Equinox Gold Corp. (AMEX:EQX) Q4 2023 Earnings Call Transcript

Equinox Gold Corp. (AMEX:EQX) Q4 2023 Earnings Call Transcript February 22, 2024

Equinox Gold Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Fourth Quarter 2023 Results and Corporate Update. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox Gold. Please go ahead.

Rhylin Bailie: Thank you, Ashia, and thank you, everybody, for joining us this morning. We will, of course, be making a number of forward-looking statements today. So please do visit our continuous disclosure documents on our website on SEDARPLUS and EDGAR. I will now turn the call over our CEO and President, Greg Smith.

Greg Smith: Thanks, Rhylin, and good morning, and thanks for joining the call today. On the line with me is our COO, Doug Reddy, our CFO, Peter Hardie; our EVP of Exploration, Scott Heffernan and of course, our VP of Investor Relations, Rhylin Bailie. Again, today, we are discussing Equinox Gold’s 2023 fourth quarter and full year financial and operating results. For those of you that are new to the company, Equinox Gold is a fast-growing America’s focused gold producer. We’ve got seven producing mines across Brazil, Mexico and the United States. We also have several growth projects including our large-scale Greenstone gold mine in Ontario that we’re bringing into production this year with our 40% joint venture partner Orion Mine Finance.

Our production is supported by a large gold endowment including 17 million ounces in reserves and an additional 16 million ounces in measured and indicated resources. I’ll just start with a broad overview and then I’ll turn the call over to Pete and Doug for more details. We had a strong finish to the year with fourth quarter production of approximately 155,000 ounces, that’s the second highest quarterly production in the company’s history. Cash cost per ounce sold in the furth quarter was $1330, our lowest quarterly cash costs this year with all in sustaining cost per ounce sold at $1657. For the full year, we achieved our production guidance with just over 564,000 ounces produced. We sold 559,000 ounces in the year, beating our guidance with cash cost of $1350 per ounce and achieving the low end of our all-in sustaining cost guidance at $1612 per ounce.

Our safety performance this year was good. Four of our sites had no lost time incidents in 2023 and Greenstone completed over 5.9 million hours worked during construction with only one lost time incident. Further, our total 2023 recordable injury frequency rate improved substantially from 2022. These are excellent results. However, I must also acknowledge that after more than five years with no fatalities, we did unfortunately have one fatality during the year at our Santa Luz mine. On the environmental side, we also had a substantial improvement to our significant environmental incident frequency rate compared to 2022. We issued our first Climate Action Report, our first Water Stewardship Report, and an enhanced ESG report. All of these are available on our website.

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Q&A Session

Further, we improved our S&P Global Corporate Sustainability Assessment Score by over 28% compared to the prior year. As most of you know, a major focus for the company during 2023 was advancing construction of our Greenstone mine in Ontario. Greenstone is one of the largest and highest-grade open pit gold mines in Canada and will be a cornerstone asset for Equinox Gold. With a strong push through the fourth quarter, construction at Greenstone was substantially completed by the end of the year. Commissioning is now the focus and we’re making excellent progress. Doug will have more details on the current status at Greenstone later in the call. When operating, Greenstone will significantly increase our production while reducing our consolidated costs, so achieving production is going to be a major catalyst for Equinox Gold this year.

And this is going to be soon as we’re on schedule for the first gold pour in the first half of this year. During 2023, we advanced our plans to develop an underground mine at the Piaba deposit at Aurizona and also commenced initial groundwork at the new Tatajuba open pit. We plan to start development of the underground portal at Piaba and mining at Tatajuba later this year. We also continue to advance permitting of the planned expansion at our Castle Mountain mine which would increase production at Castle Mountain to over 200,000 ounces per year. We anticipate receiving the notice of completion from the Federal Bureau of Land Management in the very near term and the notice of intent shortly thereafter. We expect permitting for the expansion will finish up in mid-2026.

In the meantime, we’re advancing engineering and design so that when the permit is received, we’ll be well prepared to commence construction. And across our mines, exploration drilling in 2023 successfully replaced our reserves. Looking forward toward 2024, we expect an increase in production to between 660,000 ounces 750,000 ounces with cash costs of between $1340 and $1445 per ounce and all in sustaining costs of between $1630 and $1740 per ounce. The increase in production is driven by Greenstone, which we expect to ramp up through the course of the year following our first gold pour. And with that, Pete, I’ll turn it over to you to discuss our financial results.

Peter Hardie: Thanks, Greg. We’re now on slide 8 in the presentation. We had a good Q4 that saw improvements in most key financial metrics compared to Q3 this year and Q4 last year, including gold ounces sold, realized price per ounce, income from mine operations, EBITDA and operating cash flow before changes in non-cash working capital. As Greg mentioned, Equinox had its strongest quarter on record for gold production and sales. We sold 150,000 ounces of gold at a realized price of $1983 per ounce for revenues of $298 million. Income from mine operations was $39 million and that’s an increase of $13 million from Q3’s income from mine operations of $25 million and $16 million more than we did in Q4 2022. The increases in income from mine operations from prior quarters is primarily driven by the strong and higher gold prices we realized in Q4.

We had $198 million in operating expenses in Q4, which is a decrease compared to the $201 million of operating expenses from Q3 of this year and an increase from Q4 2022’s $168 million. The quarter-on-quarter decrease from Q3 is primarily driven by lower reagent consumption at Los Filos. Included in our Q4 results are NRV write downs of $3.7 million or just under $4 million at Castle Mountain and just under $2 million at Santa Luz. On a per unit basis, our Q4 cash cost per ounce of $1330 is the lowest quarter for the year and lower than our annual 2023 cash cost per ounce of $1350. Compared to Q4 2022, cash cost per ounce increased over $100 per ounce. The increase from Q4 last year is attributable to a few factors including increases in mining costs related to contract mining rate increases, that’s mostly at Aurizona and Santa Luz of about $100 an ounce.

And in addition, the appreciation of the Mexican peso and Brazilian real contributed to about $75 per ounce increase. Those increases from Q4 2022 are offset by a decrease of about $50 per ounce in consumables and energy prices, had our realized gains in foreign exchange hedging been applied against our operating costs, it would have further reduced the cash cost per ounce for Q4 by about $50 per ounce. For our annual 2023, the cash cost per ounce of $1350 increased nominally from 2022’s $1315 per ounce. Had our realized gains in foreign exchange hedging been applied against our operating costs, it would have further reduced the cash cost per ounce for 2023 by about $60. Our all-in sustaining cost per ounce for Q4 this year of $1657 is normally up from Q3 and comparable to Q1 2023.

When compared to Q4 2022, all-in sustaining cost per ounce is up just over $130 an ounce and due to the same reasons that I outlined, pardon me, for the increase in cash cost per ounce from Q4 last year, namely the mining and the foreign exchange. Our annual 2023 all-in sustaining cost per ounce of $1612 is lower than 2022 to $1622 per ounce. In Q4, we saw Los Filos continue to decrease its overall gold ounces leach pad inventory balance. That trend continued into the New Year. At Mesquite, we saw an increase of gold ounce inventory on the leach pad compared to the end of Q3. For Mesquite, the gold ounce inventory increased in the second half of 2023 is expected to be recovered through the first half of 2024, and Doug will discuss Mesquite operations further in his review of the operations.

Our EBITDA in Q4 2023 was $85 million or $95 million on an adjusted basis, which is an improvement over Q3 this year and Q4 last year. We had net income of $4 million, $2 million on an adjusted basis, both of which result in earnings per share of $0.01. Cash flow from operations before changes in non-cash, working capital was $168 million or $0.54 a share, which $76 million of proceeds from the long-term gold prepay arrangement that we closed in October. With respect to our sustaining spend, in 2023, we spent $120 million which was $16 million less than our guidance of $136 million. Moving to slide 9, in terms of liquidity and capital position, we ended the quarter with $192 million of unrestricted cash. The decrease from Q3 is primarily due to repaying $166 million of the revolving credit facility on October 3rd with the proceeds from the convertible note we issued in September.

During December and into January, Equinox made use of its ATM and issued 9.9 million shares at an average realized price of just under $4.80 per share for about $48 million of proceeds. With regards to Greenstone, a total of $1.2 billion of the project spend has been spent to date, pardon me, or through the end of December 31, with a total budget of $1.23 billion. Throughout the project, Equinox saw some increases during the strong inflationary environment that were offset primarily by savings on foreign exchange and equipment financing. There is some exposure for the commissioning period offset by expected gold revenue, but we ultimately expect Greenstone to commence commercial production largely on budget. We expect to fund our remaining share and any pre commercial expenditures through our cash at the end of the quarter and our operating cash flow.

We have $165 million available to draw on our revolving credit facility, $140 million of which set aside to repay with bottlenecks in convertible debenture that matures in April expire out of the money. As Equinox depends in part on operating cash flow to fund Greenstone, we added to the gold hedges in place to ensure and extended some to the end of Q2 to ensure a minimum price and secure the related cash flow on a portion of our gold sales. As at Jan 1, the company had callers on about 143,000 ounces of gold with a floor of 1964 and a ceiling of $2,170 per ounce. Additionally, we have the $100 million accordion on the revolving credit facility feature that remains outstanding and undrawn. And finally, we have other levers with our $100 million investment portfolio in our ATM should they be needed.

And with that, completes the review of our financial performance for the quarter. I’ll turn the call over to Doug for a review of the operations.

Doug Reddy: Thanks, Keith. We are now on Slide 10 of the presentation. At the Mesquite mine, gold production was within guidance at 88,000 ounces and below all in sustaining guidance at $1251 per ounce for the year. The mine stacked a large tonnage of ore in both Q3 and Q4 and it took a while to bring all of that ore under leach. This gold inventory was being drawn down in Q4 and it will continue into 2024 with most of the gold production in the first half of the year coming from the ore that’s already stacked. Tripping of the Ginger pit is now the main focus for mining. The majority of the ore from that pit will be coming online in 2025. Ginger was a new discovery in 2023 and it’s quickly been incorporated into the overall mine plan.

At Mesquite the company continues working on developing additional resources and permitting to extend the life of the mine. At Castle Mountain, gold production was below guidance at 21,000 ounces and was within all-in sustaining cost guidance at $1899 per ounce for the year. Phase 1 is a small operation and that involves mining and processing of low-grade mineralized dump material. This material needs to be removed from the old open pits in anticipation of mining higher grade in situ ore during the Phase 2 expansion. Crushing agglomeration modifications were completed in 2023 and the contractor also increased their throughput by about 46%. But we still didn’t get to the level of crushed material being fed through the crush and agglomeration system that we wanted.

So we’ll continue to work on this and also on cost reductions in 2024. At Los Filos, gold production was below guidance at 159,000 ounces and over the all-in sustaining cost guidance at $1890 per ounce for the year. In 2023, a productivity improvement program in both the open pit and underground mines was implemented and that yielded an increase in overall ore production. However, in spite of the additional ounces that were above the mine plant, being mined and stacked, Leach pad issues resulted in slower and lower recoveries and there was an increase in the inventory of ounces accumulated on the pad. The issues were resolved during the second half of the year and the drawdown of the ounces continued through Q4 and continues into Q1 this year.

During 2024, we’ll be mining from the Los Filos, Bermejal and Guadalupe open pits and also from the Los Filos underground. All of the ore goes on to the existing heapage pad and we’re continuing optimization efforts to improve efficiencies and reduce costs. Longer term we’d like to expand the mine and to build the carbon and leach plant so we can process higher grade ore and that would be a 10,000 ton per day plant that we’d like to build. But we’re not going to be able to make that investment unless we’ve been able to negotiate new agreements with our community partners so that we can ensure long term economic viability and stability for the mine. We started the dialogue in the Q4 of last year, and we’re certainly hopeful that we’ll be able to find a long-term solution so that we can invest on the mine, but as you will in the MD&A we have stated that we were not able to find a long-term solution, we may need to suspend the mine at least until new agreements are in place so that we can enter into a new phase of life for Los Filos.

On to the next page, in Brazil, the Aurizona mine gold production was within guidance at 121,000 ounces and within on sustaining guidance at $1440 per ounce for the year. In 2023, we had a record year for the total tonnes being moved by the mine — in the mine. We also completed the new tailing storage facility which is now in use that’s in Vene 2 and we’ve begun decommissioning of the Vene 1 tailing storage facility. This year we’re going to be mining from the Piaba pit, the Piaba East pit and also from the new Tatajuba open pit which is on the same trend into the west of Piaba. We will be finishing the installation of a pebble crusher that’s to maintain throughput at 8,000 tonnes a day. Fresh rock will be about 67% of plant feed in 2024. We have the permits that we need to start the development of the portal and ramp to access the Piaba underground and we will start that work in the second half of the year.

That’s going to let us get underground to do some bulk sampling and underground drilling and the portal will be sized ultimately to be usable as a production decline for underground operations. At the Fazenda mine, we had another good year achieving guidance with 66,000 ounces produced, but coming in slightly above the all-in sustaining cost guidance at $1448 per ounce. Plant feed for 2024 will be 35% from open pit and 65% from underground. And I do note that the team is evaluating the opportunity for a larger open pit over the center portion of the main mineralized trend. So hopefully we’ll talk about that more later on this year. Drilling programs continue to place reserves in the underground year on year and that’s been a consistent annual program that we’ve had the effort to annually replace what we mine underground.

And a TSF raise is in progress at Fazenda and will be completed in Q2. At RDM, gold production was within guidance at 53,000 ounces and below the all-in sustaining guidance at $1612 per ounce for the year. In 2023 we continued mining with a rental and owner fleet that’s being operated by an owner’s team. We’re doing this year we were continuing on with the stripping campaign that will allow us to get into a section of higher-grade ore at the bottom of the pit. When we expect full access to be, at the start of 2025. We’re also doing some input dumping that should help us to reduce some costs and we’re planning to implement dry stack tailings in the second half of the year. At Santa Luz, gold production was below guidance at 57,000 ounces and within the all-in sustaining cost guidance at $1834 per ounce for the year.

The mine had a good first half of the year, but began to have problems with pollution and electro winning in the Q4 that impacted our resin activity and the recoveries. These issues were being addressed as we came into the end of the year and into the new year. In 2024, we will be making some plant modifications and those will be to increase mill throughput and improve recoveries. One of them is a desliming circuit that will be to reduce the total organic content and improve overall gold recovery by about 6%. We will be installing a new trunnion that’s to increase mill throughput that should be about more than 10% increase in the throughput. And we are optimistic that these improvements overall will help stabilize the recoveries in throughput.

We have the objective of achieving recoveries over 73% or higher for the second half of the year. We’re also doing a TSF at Santa Luz that should be completed by the start of Q2. Okay, move on to Greenstone. So obviously a cornerstone asset for Equinox. It’s got a great production profile, high average grade for an open pit, 1.27 grams and we’ll be averaging 400,000 ounces a year on a 100% basis. So that gives us about 240,000 ounces coming to Equinox Gold given our 60% interest in the project. Plant throughput at 27,000 tonnes per day, I mean that’s where we’ll be ramping up to. And during that time we’ll be evaluating what will be needed to be able to take it up to 30,000 tonnes a day which is the permitted rate for the mill. With a 14-year life, it’s a good initial mine life, but we do also see opportunities to add from areas that are immediately adjacent to the current pit design plus from an underground opportunity and also other deposits on the property.

So we look forward to being able to augment the mine plan over the coming years. I just visited site and just in transit back to the corporate office. It’s an exciting time and I will commend the construction team after 25 months of construction. They have kept to the overall schedule of H1 being — H1 2024 being the Gold Port. It’s a really good sight to see. And when you look at the crushing circuit or storage dome, they’ve been in hot commissioning essentially they’re ready to go. There’s ore sitting in the or storage dome ready to be used. ball mills, HPGR, leach tanks and thickeners they’re all in wet commissioning. And the tailings facility is permitted and ready for use. The mining flight fleet is 14 trucks, three shovels, current mining rates above 90,000 tonnes a day.

And it will be ramped up to 180,000 tonnes per day as we bring on additional trucks and bring them into service. Stockpile for start up, currently it’s just over 1.5 million tonnes. I know there’s another 0.25 million tonnes broken in the pit. So they’re doing a good job of putting everything in place ready for hot commissioning and ramp up. And we received all the permits required for the commissioning activities and overall things are going well. We’re really looking forward to being able to announce first gold pour in the next few months and then advancing through ramp up in commercial production and onwards. So, with that, I’ll hand it back to Greg.

Greg Smith: Yes, thanks Doug. And yes, I’ll just reiterate with Greenstone coming online in in 2024, this is going to be a very transformative year for Equinox Gold. As we progress through this year, we’re going to be increasing our production in what we believe will be a macro environment of decreasing interest rates and increasing gold prices. Our production from Greenstone will significantly reduce our operating cost and meaningfully increase our cash flow as we ramp up production through the year. And with our capital cost at Greenstone also substantially decreasing here, Equinox Global transition to generating significant cash flow later this year. I’d just like to thank the entire Equinox team, the team at Greenstone as well for their efforts during 2023, and of course a sincere thanks to all of our stakeholders. And I think I’ll conclude there and pass it back to Rhylin for Q&A.

Rhylin Bailie: Perfect. Ashia, can you please remind people how to ask a question?

Operator: [Operator Instructions].

Rhylin Bailie: Perfect. Thank you. While we wait for people to queue up, we’ll take a couple of questions from online. Doug touched briefly on what’s happening at Greenstone. What are the next milestones that you will need to achieve to achieve first gold pour?

Greg Smith: Doug, you want me to start and you can jump in? Sure. So, I mean, we’re getting in the real final stages here. As Doug mentioned, the crushing circuit has been hot commissioned. We’ve been running it intermittently, accumulating a crushed ore stockpile in the storage dome. HPGR, which is the high-pressure grinding roll, is ready to receive material. The mills are almost there. Ball mill 1 has been turned and load tested and ball mill 2 is shortly behind it. And the real push and the primary push at this stage to get into full hot commissioning is just programming and instrumentation in the circuit. And so, we’ve got a full team focused on that right now. And as we move through that, we can bring on each incremental part of the circuit online.