0:00

Welcome to Fear and Greed Sunday Feature.

0:02

I'm Michael Thompson. On the podcast this

0:04

week, Sean and I talked about evolution

0:06

mining. Shares in the gold miner climbed

0:08

to a two-year high after reporting a

0:11

15% increase in gold output

0:13

in March and affirming their 2024 guidance. It

0:17

also said it had found a new

0:19

gold resource at its Queensland copper gold

0:21

mine site. It reminded us that nearly

0:23

three years ago, Sean spoke to the

0:26

boss of Evolution, Executive Chair Jake Klein

0:28

on Fear and Greed. It is a

0:30

terrific chat. It's an insight into how

0:32

a modern gold miner operates. So here

0:34

it is, Sean's interview with Jake Klein

0:36

from June of 2021. I hope you

0:38

enjoy it. Welcome

0:44

to the Fear and Greed daily interview. I'm

0:46

Sean Aylmer. The last year or so has

0:49

been a fickle time to be a gold

0:51

miner. Uncertainty in global financial markets saw the

0:53

price for the precious metal climb passing the

0:55

US$2,000 per ounce mark to hit a new

0:57

record. And with it, the value of companies

1:00

that mined gold rose as well. But

1:02

both the gold price and the share prices of the miners

1:04

have come back a bit now. The past

1:07

year has taught us one thing, the

1:09

importance of gold during times of financial

1:11

crisis. It also showed just how efficient

1:13

modern mining companies are at removing it

1:16

from the ground. One of

1:18

the bigger Australian gold miners is Evolution Mining.

1:20

The Executive Chair of Evolution is Jake Klein

1:22

and I'm pleased to say he's my guest

1:24

today. Jake, welcome to Fear and Greed. Thanks

1:26

Sean. Great to be with you. Take

1:29

me through the Evolution Mining story. It's relatively

1:31

young, but for those listeners who don't know

1:33

it, it sits next to companies like Crown

1:35

Resorts and Borrel. It's that size of company.

1:37

It's just because it's in gold mining, we

1:39

probably hear a little bit less about it.

1:41

So give me the story about it. Sure.

1:43

Well, we started up about 10 years ago.

1:45

We're coming up for our 10th year anniversary.

1:48

And we started really with a shell

1:51

company with a vision that we believe

1:53

that in the early 2000s,

1:55

Australia was a strategically important place

1:57

for all majors, major companies. global

2:00

gold mining companies. But when the gold price

2:02

term in 2012 and came off quite a

2:06

lot, they decided that Australia was

2:09

not a strategically important place and

2:11

started divesting and Australia had really

2:13

lost its core group of gold

2:15

companies that it had previously had.

2:17

So we set about trying to

2:19

establish ourselves as a company with

2:22

a difference, one that focused on

2:24

value over volume and margins over

2:26

volume and one where really prioritized

2:28

the allocation of capital being

2:30

the key differentiator for us. So that's what

2:32

we've done over the last 10 years. We

2:35

recognize that we're in a very cyclical business.

2:37

So the key to that if you're going

2:39

to allocate your capital wisely is to do

2:41

it in a counter cyclical manner. Okay. So

2:44

that sounds like when you got involved with

2:46

your first asset, Mount Carlton in North Queensland,

2:48

that was a counter cyclical move? It

2:51

was. So Mount Carlton is a

2:53

refractory ore deposit which means that

2:55

it requires a fairly capital intensive

2:58

process to produce gold on site

3:00

which is additional to what most

3:02

gold deposits in Australia require which

3:04

are non refractory. So when the

3:06

feasibility study was done which we

3:09

weren't involved in for Mount Carlton,

3:11

the study found that it was

3:13

uneconomic to develop because it was

3:15

too capital intensive. In

3:17

my previous experience, I built

3:19

and operated gold mines in

3:22

China and built China Gold

3:24

into what turned out to be the

3:26

largest foreign gold producer in China. It

3:28

was sold in 2010 and the Mount

3:31

Carlton opportunity came up and what we

3:33

saw was an arbitrage in that you

3:35

could produce a concentrate on site at

3:38

Mount Carlton and then ship it to

3:40

China and process it there just like

3:42

a copper concentrate. So that was a

3:44

key differentiator for the development of Mount

3:47

Carlton and it turned it from being

3:49

an uneconomic deposit into one which has

3:51

evolved into a very successful development, produced

3:54

significant amounts of cash flow and has

3:56

been very successful. for

4:00

me Jake because when we talk about gold

4:02

and you know often report the

4:04

idea the cost of production per ounce and

4:07

for someone like me is there a cost

4:09

of production per ounce which I can then

4:11

compared to the sale price of gold and

4:14

that's your profit margin does it work

4:16

that way? It's a little more complicated than

4:18

that and I think you're gonna

4:20

say that Jake. Yeah the

4:23

gold industry hasn't done a great job at explaining

4:25

itself I don't think so let me give it

4:27

a try. You have operating

4:29

costs which are really just to

4:32

produce an ounce of gold but

4:34

then there are sustaining costs and

4:36

those are things to replace your

4:38

equipment. Your equipment requires regular maintenance,

4:41

regular replacement and that's what we

4:43

call all in sustaining cost which

4:45

is a better measure to measure

4:47

you know how much is it going

4:50

to cost to sustain your production and

4:52

then there's growth capital and that takes

4:54

you to all in cost and I

4:56

guess you know the best measure I

4:58

would say is look at it for

5:00

investors is to look at all in

5:02

sustaining cost and that should give you

5:04

a measure relative to the gold price

5:06

of the real margin and then how

5:08

much is the company investing in growth

5:10

in gold production and make sure that

5:12

that additional growth that major

5:15

capital is really for growth in

5:17

production again we haven't been great

5:19

as a sector and ensuring that

5:21

does actually deliver growth but

5:23

ultimately my best advice

5:25

to investors listening to your podcast would

5:27

be to think of a gold company

5:30

as no different from any other company.

5:32

What return on capital is the company

5:34

generating and given that a gold mine

5:37

is not a risk-free investment it ought

5:39

to be making a risk-weighted return on

5:41

capital and that return should not be

5:44

reliant or dependent on the gold price

5:47

At Evolution we've driven our

5:49

strategy to ensure that we

5:51

are profitable and we prosper

5:54

through the cycle so in times like today when

5:56

the gold price is above $2300 Australian dollars an

5:58

hour which is

6:00

a great price. We're making great

6:02

profits and in times when it goes

6:04

backwards and is lower, we can still

6:07

prosper through that cycle and make appropriate

6:09

returns. So I would encourage people to

6:11

look at it as no different to

6:13

any other business. Okay, you're all

6:15

in sustaining cost is about $1,100. Is that right,

6:17

Anounce? That's

6:20

right. A little higher. It's close

6:22

to $1,200. Okay, but you're

6:24

a relatively efficient gold miner on an Australian

6:26

scale, aren't you? It may

6:28

be amongst the most efficient in the world

6:30

in terms of that measure, the all in

6:32

sustaining cost measure and on return on capital

6:35

measure. Okay, now I want

6:37

to talk about where you invest because

6:39

we think of Australia as a great

6:41

country with gold mines. You've invested in

6:43

Ontario and Canada as well. Recently, there's

6:45

been a bit of news out of

6:47

Congo and Ghana and some of your

6:49

competitors had struggled there in terms of

6:51

government regulations and in fact, in one

6:53

case, literally closed down or

6:55

retracted the license in Ghana, I

6:57

think that was. Do you prefer

7:00

to invest in countries like Australia

7:02

and Canada where there's fairly established

7:04

rule of law and judicial system

7:06

and governments versus those African nations

7:08

which they found exotic and it just

7:10

seems there's a lot of opportunity there but you have stayed

7:12

away from that. We have and that's

7:15

been a very purposeful part of our strategy,

7:17

Sean. If you go back 15

7:19

years ago, I thought that China was a

7:21

great place to invest and we were very

7:24

successful there but if you think about the

7:26

geopolitics in the world over the

7:28

last decade, in my view, China

7:31

has become more assertive and its

7:33

strategy is to be more expansive

7:35

in resource rich countries and particularly

7:38

developing countries. I think it's got

7:40

to a point where it's recognized

7:43

that it won't build its own

7:45

assets in Australia of significance and

7:47

size. So it is and has

7:50

had a very premeditated strategy

7:52

of looking to developing countries.

7:55

So at the same time, as

7:58

its government has focused on those countries, It

8:01

has also grown what you describe

8:03

as national champions who are endorsed

8:05

by the government and have become

8:07

very competitive. So if you

8:09

go to Africa, it's very different to

8:11

if you've gone there 15 years ago

8:14

as an Australian company. In

8:16

today's environment in Africa, you're likely

8:18

to find Chinese corporate competitors who

8:21

have significant Chinese government support

8:23

over there. And nationalism,

8:26

resource nationalism, these increase in prices,

8:28

generally countries have felt that they

8:30

haven't really got the benefits of

8:33

what they should have got from foreign

8:35

investment in their countries. So you've got

8:37

this increased geopolitical risk and

8:40

that's been why we focused on

8:42

Australia and Canada. Rule of law

8:44

can be relied on, great mining

8:46

skills in the country and

8:49

very attractive geology. Okay,

8:51

so the mines you have in

8:53

Western Australia, Queensland, New South Wales

8:55

and then Ontario, how difficult

8:57

is it running a company where your assets

8:59

are so far apart? I mean Canada to

9:01

Western Australia is a long way away. Well

9:04

let's say that COVID has not made that easier

9:07

given restrictions and travel. Again, our

9:09

thesis and strategy has been focused

9:11

on the fact that there isn't

9:13

a great deal of synergy between

9:15

mines in different locations. There

9:18

is an importance of getting to know

9:20

the jurisdictions so that you have good

9:22

understanding of the regulatory framework and we'd

9:24

say that two jurisdictions are what we

9:26

can manage as a company of our

9:29

size. And then it's up to getting

9:31

terrific teams on site and then empowering

9:33

those teams to be successful, giving

9:35

them a values framework which we

9:37

do but then giving them also

9:40

authority to deliver the best

9:42

they can at the site. So we're

9:44

very much about a devolved

9:46

model which empowers the site teams to

9:48

be really we call the general managers

9:51

of our sites the CEOs of their

9:53

business. Okay And you recently

9:55

purchased Battle North Gold in Canada.

9:57

Is that close to your current?

10:00

I. Say in will they be economies of scale

10:02

in that then. In that case

10:04

the will be a taxi right next

10:06

door and no expiration tournaments or contiguous

10:08

to the to the red like tournaments.

10:10

And there's a mill that is preexisting

10:12

which we intend to use to process

10:14

it as a single mine. Say that

10:16

as Battle North and read like really

10:18

should have been developed as one mine

10:20

and we've not consolidated it said that

10:22

can be. I can say with

10:24

me Jake will be back in Minas. My.

10:31

Guess this morning his Executive Chair of

10:34

Evolution Mining Jake Clyde. Now. Safeties?

10:36

Yeah, the big issue in all

10:38

mining companies had a balance the

10:40

need for low production costs with

10:42

safety, which is probably your highest

10:44

priority. It has severe high

10:46

powered is at an environmental stewardship and

10:49

ensuring that we don't do environmental damage

10:51

but safety keeping up people say is

10:53

our highest priority and they can never

10:55

be a debate of production. Titan for

10:58

the over safety said really important to

11:00

in one of the things which your

11:02

listeners maybe interests in is that in

11:04

fact that the gold mining companies have

11:07

been able to develop this safety systems

11:09

to the point where mining his ex

11:11

the site within a manufacturing plant is

11:13

that right. Yeah. Well

11:15

not specify the isolates and in

11:18

that sister constant focus on a.

11:20

Constant. Focus Really trying to make

11:22

the site is personally as possible. Yeah

11:25

the impact which accidents which could occur

11:27

would have on people's impact on the

11:29

family on they have hobbies and trying

11:32

to make it. Is it a personal

11:34

journey as possible? That's not to say

11:36

and and you never all at a

11:39

point we can say you have achieved

11:41

everything you have needed to achieve in

11:43

safety. It's a continuous effort and and

11:46

focus for us. occur and you

11:48

mention i'm i'm the guy the environment

11:50

in australia to do with the say

11:52

there's been some unfortunate examples of the

11:54

environment suffering as a result of decision

11:56

by by mine is obviously not you

11:59

guys is that more relevant now than it's

12:01

ever been? Yes. The

12:03

ESG component of our business

12:05

is becoming, it's a tidal

12:07

wave which we're trying as

12:09

best we can to run in front

12:11

of it. But institutional investors are becoming

12:13

increasingly focused on it as they should

12:16

be. That goes for us, our focus

12:18

is on carbon emissions and

12:20

also on water usage. I think in Australia,

12:23

water consumption is going to become

12:25

increasingly important and reducing our reliance

12:27

on fresh water consumption is really,

12:30

really important for us. The environmental

12:32

protection and focus on that

12:34

is also critical. First Nations and

12:36

indigenous relationships are really, really important

12:39

and of course the cultural heritage

12:41

aspect of that is critically important.

12:43

So the scrutiny and focus which

12:45

mining companies are coming under is

12:47

increasing and appropriate. So where's your

12:50

next revolution? What's the next decade

12:52

look like? We want

12:54

to do more of the same. That

12:56

is be kind of cyclical, be focused

12:58

on margin over volume and if we

13:01

can deliver to our three core constituencies

13:03

our ultimate objective which is to

13:05

shareholders to make them a superior

13:07

rate of return through capital growth

13:09

and dividends. We want every

13:11

one of our employees to see their

13:13

time at evolution as a highlight of their

13:15

career and we want the communities

13:18

in which we operate to be better

13:20

off, not only during our operation but

13:22

after we've finished operating in that community

13:24

as well. If we can achieve those

13:26

things I think we'll be a great

13:28

gold company. Now Jake, I've left

13:30

this for the very last question because I'm almost

13:32

embarrassed to ask because it's probably very ignorant. How

13:34

often do you dig a hole and not find

13:36

gold? Very

13:38

often. You hopefully don't dig

13:40

the hole before you find

13:42

the gold but discovery

13:45

is best I suppose the

13:48

best analogy is the high-tech industry.

13:50

Our head of discovery Glenn Masterman

13:52

will tell you that you drill

13:54

more holes that won't find gold

13:57

but once you do you can't drill

13:59

enough because you're onto something that he's

14:01

creating value which wasn't there before. Was

14:04

it the natural optimism of a geologist?

14:06

Isn't that what miners talk about? I

14:08

think you need to be because it's

14:10

like the technology space. You always

14:12

hear about these unicorns which are

14:15

on the front page of the newspaper but

14:17

you don't hear about all these failures. Yeah,

14:19

true. Jake, thanks for talking to Fearing Greed.

14:21

Pleasure, Sean. Great to be with you. That

14:24

was Evolution Mining Executive Chair, Jake Klein. This

14:26

is the Fearing Greed daily interview. Join

14:28

me every morning for the full Fearing Greed podcast

14:30

with all the business news you need to know.

14:33

I'm Sean Aylmer. Enjoy your day.