The Evolution Mining Ltd (ASX: EVN) share price is on ice this Tuesday morning.
With nowhere to go, the seven billion-dollar-strong gold miner's shares are idle at yesterday's closing price of $4.14 apiece. In the meantime, other listed gold giants are having a dull start to the day following a weakening in precious metal prices overnight.
Northern Star Resources Ltd (ASX: NST) and Newmont Corporation Ltd (ASX: NEM) are trading 4.7% and 2.5% lower, respectively. It's fair to assume Evolution might have had a red shade to its name today as well if it weren't to enter a trading halt this morning.
Instead, the gold miner is parading its latest addition.
What's bringing Evolution Mining shares to a standstill?
At a time of near-record gold prices, Evolution Mining has entered into a binding agreement to acquire an 80% stake in the Northparkes copper-gold mine from CMOC Group Limited. Operating under a joint venture, Sumitomo will retain the other 20% interest in the New South Wales (NSW) mine.
According to the release, Evolution will lay down US$475 million (~A$717.6 million) to seal the deal. The total cash consideration comprises an upfront US$400 million payment and a US$75 million contingent consideration.
Additionally, an offtake agreement has been entered with IXM S.A — a CMOC subsidiary — whereby IXM will purchase Northparkes' copper concentrates, equal to Evolution's 80% interest, over the life of the mine.
Evolution pays up for cash-generating asset
The company highlighted the cash-generating capability of Northparkes in the release, noting:
- Delivering immediate cash flows to support current balance sheet deleveraging
- Upcoming low capital intensity profile with a pipeline of projects
- Multiple large-scale porphyry copper and gold deposits, suitable for bulk cave mining operation
These factors were unsurprisingly appealing given some of Evolution's recent fundamentals. As of 30 June 2023, the company maintained a debt-to-equity ratio of around 54%, with a net debt of $1.72 billion.
Nevertheless, that hasn't stopped Evolution Mining shares outpacing the S&P/ASX 200 Index (ASX: XJO) in 2023.
Northparkes holds an estimated 101 million tonnes in ore reserve at 0.53% copper and 0.27 grams per tonne of gold. The mine life is believed to be around 30 years based on forecast production.
Speaking of which — the 80% share is expected to produce 25,000 tonnes of copper and 38,000 ounces of gold in FY2024.
However, Evolution will need to honour an agreement CMOC made with Triple Flag Precious Metals Corp. As per the July 2020 arrangement, Triple Flag will receive 67.5% of CMOC's share of payable gold up to 630,000 ounces before reducing to 33.75% thereafter.
Likewise, 100% of CMOC's payable silver share will go to Triple Flag up to 9 million ounces. From there, it will reduce to 50% of Northparkes' silver production.
What it means for Evolution Mining shares
Evolution is raising A$525 million via a fully underwritten institutional placement to fund the acquisition. This represents approximately 7% of the company's market capitalisation — signifying some dilution for shareholders. In addition, the gold miner is tapping into a new A$200 million five-year term debt facility.
A share purchase plan (SPP) will be open to eligible shareholders to raise an additional A$60 million. The offer is being made at $3.80 per share, representing an 8.2% discount to yesterday's closing price.
Wasting no time, the transaction is expected to occur before the end of December this year.
Evolution Mining shares are up 36.2% since the start of the year.
