Ozizie M and A expereince22 Mar 2022 07:36
“It is fair to say Australian gold producers have probably been a little over-optimistic as to how quickly that [opportunity in America] can be delivered,” says Evolution boss Jake Klein.
On the day he bought Red Lake, Klein was explicit that years of work and hundreds of millions of dollars of refurbishments would be required to achieve Evolution’s vision for the mine.
Capital spending at the site has been roughly equivalent to earnings over the past 18 months and with a further $500 million to be spent in the next three years, Red Lake may not be a cash-flow contributor for Evolution until fiscal 2025.
Klein acknowledges that Red Lake is unlikely to be a major contributor in the near future, but says it will prove its worth eventually.
“At the end of that [refurbishment] we will have an asset with a more than 15-year mine life, producing sustainably at least 350,000 ounces of low-cost gold ... it will be restored as a premier Canadian gold mine,” he says.
Most would agree that it [Pogo] has underperformed relative to initial expectations.
— Reg Spencer, analyst, Canaccord Genuity
While future spending at Red Lake will be higher than he previously expected, Spencer says Evolution has gone closer than its peers to delivering on the expectations set when the companies acquired their North American mines.
“At this point, Evolution’s purchase of Red Lake looks the best in terms of initial expectations. They are looking on track to deliver initial production and cost targets, but have enhanced the project through exploration success,” he says.
Life in North America has proved harder for Northern Star in the three years since it told investors that Pogo would immediately deliver about 260,000 ounces of gold a year.
A short mine life seemed to be Pogo’s main challenge on the day it was acquired, but Northern Star was confident it had the skills to extend the life by finding more gold nearby.
Extending the mine life has proved to be the least of Northern Star’s challenges, with a change to Pogo’s mining method proving harder than expected.
The coronavirus exacerbated the challenges by reducing Pogo’s ability to use fly in, fly out workers.
Pogo has struggled to dig enough ore to run the mill at full capacity at times and annual gold production has averaged 196,000 ounces in the past three years; about 25 per cent below expectations.
“I think most would agree that it [Pogo] has underperformed relative to initial expectations, and then the disruption caused by COVID in the US hasn’t helped,” says Spencer.
Spending on new fleet, exploration and a mill expansion at Pogo has largely offset earnings over the past three years and Pogo is unlikely to be a major cashflow contributor in the year ahead given spending at the site will top $70 million.
Northern Star boss Stuart Tonkin says a turning point will come in fiscal 2023 when the mine starts consistently delivering 300,000 ounces a year.
“We have got a lot
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