Fidelity on Evolution Mining: Record earnings, higher dividend and a low-cost edge

The heading of every single Evolution Mining (ASX: EVN) result since FY24 has started with the word 'record', with double digit, if not triple digit earnings growth and an aggressive deleveraging of its balance sheet.

Underlying net profit for FY26 rose 63% to a record $1.56 billion, and the balance sheet swung into a slight net cash position. For perspective, net profit was just $482 million in FY24, meaning profits have surged 224% in just two years.

But while gold miners are printing cash, the backdrop remains uneasy, with rising costs, volatile weather and wild swings in bullion prices. Evolution shares tumbled around 23% between 17 June and 20 July, then rallied 43%. Such is the life of gold equities. To make sense of the numbers and the outlook, I spoke with Cameron Taylor, Investment Analyst at Fidelity.

FY26 at a glance

The below ests refer to Macquarie forecasts, not consensus.

Do you currently hold the stock and what is your rating?

We currently own Evolution in the Fidelity Australian Equities Fund as well as other global strategies. Evolution has benefited from high gold prices and copper exposure, making it an attractive investment.

What matters from the results?

Miners' financial results are largely known ahead of earnings, given they already report production, costs and cash flows quarterly. The key focus for Evolution was on the final dividend and their updated dividend policy, which they hinted at earlier in the year. Evolution lifted its dividend payout target to around 60% of annual group cash flow, up from 50%, which we view as a positive signal for the business.

The second area of focus was FY27 guidance. Production was broadly in line with market expectations, and all-in sustaining costs (AISC) guidance was also a focus. Some capex was brought forward as Evolution ramps up development at Northparkes' E22 block cave and Ernest Henry's Bert deposit. AISC was guided higher year-on-year, but there's a caveat, they were based on a lower copper price for FY27. If copper prices remain at current levels, by-product credits from Ernest Henry and Northparkes should provide a modest cost tailwind.

How do those outcomes affect the outlook?

Evolution is spending the same amount of capex as planned but bringing some of it forward. Budgets and timelines remain on track. Investors typically dislike higher capex, but accelerating spend on high-IRR projects is a long-term positive.

What should investors be paying attention to as the story unfolds?

Evolution has a strong track record of generating value from under-capitalised assets. We're looking for detail on Brownfield growth across Evolution’s portfolio. Specifically, I think there's further expansion opportunities for Northparkes, and Cowal could lift underground productivity as higher-grade ore replaces open-cut feed.

On the downside in mining, operations and project execution are risks. Ernest Henry is a good recent example. Last December the site received around 300mm in 24-hours, which caused temporary suspension of operation. While outside management's control, the event disrupted production and requires catch-up development work to get back to normal.

What's your take on the gold price?

Forecasting commodity prices, particularly gold, remains one of the biggest challenges in resources investing. Company valuations can move materially even when fundamentals are unchanged. A company can execute well on production and costs, but if gold and copper prices come off, valuations can move materially.