Shares in Evolution Mining Ltd (ASX: EVN) are trading near their record highs, but the team at Bell Potter thinks they can push even higher over the next 12 months.
Evolution this week released a quarterly report characterised as "strong" by the Bell Potter team, with record mine cash flow of $1.1 billion, which was a 57% increase from the September quarter.
The mining company said it was on track to deliver its full-year production at lower than the original cost guidance, with its December quarter production of 191,000 ounces of gold and 18,000 tonnes of copper produced at an all-in sustaining cost of $1275 per ounce.
The company's cash balance also increased, up $187 million to $967 million, with Evolution's gearing falling from 11% at the end of September to 6%.
Evolution's guidance remained at 710,000-780,000 ounces of gold and 70,000-80,000 tonnes of copper, with copper expected to come in towards the lower end of this range due to a weather event at the Ernest Henry mine.
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Lower costs key to cash flows
The Bell Potter team noted that the cost of production had fallen 26% quarter on quarter, "as copper by-product credits made a significantly increased contribution''.
They went on to say:
This was a very positive result, demonstrating consistent operational delivery, capital discipline and surging cash flows due to Evolution's effectively unhedged gold exposure. It also highlighted Evolution's copper kicker – a key aspect of its business that differentiates it from the majority of its peers but, in our view, is often overlooked by the market. Evolution's annualised copper production of 70-80ktpa is a significant boost to margins, free cash flow and shareholder returns. The market is becoming more attuned to this with the rising copper price and, combined with Evolution's other attributes, we expect this to continue driving Evolution's outperformance.
Bell Potter has increased its earnings per share forecasts for Evolution by 32% for FY26 on the back of the quarterly update, increasing to a 62% uplift for FY27 and 53% for FY28.
They also noted that the company "has stated its intention to pass growing free cash flows on to shareholders''.
Bell Potter has increased its price target on Evolution Mining shares to $16.70, up from $12.35.
That would represent a 12.9% increase from current levels, and once dividends are factored in, the total shareholder return over a 12-month period is expected to be 16.7%.
Evolution was valued at $30.03 billion at the close of trade on Wednesday.
