Equinox Gold Corp. Q3 FY2021 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Third Quarter 2021 Financial Results and Corporate Update Conference Call and Webcast. I would now like to turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox Gold. Please go ahead.

Thank you, Cheritz, and thank you, everybody, for joining us today for the Q3 call. We will, of course, be making a number of forward-looking statements today. So please visit our website, SEDAR and EDGAR to read the rest of our continuous disclosure documents. I will now turn the call over to Christian Milau, our CEO.

Thanks, Rhylin, and welcome, everyone, to our Q3 results. It's been another active quarter for us. I just wanted to quickly summarize where we're at right now. We've got 7 producing mines here in the Americas, and it's soon to be 8 with Santa Luz in quarter 1 when it hits production. We now have 5 growth projects nicely distributed among our regions, and we'll go through those later in the presentation. We're working really hard in the fourth quarter to hit our target of around 600,000 ounces of gold for the year. So it will be a big quarter. Our balance sheet is in good shape right now with available liquidity of about $500 million and some investments on the balance sheet. We're funded to achieve our long-term growth objective of about 1 million ounces a year. We're working hard on executing that growth strategy, as we've articulated in the past. On slide #4, recent highlights: There has been a lot happening corporately. Santa Luz construction is progressing well at the moment, on schedule and on budget. Greenstone construction is starting to ramp up now after a productive summer. Aurizona expansion has been demonstrated through the pre-feasibility study, and we've almost doubled the mine life through that. There's more to come, and we think the exploration potential is fantastic as we move forward and will keep drilling. We're also completing a drill program in Bahia, and those drill results will come out once we've got all the results in. On the ESG front, we're enhancing the data on our website almost quarterly now. We are pleased to have completed the new water treatment plant at the Aurizona village, which is essentially done here in November, allowing us to offer an enhanced water system for the local community. As mentioned, we've had a strong start to Q4, producing over 65,000 ounces in October and on track for guidance, and we'll be pushing hard towards that 600,000-ounce mark for the full year.

Thanks. With respect to our health, safety, and environment, our lost-time injury frequency rate remained low at 1.29 per million hours worked. In terms of environmental incidents, our significant incidence frequency rate also remained low at 0.86 per million hours worked. As for COVID-19, it continues to have a low impact overall on our operations, thanks to vaccine rollouts in various jurisdictions. We continue with our proactive measures at the mines, including testing and education. Regarding our operating results, we achieved our highest quarter for production to date, producing 140,000 ounces of gold and selling 137,000 at a realized price of $1,780 an ounce. Our cash cost was $1,109 an ounce, reflecting the upward pressure seen globally. Our all-in sustaining costs came in at $1,327 an ounce, which is a reduction from previous quarters but still reflects our ongoing investment in assets. Included in our cash costs is $3 million of write-downs that we don't expect to incur again. About half of this came from Los Filos, a large mine that is ramping up production, and we don't expect these costs to recur. We are on track to achieve our 2021 guidance, driven by a strong Q3 production and anticipate a strong Q4 performance, expecting to fall within the mid-range of our guidance of 560,000 to 625,000 ounces for the year. The cost basis is expected to come in at the higher range. On a mine-by-mine basis, we expect Los Filos to approach the upper range of its guidance, Mesquite to be at the lower range, with Aurizona and other mines expected to be about mid-range overall on an annual basis.

Thanks, Peter. On the operations side, we focused on stripping programs in the first 3 quarters of this year, especially at Mesquite, RDM, and Los Filos. Now we're starting to see the benefits. During the quarter, we achieved a production milestone by producing our 1 million pounds. At Mesquite, we transitioned from waste stripping to mining oxide ore in the Brownie pit, placing ore on a new pad area. This allows for quick recovery of gold because the solutions don't have to travel as far. We're also continuing to develop exploration success, having increased resources by 65% and are working on building that into more reserves. Mesquite produced 23,264 ounces at an all-in sustaining cost of $1,402 per ounce. It's been a consistent performer, averaging 135,000 ounces for over 13 years, and is expected to produce 5 million pounds as we move into 2022. At Castle Mountain, production was higher due to optimization efforts on the leach pad and in the plant, with Q3 production coming in at 7,873 ounces at an all-in sustaining cost of $1,067 per ounce. We're preparing to submit for permitting for Phase 2, intending to increase production to approximately 218,000 ounces per year for over 14 years. In Mexico, Los Filos fully resumed operations in July and ramped up quickly, resulting in Q3 production of 32,837 ounces with an all-in sustaining cost of $1,647 per ounce. Ore was extracted from the Guadalupe open pit, Los Filos Open pit, and Los Filos underground. Our annual drilling programs are focused on reserve replacement from the higher-grade Los Filos underground, giving us an advantage.

Thanks, Doug. I want to pause here and look at Greenstone closely. It's the main news for the quarter, which we announced last week. We're building one of Canada's largest gold mines, potentially the #3 or #4. It's a 5.5 million-ounce gold reserve with significant exploration upside, both underground and some satellite deposits. The infrastructure is excellent; we spent time recently with the team out there. We're right along the Transcanada highway, with good communities in the nearby region, allowing us to integrate into those communities instead of just being a temporary camp. We expect about 2 years for construction and 6 months for commissioning, targeting first gold pour in the first half of 2024. The project will be a cornerstone asset for Equinox, and we are excited about its progress. Regarding early works projects, much has progressed nicely over the summer months. For instance, the temporary camps are operational, and we've commenced road building and tree clearing, which will allow us to access the tailings facility. Overall engineering is about 85% complete.

Christian, I have a general question. The contingency for Greenstone has increased to $177 million, which is significantly up from the previous study. How does this compare to Santa Luz, where you are 70% through the build? Are you expecting to use all contingency on Santa Luz? Also, how does this relate to contingencies for the upcoming Castle Mountain Phase 2 study and the Los Filos updated study?

That's a detailed question. For Santa Luz, since it’s a past-producing project with existing infrastructure and a more experienced team, we see lower contingencies there. We expect to spend most of it, approximately $103 million. For Greenstone, we have a larger contingency of $177 million due to current supply chain and logistics issues globally. We believe this larger cushion is prudent in the present environment. For Castle and Los Filos, we'll analyze this further as we proceed with construction and permitting requirements. There is a focus on minimizing capital needs while expediting permitting.

As for Los Filos, the underground production may be slightly lower than in Q3, but relatively consistent into next year. Most efforts will shift towards the North side of Los Filos underground for better reserve replacement than on the South side. We're managing the labor relations situation there carefully, with a focus on building trust within the communities while negotiations proceed.

Since we're on the topic of Los Filos, we received an online question. When do you anticipate Los Filos costs will align with previous levels?

Because Guadalupe is experiencing stripping and Los Filos open pit is also undergoing elevated stripping, we expect costs to be higher in Q4, but they should start normalizing into the next year.

Next year, as we continue reaching higher grades at Bermejal and wait for CIL discussions to finalize, expect some elevated costs to persist.

With respect to the capital guidance for this year, you reiterated $186 million for sustaining capital and $251 million for non-sustaining capital. You've spent about half on sustaining capital and about 60% of non-sustaining. Are we looking at a significant capital expenditure in Q4? Will you be touching on non-sustaining capital again at Los Filos?

Yes, Q4 is typically a high expenditure period for us, particularly in Brazil, where they conduct tails lists. A higher Q4 sustaining capital spend should therefore align with our guidance. This is also driven by annual budget execution since unspent might get lost into the next year, prompting teams to complete necessary projects.

Is the Los Filos study still anticipated by year-end, or is it being pushed into early 2022 due to ongoing negotiations?

We’ve completed the front-end engineering design for the CIL. However, disruptions require us to update production scheduling. So, it will be delayed into 2022.

While we consider divesting some smaller mines to enhance our portfolio, our primary focus currently remains on our internal growth projects.

In Brazil, have you seen risks of power outages impacting operations? Also, how are you expecting to manage hiring and operating costs at Santa Luz given the inflation?

The higher power costs seen earlier were due to drought conditions; however, we've had an influx of rain, so costs are down, and we've experienced no supply interruptions. As for Santa Luz, we have most of our operational and project teams in place to mitigate inflationary pressures, particularly in consumables.

We're focusing on integrating local First Nations into the workforce, enhancing training and opportunities. Overall, we’re satisfied with progress in staffing, but key roles may be challenging.

Two questions from the webcast: Does your million-ounce long-term production target include Greenstone? Also, where could the portfolio peak over the next 5 years?

Yes, the million-ounce target includes Greenstone, which should start reaching that run rate in late 2024. The portfolio might peak higher than that as we progress with our projects.

We aim to turn resource growth into reserves at Mesquite, which we've achieved with ongoing investments in drilling. As we consistently improve operations there, we foresee growth potential in the coming years.

Thank you, everyone, for joining. We've had an active quarter and look forward to Q4, which should be our best quarter yet. As mentioned earlier, delivering over 65,000 ounces in October is promising. We're excited about our growth projects and the robust activity on the ground at Santa Luz and Greenstone. Stay tuned for more updates.

Thank you for joining us today. Operator, you can now disconnect the call.

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