Evolution Mining (ASX:EVN) Q1 2027 Earnings Call

0:00 Thank you for standing by and welcome to the Evolution Mining Limited September 2026 quarterly results. All participants are in list only mode. There will be a presentation followed by a question and answer session. If you would like to ask a question you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr Laurie Conway, Managing Director and Chief Executive Officer. Please go ahead.

0:25 Thank you Darcy and good morning everyone. I'm joined on the call today by Matt O'Neill, our Chief Operating Officer, and Peter Rocky O'Connor, our GM, Investor Relations. Firstly, I want to thank everybody who participated in our investor briefing and tours to Cal and North Park's operations last month. We appreciate you taking the time to engage with us to better understand our business and its direction. Today, we released our September quarterly report on the ASX, and this will be the reference point for the call. We are on track to deliver all of our FY27 group guidance measures. September quarter production was a slower start than planned, mainly due to impacts of weather and grid power interruptions at a couple of operations. Production is planned to grow through the year and is weighted to the second half, as outlined when we released our guidance in August.

1:16 Key production drivers for the remainder of the year include access to the Regal Underground Decline and higher tonnes out of E46 at Cow, higher grades out of Castle Hill at Mungaree and accessing new mining areas with higher grade at Red Lake. Matt will go through these shortly.

1:35 Our safety performance was pleasing with our total recordable injury frequency improving to 5.8 and it remains very low. We produce 154,000 ounces of gold and 18,000 tonnes of copper at a very low all-in sustaining cost of $1,653 per ounce. This is one of the lowest in the sector. Our sustained cost control, complemented by the upside from our copper exposure, were the key drivers to the all-in sustaining cost, which is below the low end of guidance. The low cost position resulted in mine cash flows of $775 million and $466 million of operating and net mine cash flows respectively.

2:22 All operations were net cash positive for the quarter, with Ernest Henry a standout delivering a record net mine cash flow of $186 million. The chart on page 1 of the report clearly shows our high margin and cash generation. with our all-in sustaining cost margin improving to 73%. The cash flow potential is significant. At Q1 achieved prices, FY27 operating mine cash flow would be around $3.6 billion, which is $200 million higher than FY26, even allowing for cost escalation during FY27. Group cash flow for the quarter was $185 million at a rate of $1,185 per ounce, while our cash balance at the end of September was $1.47 billion, improving our net cash position to $141 million.

3:18 We have no debt repayments until FY29 and are fully unhedged. All our growth projects remain on schedule and on budget. Last week, the Board approved the Concentrate Regrind and Filtration Project at North Parks that will further improve recoveries by 2% and 1% for gold and copper by the start of FY29. This is another high-return project with an IRR of between 30% to 37%. Evolution's share of investment is $72 million, and this is included in our existing group capital outlook. Exploration continues to strengthen our growth pipeline with an excellent result at Ernest Henry where we intersected mineralisation up to 900 metres below the current mining area. This included 61.3 metres at 1.26 and 0.77 tonnes gold. It gives us confidence that Ernest Henry is likely to be operating well beyond the current mine plan to 2042.

4:21 At Cow and North Parks, we continue to see encouraging results for further organic growth. All of this aligns with what Glenn presented last month at the investor briefing. The acquisition of Carnaby Resources remains on track to completion by mid-November, subject to Carnaby shareholders voting favour of the scheme. With that, I'll now hand over to Matt to take through the operational performance.

4:46 Thanks, Laurie. The September quarter has demonstrated the value of our diversified portfolio. From an overall business perspective, the strong performances from the Ernest Henry and North Farks operation have helped to mitigate the slower-than-planned start across our other assets. Pleasingly, group production performance improved through the quarter, with all assets now back operating at planned rates. Our rolling 12-month recordable injury frequency rate improved again to 5.8%, And while we're encouraged by this progress, we remain focused on building a safe and predictable boating culture across every site. Turning to the operations, there were a number of temporary factors that influenced the quarter. At Cow, we're now firmly in the transition phase, with the E42 cutback well underway and the ramp-up of the E46 pit now complete.

5:38 allowing it to contribute 25% of the feed to the mill to partially offset the lower grade feed from the surface stockpiles. Over the first half of the quarter, we experienced higher than average rainfall, resolving in more feed from the lower grade stockpiles than planned, and this was visible to those of you who joined the tour last month. Compounding this, we had a slower than planned ramp-up of the new mining contractor, reducing the output from the underground mine. Production from the underground mine is back in line with plan and tracking well over the first few weeks of this quarter. The Regal Portal remains on track for completion by the end of December and remains a key component in increasing the productivity of the underground mine and Cowles ramp-up in the back half of this financial year.

6:24 Mungaree's slow start to the year reflected ongoing regional power interruptions and reduced processing rates and downtime through July. The operation has recovered over the quarter and is now operating at planned rates. As outlined on the site tour during diggers, studies are underway to improve our resilience to the regional power interruptions. Mining works to access the higher grade zones at Castle Hill in the second half of the financial year remain on track. With development ramping up well, the team at Red Lake remain on track to bring on the two planned additional mining areas at HGUI and Upper Barmer by the end of the December quarter. Throughout the quarter, the operation was impacted by an unusually high number of grid power outages due to instability of the external network.

7:12 Also impacting was reduced availability from our frontline production fleet. We also completed our regular shutdown schedule for... Collectively, these factors hindered the mining team's ability to remain on plan, resulting in disruptions to the mining sequence and creating the variance in grade seen through the quarter. As noted earlier, North Parks continued to deliver in line with plan, with the E48 sub-level cave ramping up well and the growth projects on track. Ernest Henry had a fantastic quarter, exceeding his plan across a range of metrics and is on track for a good year. The record cash flow reaffirms the quality of the asset and shows it's back to full capacity. To conclude, this quarter demonstrated the strength of Evolution's portfolio.

8:01 While gold production was impacted by a number of temporary factors, margin performance and cash generation remained strong on the back of operational performance of Ernest Henry and North Parks and we remain on track to deliver to full year guidance. As Laurie noted earlier, over the quarter we have strengthened the balance sheet, delivered positive cash flow across every operation and at the same time continued to invest in a pipeline of projects we believe will generate meaningful value for shareholders over the coming years and in financial year 27. I'll now hand back to Darcy to open the line for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone and we'll have your name to be announced. If you would like to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question.

8:48 Your first question today comes from Kate McCutcheon from Bank of America. Please go ahead.

8:54 Hi, good morning, Laurie and Tim. So does North Park, the constant rate rebrand and rotation project, I've not heard you mention that before. So if I add that together with the float circuit plan net-net, we're looking at a circa 4% uplift for gold versus today, and then we're expecting you to make a submission to the regulator per se on a bigger mill in North Park later this calendar year. How do we marry in the improvements that you're making in terms of expansion there, if that makes sense? Thank you. Thanks Kate. Yes, the project was being studied through last year and it was one that we were always planning to. This project is in addition to the coarse particle, so you're correct in terms of the improvement in the recoveries.

9:45 In terms of the plant upgrade, as the study finishes by the end of FY27 and we land on what will be the size of the plant that we want to take it to, that's when we'll make that submission. We're currently permitted to 8.5 million tonnes. These two projects will actually allow us to lift the processing rate above the current 7.5 million tonnes per annum level.

10:14 Okay, good. And then if we think about Cal, so you put the shutdown from September quarter into next quarter, can you just remind me how big that will be and what we expect open cart volumes to be or to step up quarter on quarter? I'm just trying to think about how production moves quarter on quarter and you get to that 2H uplift.

10:39 Yep. Okay, that's Matt here. So with E46 coming in line, essentially most of the feed out of E46 is the oxides. So we are limited in the volumes that we can put through in terms of a percentage. So we're targeting around 25 or above if we can push a percentage of the feed into the mill to be from E46. That obviously then leaves the underground as the other primary feed and then we'll make up with the lower grade stockpiles as required to fill the mill. So that's essentially the path forward for until we get the stage I back online.

11:14 Okay, thanks Matt. Thank you. Your next question comes from Hugo Nicolaki from Goldman Sachs. Please go ahead.

11:25 Oh, morning guys. Thanks for the update. Look, first one for me, just on red light, you touched on the power and the mill throughput issues and the mine sequencing resulting in that lower sort of mid-three grade. I sort of back it out against the guidance for the full year. It sort of implies you need to average sort of 5g plus for the rest of the year or if we assume that there's a bit of a progressive improvement through 2Q then the second half is probably more like 5.5 to 6. So I guess the question is what gives you sort of the confidence with where the mine is at today that you can ramp up and get the tons out of Upper Campbell and Bulma to deliver that grade into the second half?

12:03 Yep, again Matt here. The driver for that, the grade when you've done the calculations there is correct. So one of the challenges or mitigants that we're looking for there is additional volume because that grade will be a stretch. It is in the plan and that's how it will come through but the contingency that we're working on is we've got additional volume available to us for the mills and so that's essentially the work that we're doing through Q2 and Q3 to fill those mills to make sure we've got some of that contingency in play. Because that grade is there, it's in the sequence, but that's what we want to make sure we get some contingency in place. So that's where that comes from.

12:41 Got it. That's helpful. And then probably a similar line of thinking around Mangaria, which is providing more colour in terms of the timing and that magnitude of expected grade uplift going forward with Stage 2 at Castle Hill and just the increasing tons and great performance at the underground as well. Yep.

12:59 The Castle Hill is essentially a sequencing of Stage 2. We made some modifications through the first quarter to assist the mill with the downtime it was experiencing through July, and that did have a negative impact on the grade for the quarter. That material is scheduled for the back end, so back end of Quarter 3, early into Quarter 4. So that's where the Castle Hill grade uplift comes from. In terms of the underground, a lot of the work around Kandana is where we expect to see the uplift. The story, again, for Mangara is obviously that the underground is being the margin driver for us. So what we've been seeing is some issues, again, with people in the region and absenteeism. We've addressed that with the team on site and recruiting additional people across there. That plus the productivity that we're looking to get from having everybody on site and working is essentially where we get the uplift in the underground over the back end of the year as well.

13:54 And just maybe lastly on that, I mean, where are you sort of seeing turnover and sort of productivity pieces, particularly around underground? I'm seeing a number of your peers sort of highlight productivity and people issues there. So I would just broadly comment here, have you seen that improve or is that maybe worsened more recently? Is that sort of pull for labour and talent only increased?

14:15 Yeah, it's probably stayed about the same from what we talked about last quarter. We're still seeing turnover around the same rate. We are very... clear on our strategy around that is that we don't want to chase for an extra dollar or two for every hour of what people are chasing. So we are sticking to what we've got. We think we've got something more to add in terms of security and culture of the site. So we are following that strategy. We do see people come back to us, but we still are seeing that turnover of people chasing the extra money that's on offer in some other parts of the region. So about flat is probably how I would describe that.

14:51 Great. Thanks for that, Pastor. Thank you. Your next question comes from Jonathan Sharp from JP Morgan. Please go ahead.

15:01 Yeah, morning, Laurie, Matt and Rocky. Just first question on Ernest Henry. Some good grades coming out of there. How does that look for the remainder of the year? Is that sustainable? And then also just the first raise for when is that being commissioned?

15:22 Yep, I'll cover that one. So in terms of the grade, it was scheduled that we're not in some of the lower grade areas in the first quarter. So yes, over the course of the year, it will soften slightly, keeping us well within the guidance ranges. So that's planned and it won't stay as high as you've seen over the first quarter. In terms of then the raise boring in the ventilation circuits, we sourced an additional raise boring unit and we have maxed out, if you like, the raise boring capacity on the site. the northeast block ventilation is on track for completion. So once that opens up, it really does allow us to increase the productivity below that crushing horizon. So all of that's in place. If you're on site in the tool, we've got two raise boards running pretty hard together right beside each other on the surface.

16:09 Okay, great. And while I've got you, Matt, just on Mangari, and that's ramping up, I think it's getting close to capacity now. Just how do you think about All sequencing, getting higher grade, all through the mill, is there optionality there, potential there? Would you look at anything around the area to acquire to potentially fill that mill with higher grade as well? Thanks.

16:39 Yeah, no, in terms of the strategy at Mungari, it is that anything higher grade than what we have coming out of Castle Hill, which is our baseload feed, we will preferentially feed. And so the undergrounds and the productivity from that are still maintained as the highest priority there. In terms of around the region and whatever else, there are a number of opportunities and things that we are discussing with different people in the region. We don't need it at the moment, but the grade and the commercial side of where it fits is, yeah, we're open to those sorts of discussions.

17:13 Okay. Thanks. I'll leave it there. Thank you. Your next question comes from Daniel Morgan from Baron Joey. Please go ahead.

17:25 Hi Matt, I just want to chase up that grade question, Ernest Henry, a little more. So in the quarter, the grades that you had and the production outcomes at Ernest Henry were a bit higher than I would have thought. Was there any, if at all, benefit from positive reconciliation or anything that led to this result, or was it just purely mine sequencing and therefore we should expect it to soften in the quarters ahead?

17:52 Yeah, Dan, it's essentially the second option that you described there. No, there wasn't a reconciliation from the processing plan over the quarter that contributed to the uplift. It was where we are in the cave and the grade zones. We're not in that barren zone at the moment. We will move through that over the course of the year. So, yeah, the grades will soften over the next couple of quarters.

18:15 Thank you. And then just at CAL... Obviously, the shut's been moved to the December quarter. I can see that, but, you know, a very strong milling outcome for the September quarter, over a 9 million ton rate. Is there benefits from this oxide material coming through that means you can mill more, and obviously there's problems at the back end, but can you just talk about what's happening on the mill on throughput, what was experienced through the quarter? for the throughput outcome you've got and where you see that going in future quarters. Thank you.

18:50 Yep. So, yes, in terms of the mill throughput, one of the benefits that we're seeing is that the E46 pit is predominantly an oxide feed, and we do see that go through the mill better than what we were seeing, the fresh rock, in terms of that. So that is what's contributing to the uplift, along with the normal reliability and programs the team have on site. That will continue. So we look over the course of the next... Probably 12, 18 months we will have oxide feed available to us so our planning at the moment is up to 25% of the feed into that mill can be oxide. The reason we limit it to that is it starts to cause a few concerns for us in the back end in terms of mass flows and viscosity of material. We have seen periods depending on the type of oxide where we can run above that.

19:36 Correspondingly, we do have some every now and then that we struggle through that and we have to reduce below the 25%. So we'll look to continue that oxide feed at least until stage I comes back online. And it's also the benefit for us in the other area at Cow where some of the other closer to surface feed is that oxide as well, which helps us with our throughput rates. But that's the key driver in terms of the uplift you're seeing.

20:01 Okay, thank you. And just last question, just to... The Red Lake Power issue, I mean, a hell of a lot of interruptions. I've heard that that is partly an integration of local communities into the grid. Is that accurate? And then what's been the experience month to date and when is an improvement and so on? Thank you.

20:26 So, yeah, your description is accurate. That's what we're feeling has caused some of the instability in the line. Without getting too technical, a lot of the trips have sort of been under-over-voltage trips, and so we're working with Hydro One and the lines around really understanding what the set points are and the settings on the network and marrying them up to the same ones that protect our equipment on site. So that's the main level of work that's occurring. So we are expecting to see that improve as we essentially operate as a unit rather than independently. and that's important for us obviously as we enter into winter. So there's a lot of work going on there. They've been quite open in discussing the topic with us and we'll work through that over the course of the next probably month or two.

21:11 Okay. Thank you, Matt. I appreciate your perspective. Thank you. Your next question comes from Levi Spry from UBS. Please go ahead. Levi, your line is now open. Thank you. Our next question will come from Mitch Ryan from Jefferies. Please go ahead. Morning, guys. Appreciate your time.

21:45 Just with Ernest Henry, you'd called out that that was also going to undertake a shut during the quarter. Did it undertake a shut? Obviously, you had very strong volumes. I just wanted to confirm that.

21:57 It did, and we've completed a minor one in the last week as well in October, but yeah, it ran exactly to plan over that quarter.

22:06 Okay, perfect, thank you. And we've talked about the grid instability and the remedies for that around Montgomery, but can you just talk to the Red Lake grid instability, how far towards remediation are you and are you comfortable that that has now been fixed?

22:22 I think the Red Lake one is probably closer than the Mungari issue. The Red Lake one is really around the additional load on a spur line on the network and causing it to fluctuate differently to what it has in the past. And we're working through that with the provider there. In terms of the Mungari one, that's been an ongoing one for the region that people will be intimately familiar with. The works that we're doing at the moment on that are really around limiting the impact of the hard stops. The softer stops where we get a little bit of notice are a little easier for us to manage operationally because we can... Wind down the plants and we don't have some of the after effects in that scenario. What we want to try and do is have that same scenario for hard stop. So we're investigating installing a battery to help us, if you like, softly close the plant when we have those events. So that one is still a little way away, 12 to 18 months probably at best.

23:18 That's the two scenarios in terms of power.

23:21 Appreciate it. Thank you. Thank you. Once again, if you would like to ask a question, please press star 1 on your telephone or ask your name to be announced. Your next question comes from Matthew Fryman from MST Financial. Please, go ahead.

23:38 Sure, thanks. Morning, Matt and Laurie and Rocky. Maybe just rounding out that Red Lake Power discussion, sorry to labour on it, but just to tie in with the earlier discussion, I guess on the second half weighting in terms of volumes and grey. Yeah, I guess, you know, what's the risk that if you have ongoing issues that some of that second half weighting or some of that guidance starts to be put at risk, you know, are you already at the point where that's a consideration or are you comfortable that it's manageable from here on out if things can correct themselves? Yeah, look, Matt's outlined the issues that we're dealing with, the power instability. I think, Matt, you, Matt, the... The plant has the capacity as Matt has outlined.

24:25 When we looked at the full year and the guidance and where we're at at the end of the first quarter, we're working on the basis that the remediation work that Matt said, we're working with the power provider. If they come through, then we have the capacity in the plant to put more tonnes through. If we continue to have the power outage, then that's beyond our control and we'll process whatever we can. through the plants and we'll assess it as each quarter goes by.

24:55 Yeah, got it. Thanks, Laurie. Maybe moving on to, I guess, the cash movements during the quarter and, I guess, on a forward-looking basis as well, obviously a pretty big working cap drawdown during the quarter, which you highlighted, or working cap build, I should say. Do you expect, I guess, further unwind of payables looking forward or will that Normalised in the December quarter, do you think? And then also just any other kind of significant cash movements that you think are worth flagging. Am I right to say that you guys are due a payment from Triple Flag in December? And yeah, I guess any other general comments on sort of cash tax catch-ups or anything to give us a bit of a guide on cash movements, please?

25:43 Yeah, so in terms of the first quarter, yeah, 136 million outflow. September last year was over 100 million outflow. So September is generally an outflow quarter and quite significant in terms of year-end capital that comes in the June quarter, and this was significant, you know, $40 million to $45 million. worth of equipment at Cal and other things at the year end, underground transition and the like. So that will depend on where each of the projects are at. Our short term incentives are paid annually in September for the entire company that are on that scheme. So that's what impacts in terms of the September quarter. and then we did have an agreement on an insurance receivable for Ernest Henry at the end of the quarter so when you look at the short-term incentives and the insurance for Ernest Henry you're getting about 60-65 million dollars that won't be an outflow in the December quarter and in fact the 25 million dollars of Ernest Henry will be received in the quarter. So you'll see Q2, Q3 lower generally, depending on the copper price, and then Q4 as per sort of the June quarter.

27:04 Other cash items, you're right. So we have the $120 million receipt from Triple Flag in the December quarter. In terms of tax, it's about $100 million a quarter. We have to make our final payment. for the FY26 tax year in December of this year, and that's what does impact it. And you'll see last December that tax payment was about $200 million. You're probably going to see something around that again where we paid $100 million this quarter, so that's normal in the quarter plus the top-up in December. They're the main ones that you're going to see.

27:47 Got it. Thanks, Laurie. That's really helpful. And then maybe just finally on the smaller end of things, but I noticed you guys made an equity investment in Arizona during the quarter. Can you maybe expand on the interest there and why that was an attractive investment? Thanks. Yeah, so Glenn touched on it a little bit, the Philadelphia project with Arizona Gold and Silver. When we looked at the project, the way that their farming was structured was through the equity. So we took a 9.9% equity holding in Arizona Gold and Silver for the Philadelphia project. It's something that's not had deep drilling. We believe with deeper drilling, there's an opportunity there.

28:33 It's about a three kilometre strike. It's got capacity to be a size that would fit for evolution and that drilling program is commencing now and that's how we've invested in that project through equity.

28:50 Thanks, Laurie. Thank you. Your next question comes from Levi Spryer from UBS. Please go ahead.

29:02 I just don't want to hop on the power discussion too much more, but at Macquarie, what we saw regionally there, is there any sort of read-through to... Just looking for any risk or insight there, please.

29:27 Sorry, Levi, I didn't quite catch that. Some of that broke up. Apologies, but would you mind repeating that? I think you were talking about how do we see the regional power scenario in Kalgoorlie, but if you can confirm that.

29:39 Yes, that's correct. Just sort of wondering the regional power outlook at Kalgoorlie, just how that's affected by going to the past quarter and sort of whether there's risk to do with the KCGM mill ramp-up. Just looking for your insights there.

29:59 I think a lot of the issues in that region are being caused by the capacity and where the generation fits. So additional load is a risk to the region. That said, there's additional behind the meter in the region as well. So there's probably an offset in that. What we are really wanting to do, there's two things. The way we're approaching it is the shorter-term one, which I talked about with the battery, and then the longer-term one, we're doing a lot of work around what does that look like for us. I think we're not expecting necessarily the regional situation to change or get a lot better in the short term, so that leaves us with a couple options around where we put it.

30:45 Thank you. Thank you. The next question comes from David Coates from Bell Potter. Please go ahead.

30:56 Morning, guys. Thanks very much for the opportunity this morning. Just sticking a little bit with the regional or the exploration development topic, which you just touched on. What are you going to complete on Carnaby in the current quarter? What are your first steps going to be on completion of that acquisition? Yeah, Dave, first step is to finish the study, which will run for about 12 to 18 months. And in parallel to that, we'll be working through permitting and other requirements that we'll need to start mining so that when the study's finished, we're able to move straight forward with that. And I think we talked a little bit about it in the...

31:44 the plan for the project by Carnaby versus us where they were going to toll treat and the like versus we're going to bring it down to our operation. Therefore, the study has to adjust to that. So the first step is to finish that study over the first 12 to 18 months.

32:02 Cool. And then, again, just on exploration, you've got a number of projects on books. What are the key ones? that we should be looking at for perhaps the most material results, I suppose, without predicting drill hole results and stuff, but which of the programs that are coming up in the next six months do you think might have the greatest materiality? Dave, so Norella, all the land in and around Ernest Henry in the Australian operations, that's what we're focused heavily on here. And then we've got four opportunities in Canada at the moment that we're working through.

32:48 So two times Fred Clisbaco in British Columbia, those programs will finish through the course of this year. And then we've got Lakes and Joe in October over in Ontario and Quebec. And then the Philadelphia project that we've just talked about that we've taken an investment in with Arizona Gold and Silver. That's the ones that will be in the greenfields in the Americas. And really, you know, as Glenn sort of talked to a little bit last month, in the greenfields, our focus is more on the Americas because of ease of access, the amount of opportunities there. and entry costs and Australia. We're going to be very heavily focused on the Corella land in and around Ernest Henry.

33:34 Excellent. Thanks very much. Thank you. There are no further questions at this time. I'll now hand back to Mr Conway for any closing remarks.

33:47 Thank you Darcy and thank you everyone for your time on the call today. As I said at the outset, a slow start but we're still on track to deliver all of our FY27 grid guidance measures and it is weighted to the second half. We are in good shape. We are delivering significant cash flows with a very low all-in sustaining cost and we'll look forward to updating you at the next quarter. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.