Evolution buoyant on gold after US Fed's interest rate call despite omicron

Evolution Mining's Cowal gold operation in New South Wales, Australia, is one of many jurisdictions where miners are learning to live with COVID-19, according to Executive Chairman Jacob Klein. Source: Evolution Mining

The U.S. Federal Reserve signaling a rate hike in March is very good news for gold stocks, potentially outweighing pandemic-related headwinds for the mining industry, Evolution Mining Ltd. Executive Chairman Jacob Klein said.

The Fed's announcement that "they need to start raising interest rates and reduce their balance sheets" was nothing that anyone should have been surprised about, Klein told analysts and media on a Jan. 27 call. However, the executive raised a question about the Fed's ability to "do it in a way that is not disruptive."

"If I were someone who needed insurance I'd be buying gold and gold stocks, like Evolution."

On Jan. 20, Western Australia's government decided to defer re-opening domestic borders due to surging COVID-19 cases in Australia's eastern states.

The Association of Mining and Exploration Companies criticized the move, as it hindered miners' ability to bring in out-of-state workers to Western Australia, which accounted for over 70% of the country's exploration spend in 2021, according to S&P Global Market Intelligence's Metals and Mining Research team.

Klein said he would have preferred Western Australia's government to re-open state borders Feb. 5 as planned, instead of indefinitely delaying the re-opening. The ongoing labor shortage in the state has made it difficult to fill positions at the Mungari gold project. "Frustratingly, Mungari remains the only asset in our portfolio that we cannot currently visit" due to border restrictions, the Evolution executive said.

Despite the setback, the Mungari gold operation is still progressing well, and the company is growing increasingly confident about its future, Klein added.

Managing the pandemic

The pandemic has "distracted the management teams a lot," but it can be managed effectively with the proper process and protocols, Klein said. The industry is getting better at working through the pandemic to remain productive.

"It does feel like other places like New South Wales, Ontario and the rest of the world are learning how to manage this [pandemic]," Klein said. "Certainly at our operations, while it has been a big distraction, we've been able to manage through it, and we are getting more comfortable that we can manage it."

COVID-19 had limited impact on Evolution's operational performance for the December 2021 quarter, but "positive cases and isolation of close contacts has resulted in periods where up to 15% of the workforce has been unavailable" at Red Lake in Ontario, Canada, and Cowal in New South Wales, Australia, Evolution said Jan. 27.

The miner is optimistic for 2022, particularly in light of the Federal Reserve's recent announcement, after repositioning its portfolio to "be profitable right through the cycle" with a number of transactions in 2021, the chairman said.

Klein cited Kundana transaction with Northern Star Resources Ltd., which elevated the Mungari mill to a cornerstone asset; the acquisition of Glencore PLC's majority stake in the Ernest Henry copper-gold mine in Queensland; and the Battle North Gold Corp. transaction to consolidate Red Lake.

Evolution's second-quarter gold production for fiscal 2022 dropped to 148,084 ounces from 170,681 ounces in the previous quarter and from 180,305 ounces in the year-ago period. All-in sustaining costs of A$1,347/ounce for the quarter were lower than A$1,413 per ounce in the previous quarter but higher than A$1,166/oz in the year-ago period.