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Evolution Mining buys Barrick’s Cowal

Evolution Mining has emerged as the buyer of Barrick’s Cowal mine in NSW under a $US550 million ($704 million) deal.

In an agreement described as “truly transformational” by Evolution executive chairman Jake Klein, the acquisition will make Evolution the second-largest gold producer on the ASX, behind Newcrest Mining.

Speaking after the deal was announced on Monday, Mr Klein said he had wanted to buy Cowal for more than two years.

“In July last year, myself and a fellow Evolution director made a trip to [the Barrick headquarters in] Toronto to express our interest in Cowal, so it has certainly been an asset that we have long coveted,” he said.

“It is a world-class asset and it is very rare, in fact, it is unique, that they are coming loose from a major [miner].”

The mine is expected to produce between 230,000 and 260,000 ounces of gold per year. It will lift Evolution’s annual production as high as 860,000 ounces per year.

Evolution will take on more debt and conduct an underwritten $248 million raising to help fund the deal. The company’s gearing ratio will climb to about 28 per cent after the deal is completed.

Other gold miners, such as Newcrest, have had gearing ratios around the same level over the past two years, but have declared they are too high for comfort.

Mr Klein said Evolution would seek to reduce its gearing ratio over the next year.

“We would want to bed these assets down. We want to generate the cash that they can produce and bring that gearing level down. We see that happening within the next 12 months whilst being able to continue paying dividends to shareholders,” he said.

“Barrick have invested significant capital into the Cowal mine prior to disposal, so we don’t expect it to be a capital-intensive mine; we expect it to be very cash-generative, and the cash flow from the portfolio means that our debt levels will go down rapidly.”

The deal, which was first flagged by The Australian Financial Review’s Street Talk, came barely one month after Evolution paid an estimated $371 million for the Australian assets of La Mancha.

​However, Mr Klein would not rule out further deals, saying Evolution’s appetite for acquisitions was satisfied “for the moment”.

“We certainly will have a period of digestion but standing still is not an option in the gold industry,” he said.

UBS analyst Jo Battershill, who had previously valued Cowal at about $US600 million, said the price paid was “close to fair value”.

Mr Battershill said the true merits of the acquisition would not be known until Evolution had taken charge and reduced the cost of running the operation.

“We won’t know if it is a fair price until we see what they can do on the cost outs,” he said.

While the deal would mean Evolution overtook Northern Star in terms of ounces produced, Mr Battershill said the combined effect of the La Mancha and Cowal acquisitions would give Evolution better margins, too.

Under the terms of the raising that will help fund the Cowal acquisition, Evolution shareholders can buy 13 new shares for every five they own at 90¢ each.

Evolution shares have traded above 90¢ since April 21. They were trading at $1.175 at market close on Friday.

However, the 90¢ offer price is still well above the 78.5¢ the stock has averaged over the past year.

Evolution’s purchase of Cowal continues the trend of foreign gold miners divesting Australian assets to ambitious, growth-focused Australian miners.

Northern Star bought several assets off Barrick and Newmont in the first half of 2014. In April, OceanaGold bought Newmont’s Waihi mine in New Zealand for $US101 million.

The sale of Cowal virtually completes Barrick’s exit from Australia. The Canadian gold major’s last remaining asset is 50 per cent of the super pit in Kalgoorlie-Boulder, which it may offload for the right price.

Barrick also wants to sell the Porgera mine in Papua New Guinea.

The Cowal acquisition was announced on the same day that Independence Group lobbed a $1.8 billion bid for the nickel assets owned by Sirius Resources, and as ASX-listed junior Brumby Resources merged with Marindi Metals to create a new zinc exploration and development play.



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