Evolution Mining (EVN) has surprised by winning the bidding for Barrick Gold’s rich Cowal gold mine in central NSW for $US550 million (or $A704 million).
The deal came on a busy day for the mining sector – Independence Group (IGO) revealed a much tipped $1.8 billion bid for the nickel assets owned by Sirius Resources (SIR), while the ASX-listed junior Brumby Resources (BMY) merged with the privately-owned Marindi Metals to create a new zinc exploration and development group.
The Cowal purchase will make Evolution the second biggest gold miner on the ASX, after Newcrest Mining (NCM). It came a month after Evolution bought the Australian minings of the private group law Mancha Resources for more than $330 million.
The mine is expected to produce between 230,000 and 260,000 ounces of gold a year.
It will lift Evolution’s annual production around 860,000 ounces of gold a year once the La Mancha group deal is done. Newcrest is the biggest miner with well over 2.5 million ounces a year.
Evolution won when it was thought that Newcrest would make a decent attempt to buy the mine to go with its operating Cadia mine further north in central NSW.
EVN 1Y – Evolution strikes gold with Cowal deal
Evolution executive chairman Jake Klein said yesterday he had wanted to buy Cowal for more than two years.
“In July last year, myself and a fellow Evolution director made a trip to [the Barrick headquarters in] Toronto to express our interest in Cowal, so it has certainly been an asset that we have long coveted," he said.
"It is a world-class asset and it is very rare, in fact, it is unique, that they are coming loose from a major [miner]."
To pay for the purchase, Evolution will take on more debt and run an underwritten $248 million raising to help fund the deal.
Mr Klein said Evolution would seek to reduce its debt over the next year.
"We would want to bed these assets down. We want to generate the cash that they can produce and bring that gearing level down. We see that happening within the next 12 months whilst being able to continue paying dividends to shareholders," he said.
“Barrick have invested significant capital into the Cowal mine prior to disposal, so we don’t expect it to be a capital intensive mine; we expect it to be very cash-generative, and the cash flow from the portfolio means that our debt levels will go down rapidly,” he said.
Under the terms of the raising, shareholders can buy 13 new Evolution shares for every five they own at 90¢ each a discount of more than 23% to the market price last Friday.
Evolution shares have traded above 90¢ for the last month. They were trading at $1.175 at market close on Friday.
Evolution’s purchase of Cowal extends the trend of foreign gold miners selling Australian assets to local miners wanting to grow quickly.
Northern Star bought several assets off Barrick and Newmont in the first half of 2014. In April, OceanaGold bought Newmont’s Waihi mine in New Zealand for $US101 million.
With the sale of Cowal, Barrick’s exit from Australia is all but complete. The Canadian giant’s last remaining asset is 50% of the super pit in Kalgoorlie-Boulder, which it has to be on the market at the right price.
Barrick also wants to sell the Porgera mine in Papua New Guinea.
In April Evolution bought the Australian mining assets of La Mancha, a Luxembourg-based gold producer owned by Egyptian billionaire Naguib Sawiris.
The assets bought in that deal included the Frog’s Leg underground mine and the White Foil open pit mine, as well as the recently developed Mungari processing plant and a 25 square kilometre tenement holding in the Kalgoorlie region of WA.
The mines last year produced 147,000 ounces of gold at all-in costs of $US961 an ounce. La Mancha expects to produce about 160,000 ounces from its Australian assets this year, and up to 180,000 ounces by 2016. The Australian portfolio has a 3 million ounce resource at 2.1 grams per tonne, according to Evolution’s statement last month.
The deal will see La Mancha become Evolution’s largest shareholder and long-term strategic partner, with a stake of around 31%. La Mancha will contribute an additional $112 million of equity on completion of the La Mancha Australia acquisition, which will help the financing of the Cowal deal as well.
