Should you buy Evolution Mining Ltd shares after today's record profit?

Record production helps gold miner Evolution Mining Ltd (ASX:EVN) to a huge full year result. Should you buy?

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The Evolution Mining Ltd (ASX: EVN) share price jumped 5% today after the company announced a record result for the full year 2017.

Net profit rocketed to $217 million helped by an 11% increase in revenue. Here are some of the other key points:

  • Production up 5% to 844,000 oz
  • All-In Sustaining Costs per oz down 11%
  • Gearing significantly reduced from 22.0% to 15.9%
  • New dividend policy and fully-franked 3 cents per share dividend

So what?

The result is a strong sign that Evolution Mining has successfully navigated the downturn in gold price which clearly pleased investors.

As Australia's second-largest producer, behind Newcrest Mining Limited (ASX: NCM), Evolution Mining's huge scale helped it to achieve one of the lowest All In Sustaining Costs (ASIC) per ounce I've seen reported so far in 2017.

At $905 per ounce Evolution Mining's costs were about 10% below both Newcrest Mining and Northern Star Resources Ltd (ASX: NST) which had ASICs of $1,006 (US$787) and $1,013 respectively.

The low costs and record production pushed Evolution Mining's EBITDA margin (Earnings before Interest, Tax Depreciation and Amortization) to 48%, compared to Newcrest Mining's reported EBITDA margin of 40%.

Outlook

Evolution Mining announced it will aim to beat its own record gold production in the coming year. Guidance for production suggests a range of between -2.8% and +4.6% in 2018, while All In Sustaining Costs per ounce are expected to be at or below 2017 levels.

Should you buy?

A winning gold stock has three key traits: high quality assets, low cost operations, and long production life.

Evolution certainly ticks the first two boxes, but with a current reserve life of 8.3 years, the company will need to continue investing in exploration or acquisitions to sustain itself.

Fortunately, Evolution has the cash-flow and a plan in place to support that. But I would want to make sure I understand the impact this expenditure will have on free cash flow going forward before I part with my money.

Motley Fool contributor Regan Pearson has no position in any stocks mentioned. You can follow him on Twitter @Regan_Invests. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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