Equinox Gold Corp. Q3 FY2024 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. I would now like to turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox Gold. Please go ahead.

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 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.

Thanks, Rhylin, and good morning, everyone. Thanks for joining the call. 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. 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. 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. With the increasing production from Greenstone and the strong gold prices, this was a record third quarter for the company. In terms of gold sales, revenue, adjusted EBITDA, and other metrics, we produced and sold just under 174,000 gold ounces at a cash cost per ounce sold of $1,720 and an all-in sustaining cost per ounce sold of $1,994. Note that cash costs and all-in sustaining costs per ounce do not include cost 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. For the nine-month period, we produced approximately 408,000 ounces and sold approximately 406,000 ounces at cash costs of $1,678 per ounce and all-in sustaining costs of $1,994 per ounce, again, excluding the cost per ounce for production from Greenstone. Onto 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. 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. 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 start-up. We also meaningfully advanced the expansion of the footprint of the first phase of the open pit through September and October. 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. We were very pleased to announce yesterday that Greenstone is now in commercial production. We will continue ramping up mining rates and plant throughput through Q4 toward design capacity. 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. In mid-October, we had an analyst tour at Greenstone. This was a great tour. Most of our analysts attended, and there are recent analyst reports out there; get in touch with Rhylin if you'd like to see them. The full site 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. During the quarter, we 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 excellent comments made by a number of speakers, and I'd encourage you to watch the video of the event on our website. The Ride to Greenstone Fundraiser ended in August; this was also a major success. We raised over CAD1.3 million for the Geraldton District Hospital, which is the local hospital at the Greenstone Mine and we also raised $200,000 for charities and other communities where we operate. The donation to the Geraldton Hospital is going to make a significant difference in the local communities and also for our employees at Greenstone. We really appreciate all the support we received from all the donors and others that supported this endeavor, particularly our gold sponsors, which are some of our industry peers and associations. 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 individual, 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.

Thanks, Greg. We're now on Slide 6 in the presentation. During Q3, we realized $2,461 per ounce on the 174,000 ounces sold for revenues of $428 million. The increase in revenue for the quarter is driven by higher production and the higher gold price. The increase in sales was 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. 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. We had $268 million in operating expenses in Q3 2024, an increase compared to Q3 2023, primarily due to the Greenstone ramp-up as Greenstone was in construction last year and had no operating expenses. We also had some higher operating expenses at Los Filos. Our open pit and underground cost per tonne mined were less than last year as was our cost per ton processed. However, we stacked and processed more ore tonnes in Q3 this year than in Q3 last year, which led to higher overall operating costs. 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. Keep in mind that while Greenstone's revenues and related cost of sales are recorded in our income statement as required by IFRS, 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. Our increased net for our cash and all-in sustaining costs for the quarter is primarily volume-driven with 24,000 ounces in lower sales in Q3 this year at Aurizona and Mesquite compared to Q3 last year. For Q3 2024, our all-in sustaining costs of $19.94 per ounce decreased from Q2 of $2,041 per ounce and is up from Q3 last year of $16.00 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. Now that Greenstone is in commercial production, we expect to significantly reduce our cash and all-in sustaining cost metrics. I should also note that Castle Mountain was moved to residual leach at the end of August, while it continues with the permit amendment process. Cashflow is now reported in our MD&A as a development project and after August 31, its results are no longer included in our cash or all-in 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. Our EBITDA in 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 was $81 million. The increase in adjusted EBITDA compared to prior quarters was driven by the increase in revenues. For the quarter, we had net income of $300,000 and on an adjusted basis, net income of $37 million or $0.09 per share. Cash flow from operations before changes in noncash working capital was $130 million or $0.30 a share. 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. 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, tailings lift, removal of historic contaminated soil, camp upgrades, etc. Moving to Slide 7. With respect to our available liquidity at September 30, we had $168 million of unrestricted cash on hand and $105 million available to draw on our revolving credit facility. In October, one of our debt maturities came due with convertible note holders converting all of $140 million note at the conversion price of $5.25 per share. The company issued 26.7 million shares to note holders preserving our liquidity and retiring $140 million of our outstanding debt. Also in October, we amended certain gold prepay arrangements to defer the first five monthly deliveries of 3,900 ounces per month originally due in October 2024 to February 2025 to deliver 4,200 ounces per month from May through September 2026. The purpose of the deferral was to provide a little more cash liquidity, about $10 million a month at current gold prices, while Greenstone finishes ramping up. 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. With Greenstone commercial production achieved, our financial focus is on 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. This slide demonstrates Equinox Gold's historical leverage, measured by net debt-to-EBITDA ratio from Q1 2020 through Q3 2024 and pro forma leverage through 2026 as per analyst consensus. 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. Leverage peaked in Q1 2020 a few months after construction of Aurizona was completed and again in late 2022 as construction of Greenstone was ongoing and construction of the Santa Luz mine was completed. Another trend we see in the chart is that as our mines are commissioned and ramped up, leverage decreases as Equinox Gold has the benefit of EBITDA and cash flow generated by the new mine. The 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. And with that, Doug will lead us through a review of the operations.

Thanks, Pete. We're now on Slide 9 of the presentation. As noted, we had a very good Q3 for overall gold production. We look forward to Q4, and we should get about one-third of our annual production coming in during Q4. At Greenstone, the mine produced 42,448 ounces with an all-in sustaining cost of $938 an ounce. Throughput achieved a rolling 30-day average of 60%, which is 60% of the nameplate of 27,000 tonnes a day as of August 28, and the ramp-up continued through October. As of November 5, the 20-day average was 76% of capacity. Recovery is still being addressed. It was 79% in the quarter. We've been addressing issues with screens, pumps, and conveyors in the mill, which are 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 tonnes a day. The fleet now has 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. At Mesquite mine, gold production was 15,223 ounces with an all-in sustaining cost of $1,421 an ounce. Waste stripping continued in the Ginger pit, and the majority of the ore from that pit will be placed on the leach pad starting in the latter part of Q1 in 2025. We also re-handled stacked material and began leaching the old Vista leach pad material during the quarter. For the rest of 2024, our production will primarily come from the drawdown of the leach pad inventory, side slope leaching and some additional ore that comes during the stripping of the Ginger pit. At Los Filos, the mine had the second highest quarter for gold production since Equinox acquired the mine. Production increased during Q3 to 48,462 ounces, and this should continue into Q4, with an all-in sustaining cost of $2,153 per ounce. Underground mining continued to improve in Q3 as we added a second contractor in the Diegos underground area of the Los Filos underground mine. Our dialogue with our community partners continues. We've met with all three communities, as well as municipality and state representatives. We're working towards establishing new agreements so that we can ensure long-term economic viability and stability for the mine. Moving to Brazil, at the Aurizona mine, production was 17,181 ounces with an all-in sustaining cost of $2,145 per ounce. In July, we restarted the plant after a suspension of about eight weeks following a lack of ore coming out of the Piaba open pit, and we transitioned to processing Tatajuba ore, which is lower grade on average compared to the Piaba pit. Current mining is mostly from the Tatajuba open pit. Towards the end of the quarter, we began mining in the Eastern and Western ends of the Piaba pit and in the Boa Esperança pit as well. We are nearing completion of the work that we've been doing on recontouring of the pit wall in Piaba 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. At the Fazenda mine, production was 15,280 ounces with an all-in sustaining cost of $1,831 per ounce for the quarter. Plant feed is currently 40% from open pit and 60% from underground, and recovery is 90%. 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, leading to increased production overall at Fazenda. At RDM, gold production was 13,472 ounces, and the all-in sustaining cost was $1,817 per ounce. We changed the rental mining fleet and have increased mining productivity. We also established a new dry stack tailings facility, which is now fully operational with cyclone tailings being dried and placed and compacted in the storage area. At Santa Luz, we had our second best quarter of gold production. Production was up to 16,650 ounces, with an all-in sustaining cost of $2,203 per ounce. The new trunnion that was installed at the tail end of Q2 started up in Q3, enabling us to increase our throughput by about 10%, giving us a record for tons throughput in the quarter at Santa Luz. However, recovery was below plan at 58% for the quarter, and that is in part due to the commissioning work that we've been doing with the desliming circuit. The desliming circuit was to remove some of the organic carbon that comes in the ore. Removal of the carbon-rich fines works, but we've been removing too much of the contained gold. Additional work is required before we bring that back online. In the meantime, we are operating without desliming, and the recovery ranges from 64% to 75% in October. And with that, I'll hand it back over to Greg.

Thanks, Doug. I'm just going to make a couple of closing comments before we move on to Q&A. On the last quarterly call, I noted that we were at an inflection point at Equinox Gold with Greenstone coming online. 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 our 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. 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 while also investing in our mines for the future. 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 questions?

Certainly.

Thank you. While you queue up, I'll take the first question that we've got from online here. So congratulations on achieving commercial production at Greenstone. I noted that your calculation of how you calculate that is different from what you said in Q2. Could you explain?

Sure. Yes, our internal criteria for declaring commercial production was more conservative than many of our peers and certainly from where we ultimately announced it. The reality is, over the third quarter, the mine generated a substantial amount of operational margins. We've seen throughput rates increase meaningfully over the back half of October and into November. It becomes very hard to argue you're not commercially producing when the mine is producing gold at a cash cost per ounce of sub $1,000 and increasing every week. So it made sense from an accounting and operating perspective to declare it. What that means is, over the last two months of the year, the costs for Greenstone will be incorporated into the cash costs and all-in sustaining costs, and we'll have depreciation 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.

Perfect. Thank you. Operator, we can take that question from the phone, please.

Our first question comes from Anita Soni from CIBC. Please go ahead.

Hi, good morning, Greg and team. First off, congratulations for swinging to a free cash flow positive this quarter and declaring commercial production at Greenstone. Secondly, I was just hoping you could give us some color on how the unit costs at Greenstone are trending. I know it's not a full quarter or it's early days, but just want to see where it's pegging at right now.

We're just going to dig that up and come back to you in a minute.

Anita, we do have some of that data in our records from the site tour. From a mining cost perspective, we're effectively on plan as we anticipated. But we'll pull that data, and maybe this is a conversation we can have offline.

Okay. Second question was with respect to Santa Luz. I think Doug addressed it a little bit, but is the forward expectation on recovery rates perhaps into next year as well, more along the lines of a 60% recovery rate? Or are we still targeting something higher? If so, when do you expect to achieve the higher number?

Without de-sliming, we're operating around 64% to 75%, averaging about 68%. As a default, we'll consider operating without de-sliming. But we do intend to continue to work on the de-sliming because we see it works. The problem is, doing the increased throughput that comes with the trend and at the same time de-sliming means that we have to readjust our cyclones to properly manage the feed. The team is working through testing that to bring it back and try it again. We do intend long term to implement de-sliming. But without de-sliming, we still achieve reasonable recovery, albeit not where we originally intended.

Anita, if I could just add something to that. What I would say with Santa Luz is that we have periods where the recovery is excellent and meets our targets. Then we have periods where the chemistry changes in the plant, causing recovery to plummet. Recovery at Santa Luz is quite volatile. That's something we're continuing to work on, to get some stability. The trending has worked out well for us recently; the recoveries over the last three or four weeks have been the best we've seen all year and relatively stable. But I don't want to project that into the future because we've seen this volatility at Santa Luz multiple times. We will refine this de-sliming circuit, and I think that will help going into 2025. By February, when we release our 2025 guidance, we should have a better handle on this and can provide more details.

Okay. Last question on Aurizona and the Piaba pit. I'm not sure if it was a reiteration of the expectation or if it was a little bit different. But are you expecting to get into the Piaba pit in Q4? Were you expecting to get into it earlier, or was Q4 always a target?

Q4 was always the target, but we had the opportunity to start on the eastern and western ends of Piaba in October, which is still Q4. We're doing exactly what we said. Sorry.

That's all I have for today.

Thank you.

We'll take one from online. This is for you, Peter. Are you able to provide any more clarity on your plan or potentially the timeline for deleveraging?

I think you'll see us do a combination of things. One is, as some of the debt matures, as the second of the $140 million convertible notes, which matures next year in September, we'll likely retire that. That will either get converted because of the share price, or we'll just outright retire it from treasury. The revolving credit facility will be managed opportunistically and aggressively paid down with cash flow from mines. With the term loan we took out to consolidate ownership of Greenstone, I think you'll see us optimize debt maturity as well. We'll take a combined approach of outright retirement and maturing our debt ladder maturities to work on the deleveraging.

Thank you. Operator, go ahead.

Next question comes from Jeremy Hoy from Canaccord Genuity. Please go ahead.

Hi, good morning, Greg and team. I wanted to clarify your expectations regarding the resolution discussions with Los Filos communities by the end of 2024. Is that still the expectation? Or could that drag into 2025 as well? Any color you can provide would be appreciated.

Sure, Jeremy. You have to appreciate that this is a commercial negotiation, so I can only provide limited color. There are a few things I can confirm: we need to renegotiate these agreements to secure the long-term future of Los Filos. If we're unable to do so, then in 2025, we would move toward a suspension of operations, and the timing of that would occur through the course of the first quarter. That being said, we've had constructive discussions with the communities. All stakeholders—government, community members, ourselves—want that mine to operate. I think the goal of everyone is to reach an agreement. Nobody wants to close this mine. But it is a negotiation, and we don’t have a specific deadline. If we're not making progress by the end of this year and early Q1, we may have to consider alternatives as we cannot run this mine long-term under the current agreements, which are expiring. This is a critical time for us, and we're engaged in discussions, and I would say everyone involved is very focused on achieving a resolution.

Okay. Great. Thank you. I know it's tough to provide specifics, but I appreciate the color.

Are you all done, Jeremy?

Yes, that's it for me. Thank you.

We have a couple of questions online about Castle Mountain. Can you provide an update on the permitting timeline and our expansion plans?

So Castle, as we’ve stated, we’ve suspended mining and crushing and agglomeration of the low-grade material that we were doing as part of Phase 1. That was all contractor-driven. We've reduced to a minimum team on site and continue to do residual leaching, successfully drawing off ounces from the pad through leaching and re-leaching areas that had previously been under irrigation. This will continue as long as possible through the permitting phase. We’ve had good interaction with BLM in the county. We’ve already dealt with our notice of completion of documents and we expect to see the notice of intent coming into the New Year. We’re already engaged and have agreed on a formula for having a contract to provide support to BLM for the review of the EIS, and then we will work through the entire permitting process. So it’s progressing well.

Okay. I have no more questions online, and we have no more questions from the phones. Greg, would you like to give some closing remarks?

Thanks, Rhylin. Just to reiterate, this third quarter was record-setting for Equinox in many ways. We're looking forward to a very strong fourth quarter, and of course, as Greenstone ramps up into 2025, we anticipate a very strong year ahead. We're enjoying the strong gold prices, and we look forward to connecting again in February for year-end results. If you have any questions, feel free to reach out to Rhylin or me, and we will be doing a little marketing over the next couple of months. Our website also has additional information you might want to take a look at. Thanks, everyone. I appreciate it.

Thanks for joining us today. Operator, you can now conclude the call.

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