PERTH (miningweekly.com) – Gold miner Evolution Mining has forward sold 156 281 oz of gold, at an average price of A$1 598/oz to underwrite the capital programme at its Edna May mine, in Western Australia.
The ASX-listed miner said on Monday that the objective of the gold hedge was to underpin the projected returns from the Edna May mine, and to ensure that the mine not only generated sufficient cash flow to self-fund its near-term capital expenditure (capex), but also to provide an “appropriate” return on the capital commitment.
Executive chairperson Jake Klein noted that the sharp fall in the gold price experienced earlier this year, necessitated a company-wide review of capex, and all planning for the 2014 financial year was based on a spot gold price of A$1 400/oz.
At Edna May, the openpit mining schedule was modified to improve the 2014 capex profile, and noncritical capital projects were suspended.
Klein noted resuming openpit waste mining was deferred in 2014, and was scheduled to restart in 2015, and depended on a gold price of at least A$1 500/oz. He added that the gold price achieved by the hedge programme now ensured that the deferred capex could be restarted in 2015, and would achieve an appropriate rate of return.
“Locking in additional hedging was a prudent economic decision. It now ensures that Edna May is able to not only self-fund all of the capital expenditure associated with the openpit cutback, when work resumes in 2015, but also provide an appropriate return on the capital commitment.”
Klein said that while most of Evolution’s mines would be able to withstand a significant fall in the gold price, owing to either their low operating costs, low capital requirements or operational flexibility, the Edna May mine did not have this flexibility.
The gold hedge covered some 85% of the expected gold production from Edna May, and less than 20% of Evolution’s total gold production out to 2016.