Evolution Mining (ASX:EVN) share price lifts 7% on $1 billion acquisition news

Evolution adds another carriage to the 2021 ASX acquisition train…

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The Evolution Mining Ltd (ASX: EVN) share price is jumping from the open and is now up 7.48% to $4.31. It comes after the gold mining company announced yesterday it had acquired 100% of Ernest Henry Mining Pty Ltd.

Ernest is the owner of the “world-class” Ernest Henry copper-gold mine located near Cloncurry, Queensland. Evolution acquired the company on a consideration of $1 billion.

Here are the details.

Evolution acquires Ernest Henry Mining for $1 billion

The company is buying Ernest Henry with $800 million payable upfront upon completion and another $200 million on the one-year anniversary of completion.

It made the announcement after the close yesterday, hence investors haven’t had a chance to react until pre-market trading this morning.

Evolution first acquired an economic interest in Ernest Henry in 2016 “via a joint structure, with the asset managed and operated by Glencore”.

Evolution is now the sole owner of the asset and will assume ownership of its operations as well.

Evolution says the transaction is set to increase its copper production while lowering its all-in sustaining cost (AISC) per ounce. It says it will cement its position “as one of the lowest-cost gold producers in the world”.

It also aligns with Evolution’s strategy and will result in an “immediate material increase in cash flow generation”.

To finance the transaction, Evolution successfully priced a US$200 million private debt facility that matures in FY31, paying a fixed coupon of 3.06% to maturity.

The release notes that Evolution’s investment grade rating on its debt was reaffirmed. It also said the placement was oversubscribed, “reflecting the investors’ view on the quality of the transaction”.

Even after the initial $800 million round of the transaction is completed, Evolution’s balance sheet will remain strong. It will have around $900 million in available liquidity on settlement, per the announcement.

The transaction is set to be effective from 1 January 2022 and will be completed around a week later.

Executive comments

Speaking on the announcement fuelling the Evolution Mining share price, executive chair Jake Klein said:

We have long coveted to own Ernest Henry. It is a world-class asset in Australia and one which we know extremely well due to our successful investment in the asset in 2016 and proud that it will once again be 100% Australian owned. The acquisition is consistent with our strategy, materially improves the quality of our portfolio and delivers both strong cash flow and mine life extension opportunities.

Klein continued:

The site management team have an outstanding track record of operational delivery and we are delighted they will be joining Evolution and look forward to working with them to make this an even better operation. We are also pleased to be continuing our strong relationship with Glencore and that the product will continue to be treated in the local region at their Mt Isa smelter and Townsville refinery.

Evolution Mining share price snapshot

The Evolution Mining share price has had a difficult year in the red these past 12 months. It has lost about 24% in the last 12 months, and 14% this year to date.

For comparison, the S&P/ASX 200 index (ASX: XJO) has returned about 13% in the last 12 months and 12% in 2021.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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