Earnings Call Transcript - EQX Q1 2024

Operator, Operator

Thank you for your patience. This is the conference operator. Welcome to Equinox Gold's First Quarter 2021 Results and Corporate Update. I would now like to turn the conference over to Rhylin Bailie, Vice President of Investor Relations for Equinox Gold. Please proceed.

Rhylin Bailie, Vice President, Investor Relations

Thank you, Karl, and thank you, everybody, for joining us this morning. We will, of course, be making a number of forward-looking statements today. So please do visit our website, SEDAR, and EDGAR to view the rest of our continuous disclosure documents. I will now turn the conference call over to our President and CEO, Greg Smith.

Gregory Smith, President and CEO

Thanks, everyone, for joining the call today. I'm here with our COO, Doug Reddy; our CFO, Peter Hardie; our EVP of Exploration, Scott Heffernan; and our VP of Investor Relations, Rhylin Bailie. Today, we are discussing Equinox Gold's 2024 first quarter financial and operating results, as well as our recently announced transaction to consolidate ownership of the Greenstone Mine in Ontario. As many of you know, we currently own 60% of the Greenstone Mine, with our joint venture partner, Orion Mine Finance, holding the remaining 40%. On April 23, we announced our plan to acquire Orion's 40% interest. This will give Equinox Gold full ownership of the Greenstone Mine, which is one of the largest and highest-grade open-pit gold mines in Canada. The total acquisition cost is $995 million, which will be covered by cash and shares. We will pay $250 million through the issuance of 42 million common shares of Equinox Gold to Orion, and the remaining $745 million will come from a new $500 million 3-year term loan, proceeds from a recent $299 million equity offering, and a deferred payment of $40 million due at the end of this year. We expect to close the transaction soon. I want to thank Orion Mine Finance and their team for being great partners in the development of this mine, and we look forward to welcoming them as significant shareholders of Equinox Gold. As existing owners of Greenstone, we know this mine well and see this transaction as logical and beneficial for Equinox. It will enhance our cash flow and EBITDA, offering substantial near-term value. This acquisition will increase the company’s average mine life, reserves, and production while reducing our consolidated per-ounce operating costs. It gives us greater strategic flexibility and control, increases our presence in Ontario – a top-tier mining jurisdiction – and provides us 100% ownership of a scarce long-life, high-quality mine. Based on analyst estimates, our consolidated production will immediately rise as Greenstone begins commercial operations this year. Over the next two years, we expect a decrease in overall costs due to increased production from Greenstone. There will also be a notable boost to our EBITDA, which will result in an increase in EBITDA per share, making this transaction immediately accretive for Equinox. Moreover, consensus net asset figures indicate that our primary exposure to Canada will exceed 52% once this consolidation is complete, particularly in Ontario, which is one of the safest mining jurisdictions worldwide. Currently, we project production of 660,000 to 750,000 ounces for this year. Upon closing the consolidation of Greenstone, our projected pro forma guidance will rise to a midpoint of 780,000 ounces, along with a corresponding decrease in consolidated cash and all-in sustaining costs. We will formally update our 2024 guidance post-transaction completion. Looking ahead, we have seven producing mines across Brazil, Mexico, and the United States, and we anticipate starting production in Canada in a few weeks. We expect an annual production increase of around 160,000 ounces from owning 100% of Greenstone, which we plan to have in commercial production in Q3 of this year. Our production is supported by a significant gold inventory, including 19 million ounces in reserves and another 17 million ounces in measured and indicated resources. This consolidation of Greenstone is a critical step toward achieving our goal of producing 1 million ounces of gold per year. Now, I’ll provide a brief overview of our first quarter results before handing over to Pete and Doug for further details. In the first quarter, we produced nearly 112,000 ounces of gold and sold over 116,000 ounces. Our cash cost per ounce sold was $15.67, while our all-in sustaining cost per ounce sold was $19.50. Q1 is typically a lower production quarter for us, but this quarter was solid, particularly from our largest mines, Los Filos and Aurizona, both of which exceeded their first-quarter targets, positioning us well for fiscal 2024 guidance. In April, we reported some geotechnical issues in the south wall of the Piaba open pit in Arizona, leading to a temporary halt in mining there. To address this, we processed low-grade stockpiled ore through April and accelerated mining in the new Tatajuba open pit, with first ore expected in early June. We are still assessing any potential production impact from Aurizona this year, but we are not revising our consolidated guidance at this time. Our safety performance this quarter was strong, with six of our sites recording no lost time incidents and a 12-month rolling total recordable injury frequency rate of 1.55 per million hours worked. We also reported no significant environmental incidents in Q1. Following this call, we will be publishing our fiscal 2023 ESG report, which consolidates our ESG, climate, tailings, and water stewardship reports into one comprehensive document available on our website. I encourage everyone to take a look; it is an excellent report. On the development front, the commissioning of Greenstone has been a key focus for us in the first quarter. We reported in early April that we began processing material through the full grinding circuit, and commissioning is progressing well. We look forward to our first gold pour at Greenstone later this month. Doug will provide further details on Greenstone’s current status later in the call. We are also making progress on permitting for the planned expansion at Castle Mountain, which will increase production there to over 200,000 ounces of gold per year. We recently received a notice of completion from the Federal Bureau of Land Management and are collaborating with them to finalize the notice of intent, officially starting the permitting process, which we anticipate concluding by mid-2026. At our Aurizona mine in Brazil, we plan to commence development of the underground portal at Piaba later this year. As mentioned, we have accelerated the development of the new Tatajuba open pit, with mining starting in May and first ore expected in June. Now, I'll turn it over to Pete to discuss our financial results.

Peter Hardie, CFO

Thanks, Greg. We're now on Slide 10 in the presentation. We sold 117,000 ounces of gold, as Greg mentioned, at an average realized price of $2,066 per ounce, with revenues of $241 million. Income from mine operations was $11 million compared to $14 million in Q1 2023. We had $184 million in operating expenses in Q1 2024, which is a decrease from the immediate prior quarter of Q4 last year when we experienced $198 million of expenses, but an increase from Q1 2023 is $172 million. On a per-unit basis, we had cash costs of $15.67 per ounce compared to $13.46 per ounce in Q1 2023. The difference is primarily driven by lower production at Los Filos, which Doug will discuss in a minute, and higher costs of Fazenda and Santa Luz, offset partially by the positive impact of higher production at Mesquite. Our all-in sustaining cost per ounce for Q1 2024 was $19.50 compared to $16.58 in Q1 last year. The change in AIC is the result of the same factors that affected cash costs. And in addition, we spent about $12 million more on sustaining capital in Q1 this year versus Q1 last year, which was primarily on deferred stripping. Our EBITDA in Q1 2024 was $28 million, or $52 million on an adjusted basis. We had a net loss of $43 million for the quarter for a basic loss per share of $0.13. On an adjusted basis, we had a net loss of $14 million, or $0.04 per share. Cash flow from operations before changes in non-cash working capital was $48 million, or $0.15 a share. With respect to our sustaining spend, we spent $32 million during the quarter. In April, in addition to announcing the transaction to consolidate our ownership of Greenstone, we also extended each of the $140 million Mubadala convertible notes by 6 months, so they now mature in October 2024 and September 2025. We also repriced the Mubadala note that matures next year to convert at $6.50 per share from the original conversion price of $78 per share. The purpose of extending those notes was to move the maturity of the 2024 note outside of the Greenstone commissioning period. Moving to Slide 11. Please note these figures are as of March 31 and not pro forma. In terms of liquidity and capital position, we ended the quarter with $125 million of unrestricted cash. At March 31, the company had issued a cumulative total of 22.5 million shares under the ATM program for total gross proceeds of $100 million. As such, the ATM is now fully utilized, and we have not renewed it. We expect to retain about $75 million of cash from the recent equity offering after making the initial $955 million payment to Orion to acquire the remaining 40% of Greenstone. With regards to Greenstone, a total of $1.3 billion has been spent on the project to date. Greenstone was built during a difficult macroeconomic environment. Equinox Gold successfully navigated that environment by nimble management while also benefiting from U.S. dollar strength compared to the Canadian dollar. We expect Greenstone to start producing gold this month and to quickly begin generating gold credits. We ultimately expect Greenstone to achieve commercial production largely on budget and expect to fund any precommercial expenditures through our treasury and operating cash flow. At the end of Q1, we also have $165 million available to draw on our revolving credit facility. Additionally, we have $100 million on our accordion feature of the revolving credit facility that remains available and undrawn. We have other levers, including our $100 million investment portfolio. As Equinox Gold depends in part on operating cash flow to fund Greenstone, we have gold hedges in place to ensure minimum gold price and secure the related cash flow in a portion of our gold sales during Greenstone commissioning and ramp-up. At April 1, 2024, the company had hedged 112,000 ounces of gold for April to December with a floor of $2,008 per ounce and a ceiling of $2,221 per ounce. On the 112,000 ounces hedged, 64,000 are in Q2, 33,000 in Q3, and 15,000 in Q4. I'll also note that the $500 million term loan we expect to execute on close of the Greenstone final acquisition includes a requirement to hedge a minimum of 15% of production over 36 months from close of the transaction. Management has 1 month to put the hedges in place after close, which we expect to occur shortly. We're now on Slide 12. 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 that we'll use to consolidate the Greenstone ownership. This slide demonstrates Equinox Gold's historic leverage as measured by net debt-to-EBITDA ratio from Q1 2020 through Q4 2023 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 as mines are being built. This is a natural consequence of using debt as a lever for funding acquisitions and construction. Leverage peaked in Q1 2020, a few months after the 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 this chart is that as mines or commission ramps up, that leverage decreases, as Equinox Gold will have the benefit of the EBITDA and cash flow generated by the new mine. Greenstone is expected to be a high-margin producer. On the right side of the chart, we see that based on analyst consensus figures, leverage is expected to quickly decrease as Greenstone EBITDA is generated, and we use cash flow to reduce debt. Ideally, we want leverage during non-construction periods to be below 1x and expect to achieve that in late 2025. With the completion of Greenstone construction and pending gold production, management's goal is to reduce Equinox Gold's leverage as quickly as possible through the generation of operating cash flow from Greenstone and other mines.

Douglas Reddy, COO

Thanks, Pete. We're now on Slide 13 of the presentation. At the Mesquite mine, gold production was 22,000 ounces with an all-in sustaining cost of $1,188 per ounce. The mine benefited from lower fuel consumption and pricing in Q1. Stripping continued in the Ginger pit, and that was a new discovery that was brought into the mine plan last year. Ore from Ginger comes on to the leach pad in Q1 of 2025. Mining in Q1, we saw the completion of the Vista East pit, and additional ore was continuing to come as a positive reconciliation in the Dawn 1 pit. For the rest of 2024, production is mostly from drawdown of the leach pad inventories that have been accumulated in the latter part of 2023, also from side slope leaching and leaching of the additional ore that's been coming from the current mining. We also completed a drilling program that was designed to expand the Ginger deposit that was completed in Q1. At Castle Mountain, production was 4,700 ounces at a high all-in sustaining cost of $2,600 per ounce. Phase 1 is a small operation that involves mining and processing of low-grade mineralized dump material. This material needs to be removed from the old open pits in anticipation of mining higher-grade in situ ore during the Phase 2 expansion. Most of the material in Q1 was crushed and agglomerated, comprising 85% of the ore that was being stacked. We continue to work on cost reductions at Castle Mountain. For Phase 2, as Greg noted earlier, we did receive a notice of completion from BLM for our permit application, and the permitting process continues to work towards the notice of intent. At Los Filos, production was 24,000 ounces with an all-in sustaining cost of $2,424 per ounce, but this should be better in H2. In this quarter, the crusher was suspended while a planned move of the conveyor was being completed. During this time, production was only from run-of-mine ore and drawdown of the leach pad inventories that have been accumulated in H2 2023. Ounces produced were higher than planned for the quarter. Ore for crushing, which is the higher-grade ore, was stockpiled during Q1 and is being processed in Q2. That material will be under leach in late Q2 and in Q3. Operational improvements on the mining side that were reported in the previous quarter continued into 2024, especially in the open pit, where we also had positive reconciliations for the Los Filos and Guadalupe open pits. Los Filos underground production was steady, but in the mining in a new area in the south mine in the areas called Diegos, that was slow for production as it was in the start-up phase with a new contractor. We do see that recovering during the subsequent quarters and coming up to full speed in production in Diegos. We have continued our dialogue with our community partners on new agreements and these agreements are so that we can ensure long-term economic viability and stability for the Los Filos mine. Moving on to the next page. In Brazil, at the Aurizona mine, production was 23,800 ounces with an all-in sustaining cost of $1,973 per ounce. Mining was focused on waste, and the majority of the ore that was processed was from the stockpile, which is normal during the rainy season. The Vene 2 tailings storage facility was commissioned in Q1 and is now the deposition area for our tailings. And we commenced the closure of the Vene 1 tailings storage facility. We have had exceptional rain year-to-date, the highest rainfall in the life of the Aurizona mine. We suspended mining in the Piaba open pit after geotechnical instability led to displacement of material in 2 locations in the south wall. As we reported, there were no injuries, no damage to equipment or infrastructure, and no environmental damage. We continue working on remediation planning and activities with safety being the top priority. In late April, we commenced mining activities at the new Tatajuba open pit and anticipate ore coming in June from there to feed the processing plant. However, we do expect the plant to be idle for 4 to 6 weeks. At the Fazenda mine, production was 14,400 ounces, and the all-in sustaining cost was $1,745 per ounce. Plant feed is currently 45% from open pit and 55% from underground. In the open pit, we changed the mining contractor in Q1, and this impacted the adherence to the mine plan. The new open-pit contractor is now fully mobilized and is catching up. In the underground mine, the development was behind, and this delayed access to some of the higher-grade stopes. Development rates have increased in April if you look to catching up on mining in both open pit and underground in H2 of 2024. Drilling programs continue to replace reserves in the underground at Fazenda. At RDM, gold production was 10,900 ounces, and the all-in sustaining cost was $1,800 per ounce. We changed the rental mining fleet during Q1. This is rental equipment that is operated by our team. We also received the permit for the dry stack tailings area. We will be implementing that method of tailings management in the second half of this year. At Santa Luz, production was 11,836 ounces, and the all-in sustaining cost was $2,519 per ounce. Plant throughput overall recoveries were impacted by several modifications and changes that were being made to the process plant. Elution efficiency and the number of elutions were also improved; electrowinning and detox were also improved. These changes led to recovery improvements by April that we're now seeing. On average in April, we had 68.5% recovery. In Q2 and Q3, we will be working on the installation of a new trunnion, which should enable up to a 10% increase in throughput in the SAG mill and also a desliming circuit. This will reduce the total organic carbon content and improve overall gold recovery by up to 6%. The objective here is to achieve recoveries of around 73% or higher for the second half of the year. Moving on to Page 15. At Greenstone, we're in hot commissioning, and we've been processing ore since April 6. Primary and secondary crushing and the HPGR circuit are performing well. We've been running each ball mill with full load and have gradually ramped up to running them in tandem. The gravity circuit and the ILR, or intensive leach reactor, are in operation. The stockpile and broken ore in the pit at April 30 was over 1.9 million tonnes. The tailings facility is permitted and in use. By the end of April, we were operating at about 40% to 50% of design capacity and continued to ramp up in this last week. Naturally, there are some stoppages while the team resolves issues and adjusts the equipment during this commissioning period. But the first gold pour is on track for this month. With that, I'll hand it back to Greg.

Gregory Smith, President and CEO

Thanks, Doug. I'm going to finish off with just a few final comments on the Greenstone Mine given the recent transaction announcement. So at 400,000 ounces of gold production per year on average over the first 5 years, Greenstone really is a world-class generational gold mine that will be Equinox Gold's largest, longest life, and lowest cost mine once ramped up to commercial operations over the coming months. We feel extremely privileged to have seen this asset go from acquisition through construction, into commissioning, and now consolidated 100% into our company. Greenstone is a rare asset. It will be one of Canada's largest gold mines and will be one of Canada's highest-grade open-pit gold mines of scale. It will also be one of the very few gold mines of this size globally that is not held by a major mining company. Greenstone will also be a low-cost gold mine with cash costs expected to be in the lowest quartile of gold mines globally. Achieving production at Greenstone will significantly reduce our operating costs and meaningfully increase our cash flow. There is substantial opportunity to extend the more than 14-year mine life that is currently defined at Greenstone. We already are seeing increased mine life through drilling that we have done in the southeast end of the open pit, and there's opportunity to further expand the open pit to the west. There's also a substantial underground resource at Greenstone of over 4 million ounces in all categories, and we will start to assess and ultimately surface this value once we have the mine in commercial production. Finally, with this transaction, we will consolidate ownership of mineral claims over a highly prospective 100-kilometer trend to the west of the Greenstone Mine with multiple near-mine gold deposits and a number of targets across the trend. This includes the Brookbank deposit, which already has over 680,000 high-grade gold ounces in resource. To conclude, with the consolidation and commissioning of Greenstone, we'll be substantially increasing our annual production into historically strong gold prices and into a bullish macro outlook for gold with the potential for decreasing interest rates later this year. We will now have also increased exposure to Canada and to low-cost production from a significant mine at the beginning of its mine life, decreasing our operating costs and increasing our EBITDA and cash flow. And we have a production profile and portfolio that now elevates Equinox Gold to a large gold producer. I'm going to stop there and pass back to Rhylin for Q&A.

Rhylin Bailie, Vice President, Investor Relations

Thanks, Greg. Operator, can you please remind people how to ask a question?

Operator, Operator

Certainly. Thanks, Greg. Rhylin, can you please remind people how to ask a question?

Rhylin Bailie, Vice President, Investor Relations

Thank you. I'll wait for people to join up. I do have a question, and that's come in online. Greg, you mentioned consolidation of ground around Greenstone and in the Greenstone District. What is the potential there and what are the plans for exploration?

Scott Heffernan, EVP of Exploration

Yes, sure. The short answer is that the exploration potential is excellent and that we're now busy designing exploration strategies and plans. The belt, as Greg mentioned, is over 100 kilometers long, hosts a number of defined resources, including the roughly 700,000-ounce Brookbank deposit, as well as a number of past producers such as The old Sand River and leach mines, which were mainly active in the 1940s and '50s. So the immediate focus will be on the existing resources to determine the potential to expand them and, of course, determine if they could be pulled onto Greenstone or whether they represent standalone targets. Additionally, there is greenfield potential. The belt has seen little to no modern exploration in the last 70 years, and the potential to discover the next Greenstone is real. So the immediate work will largely be desktop in nature, compilation, and target generation, and this will progress into more field-based activities in due course.

Rhylin Bailie, Vice President, Investor Relations

Perfect. Thank you. Operator, we'll now take some questions from the phone, please.

Operator, Operator

The first question comes from Anita Soni of CIBC World Markets.

Anita Soni, Analyst

Doug, my first question is about the guidance. In the presentation, you mentioned the pro forma guidance would be between $730 million and $830 million. When can we expect that guidance to be finalized pending the close of the transaction, or is it likely to change as well?

Gregory Smith, President and CEO

It's pro forma right now, Anita, based on just adjusting the Greenstone piece for 100%. And until we close the transaction, it will remain pro forma. And then once we close, we'll update it formally.

Anita Soni, Analyst

And other parts to that moving parts, obviously, I mean you, Los Filos, you indicated that was the closure, or so the crusher being offline for 70% of the quarter was on plan, but it does require a pretty steep ramp-up for all of the last 3 quarters. Would you expect to be hitting your guidance at Los Filos this quarter or this year?

Gregory Smith, President and CEO

Yes. The production at Los Filos in Q1 was actually better than planned. And Los Filos is absolutely on track with our guidance for the year.

Anita Soni, Analyst

Okay. So, regarding Aurizona, should we factor in the 4 to 6 weeks of downtime that you have?

Gregory Smith, President and CEO

Yes. I think that Aurizona is a little more complicated because at this stage, we don't know exactly what the rest of the year will look like. We did continue processing through April, and we are now into Tatajuba and started mining, and we'll have ore back online in June. The main flex there, Anita, is how soon we get back into the main Piaba pit because grade in Piaba is higher, and that would increase production depending on when we can get back in there. So we don't know yet. It's still raining in Brazil. And as the dry season comes, we'll advance the remediation, and then we'll have an update on that. But that's why I say on the call, we're not changing our consolidated guidance. I think there's enough room within our guidance to accommodate any changes at Aurizona at this stage. But we'll have a more formal update on Aurizona over the next couple of months as we get into the dry season.

Anita Soni, Analyst

Okay. Let's focus a bit more on Greenstone. You mentioned 1 million to 1.5 million tonnes of ore. I'm always interested in the grade. Doug, can you provide the grade, including the average along with some highs and lows?

Douglas Reddy, COO

Yes. The stockpile at start-up was 1.5 million tonnes, and we also have broken ore in the pit, totaling about 1.9 million tonnes. For the start-up, we decided to begin with Bin 3 materials, which is approximately 1.4 grams per tonne. As we progress through commissioning, we'll be using Bin 2 and Bin 1 material in the plant, which increases to around 2 grams per tonne. Overall, the reconciliation aligns with our expectations, with the exception of receiving additional tonnes from outside our ore blocks. This includes lower-grade material, which adds more to Bin 3 than we originally planned.

Anita Soni, Analyst

Yes, I was trying to understand what you're working with in the first 6 to 9 months in terms of feeding the mill. I think you have about 60 days of full throughput stockpile based on the 1.5%. I'm trying to gauge how much the mining fleet needs to ramp up to match the mill once it starts operating.

Douglas Reddy, COO

We'll be...

Anita Soni, Analyst

The average grades of the Bin 2 and Bin 3.

Douglas Reddy, COO

Currently, we are broken ore from the pits around 2 grams. So when we're feeding that in, it's going in at 2 grams. Our operating rate is 70,000 to 80,000 tonnes a day. We have additional capacity to be able to ramp that up, but it's just being time to be able to feed into the mill. And we'll gradually be ramping up through the year as we bring in additional equipment.

Anita Soni, Analyst

Okay. And then what's your current strip ratio?

Douglas Reddy, COO

I will need to research that further because it's still in the early stages of the pit. We are addressing issues such as the glory hole, which involves filling it with low-grade material and mining around it. It's not a simple question, but I will investigate the current situation and provide you with an update.

Operator, Operator

The next question comes from Mike Parkin of National Bank.

Michael Parkin, Analyst

I have a couple of questions. What are you thinking regarding the timing for news updates on the Aurizona underground? I understand you were conducting a study. When can we expect to hear about that? If you decide to proceed with it, when do you anticipate capital being allocated for that project?

Gregory Smith, President and CEO

So we're approaching the dry season, and we'll begin the initial development of the portal area. We plan to provide an update to the market sometime in the fourth quarter. This year, our budget includes approximately $10 million for starting that development. It's not a particularly large project for 2024, but we aim to begin work later this year. Currently, we are finalizing contractors and coordinating the timeline for the teams that will be involved. Progress is being made, but there's not much to report at this time, and more information will be available later this year.

Michael Parkin, Analyst

Okay. And then switching over to Greenstone. Just in terms of labor hiring, where are you on that? Is that continuing to track fairly well?

Douglas Reddy, COO

We're fully staffed and have a few people from the project side or assisting with any potential issues that may arise during commissioning. But we're good.

Michael Parkin, Analyst

Okay. Great. And then just a random thought for you. With gold prices being so high, is there any potential recoverable ounces in any of your historic keeps that if you did like a shock to them where historically a lower gold price wouldn't have justified the cost, but at these gold prices you could shock some of the older pads to extract gold that might not have recovered at normal cyanide concentration?

Douglas Reddy, COO

We have been implementing this at Los Filos over the past few years. When opportunities arise, we take some of the older material, particularly if it's higher-grade, crushed, and fully leached, and we explore the possibility of reprocessing it. When we do this, we add lime to enhance gold recovery. It's more challenging at Mesquite due to the large pad, and we continuously discuss how to manage that situation. The height of that pad affects the time it takes for the solution to cycle through. Castle Mountain has a smaller pad, and we would consider applying any successful methods used on other pads there as well. Los Filos is already utilizing this approach.

Michael Parkin, Analyst

Okay. That's it for me, guys. All the best with the ramp-up of Greenstone.

Gregory Smith, President and CEO

Thanks, Mike.

Rhylin Bailie, Vice President, Investor Relations

Thanks. I'll take a quick question from one of our analysts online. Just wondering if Orion is responsible for the continuation of their CapEx spend until the transaction closes.

Gregory Smith, President and CEO

No, the economic cutoff was April 30.

Rhylin Bailie, Vice President, Investor Relations

Operator, can we take the questions from the phone?

Operator, Operator

The next question comes from Kerry Smith of Haywood Securities.

Kerry Smith, Analyst

A couple of questions. Firstly for Peter, you say you spent the $1.3 billion on a 100% basis on the project as of March 31. How much more would there be to spend? Or I guess another way to say it is, what will the final CapEx number be, or is that the final number?

Peter Hardie, CFO

It's close to the final number, Kerry. Right now, the spend is really more on working capital. We're imminently pouring gold. I think we've said in the past, we expect the operation to achieve cash flow neutrality fairly quickly after it starts pouring gold. So we're seeing and the construction has been principally complete since late last year. So yes, we think we're right near the end here.

Kerry Smith, Analyst

And maybe for Doug. On Tatajuba, you're going to experience a gap where you won’t have any ore from the main Piaba pit, and you will be accessing ore in Tatajuba. What is the grade there? Can you deliver a similar amount of ounces per month from Tatajuba, or will there be a monthly production decline because the plant’s capacity is maxed out and the grade from Tatajuba is 20% lower, or whatever the number is?

Gregory Smith, President and CEO

Tonnes-wise, we've done the plan so that we can take up the feed to the plant. That's not an issue. I mean, Scott's far more cognizant of the work we've been doing at Tatajuba overall on the reserve resource reserve side. So I'll let him speak to that.

Scott Heffernan, EVP of Exploration

Sure. So you're right, Kerry, the grade is lower on average Tatajuba than on Piaba proper. But the ore zone does daylight, and right now, the equipment's in that upper zone where you have collapse in distribution of grade over a much broader area. So not mean we're right into ore. Tatajuba is exposed now with the vegetation having been cleared, and mining is underway.

Kerry Smith, Analyst

So Doug, you're kind of expecting you can push the plant a little bit and kind of keep the monthly production in ounces kind of similar from either ore body then?

Douglas Reddy, COO

That's what we're focusing on. Yes, we have installed the pebble crusher, which is now fully operational, but it doesn't affect the Tatajuba ore. It simply allows us to begin processing new material, possibly from the Piaba underground. For now, Tatajuba is essentially waste. It's significantly softer, enabling us to maintain a high throughput.

Kerry Smith, Analyst

Okay. Great. And you talked about this internal evaluation of Castle Mountain Phase 1. When would that be finished?

Douglas Reddy, COO

We've been working it through with different scenarios during the first part of this quarter. I think we'll continue to be working that through the rest of Q2, probably have some conclusions in Q3. And that's kind of our normal business planning cycle overall for leading into our mine plans that go into the budget cycle. So it's a natural cadence for us.

Kerry Smith, Analyst

Would it be fair to say that as long as you're making progress in the discussions with the three communities at Los Filos, there isn't a specific deadline where you would decide to cease operations if an agreement isn't reached by the end of the year? Or will you continue the discussions as long as progress is being made?

Douglas Reddy, COO

We are actively engaging with all three communities, and those discussions are progressing well. We have an overall timeline for operating the mine, and as we've mentioned, we aim to move away from heap leaching to CIL. However, I can't provide specific details about the timing as that is part of the ongoing conversations, which are collaborative efforts.

Kerry Smith, Analyst

Okay. But would it be fair to assume that you'll continue the dialogue at least for the rest of 2024 then? There's no risk that you would move to shut it down this year or a very low risk?

Douglas Reddy, COO

We have a mine plan through 2024.

Kerry Smith, Analyst

Okay. And on the hedging that you have to put on for the new $500 million loan, you said that would be over the next 36 months to mid-2026. Will that be equal by quarter, Peter, or how might that hedge be added?

Peter Hardie, CFO

Yes. Thanks, Kerry. We're reviewing that strategy and haven't decided on it yet. There are different options, including the one you're referring to of doing a straight-line hedge. We may move some more of the hedge upfront, but we haven't decided that fully. Once we have decided it, we'll let everybody know what we did.

Kerry Smith, Analyst

Okay. Great. And then the last question I had was just on Santa Luz, with the new trunnion and the desliming. Were these projects, I guess, probably should have been done 1.5 years ago? I'm just wondering why it took so long to decide to push out with them. Was it just your need to do the engineering or you weren't quite sure what the ultimate strategy might be?

Douglas Reddy, COO

No. We are methodically working through test work to ensure that when we transition from pilot plant to industrial scale, we won’t disrupt anything. We are also focusing on the engineering work, ordering and delivering the equipment, and scheduling to complete other changes before starting this process. If everything is changed at once, it's difficult to identify what is working. This is why we are taking a stepwise approach to all the changes in Q1. This will prepare us for the implementation in Q2 and Q3, and we will see the results in Q3.

Rhylin Bailie, Vice President, Investor Relations

Thanks, Kerry. So we do have a few questions online. I'll get back to you by e-mail about those. And I think we're done for now. Greg, do you have any closing remarks?

Gregory Smith, President and CEO

No, none for me, Rhylin, other than just thanks again, everyone, for joining the call. Thanks for the continued support. And we'll talk to you next quarter.

Rhylin Bailie, Vice President, Investor Relations

Perfect. Thank you. Operator, you can now conclude the call.

Operator, Operator

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