A host of Australia's leading gold miners have slumped today, none more so than EVOLUTION FPO (ASX: EVN) which dropped sharply after the release of its full year results.
For the year ending June 30 2016 Evolution Mining reported a 100% jump in revenue to $1.3 billion. But on the bottom line it posted a net loss of $24.3 million, down from a $100 million profit a year earlier. The decline in profit was a result of amortisations, impairment of goodwill, and one-off costs related to recent mine acquisitions.
However, on an underlying basis things were much better. Underlying profit after tax came in at $226.8 million, a 114% jump on last year's $106 million. By my calculations this would equate to approximately 16.2 cents underlying earnings per share.
This would mean that the shares are now changing hands at just over 15x underlying earnings, which would appear to make them great value. Especially in comparison to industry rivals Newcrest Mining Limited (ASX: NCM) and OceanaGold Corporation (ASX: OGC).
So why has the share price declined?
The decline is likely related to the company's FY 2017 guidance revision. Previously Evolution Mining had targeted gold production of 800,000 to 860,000 ounces at an all-in sustaining cost of A$985 to A$1,045 an ounce. But in its results presentation it has lowered its guidance to 745,000 to 800,000 ounces with all-in sustaining costs of A$970 to A$1,030 an ounce.
This would be a slight drop on FY 2016's production of 803,476 ounces, but potentially an improvement on its full year all-in sustaining costs of A$1,014.
Should you buy the dip? As always it depends on your view of the gold price. With production unlikely to increase next year and costs likely to remain steady, an improvement in its underlying profits could rely solely on the gold price rising in Australian dollar terms over the next 12 months.
If the gold price rises then Evolution Mining could well prove to be a great investment. But whether or not that will be the case is unfortunately anybody's guess.
