Equinox Gold Corp. Q1 FY2020 Earnings Call

Thank you for joining us. This is the conference operator. Welcome to the Equinox Gold Corporate Update and First Quarter Results Conference Call and Webcast. All participants are in listen-only mode and the conference is being recorded. After the presentation, there will be a chance to ask questions. I will now turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox Gold. Please proceed.

Thank you very much, operator. Thank you very much for joining us today. We will, of course, be making a number of forward-looking statements in today's presentation, so please take a moment to visit our continuous disclosure documents on our website, on SEDAR and on EDGAR. I will now turn the conference over to Ross, our Chairman, to discuss the results of the ATM and take you through the presentation.

Thank you very much, Rhylin, and welcome, everyone, to this call. I want to start by apologizing for holding this on a Friday afternoon just before a Canadian long weekend. This is usually what happens when a company has bad news to share, but that’s not the case for Equinox Gold. We had an excellent quarter and are performing exceptionally well. The reason for today's call is to accommodate our accounts, as it took us about a month or two longer to finalize our Leagold deal than we anticipated, which made it necessary to meet the deadline for consolidation. A significant amount of accounting work and necessary changes were completed under careful scrutiny and review. They requested that we wait until the last possible day to file the quarterly statements, which is today. We will not let this happen again. I recognize that this is an inconvenient time for everyone, and by Tuesday morning, many might have forgotten about our strong results as they move on to next week's events. However, it’s worth noting that we are concluding the week on a high note for gold. Our reasons for the Leagold merger and the rapid growth in our gold production and reserves stem from our belief that we are in a long-term gold market, a gold bull market. Recent events, especially over the last month, have reinforced that this strategy has been sound. So what we're going to do now is I'm going to run through a few slides in our presentation that's in our webcast. I'll provide some high-level reviews of what we're up to, some of the things we set out to do in 2019. This is like a report card on how we did. This is the third year we've done this now; we started out our first year in 2018. We did a report card on what we were hoping to do that year, and we did another one a year ago, where we set out what we did in 2018 versus our objectives and what we plan to do in 2019. Today, I'm going to talk about what we actually did in 2019 versus our objectives we set out a year ago, and I'm going to tell you what we're planning to do this year. So that next year at this time, we can do exactly the same thing. The first thing I want to do is start on Page 3 of our webcast presentation and discuss our leadership team, as it's the people in a company that truly build it. When you have great people, you end up with a successful company and positive results. I'll begin with our Board of Directors. This board is relatively new for many traditional Equinox shareholders. Unfortunately, we had to let go of some valuable board members during the Leagold deal, but we've welcomed some excellent new directors from Leagold. Alongside me, I want to recognize Neil Woodyer, the former CEO of Leagold, who serves as our Vice Chair, and Christian Milau, who is a new director today as the CEO of the combined company. He is transitioning from being CEO of Equinox Gold to becoming a Director today. Lenard Boggio is an independent board member and Chair of our Audit Committee. I am also pleased to welcome Maryse Belanger to our Board as an Independent Director. Maryse has a strong background as a successful engineer and miner in various locations. She is fluent in both French and Portuguese and resides near Vancouver. I am very happy to welcome her as the first female on our Board; it is overdue. We need more diversity, and I want to emphasize that. We will also be looking for more diversity in the future. Additionally, I want to highlight Tim Breen, a Director representing Mubadala, who will become our largest shareholder following the conversion of their convertible securities. Tim is an excellent director and effectively represents Mubadala. We also have two new directors from Leagold: Gordon Campbell, whom I have had the pleasure of knowing for many years, and General Wesley Clark, both serving as Independent Directors. Lastly, we have Marshall Koval, who will soon become Independent; he was the Chair and CEO of Anfield Resources, one of the three companies that formed Equinox Gold in late 2017. He is a close personal friend and a strong engineer with a solid track record in project management over the last 20 or 30 years. Peter Marrone, the Chair of Yamana Gold, also serves as an Independent Board Member. Turning to management, our top three executives represent only the tip of the pyramid; we have a flat organizational structure with many skilled individuals reporting to these three strong leaders: Greg Smith, our President and Head of Business Development; Attie Roux, our COO, who leads a large team of Equinox staff; and Peter Hardie, who manages all our financial statements and banking relationships. I cannot speak highly enough about Peter and his team. Moving on to Page 4, the 2019 report card, how did we say we were going to do, and what did we do? Well, we guided the market to a production of 200,000 to 235,000 ounces at an all-in sustaining cost of 940 to 990. We hit both numbers; we built our mine at Aurizona successfully; it opened up more or less on budget, more or less on schedule. We hit gold production for Aurizona; gold production for Mesquite, and we produced just over 200,000 ounces, beating cost guidance with an all-in sustaining cost of 931. So I'm going to say we ticked that off pretty successfully. In exploration, we targeted extending the mine lives of Aurizona and Mesquite, which were the only mines that we owned a year ago. We had great success at both. We put out a reserve report earlier this week, where we demonstrated we'd extended the mine lives at both of those mines, so I'm going to tick that one as well. In development, we said we wanted to advance Castle Mountain into production and at least start construction in 2019 and also develop the Aurizona underground plan. Once again, we started construction at Castle Mountain; it's underway. Christian will talk a little bit more about its status and, of course, working on Phase Two at Castle Mountain, doing the feasibility study as well as an underground preliminary economic assessment at Aurizona; that gets ticked as well. On the next page, we said we wanted to refinance our balance sheet. We had some high-cost debt; we got rid of all the high-cost debt from Sprott and converted the debt into a package with Scotiabank and a syndicate of banks, as well as a $130 million convertible note with Mubadala, retiring the high-cost debt and refinancing our balance sheet. So we’ll tick that as well. We also said we wanted to improve our liquidity and market visibility. We listed on the New York Stock Exchange in October; we advanced to the TSX name board from the TSX Junior Board in December, and we increased our daily trading value by about 400% in 2019 compared to 2018; we've increased it again very significantly this year; and we'll tick that one as well. Lastly, we said we wanted to work on an accretive acquisition. We also reminded our investors that we aren't here to grow for growth's sake; we're here to grow and try to make money. We're trying to add value, not just size. But in the context of late in the year, in December, we announced our at-market merger with Leagold Mining, and this really has added fuel to our ambition of becoming a major gold producer, accelerating our revision of producing more than a million ounces per year. We could hit this in the very near future by the end of next year, or shortly thereafter. We also put together a $670 million financing package to fully fund our growth to get us to a million ounces of gold production per year. So we're going to take that one as well. I would say we hit all of our objectives in 2019. So what are we going to do this year? We have a very ambitious plan again. We hope to achieve significant developments in operational enhancements. Just today, we approved the restart of our Santa Luz project during our Board Meeting. We are going to get that underway. Additionally, we plan to complete Castle Mountain by mid-year to produce about 45,000 ounces in Phase One, and we will accelerate Phase Two as quickly as possible. Our goal was to complete the PEA for Aurizona underground, and we have successfully done that, announcing the highlights about a week ago. In terms of exploration, our plan is to extend the mine lives at all four of our mines and upgrade the Aurizona underground resources to support a preliminary feasibility study. We are currently working on that. For corporate goals, we aimed to be included in the GDXJ and the GDX, which we accomplished, being added in March and April, respectively. We have also been notified that we will be included in the S&P/TSX indexes in June and September. We are also focusing on enhancing our environmental and social governance reporting; this is a priority for us, and we will publish updates on our website quarterly. It is crucial for us to take care of our communities, employees, and the environment, and that will be a core aspect of our business plans going forward. Finally, if we identify opportunities, we will pursue them; we are in a strong position and intend to leverage that by creating value, not just pursuing growth. Ultimately, we plan to be a larger company by the end of this year compared to where we are now. That is our plan for 2020, and I eagerly anticipate updating you throughout the year as we achieve these various objectives. On Page 7, we show our growth profile. I'll start with 2018, which was our first year in business; we produced in that year about 25,000 ounces that came to us from the acquisition of the Mesquite mine in the fall of 2018. In 2019, we added Aurizona; we started producing from Aurizona mid-year and at full year from Mesquite. So we produced about 200,000 ounces in 2019. Our objective in 2020 is to produce just under 600,000 ounces a year, including operations at Los Filos, which we came to us in the Leagold deal, some smaller Brazilian operations, Pilar, Fazenda, and RDM, our own Aurizona, a full year at Aurizona, and another full year at Mesquite. We also have the tail end of production from the first partial year from Castle Mountain Phase 1, and that's going to get us to just under 600,000 ounces in 2020. Beyond this, you can see we have a very ambitious development plan, which will lead to potential production of about 1.1 million ounces in the future when we expand the Santa Luz mine, Castle Mountain Phase 2, and continue operations in all of our other mines. It's a very ambitious growth platform; I don't know of any other gold company in the world that has such a strong growth platform in the last couple of years or in the next couple of years from internal growth without needing any new acquisitions. We're very pleased with that incredible growth outlook. On Page 8, this is just a snapshot of where the mines are, our reserves, our gold production for 2020, the path to gold production, and the growth we have in different projects. We have just under 22 million ounces of measured and indicated gold resources, plus 12.2 million ounces of proven and probable gold reserves. Our estimate for this year is just over $1,000, all in sustaining costs, which should give us a fabulous margin. Today's gold price is 1750. It doesn't take too much to figure out how much money we're going to be making for our shareholders in 2020. We start with a very good financial base; we have about $350 million in cash in our bank at today's date, and Christian will provide some more details on that shortly. On Page 9, this is a kind of busy chart, but it shows all our peers or some of our peers and where they rank in terms of their price relative to net asset value, the price-to-net-asset-value ratio. What we've done is we've moved in terms of our 2021 estimated gold production, so we're estimating producing in the range of 800,000 plus or minus ounces in 2021; it could be higher. If we don't change our valuation, our current price and net asset value is about 0.71, more or less, maybe 0.71 to 0.75, so we're going to be a much bigger company. What you see next to the right is a hashed blue circle with a very strong blue arrow upwards; that's really where we expect to get to. We expect to get to, in the next year or so, a much, much higher multiple price to net asset value multiple. In fact, we should be there today and would be a much higher value. In fact, in the last month or two, we've probably underperformed our peers, whereas we outperformed our peers for the period since December when we announced the merger. When you do these mergers, our merger was concluded on March 16; almost always, you have a lot of churning in the shareholder base. The shareholders of both Equinox and Leagold, who may not necessarily want to see the combination or for some reason wanted to exit; this is a normal thing. We’ve had lots of people exiting, particularly non-core holdings such as the Yamana. Yamana sold 8 million shares, which was significant. Fortunately for us, it was taken up by a lot of buying from the indexes and from new shareholders; we've had a wonderful group of new shareholders come into us who've actually bought stock just in the last couple of months. Because we've had so much of this overhang pressure, there’s been a lot of warrants exercised as well, and they’re continuing to be exercised today. In fact, we have some warrants being exercised right now that expire on May 22. I think once we go through those dates, we're going to see a nice pop and recover from what I think has been underperformance in the last month or so. Moving to Page 10, this is the right time to build a gold company. I want to remind shareholders that all of us in management and our Board are optimistic about gold. The recent excitement in the gold market is not new; we anticipated this. That's why we established Equinox Gold in late 2017. The gold market began to rise from four or five-year lows in January 2016, and I was confident that gold would continue its upward trend and surpass its previous high of 1900 in this cycle. While the timing and final outcome were uncertain, I believed the overall macro environment was very favorable for gold. The COVID crisis has only added to this positive momentum. We recognized it was a good time to start a gold company. This chart illustrates that gold equities remain undervalued and under-owned compared to the gold price. We still need many more generalist investors to engage with gold stocks, and while this is beginning to change, there's significant progress still to be made. When gold investors start purchasing equities rather than just the physical metal, we are likely to see a repeat of the tremendous outperformance of equities relative to gold that we observed in 2010 and 2011. I believe there are still many opportunities for increased valuations in gold equities and, in particular, for Equinox, higher share prices. I’ll end on the next slide, Page 11. Just with a couple of comments about gold. As I said, I felt gold was in a fairly healthy secular bull market for the last two or three years. In that environment, to build a gold company that's successful, you want to build a big one, you want to build a gold company that has big production, big reserves, and big resources. That gives huge leverage to your shareholders both on your income statement and balance sheet. We've built from nothing in just two years a tremendous amount of leverage, and we're going to keep doing that. This year, we've had this very unusual, tremendously harmful, costly, deadly pandemic, the COVID-19 crisis. Without talking about all the terrible things it's done to a lot of people's livelihoods and jobs and companies, it's been extremely good for the gold price. Why? Because all this easing and synchronized stimulus happening to the maximum extent of governments' ability to help stimulate the economy, get people back to work, and help those suffering from this tremendous crisis and economic consequences are causing currencies to be debased. Governments are printing money like crazy, writing checks to try to get the public to spend money again. It's like an orgy of money printing and debasing currencies. At the same time, we have zero or even negative interest rates; trillions of dollars of negative interest rates. Gold doesn't have a carry, but it has at least a zero carry; it doesn’t have a negative carry the way some of these bonds have. With the COVID crisis, we're seeing supply issues in gold. The average grade of most gold mines was dropping, and gold mining was becoming more difficult and socially challenging in many, many countries. Countries were increasing taxes, so it was getting to be a more difficult business. For five years, we saw declining gold prices down to prices of 1050 an ounce. Most gold mines are economic at below 1,100 an ounce, and during that period, companies stopped exploring. So there’s a tremendous lag time now between discovery and operation of a mine; I’d say it’s closer to 20 years today. When people start exploring again, which they are now, it’s going to take a long time before that really filters through to higher mine supply. The COVID crisis is increasing those supply problems. Lastly, I just want to remind everyone to try to use some sense of history. For 5,000 years, we've seen every Empire that has ever existed, from the Greek Empire, the Roman Empire, and the Spanish Empire to the British Empire and even the American Empire, their solution to budget deficit problems is to print money. Fiat currencies are allowed to be printed and become less valuable over time. Gold keeps its value; it's kept its value for 5,000 years. It's a great place to store value; that's why it's money. What we're producing is money for the world, to substitute for fiat currency and other forms of investment. More people will recognize that gold is a solid store of value, and that will increase the gold price. Some of that money will flow into equities like solid companies like Equinox Gold. That's why we were built; that’s why we exist to provide that gold for those investors. I'm extremely positive about the continuing bull market for gold and the prospects for Equinox Gold itself. With those comments, I'm going to turn things over now to Peter and Christian to talk about our quarterly results. Thank you again for joining us today.

Great, thank you, Ross. It's Christian here. Just want to take one second to acknowledge our long-term and existing and new shareholders for their support through this period of growth and for believing in our vision. I also want to thank the team and the workforce because it's been a really challenging time. I never imagined going through a merger and managing the combination of two companies in a COVID world pandemic, and I really appreciate the exceptional performance of people rolling up their sleeves and working very closely together. Now, I will walk you through a couple of slides here on the operating results; we had a very good and strong first quarter, and we're very pleased with it. Both production and costs were ahead of plan, and please remember that there are only 20 days of the Leagold assets included in our results. From a health and safety perspective, we had a good result. Our operating results showed that we had about 90,000 ounces of gold produced; on a full three-month basis, we would have done almost 150,000 ounces if we had a full three months of the four Leagold assets included. So, a real step change over the last few years. On the cost front, as Ross mentioned, $968 an ounce in all-in sustaining costs, below that initial guidance range. We're seeing the benefits of FX savings, good cost control, and traditional trends where the first or second quarters tend to be a little higher than the last quarter or two of the year. So we're really pleased to see that at the beginning of the year. Looking at the individual mines, Mesquite produced almost 37,000 ounces, not quite as much as it produced in quarter four last year, but again, another strong quarter is really hitting its stride at the moment. We continue to process a lot of the mineralized old dump material, which is fully oxide. We're seeing the results of that at the moment, coming in just under $1,000 in all-in sustaining costs; again, within guidance and reflecting a lower diesel price that we're seeing in the U.S. Aurizona produced just over 32,000 ounces, a good quarter; it's our first quarter in the rainy season. It's great to see that the mine produced at $952 in all-in sustaining costs, which is well below our guidance range. We're appreciative of the strong grade reconciliations, FX cost benefits, and good cost control. The newly merged assets from Leagold contributed 20,000 ounces, which is on plan but only accounted for 20 days of the quarter. Looking at Slide 14, revenue was $130 million, but that translated to good mine operating earnings of $43 million and EBITDA of $65 million, which is $50 million on an adjusted basis. We had good production, good cost control, benefits, and tailwinds from FX and diesel costs, translating to some very good earnings for the quarter. Net income was about $11 million, with adjusted net income of $17 million. We had a few non-cash items that impacted there, including the warrant liability revaluation, some foreign exchange callers, as well as the historical Leagold hedge, which had some unrealized losses. On the cash from operations side, we had a strong cash flow quarter; we did incur the impact of some transaction costs, affecting our overall cash flow. On a net cash flow basis, we had about $17 million of gold shipments, particularly from Brazil, that went over the quarter-end, translating to cash proceeds in the first couple of days of April. Flight delays did impact us at the end of the quarter, particularly with the COVID situation in Brazil. Cash came in, but it was just after the quarter-end, so ultimately, we ended up with just over $300 million in cash at the end of the quarter. As of May 14, yesterday evening, we had $350 million in cash, which continues to climb. We're enjoying the benefits of some warrant exercises and the anti-dilution rights exercised just post the quarter-end; overall, our net debt position and balance sheet are in a very strong place. Our net debt to EBITDA ratio is about 1x, and we have a strong cash position as we work our way through this COVID situation. Turning to Slide 15, regarding our development and corporate highlights; Castle Mountain Phase 1 construction is more than 75% complete now. It continues along; it's not completely unaffected by COVID, but the impact is minimal so far, with a few staff not being able to make it to the site on a couple of days if they had to care for their children or manage family matters during the COVID situation. It continues along nicely. We have advanced the Phase 2 feasibility study, which should be done in the second half of this year. The Los Filos expansion activities have continued on, although the on-the-ground activity stopped for most of April; I’ll touch on that in a minute regarding the Mexico situation. We continue to monitor the carbon and leech plants to determine the appropriate size before construction likely starts later this year. The Santa Luz project in Brazil is exciting; we’re updating the CapEx and engineering work so we can launch into construction at the appropriate time. It’s important to note that the merger was completed on March 10; the refinancing was done, and we’ve been added to both the GDX and GDXJ just before and after the quarter-end, leading to substantial share buying in that process. As noted, there was extra cash coming in post-quarter-end from the anti-dilution rights and over $42 million from warrants, contributing to our cash flow. I will now touch on the recent updates in reserves and resources and the underground PEA at Aurizona. Looking at Slide 17, regarding more operational updates for the business, I don’t want to dwell too long on the COVID situation; it’s been mentioned in our recent publications. We’re making every effort to protect our people in our areas, including workforce and community members. We're trying to protect jobs and income and continue contributing to local governments and communities as well, so it's a balancing act we’re currently managing. On the health and safety front, we have standard measures at our gates, like heat screening, hand-washing, social distancing, and hygiene protocols in place, which were implemented before countries mandated these actions. We're advancing our risk group screening as well. I’ll add we’re also managing rotations and travel limitations closely, trying to limit potential transmission of the virus in any areas we’re working as well as collaborating with local communities to establish dialogue and gain their assistance. Looking at overall production for the year on Slide 18, we announced guidance just before the COVID situation hit; we will update that when it’s practical to do so, ideally when production in Los Filos resumes. The Mexican government has stated that production can ramp back up around the end of May, so that's the current plan. This means we have a few more weeks to prepare for production. We've delayed underground development at Burma Hall and delayed stripping at Guadalupe, so some of our CapEx numbers will be adjusted for that lower spend during these last two months. The other five mines in the portfolio continue operating with minimal impact; we’ve had minor shutdowns at both RDM and Pilar in Brazil for anywhere from 8 to about 14 days, and they're now fully operational. Overall, the diversity in multiple jurisdictions and mine sites allowed us to manage through the storm effectively. Looking at Los Filos now, it's producing around 180,000 ounces per year and has the potential to increase to 350,000 to 400,000 ounces produced per year over the next 12 to 18 months. Leagold did a fantastic job transitioning that from 1.7 million ounces in reserve up to 4.5 million ounces, plus about 6 million ounces in resource, so there's upside potential here in this complex in Mexico. Currently, it’s a heap leach operation, and once the underground expansion projects at Guadalupe and Burma Hall are completed, we'll process higher-grade materials. With optimization of the CIO plant underway, we plan to increase capacity from 4,000 tons per day to 6,000 or 8,000 tons per day. Looking at Aurizona in Northern Brazil, we recently released results on the Piaba underground study. We put out a new underground PEA study indicating 740,000 ounces, and we added the Tatajuba resource to our reserve and resource updates. We're focusing on testing those areas this year and investing about $4 million in exploration, plus another $4 million in the underground. Thus, we’re delineating more ounces as well and spending some effort on regional targets; it’s a big 1,400 square kilometer property with considerable upside potential. Turning to Slide 21, just a high-level look at the PEA results from the underground reveal nearly 750,000 ounces; remember, we have a reserve just under a million ounces. This shows meaningful potential impact with over 230 million in net present value at a nice IRR. With an initial capital of 70 million, this is a low capital intensity expansion with a significant increase in production levels. The grade at 2.8 grams per ton is about double our open-pit grade, highlighting enhancement potential from underground resources. It’s also open at depth, east and west, with about $8 million budgeted for exploration at Aurizona this year. Regarding Castle Mountain, it has a 3.6 million-ounce reserve with a 16-year mine life, making it a significant project based in the Western U.S. It is expected to produce just under 50,000 ounces annually during the first phase, which will last up to 10 years, with a capital expenditure of only 60 million. We are approximately 75% through construction for this phase and plan to begin stacking in the third quarter, aiming to pour gold. Additionally, we are working on a feasibility study for Phase 2, targeting an annual production of 200,000 ounces. This study will be completed in the second half of this year, and we are finalizing our water drilling for the Phase 2 project, with work expected to commence this month. Turning to Slide 23, I want to mention Santa Luz; this project is exciting. Now that we have a bit of time to understand it better, there's an 11-year mine life with just over a million-ounce reserve and substantial upside potential. Similar to Aurizona, it has parallel trends and underground potential, providing 100,000 to 225,000 ounces a year in production at a cost of well under $100 million. Considering the current gold price and foreign exchange rates, it could represent a $500 million net present value project, making this very exciting. We're looking forward to finishing the cost update and launching into construction this year for production late 2021 or early 2022 at the latest. On Slide 24, looking at the other four assets; Mesquite, again, has been producing for 30 years and has synergies with Castle Mountain, which will fulfill its smelting needs in the early years. We purchased this back in 2018 when gold was about $1200 an ounce for only $150 million. It’s a reliable producer at 125,000 ounces, with attractive costs under $1,000 per ounce. Although we mined out about a year and a half, we still have about two and a half years remaining of mine life plus residual leaching. There's potential on site to extend this life. Scott and the team have identified more mineralized dump material; the earlier press release identified the need to drill out about 40 million tons this year, and Scott has the funds to do that. We're optimistic about results over the next six months. Fazenda in Brazil produces about 75,000 ounces a year and has been operational for 25 years. It’s a low-cost operator performing at or below its all-in sustaining costs for the year and had a good first quarter. RDM in Brazil is of similar size, averaging 75,000 ounces a year; it’s now on grid power and has a more permanent water source, which means a more sustainable cost structure moving forward. Pilar, the sixth mine in the group, is slightly smaller and higher cost, but contributes about 30,000 to 40,000 ounces a year. Post-merger, we have witnessed extremely good liquidity, ranging from $20M to $50M to $90M a day of trading. About 40 new institutions have entered our stock, and since December, a billion dollars in value has traded hands. We’re pleased with the uptick in interest in the stock as the overall liquidity has increased from under a million dollars a day to 25 times more than that. On Slide 26, I want to emphasize unparalleled insider ownership; almost 11% of the company is owned by insiders, aligning us with long-term shareholders. It's a unique aspect of our company; nearly none of our peers producing roughly 300,000 ounces or more have insider ownership above 2%. This alignment is advantageous. Finally, on Slide 27, to summarize our catalysts for 2020; operations and development are all about execution right now. We have many expansion projects underway, as well as exploration work to extend mine lives and investigate the exciting potential at Los Filos, Mesquite, Fazenda, and Aurizona. We’re also looking to be included in the TSX composite in June and September, which could bring another 10 million shares into the market. We believe there’s a strong chance for revaluation in the next 6 to 12 months as we continue executing our plan. Remember, our platform is fully funded for growth, which is a unique position to be in this kind of market.

Sure. Operator, can you please remind people how to ask questions?

Could you please remind people how to ask questions?

We do have a few questions from online. I’ll start with those while people line up on the phone. I'm going to combine two questions; they're both talking about how we're managing the COVID virus in the U.S. and Brazil, which responded differently than some other countries around the world. What are our plans to mitigate the spread of the virus in these two countries, and how do we think it will affect operations as 2020 unfolds?

Attie, do you want to comment on that? I can add to it as well.

Thanks, Christian. If you look at the two countries, we began introducing preventive measures at our gates pretty early on in the COVID pandemic. This included the usual heat screening, handwashing, and social distancing, all of which we implemented long before they were mandated in these countries. We are advancing that with the best practices from the methodology we follow, introducing all of that. We’re screening risk groups to ensure they don’t enter the mine areas.

I would just add that we’re looking at rotations and limiting travel for personnel to reduce any potential transmission of the virus in areas we are working in. We are also working very closely with local communities to establish good dialogue and earn their assistance.

Operator, can you please take a question from online?

Christian, have you seen much cost pressure at the site from the extra measures implemented for the COVID program? Obviously, it costs more money; it's probably slowing productivity a bit, and I'm just wondering if you are seeing noticeable cost increases because of that or if it's not significant or offsetting by FX?

Yes. Attie, please add your insight after I respond. I will start: we are seeing minor increases in costs. It's quite likely there could be extra costs due to shifts, rotations, and sanitation measures we've implemented. I think we're more than offsetting that with the impact of FX and decreased diesel prices. It’s early to say definitively; in Mexico and Brazil, the virus spread has been increasing, but the U.S. shows more stability in the situation. So, I would put the impact as pretty minimal at this point.

Okay. And maybe a second question if I could. Ross mentioned in his introductory remarks that the Board approved the Santa Luz restart at today’s Board Meeting. Do you have an approximate timeline for when we would expect to start construction?

Yes, we plan to officially start construction in the second half of this year, likely early in the second half. We want to finish the engineering and prepare, and in the current COVID environment, we don’t want to rush too much into it either. So as I indicated earlier, I'd say the second half of this year is a reasonable start date.

And I think you mentioned production would be by late 2021 or early 2022, correct?

Exactly. Once we pin that date, we can give you the exact timing.

Can anyone speak to what types of assets are being sought through M&A activity going forward? I know you can't provide much detail for strategic reasons, but any hints about what is being considered? Do you think we’re willing to obtain lower valuations for potential growth deals?

Sure. Thank you very much, Andy. It’s hard to be specific; we prefer to be opportunistic. We want to add value, which is easier said than done. We’ve certainly attained that with the two deals we've concluded; the Mesquite acquisition at the bottom of the gold market and the Leagold merger on good terms. We could consider another operating company if it made strategic sense to combine, though there’s truly nothing on the horizon right now, mainly due to spending the last couple of months integrating the Leagold deal successfully. That said, we're open to development plays if they promise long-term value, but we primarily target value and quality as our main focus points. These criteria are rare and challenging to meet, especially in a bull market.

We continue to focus on the Americas.

I certainly agree about the Leagold and Mesquite deals; they've been fantastic. Christian, could you elaborate on Mesquite? I know you highlighted it earlier; can you speak to Mesquite's area potential? What does management see as mine life expansion that could be achieved through exploration? Does management believe the trend at Mesquite supports sound economic reasons to remain in the district?

I’ll let Scott speak to that. To summarize: when we bought it, we understood the certain number of ounces and basically a limited mine life. Since then, we have greatly developed both near-pit areas and waste dump materials into mine life extensions that have been quite profitable; last year, they contributed around 60% of total production. Scott continues to identify more opportunities, plus we have exploration potential across the highway to the east of our property. We await drilling permits for that area, but there’s definitely potential there.

Certainly. I see it as threefold: with our most recent resource and reserves update, we indicated 430,000 ounces in measured and indicated resources exclusive to reserves, which forms an immediate exploration target; our goal is converting those resources into reserves and incorporating them into our mine plan. Additionally, there's the dump material, which has proven to be successful, and we are diligently working on that, testing another 40 million short tons identified on site. Lastly, there’s the potential in the broader area, as there’s the Rainbow project that represents several hundred thousand ounces of resource nearby, although that is a slower permitting process for exploration targets farther from the mine.

Thank you for that. And one more question: can you address diesel procurement practices and whether management sees opportunities for securing additional diesel fuel reserves due to lower prices and uncertainties?

Yes. We observed California diesel budgeting costs shifted from around $3 late last year to more like $1.8 per gallon, translating into nearly a 30% benefit. Interestingly, in previous dealings at Mesquite, we saved 50% on annual costs with hedging. We intend to pursue that strategy and are assessing current fuel suppliers to secure a long-term supply at attractive prices below budget.

We have many questions aligning with the same theme. I’ll summarize them. Some are concerned about being a premier American gold producer. Do we intend to remain in the Americas, or are we considering expanding into other hotspots? Relatedly, is there any risk of nationalization of projects in Brazil given current markets?

Yes, I’ll address that. We like being in the Americas; these jurisdictions have been successful for us and many others, especially Mexico, Brazil, and North America. I see no suggestion of nationalization; those days are long gone. Any pressure for increased taxes may arise, but that's normal between wealth-producing sectors like mining and governments. There's a rational understanding that excessive taxation kills businesses, leaving no wealth for governments. While we currently prefer being in the Americas, we may consider great value opportunities elsewhere.

I echo Ross's comments on Brazil. I’ve spoken directly with the mines ministry in Brazil over the years, and they feel very strongly about nationalization commentary; Brazil is focused on being a developed mining country, and they are very mining-friendly.

We have one last question from online regarding guidance; do we still hold our guidance targets for 2020?

Yes, our guidance was communicated before the COVID situation, and we plan to update that when we gain clarity about production in Mexico. It looks favorable for a return in early June, and we will reassess our overall plan and communicate it at that time. The other five mines have had minimal impacts so far; therefore, we anticipate some influence primarily from Mexico, but it is a fluid situation.

Thank you for your attendance today. This webcast will be archived on our website for three months. We'll post a full transcript in a few days. Thank you again for joining us today, and I’ll now turn it back to Christian and Ross for closing comments.

Any more questions on the phone? No more questions on the phone. I have no further comments. Thank you all for joining us, and apologies for doing this on a Friday afternoon before a long weekend; it will not happen again.

Thanks very much, everyone.

Thank you very much; enjoy your weekend.

This concludes today’s conference call. You may disconnect your line. Thank you for participating and have a pleasant day.