Jonas Sterling gave us an appetizer, which was Northern
Star. You've followed it up with a
wonderful main meal that was Fortescue.
And now you've come out with dessert Evolution Mining.
You've done the history on the mining companies that have
defined their last decade or two decades, and what have they
done? They've gone from nothing to
something incredibly substantial.
Evolution is your focus today like.
A $22 billion business, Can you can you just wrap your head
around that number for a moment? And the last sort of 6 to 12
months make that number look pretty astounding.
But this is a 15 year story, bit by bit, trading their way out,
stepping stones, as they, they like to call it, going from
asset to asset from frankly, not the best assets in the world,
just some pretty stunning assets.
And even more remarkable, it has been a journey led by a guy
called an accidental miner by himself, Jake Klein, and a very
entrepreneurial team. So I've been itching to do this
episode for a long time. We've sort of heard along the
way about deals like the Ernest Henry deal that they did, which
was just remarkable, like awesome, awesome stuff.
And we, we analyze a lot of deals here.
We, we talk a lot about deal making in the mining space.
So why not learn? Learn from some of the best in
the business. I, I can't wait, mate.
I mean, the, the feedback that that we've had from the amount
of work and research that you've put into studying both Northern
Star and, and Fortescue has been extraordinary.
And I know that that today is no exception.
In fact, I actually think you've probably done more research into
evolution than any of the two, but.
I'm keen to get it done. You're building, you're
building. And again, the characters are
important. Again, the the the company's
strategy is important. Fortescue a story that execution
Northern Star a story of of, of of deals and and and execution.
But this one, a story of deals, right?
Totally, this is this is all about the the deals and to put
it in the context as well, right, because there are cycles,
we're in a very cyclical business and there are multiple
cycles in the company we're going to analyse today.
We're clearly at one of the the higher ebbs of the gold cycle
today. And evolution is a company
that's had a draw down over 80% in its time.
So I think it's really important as commodity investors as well
to to try and take this on board and understand what can what can
happen when, when the cycle kind of turns.
And I think Jake Klein would be the first person to to say
something like that. There's a couple other reasons
to do an episode like this as well.
Speaking of Jake, he has just moved to non exec chair.
So it feels like a bit of a passing of the the the guard
there. And you remember in the Northern
Star episode, we kind of brought that one to a close kind of when
when Bill moved on. So I think that changing in the
nature of the business makes sense.
And just to to touch on that point once more that that you
made, it's all about the deals here.
This is the ultimate investor slash capital allocator mining
company. And I think it's so fascinating.
It's not just the deals that they did, it's the assets that
they sold along the way, not just the buyers as well as the
assets they, you know, passed on and perhaps most important, the
timing of those deals. And you know, you can, you can
only kind of think back about it years afterwards.
But when you, when you do look back on evolution, the timing's
been pretty good, hasn't it? It's been been been great to
have commodity tailwinds. It makes or breaks a mining
company, there's no doubt. I'm extremely excited for your
story on the evolution of evolution.
JD Where does the evolution of evolution begin?
That we're going to kick this one off in the 90s.
So I want to give you a brief bit of background on the on 2
individuals, firstly Jake Klein and then Nick Curtis.
So Jake Klein, South African born, joined Macquarie in late
1991. He was in his late 20s at that
point in time. Joins the internal audit
division and he moves through the bank gets a flavor for all
the all the divisions that a a much younger and smaller
Macquarie has at that point in time.
But he gets a bit of a flavour for gold working in the bullion
division. And they were, they were doing a
whole bunch of fascinating things, which I'll, I'll sort of
try not to digress into, but he meets Nick Curtis there.
Nick had first tried his hand as an art dealer of of all things.
And he is running the most profitable division of the bank,
the bullion division. And to flash forward a bit for
people that don't know, Nick would found Linus later on in
the, in the early to mid 2000s. And he would, he would lead that
company as well as serving on the board with Evolution and
playing a big role in Sino gold, which we're going to get into.
But they get their first taste for China pretty early on.
It's, it's the mid kind of 1990s here.
And they are actually approached by a Chinese SOA.
And Jake is tasked with showing this guy Zhu Hengjing around the
bank for a couple weeks in Macquarie's office in, in
Sydney. Nick had already met this guy
and he, he spoke super, super highly of him.
He, he said he was one of the most interesting men he'd come
across in a long, long time. And Zhu becomes very influential
in the Sino gold stories. We'll we'll touch on later on.
But he he helps open doors and give local insight to the
company and and helps them on their kind of way.
This is the mid 90s like, like what is the political yeah
atmosphere of China at the time? Were they trying to incentivize
foreign investment into China? That they were in small parts.
I mean, the, the opening up had really started in the in the
late 70s with Deng Xiaoping and that had taken a long time
because China was extremely poor and it's still very poor at this
point in time in the 90s. But as these guys kind of show,
they are pretty adept at, at reading the tailies and they're
going to China 10 years before others are kind of doing that.
But more importantly, from China's perspective, they want
to learn. And that is why they sought out
Macquarie because they wanted to learn about, about deal making
and, and all sorts of kind of things.
Hence sending Zhu over over to China and then inviting the
Aussie team back to China. And they get an experience going
to a whole bunch of different mines in kind of in the
northwest of China and some provinces that back in in those
days took a long, long time to to get to and over the Sino
Gold. And firstly, the Macquarie
journey, they were seeing first hand how things were changing on
the ground in China. Jake gave some some awesome sort
of anecdotes about how long it would take to get to places and
roll forward a few years that the trip is, you know, dropped
2030 forty 50% in time because highways are being built across
valleys and all these sorts of things to just remarkable to
kind of think about. So Nick and Jake are invited to
to China. And what does that?
What does that experience evolve into?
So eventually Macquarie learns that they're not going to get
the fees that they want to get from the Chinese.
I'm laughing. Anyone that's working in
investment banking will have a good laugh at that.
No surprises there. So in that sort of second part
of the 90s they they leave Macquarie, a SOA essentially
puts money into an offshore vehicle, a came in vehicle
called Sino Mining International and this is run from Sydney.
It starts with 30 million U.S. dollars and they look for a
whole bunch of different things. They pick up Illumina assets,
they pick up undeveloped gold projects, they pick up developed
gold projects. So they pick up a whole
collection of assets. And then around the year 2000,
the Chinese premier puts the foot down and says we are
reforming all the SOAS. A lot of these assets get pushed
back out to the provinces, but it leaves Sino Mining
International in a bit of limbo. Sino gets swooped up by a
company called Min Metals. Might be familiar to a lot of
people because they're the parent company of MMG today, one
of the biggest businesses in in in China, mining businesses.
And Min Metals is an enormous commodity trader.
Right, yes, they're, they're a behemoth in in China still to
this day. But Long story short, for 18
months, they don't have a a shareholder, so they get swooped
up and they end up negotiating to take on this unprofitable
gold mine that's called Zhang Chaling, plus a few undeveloped
projects. Jin Feng was one of them, which
would go on to become a mine and the second biggest gold mine in
in China. The Chinese state still owns a
stake in that entity, Sino. And sooner or later, come 2002,
we get a public listing. So the company Sino Mining lists
on the ASX, the Chinese interest in that is, is way, way down.
They raise $100 million. This is sort of corner stoned by
4 investors taking $10 million stakes.
And you got Jake, a CEO, Nick Curtis chair later on.
Jim Askew becomes chair in 2005. And if we Fast forward all the
way to 2009, they're a company with two mines.
A third one is on the way. One of them is, like I said, the
second biggest gold mine in in China.
These guys are the largest foreign gold miner in China.
Jewel listed Hong Kong and on the ASX and that is getting to
the end of their 15 odd year journey in China.
You fast forwarded 7 years of of Sino Gold's life there mate.
But but those those seven years would have been filled with some
pretty important lessons. There, there would have been a
bunch of important lessons, but the the one that sticks out to
me that they take forward and this is a lesson actually I
think they learned at Macquarie, this was hammered into the guys
at Macquarie is that you need to understand what your competitive
advantage is. You need to know what your edge
is. And in China that was abundantly
clear for these guys, at least early on, costs were a fraction
of what they were in Australia. These guys brought in the
expertise of the Australian mining industry and they brought
that to an underexplored area like the the average gold mine
in China at the time was doing less than 20,000 oz.
And Despite that it was the biggest gold producer in the
world. It, it, it, there was so much
for the Chinese to learn and the Chinese did a great job learning
that. Everything is done in a joint
venture. The Chinese, they would never
give Sino or any other foreigner access to their tier one mines
that they're working with the the lower kind of quality mines.
And a lot of what these guys brought to China is still
embedded, as I've sort of read it to this day, in the Chinese
mining culture, if you like. I remember Jake sharing an
anecdote, I think it was when we had him on the podcast about
like, you know, one of the operations.
It wasn't ingrained into the the operators to to effectively like
just do your development level by by level.
That would do all of the development and then start
stopping. And they're like, we're we're 12
years ahead or something. Like that.
Yeah. Which which it's kind of, you
know, we, we chuckle about it now because your, your latter
point is so important. The Chinese did a phenomenal job
at learning. In fact, like the innovations,
the technology advancements and everything in the mining
industry today, we're, we're, we're learning from China now.
Yeah, it, it, it's remarkable. I mean, what what you first say
there that's, that's straight out of the the USSR, like it's
a, a complete shift in, in how they think about these things.
And yeah, where we are today is, is worlds away from that.
But 2009, these guys knew the opportunity wouldn't remain
forever. And, and the writing was kind of
on the wall. Specifically, I'm talking about
how the Chinese viewed foreign ownership of mines and there was
a few kind of hair raising incidents that that start to
happen. And they they make a call.
And this is where Zhu Hongjing, who'd who'd been, you know,
running BD and done a bunch of things for the company.
He really gave the advice to to Jake who, who did well in in
heating it, saying things are changing here on the ground in,
in China and it's time to go. And for that you need to find
someone to buy you. And for that they found
Eldorado. So Goldfields had been a big
shareholder in Sino Gold, but for a bunch of kind of reasons,
South African companies weren't trading at rich multiples.
Aussies were kind of middle of the pack and at that time the
North Americans were trading at much richer valuations.
So Eldorado buys that 20% stake in the company from gold fields
and a month after we have a deal Aussie $2.2 billion to buy out
Sino Gold at. This point Sino Gold.
They were an ASX 100 company, or 201 hundred.
They were an ASX 100 company. It's.
Kind of remarkable that yeah, Sonic Gold had grown from,
again, very, very humble beginnings into an ASX 100
company at the time was taken out by Eldorado.
From what from what like I'd heard about that deal around the
fringes was Eldorado with a type of company that thought that
they had specializations working in, you know, exotic locations
and and as as evolution. Read the writing on the wall to
get out of China. Eldorado foolishly went in.
Maybe maybe a bit too exotic. Yeah, you're dead right.
That operated in in Turkey and, you know, a bunch of countries
of of that sort of similar ilk. But yeah, by 2018, they don't
own any of the assets anymore. I mean, they've got a bit of
money for it, but not what they paid for.
To think about it all. Like there's not too many
foreigners that go to China and make a bunch of money and sort
of just walk away kind of like that there.
You know, it's, it's fascinating to think about.
And more broadly, the 1995 period to the 2010 period, I
mean, that captures the whole Fortescue story.
That would have been like outstanding to just witness what
was happening in in China. That would have been one of the
most fascinating times in modern history that I can kind of think
of to see the development of a country and see the hundreds of
millions of people that have come out of poverty.
But that's a bit of a digression from the the evolution story
we're going to get into. Which brings us to the evolution
chapter, the beginning of evolution.
I mean, you wrap up the sinus story.
Jake's looking for a new job. He is.
They've sold themselves out of a job now.
This is 2010. We're in.
Jake is 45 years old and hunting.
Look, it does he? Good.
He is hunting for the next, next challenge.
And as the story kind of goes, I think this one's pretty well
told. There's a Sydney broker, Richard
Granger. He's sort of yells at Jake from
over the street and tells him he's got this, this great
opportunity to show him. That opportunity is called
Conquest. Project wise, they've got the
Mount Carlton project up in North Queensland and that had
ADFS on the way or arguably already kind of done.
So Jake took it on to to review the project with with his sort
of connections, Aaron Culler and Tommy Mckeith, Ross Jenkins, a
few other individuals that sort of pop up consistently
throughout the story and and a kind of pivotal in it.
Some of those characters had been involved with Jake and the
sign. I got story as well, right?
Yeah, exactly. And after this period of
diligence, Aaron gives the advice that, you know, he, he
wasn't totally convinced by the project, but they sort of
differed sort of slightly on the opportunity that was at hand
because Jake saw the cashbox that the company was 58,000,000
bucks in cash is a key asset that the company did have.
Regardless of what you thought of Mount Carlton at the time.
And at its sort of lower ebb, that was an enterprise value of
25 ish $1,000,000. So the company's cashed up, but
it's got non economic study on it.
Why was it uneconomic? So the project is a refractory
gold, silver, copper project. It's a a high sulfidation
epithermal deposit as a lot of those ones tend tend to be in in
that neck of the woods a bit different to the the gold mines
that we have out here in, in WA. But what appealed to them if
anything was that the the similarities they saw with this
asset and that first mine that I mentioned in in China and as
that sort of relates to why the the feasibility could be
improved upon. They thought they could cut a
portion of the CapEx and sell a concentrate.
So if you simple it down that that is what they were looking
to do and they thought they could sell that concentrate to
the context that they built in their in their time in China.
So the study says that concentrate's not saleable.
You need to build extra CapEx to actually refine this con.
Yeah, I mean that, that is what the the the study had just
assume they were going to go all the way down and then later they
backtracking that they start looking at that but.
These guys know that the con is saleable because of their
experience in China dealing with these smelters.
Exactly selling sort of 2% arsenic concentrates in in parts
of China there. So Jake is actually mentioned
before he comes into the company in one of the releases and the
board commissions him to to run this review.
And hang on. So the company puts out a
release saying Jake Klein is running a review.
Yes, So we're in Feb 2010, Jake has come in to to do this
review. The stock has halved on the back
of this and Jake is using the expertise of him and his team to
to look at what they can do with this.
And in March, another announcement comes out also
worth noting as well that Goldfields was on the Register
here to through a kind of weird confluence of events, they were
the major shareholder and AJV partner in the land surrounding
Mount Carlton. The CEO of Conquest had
reportedly held sort of stock through Opus Prime, which was a
kind of awful bankruptcy that happened here in Australia in
2008. One way or another, the the
stock gets put up for for tender and Goldfields get their hands
on roughly 20% of the company. By the time Jake's there, it's
15% of the company and the Conquest Goldfields relationship
had soured quite a bit as well. Isn't that interesting?
But Tommy Mckeith is a common link there as well, because he'd
worked at Goldfields and he would be a yeah, Jake had got to
know him from that time, Sino Goldfields.
And he joins the board and has a long relationship with with
evolution, so. So.
So at this point, Jake, looking into the economics, but the
market thinks this is a Dodd because they've told the market
it's a Dodd. Meanwhile, the stocks now
trading What is it about about cash backing?
It's, it's a bit over cash backing, right?
But it's, it's a long way down from what it was.
And essentially the team from Sydney flies over to Perth to,
to tell them the facts, what they think.
And when I say the team, I'm talking about Jake as well as
Nick Curtis and, and and Jim Askew, who were brought onto the
board in March of 2010. And shortly after that as well.
You've got Aaron Coleraine, Ross Jenkins, Dave Hewitt and Charles
Wang, three of whom had worked at Sino, joining the the team in
in quick succession. And to the board's credit, they
didn't fight it massively. They knew it was flawed in in
it's current sort of shape and form and the company was going
nowhere. And this was ultimately better
for shareholders. So what did they what did they
they convince the board to just effectively change management.
Let let Jake and the crew run this company.
Honestly, I know it's like West Perth, I just scratched my head
a bunch of times to to wrap my head around the fact they would
just walk away, but having spoken with a number of people
that that is more or less how things played out.
Isn't that, isn't that fascinating?
You just, Yeah. A win for shareholders.
You don't, you don't you don't get such a polite a polite yeah,
I'd be happy to hand over the keys.
Yeah, these days, but it's there was also an opportunity in doing
that, I mean. Totally.
And the, the stock rebounds a little bit.
It sort of trades in that $0.30 kind of range for a while.
It's a, it's a bit of a far cry from 10 years later where you'd
see the likes of Bill and Rao jump into a company and the
stock price would more than double the next day.
But the company had a lot to kind of work through here.
But they they get get, they get to it pretty quickly and we
start to see the strategy. Which becomes the the evolution
strategy in time, which never really wavers from its sort of
core roots before that. Interesting you mentioned team
from Sino coming with Jake like that's a that's a a difference
to the story of of Twiggy Anaconda.
I mean, it's kind of gold to gold.
So I can't understand the parallels.
Whereas before you go on from complex met, which was Anaconda
to to simple logistics for excuse and maybe there's those
parallels, but I do think it speaks volumes to type of
individual when people that they'd worked with previously
will, will will go along for the for the next ride.
Couldn't agree more. And it's something we're seeing
again with federation slash endura.
It's a trend that just continues.
Are there, are they carry over people at at federation?
At least five that I can count already.
Wow, yeah. No, it's a, it's a, it's a
pretty glowing kind of statement.
You know, if you like that, you would do it not once, not twice,
but maybe in three times in some cases with with someone.
So, yeah, but that that rings loud and clear in this story.
And the strategy is something else that is super important
and, and crystal clear from from pretty early on, they outline
that there is a dearth of Aussie midcap companies with 75% of
Australian gold production being owned by foreign companies and
that they want to build a midcap with a portfolio of Australian
assets at this point in time. And the reason they say like
midcap or mid tier quite specifically is that the mid
tiers are the ones that outperform, they outperform
juniors and they outperform the major mining companies.
And we're going to continue to speak through this this strategy
during the story. The strategy is this is again,
another reflection I feel like we'll get to at the end.
But evolution, just one of those companies, they said what they
were going to do from the beginning.
They articulated it and the strategy was consistent.
They achieved it right. Totally, totally.
Before we get there, mate, we've got a, we've got a deal to talk
about in less than 8 weeks from that takeover of of the company.
You've got a very, very juicy deal, a $58 million deal to buy
North QLD Metals. So 20 million in cash, the rest
in paper. Now NQM, they were the 60%
owners and the operators of the Pigingo Gold mine, a pretty old
mine up near Charters Towers. It was doing about 50,000 ounces
at the time. And for context, the gold price
is 1400. So they have one over the major
shareholder, a guy called Don Walker here who's also a
director. So it's a three person board.
They've won over one director and a 20% shareholder of the
company. Now North QLD Metals has also
purchased the old Twin Hills mine in the area.
So they're talking up this being a satellite operation, but
really that they're running this as a, as a bit of a cash cow.
And Despite that, despite having, you know, a third of the
board on side the, the North Queensland board say no thank
you, your, your offers inadequate.
And by July, so a month after these guys have a fight in their
hands because this other little company called Hemskirk, who
owns the other 40% of the mine, have come in with a competing
offer, which was colorfully described as a toilet paper bid
to us. So conquest come out and say,
you know, that's clearly inferior.
It's got no cash. The the buyer has con notes in
its structure. The premium is not really what
it seems if you if you back out the actual numbers and you don't
even have major shareholder support.
But in any case, they upped their offer and they sort of
amend the the conditionality of their offer.
Pesky Interlopus getting pesky, getting in the way.
But you know, I think it's it shows the the, the difference
when you do a friendly deal versus a hostile one, your
probability of success is so much more enhanced.
These guys had the major shareholder on side and and then
you get the pesky into low bar getting in the mix.
Well, you don't really want to do a deal with the pesky person,
do you? Well, it it takes a while, so
Hemsgot, you know, as they would continue to maintain that their
offer is superior and North Queensland agree they encourage
shareholders to reject the Conquest offer.
So lo and behold, the takeovers panel gets involved.
Conquest just sort of calling out a bunch of the the
strategies that Hemskirk were using.
But by September Conquest have solved it.
They go on by Hemskirk and then shortly after that they gobble
up North Queensland with the major shareholders caving kind
of in quick succession there. People like Acorn and Line
Selection were involved in this one.
They had to buy Hemskirk in order to. $37,000,000 to buy
Hemsgirt 27 in cash. That's juicy.
Yeah, so hard fought M and a battle that took a good few
months to to chew through is done and dusted.
And they're a mining company now like they they have a producing
asset. The I think internally the the
team would debate whether it was all worth it for for Pagingo.
Not the greatest mine in the world, but they're well on their
way. You know, they've got Mount
Carlton that they're, they're working through doing the
optimizations and whatnot and this 50,000 oz producing asset
is on its way to do 70,000 oz next year.
Jingo while it might not have been the world's best asset, it
maybe gave them sufficient scale to do subsequent deals right.
Yeah, yeah, totally. And this is a, a kind of frothy
environment in the gold in the gold space 20, you know, back
end of 2010 into 2011 that we're talking about now.
So deals, you know, cheap dealers aren't throwing
themselves at you. You have to kind of get creative
and you have to keep developing the, the development project you
have Mount Carlton. So whilst this deal is going on,
they secure this concentrate off cake and I, I love this.
So they get this, they get interest from a bunch of Chinese
smelters, as we sort of hinted at before, given the team's
previous experience. And Ross Jenkins, who's that?
The met and Charles Wang, I think are the people that
deserve a bunch of credit for their their expertise and the
can do attitude here. So the story is that Charles
just flew with a bunch of buckets with him on the airline
full of concentrate to try and sell.
It just goes to a bunch of of the smelters in in the area in
China and one way or another comes back with a deal
phenomenally. And this is firmed up in time to
A1, you know, quote UN quote $1 billion off take agreement with
Shandong Guoda. They are a large smelter, gold
smelter in in China and it's for the life of mine offtake for the
V2 deposit, one of the two key deposits at at Mount Carlton.
And yeah, decent payment terms kind of you know, yet 90% of the
payments being made prior to the shipment going over which is,
you know in terms of working capital where a decent thing the
alternative can be can be pretty gnarly and.
Can't understand just how wild this is, by the way, like, like
the this was in a in a period of time when all you could really
get out of China was a, a non binding Mou of some description.
And you know, that's intertwined in the Fortescue story that you
told. But Charles goes over there
armed with a an an effective. It was a it was, it was a, it
was the type of off take agreement that I think Rio Tinto
used. They had like some lawyer who it
was, you know, the same kind of same template thing and managed
to get signatures on it from from Chinese smelter like yeah,
just phenomenal, remarkable a binding off take comes back with
company. Yeah, after taking on the plane,
some, some concentrated, you know, I don't know about the the
disclosure of the of the material.
Don't worry about it, Don't worry about it.
It's it's truly, yeah, it's wicked.
Yeah, that that's sort of entrepreneurialism I just love
and you know, simultaneous to that, they keep working on the
the optimization studies. They're sort of focusing on the,
the recovery, the grind size, trying to assess whether they
can use a, a course, a grind, the sort of thinking maybe not
75 microns, maybe 106 microns will still do the job.
So reducing OpEx and CapEx at the same time.
They also buy a, a meal second hand from Hill Grove Canmantu
in, in SA about 7:00-ish million dollars for, for that one.
So things are things are happening for the company and
it's it's late 2010 and I'll just give a bit of a recap to,
to make sure we're all on the same page about what this kind
of company looks like. So they have a run up in the
share price near the back end of that year.
Still called conquest, by the way.
Not even evolution. Yep.
Still called Conquest, they do a $45 million placement.
So after that the market cap is about 270,000,230 AV.
They've all but confirmed ownership of Pojingo, the sort
of mining these very, very narrow veins down there.
And the stock is trading in the mid kind of $0.30 range.
A year ago, all this team had still been in China.
It's all still been well, not all, but the majority of them
had still been running a predominantly Chinese mining
company. So they've now done this tough
takeover battle. They got their work cut out for
them in an asset in in Mount Carlton and they're they're
running this junior in a kind of frothy Aussie gold environment.
So a big change in a year. Huge, huge change that that
placement, that 45,000,000 bucks.
Was that to fund the development of Mount Carlton?
When did that come later? It was just a staged, staged
race. So not too far down the road
that would raise another bunch of money in the next deal that
we're going to talk about. And that deal would be
ultimately 18 odd months, a bit more than 18 months before Mount
Carton starts producing. At that time the debt financing
is coming together as well. So it's it's not quite fully
funded to to do Mount Carlton just yet.
I follow. I follow what are the what?
What is the actual like landscape of of gold producers
like on the ASX at this point in time?
It's a good question actually, because that that plays into the
strategy. The the strategy that they spoke
to so often is that like you've got new Crest on the one hand, a
big, big, big company and then you've kind of got this, this
dearth. So they, they circle out the 750
million to a bit over a billion dollar range.
And I mean, it's fascinating to read about the companies at this
point in time. You've got Perseus, Medusa,
Kingsgate, CGA, Avoca, St. Barbara, Oceana, so some kind of
familiar names there. But a lot has changed kind of
since that point in time. But there is a bit of a, a
dearth in that midcap space. Now, granted, some of these
companies are still big. What we're coming to the tail
end of a 10 year bull market in the gold price and things are
going to change quite, quite soon here.
I am intrigued looking at that list of peers.
Hey, it's it's fascinating. I mean, some of them disappear
from deals, some of them merge, some of them implode from poor
operations. Some implode and come back.
That's. That's that's a staggering,
staggering slide. It is.
It is what? Happens to me at Carlton.
So the, the refined numbers that they come up with when they
rework the, the CapEx and all these sorts of things is about
1:30 CapEx and the MPV is only a bit higher than that for 12 year
mine life. The the cash flows if you sort
of flush through the, the spot price are, you know, they give
you a bit more room for, for encouragement.
But the company's got $40 million and like I sort of said,
it's sorting out the debt, finding funding at this point in
time, we're talking April, May into June of, of 2011.
But then we've got a big, big deal that preoccupies the
company for a little while. This this deal needs context,
right? Because when I think of like,
yeah, a deal that epitomizes the formation of evolution, I don't
even think of the back story you've told today.
I think of this deal, just the the absurdity of this coming
together. Yeah, you've taken a a good
while to actually get to evolution, but this is the
creation of evolution itself and it is a fascinating deal, right?
So June 2011, Conquest agreed this all script deal with
Katawpa whilst concurrently buying Krakow and Mount Rorden
from New Crest. So if you can wrap your head all
around that, they're also going to do a capital raising, a $150
million capital raising at the same point in time, so 2.
Companies merging with each other to acquire these non core
assets from new Crest. Everything pay for.
In with a with a. Yeah, and and a placement.
Yeah, Snarly. So New Crest is going to become
the roughly 1/3 owner of this joint company, which they dub
Evolution. Now the pro forma market cap
$1.2 billion EV is about about a billion dollars.
And you know, like you've kind of said that these guys pride
themselves on, on handling deal complexity, but it almost feels
as if you've gone out of your way to to make this one more
complicated than it needs to be. But as we get into this pretty
good reason for for this, if we look at the assets very quickly,
Kataupa are bringing in Edna May, so nine year mine life,
100,000 oz per annum roughly. They're also bringing in a 30%
interest in Krakow. I know I said Krakow before
coming in from Eucharist. They are the other 70% owners of
this one that's doing about 100,000 oz as well.
But it's only got five years proven out.
Then you've got Mount Rorden, as I mentioned, that's going to do
90,000 ounces in, in due course, single kind of open pit mine,
eight years left there. And then rounding out the
assets, you've got Bajingo and Mount Carlton.
Now Mount Carton is due to come online in about 18 months at
this point in time. So for producing assets and a
development project, if you look back a year, what the Proform
entity would have done, it would have been a bit under 300,000
oz, but on the way up. I feel like the I've heard Jake
tell the story of this deal and it doesn't kind of come together
necessarily just by pure desire to put the two companies
together. It it comes from the pre emptive
right that could help had over the other 70% of Krakow.
Yeah. You, you got to make this deal
happen. It's not going to fall on your
lap. So Catalpa, were they, they
weren't even single, you know, at the time they had to break
off talks with St. Barbara, who they were
reluctantly in in talks with who just, you know, in the month
prior proposed A merger with Catalpa that wasn't really
friendly at all. But that pre emptive right is,
is super, super important that you you talk about.
So the Conquest team had seen that new Crest led by Greg
Robinson had just acquired Lahir, which we've spoken about
in in a previous podcast. And they concluded that Krakow
and Mount Rawdon couldn't be central to the plans of new
Crest going forward. So they make an approach new
Crest actually quite receptive to this.
Now you have that pre emptive right.
New Crest had actually previously tried to sell Krakow.
So Evo's approach new Crest directly.
That's right, right. Yeah, Conquest.
So to the CEO Greg's frustration, CEO of new Crest,
this group called KET Helper had a, a pre emptive right?
And they wouldn't let this one go.
So he just pretty much said that you go create some sort of
arrangement with them and we'll be happy to kind of do a deal.
And as was relayed in other channels to us, the Evolution BD
team gets in touch with the New Crest team got this great idea.
New Crest is sort of nodding, nodding along.
They're, you know, receptive. They're thinking, yeah, yeah,
yeah, this is great. This, you know, we've already
thought of this. You know, they're given the
whole pitch evolution on why it makes sense for you to offload
these assets to us. And then they kind of get to the
point we've got a problem though, you know, you've got
this, this pre emptive, right? And and new crests say, hang on,
you've got a problem, you need to sort this out.
And then it dawns on them, ah, we do have a problem.
So hence the complex deal they need to.
Spell that out right. So so why, why, why?
If I say you, you've got a problem that's pre emptive,
right? Because they they're actually
pitching to buy new Crest steak in Krakow 1st and then EUCRIS
flips it on them and says sort out, sort out the other side of
the equation. Exactly.
And then it all solves itself. Yeah, pre emptive.
Right. So Conquest get in touch with
Kitapa and lo and behold, we have the the deal that we have.
So yeah, it, yeah, it, it took a while to get there.
As for the merger itself, that's a 5050 merger that the two
companies are doing. Conquest get a, a bit of a bump
on on their last clothes and you have this eight person board as
you tend to when these sort of companies come together.
Lori Conway joins the board because he's one of two new
Crest nominees. So, you know, it'd be still a
few years before Laurie becomes a full time employee at
Evolution. And that raising that I
mentioned $150 million, that was a bit of a spanner in the works
and they needed a commitment from from BlackRock and Baker
Steel to get that one over the line.
This, this comes from the fact that, yeah, it's a new Crest is
feeling, feeling a bit of a squeeze after fumbling the footy
with Lahia. So they're, they're needing to
shore up their own balance sheet and they didn't want to become a
big shareholder in a pro forma evolution that was underfunded.
So they like they as I understand it was pressure from
from new Crest in in the midst of this deal to actually ensure
a a placement happen concurrently with it all.
Yeah. They wanted confidence because
financing had been one of the problems to a deal getting done
previously to to a sale of of an asset.
So they wanted confidence that there wasn't going to be any
problems on that front and that they weren't.
Funded so they didn't get a a call up for for a pro rata share
of of capital down the track as well.
Yeah, they weren't having problems with Lahir just yet.
This is the, the gold price is still very strong in 2011,
right? So it's yet to sort of fall
through, right. But they have, you know,
refocused on, on Africa and, and, you know, PNG and and the
like. So they, they don't need these
assets that made-up 4% of of their kind of value.
So got you. Hence they came to get that one
done. But yeah, it it left a deal, you
know, that was already complicated being even more
complicated for the evolution team to do.
This is this is this is a gnarly deal still like you just don't
see deals like this today. It's the coordination like
required to bring all of these disparate parties together
aligned on on value and seeing the upside of what could be
created as opposed to getting kind of caught up in the in the
waves of of a bit ask spread in the moment, backing a, you know,
a management team in to to to lead things forward from there.
It's it's pretty cool. It's a very cool deal like this.
Just this is one of those deals that stands out when you study
mining deals that that a because of what created more evolution,
and B it's just gnarly like. No better way to put it.
It's super, super gnarly. And yeah, I mean, they do a few
more creative deals, but nothing is is kind of mind bending as as
this one. But they are now a, you know,
once this deal is bedded down, a multi asset mining company with
a pretty decent sized market cap.
They're a decent sized business coming out of this one in, in
2011, they sought out the financing for, for Mount
Carlton. They can in pretty short order
turn that one into more, you know, commercial type funding
rather than it being a project financing because they have the,
the spread of assets to, to get that one done.
And the, the terms sort of come in.
They're guiding to 350,000 oz at this point in time.
It's not long after the deal that the, the MD and exec share
role gets combined under Jake. They they March on into the ISEX
200 and whilst everything sort of is seemingly going great the
the floor falls out of the gold price.
From mid 2012 it would be 4 years until the share price
breaks even again. All years is a long time when
you're running a company. It's a long time when you've
just financed a new mine, you know we've got a AA10 year gold
bull market that has just fallen through and you've just put
together this fantastic big kind of deal.
But also on the positive side, it would create the
opportunities that built the company we know today.
Was there was there debt involved in their cap structure
at this point in time? There, there sure was.
Yeah. So for for a number of years
from this call at 2012 to 2015, early 2015, they're in a net
debt position of 100 to $150 million.
And that was to fund Mount Carlton, yeah.
That was that was funding Mount Carlton.
Yeah. So like I said, the gold price
fell away, but you don't get these 4 sellers straight away.
It it takes time and a lot of patience is kind of required.
Evolutions have to do a $385 million write down in 2013
first, which is never a a good thing for shareholders to to
swallow. They're never too eager to see
that. And they start stripping costs
out of the business at the corporate office, numerous
contracts close, they go owner operator at Krakow.
They flatten the org structure. The, you know, by 2013, by 2013,
the merger's almost two years in the rearview mirror.
And like you comment on the balance sheet just there, it's
not as healthy as it kind of could be.
A bit over $100 million in in, in net debt.
The share price looking back just 12 months is -57% and that
only puts the middle of the pack when you look around the field
of what the other Goldies have done.
But they still actually pay a dividend at this point in time,
believe it or not, they pay a 1 cent dividend, which, you know,
might not sound like the biggest thing in the world, but they
have remained super dedicated and that, you know, instills
capital discipline, paying a dividend every half year.
I think they're going on 25 or 26 dividends now paid that that
is kind of remarkable to do it at this point in time.
Yeah, production is. Is confronting when you just
look at it like 427,000 ounces in in FY14 like that is that is
that is a formidable production profile but they're.
And they don't make money. They're not washing their face.
They're no, I mean no one, no one's doing, no one's doing
well, but they've got the production and they just need
the commodity tailwinds. They do they, they're a leverage
play without doubt at this point in time.
The yeah, that's a big, big number for a company not to make
money. And they, they know more than
most that the, the assets aren't the best in the world that they
have. But it is been a very tough year
going around. And I say not making money from
a kind of cash flow perspective. They had been bringing on Mount
Carlton, you know, online through this period as well.
But the real concern is that reserves are depleting.
These assets don't have massive mine lives like Jake would later
always talk about having an 8 year plus mine life on on your
projects across the portfolio, Pagingo, you know, these sorts
of assets, they don't have that and they need to get on the
stepping stones to to get to the better assets at this point in
time. On the positive side, again, the
the four Stellars at this point in time are starting to emerge.
We're now mid 2014. You know, looking around the
field, Northern Stars done some of their deals, they've done 3
sort of around the, the new year period coming into 2014.
So you're starting to see transactions that reshape the
Australian gold landscape for a for a long time to come.
One of those forced sellers becomes a new Crest of their
evolution stock over time. Or does that happen later?
That happens in 2015. So before we get there, you
know, as these things tend to be the, the stock price continues
to to bomb out late 2014 shares trade below $0.50.
So the market cap is South of 400 million and that merger was
down and said $1.2 billion. So the the company's fallen a
long way from that, and so was everyone else in in the arena
they. Probably raised more like nearly
more capital than that at that point in time.
I know, right? So, you know, these things sort
of grip the markets and these these kind of trends and the
trend here is profitability and they don't have too much
profitability to show. So they're talking about reusing
mill mill balls. They're talking about smarter
drilling blasting. They're talking about going
owner operator at every site they can.
They're talking about pulling in employee turnover.
You go through the slide decks of companies at the time and
more than half is just cost saving initiatives like you're
really tightening the belt here and it starts to work in bits
and pieces at Evolution. They start to make a bit of
money quarter after quarter and then they get hit with, you
know, the QLD floods a lot of their assets up in Queensland.
So they're copying it from all sides.
And it's very, you know, quick and easy to say in retrospect.
But when you're living through it, I can only sort of imagine
when it's kind of year after year and you're copying it and
you're just waiting for the the times to turn.
But like you say, we have the the new Crest sell down.
They're 32% stake. They sell in two parts.
So they sell at the beginning of 2015 and then at the end of the
kind of at the end of ish of 2015, in the second-half, they
take a big haircut on on that compared to what the value was
when the deal was done. And it's a very unhelpful time
for the company for this to happen.
And, you know, when something like that happens at the point
in time, you kind of might question evolution.
History shows that they were just trying to look after
themselves. And, you know, I don't think it
would have taken a genius at the time to realize New Crest
themselves needed the cash. It wasn't a fundamental flaw in
evolution. Isn't it, isn't it a staggering
kind of reflection that a 32% shareholder at the formation of
what we know today to be evolution lost money like.
That's crazy. It really is crazy.
And like all, all the same, it's a trend you see with some of
these phenomenal success stories in any industry, there are multi
year periods where the company doesn't go up.
The stock doesn't just go up linearly.
Like you need to bear through the bad times to enjoy the good
times. So, yeah, it, it is kind of
funny to, to take out a, you know, a four year piece in time
and they took a, a big haircut that it's kind of remarkable to,
to round out on the personnel side of things.
You've got more familiar names. I know we spoke about this
before, but Cobb Johnson and Tommy Mckeith, they joined
through that 2014 period. And Jake has finally worn down.
Laurie, who joins the company full time, becomes the CFO in
2014. So again, familiar faces showing
up throughout this story. This entire time Jake is exec
chair as well right? Like.
MD and exec. Chair MD and Exec Chair, Yeah,
yeah. Interesting.
Controls the company and the board.
Yeah, yeah. Interesting.
And no accident as well. Yeah.
So coming into 2015 there's a bit of health in the Aussie gold
price, which is, which is good for evolution obviously.
And they they make a bit of a voluntary play, pay down of
debt. And then come April 2015, we
have the the first real kind of bear market deal, which is a a
cracker. This is this is the period where
like Evo's assets actually start making good money, right?
They've got like 3 core minds that all make about 100 million
bucks in that one year each. Yeah, that would be the next
year, more so like going from 2015 to 16.
You think, hey, these projects can actually make a bit of money
when the gold price ticks up a good few 100 bucks and sentiment
changes like it always does, but they they need to get through a
couple deals actually, but before they get there.
Gotcha. So the La Mancha deal juicy,
super juicy. I know you've, you've actually
studied this one a little bit. And we've spoken with La Mancha
in in the past a couple years ago now, but La Mancha is a
private mining investment vehicle for the the Super
wealthy Egyptian Sawari's family.
So Nagib predominantly and they owned frogs legs.
It's an underground mine, white foil open pit mine and the brand
new Mangari mill. 1.5 million tonne per annum milk which had
just been built one year prior. Najib was a yeah, an Egyptian
billionaire who made his his fortune in the
telecommunications industry and. Yeah, from a very wealthy
family. Somehow got the the gold bug and
found himself yeah, like owning, owning these these, yeah, these
mines in, in Kalrauli. Yeah, and and all through Africa
as well, which would become a focus later on for him.
But he's got these assets in the East Kalgoorlie region and they
want to find someone to really help them grow.
They want a vehicle to kind of put this in so that somebody can
kind of do the growing for them in a way.
And that ends up being evolution.
So Evos pay for this deal in script.
La Mancha ends up being a 31% shareholder and at this point in
time Mucrest has sold their first half of first half of
their their block doing the other half later.
Evos actually have to take on $115 million in in net debt at
this point in time. But we're back to a billion
dollar market camp market cap with this share issue.
And super importantly, La Mancha Nagib commits $100 million to
future growth. The assets themselves had done
150,000 oz at a bit under $1000 all in sustaining costs.
So that's, you know that's a more than 10% improvement on the
all in sustaining cost of the asset portfolio that the company
had at that point in time. Evolutions just had the overhang
of a of a 30 ish percent shareholder who's reducing their
stake and a bit of an overhang on the share price.
They finally, they finally see our new Crest and now they
welcome another 31% shareholder. There's a bit of a bit of an
anecdote on how they agreed that 31% I because you're trying to,
you're trying to figure out like how, what, what pro forma, like
what are they bringing to the table versus yours?
And isn't there an article in the AFR about how they exactly
landed on 31? There, there is.
So I mean, some of the stories are, are very funny, but one of
the details we heard is that a half a percentage point
difference is negotiated via sort of screaming matches in the
in the office. And it's a kind of arbitrary
number. They, they, they're negotiating
it head to head on a kind of like for like basis where they
say, you know, you use reserves or this much, you know,
reserves, we'll use this much percentage of reserves.
You use a bit of resources, yada, yada, yada.
And at the end of the day, they, they, they knuckle down and
they, they come to an agreement. And like you do in Sydney, you
go to rock pool to, to celebrate that one and, and drink it all
the way in inexpensive champagne with the, the Frenchman from La
Mancha. But yeah, it was a, it was an
expensive kind of deal to get done, but a super important deal
in, in the, the stepping stones of evolution and their kind of
journey. There's another detail actually,
which I, I want to mention because I find so fascinating.
They didn't even evolution didn't even use investment
bankers for this deal at all LED through, you know, Aaron
Colleron and and Kieran Schmidt there as well with the the BD
team that they had internally just sort of powered through
this one, which is a pretty cool little, little detail.
Is that's a common theme and especially I think this year is,
is chock a block with deals you don't like, You can't actually
get that many deals done if you have like teams and teams of
advisors because they slow you down, You're not nimble enough.
You, you add complexity, there's more meetings in the calendar.
You're, you're talking about things that don't actually
matter. But if you back yourself your
own capability to to do what's required, like yeah it is
possible to do 3 deals in a month, which they did.
Totally, and that that comes down to the MO of the company,
you know, deal making. If that's your expertise, you
you got to be able to do it in house, don't you?
I say it's possible, but it's still like genuinely, truly
impressive. Like, yeah, like having, having
having worked in banking, mate, like I've been crushed from just
one, like just, you know, one on the plate, like absolutely
crushed. And the fact there were three
enormous ones simultaneously is is stupidly impressive.
Yeah, totally, totally. So if we, if we analyze this
deal for a moment before we jump on to, to the next one, the
assets are better. You you're paying a big price
for it, but you're pulling down your, your all in sustaining
cost. You're providing more cash
generation, you're pushing out the average my life of your,
your portfolio doing it with cash that, that wasn't an option
here given the, the strategy that NGIB and Lamancha had.
The gold price, like we've always sort of said rises
throughout. So you get kind of nitpicky
deciding who's a winner, but at the end of the day, both the
sides here are winners. They had equity upside in this
and both would do do very well in, in due course.
I think the, the Evolution team at at the time and perhaps some
of the the shareholders out there didn't wait how important
that La Mancha alliance would be that $100 million, which we're
going to talk about. Because having that support you
through the next deal kind of means you need to take both
deals into account at the same time because you can't do like
the other one wouldn't have got done.
And the other deal we're talking about is, is cow huge.
And that is a phenomenal deal, a a remarkable asset to to scoop
up from from a major and yeah, in an environment where gold
prices are down a long way from what they would have been many
years ago. So let's talk about that deal,
mate. Cal is Cal is the cash cow.
It is. It is and it wasn't.
It wasn't so apparently clear at the time.
Even shortly after the deal there was criticism about this
deal, a lot of people saying oh, you've overpaid for this one and
that is clearly not been the case.
This was a this was a sale process, right?
And only the actual like announcement of the deal only
comes a month after La Muncha deals announced.
But these things are kind of in the works.
Like, yeah. Yeah, absolutely.
And the same day that IGO bought serious and wow the.
Two big deals on the same day. Two big deals on the same day
and IGO Independence Group, as they were called at the time,
were rumoured to be hunting around looking at at cow as
well. And they're a gold miner before
before serious, so it totally makes sense that they were in
and about that sale process. So they're buying COW for US,
550 million from Barrick, undoubtedly better asset and
bigger price tag. With stamp duty, we're talking
about 750 million Aussie dollars that is bigger than their market
cap. This is a big deal for the
company. At the time Cow's doing about
250,000 oz and all in sustaining cost over 15% lower than the,
the portfolio for those that aren't familiar with the assets
sort of big at the time sort of open cut project in kind of
central NSW, 7 and a half million tonne per annum meal.
So it's a, it's a large scale lower grade goldmine.
And the mine life of the project at the time was only out till
2024. We're in 2015.
So it's, it's not a long mine life and there's I think about
800,000 ounces sitting on the stockpiles.
So mining was only actually going to stop in like 2020
roughly. And they were just going to
process the stockpiles for the few years after that, which is
the downside of the massive upside if you can prove it out
and prove that there is a longer life here.
Well, that's there's a difference between like limited
mine life because yeah, mineralization actually ends.
And then there's these type of assets which have much, much,
much longer mine lives than then you're paying for in reserves at
any point in time. Because yeah, you do another
cutback or, or, or or the likes and you've got, you've got
mineralisation extending a depth.
Like let's, let's underline that, let's pull that forward
right now from like one of the talking points later on.
Optionality and mine life are underrated in in MPV studies.
This asset is now going to live on to 2042.
It is doing over 300,000 oz per annum and it's doing it at an
all in sustaining cost of I think about 1400 Aussie.
The optionality really rings true when commodity prices shoot
through the roof like they do every so often.
It's not a common thing, but that is a point in time we're
living at right now. And had you sort of modelled at
the time 2024 you're not getting that 2025 fantastic gold price.
But now the the amount of money it's going to make this year is
going to outdo many of many of those years put together, right.
And that is something that Jake would say, that is something
that a lot of the smart investors in in our arena have
sort of said for a while that optionality is underrated.
And we see it more and more with the people that think super long
term about deal making in the resource space.
It's, it's a, it's a true like this is this is a, an asset that
really just transforms the company.
This is like a corner. This is a, this is a tier, tier
one asset. I know it's not 500,000 oz but
you know, big reliable production profile, long life,
low cost. Tier 1 jurisdiction.
Far better than everything else in their portfolio up until this
point in time. And it moves evolution to be on
Oz, which is not how they'd look at it.
But the second largest producer in Australia.
Decent bit of debt they've brought on board to to get this
deal done. How did this deal get done?
Matt, this is a great story. So like you mentioned,
competitive process, gold fields, Z gin, they were
rumoured to be in and around it. The Finn wrote after the deal
that an insider told Jake it'd be a Bradbury if they won.
So for for non Aussies, you have to search that one up on on
YouTube. But when straight talk came out
and wrote about the deal in the months prior, you've also got
Northern star independence, like I mentioned, Regis Oz minerals
in and around the hoop there, but the pieces fell into place
very late here. So essentially before the Friday
when the bids are due, there is a board meeting and there's a
lot of written about the price. Is it, you know, 485?
Is it 500? Is it 525 that we're going to
have to pay? And they're wanting a bit of
guidance from, you know, perhaps the senior people in the within
the board. And as we kind of heard it was
Jim Askew who inverted the question and a great, great
insight here is how do you feel or what would be the outcome if
we didn't win this? And that kind of sick feeling in
their in their stomach at the thought of losing out by fifteen
$20 million is what spurred them on.
And they actually bid an extra 50 million U.S. dollars on what
they'd previously planned. So they go from 500 to 550
million. These numbers are 10 years old,
but that's that's how it's sort of remembered.
When, when you're confronted with what does My Portfolio look
like if I don't have this and there's some, there's some harsh
realities about that, then it actually encouraged them to to
pay what was considered overs. Right.
And what's what's 50 million bucks if it goes right?
Hey, so on the Saturday, Barrett give Evos the call, say let's
catch up Sunday. And they're worried, Jake's
worried, they're thinking they might get the treatment.
The other guys are in the the room over there, the other ones
are just over there. And this is an open auction.
Now, what's your best, you know, you're close, but what's your
best offer? But lo and behold, the asset was
theirs, 550 million U.S. dollars.
Got it done. And you know, we've, we've said
it a bunch of times, but this is a undoubted portfolio improver.
The they would always sort of show this this great chart,
simple but great that effectively shows the the margin
on your Y axis, the the mine life on your axis and you know
things are going up and to the right, which is always a kind of
good sign. But in the months afterwards,
Jake is seriously concerned that he materially overpaid people
are. There's criticism, There's Yep,
the. Yeah, the analysts are, are, are
saying that they've overpaid. I mean you you run an NPV at
consensus gold price. They overpaid.
And to your point on the the analysts, we had a great quip
the the analysts don't know what to value the thing at you just
tell them what the what the asset is worth it's.
Worth what you paid? Made made me chuckle.
You, you mentioned something earlier as well, Trev, which I
think is super important with the, the context of the asset
and how it kind of been treated. There were quality ideas within
the people on site, but Barrick hadn't been investing for 3/3
long years. They hadn't really been
investing in the asset. So the, the, the group that ran
the asset there, which would be coming on to, to Evolution, they
had ideas, they, they had stuff they wanted to do, they had
leads they wanted to chase up, you know, and on the back of
that, the asset goes from having 1.6 million ounces to nearly
doubling in, in less than a year.
Like they're just given the capital to chase up these things
more recently, like I said, out to 2042.
So they've been sort of kicking goal after goal there.
And it's, it's kind of remarkable.
If you'd gone into the $250 million raise that they did to
get this deal done, which the La Mancha group took half of, you
would have compounded your money at 30% per annum.
And I know that's, that's a bit skewed by the last 6 or so
months, but that is a a great, great return on a long time
period, 10 years since that deal was done, more than 10 years
since that deal was done. And this is also looking at all
the deals that have done. This is the one that management
most commonly sites, you know, this is the, the go to deal, the
asset that stood head and shoulders above the other ones.
And yeah, I mean, we're, we're looking at a a mine that
analysts call roughly $6 billion of net asset value within the
portfolio today. That's that's pretty remarkable.
But it yeah, it goes to net asset value of of 6 billion
today versus what would have been would have been US 500 back
then thanks to my life extensions, but but also thanks
to thanks to gold price bull market that that makes that
makes these deals look look phenomenal.
You know, you can't understand the fact that the the gold price
has has been a huge tailwind for for evolutions growth. 100% it's
been a phenomenal tailwind and I want to talk a little bit about
this talk that that Jake gave. He gave it a a bit after the
time period he gave it in 2016 at the Melbourne Mining Club.
A phenomenal talk to to listen to on the gold price.
It's really interesting because that speech when he, you know,
the snippets he talks about the gold price could have been given
today, talking about government debts around the world and all
these sorts of things. It's very interesting.
So it's not as if they didn't, you know, I don't think they
would have forecast the gold price being where it is today,
but they knew they the, the game they were playing.
Beyond that, he spoke about the five attributes that make a top
gold miner. And I want to highlight these
because I thought it was such a, such a, a stellar talk and
understanding of what makes a good gold miner.
So point #1 efficient, high quality assets that operate at a
low cost with at least one cornerstone asset.
That cornerstone asset has the lowest quartile costs in a long
mine life. 2, Consistently discovering more answers at your
operations. 3, financially disciplined with strong,
uncomplicated balance sheets. 4, having resilience based upon a
strong people culture. And five, investing smartly.
And I like this for a bunch of reasons.
Firstly, you know, he's, he's clearly studied the, the great
gold mining companies that came before them like he would, he
would reference Randgold in the talk.
He's previously mentioned Normandy and others.
But he he understands that the, the history, the cyclicality of
the business and, and what makes a company which I which I really
kind of like. Would have banked plenty of them
at at Macquarie in, in the bullion days.
And yeah, I do think, I don't think that's a reflection of
Jake. He's like he's, he's often been
a big thinker about the yeah, what, what creates great gold
miners. I've, I've, I've seen that in
more recent times when he would, when he would talk about, you
know, again, tying it back to China.
And he talks about he's, he's talked, he's talked thoroughly
about it by that Nico. He's talked about Sejin many
times in in the modern era. Absolutely.
So Next up to round out 2015, we've got a bidding war with of
all companies, Zizhen over Phoenix Gold.
They end up paying 50 million bucks for the land around
Mangari. And here's where the cash flow
that you mentioned before kicks in, $400 million in net mine
cash flow in FY16. They rapidly start paying down
the debt. They had roughly $600 million
and pay more than half down in one year.
And if you look at the answers, they're doing that rate that
they're going out there, they produce less oz today.
So goes to show that they've actually lived up to the, the
ounces of the margin kind of mantra and continue to to tweak
the portfolio on the way through.
And coming into 2016, sentiment really shifts all of a sudden
very quickly. Goldie's are out of the Symbian
and they're, they're in Fuego again.
People are loving them the the stock prices jumping up
Evolution stock price more than double s in in a year and
they're they're well on their way.
And that brings us to August of 2016 where they divest their
first asset for jingo that had it in the portfolio.
We started the the story just about there for 5 odd years and
it's time to offload the asset. They get 42,000,000 bucks for
this one but it's. They sell it to Ninja.
Yeah, I think it's really
important to show because they've spoken about it for this
at this point in time for, for over 5 years, you improve the
portfolio quality by both divesting as well as investing.
And now they're finally walking the walk on that one.
And they've divested their, their first asset.
And then the Ernest Henry deal. This is the deal that made me
want to do this episode. This is an unbelievable deal.
It's interesting for so many reasons.
And I'm I'm excited to to RIP into it just one week after the
sale of Pijingo in between which the full year results came out
and there was an interesting sort of.
Who's full year results, evolutions, evolutions, OK.
There was an interesting interaction played through the
media here where Jake said we are continuing to look at deals,
We are continually looking at deals and one of the big
shareholders, Ellen Gray just said calm down, focus on your
portfolio, you know, but they didn't listen to that.
They were. They were, yeah, they were
aggressive at the right times. $880 million purchase of an
economic interest in Ernest Henry.
This is economic interest. Economic interest.
This is a fast. This is just like anyone that's
ever looked at A at a an all in sustaining cost or cost curve
chart for Australian gold producers would just be
scratching their head. Why is there this big block at
the beginning that goes steeply negative?
And it's always earnest Henry and you're like, what the like
something doesn't produce at a negative all in sustaining cost
doesn't make any sense. Yeah, maybe we'll clear that one
up right now for for anyone that's gone this far that
doesn't look at mining companies like we do.
When when you look at the the revenues of a mine that produces
multiple commodities, you take the the byproducts, the the
lesser commodity if you like and you subtract it from the costs.
So the all in sustaining costs can look remarkable.
And evolution understood this, no accident here.
They understood what the marketing of gold miner looks
like. They understood what generalist
investors will look at when they come into the space, you know,
tier one assets, you know, in Australia, very low cost, all
these things. They got it.
And Ernest Henry just checked a lot of those boxes.
But I had to pay $900 million if you take into account the
transaction costs. And obviously they're going to
pay 30% of the future costs for this economic interest.
They would be getting all of the gold produced here and 30% of
the copper and silver within that life of mine area, which
was to a sort of certain RL. They would do a roughly $400
million entitlement offer at over 2 bucks.
So like I said, more than a doubling of the share price from
when they did the cow raise. Partially debt funding and
equity then. Half a billion dollar term loan
to get this one done as well and a pre emptive right, Another pre
emptive right. They get the pre emptive right
in this case. Nice, nice.
The, The vendor made Glencore. Now, why is this?
Why is this like an important and interesting point?
Because Glencore's got a reputation for always having the
hooks in deals that they do. They kind of, you always have
have one over or they, they, they sneak something in there.
But you know, this is this is a tremendous deal because
Evolution got the last laugh and they've they've done, they've
done a great deal and they did that deal with Glencore.
Totally. So I mean, why, why do Evolution
want this? Obviously there's the marketing
that we've we've spoken about, but Ernest Henry is also a
decent scale long life copper gold project with plenty of
growth potential. It's had plenty of capital
invested in it. So it's not going to be super
capital hungry. They also had Mark Lemegia, the,
the CEO at Evolution who knew the asset inside out.
He'd he'd worked there and they knew with that pre emptive right
they'd be in the box seat to to collect it down the track.
And they had a, a forced seller. They knew, I mean Glencore had
gone and said we are deleveraging, we are in a lot of
strife. Everyone knew it.
And we are not wanting to sell copper units of production, but
we want cash in the door. Hence, if you could come to them
with a a creative solution, they'd be willing to listen.
They were, they were actively running sale processes in
various parts of their portfolio.
I mean, they're, they weren't a real pickle.
People were writing articles about the demise of Clancor and
the likes. There was a lot of debt there
and they had to they had to deliver imminently ahead of
their own reporting period dates.
Yeah. So, so a quick sort of synopsis
of the the sales process is that in late 2015, they kick off a
sales process for CSA in Cobar. They also start having a bit of
interactions with evolution on, on Ernest Henry and they toy
with the idea. But then it takes until about
April until things start to look a bit more serious because
evolution is still chewing down cow at that point in time.
They are still chewing down the, the Mangari, you know, assets
there and they've done that Phoenix takeover.
But the bankers at RBC, they pitch this deal again in March,
April 2016, this time as a joint venture.
And come April, they sort of formulate a plan.
End of that month, they present this plan to to Glencore.
And there's a bit of back and forth for some time, but it
takes until July and August for things to really start to heat
up because that CSA sales process has crashed out.
Glencore needs the cash. And by this point, you know,
late July Evo's table a take it or leave it type of offer.
And they have met, they've met with the copper king Telus, Mr.
Kiddies, the, you know, one of the, the billionaires that came
out of, out of Glencore, very famous copper trader and he's
sort of running copper there. And they have a, an agreement in
principle, essentially $880 million is acceptable with a
bunch of conditions. But we need this deal done by
August 24, which is an outrageously quick turn around
time for a deal of this kind of complexity.
I mean, they need to, amongst a whole bunch of other things,
locking bank financing. They need to get 5 banks to
commit $100 million each for a deal they don't even have
recourse over. They're not even going to own
the asset that. Is an economic interest.
An economic interest, yeah. And on the evolution side,
they're also selling Pijingo at this point in time, they're
doing their full year numbers as well.
So it's a busy, busy period Glencore to hate the stress on
have the sale process for lawless bias fall through in
early August as well. So they're becoming increasingly
needy and the deal starts to sort of happen.
A lot of these, these processes in getting a deal done, which
are meant to happen in a series, have to happen in parallel to
get a deal done. To, to sort of emphasize the
point, Glencore's share price is down nearly 70% from their IPO 5
odd years earlier. So they start caving on these
conditions, like you say, that they're so famous for, for
hooking into a deal. And lo and behold, on August
24th, the deal is announced. They went from, you know, within
about four months from just a concept to having a final
bidding deal with a company that many in the industry would call
the best negotiators there are just remarkable.
I, I think, I think it's, it's wicked.
I think there's like there's a lot of reflections to be had on
the actual, you know, deal structure and how it got to
where it did and what that actually like meant for the look
of evolution. Right, because because Evo's
Evo's yeah, toy the idea of all, well, you don't want to part
with the, the copper. Can we get the gold?
And so then some back and forth he's had with toying with with
the gold interest. But what what actually ends up,
you know, you have to you have to meet both parties interests.
So it was it was clearly critical for Evo's to get they
still got 30% of the the copper interest as well, right in a in
a certain designated area that copper critically important to
the all in sustaining cost dynamic.
You know, you need to have a by product in order to offset your,
your like to, to be netted off of the, the, the, the gold price
so that you can actually have a, a negative or in sustaining
costs. I don't think they thought it
was going to be negative. I think they, they
underestimated how much the copper would contribute here.
So that was a positive surprise that actually became a negative
number, which seems absurd. But then on the yeah, on, on the
other hand, the way it was, the way it was accounted as well.
So they, they structured the deal as an economic interest.
It's equity accounted from day one now that that further has
implications for your all in sustaining cost as well.
It it wasn't a coincidence the way that that this deal was
structured, it gave it gave evolution a completely unfair
advantage in marketing themselves as a low cost
producer. Albeit it was a facade, but.
It totally the I mean to to go on with the complexities you're
talking about, you're going to share the numbers of a Glencore
mine with the the Ato? Hell no you're not.
Like all that negotiation needs to take place in such a confined
period of time. It was.
Conditional on Ferb, it was conditional on there's, yeah, a
whole bunch of stuff going on. Here, Yeah, they needed to raise
a lot of money to get this deal done.
And yeah, just just remarkable. What's your competitive
advantage? Like we mentioned before,
handling deal complexity check and check they've they've done
that phenomenally here. And this was also interesting
because a lot of the gold assets in Australia had started to
trade, you know, at higher values.
So finding a seller who the timing worked for, they had to
be creative. Like we just said, super, super
creative in in doing a deal here to go back to your your
marketing point all in sustaining cost by the next
year. Evolution call themselves the
lowest cost global mid and major mining company, gold mining
company the lowest cost and Ernest Henry is a great
contributor to that that low cost.
Absolutely helps that you've got, you've got 100% of the gold
and only 30% of the copper. Yeah.
Wow. What a what what what a
remarkable asset to to call a a gold mine.
I could, I could talk about that deal for hours, but we'll, we'll
move on mate to fly over the next little period.
Again, they just hammer down the debt payments.
They start with about 600 million and they pay off more
than half again in the space of the one year sort of following
this deal, call it 10 months with Ernest Henry integrated.
They then sell Edna May. So another deal from the the
foundational merger that's coming late in, in 2017 that
sort of received several offers. No surprises here.
Edna May was the the lowest quality asset in the portfolio.
Just look at this chart here. You can see the the margins
really struggling there. If you're, if you're listening
into the the podcast, the EBITDA margins across most of the
assets around 50% and Edna May is below 20%.
And as we heard from the team, we hated Edna May, so good to
get that one off. They sell it to Remelius.
They sell it to Remelius, paying up to 90 million, 40 million in
cash upfront. The other 50 is contingent and
you know perhaps marginally below what consensus thought the
asset was, was worth. But these are relatively
insignificant sums here and good to to get that one off because
the portfolio improves again, the mine life goes up the the
average all in sustaining cost improves because it was a higher
cost asset. And they are making their way on
those stepping stones to being a company with a portfolio of
assets that are much higher quality than they were just a
few short years before an. Interesting.
Edna May served as a great stepping stone for Emilius too.
Now we've got a period where they're scratching their heads a
bit because there's not an abundance of opportunities out
there. You don't have 4 sellers
anymore. The gold price is starting to
tick up, but operationally the company is just checking the
boxes. 7th year in a row they achieve production guidance and
cost guidance in in FY18 and by 20-19 about three years after
the Ernest Henry deal, they're on the prowl again.
Balance sheet very healthy. They are a $4.5 billion market
cap company and growing. And just a quick one, in Feb of
2019 actually they they spin up a bit of an unusual one.
They take a 20% stake in Tribune.
Now unfortunately, we don't talk about this one too much more as
much as I'd love to, but Tribune of course with the JV partners
with Northern Star in the EKJV, this one sort of goes quiet for
a while because they weren't able to get too.
Far away, yeah, I mean it would it would it would later become
very relevant again. But clearly the intentions are
signalled that of course it makes sense for the for the OR
at East Kendana to feed the Magari Mill as opposed to what
Northern Star were having to which is which was whole it
much, much further it. Makes it makes too much sense
but sometimes take things take a little while to to work out.
But we got a juicy deal before that, mate.
Before that, sorry mate. Why did Northern Star not do the
deal with the Lamancho if the synergies are so obvious?
I've asked that to so many people.
Nobody has told me the answer. Yeah, maybe we should just give
Northern Star a call. Yeah, it it just seems so
obvious. And I mean, it would in in
another incarnation happen down the track here, but not crystal
clear to me why why that deal didn't happen.
They preoccupied themselves. Yeah, I'm sure.
I'm sure like Lamont would have approached Norman Starr having
said that, like, there was a view out there that that Evo's
overpaid for. Like there was there was a view
that they paid too much. So maybe, maybe, maybe there's
no. Discrepancy.
Yeah, the price is very different to what Norman Starr
had done their deals for. There's a bit of a bit of a
chapter change for for Evos in the in the next the next deal
mate, because they go overseas. They go to Canada, so November
2019 they do a deal to buy Red Lake.
Now this is very different. So it ultimately becomes a
expensive lesson that that many Aussie Goldies learnt the hard
way in. In Canada, what they agree is in
Aussie dollar terms, a $570 million deal upfront, including
the fees to Newmont Gold Corp, plus another 100 million US
contingent. This is 100% debt funded.
So they're buying Red Lake with a healthy balance sheet.
So they take on the debt to do this like they've kind of done
previously, No equity raised. This time though, $600 million
loan comes on board and they label this as a, you know, an
asset with significant turn around potential.
Red Lake at the time, you know, very historic asset mining since
the 40s over 25,000,000 oz had been produced in the area.
The reserves were a bit below 3,000,000 oz.
Within a year that goes to 11,000,000 oz processing
capacity a bit over 1,000,000 tons per annum there across 2
plants hadn't been operating anywhere near that for years and
even evolutions plans went to get it to name play it for you
know, for the foreseeable. If you look at the kind of maps
here, it's you know, there's a bunch of complexes.
This is a you know, gold everywhere type of thing.
There's an like an interconnected underground tram,
very different to kind of what we mine here in Australia.
There's development everywhere. It's big, it's complicated, it's
historic. It is.
And it's an asset that is not done well because as Evo's put
it, the 2016 to 2019 has been a period characterized by
underinvestment, underinvestment in development, in exploration.
And that's going to need capital to fix it.
But when it comes good, maybe it'll get to its glory days of
500,000 oz per annum. They weren't saying that at the
time, but they were very confident they could get it over
there. 200,000 oz per annum transition target and they also
called it a beachhead in Canada, so there was an inkling to do a
bit more. The, I mean, the asset had all
of the hallmarks of, of a, of a, of a good deal at the time,
right? It's, it's, it's being sold by a
major. It's, you know, an unloved under
undercapitalized asset in the portfolio of a major.
It's got big, it's got, it's got scale, it's got long life,
etcetera, etcetera. So you could you could have
wrapped a phenomenal story around this and the market
believed the story that Evolution told at the time that
it announced the acquisition. Yeah, the share price went from
under 4 bucks at the time of the deal, at the time the deal was
announced to over $6.50 in about half a year while the deal is
getting finalized and that's through the start of COVID,
remember? And that's a tumultuous period
for for the gold price and for mining companies trying to
operate in the other side of the planet, no less.
But we'll jump a bit forward before we analyse this deal
because they do a bolt on deal in March 2021.
Now they buy Battle N not quite 18 months after the the initial
deal was announced. Canadian $343,000,000.
So Evolution is a much bigger company at this point in time,
but it's still a fair bit of cash to to chalk up.
Now Battle N. They were the underbidder on on
Red Lake actually, so it made sense to consolidate that area.
Their flagship asset is the Bateman project.
So that's got reserves of about 600,000 oz and plenty of
infrastructure there, a new mill, plenty of sunk capital had
gone into to that one as well. So it makes a whole bunch of
sense to combine these assets as you can see on the map and EVO
say combined we're going to hit 350,000 oz per annum.
So they're, they're still telling the, the market in in
2021 that that this mine is, is going to be capable of of
substantial production. But what we what we what we know
and reflect on today is that yeah, but I don't know what
they're trying. They're trying, you know, maybe
backfill, backfill the promises already and and and red like did
not live up to the to the to the story that was initially told
to. No, it didn't.
And and it wasn't for the lack of capital being spent.
I mean they outlined $500 million major capital plan
pretty early on. But one of the big problems that
it can comes down to was was a cultural type change there, you
know, preconceived thoughts on the kind of change they could
instigate at A at a personnel level just didn't match up with
reality. Analysts around the battle time
are still forecasting 400,000 ounces of production every year
for over a decade and at a, you know, at A, at a pretty
compelling order and sustaining cost as well, so.
This is another one. If I just just tell the analysts
what the value is, because I mean you you're looking at EVO
share price and you've got to have a target price that's above
where the share price is. So you've probably got to have
some pretty rosy assumptions about about this assay.
You do, for those wondering right now, what guidance for the
next year is from this point in time.
So FY20 6, it's 140,000 oz. So it's a long way off.
Of course, margins is what really matters and the asset did
$74,000,000 in in cash flow in the financial year just gone
that. Might have been the first
financial year where it. That was a record the year
before it lost $115 million. I mean, with, with investment,
you know, going into the ground, but Evos, I love some of the
charts that Evos have shown throughout the years have shown
some great ones from an investor's kind of perspective.
And they, they would show this fantastic one, which they've
kind of brought back in various incarnations where they show how
much an asset has has paid back versus the acquisition cost and
the amount of money that's sunk into it.
Quite clearly the, the ROI on, on Red Lake is nowhere near what
it has been on, on other assets. But as is the case with all of
these things, a a flying gold price does does help a lot
there. There was, there was immediate
scepticism, you know, going going back to the, the deal and
the analysis of the deal and trying to think about like what
do people think of at the time? What do they think of today?
The North American shareholders were sceptical kind of from the
beginning. And you know, perhaps they were
the ones that had seen this asset a bit closer because down
here in Australia, we're pretty unfamiliar with the asset Evo's
targeted many areas of improvement, you know, mining,
processing, exploration. But again, to to go back to that
point, I think there was just an an overestimation of their
ability to to effect a change and get the asset kind of
humming again. It can't just be a cultural like
I mean the, the, the reserve gets downgraded like
consistently. In fact, even, I think even even
this year's reserve was downgraded by like 2G per ton.
So like consistent reserve downgrades from I know they
upgraded it massively and like immediately after the deal, but
their their geological DD was was was clearly not reality as
well. Yeah.
So to to put numbers to that point, in the most recent
numbers, they chalked off 4 and a half million oz from the
resource. That's a staggering number.
And the grade dropped from 7g per ton to 4 1/2 grams per ton.
So that's the most recent R&R statement that we're seeing.
They are huge drops. So completely, completely right.
The ore body has not shaped up with what they kind of
previously thought and how they kind of framed that.
Now taking a fresh glance at what things are going to look
like going forward, they just sort of say the asset needs to
consistently deliver if it's to be worthy of, of any new capital
going in, whether it actually is like again, to, to compare with
the analysts value. This thing, is it a 2 or $3
billion NIV asset? Like there's no way in hell I'd
be paying anywhere near that for the, for this asset.
But you know, perhaps that's the opportunity, like the gold price
we're in now affords it a lot of opportunity to to make money.
It's a big endowment, there's no doubt, but a big complex mine.
And that comes with high, high costs.
And there's always the allure of spending more capital to make
those costs come, come lower, But more and more capital kind
of keeps becoming more and more capital.
I think they've learned well. They they always know they're
great capital allocators, but you're always competing for
capital, you know, to the most worthy parts of the business.
And and to your point, like what is the return on capital to Red
Lake versus the other assets when, when it's returned so far
it's been pretty, pretty de minimis I.
Mean it's it's no coincidence either that every Aussie Goldie
went to Canada and struggled like it's not as if there's
there's not the gold there at every single one.
There's there's a few too many cases in which that's happened
for it to just be a fluke. You know the relative.
Value at that period of time was was was severe, right?
Yeah, yeah. Like like things would bid up to
extreme over over in Australia and there was everything just
looked cheap in in Canada. So you thought, well, heck, I'm
going to get outsides returns by going there, but it didn't quite
work out. I sound like I'm very critical
of this, but you know, I, I think, I think like on the
whole, you have to evaluate evos for the phenomenal like like
value creation story it is. And this, this is, this is a
blemish that they had to deal with.
Yeah. And and if you go back to like
2019 again and and you look at this opportunity again, like,
yeah, I mean, I'd be curious to know what they'd say about that,
whether they do the deal again because it just looks so
compelling. So if we, if we keep going in
between those 2 deals that I mentioned, firstly, Red Lake and
Battle N, they divest Krakow, another asset from, from early
days, 60 million bucks in the door upfront with a a total
price tag of $125 million. So again choking off one of the
the weaker assets. And shortly after the Battle N
deal, they wrap up the AKJV. It's a $400 million deal with
Northern Star getting in 100% of Kendana, 51% of the AKJV, a
bunch of other assets in the Eastern Goldfields kind of area
and they're elevating Mangari to a cornerstone asset in their
portfolio. All cash deal.
The the edge of the competitive advantage here is, is pretty
straightforward. Like you mentioned earlier, you
can just chop that haulage distance down by nearly 90%.
So it's it's super kind of compelling why this deal makes
sense and why you can pay more for it than than anyone else can
because the returns are going to be great and they raise nearly
$470 million to to finance this deal.
You can see again on the asset portfolio chart here that things
are things are looking better and that is a conservative chart
because it doesn't show the margin improvement just yet that
we'd see in time when they expand the asset.
But a smart deal that that just sort of makes sense and the,
the, the benefits that come from it far outweigh the, the cost of
this one. The returns have been been
great. And you know, add to that the,
the expansion that they have done kind of remarkably, they've
done that nine months before schedule and under budget as
well. That was quoted to be a $230
million investment to get the asset over 200,000 oz.
And what a time to, to do that sort of expansion act.
It's going to help the the payback look very, very good for
that asset. It it, I find it, yeah.
I think your reflections are right about this deal.
But I do remember it at the time.
Again, now they've they're like they've licensed to M&A to do
M&A is a little bit in doubt. This one, like this one, what
did they do? I think at the time the gold
price was much lower. I think they paid about like
full NPV of like, you know, like, like for Northern Star to
be a willing seller and, and Evo used to be a willing buyer.
Northern Star thought they'll get a pretty good price.
And I think evos are effectively paying full NPV, including the
synergies that they were benefiting from.
So like, yes, like both parties like, like win, but, but there
was, there was certainly like I remember conversations with
peers thinking, I mean, he, he was paid top dollar for this
with the fullness of time and, and what coal prices done in, in
the intermediate period and the additional benefits they've had
from the other like East Cal assets, the mill expansion,
etcetera. It, it, it looks a good deal.
But, but, but I think this is a common theme with Evos is they
don't always look a good deal on the outset.
In fact, the one that looked a good deal on the outset, being
red light, turned out to be the dot.
Yeah. And I mean to think about the
seller in this case. So Northern Star had just done
the deal with Saracen as well. So they've become a much bigger
company all of a sudden. This is clearly a lower quality
asset in their portfolio. And like you say, with the with
the upgrade in mind that you can unlock more value through it
that way. Yeah, they might be taking their
pound of flesh for the synergies that you're going to experience
as well. But I think, you know, time and
time again that that view that MPV is different to, to what
most people might think it is because, you know, maybe they're
curtailed by the reserves or whatever it might be having that
long term time for you. And I know it's, it's, it's hard
because the gold price makes, makes it look so, so good.
But. It was necessary to make
mangari, what they call a cornerstone.
Exactly. Their portfolio was improving on
the back of this deal and not just by a little margin.
They continue continue to rationalize non core late life
assets to improve the the overall portfolio.
They finally part ways with with Mount Carlton after after being
a pretty important contributor for for for quite some time and
having its hallmarks from the very early days.
It had it's time, Yeah, $90,000,000 deal, 40 upfront
they're getting for this one, selling it to Navarre.
So a year before evolution into that to impair the asset by $100
million. So it started to to have a few
problems getting a bit creaky and old.
And yeah, I mean, some, some assets had this one, some
analysts rather had this as a negative MPV on the books.
So good to get a bit of cash and again improve the asset, improve
the portfolio by divesting and then they consolidate.
Ernest Henry So November 2021, a big deal again, $1 billion, you
know, 800 upfront and 200 just being paid a year later.
So the stock bounced 7% on the day.
So the market liked this one quite, quite early.
And to finance this, they sign up US $200 million in debt at
3%. We're in the zero interest rate
era here, so you can finance these things quite cheap.
They end up going to a net debt position of $1.3 billion and in
time you'd kind of see because they go into a very heavy period
of investment. So the balance sheet is a bit
extended, but it always kind of extends once they do a deal
because they tend to sign up that debt but.
This is the fruits of their labor from from the first deal
kind of coming to fruition, right?
Fruits of their labor, fruits of their, you know, smarts to get
this one done. Absolutely.
We know they're not getting any more gold here because they're
already taking all the gold. So they're getting 70% of the
the copper and and the silver as well.
So EVNS Group all in sustaining costs would improve by nearly
$200.00 an ounce in two years time.
Isn't this remarkable? I know with the, I know the
precedent had been set globally. And yeah, new Crest was a, a
leader in, in, in having a, a reported loyal in sustaining
costs because they had like phenomenal kind of copper
credits in with several assets in their portfolio, Katia being
a big, a big run of those. And I think like, you know, to
your point on, on, on Jake studying the what made great
gold miners. Well, the, the unspoken rule
that he didn't list in that speech is make sure you've got a
low all in sustaining cost because you've got copper
credits. And it, it like, it tricks, it
tricks people, it tricks generalists, it tricks not even
just generalists, but but resource specialists, who I
mean, the, the, the all in sustaining costs, which was just
adopted by the entire industry and popularized by the World
Gold Council. It has, it has its pitfalls.
And but when you just look at that and you try and think of
well, who's a, who's a low cost producer come up with with evos
with these big cup of credits despite cash flow not
necessarily being reflective of that.
Yeah, the rules are the same for everyone.
They're just, they're just using them to their advantage, I
think. So we've touched on pre emptive
rights, super important. They did the groundwork, Yeah.
Still it was a fairly steep price that they paid.
But again, people analyzing the deal at the time were a bit
restrained in how they thought about this deal because of the
relatively shorter reserve life that was left, which in in due
course evolution prove out and extend the mine life quite
substantially. This is a great asset.
This is a really, really great asset.
It's a truly great asset. They've also, you know, taken
ownership then they're now the operator of this one, which is a
an important detail. You know you control your own
destiny by all the cancer Glencorp joint venture went
relatively smoothly, but. Was it a JV mate?
Economic interest. Economic interest, call it what
you like, they in time validate that that price and financing
things in that period 3% debt. That's, you know, I mean, we're
getting to an era now today where where interest rates are
going down again and we'll see what what miners do with it, but
very, very smart to to get that over over the line.
So that that wraps up the the kind of history.
Obviously they do N parks, but that's too close to where we are
today to analyze thoroughly, but well.
I find that interesting too. N parks because, because we, I
remember doing a potty when they announced N parks and you and I,
you and I are doing like the numbers and being like, Oh my
God, look at the crazy EBITDA multiple.
They've paid for this, they've overpaid, blah, blah, blah.
The balance sheet was yeah, like like looking a little bit shaky.
They, they did a raise to, to fund part of it, I remember.
And then and the share price quickly kind of dips to below
what the raise price was in the, in the months afterwards as, as,
as markets looked a bit, a bit fragile gold as well.
And we were critical, but again, like N parks has the hallmarks
of a of a, it's a very long life asset.
And in the fullness of time, if you have, if you have the
commodity tailwinds, which, which you know, we've been lucky
enough to have over Evo's journey today, then it just rubs
over those, those facts and the people who maybe like people
like us who called North Parks like paying too much at the
time. I mean, I can totally imagine
having the exact same reflection about our comments then as as
we've heard about like. Certain deals that Evos have
done, like historically as well-being being Cal, ever
paying for Cal, Do they ever pay for Cal?
You know, this is a common theme.
Do they do they ever pay for for La mantra?
Do they ever pay? Like, yeah. 30 plus year mine
life like you kind of get some very good years in that time.
You finally didn't have just a crazy stream, but that's OK.
Yeah, yeah, I think, yeah, I think you're spot on.
So since the Ernest Henry deal, the EV of the company has gone
from $6 billion to $22 billion. That is despite years of
actually poor operational performance.
They they miss guidance on several occasions over the past
few years, very heavy periods of capital investment and again
papered over by a phenomenal appreciation in in the gold
price. But where we are today, they are
they are Australia's 25th largest public company.
And Laurie Conway from Jan 23 became the CEO and managing
director. Jake became just the exec chair
at that point in time. And as of July of 2025, Jake is
the the non exec chair. So I think that that puts a wrap
on on the history. It's a great history of that,
like the evolution of evolution and I know we're capturing it a
snapshot in time, but it is like it is a, it's a tremendous
growth story from deals and commodity tailwinds and like
savviness and seeing opportunity where it isn't.
And for that reason, mate, we need to dive just quickly into
their thinking behind deal making.
So they have a three pillared approach to creating shareholder
value, operations, discovery and M&A.
But as it was put to us now this is a tongue and cheek comment,
but I loved it nonetheless. Operations are where Evos tease
shareholders about the prospect of creating value.
Discovery is where they torture shareholders and M&A is where
they really create value. Now that's the type of comment
that could only come from the corporate team and I think it
actually speaks very highly to the culture knowing the context
in which that comment came internally there.
But I think it's worth talking about.
I mean, Evolution have proven themselves to be competent
managers over the long run of the assets that they've gone.
The geos on the discovery component have gone above and
beyond replacing depletion, adding to the mine life of many
of their assets. They've put themselves in the
right post codes to do that. That's coming from the M&A.
So there's a whole bunch of things that are lining up there.
Operations are kind of limited by your geology.
You need to be playing in, in the right areas to, to have the
the work cut out easily enough for the operationers team.
That in turn, you know, allows Brownfield's exploration to, to
kind of be successful and, you know, allows the the geos to, to
do their work effectively. And we've seen that in abundance
at Cal and Ernest Henry with the mine life extensions.
But looking at the management team here, M&A is, is the
culture, M&A is the the the focus.
They are deal makers through and through.
They're deal makers, but thoughtful deal makers.
They're not deal junkies like where you are, you do deals
because you just deal hungry. There's discipline to the deal
making. It's knowing when to be like
very aggressive and knowing when to be reserved.
Like this isn't just a scattergun strategy where they
got lucky. This was a it was a it was a
deliberate strategy about yeah, like knowing the time, the cycle
to be aggressive and knowing, knowing the times to to peel
back. And like this was articulated
from the very beginning. There was a deliberate decision
about like having stepping stone assets starting with, with a not
so good portfolio, but using those assets to acquire better
assets with longer life, lower costs over time.
And they bootstrapped their way via not so good assets to having
like a pretty formidable like, you know, portfolio.
There, there's a comment that also really stuck out to me to
add to what you've just said there, Jake said that people too
often have inertia and they don't do deals because they
think they're undervalued, that that didn't hold them back
because they did deals when their share price was in the in
the gutter as well. They were proactive about doing
deals. They were incredibly thoughtful
about the deals that they did and to to put a bow kind of on
on what you've said about the timing of deals.
There's a time to do deals and there's a time to make money as
as they've always kind of said and.
Why do you think evolution didn't have the inertia that
other companies might be plagued with?
I I think that just comes down to the culture of the team.
I think they, they had a culture within the corporate team that
made them proactive about that. They, they wanted to be a mining
company from, from day dot and they, they just kind of got
after it. The fact Jake was exec chair, do
you think that made a difference as well?
Like you've got a supportive board of being bold.
There's no there's not necessarily pushback from a
board perspective because like your exec chair.
There's phenomenal alignment. Yeah, great alignment, great
capital markets backing as well. Like nothing was impossible to
finance because you're dealing with someone and like a team
which has done it before together.
No accidents either. Like they, they nurture the
relationship with having a major shareholder, which a lot of
people would look as a negative, having someone sit on your
register with 30 plus percent. If we quickly look, there's this
matrix I want to show in how they think about the deals.
And I think it's a, it's a really cool one to understand,
you know, a bit of a guiding light in, in how they think
about deals. And it differs for every company
depending on you, you know, your expertise, your size, your, your
balance sheet, all these sorts of things.
But essentially for those listening, it's a, it's a kind
of circle and it has 10 different boxes to check and you
can kind of rate them. When you think about a specific
asset, we're talking about things like the mine life, the
transaction complexity, social license, commodities, these
sorts of things. And I think there's a couple
points here that need inspection because they make transaction
complexity look like something hard, but that is an edge for
evolution. Another one, if we're going to
be nitpicky on commodities, I'd almost put copper, gold above
gold there in how they actually think about things.
And then lastly, annual production there, annual
production and evolution of showing this only matters so
much as in like how much it impacts your margin.
That's what really matters because some of their, you know,
like Ernest Henry for instance, that's not, you know, a massive
gold producer produces a lot of copper as well, obviously, but
margin is what really matters. Which year did you first see
this in their in their public materials in?
The late twenty 10s Wow internally used before that.
Before that. This is this like this one
image. This is the evolution playbook.
Yeah, like your, your, your sweet spot is becoming a company
full of assets that have that that green circle.
But the only way you get there is incrementally.
On the deal making, there's, there's one more fantastic slide
we have to show they break this out.
I think they showed this one in 2017 or so and they show that
17% of M&A deals add value. So if M&A is where you create
value in your business and only 17% do you have to be bloody
good at doing deals? Backed themselves didn't they?
The only thing I don't like about this slide mate is the
source for that stat is a management consultant.
KPMG now talk about things that don't add value.
Can't I do that? But no.
But yeah, like, yeah, these were deal makers.
They backed themselves to create value because because some deals
do create an enormous amount of value, but you have to pay an
appropriate price and get the like the timing right in the
cycle. And those things are very, very
hard to do. And, and Evos did it, albeit
with with commodity tailwinds, but I don't, it didn't, it
didn't take a lack of like these, these, these, this was a
team in the right place at the right time with the right skills
and the right amount of confidence and they saw the
opportunity. And like, what do I mean by
that? Like no other mining team, in my
opinion, I don't think could have enacted as nimbly as
evolution were to the opportunities in front of them
and being so like being so thoughtful about even seeking
the bilateral deals that they did do out.
They, they, they, they minimally used advisors like you mentioned
that they, they trusted their own internal team and a small
number of people to, to take a view and deliver like the, the,
these were, these were rapid succession deals that were done.
And it takes an enormous amount of effort to achieve that.
And the only way in my opinion that you do achieve that is with
the capability like the confidence and also not using
advisors. I couldn't agree more and I
think it's a great segue into what what are the guiding
principles to the evolution way. So firstly, the strategy Jake
would always say, I'm not convinced that gold companies
are scalable, hence may just aren't the ones that create the
best returns. Sorry.
The strategy Aussie mid tier 6 to 8 assets, 8 year plus mine
lives, Tier 1 jurisdictions. Improving the portfolio means
investing as well as divesting all these sorts of things.
They they just sort of ring true and they didn't change from from
day one. Remarkable that strategy has
stayed the same. It's consistently said that over
the last decade plus, this is the this is what we want to be
when we're now it and and. Yeah, add to that knowing your
competitive advantage, you know from from the experience selling
gold concentrate with Mount Carlton to the complex deal
making, they knew their competitive advantage.
Another part of the evolution way is marketing.
We've joked about the marketing, but it works, it's effective and
the rules are the same, like I said, for everyone.
Do you think just on the marketing, like not just
marketing the own sustaining cost like Evos, Evos is such a
popular name amongst the Sydney like generalist funds management
community, even international, yeah, international investors
being acquainted with. Do you think, you know, and I
know there's stories like parallel with with Northern
Star, but like you couldn't juxtapose to very different,
like leaders of those businesses in Bill and Jake, like, you
know, Bill, the country guy who who's like, you know,
experienced minor and, and speaks in like a like a speaks
like a minor. And Jake the polished like
Macquarie banker. He's he's so like schmick
corporate flair, like, you know, endorsed by maybe the fund
manager community. Do you think there's anything
about their images and like characteristics as people that
also like you know was a, was it was a marketing advantage or do
you think I'm reading too much into it?
No, I think you're 100% right. I mean, for one, it shows you
there's multiple ways to to get to a fantastic outcome, but
there's no, there's no accidents.
We we've just, you know, spent hours looking about how
thoughtful they are about everything you think their,
their appearance and reputation is, is an accident.
Absolutely not. I know you're a big believer
that that companies culture is a reflection of their founders.
And in the case of of Jaycar, do you think yeah, evolutions
culture is is what it is as a result of?
You know, we spoke about the dynamic of the team coming back
on board. I think a little less spoken
about dynamic is just like getting the job done.
Like that shines through when we talk about doing all those deals
in kind of quick succession just to a can do attitude to get the
job done in a very quick turnover time period, relying on
everyone. You know.
You got Laurie doing the the cultivating with the the banks.
You've got Aaron and and Karen doing the the more kind of deal
making aspects. Jake would be doing the roadshow
side of things. All those and a whole bunch more
people that we haven't met there.
But there's that sort of accountability that that rings
through and and people having their responsibilities
throughout the organization and just delivering up to them.
They would, they could make, they could make things happen
and fill in the void to back solve just to get to the
opportunity. That's yeah, that's, that's,
that's a great trait of an organization to to lean into the
complexity, even though it's harder work, but you need the
just get it done attitude in order to get it done in the 1st
place when it's hard. Yeah, and and it pays off.
It pays off big time if we rattle through the other kind of
parts of the evolution way, making your people with like
owners like massive cliche, but they pay everyone with stock.
And that's something that Mcquarrie did as well that the
Jake experience from when he was a, you know, a young employee
there. They buy from majors and not
just in the sense that people think about, oh, you'll get a
good deal out of a major, but they just put themselves in the
areas, you know, in the best positions geologically and
otherwise. So that rings true as well for
all the deal making now organic growth is best.
So if you are in those great regions, the the geos can find
the prize brownfields wise. And lastly, they paid a
dividend. They paid a dividend
consistently because that forces capital discipline.
It makes you think more about the dollars that you have and
how competitively they need to be used and invested or returned
to the owners of the business. The alignment, The alignment is
striking in in all three stories that all three big value
creation stories that you've told.
And yeah, Evo's no different. Alignment makes such a
difference. 100% we have obviously spoken about how
positive the gold price has been as well.
And, and maybe just to, to add to that, you have the, the
opportunity there for everyone, but it was there for, for
everyone. The outcome is where execution
meets opportunity that leads to success.
And that's, that's what they did.
So maybe for a moment, we can sort of patent them on the back
after, after saying the gold prices treated them so well.
So some takeaways, mate. I'm kind of keen to, to hear
some from you, what you, what you kind of think and reflect
on. But I'll, I'll start with a
couple, as you mentioned before, the the alignment.
So Jake shaped that board and in a different way to what we've
seen with many other companies with that exact chair role from
very early on. And you know, maybe if you're
listening this and thinking as somebody who wants to build a
gold company or any sort of mining business or any business
at all for that matter, in the future, that is an interesting
way to to think about it, which is not the most common kind of
route. You know, maybe it's, it's
different from a governance kind of perspective, but it's worth
noting. I can't think enough about like
how many of the people came back like that.
That just sounds, that's just such a, a glowing endorsement to
have people come back and do it. One company, maybe a second
company, maybe sometimes even a third company together is just
such a, a glowing recommendation that you sort of love, love
working with with the people. And it's a it's a really cool
thing to say. That that is, that's not to be
like, yeah, I think I'm understandably spent so much of
our our life with the people that we're working with.
It's a big choice and it's a huge vote of confidence to even
though like it would have been at a, at a, at a substantial
intensity, I'm sure like to, to, to have the continuity of of of
personnel. Like that's, that's, that's
that's, that's huge. A fun one to to think about in
the takeaways, the deals that didn't happen.
So I'm just going to rattle a few off here, but the Super Pit
with Newmont before that. Dundee like they were they were
trying to be troublemakers when when Northern star were were
finalizing, you know, everything and and to had agreed something
with crazy like like, you know, evos were I think it's public
knowledge. They were that would really try
to put forward a a more compelling deal for crazy and
they were willing to pay more. But but but crazy didn't renege
on his on his word with with with Norman star.
Another one that could have been Kara Sudan.
This is an interesting 1 to reflect upon because they were
fractionally the underbidder here in a a deal that Saracen
would win and they were relieved that they didn't win this one.
But that led to the emergence of a a pretty a pretty mighty
competitor in in Saracen. They were relieved because they
they it reminded them of Edna May and they already had Edna
May and they had a bunch of problems and issues and they
didn't want any more headaches similar to Edna May.
But as it turns out, like not not when Kara Sudan, yeah,
created, created Saracen. Like that's the gold landscape
would look very different. Sure would.
Kingsgate as well. This is one we heard the
presentation was even done and I cannot verify at what point in
time this happened so I'm just going to leave it there.
But Kingsgate and the Chat tree mine in Thailand, that would
have been different. That would have been so
different. And then there was also Detour
when they looked in Canada and they looked in North America for
a long time. So Detour is another one that
might have been. Yeah.
So there's like opportunity cost in the deals you didn't do.
There's also opportunity cost obviously in the deals you did
do. Do you think Redblake is a deal
that they shouldn't have done? I think it's just too hard to
say if you're there at that point in time, your balance
sheet is healthy. These things are trading super
compellingly and you know, come at it from from a finance kind
of perspective. Oh, these guys have just under
invested. Oh, there's a lot of low hanging
fruit there. Sure, you think you can do it
better so. Is the risk of like leaving your
backyard so substantial and maybe maybe underrated in some
respects? Because I think Red Lake was was
announced, was announced, it was announced before the Super like
the Super pit halves kind of sold in rapid succession in
between the two, in between the two.
Wow. So like that, that was the
opportunity cost in some respects.
Like I know the upfront price maybe wasn't as comparable, but
like in the fullness of time, the amount of capital that
they've they've put in and the additional bolt on acquisition,
they've put more capital to work than they would have been
required for for half of the Super pit.
I think that's that's the opportunity cost that that may
have been missed. And I'm sure they're awake to
that. And it's rich of me to to say
and be critical of. But but yeah, like, you know,
we're not, we're not perfect even if we've got like many,
many runs on the board from a capital allocation perspective.
I think that's like a reflection I have.
Yeah, I would totally agree. And my last two, it might be a
bit sort of philosophical, but I think that thinking about like
the the toughest time for the business is also the best time.
So 2014 to 2015 you, you know, you heard all the the costs they
were cutting out of the business and all these sorts of things,
but the deals they did led to the growth of the company.
There's there's something kind of in that.
And lastly, good things just take a long, long time.
We spoke about the amount of times you could look and take a
multi year snapshot of the share price and it would be down or it
would be flattish. But if you zoom out long enough,
it's an incredible value creation story and.
I think that just hammers home the fact that, you know, you
keep compounding, you keep working at things over a long,
long time and it sort of pays off.
But you need to be patient. Takes a lot of patience.
Yeah, it's, it's a story of deals.
There's like a point there on like, you know, you bring up the
that slide with all of the peers and a lot of those peers like
disappeared or fell over from like far, far, far more
erroneous capital allocation than than than red, red, like
proved to be the fullness of time.
Like like, I don't think like I can understate how, how
appreciative I am of like of capital allocation of gold
miners. This is the thing that
differentiates gold miners from each other is how you allocate
capital. And I think like what is
evolution as a company? Like they get capital allocation
right 9099% of the time. Like these are these are
remarkably good capital allocators.
They're like thoughtful, nimble deal makers and they take the
responsibility like serious. It's a it's a safe set of hands.
They're they're they're just they're they're they're insanely
backable. I wonder if you like, if you you
thought much about that perception of them as you've
like put this work together. JD I.
Think like a safe pair of hands is a, is a kind of great way
that what you mentioned before the institutional investors in
particular perhaps the the generalists would kind of call
them a safe pair of hands. They're reliable.
And again, a bit of a cliche, but like we say, we do deliver.
We deliver that type of thing which they've said for a long,
long time. And the consistency comes back
to the strategy as well, which hasn't changed throughout.
And yeah, you can't say the same for, for a heap of miners out
there. So I, I couldn't agree more with
with what you kind of put together and the bar you kind of
put it on there. It is a remarkable story to, to
think about, to learn about, to, to understand.
And yeah, hopefully there's there's more than a few sort of
Nuggets in there for for people to glean.
From I've got some more questions for you unprompted
mate. How do you think?
How do you think evolution differed from Northern Star?
I mean, firstly, the stories kind of track themselves in
particular once the story gets going at Northern Star,
Evolution took an asset that was more mature.
They took a producing asset that wasn't going to shut down in
seven months time like Paulson's was.
So once that quick share price appreciation is done at Northern
Star, there's a lot more of a closer tracking between the two.
Jundee may be the best deal ever like that.
That is one of the the the takeaways.
You kind of got to have like 82 and a half million bucks for
that. It's just astounding.
As good as all these deals that we've spoken about.
We've just spent two hours talking about the deal making
the House of Evolution, but Jundee is still a far better
deal than you guys could pull off.
I still kind of scratch my head at at that one.
And yeah, I mean, I I coming into it had always thought, you
know, evolution like the deal makers Northern Star,
particularly because of that early period with, with the the
G OS and what they had to do to kick out the life.
But you know, these these two stories are far more alike than
they are different. Balance sheet do you think like
yeah, I know, I know evos have have a you know, their own
target net debt range or gearing range and the likes.
At times, their share price has been quite volatile because of
debt in the cap structure. Do you have any reflections or
thoughts about about gearing? Super good question.
Like today talk about that 15% gearing and I've reflected like
a bunch on this because I've always come from a position that
like it's kind of terrifying. And we saw on the other hand
with with the Fortescue story, yeah, when it goes well, boy
does it go well. But if you have a portfolio of 6
to 8 assets that operate in the, the better half of the cost
curve, then I think 15% is, is pretty prudent.
I, I'm a fan of the, the strategy of taking on a bit of a
debt if you have the confidence that within like 2 years you can
hammer that down. Like there, there is a bit of
risk to it, but that, that amplifies the return quite a
bit. And I think they're very,
they're very sort of thoughtful with that.
But again, you know, they, they'll often say like single
asset producers are far too risky.
They they will say that and they will after you know, almost all
I think all their deals they would hedge in, they would lock
in a bit to to minimize the, the gold price falling away risk.
So I think there is there is room for that and we see that
more at the bigger end of minus which we don't speak quite of
quite often about being a bit more sort of thoughtful given
where they sit in the cost curve with their assets.
The, the part of that marketing pace is the like the dividend
predictability as well. Even in the bad years, they'll
pay a pretty, pretty marginal dividend.
But the marketing pace, like, I wonder what impact that actually
has to their multiple. I think it's, I think it's a
bit, I think they get a fair bit of, of a multiple rewrite purely
based on how marketable they are.
Like I've spoken to a bunch of different people over over many
years. I always like ask people like
Evolution's valuation makes sense, right?
And yes, gold price keeps going up and so evolution share price
keeps going up. But everyone always says no, a
lot of people, a lot of people think that, you know, Evo's
commands a premium in the market that is not at all not not that
is that is that is like sufficiently larger than what
the, you know, the, the real value of, of what their assets
might be, especially compared to other people, other, other other
comparable companies. And part of that, it's like just
that, that that marketing factor and now this company is, is so
large that it is in enormous indexes.
Yeah. I've always thought the same.
I've always thought the same more so in the last few years.
And that has been tainted by that period of heavy investment.
So like, you know, a lot of money was spent in in 2223 into
24 and obviously like the the change in cash on on, on the, on
the books didn't look that great through that period because they
were investing so heavily in the assets.
So very kind to see what that looks like in in the next few
years. I want to put like a couple of
questions to you as well, mate, just in relation to, I suppose,
like firstly evolution the company, like what, Like what do
you think is next for them? In some in some ways I, I ask
you that because the story that Jake tells with Sino gold is
sign it like you know, the next phase of growth for Sino gold
was not actually was not actually them embarking on more
growth. It was to to to combine with
another company. Sometimes the deal is is the
phase of growth like Jake's stepping stepping down from an
executive position into a non exec and and and embarking on a
new adventure in a smaller company.
Yeah, yeah. I mean, from Jake sort of
stepping down, I think growing a smaller company is just more
exciting. But the bigger question about
where does evolution go from here is a really interesting one
because where do you kind of go? Obviously, you can continue to
improve the portfolio On paper, that makes a whole lot of sense.
How do you actually do that? The best answer I've kind of got
is like looking back in time, looking 10 years back, you wait
for your opposition to trip themselves up.
Like if you can make good cash when times are really, really
good and just wait for the bad times, you don't know what
opportunities are going to present themselves.
But as we sit here today when everything looks very expensive,
it's pretty hard to think like, where do they go from here?
So remember how different that landscape looked 12 years ago
when we looked at all the companies around?
What's it going to look like in 10 years?
Like that comes down to how you manage yourself in the good
times. You, you know, you set the table
in the good times to what's going to follow.
We've spoken about this with companies taking measly amounts
of debt when things are really good.
And all of a sudden that amount of debt looks enormous when when
the tide turns very quickly. So who knows what opportunities
will present themselves if you just remain disciplined in the
good times. What do you think?
I think like even though yeah, transitions happening with Jake,
Evo still has great consistency of personnel.
There's, you know, like Laurie has been there for a very long
time and has like tremendous buy in from from his employees.
Yeah, you've still got Kieran and the BD team.
There's like there has been some, some change, but like
there's still like, you know, great, great consistency there.
I don't think you'll have like massive deviation from the
strategy. And I think like the party line
has been in the good times, we're more likely to be sellers
than we are buyers. Like I should believe them on
that. Like I wouldn't be surprised to
see them potentially rationalize certain assets in these good
times. Like I think of the likes of,
yeah, if you get if you get a great offer for red light, do
you sell it? Or if you get a great offer for
mangari, do you sell it? You know, I think the answer to
that is is you probably do. I wouldn't be surprised to see
them like incrementally continue to add more like copper.
And why do I say that? Because in what worked, like if
the next phase of growth for for Evos is, is is unclear, because
they've already got the right number of, of mines that they've
always said that would, that would have.
And they, and they trade at such a like, they trade at such a
premium that like it never makes sense for them to get acquired
at a premium. Do you know what I mean?
Like if you traded at a premium to everyone else, no one's doing
a deal to buy you at a premium because it's not in a creative
deal. You can't sell that to
shareholders. So but adding more copper kind
of does every everyone, everyone wants more copper.
Everyone wants like, yeah, I think you attract a high, a high
premium and you can backfill that with with more copper in
the very long run. I think they I think it's a
merger of equals with a, with a PRI.
Think like one of the Canadian miners, yeah.
Where where scale becomes increasingly important, Agnico's
become like enormous, like as, as they already are, you know,
maybe, maybe, maybe Barrick and and you might merge.
So where does that leave the, the tier below that?
I think you might have yeah, a merger vehicles.
That's my prediction completely unfounded and not substantiated
by by anyone other than my own like, like thoughts.
But yeah, I think the next phase of gross growth is actually it's
actually similar to what Sign of Gold was when when they actually
had to to sell themselves to El Dorado.
I think that's a good take. What do you think of like
Jake's? Yeah, like so he's now he's now
new vehicle is, is Federation mining Endura Endura renamed.
This is a an Aussie super kind of back back vehicle.
I'm sure it'll make its way to public markets at some point,
but do you just apply cookie cutter evolution playbook to
that vehicle and expect that's what will happen next?
Well, it's kind of funny, right? Because Conquest, it was also
started in a period of a bull gold market, which we're clearly
in today. You're going to have to be a bit
patient if you want to find kind of four sellers around there.
But they've got a bunch of work to do in in the meantime and
they're going to have no shortage of people giving them
money. So let's let's kind of say, are
they going to do something massively different to what's
what Jake has kind of done in the past?
I find that hard to to believe, but yeah, it's, it's all about
the timing and how these things sort of present themselves, the
deals that present themselves. Are there maybe slightly
different jurisdictions they could play in perhaps?
I mean, New Zealand already is is slightly different, although
evolution did look there a bit of exploration there back in the
day. But it's it's a tough one.
How do you think about that? I think it's, I think it's the
same playbook that'll will pan out in time.
What what you have is like a serially successful person,
nominal access to capital is an opportunity.
And that's like that's one, one common theme is like they can,
yeah, evolution conceive the opportunity.
I think it'll be a story of deals to come there.
I'm excited to see what deals can kind of be manufactured in a
in a new vehicle. But I've got no doubt that that
that's where that's what will happen.
Commodities are cyclical and I've no doubt we're going to see
another cycle in the gold market sooner or later.
Another cycle? What do you mean mate?
You're predicting the end of this one.
It's right when things are so good that you don't think
they're going to go bad when things turn, so let's see what
happens there. 100% mate. Well, thank you for for your
research and thanks for, for telling the story.
I, I love it. I know a lot of other people
love it get some great feedback from from the work you've done
on these mate. It's.
Mate, appreciate you putting out with it.
It was a long sort of story to tell, but yeah, hopefully the
listeners got a bit of value out of it because the the research
was super fun to do and I think it's a story worth telling A.
100% hoodoo Hoodoo. And a huge thanks to our great,
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Hoodoo, hoodoo. Now remember, I'm an idiot.
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and you need to read out a disclaimer.