Gold-copper miners cut guidance, hike costs

Evolution Mining and Oz Minerals have foreshadowed lower-than-expected production and likely cost increases at their respective projects.

Evolution revised down gold production for the 2022 financial year for a second time, from 670,000 ounces in December, to 650,000 ounces in March to 640,000 ounces for the current quarter in a business update issued this morning.

The downgrades stem in part from ramp-up delays at the Red Lake gold mine in Toronto  - acquired in March 2020 - which Evolution is working to bring back into profitable production.

Plans to get the operation yielding more than 200,000 ounces per annum are about a year behind schedule however, according to Evolution, lowering production outlook for FY23 and FY24.

Output for the June quarter is expected to increase by 15 per cent from March numbers to around 170,000, with Red Lake contributing approximately 38,000 ounces.

Likely to prove a common theme in the sector, Evolution flagged higher expected costs for FY22 and the two years thereafter.

For the current financial year, Evolution pegged group all-in sustaining costs (AISC) to be above the guidance range of $1,135 per ounce to $1,195 per ounce.

Cost pressures and lower production are also expected to impact AISC in FY23 and FY24, subject to copper prices and inflation.

Evolution flagged increases in labour costs of the realm of 5 per cent to 6 per cent for FY23, impacting around 50 per cent of the company’s operating costs.

To that end, Evolution revealed it would also defer construction on a plant expansion at its Mungari operation in Kalgoorlie citing market conditions.

Evolution chair Jake Klein said the company’s portfolio was well-positioned.

“Our confidence in the turnaround and potential at Red Lake is growing, the Cowal underground mine is on budget and schedule and the cash generation and geological upside at Ernest Henry is outstanding,” Mr Klein said.

“Aligned with our strategy, during this period of increasing costs and a challenging labour market all planned expenditure will be thoroughly assessed and gated with a focus on ensuring we continue to prioritise margins over volume and earn an appropriate return on capital.”

Fellow producer Oz Minerals informed the market that it was likely to run into similar issues.

The Adelaide-based gold-copper miner lowered expected copper production from the Carrapteena project by 13 per cent, from the 62,000 tonne to 72,000 tonne range to between 55,000 tonnes to 61,000 tonnes.

It attributed the downgrade in part to conveyor belt issues on its material handling system as well as difficulties sourcing equipment.

“The second conveyor belt issue has frustrated delivery of Carrapateena’s remediation plan following the slower start to the year,” Oz Minerals managing director Andrew Cole said.

“Opportunities have also been identified in a re-set plan to achieve greater operational consistency and reliability, including improving equipment availability and resourcing.”

Group unit costs for Oz Minerals are likely to increase by 17 per cent on account of lower production and inflationary impacts.

Oz Minerals shares were down 3.8 per cent to trade at $18.46.

Evolution fell by 21.8 per cent to trade at $2.64.