Equinox Gold Corp. (EQX) Earnings Call Transcript & Summary

I believe we are connected to the corporate update. Ross, please go ahead.

Well, welcome, everybody, again, to the Annual Meeting and the Corporate Presentation. We always make during the meeting to give our shareholders an update on what the heck we're up to as we are continuing to build this busy company. Rhylin, can you please read the -- or don't read, just put that cautionary note.

Because we have many, many lawyers in the room, I must tell you that we will be making a number of forward-looking statements today. So please do not dial in -- not dial in. Please join us -- log into our website and to look at our continuous disclosure documents, which are also available on SEDAR and EDGAR. Ross, you can go ahead now.

Okay. Thank you very much. Okay. So this slide is -- table here is -- this slide is the 5-year history of our company. We started about 5 years ago, beginning of 2018. It was a big dream, no assets really of any significance, a couple of development projects, but no operations. A bunch of keen people, a little bit of money and a big dream to build a big gold company. And I would say, if you look at what we've achieved to this point, we haven't done a bad job. I will say we had an absolutely dreadful year last year on a whole bunch of different fronts. Our share price cratered, which was very disappointing. We had some issues at different mines. Some were maybe management's fault, you could say, and some were extrinsic factors that we had nothing to do with. But it was -- all in all, was a kind of a lousy year coinciding t also was a decline in the gold price. Happily, since the beginning of November, the gold price turned and so did our fortunes And we have had a pretty darn good rebound since that time. But this slide here kind of shows you the 5-year record. What we did, some big milestones, buying the Mesquite Mine, acquiring Leagold, acquiring Premier Gold, and then launching some spinouts like Solaris and i-80 and Sandbox Royalties, trying to create value all the way through. You'll see our production really rolled from 2018 when we just had a quarter of the year with Mesquite production right at the end, 25,000 ounces -- 22,000 ounces. Can you make that 25,000 ounces. And then it scaled up pretty quickly as we did the acquisitions, and we built the Aurizona Mine, and we built the new Castle -- the Castle Mountain Mine. And then we built the Santa Luz Mine. So our growth has come from both internal development of operations, new mines, but also of acquisitions. And that's why very quickly from 2018, we produced 25,000 ounces, to 2020 where it was 477,000 ounces, a little bit more in 2021. And then it sort of flatlined last year because the big push last year wasn't to buy anything new, it was actually to develop the Greenstone deposit in Ontario, which represents the next great leap forward for us, which will take our production to a much higher level when it starts operating a year from now. So that's kind of the major milestones of the company, all really happening within the context of our mission to become a 1-million-ounce plus -- plus-1-million-ounce gold producer as quickly as we possibly can. So this is kind of what -- this is a snapshot of Equinox Gold today. We have 4 jurisdictions. We have 2 mines in the U.S. producing about 300,000 ounces -- pardon me, producing 120,000 ounces right now, but with plans to get to about 300,000 ounces annually. We have our big Los Filos Mine in Mexico, producing 175 -- 170,000 ounces annually with expansion plans to go to 300,000 ounces. We have 4 mines in Brazil, current production of about 325,000 ounces a year, again, with some expansion potential there to 375,000 ounces; and then our big Greenstone project in Canada scheduled for first production next year about this time at a rate of about 260,000 ounces annually. So 7 mines, 4 countries, and 1 big new mine in 2024. That's the asset base today. All of this has been made possible by a very strong Board. I've already made some mention of our Board, but I want to predict a single out Len Boggio, our independent -- our Lead Director, and the other Independent Director, Francois Bellemare, who represents Mubadala, a big, big part of our financial base and shareholding base; Gordon Campbell; Sally Eyre; Marshall Koval, and Maryse Belanger. Such great, great people, working hard, and I just can't express my appreciation for them and their contribution and dedication to the company. And then, of course, the [ mutant potatoes] of the company and its management team. We have a lot of them in the room today. I'm not going to name all of these people. Some of them are on this slide. You can see them. They are wonderful people. Again, hard-working, smart, fairly -- I'm going to say not -- we don't stand on form. We're all about substance. And they're just a delightful group of people. And then, of course, behind this group of 9 who you see on this slide and all the rest of the people in the room here, we have a pile of our senior management team from Vancouver in the room. We have about 8,000 people now in our team. And they're all -- we're trying to create this culture of kind of family. And I will say this, I've just come back on Monday night from a trip with Maryse Belanger to 2 of our mines in Brazil and our big mine in Mexico. So 3 of the mines in like 3 days. And I was in the Fazenda Mine for a Chairman Safety Award on Friday. They won the award. There were 7 mines total compete for who's going to win the award. And this year, Fazenda won it. And honestly, it was one of the happiest days of my working -- my mining life, just seeing that we had hundreds and hundreds of the team there. They were all just united and all kind of trying to make us do as well as we could. And it was a joyful day, a really joyful day. The mine had an incredible safety record last year. And the next day, we went to the Santa Luz Mine, which also had an incredible safety record, 3 years with no lost time accidents. Just remarkable. And then to Los Filos. Actually, Los Filos, we have -- it's been a complicated mine for us, a difficult mine since we acquired it in 2020. It wasn't helped by COVID, so we couldn't really get into the communities at all. We have community. We have to -- we simply have to get our community relations better, and we're working very hard on doing that. But even there, we have a strong safety culture, and we are just working really hard to build at every one of our operations. This kind of culture of friendliness and openness and transparency and really an ecosystem of trust and, of course, hard work, but kind of all being in the same place trying to get us to the same place of becoming a bigger and stronger and financially more healthy and robust sustainable business, which provides so much value to communities, employees, countries and shareholders. So I just wanted to profile that senior team, but behind those, there's 8,000 others who are all making them look good. And if they make -- and they make us look good as Board members. So I mentioned that last year was a tough year. And I just wanted to go through a few things that are sort of perception versus reality. So the first problem last year that caused our share price to crater so badly was, I would say, a near universal view held for fairly good reason, actually, in terms of precedence, particularly in the large financial capital of Toronto, by analysts in Toronto that we were going to blow our budget out at Greenstone and take way longer to build that big mine. It's a USD 1.2 billion capital project, CAD 1.6 billion roughly. We're 60% of that, and our wonderful financial partner, Orion, is the other 40%. And like analysts for Universal, we were going to do just what Iamgold has done and Argonaut has done and New Gold has done and like this litany of difficult, expensive mines that other Canadian companies of our size had built in Canada that had blown-out budgets and blown-out schedules. And we've said we're different -- we're going to be different. For a whole bunch of reasons, we're different. And we went through all those reasons, but nobody believes us. So a year later today, that weighted on our share price all last year because all these experts said, we were going to need to raise more money. We didn't have enough money to build the mine as we planned. We were going to go over budget. It is going to take longer. And all of that meant that we were going to have to do more equity sales. As the price came down, it was going to be more and more expensive, more dilution and more risk and just stress on our balance sheet. So that was last year. And of course, all that happened in a declining gold price, which didn't help. Gold went from $2,000 in August, I think, September, all the way down to -- or pardon me, July, all the way down to, I think, $1,650 was -- right, Greg? And this is somewhat nerve-racking, as you can imagine. But despite all of that nervousness and all of those people who sold our shares, assuming this is going to happen, guess what? A year later and only a year to go before this mine is completely built, we are on track, on budget. And as of March 31, Greenstone was 73% complete overall, on budget and on track for its first gold in the first half of 2024. So perception versus reality. The other perception problem kind of related to that is that we have a funding shortfall, most particularly is Greenstone's big capital development. Well, that's what, we're well funded. We have $260 million remaining spend at Greenstone, and we have ample cash, securities, available credit and of course, operating cash flow to fund all of that capital requirement. The other perception wasn't so much a perception as a reality. We were a high-cost producer last year. We had various debacles at some of our mines. We had a few blockades that were surprising, out of the blue kind of things. We had a permit problem at the RDM mine. We had a huge amount of rainfall at Aurizona, which we hadn't completely planned for or weren't prepared for. So all sorts of internal things, as I say, some are our fault probably and some are things that we really couldn't control. However, it resulted in a very high cost structure for the company, particularly in Q3 when we came out with the numbers that were just awful. And may I call them, we definitely could have done better, and we probably should have done better, but there it is. So the assumption was that, that was going to continue. And that was where the assumption was wrong, which I think we've proven in our Q4 and Q1 numbers we just announced. We are improving our cost structure. And then as we continue to expand some of our mines and operate our mines in 2023 and 2024, we're going to improve our cost structure, particularly in 2024 when Greenstone starts. And I might as well talk about that right now. I've got this sort of numbers here. So why is our cost structure going to improve so much in the future? Because the new expansion projects and particularly Greenstone, are way, way lower cost. Let's just talk about Greenstone right now. We haven't announced recently what our current expectations are for operating costs, cash costs or all-in sustaining cost of Greenstone, but we did put out numbers in the feasibility study, which showed cash costs of $565 an ounce and all-in sustaining costs of $650 -- $625 an ounce. Contrast that with the Q3 cash costs we reported just today of $1,376 an ounce and all-in sustaining cost of $1,658. Huge difference, right? Well, even if the feasibility summaries aren't going to -- that's not going to happen. Inflation is biting into all costs. That's one of the problems last year, too. Inflation really hit hard. And that really caused our cost structure to go up. So -- but even if you inflate Greenstone numbers by 40%, I mean, I don't think that's going to be the end result. But even if you do, we're still looking at all-in sustaining costs at less than $850 an ounce. So, however you cut it, Greenstone will significantly reduce our all-in sustaining costs and our cash costs. Castle Mountain expansion will further reduce them to the extent we get our Los Filos expansion going, that will again reduce Los Filos costs. And when all of those are complete, we'll be producing more than 1 million ounces of gold a year at substantially lower cash costs. Perception versus reality. That's where we're going from where we are today. The other perception was we had operating challenges at Aurizona and Los Filos. Well, I can just tell you that I think this year, Aurizona is going to run like a clock. We've increased the fleet to increase the mining capacity. And then we had high cost. The Bermejal underground mine at Los Filos, we've shut that mine down temporarily while we sort things out there and try to reduce costs and deal with those challenges. And then finally, at Santa Luz, we started the Santa Luz Mine in Brazil last year. It's a tough mine. It's a refractory -- what's called a refractory mine meaning that it's very hard to extract the gold using conventional technology from the ore. It's got a lot of carbon in it, which complicates things when you apply cyanide. So we use a very novel -- almost unique in the world. There's 2 or 3 other mines in the world, and our operating team in Brazil is just amazing, led by Anstruther Bradley, back there, who is quarterbacking that whole team. And we use a new technology called resin. And resin bonds to the gold where you don't need to have cyanide it. It doesn't attract itself as much as carbon. And so it's a very novel, very, very interesting new technology, but it's new, and it's a tough ore, body. And I think it's been what we actually have had start-up. It's like you have it almost every mine, it's taken a while to get things right. But I can say from my visit to Santa Luz last Saturday, we're getting there. Our budget this year is, I think, for 70% recovery. We're already at 68%. We should go through 70% probably in May or June at the very latest. And we didn't expect to get to 70% by -- before July this year. So far, so good with Santa Luz, and I'm quite confident that, that mine will run for a long, long time with this novel technology and then for me to -- in a strategic part is whether we can use that technology at other places that are having struggles and develop our expertise or apply our expertise in other operations. By and large, though, I think most of those market concerns have -- hopefully have gone. And I do feel that during 2023 and beyond, we should significantly outperform because the result of that last year is that we had one of the lowest price to net asset values in the industry amongst our periods. We were cheap, and I didn't think we deserve to be, but that's the way it was last year. At the same time, we have -- amongst the highest production of all these companies, we certainly have the highest production growth in the entire sector, and we have among the highest reserves. So to the extent that the perceptions disappear and the reality inflicts itself upon us, I think there's only one way for our share price to go, which is up. So we move up that chart on the left that you see there and increase our share price relative to our peers. I think that's kind of what maybe is happening today. We had a very good day in the market today. So on balance here, we have today, these are just some stats for our guidance in 2023. You can read all those numbers, our 7 mines. And then at the end of the day, our overall guidance, 555,000 to 625,000 ounces at a cash cost of between $1,355 $1,460 an ounce, all-in sustaining costs around $1,600 an ounce. So now a couple of words on our big mine built in Ontario. And again, I've said this already. The bottom line here is we're on track and on budget to hit H1 production in 2024. Just to remind you some of the big numbers here, this is a 400,000 ounce a year gold mine. We own 60%, Orion owns 40%. Our share of remaining spend is $260 million. This is a big mine with a decent grade for a mine of this size, open pit mine of this size, 1.3 grams per tonne of gold. It's got a 5.5 million ounce Proven and Probable reserve and another 2.5 million ounces in Measured resources. Long life, low cost, what more can you want when you're trying to build a long life, low-cost mining company. Beyond that, we have other expansion projects that we're going to get cracking on. Now that we've got the lion's share of Greenstone production -- pardon me, Greenstone construction kind of behind us, we're going to get moving. Castle Mountain has the capacity to be a 250,000 ounce a year mine. We're in the middle of permitting there right now. It's going to take another couple of years before we get those permits, but we're working very actively on it and so far, so good. The Aurizona mine in Brazil, beautiful ore body on surface, but it also has a beautiful ore body underneath the surface as a long-life underground mine, and we're working very hard on doing a feasibility study for that and then get an underground to have a -- start to work to actually get into the ore body, have a look at it, do some more deep drilling or drilling underneath the open pit and eventually develop that into a combined open pit underground mine. At the same time as we're doing that, we're also expanding the open pit towards the west into a new zone that we've been developing for the last few years. So Aurizona is going to expand. And then we have an expansion plan on Los Filos that we made an announcement on last year about a feasibility study that includes building a new processing plant that will make much better recoveries from the higher grade ore that we are expecting to get out of the underground mines there. And currently, we throw that high grade on the heaps. It's a terrible waste of gold because you don't get the same recovery in a heap that you do in a plant. So the plan is to build a plant ultimately at those fields. So we've actually deferred that decision until we have more community stability there, and we're working very hard on that right now. Maryse and I were there on Monday talking to some of the community leaders and the management team to just sort of plan where we're going and how we can get that mine expansion going on a safe basis for the company and on a wealth-creating basis for everybody, not only the communities but also us. So that's a big expansion plan currently on hold, but hopefully, we'll be able to get that going fairly soon. And then with those 3 expansions, this is sort of what they'll do for us. You can see there that clearly, they'll blow us through the 1-million-ounce mark that we set ourselves up in terms of our near-term mission of production with all the assets we have right now in the company to get there. And the reason we're trying to go big is because you got a better value. You've got -- there's all a matter of good reasons to get -- to go -- to scale these days in the mining business. That's what we're trying to do. That's our core mission. And the most obvious reason is on the right-hand side, you can see these bar charts of where we are today and where we want to be, where we get a better multiple. And that's the bottom line, that the market rewards you for and it makes good sense because the bigger you are, the less risky you are. And you have a higher -- you have a higher attraction of different capital pools. And of course, at that point, at some point, as soon as we can, we'll be able to be a dividend payer and then, of course, have all that good value that comes from that scale of business. So we're -- that's where we're going. And as we get there, of course, our multiple will increase and we'll get bigger. That's -- that's the whole point. And we are funded currently to deliver the kind of growth we have in front of us. This slide describes the liquidity we have. Bottom line is about $410 million plus operating cash flow. We've also been quite protective of our production base for the next year. We've done some gold hedging, and that's a decrease in risk on the current budget for 2023. And then we have a bunch of noncore assets that we've harvested to some degree. We sold our Solaris position completely. We've started to sell -- we've raised -- I think we've raised -- pardon me, $212 million in proceeds for that, which has been applied to Greenstone Construction. We have sold 2 mines, the Mercedes Mine and the Pilar Mine for $175 million. We created i-80 gold, which we own currently 20% of. We've sold 100 -- we've sold -- well, we invested $14 million. We've received $24 million to date from that, and we have $125 million of value left. I kind of like i-80. I really like what Ewan Downie -- sorry, Ewan, if you're listening. Ewan Downie is doing a splendid job of building value there. I really like what he's doing. It broke my heart to have to sell some shares earlier this year, but we're going to try to hold on to all or as many as possible that we can into the foreseeable future to the extent that we can maintain a strong balance sheet like we have right now. And then with Greg's help, we've helped create this royalty company called Sandbox Royalties. We divested some of our noncore royalties to them that we were getting no value for. And in return got a shareholding base of 32% of -- 34% of Sandbox. And now we're going to try to help them create value to build themselves as a solid independent streaming and royalty company. It's a great model. They've got solid management. We're working actively with them. And hopefully, that will be a very successful spin-out company as well the way i-80 has been and the way Solaris has. So those is a little -- little nice ways to create wealth for our shareholders from assets that had a huge amount of value on our books. We do all of this while really trying to walk the talk about being sincere about environmental, social and governance policies. We are serious about trying to protect our environment as much as possible and looking after our employees, our communities and the nations where we work and doing this with a governance platform of equality and diversity and openness and transparency. I mean, we -- when I say those words, they're not empty words. We really do work hard. And there's nothing I can demonstrate this better than by referring all people who are listening today and in the room to our brand-new hot-off-the-press ESG report that came out today. It's online. It's an obviously fabulous document. I really encourage you to look at it so that you can see the details of what we're doing on the ESG front. It's -- I was -- I just saw it from the first time yesterday, and I just was so impressed that the detail it goes into and I think the demonstration to shareholders, to employees, to social -- people all over our operations that we really are sincere when we say we're trying to do the very best we can within the constraints of the business we're in to look after the environment and the communities and our employees with good policies and good actions. And I think the proof is in the pudding. So look at the pudding. It's all written down in that report. There's another climate report that was done a month or so ago. That's another good document to look at. I just thank the whole team. It's a big team effort in Equinox to put those 2 documents out. I know they know how much I appreciate their work in getting there. So that's kind of the company review. It wouldn't be an investor presentation that I make at least without talking a little bit about gold and why we are where we are relative to gold base. Well, most of you who've heard me drone on about gold before, it's sort of one theme that our market, for the last, I don't know, really 10 years or maybe not quite 10, maybe 8 years. The conditions have been bullish for higher gold prices. We started Equinox in -- at the end of 2017 when gold was trading for about $1,350 or just under $1,400 an ounce. And it was just for me a no-brainer that gold is going to go up. And so in the context of a rising gold market, when you try to build a really big gold company, it's good business. It's a really good business. You can make a ton of money. You can provide dividends for shareholders, great capital gains and have fun in the process. I mean, we were lacking a little bit last year, but we're back in the fun game and have fun in the process. And that's really been the reason why I wanted to do this company personally, and I'm lucky that we've got such a lot of talent around me that can actually walk that talk and make me look good, even though we did very little work. But these guys do a lot of work, and you do a lot of work. And yes, this is why though. This is why I like the gold price. We are highly leveraged to gold now. Equinox is the most leveraged gold company in the business, Rhylin?

That's the report we received.

Yes. So when you have big reserves, big resources and big production, gold price -- and you're a fairly high-cost operator, the way we've been, if the gold price rises 20%, you might rise 50%. And that's kind of what's happened. Instead -- but instead of that, it's been gold price has gone up 10%, we've gone up 40%. So we've outperformed our peers with rising gold prices. And readily the reverse works still with gold price because then we go down even more than most of our peers, which happened last year as well. But gold price has done really well since November, and that's why our stock has outperformed most of the market. And I think you see that in the slide on the left here. And then on the right, this is the part that is interesting to me. Even though gold price, which is yellow, has gone up a lot in the last couple of years, gold equities, generally speaking, haven't. So they've lagged the gold price. And this is an unusual thing looking back 15 years, 14 years. Actually, you can look back probably 30 years and not see this happening the way it's been happening in the last few years. So my view is that it just demonstrates that not a huge amount of the investment public are buying gold equities the way they used to. So is that going to change? It probably will. I think we're going to see more of the general investor market roll into gold as they roll out of things that have hurt them like tech stocks and markets, generally bond markets, banking stocks, of course, more recently, crypto markets expanded last year, into things like gold. And when that happens, when we actually have a decent movement of general investors into gold, you're going to see quite a remarkable, maybe even explosive rally in gold stocks. And it will actually start at the bottom rather than the top this time. The juniors will see the most movement relatively speaking, the most percentage movement, then the intermediate producers like us, and lastly, the senior stocks, which that crowd generally won't -- doesn't buy. So I think you're going to see a lot more return to the median, that blue line there, which is the GDX, the index of gold equities, is going to go up like gold prices have and I think will continue to. And so just a few words on gold. You have these double economic movers today that are driving gold. You have both increasing demand and relatively flat supply growth. And when you have flat supply growth and rising demand growth, the usual result is higher prices, and that's precisely what we're seeing. Supply is constrained. We have seen very little gold mine supply growth since 2014. So for 9 years, we have hardly seen any significant gold supply growth. While we have seen significant new investor demand, particularly from central banks and increasingly, I think, which will come in 2023 and beyond from the general equity markets from retail and institutional investors. So this is a lot of -- to me, a lot of potential demand growth coming from investors, but you're seeing sort of the buyers who recognize gold for what it is, which is a store of wealth. It's money. It's a different form of asset class, the most important being the big central banks who want to kind of move off their exposure to the dollar like China. There's a whole bunch of them, and they're buying gold like never before. We had record Central Bank gold purchases last year, tremendous amount of new demand. And as I said, I think that's going to flow into the ETFs where retail investors go typically and in institutional markets for gold. So I'm continuing bullish on the gold price. I've kind of -- I've been predicting for some time that I think gold will blow through $2,000. It's done that now in the last month or so. It's done that -- it's doing that pretty convincingly right now. And I think the next milestone for the gold market will be to see gold go to over $2,300 in today's dollars, which will be a record price. We're not quite there yet, but I certainly see the momentum that's going there. And it's a big and growing tradition of gold. We are just going to be the go-to kind of stocks for that environment the way we have been in the last couple of months. So I'm very bullish on gold. I'm bullish on Equinox's prospects. I'm very happy that we've got through last year, which is a tough year, as I said, into, I think, a much more stable and growth-oriented year this year. My thanks to all of our team for all their work getting us there. The shareholders who support us, I want to thank them, our ecosystem of lawyers and accountants and service people, our contractors, our communities, the tax regimes that aren't too punitive in most of the countries we work in. And just generally speaking, the whole Equinox family for getting us to the point we're at right now. It's a step on a road to a clear mission. We have insight we have a big, big year coming up, even a bigger year, I think, next year. I look forward to it with optimism. And with that, I think I'll close the formal remarks, and I will turn over to questions, which I think I have about 5 minutes left to do.

We've only got one question so far. [Operator Instructions] Ross, if you want to put your geology hat on for a moment. The one question we have is what's the upside at Greenstone once it fills and in operation?

Sure. Thank you. I can certainly address that to some degree, although we have Scott Heffernan here today who can probably expound in more detail. Greenstone has about a 14-year -- correct me if I'm wrong, Don or Greg, 14-year mine life based on proven and probable reserves. And then it has a large reserve base, a 2.6 million ounces of resource base, which is largely an underground extension of the known open pit mineable zone. And we actually do plan to have that mine in due course. It's about $1 billion -- almost $1 billion net asset value just in the underground alone. We can't put it in any of our numbers today, but that's kind of what it's likely to do for us. So it's a big contributor. It will take the life of Greenstone many, many more years. And then we have lots of exploration upside along trend. There were several old operating mines in the region. Brookbank is one. What is the other one, Scott?

Long Lac...

Long Lac Mine -- yes, there's a bunch of mines in that Greenstone belt. So I would say we're going to be mining hopefully for decades.

Perfect. Are there any questions within the room? Well, a quiet bunch today. Okay. There's one more question from online. Can you give a bit more clarity on the time line to potentially have a dividend?

Pete? I guess before Pete answers it with an even shorter answer. It can happen soon enough. That's my standard line. But we obviously have to develop a more satisfactory -- we have to pay down some of our debt and get into a more sustainable financial capital structure, I guess, before we do that.

Yes, we have a lot of CapEx to deploy in the near future. You've highlighted a lot of our growth plans, which are also going to require CapEx. So yes, we do want to get paying a dividend as quickly as possible, but it's not going to be in the immediate term. We'll look to the medium-term for that.