Jake Klein, executive chair of Evolution Mining (ASX:EVN), one of Australia's last remaining globally significant gold miners, appears to be a reluctant gold 'bull,' if his remarks at Thursday's annual meeting in Sydney are any indication.
Lamenting the darker turn of global events, rising debt and deficits, high inflation, and growing uncertainty, Klein pointed out how these factors make for a tempting menu for gold miners.
"In this unsettled macro environment, the Australian dollar spot gold price has increased by approximately 14% since the beginning of the year, reaching an all-time high of over $3,000 an ounce ($3,038 on Friday morning).
(Evolution has benefited from the rise in gold prices, with its shares up more than 23% year to date in 2023, while the ASX 200 is up just 1.25%).
"The major contributor to this increase has been central bank buying, which was 14% higher in the first ten months of 2023 compared to the same period last year, as well as a falling Australian dollar," Klein told the meeting.
"As a company, we are not comfortable with the risk trajectory contributing to a higher gold price, but we acknowledge investor preference for safe-haven assets during times of global market uncertainty. Unfortunately, I don't see any scenario where this normalises in the foreseeable future.
"Strategically, this has implications for Evolution. To date, investors have tended to be 'risk-off' as they reallocate to interest-bearing investments, and we have not yet seen the expected rally in gold securities. I have no doubt this will change over time.
"Likewise, investors will seek to limit their exposure to geopolitical risk, and Evolution is very well positioned in Tier One jurisdictions to benefit from this.
"Our focus on continually seeking ways to improve the quality of a small, highly concentrated portfolio of up to eight assets has resulted in us becoming one of the lowest-cost gold producers in the world.
"Our acquisition of Ernest Henry has also provided investors with exposure to copper, one of the metals critical to the 'green revolution' currently underway.
"Overall, we believe our strategy is well-suited to the current environment," he emphasised.
Looking ahead to 2023-24, Klein said the company's major spending programs at Red Lake in Canada and Cowal in central western NSW are due to be completed and commissioned in the year ending June.
"We currently have only one major capital project scheduled for FY24 and FY25, the $250 million plant expansion at Mungari (in WA), which will extend its mine life to 2038.
"Our organic growth pipeline remains strong, with Board approval for the Ernest Henry Mine Extension Project progressing to the Feasibility Study phase in FY23. This approval includes a commitment to a $15 million Feasibility Study and a $7.5 million drilling program to deliver a further significant mine life extension at our lowest cost and highest margin asset.
"Work has commenced on the Feasibility Study, which we expect to complete in the March quarter of FY25.
"Our commitment to invest in exploration for new gold and gold-copper deposits at our existing operations, as well as greenfield projects, yielded encouraging results at our key cornerstone assets. We were excited to announce new drilling results at Mungari and Cowal in the first quarter of FY24, which highlight the potential for additional high-grade mineralisation outside of known Mineral Resources near active mining fronts.
"Significant drill extensions were also reported at Ernest Henry throughout the year and supported the release of an increased Mineral Resource in August 2023," Klein said.
He also mentioned the company's intriguing diversification into renewable power.
"The transition of Mt. Rawdon from a 20-plus year gold mine into a major pumped hydro generator continues to build momentum, with the feasibility study due for completion in the next few months.
"Once constructed, the project will have the capacity to power 2 million homes during peak periods and will reduce Queensland's emissions by approximately 3%. To me, this is a wonderful example of our willingness to think differently at Evolution," he added.
