Q3 2024 Equinox Gold Corp Earnings Call
Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold third quarter 2024 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.
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Speaker Change: If you are participating through the webcast, you can submit a question in writing by using the text box in the lower left corner of the webcast frame. 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 operator and thank you everybody for joining us here this morning. We will of course be making a number of forward-looking statements today so please do visit our website CDAR and EDGAR to learn more about the company and read the rest of our continuous disclosure documents. I would now like to turn the call over to our president and CEO Greg Smith.
Greg Smith: Thanks Rhylin and good morning everyone and thanks for joining the call.
Greg Smith: 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.
Greg Smith: Today we are discussing Equinox Gold's 2024 third quarter financial and operating results. I'll start with a broad overview of the quarter and then I'll turn the call over to Pete and Doug for more details.
Speaker Change: I'm going to start with safety. Our safety performance this quarter was good. Six of our sites had no lost time incidents, with two recorded for the quarter overall. And our 12-month rolling total recordable injury frequency rate stands at 1.79 per million hours worked. We also had no significant environmental incidents in Q3.
Speaker Change: With the increasing production from Greenstone and the strong gold prices, this was a record third quarter for the company.
Speaker Change: in terms of gold sales, revenue, adjusted EBITDA, and other metrics, with just under 174,000 gold ounces produced and sold, at a cash cost per ounce sold of $17.20, and an all-sustaining cost per ounce sold of $19.94 per ounce.
Speaker Change: Note that cash costs and all sustaining costs per ounce do not include costs per ounce for Greenstone, as Greenstone was not yet commercially producing in Q3. However, revenue and operating costs in the financial statements do include sales and costs from Greenstone.
Speaker Change: For the nine-month period, we produced approximately 408,000 ounces and sold approximately 406,000 ounces at cash costs of $16.78 per ounce and all-in-sustaining costs of $19.94 per ounce, again excluding the cost per ounce for production from Greenstone.
Speaker Change: On to Greenstone itself. The ramp-up of mining and milling has progressed well since our first gold pour in May, though at a slightly slower pace than we initially expected.
Speaker Change: During Q3, Greenstone produced just over 42,000 ounces of gold, bringing total production to just under 59,000 ounces since the first gold pour in May.
Speaker Change: We undertook three multi-day shutdowns in the process circuit in Q3, and another in the first half of October to address wear and other process issues that surfaced during startup. We also meaningfully advanced the expansion of the footprint of the first phase of the open pit through September and also October.
Speaker Change: We've seen good results from this work with mining rates increasing and with process throughput increasing, particularly over the last half of October and into November, and we were very pleased to announce yesterday that Greenstone is now in commercial production.
Speaker Change: We will continue ramping up mining rates and plant throughput through Q4 toward design capacity.
Speaker Change: To reflect the pace of the ramp-up in October, we reported adjusted production guidance for Greenstone of 110,000 to 130,000 ounces in 2024, which updates consolidated guidance to production of 590,000 to 675,000 ounces for the full year.
Speaker Change: In mid-October, we had an analyst tour at Greenstone. This was a great tour. Most of our analysts attended, and so there are recent analyst reports out there. Get in touch with Rhylin if you'd like to see them.
Speaker Change: The full site tour deck is also available for download on our website, and there is a lot of detailed information in there on the ramp up so far, so feel free to reference that slide deck as well.
Speaker Change: During the quarter, we also celebrated the grand opening of the Greenstone Mine and the completion of the Ride to Greenstone fundraising initiative. The grand opening was attended by many local stakeholders. This was a great event and there were some great comments made by a number of speakers and I'd encourage you to watch the video of the event on our website.
Speaker Change: The Ride to Greenstone fundraiser ended in August. This was also a major success. We raised over $1.3 million Canadian for the Geraldton District Hospital, which is the local hospital at the Greenstone Mine. We also raised $200,000 for charities and other communities where we operate.
Speaker Change: The donation to the Geraldton Hospital is going to make a big difference in the local communities and also for our employees at Greenstone. And we really appreciate all the support we received from all the donors and others that supported this endeavor, and particularly our gold sponsors, which are some of our industry peers and associations.
Speaker Change: Finally, we had a change in our Board of Directors in October with Fraz Siddiqui stepping off the board. Fraz was an excellent board member and a great guy, and I'd like to take the opportunity to thank him for his contributions over the last year. And with that, I'll turn it over to Pete to discuss our financial results.
Pete: Thanks, Greg. We're now on slide 6 in the presentation. During Q3, we realized $2,461 per ounce on 174,000 ounces sold for revenues of $428 million.
Pete: The increase in revenue for the quarter is driven by higher production and the higher gold price. The increase in sales is driven by the contribution of 44,000 ounces sold by Greenstone. Keep in mind last year Greenstone was in construction and so it had no sales.
Pete: For the quarter, income from mine operations was $101 million, an increase of $76 million from Q3 last year, and that's primarily thanks to the increase in revenues.
Pete: We had $268 million in operating expenses in Q3 2024, an increase compared to Q3 2023, primarily due to Greenstone ramp-up. As Greenstone was in construction last year, it had no operating expenses.
Pete: We also had some high rocks operating expenses at Los Filos
Pete: Our open pit and underground cost-per-ton mine were less than last year, as was our cost-per-ton processed. However, we stacked and processed more ore tons in Q3 this year than in Q3 last year, which led to higher overall operating costs.
Pete: On a per unit basis, we had a Q3 2024 cash cost of $17.20 per ounce, which is an increase of $357 per ounce compared to last year's Q3 cash cost of $13.63 per ounce.
Pete: Keep in mind that while Greenstone's revenues and related cost of sales are recorded in our income statement as required by FRS, I'll reiterate, as Greg mentioned, those results are not included in our cash and all-in sustaining cost metrics for Q3, as Greenstone wasn't yet in commercial production.
Pete: Our increase then for our cash and all sustaining costs for the quarter is primarily volume driven With 24,000 ounces in lower sales in Q3 this year at Arizona and Mesquite compared to Q3 last year
Pete: For Q3 2024, our All-in-Sustaining Cost of $19.94 per ounce decreased from Q2 of $20.41 per ounce and is up from Q3 last year of $16.30 per ounce. The increase in All-in-Sustaining Cost per ounce compared to last year is volume driven and due to the reasons I just noted for cash cost per ounce.
Pete: Now that Greenstone is in commercial production, we expect it to significantly reduce our cash and oil and sustain cost metrics. I should also note that Castle Mountain was moved to residual leach at the end of August, while that continues with the permit amendment process.
Pete: Castle is now reported in our MD&A as a development project and as after August 31st, its results are no longer included in our cash or all sustaining cost metrics. We will continue to record ounces sold from Castle as revenues and the related costs will be included in the income statement.
Pete: Our EBITDA on Q3 2024 was $114 million. Our adjusted EBITDA was $142 million. It increased $91 million compared to Q2 this year and $61 million compared to Q3 last year. Last year's adjusted EBITDA of $81 million.
Pete: The increase in adjusted EBITDA compared to prior quarters is driven by the increase in revenues.
Pete: For the quarter we had net income of $300,000 and on an adjusted basis net income of $37,000,000 or $0.09 per share.
Pete: Cash flow from operations before changes and non-cash working capital was $130 million or $0.30 a share.
Pete: With respect to sustaining expenditures for Q3, we spent $36 million. Non-sustaining expenditures for the quarter were $82 million, $65 million of which were for Greenstone.
Pete: Note that Greenstone wasn't in commercial production through the end of September, so all capital expenditures there for Q3 are considered non-sustaining. This includes amounts spent on fleet expansion, a tailings lift, removal of historic contaminated soil, camp upgrades, etc.
Pete: Moving to slide 7, with respect to our available liquidity at September 30th, we had $168 million of unrestricted cash on hand and $105 million available to draw on a revolving credit facility.
Pete: In October, one of our debt maturities came due with convertible note holders converting all of a $140 million note at the conversion price of $525 per share. The company issued 26.7 million shares to note holders, preserving our liquidity and retiring $140 million of our outstanding debt.
Pete: Also in October, we amended certain gold prepay arrangements to defer the first five monthly deliveries of 3,900 ounces per month.
Pete: Originally due October 2024 to February 2025 to deliver 4200 ounces per month from May through September 2026.
Pete: The purpose of the deferral was to provide a little more cash liquidity. It's about $10 million a month at current gold prices, while Greenstone finishes ramping up.
Pete: In early October, we filed a short-form base shelf prospectus that permits the issuance of the company's securities over a period of 25 months in the U.S. and Canada. It effectively replaces the one set to expire in November. As discussed in the past, you can expect Equinox to maintain an active base shelf prospectus going forward.
Moving to slide 8.
Pete: With Greenstone commercial production achieved, our financial focus switches to deleveraging as free cash flow produced by the mines will be used to pay down debt. For the past few years at Equinox Gold, we've been acquiring and building mines and have been using debt as one of the funding methods for doing so, including an additional $500 million term loan to consolidate 100% ownership of Greenstone during Q2.
Pete: This slide demonstrates Equinox's goals historical leverage is measured by net debt to EBITDA ratio from Q1 2020 through Q4 2023 and pro forma leverage through 2026 as per analyst consensus.
Pete: The general trend we see is that leverage in the company increased as acquisitions were completed and mines were being built. This is a natural consequence of using debt as one lever for funding acquisitions and construction.
Pete: Leverage peaked in Q1 2020, a few months after construction of Arizona was completed, and again in late 2022 as construction of Greenstone was ongoing and construction of the Santa Luz mine was completed.
Pete: Retirement of the first of the 140 million convertible notes this October marks the beginning of the deleveraging cycle for Equinox. In this high gold price environment we look forward to Greenstone continuing its ramp up to full capacity and the strong resulting cash flows to continue deleveraging.
Pete: With that, Doug will lead us through a review of the operations. Thanks, Pete.
Doug Reddy: We're now on slide nine of the presentation. As noted, we had a very good Q3 for overall gold production and we look forward to Q4. We should get about one-third of our annual production coming in in Q4.
Doug Reddy: Throughput achieved a rolling 30-day average of 60%, that's 60% of the nameplate, of 27,000 tons a day as of August 28th, and the ramp-up continued through October, and as of November 5th, the 20-day average was 76% of capacity.
Pete: Recovery is still being addressed. It was 79% in the quarter.
Pete: We've been addressing issues with screens, pumps, and conveyors in the mill, typical of a ramp-up. All of these have been resolved or are being addressed as we went through October, and we have had throughput over 27,000 tons a day.
Pete: The fleet's now 25 haul trucks with four shovels on site, and we'll be adding to that fleet through the end of the year and into Q1.
Pete: At Mesquite Mine, gold production was 15,223 ounces with an all-in-sustaining cost of $1,421 an ounce.
Pete: Waste stripping continued in the ginger pit, and the majority of the ore from that pit goes on to the leach pad, starting in the latter part of Q1 in 2025.
Pete: We also re-handled, stacked, and began leaching the old Vista leach pad material during the quarter.
Pete: And for the rest of 2024, our production will be mostly drawdown of the leach pad inventory, side slope leaching, and leaching of some additional ore that comes during the stripping of the ginger pit.
Pete: At Los Filos, the mine has the second highest quarter for gold production since Equinox acquired the mine.
Pete: Production increased during Q3 to 48,462 ounces, and this should continue into Q4. Excuse me.
And the all-in-sustaining cost was $2,153 per ounce.
Pete: Underground mining continued to improve in Q3 as we added a second contractor in the Diego's underground area of the Los Feliz underground mine.
Pete: And our dialogue with our community partners continues. We've met with all three communities, as well as the mayor of the municipality and the state representatives. We're working towards establishing new agreements so that we can ensure long-term economic viability and stability for the mine.
On to the next page.
Pete: In Brazil, at the Arizona mine, production was 17,181 ounces with an all-in-sustaining cost of $2,145 per ounce.
Pete: In July, we restarted the plant after a suspension of about eight weeks following a lack of ore coming out of the Puyallupan Pit, and we transitioned to processing Tatajuba ore, which is lower grade on average compared to the Puyallupan Pit.
Pete: Current mining is mostly from the Tata Juba Open Pit, and towards the end of the quarter we began mining in the eastern and western ends of the Piava Pit and in the Boas Baranza Pit as well.
Pete: We are coming to the completion of the work that we've been doing on recontouring of the pit wall in Piava in two areas. We've drilled most of the dewatering holes that are part of our program and we've been through external reviews of geotechnical and hydrogeological information.
Pete: At the Fazenda mine, production was 15,280 ounces, and the all-in-sustaining cost was $1,831 per ounce for the quarter.
Pete: Plant feed is currently 40% from open pit, 60% from underground, and recovery is 90%.
Pete: Underground development rates are now catching up to the mine plan as we have had a modification of our underground ship duration and we've added additional equipment to the underground fleet and production overall is increasing at Fazenda.
Pete: At RDM, coal production was 13,472 ounces, and the all-in-sustaining cost was $1,817 per ounce.
Pete: We changed the rental mining fleet and have increased mining productivity.
Pete: We also established a new dry stack tailings facility which is now fully in operation with cyclone tailings being dried and then placed and compacted in a storage area.
Pete: At Santa Luz, we had our second best quarter of gold production.
Pete: production was up at 16,650 ounces with an all-in-sustaining cost of $2,203 per ounce.
Pete: The new trine end that was installed at the tail end of Q2 started up in Q3, and that's enabled us to increase our throughput by about 10%, and that gave us a record for tons throughput in the quarter at Santa Luz.
Pete: removal of the carbon which finds works but we've been removing also too much of the contained gold so additional work is required before we bring that back on line. In the meantime we operate without de-sliming and the recovery ranges from 64 to 75 percent in October.
And with that, I'll hand it back over to Greg.
Greg Smith: Thanks Doug. I'm just going to make a couple of closing comments before we move on to Q&A.
Greg Smith: So on the last quarterly call I noted that we were at an inflection point at Equinox Gold with Greenstone coming online
Pete: And even though we really just started production at Greenstone and are still ramping up, you can see here on the slide the effect Greenstone is having. We had record gold sales for a third quarter, and with the strong gold prices, we also had the all-time highest revenue and adjusted EBITDA and adjusted operating cash flow for any quarter.
Pete: And at these current gold prices and with increasing production, Q4 should be another strong quarter for us, and we should be in a great position to further deleverage over the coming quarters, as well as investing in our mines for the future.
Speaker Change: I think, Rhylin, I'll wrap up there and we can move to Q&A. Sure. Operator, can you please remind people how to ask a question?
Speaker Change: Certainly. Once again, to join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2.
Pete: If you are participating through the webcast, you can submit a question in writing by using the text box in the lower left corner of the webcast frame. We will pause for a moment as callers join the queue.
Speaker Change: Thank you. While you'll queue up, I'll take the first question that we've got from online here. It says, congratulations on achieving commercial production at Greenstone. I noted that your calculation of how you calculate that is different than what you had initially said in Q2. Could you explain?
Sure, sure.
Speaker Change: So, yes, our internal criteria for declaring commercial production was more conservative, certainly than many of our peers, and certainly from where we ultimately announced it.
The reality is...
Speaker Change: Over the third quarter, the mine generated a substantial amount of all-in or all-in sustaining cost contribution margin. We've seen throughput rates increase meaningfully over the back half of October and into November, and you can only...
Speaker Change: It becomes very hard to argue you're not commercially producing when the mine is producing gold at sort of sub-$1,000 cash costs per ounce and it's increasing every week. So it made sense from an accounting perspective, from an operating perspective to declare it.
Pete: And what that means is, over the last two months of the year here, the costs for Greenstone will be incorporated into the cash costs and all sustaining costs.
Pete: and we'll have depreciation, etc. being reflected in our financial statements. The reality is Greenstone is our largest and lowest cost mine now, even in this ramp-up period, and really there's no debate that it's commercially producing.
Speaker Change: Operator, we can take a question from the phone please. Our first question comes from Anita Soni from CIBC. Please go ahead.
Speaker Change: Hi, good morning, Greg and team. First off, congratulations for swinging to free cash for positive this quarter and declaring commercial production at Greenstone.
Pete: Secondly, I was just hoping to if you could give us some color on how the unit costs at Greenstone are trending. I was hoping to get some
Pete: and I'm going to share some data from my model on mining and processing. I know it's not a full quarter or it's early days, but I just want to see where it's pegging at right now.
OK.
Speaker Change: We're just going to dig that up and come back to you in a minute.
Speaker Change: Anita, we do, I think we do have some of that data in our, we went through some of it at the at the site tour. From a mining cost perspective, we're effectively on plan, you know, as what we anticipated, but we'll pull that data and maybe this is a conversation we can have offline.
Speaker Change: The second question was with respect to Santa Luz. I think Doug addressed it a little bit, but is the go-forward expectation on recovery rates
Speaker Change: perhaps into next year as well like more along the lines of 60% recovery rate or are we still trying to target something higher and if so when when do you expect to achieve the higher number?
Speaker Change: So, without de-sliming, we're operating around, like I said, 64 to 75. We're actually averaging about 68%.
Speaker Change: The problem is doing the increased throughput that comes with the trunnion at the same time as doing the de-sliming.
Speaker Change: Cyclones to be able to properly do the feed so the guys are working through testing that to try to Bring it back and try it again
Speaker Change: We do intend long term to do the de-sliming, but without de-sliming we still get a decent recovery, albeit not where we originally intended.
Speaker Change: I mean, Anita, if I could just add something to that, what I would say with Santa Luz
Speaker Change: We have periods where the recovery is excellent and kind of exceeding our targets, and then we have periods where the chemistry changes in the plant and recovery plummets.
Speaker Change: and the, you know, the word I would use is that recovery at Santa Luz is quite volatile and that's something that we're continuing to struggle with and something we're continuing to work on is trying to get some stability.
Speaker Change: So, I mean, as you can see, just through all of our calls this year, it's been very challenging for us.
to Forecast Recovery's Anna Luz.
Speaker Change: because of this volatility. I think we're making some good headway and the Trunnions worked out great for us.
Speaker Change: The recoveries over the last three or four weeks have actually been probably the best we've seen all year and relatively stable. But I don't really want to project that into the future because we've seen this volatility at Santa Luz multiple times.
Speaker Change: But as Doug said, we're going to refine this de-sliming circuit and I think that's going to help going into 2025. By February when we release our 2025 guidance, we'll have a better handle on this hopefully and can give you more details.
Speaker Change: Okay, and the last question on Orzona and the Piava Pit.
Speaker Change: reiteration of the expectation, or if it was a little bit different, I couldn't, I had a lot of companies report last night, but is it, is this a change like at Piava, like is it, I think it said you're expecting to get into that in Q4, were you expecting to get into it earlier, or was Q4 always the target?
For more information visit www.FEMA.gov
Speaker Change: Q4 was the target, but we had the opportunity to start on the eastern and west end of Piava in October. Well, actually, it is Q4, yes, we're doing exactly what we said, sorry. That's how I feel too today, I don't know what to say.
Speaker Change: So we're very much on track with our expectations and bringing on Boas Branzas as well. We did indicate that we would do that so we're in there as well. So it gives us a lot more flexibility than we had last year going into the rainy season and we continue to have essentially four areas that we can be mining.
All right. Thank you very much, Joseph, for my question.
Speaker Change: We'll take one from online. This is for you, Peter. Are you able to give any more clarity on your plan or potentially the timeline for deleveraging?
I think you'll see us do a combination of things.
Speaker Change: One is, as some of the debt matures, for instance, the second of the $140 million convertible notes, which matures next year in September,
Speaker Change: We'll likely retire that. That will either get converted because of the share price, it's in the money.
or we'll just outright retire it from Treasury.
Speaker Change: The revolving credit facility will be opportunistic and aggressive in paying that down with cash flow from mines.
Speaker Change: And then with the term loan that we took out to consolidate ownership of Greenstone.
Speaker Change: I think you'll see us optimize debt maturity as well. So we'll take a combined approach to it of outright retirement and then also maturing our debt ladder maturities, if you will, or extending it.
to work on the deleveraging.
Thank you. Operator, go ahead.
Speaker Change: The next question comes from Jeremy Hoy from Canaccord Genuity. Please go ahead.
Jeremy Hoy: All right, good morning, Greg and team. Just a quick one for me.
Jeremy Hoy: Previously, I believe it was mentioned that you thought there could be a resolution to the discussions with most fetal communities by the end of 2024. Is that still the expectation or could that drag into 2025 as well and is there any more color you guys could provide on that?
Sure Jeremy, so
Speaker Change: You have to appreciate that this is a commercial negotiation, so I can only give so much color.
Jeremy Hoy: You know, there's a few things I could say with some certainty and that is
Jeremy Hoy: We do need to renegotiate these agreements to secure the long-term future of Evlos Philos.
Jeremy Hoy: If we're not able to do it, then in 2025 we would move toward a suspension of operations.
Jeremy Hoy: and the timing of that would occur, you know, through the course of the first quarter effectively.
Jeremy Hoy: That being said, we've had constructive discussions with the communities. I think it's fair to say that all stakeholders, government, community members, obviously us,
Jeremy Hoy: We all want that mine to operate. So I think the goal of everybody is to get to an agreement. Nobody wants to close this mine.
Jeremy Hoy: But, you know, these are, these are, it's a negotiation, so, you know, I, I, I,
Jeremy Hoy: We don't have a line in the sand as to a date.
Jeremy Hoy: But if we're not somewhere by the end of this year and early Q1, we're going to have to move toward that because
You know, we're not going to run this mine.
Jeremy Hoy: for the long term with these agreements in place. And also we need new agreements anyways because these agreements are expiring. So it's, you know, it is a critical time for us and we're very engaged in this. And I would say everybody involved is very engaged and we're all working toward a resolution. And certainly we hope we get there and we'll continue working on that.
Speaker Change: Okay, great. Thank you. I realize it's tough to provide specifics, but I do appreciate the color.
Are you all done, Jeremy?
Speaker Change: Yep, that's it for me. Thank you. Thank you. We have a couple of questions online about Castle Mountain, just for an update on the permitting timeline and our expansion plan.
Speaker Change: So Castle, as we've said, we've suspended mining and crushing the agglomeration of the low-grade material that we were doing as part of phase one.
Jeremy Hoy: under irrigation, so that will continue as long as possible through the permitting phase. We have had good interaction with BLM and the county.
we've
Jeremy Hoy: We've already agreed on a formula or way for having a contract to provide support to BLM for the review of the EIS, and then we'll work through the whole permitting process. So it's advancing well.
Okay.
Speaker Change: I have no more questions online and we have no more questions from the phones. Greg, did you want to do some closing remarks?
Thanks, Rhylin.
Greg Smith: Yeah, I mean, I think just to reiterate, you know, this third quarter was a really a record quarter for Equinox in a lot of ways. We're looking forward to a very strong fourth quarter, and of course, as Greenstone ramps up here into 2025, a very strong 2025. Obviously, very much enjoying the strong gold prices.
Greg Smith: And so we'll talk to everyone again here in February for year-end. If you have any questions, feel free to reach out to Rhylin, you can reach out to me, and we'll be doing a little bit of marketing over the next couple of months.
Speaker Change: And, of course, our website has any other information you might want to take a look at. So thanks, everyone. Appreciate it. Thanks for joining us today. Operator, you can now conclude the call.
Speaker Change: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.