Earnings Call Transcript - EQX Q4 2023

Operator, Operator

Thank you for joining us. This is the conference operator. Welcome to the Equinox Gold Fourth Quarter 2023 Results and Corporate Update. Please note that 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 hand the conference over to Rhylin Bailie, Vice President of Investor Relations for Equinox Gold. Please proceed.

Rhylin Bailie, Vice President, Investor Relations

Thank you, Ashia, 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 continuous disclosure documents on our website on SEDARPLUS and EDGAR. I will now turn the call over to our CEO and President, Greg Smith.

Greg Smith, CEO and President

Thanks, Rhylin, and good morning, and thanks for joining the call today. 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. Again, today, we are discussing Equinox Gold's 2023 fourth quarter and full year financial and operating results. For those of you that are new to the company, Equinox Gold is a fast-growing America's focused gold producer. We've got seven producing mines across Brazil, Mexico, and the United States. We also have several growth projects including our large-scale Greenstone gold mine in Ontario that we're bringing into production this year with our 40% joint venture partner Orion Mine Finance. Our production is supported by a large gold endowment including 17 million ounces in reserves and an additional 16 million ounces in measured and indicated resources. I'll just start with a broad overview and then I'll turn the call over to Pete and Doug for more details. We had a strong finish to the year with fourth quarter production of approximately 155,000 ounces, that's the second highest quarterly production in the company's history. Cash cost per ounce sold in the fourth quarter was $1,330, our lowest quarterly cash costs this year with all-in sustaining cost per ounce sold at $1,657. For the full year, we achieved our production guidance with just over 564,000 ounces produced. We sold 559,000 ounces in the year, beating our guidance with cash cost of $1,350 per ounce and achieving the low end of our all-in sustaining cost guidance at $1,612 per ounce. Our safety performance this year was good. Four of our sites had no lost time incidents in 2023 and Greenstone completed over 5.9 million hours worked during construction with only one lost time incident. Further, our total 2023 recordable injury frequency rate improved substantially from 2022. These are excellent results. However, I must also acknowledge that after more than five years with no fatalities, we did unfortunately have one fatality during the year at our Santa Luz mine. On the environmental side, we also had a substantial improvement to our significant environmental incident frequency rate compared to 2022. We issued our first Climate Action Report, our first Water Stewardship Report, and an enhanced ESG report. All of these are available on our website. Further, we improved our S&P Global Corporate Sustainability Assessment Score by over 28% compared to the prior year. As most of you know, a major focus for the company during 2023 was advancing construction of our Greenstone mine in Ontario. Greenstone is one of the largest and highest-grade open pit gold mines in Canada and will be a cornerstone asset for Equinox Gold. With a strong push through the fourth quarter, construction at Greenstone was substantially completed by the end of the year. Commissioning is now the focus and we're making excellent progress. Doug will have more details on the current status at Greenstone later in the call. When operating, Greenstone will significantly increase our production while reducing our consolidated costs, so achieving production is going to be a major catalyst for Equinox Gold this year. And this will happen soon as we're on schedule for the first gold pour in the first half of this year. During 2023, we advanced our plans to develop an underground mine at the Piaba deposit at Aurizona and also commenced initial groundwork at the new Tatajuba open pit. We plan to start development of the underground portal at Piaba and mining at Tatajuba later this year. We also continue to advance permitting of the planned expansion at our Castle Mountain mine which would increase production at Castle Mountain to over 200,000 ounces per year. We anticipate receiving the notice of completion from the Federal Bureau of Land Management in the very near term and the notice of intent shortly thereafter. We expect permitting for the expansion will finish up in mid-2026. In the meantime, we're advancing engineering and design so that when the permit is received, we'll be well prepared to commence construction. And across our mines, exploration drilling in 2023 successfully replaced our reserves. Looking forward toward 2024, we expect an increase in production to between 660,000 ounces and 750,000 ounces with cash costs of between $1,340 and $1,445 per ounce and all-in sustaining costs of between $1,630 and $1,740 per ounce. The increase in production is driven by Greenstone, which we expect to ramp up through the course of the year following our first gold pour. And with that, Pete, I'll turn it over to you to discuss our financial results.

Peter Hardie, CFO

Thanks, Greg. We're now on slide 8 in the presentation. We had a good Q4 that saw improvements in most key financial metrics compared to Q3 this year and Q4 last year, including gold ounces sold, realized price per ounce, income from mine operations, EBITDA, and operating cash flow before changes in non-cash working capital. As Greg mentioned, Equinox had its strongest quarter on record for gold production and sales. We sold 150,000 ounces of gold at a realized price of $1,983 per ounce for revenues of $298 million. Income from mine operations was $39 million, which is an increase of $13 million from Q3's income from mine operations of $25 million, and $16 million more than we did in Q4 2022. The increases in income from mine operations from prior quarters are primarily driven by the strong and higher gold prices we realized in Q4. We had $198 million in operating expenses in Q4, which is a decrease compared to the $201 million of operating expenses from Q3 of this year and an increase from Q4 2022's $168 million. The quarter-on-quarter decrease from Q3 is primarily driven by lower reagent consumption at Los Filos. Included in our Q4 results are NRV write-downs of $3.7 million or just under $4 million at Castle Mountain and just under $2 million at Santa Luz. On a per unit basis, our Q4 cash cost per ounce of $1,330 is the lowest quarter for the year and lower than our annual 2023 cash cost per ounce of $1,350. Compared to Q4 2022, cash cost per ounce increased over $100 per ounce. The increase from Q4 last year is attributable to a few factors including increases in mining costs related to contract mining rate increases, that's mostly at Aurizona and Santa Luz of about $100 an ounce. In addition, the appreciation of the Mexican peso and Brazilian real contributed to about $75 per ounce increase. Those increases from Q4 2022 are offset by a decrease of about $50 per ounce in consumables and energy prices. Had our realized gains in foreign exchange hedging been applied against our operating costs, it would have further reduced the cash cost per ounce for Q4 by about $50 per ounce. For our annual 2023, the cash cost per ounce of $1,350 increased nominally from 2022's $1,315 per ounce. Had our realized gains in foreign exchange hedging been applied against our operating costs, it would have further reduced the cash cost per ounce for 2023 by about $60. Our all-in sustaining cost per ounce for Q4 this year of $1,657 is normally up from Q3 and comparable to Q1 2023. When compared to Q4 2022, all-in sustaining cost per ounce is up just over $130 an ounce due to the same reasons that I outlined, pardon me, for the increase in cash cost per ounce from Q4 last year, namely the mining and the foreign exchange. Our annual 2023 all-in sustaining cost per ounce of $1,612 is lower than 2022's $1,622 per ounce. In Q4, we saw Los Filos continue to decrease its overall gold ounces leach pad inventory balance. That trend continued into the New Year. At Mesquite, we saw an increase of gold ounce inventory on the leach pad compared to the end of Q3. For Mesquite, the gold ounce inventory increased in the second half of 2023 is expected to be recovered through the first half of 2024, and Doug will discuss Mesquite operations further in his review of the operations. Our EBITDA in Q4 2023 was $85 million or $95 million on an adjusted basis, which is an improvement over Q3 this year and Q4 last year. We had net income of $4 million, $2 million on an adjusted basis, both of which result in earnings per share of $0.01. Cash flow from operations before changes in non-cash working capital was $168 million or $0.54 a share, which includes $76 million of proceeds from the long-term gold prepay arrangement that we closed in October. With respect to our sustaining spend, in 2023, we spent $120 million, which was $16 million less than our guidance of $136 million. Moving to slide 9, in terms of liquidity and capital position, we ended the quarter with $192 million of unrestricted cash. The decrease from Q3 is primarily due to repaying $166 million of the revolving credit facility on October 3rd with the proceeds from the convertible note we issued in September. During December and into January, Equinox made use of its ATM and issued 9.9 million shares at an average realized price of just under $4.80 per share for about $48 million of proceeds. Regarding Greenstone, a total of $1.2 billion of the project spend has been completed to date, pardon me, or through the end of December 31, with a total budget of $1.23 billion. Throughout the project, Equinox saw some increases during the strong inflationary environment that were offset primarily by savings on foreign exchange and equipment financing. There is some exposure for the commissioning period offset by expected gold revenue, but we ultimately expect Greenstone to commence commercial production largely on budget. We expect to fund our remaining share and any pre-commercial expenditures through our cash at the end of the quarter and our operating cash flow. We have $165 million available to draw on our revolving credit facility, $140 million of which set aside to repay the upcoming convertible debenture that matures in April.

Doug Reddy, COO

Thanks, Keith. We are now on Slide 10 of the presentation. At the Mesquite mine, gold production was within guidance at 88,000 ounces and below all in sustaining guidance at $1,251 per ounce for the year. The mine stacked a large tonnage of ore in both Q3 and Q4, and it took a while to bring all of that ore under leach. This gold inventory was being drawn down in Q4 and it will continue into 2024 with most of the gold production in the first half of the year coming from the ore that's already stacked. Tripping of the Ginger pit is now the main focus for mining. The majority of the ore from that pit will be coming online in 2025. Ginger was a new discovery in 2023 and it's quickly been incorporated into the overall mine plan. At Mesquite, the company continues working on developing additional resources and permitting to extend the life of the mine. At Castle Mountain, gold production was below guidance at 21,000 ounces and was within all-in sustaining cost guidance at $1,899 per ounce for the year. Phase 1 is a small operation and 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. Crushing and agglomeration modifications were completed in 2023 and the contractor also increased their throughput by about 46%. But we still didn't get to the level of crushed material being fed through the crush and agglomeration system that we wanted. So we'll continue to work on this and also on cost reductions in 2024. At Los Filos, gold production was below guidance at 159,000 ounces and over the all-in sustaining cost guidance at $1,890 per ounce for the year. In 2023, a productivity improvement program in both the open pit and underground mines was implemented, yielding an increase in overall ore production. However, in spite of the additional ounces that were above the mine plan, leach pad issues resulted in slower and lower recoveries and there was an increase in the inventory of ounces accumulated on the pad. The issues were resolved during the second half of the year, and the drawdown of the ounces continued through Q4 and continues into Q1 this year. During 2024, we'll be mining from the Los Filos, Bermejal, and Guadalupe open pits, and also from the Los Filos underground. All of the ore goes on to the existing heap leach pad, and we're continuing optimization efforts to improve efficiencies and reduce costs. Longer term, we'd like to expand the mine and to build the carbon-in-leach plant so we can process higher-grade ore, and that would be a 10,000-ton-per-day plant that we'd like to build. But we're not going to be able to make that investment unless we've been able to negotiate new agreements with our community partners so that we can ensure long-term economic viability and stability for the mine. We started the dialogue in Q4 of last year, and we're certainly hopeful that we'll be able to find a long-term solution so that we can invest in the mine. As stated in the MD&A, we have noted that we were not able to find a long-term solution; we may need to suspend the mine at least until new agreements are in place so that we can enter into a new phase of life for Los Filos. On to the next page, in Brazil, the Aurizona mine gold production was within guidance at 121,000 ounces and within on sustaining guidance at $1,440 per ounce for the year. In 2023, we had a record year for the total tonnes being moved by the mine. We also completed the new tailings storage facility which is now in use that's in Vene 2, and we've begun decommissioning of the Vene 1 tailings storage facility. This year we're going to be mining from the Piaba pit, the Piaba East pit, and also from the new Tatajuba open pit which is on the same trend into the west of Piaba. We will be finishing the installation of a pebble crusher to maintain throughput at 8,000 tonnes a day. Fresh rock will be about 67% of plant feed in 2024. We have the permits that we need to start the development of the portal and ramp to access the Piaba underground, and we will start that work in the second half of the year. That's going to let us get underground to do some bulk sampling and underground drilling, and the portal will be sized ultimately to be usable as a production decline for underground operations. At the Fazenda mine, we had another good year achieving guidance with 66,000 ounces produced, but coming in slightly above the all-in sustaining cost guidance at $1,448 per ounce. Plant feed for 2024 will be 35% from open pit and 65% from underground. And I do note that the team is evaluating the opportunity for a larger open pit over the center portion of the main mineralized trend. So hopefully we'll talk about that more later on this year. Drilling programs continue to place reserves in the underground year on year, and that's been a consistent annual program that we've had the effort to annually replace what we mine underground. A TSF raise is in progress at Fazenda and will be completed in Q2. At RDM, gold production was within guidance at 53,000 ounces and below the all-in sustaining guidance at $1,612 per ounce for the year. In 2023, we continued mining with a rental and owner fleet operated by an owner’s team. We're continuing on with the stripping campaign that will allow us to get into a section of higher-grade ore at the bottom of the pit. We expect full access to be available at the start of 2025. We're also doing some input dumping that should help us to reduce some costs and we're planning to implement dry stack tailings in the second half of the year. At Santa Luz, gold production was below guidance at 57,000 ounces and within the all-in sustaining cost guidance at $1,834 per ounce for the year. The mine had a good first half of the year but began to have problems with pollution and electro winning in Q4 that impacted our resin activity and the recoveries. These issues were being addressed as we came into the end of the year and into the new year. In 2024, we will be making some plant modifications to increase mill throughput and improve recoveries. One of them is a desliming circuit to reduce the total organic content and improve overall gold recovery by about 6%. We will be installing a new trunnion to increase mill throughput that should be about a 10% increase in throughput. We are optimistic that these improvements overall will help stabilize the recoveries and throughput. We have the objective of achieving recoveries over 73% or higher for the second half of the year. We're also doing a TSF at Santa Luz that should be completed by the start of Q2. Okay, moving on to Greenstone. So obviously a cornerstone asset for Equinox. It's got a great production profile, a high average grade for an open pit at 1.27 grams, and we'll be averaging 400,000 ounces a year on a 100% basis. So that gives us about 240,000 ounces coming to Equinox Gold given our 60% interest in the project. Plant throughput at 27,000 tonnes per day will be ramped up, and during that time, we'll be evaluating what will be needed to take it up to 30,000 tonnes per day which is the permitted rate for the mill. With a 14-year life, it's a good initial mine life, but we do also see opportunities to add from areas that are immediately adjacent to the current pit design, plus from an underground opportunity and also other deposits on the property. So we look forward to augmenting the mine plan over the coming years. I just visited the site and just in transit back to the corporate office. It's an exciting time, and I will commend the construction team. After 25 months of construction, they have adhered to the overall schedule of H1 2024 being the gold pour. It's a really good sight to see. When you look at the crushing circuit or storage dome, they've been in hot commissioning, essentially they're ready to go. There's ore sitting in the ore storage dome ready to be used. Ball mills, HPGR, leach tanks, and thickeners are all in wet commissioning. The tailings facility is permitted and ready for use. The mining fleet is 14 trucks, three shovels, and current mining rates above 90,000 tonnes a day. It will be ramped up to 180,000 tonnes per day as we bring on additional trucks and bring them into service. Stockpile for start-up is currently just over 1.5 million tonnes. I know there's another 0.25 million tonnes broken in the pit. They're doing a good job of putting everything in place, ready for hot commissioning and ramp-up. We received all the permits required for the commissioning activities, and overall things are going well. We're really looking forward to being able to announce the first gold pour in the next few months and then advancing through ramp-up into commercial production and onwards. So, with that, I'll hand it back to Greg.

Greg Smith, CEO and President

Yes, thanks Doug. And yes, I'll just reiterate with Greenstone coming online in 2024, this is going to be a very transformative year for Equinox Gold. As we progress through this year, we're going to be increasing our production in what we believe will be a macro environment of decreasing interest rates and increasing gold prices. Our production from Greenstone will significantly reduce our operating cost and meaningfully increase our cash flow as we ramp up production through the year. And with our capital cost at Greenstone also substantially decreasing here, Equinox Gold will transition to generating significant cash flow later this year. I'd just like to thank the entire Equinox team, the team at Greenstone as well for their efforts during 2023, and of course a sincere thanks to all of our stakeholders. I think I'll conclude there and pass it back to Rhylin for Q&A.

Rhylin Bailie, Vice President, Investor Relations

Perfect. Ashia, can you please remind people how to ask a question?

Operator, Operator

Thank you to the entire Equinox team and the team at Greenstone for their efforts during 2023, as well as our stakeholders. I’ll conclude there and pass it back to Rhylin for Q&A. Rhylin, can you please remind everyone how to ask a question?

Rhylin Bailie, Vice President, Investor Relations

Perfect. Thank you. While we wait for people to queue up, we'll take a couple of questions from online. Doug touched briefly on what's happening at Greenstone. What are the next milestones that you will need to achieve to achieve first gold pour?

Greg Smith, CEO and President

Doug, you want me to start and you can jump in? Sure. So, I mean, we're getting in the real final stages here. As Doug mentioned, the crushing circuit has been hot commissioned. We've been running it intermittently, accumulating a crushed ore stockpile in the storage dome. HPGR, which is the high-pressure grinding roll, is ready to receive material. The mills are almost there. Ball mill 1 has been turned and load tested and ball mill 2 is shortly behind it. The primary push at this stage to get into full hot commissioning is just programming and instrumentation in the circuit. We've got a full team focused on that right now. As we move through that, we can bring on each incremental part of the circuit online. As soon as we can push material through the whole thing, we'll start that hot commissioning. So, getting close. In terms of what we'll publicly announce between now and the first gold pour, I'm not sure because it really is coming down to just getting the programming done and starting to push material through the circuit. Is that about it, Doug, or anything else to add?

Doug Reddy, COO

That's really what it boils down to now. Most of the other things are minor. Once you're in the hot commission, you can work through any residual issues and tidy everything up.

Kerry Smith, Analyst from Haywood Securities

Okay. We've got a few questions online from Kerry Smith, our analyst from Haywood Securities. First one is for Doug. What's the stockpile grade at Greenstone? Is it in line with your block model?

Doug Reddy, COO

Well, first of all, deal with the second part, is it in line with the block model? We did a grade control drilling program that was done and everything is pretty much matching against the grade of the block model. On the current stockpile average grade, I think we're about one gram overall, but that's not reflective of the bins. We've been receiving a positive reconciliation on tonnes and low-grade material that's outside of the block model. But it is the first few benches. We are carefully monitoring it as we go along. There is some variation on topography as you have the interface between soil and initial rock. So far, it looks like it's aligning closely.

Kerry Smith, Analyst from Haywood Securities

Perfect. Thanks. Kerry is also wondering what our preferred strategy and options are for retiring the April 2020 convertible notes?

Greg Smith, CEO and President

Well, the preferred strategy is that it settles in-the-money and they convert and move from being note holders to shareholders. If that does not happen, either they don't convert or does not settle in-the-money, we have a fund set aside from the convertible that we raised in September, which is currently parked against the revolving credit facility, and it's there to repay should we need to.

Kerry Smith, Analyst from Haywood Securities

Thank you. One more from Kerry. How are the discussions going with the three communities at Los Filos for the long-term life of mine agreement?

Doug Reddy, COO

I'll be general because this is really a discussion between us and the communities at the moment. I've met with them in November. We've had several meetings through December and January. We have a team that's engaged and addressing concerns both on the current CSR side, but a separate team is also able to meet with them on an ongoing basis. Full dialogue; we've laid it all on the table regarding the opportunities at the mine and see it as an opportunity to establish the next stage of life for Los Filos. It's clear that change is necessary, but it's a dialogue, and that's going to take a while.

Rhylin Bailie, Vice President, Investor Relations

Okay. Thank you. Ashia, can we please take some questions from the phone?

Operator, Operator

The next question comes from Wayne Lam with RBC. Please go ahead.

Wayne Lam, Analyst from RBC

Thanks. Good morning, guys. Just curious about the non-sustaining spend at Mesquite this year; it's quite high on that stripping for the Ginger pit. Just wondering what kind of additional mine life or ounces we should expect from that stripping program?

Greg Smith, CEO and President

I'll just start, Wayne, and Doug, feel free to jump in. Ginger is a new discovery, brand new pit at Mesquite. What you're seeing in our non-sustaining CapEx this year is basically the stripping program we're undertaking to advance that pit toward commercial production. Ginger will provide a substantial amount of the ounces in 2025. This capital investment this year sets up for a meaningful increase in production in 2025 at Mesquite. Beyond that, we're continuing to develop additional sources of ore. We want to keep Mesquite going as long as we can, and happily, we've been able to continue to do that through the discovery of new resources at site.

Wayne Lam, Analyst from RBC

Okay. Is that in reserve though? Are there any parameters on how we might be able to think about it?

Doug Reddy, COO

It came in quickly. It was identified by exploration and put into a resource model, and as we came through 2023, it is at a reserve level and was able to be put into the mine plan at the tail end of the year. Yes, we will continue to look at additional opportunities to expand, but it provides good production in 2025. That's the whole point of the investment we're making this year.

Wayne Lam, Analyst from RBC

Okay, great. Thanks. At Greenstone, it seems like the total CapEx budget was effectively spent by year-end. Just wondering on the $95 million in non-sustaining; is the majority of that spend going to be complete in the first half before the first gold pour? Looking at the mine plan, there was about $77 million in sustaining CapEx budget in year one and just wondering what the delta is versus the $25 million guidance?

Doug Reddy, COO

I'll handle the first part of your question, Wayne. The $95 million is spread fairly evenly throughout the year. We split that into $55 million construction related, and $40 million for other ancillary infrastructure that we need to do, but the timing of which we're still reviewing, and it's not at all fundamental to the actual construction budget. Of the $55 million, about half of that is contingency, which will relate to construction; that would be the first half of the year with the remainder spread throughout the year.

Greg Smith, CEO and President

Regarding the second part of your question, Wayne, I mean, I don't have the feasibility study in front of me. Obviously, it's several years out of date in terms of where we're at in the project now. But within our sustaining CapEx, it's primarily for work around additional drainage on the site. We will also be maintaining our camp. Originally, it was a construction camp. We'll call it a semi-permanent camp and so we're going to do some upgrades on that camp. We don't really need to do those yet; we could push them out to later in the year. There are also some capital stripping in there as well.

Doug Reddy, COO

Yes. There may be a difference between the calendar year versus year one, a model difference versus a calendar year difference. But Wayne, we can get back to you on that and run that to ground.

Wayne Lam, Analyst from RBC

Okay, no problem. Thanks for the detail. Just curious on the ATM; you guys have done the convert in September, which was advanced to try to derisk the upcoming repayment. It seems like the execution over the past few months has been pretty aggressive on that facility. Are you guys expecting to continue that program over the coming months or how should we think about the execution on that ATM?

Greg Smith, CEO and President

Yes. Looking at the big picture here, we've been in a significant two-year Canadian dollar terms $1 billion build for the company, which is meaningful. We've financed that largely through debt, some prepays, cash flow from operations, and to a very minor extent, some equity through our ATM at this stage. The ATM has been a good tool for us and our shareholders, I think, just to manage our cash balances and our financial strength across a significant build. As we go into the later part of this year, Greenstone hits commercial production, and we start to generate substantially more cash flow from operations, it may become less of a focus for the company. In the near term, we've got access to it as we go through the commissioning at Greenstone. It's a good tool to have available to the company. Whether or not we'll use it will depend on how we see things shake out with our liquidity position as we bring Greenstone into production.

Operator, Operator

The next question comes from Don DeMarco with National Bank Financial. Please go ahead.

Don DeMarco, Analyst from National Bank Financial

First question, can you speak to the trajectory of the ramp-up over the year? You got 240,000 ounces obviously back-end loaded, but maybe any additional color on how we should model this quarter over quarter would be appreciated.

Greg Smith, CEO and President

Yes. It's a staged ramp-up, probably the best way to put it. We think that we will start pouring gold in Q2. The first phase of the ramp-up will be to get to about 60% of capacity. Commercial production, let's call that sometime in Q3, starts to look like 80% of capacity. By the end of the year, we should be at that 90% to 95% capacity as we move into November and December.

Don DeMarco, Analyst from National Bank Financial

Okay. In response to an earlier caller's question, you mentioned the stock upgrades maybe at one gram per tonne. Should we expect that the grades in the first half during the ramp-up to be lower than in the back half?

Greg Smith, CEO and President

Yes. The original plan was to have around 800,000 tonnes to 900,000 tonnes at around 0.9 grams per tonne. That was in our original model. We're currently sitting at over a gram. We've got several bins with certain very high-grade portions and some positive variance in tonnes with lower-grade material. As we start the ramp-up, we'll run much lower grade material initially through the crusher and mills. As we dial in the processing circuit and increase our recoveries, we'll start to introduce the higher grade.

Don DeMarco, Analyst from National Bank Financial

Okay, great. Costs are attractive for the guidance. Sticking with Greenstone, on the Greenstone CapEx, you mentioned you expect to finish the year on budget versus the $1.23 billion total CapEx. Now, CapEx guidance included the $68 million in post-construction costs. Can you provide additional color on these items?

Greg Smith, CEO and President

Sure, so as we get to the very end here, we've got some things that fall into sustaining capital or post-construction capital. Some items that we did not need to do during the build that we've pushed out. The hydro station is one of those items. It's more about the timing of the open pit as to when we need to move it. It was not something that had to be done during the construction period. By the end of 2023, construction of the mine, the tailing facility, the crushing circuit, milling, and all material infrastructure were complete and we moved into commissioning. Over the course of 2024 and into 2025, we do have to do the hydro substation. There are some historic soils on the property that were contaminated from early mining and earlier industrial activity. We need to manage these. We're buying an additional generator for redundancy for the power plant. We've got fleet payments for the leasing, which are even throughout the year. Some drainage, and then the camp, along with capital stripping that comes later this year as well. Nothing significant in and of itself, but things to clean up the overall site and things we need to do; the timing of when we need to do some is such that we can push them off to 2025.

Don DeMarco, Analyst from National Bank Financial

Okay, understood. Thanks for that. Well, that's all for me. Good luck with the rest of the ramp-up.

Operator, Operator

We have a follow-up question from Anita Soni with CIBC. Please go ahead.

Anita Soni, Analyst from CIBC

Apologies if this has been asked, I just joined the call. When it comes to the guidance for the Greenstone asset, could you give us a little bit of color on the grades and the cadence of throughput increases that you expect over the course of the year?

Greg Smith, CEO and President

Yes, we just answered that question, Anita. Essentially, we're focused on getting this plant up and running. Doug talked about the reconciliation, and everything is aligning well to the block model. We are finding that we have some more tonnes, tonnes that would have been waste but actually meet the criteria of ore. So we'll end up with some lower-grade stockpiles rather than going to the waste dumps. In terms of the mine plan and the reconciliation, everything looks good. We have more tonnes than anticipated. Going forward, optimizing the mine will follow once we get it into production.

Operator, Operator

The next question comes from Arun Lamba with TD Securities. Please go ahead.

Arun Lamba, Analyst from TD Securities

I think you might have just answered this, but in terms of an updated life of mine plan, the feasibility study seems somewhat dated. Could we expect one in 2025? Or is it focused on ramp-up, and then we'll do 2025 guidance and maybe update the life of mine plans in 2026, just on the timing?

Doug Reddy, COO

I think that’s our overall timing.

Greg Smith, CEO and President

Yes, entirely focused on getting the mine into production right now. We have a luxury to do some technical report updates. I'm thinking kind of later end of 2025 before we see a full update. So, the next guidance coming out for 2025 would be a year from now. We could look to have a longer-term mine plan updated down the line.

Arun Lamba, Analyst from TD Securities

Perfect. Regarding Castle, you mentioned permitting for phase 2 going into 2026, and the MD&A mentioned reevaluating a possible slowdown for phase 1. Should we get an update on that in the first half of this year or is it likely in the second half of the year similar to the Los Filos decision?

Greg Smith, CEO and President

Yes, that's in process right now. The permitting is looking good, and the BLM has been very engaged with us. We expect the notice of completion and the notice of intent coming soon. Our estimate is that the process beyond the notice of intent will take around two years, placing us mid-2026 for the permit for the expansion. Phase 1 is somewhat of a development project masquerading as an operating mine. We are maintaining the permits and excavating existing open pits, which is what we've been doing while also testing what the mine could look like at the increased production level. It's fairly low-grade material we're processing. While using a contractor for mining and crushing, the cost profile is higher than preferred. What we're examining is what makes the most sense given the two more years of permitting once we build phase 2. We're considering a reduction in throughput at Castle Mountain for a time as we prepare for the expansion.

Operator, Operator

The next question comes from Jeremy Hoy with Canaccord Genuity. Please go ahead.

Jeremy Hoy, Analyst from Canaccord Genuity

Hi, Greg and team. Thanks for taking my question. Most of mine have been answered. The dialogue at Los Filos is fluid. Is there any timeline or dates we can look to for progress updates on the negotiations?

Greg Smith, CEO and President

I don't think we want to give a specific timeline at this stage.

Doug Reddy, COO

We'll do our best to keep you informed, but given the dialogue, it's back and forth. Long term, the heap leach is not the preferred method. The CIL is a cheaper option due to the cyanide consumption and the pumping that happens on a heap leach. It’s the right time to discuss the future and work it through. We'd like everything wrapped up ASAP, but we continue to engage and lay out all our cards on the table to come to an understanding to ensure the next stage in the mine's life.

Operator, Operator

We've got another follow-up question from Wayne Lam at RBC. Please go ahead.

Wayne Lam, Analyst from RBC

I just had one follow-up. On the impairment testing, the carrying value of Los Filos looks nearly equal to Greenstone now. Just wondering if the year-end testing included updated capital and operating costs versus the 2022 feasibility study. Curious if the ongoing community negotiations become binary and a significant write-down may need undertaking if a deal can't be reached.

Peter Hardie, CFO

Wayne, it's Pete. The impairment test contemplates a CIL being put in. Until the CIL is put in, it reflects current costs. After Doug's previous comment, we concluded we did not have any indicators, so there was no impairment test. If we did run one, it would incorporate the CIL, and that would answer your question on impairment.

Doug Reddy, COO

For accounting purposes, I shouldn't imply we conducted an impairment test. We didn't conclude we had indicators requiring that, ensuring any discussions surrounding that remain internal.

Wayne Lam, Analyst from RBC

Okay, great. Yes, hopefully, you guys can get a deal done imminently.

Operator, Operator

We have got another follow-up question from Anita Soni at CIBC. Please go ahead.

Anita Soni, Analyst from CIBC

Hi. Just one more on Greenstone. The AISC guide is $850 to $950 AISC. I assume from the point it will be declared commercial or the first gold pour?

Doug Reddy, COO

Yes, that's correct, Anita. It's from the point of commercial production.

Anita Soni, Analyst from CIBC

Okay. So it’s expected at sometime probably in Q3 once we hit the 80%?

Doug Reddy, COO

That's right.

Anita Soni, Analyst from CIBC

Just curious if any additional costs may be being capitalized or put into another bucket—or does the $850 to $950 incorporate all of the costs at that asset in the quarter and in Q4 should we be using that as a run rate?

Doug Reddy, COO

The $850 to $950 includes all applicable costs, except the leasing costs related to the initial fleet acquired during construction, which remains non-sustaining. Apart from that, it captures all ongoing operational costs.

Anita Soni, Analyst from CIBC

Thank you.

Rhylin Bailie, Vice President, Investor Relations

We do have a few questions online, but I think they were pretty much all addressed with the questions that were asked from the analysts. I will get back to you all individually to ensure there are no follow-up questions. I think we're going to wrap it up here. Greg, do you have any closing statements?

Greg Smith, CEO and President

No. Just thanks again everyone for attending the call, and for where to find us. If you've got any additional questions, the contact information is on our website. Rhylin, myself, or any of us are always happy to engage with shareholders.

Operator, Operator

This concludes today's call.