2 million better reflects theperformance of underlying operations The company reiterated goldproduction guidance for the 2012 year, to be in the range 335,000 to375,000 ounce and 410,000 to 465,000 ounces for 2013 Evolutionalso has substantial financial flexibility with which to support coreassets The company has cash of A$167 4 million and bullion ofA$40 6 million Debt stands at A$43 9 million Excluding bullion thecompany is in a net cash position
  4. 4. Asset Portfolio Critical to the progress of whole portfolio here is notjust about reaching these production targets; but also demonstratingreasonable cost control across the assets overall as these assetsdevelop and reach steady state production Edna May Edna Mayoperates an open cut mine which is low grade, high cost There isalso the underground development that has been progressing in thebackground EVN recently announced that the underground resourcehad been upgraded by some 70% Albeit, off a low base, we nowhave an underground resource that complements the open pitresource of 270k oz grading around 7 grams per tonne Thiscompares to the open pit currently grading 1 1 grams per tonneTwo main domains of this mineralisation include; a) High grade
  5. 5. quartz reef mineralisation - 490,000 tonnes at 8 8g/t for 140,000 goldounces; and b) Halo mineralisation - 720,000 tonnes at 5 8g/t for130,000 gold ounces As Jake Klein recently commented, 'Thisis an encouraging addition to our efforts to maximise the value ofEdna May Our focus at the operation over the next 12 monthsremains on improving the reliability and performance of the plant, butunderground development represents an option for adding value tothe long term future at Edna May
  6. 6. ' Mt Carlton Mt Carlton is currently at development stage andon track to be commissioned by year end This asset will provide asignificant boost to Evolution's growth profile in the comingyears The deposit is expected to produce 95k oz of gold equivalentat an average cash of $600 per oz of gold equiv This will have effectof lowering cash costs overall Mt Carlton will produce gold, silverand copper Ex - Newcrest assets Cracow and Mt Rawdon whichwere acquired as part of the formation of EVN were an insignificantpart of Newcrest's Mining portfolio (approximately 3%) As suchthey demanded little management attention relative to others andsuffered as a result Under EVN's ownership these assetsrepresent over a quarter of the asset base of EVN and as such willbe a key focus of management attention
  7. 7. In our view they are likely to be better managed and as a result seemore value extracted in terms of both current operations andexploration This is already evident at Cracow with new targets areaalready identified along strike from Kilkenny North Drill results hereinclude; a) 2 03m grading 7 59g/t Au b) 11 02m grading 6 76g/t Auc) 1 74m grading 5 47g/t Au We await quarterly results for furtherdetails on the progress on the production front We believe that80-85k oz for the March quarter remains feasible Over the next fewyears EVN will in our view reach steady state production of 500,000per annum from 5 key assets
  8. 8. Once this milestone production level is best gold stocks reached,Evolution will warrant a premium to valuation We believe that JakeKlein and his management team have the ability to meet thisproduction target The exploration upside in each of these assets isalso significant and is now being given due management focus Weshould not underestimate the knowledge and information availablefrom EVN's relationship with Newcrest which has a significantshareholding of 33% Assets that may be immaterial to Newcrestmay be a source of future acquisitions for Evolution These are likelyto be highly accretive Fat Prophets continue to believe that goldprices will go ever higher in the years ahead, further underpinningthe Evolution growth story As such we recommend the shares as abuy Interested in further research from Fat Prophets? Email or callour Auckland office on (09) 306 8934
  9. 9. best gold stocks