The Evolution Mining Ltd (ASX: EVN) is one of the best performing stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index this morning after the gold miner was upgraded by two notches by Credit Suisse.
Shares in the beaten-down company jumped 2% to $3.65 this morning to become the fourth best performer after the Perenti Global Ltd (ASX: PRN) share price, the Clinuvel Pharmaceuticals Limited (ASX: CUV) share price and the Metcash Limited (ASX: MTS) share price.
The jump in the Evolution Mining share price marks a turnaround for the stock, which was under pressure since it issued a production downgrade last week.
Molehill out of Mt Carlton
The miner’s December quarter gold output at its Mt Carlton project was weaker than expected and management warned that full year FY20 group production will come in at the bottom of its guidance of 725,000 ounces to 775,000 ounces of gold.
If that wasn’t bad enough, the miner flagged that Mt Carlton’s Reserves and Resources would likely be downgraded as grades and the ore body aren’t what management had originally expected.
Evolution Mining is also struggling with the lack of water, which can impact on production at Cowel. Management said it’s exploring alternatives like bore water to overcome this issue.
Good news sounds bad
Even good news didn’t leave investors smiling. Management tried to position its steady cost guidance as the saving grace for the disappointing update, but this raised further questions as All-In Sustaining Costs (AISC) for the latest quarter came in at $1,069 an ounce.
This is higher than guidance of $940 to $990 an ounce for the full year. At best, Evolution Mining’s AISC number would fall at the high-end of the range, and at worst it will exceed what the miner was promising.
Plenty of upside
But the bad news is more than reflected in the recent share price plunge – at least in Credit Suisse’s book. The broker lifted its recommendation on the stock to “outperform” from “underperform” despite these risks.
The EVN share price plummeted below the broker’s 12-month price target of $4.30 a share – leaving an implied upside of around 21% if you included dividends.
It’s also reassuring that most brokers have not downgraded their recommendation on the stock following management’s downgrade.
Given that gold is unlikely to lose its lustre in 2020 due to heighten geo-political uncertainties, investors might rather forgive and forget such bad pieces of news.
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