Evolution pays $1b for Glencore mine

Gold miner Evolution will grow its exposure to copper and silver after agreeing to pay $1 billion for Glencore’s Ernest Henry mine in Queensland, continuing a trend that has seen gold giants such as Newcrest Mining and Newmont pursue more exposure to copper.

Evolution was already involved in Ernest Henry after buying rights to 100 per cent of the gold produced at the mine and 30 per cent of the copper in 2016, but has now struck a deal to acquire the entire operation.

The deal is the biggest single transaction ever executed by Evolution, which has grown from a micro cap into one of Australia’s top three gold miners over the past decade under the leadership of executive chairman Jake Klein.

Just as it did when it acquired Canada’s Red Lake mine two years ago, Evolution said it would fund the Ernest Henry deal with debt rather than equity. The company will pay $800 million upfront and a further $200 million at the one-year anniversary of the deal’s conclusion.

The acquisition of more copper and silver rights at Ernest Henry will substantially lower the cost of producing gold across Evolution’s portfolio and give the company more exposure to rising demand for copper, which is viewed as a crucial ingredient for electric vehicles and other decarbonisation initiatives.

Based on guidance published by Evolution on Wednesday evening, the company’s all-in sustaining cost of production will reduce by close to 10 per cent in the next three years.

Glencore is not listed on the ASX, meaning Wednesday’s deal makes Ernest Henry the latest mine in the historic base metals mining region around Cloncurry and Mt Isa to come onto the ASX this year.

The Capricorn copper mine north of Mt Isa became accessible to ASX investors in June when 29Metals conducted a successful initial public offering, while ASX-listed junior AIC Mines brought the Eloise copper mine into public view when it bought the mine out of private hands in August.

The Anthill copper project in the same region came to market last week with the initial public offering of Austral Resources, while two further old copper mines in the region would have joined the trend had Washington H Soul Pattinson not pulled the plug last week on its well-advanced plans to float its collection of copper assets.

Aside from Ernest Henry and Red Lake, Evolution also acquired Northern Star’s Kundana gold assets near Kalgoorlie earlier this year for $400 million.

The slew of deals is part of a plan to reverse several years of declining gold production.

It continues a massive year of mergers and acquisitions in the mining sector.

Newcrest agreed to pay $US2.8 billion for Canadian miner Pretivm last week, while Regis Resources paid almost $1 billion for a 30 per cent stake in the Tropicana gold mine.

Last year’s merger of Northern Star and Saracen was only formalised in February.

South32 agreed to pay up to $US2.05 billion for a Chilean copper mine barely a month after Sandfire Resources made a multibillion-dollar copper acquisition in Spain.

BHP has been among the most active, trying to acquire nickel junior Noront at the same time as it tries to vend its petroleum division into Woodside Petroleum.

Western Areas and IGO Limited are also expected to provide an update on their merger talks on Thursday.