Evolution Mining Ltd (ASX: EVN) shares had a day to forget on Wednesday.
During the session, the gold miner's shares lost 17% of their value to finish at $3.10.
Investors were hitting the sell button after the company's quarterly update fell well short of expectations.
The question now, though, is whether this is a buying opportunity? Let's find out if it is.
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Should you buy Evolution Mining shares?
The team at Goldman Sachs has been running the rule over the update. And while the broker was not impressed with its performance, it has seen enough to keep its buy rating.
Commenting on its performance, its analysts said:
EVN reported group Dec-Q gold production/sales of 161koz/170koz, well below expectations on lower production at Cowal and Mungari (weather) and ongoing disruptions/underperformance at Redlake.
While EVN has left group FY24 guidance unchanged (789koz; AISC A$1,340/oz; +/-5%), expecting other assets to meet or exceed the mid-point of their original production guidance (with Cowal and Ernest Henry at the highest confidence), we revise our gold production down to 734koz (from 763koz) on risk of ongoing weather disruptions and ongoing Red Lake underperformance (which we now assume remains below original FY24 guidance over the medium term).
But despite this, the broker believes there are reasons to stay positive. One of those is its strong free cash flow yield, which remains above 10% for FY 2025 and FY 2026.
In light of this, the broker has retained its buy rating with a reduced price target of $3.70 (from $4.20).
Based on the where Evolution Mining shares currently trade, this implies potential upside of over 19% for investors between now and this time next year. It concludes:
On our LT gold price of US$1,750/oz, EVN is trading on ~1.05x NAV (on our medium-term Red Lake production downgrades), or pricing ~US$1,830/oz gold (peer average ~1.05x NAV (NST 1.1x) and ~US$1,800/oz), though near-term FCF yields of c. 10% in FY25/26E remain attractive vs. peers at ~0-10%.
