Shares of Australian gold miner, EVOLUTION FPO (ASX: EVN), fell more than 1.5% in early trade today on the back of its quarterly production report and a landmark deal with the Australian arm of La Mancha Resources Inc.
In the three months to 31 March 2015, Evolution said it achieved record quarterly free cash flow of $26.9 million despite falling gold production and rising costs versus the prior period.
In total 103,305 ounces of gold were produced, along with 115,832 ounces of silver by-product, with the group's All-in Sustaining Cost (AISC) climbing to $1,024 per ounce, up from $990 per tonne in the December quarter.
In a separate announcement to the ASX, Evolution said it had agreed to acquire 100% of La Mancha's Australian operations.
To fund the agreement 322 million new Evolution shares will be issued to the company.
In return, La Mancha will invest $100 million of additional capital into the combined entity to fund growth opportunities.
La Mancha's Australian operations currently produce between 130,000 and 160,000 ounces of gold at an AISC of $950 to $1,000 per ounce.
Once the transaction has taken place (currently expected in July 2015) Evolution will have an annual production of between 530,000 and 600,000 ounces, at an AISC of between $960 and $1,030 per ounce. Total net debt is expected to be $163.5 million.
$11.8 million in franking credits is also expected to be available.
Evolution's Executive Chairman, Jake Klein, said, "This transaction is a major step towards realising Evolution's long-standing goal of creating a globally relevant Australian-focused gold producer."
"The La Mancha Australia assets are an excellent addition to our existing portfolio, and exactly the type of high-quality, low-cost producing assets that we have been seeking to acquire," Mr Klein said. "They are also located in a highly prospective and strategically important region of Australia that offers significant upside exploration potential."
Gold equivalent ore reserves are expected to total 3.4 million ounces, whilst mineral resources will stand at 8.4 million ounces.
In addition to the $100 million investment, La Mancha has agreed to an equity lock-up on Evolution shares which will last 24 months (although there are some exceptions).
Should you buy Evolution shares?
This deal will likely produce a step-change in Evolution's production and earnings. However, in order to achieve this jump, it has given up a big slice of the company. Nonetheless if Evolution can use its capital injection wisely and mimic the success of fellow ASX-listed gold miner, Northern Star Resources Ltd (ASX: NST), in acquiring new assets, it could prove to be a gold miner worthy of a second look.
