Shared from the Thu 06 Sep, 2018 - Financial Review Digital Edition Inside a gold mining Evolution
Evolution Mining’s Cowal mine is in the bottom half of Australia’s 10 biggest gold mines. But it’s not hard to believe its claim to being the most spectacular. From a lookout high above the mine, the waters of Lake Cowal seem to almost butt up against the mine’s pit. In the distance, farmlands show the ravages of the drought that has slammed New South Wales; it’s dry and dusty around the town of West Wyalong.
Cowal is Evolution’s biggest and most important mine, the flagship of its portfolio.
But what also makes Cowal important in the Evolution world is the fact that it represents an important organic growth opportunity in a company that has been famous for doing deals under Jake Klein, the company’s executive chairman
Klein, who built and sold Sino Gold for $2 billion, joined Evolution in 2011, after the company merged with Conquest Mining, where he was also executive chairman.
Over the next seven years, he oversaw a string of deals as he looked to reshape the Evolution portfolio, with a focus on reducing its overall costs and extending the lives of its mines.
Evolution bought the Cracow and Mt Rawdon mines in 2011, the Mungari and Cowal mines in 2015, and bought a stake in Glencore’s Ernest Henry mine in 2016; along the way it sold off the Pajingo and Edna May mines. Over the last five years, Evolution’s all in sustaining costs have fallen from $1228 per ounce to just $797 per ounce.
Cowal, purchased in May 2015, could have been the deal that tripped Klein up. Many thought he had paid Barrick Gold too much for a mine that at that point had a mine life that ended in 2024.
But Evolution has been able to almost double its ore reserves such that the mine’s life now extends until 2032, with a raft of exploration and development projects set to extend this further.
The company will plough $15 million to $20 million for exploration in the 2019 financial year and announced at its investor day on Tuesday that it had identified a new high-grade gold lode at Cowal.
Evolution will (presuming the successful obtaining of permits) also make a start on an underground exploration decline that would cost around $25 million in total – and potentially change Cowal forever.
‘‘The field is actually wide open from an exploration perspective,’’ Klein says.
Evolution’s eventual goal is that the mine can sustain a production rate of 300,000 ounces (it produced 258,000 ounces in 2018) for 20-plus years.
At the mine site on Wednesday, the enthusiasm among the mine’s leadership team to get to this target was obvious as they outlined a raft of projects under way and planned.
Still, the pressure for the next deal is starting to mount in an industry where the success of gold producers such as Evolution mean investors and analysts are not as worried about costs as they once were.
But while Klein might not have started life as a miner – his first gig in Australia was working for Macquarie Bank – the lessons of the sector have clearly not been lost on him.
‘‘We are not sweating on the next one,’’ he insists. ‘‘In the past there’s been criticism of the gold sector that we’ve fallen into the trap of growth for growth’s sake.
‘‘We are a margin and money story. We are looking for opportunities, but we don’t believe they are worth doing if they erode shareholder value.’’
What Klein generally needs for a deal to work is what he calls a motivated seller – a company under pressure for some reason, often capital constraints.
He says Australian gold producers and explorers are in pretty good shape; while the Australian dollar gold price has held up in the last 12 months, falling around 1 per cent, the US gold price has been under pressure, falling 11 per cent over the same period.
This has put North American gold companies under pressure; the GDX index which measures their performance is down 22 per cent since the start of the year.
So Australian gold companies have been hunting in North America for deals. Last week, Evolution’s great Australian rival, Northern Star, paid $365 million for a mine in Alaska.
Klein is hunting too, but says there is a central question his M&A team needs to work through: are these North American miners struggling because their assets are poor, or because their execution is poor.
Evolution’s view on what it is seeing is perhaps best shown by its lack of announcement.
‘‘We’re active, but we haven’t bought anything,’’ Klein says.
Still, with Evolution’s balance sheet in good shape, Klein can have the best of both worlds: another deal should it arrive, and organic growth opportunities at mines such as Cowal. Atlassian duo’s amazing $8b year Atlassian co-founders Mike Cannon-Brookes and Scott Farquhar are enjoying an $8 billion year.
That is how much the pair’s combined stake in the Nasdaq-listed company has surged since the start of 2018, as the stock cruised to another record high on Tuesday night after the announcement of their latest deal.
On January 1, the pair’s stock was worth $8.8 billion. But after a 95 per cent surge in the value of Atlassian’s shares – including a 2 per cent pop overnight – their stake is worth a combined $17.2 billion. Atlassian is worth $29.9 billion.
The raw numbers are eye-watering, but so is the growth of this company’s valuation over a relatively short period of time.
Founded in Sydney in 2002, Atlassian, which specialises in tools that help software developers collaborate, is no overnight success. But the company only listed in December 2015 and since then its market value has climbed more than three-fold.
Clearly, the rising tech tide in the US has helped to float the Atlassian boat. But the company’s impressive growth – revenue grew 41 per cent in 2017-18 to $US874 million – is underpinning its story.
The $US295 million ($411 million) acquisition of Boston-based OpsGenie, which alerts software engineers to outages in their applications and websites, is part of Atlassian’s next growth push.
Atlassian wants to push further into the IT market and it puts the cost of tech downtime in North America at $US700 billion.
But perhaps the key number for Farquhar and Cannon-Brookes is $US38 billion, which is the value that research group Gartner has put on the value of the IT operations software market by 2022.
OpsGenie’s product will be integrated with its Jira Ops platform, which was also released at Atlassian’s big summit in Barcelona overnight.
Jira Ops is Atlassian’s new end-to-end management IT management tool; OpsGenie will sit on that platform to identify outrages and disruptions and alert the right IT teams, theoretically helping to speed up the process of diagnosing and fixing problems and reducing downtime.
Atlassian picks up OpsGenie’s customers, which include big names such as 7-Eleven and Expedia.
The deal underlines the strategic shift Atlassian flagged last month when it sold its suite of chat products to Slack, which was driven by a desire to drive further into this operations software market.
‘‘One of the reasons we withdrew from the communications market is we see a much, much, much bigger prize for us in IT,’’ Farquhar told Bloomberg.
Atlassian will take a softly-softly approach to marketing, much as it did with its collaboration tools. If its IT push achieves even some of the success of its collaboration products, this could turn into a serious business.
JAMESTHOMSON The writer travelled as a guest of Evolution.
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