Equinox Gold(EQX) - 2023 Q3 - Quarterly Report

Business Overview Equinox Gold is a growth-focused mining company with seven operating gold mines in the Americas, aiming to become a premier producer of over one million ounces annually - Equinox Gold operates seven gold mines across the Americas, including the USA, Mexico, and Brazil[10] - The company holds a 60% interest in the Greenstone Project in Canada, currently under construction[10] - The strategic vision is to become a premier Americas gold producer, targeting over one million ounces of gold annually through asset expansion and acquisitions[11] Highlights for the Three Months Ended September 30, 2023 The company reported strong Q3 2023 operational and financial performance, with significant progress on the Greenstone project and strategic financing activities Q3 2023 Key Highlights | Category | Metric | Value | | :--- | :--- | :--- | | Operational | Gold Produced | 149,089 ounces | | | Gold Sold | 148,231 ounces | | | Average Realized Gold Price | $1,917 per ounce | | | AISC per ounce sold | $1,630 | | Financial | Net Income | $2.2 million ($0.01/share) | | | Adjusted Net Income | $28.7 million ($0.09/share) | | | Adjusted EBITDA | $81.2 million | | | Cash and Cash Equivalents | $356.7 million | | | Net Debt | $729.5 million | - The Greenstone construction project reached 93% completion by Q3 2023, remaining on budget and on track for first gold in H1 2024[18] - In September 2023, the company issued $172.5 million in 4.75% unsecured senior convertible notes, maturing in 2028[18] Recent Developments Recent corporate actions include debt repayment, a gold purchase and sale arrangement, and a new board appointment - On October 3, 2023, $166.0 million of the Revolving Facility was repaid using convertible note proceeds[18] - On October 31, 2023, the company received $75 million from a gold purchase and sale arrangement with Sandbox Royalties Corp[18] - Fraz Siddiqui joined the Board of Directors on October 31, 2023, as Mubadala Investment Company's appointee[18] Consolidated Operational and Financial Highlights Consolidated results show significant improvements in Q3 2023, driven by higher production and reduced costs, leading to a return to net profit Consolidated Financial Performance (Q3 2023 vs. Q3 2022) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 149,089 | 143,615 | +3.8% | | Gold Sold (ounces) | 148,231 | 143,032 | +3.6% | | Revenue (Million $) | 284.7 | 245.1 | +16.2% | | Income from Mine Operations (Million $) | 25.2 | 7.4 | +240.5% | | Net Income (Loss) (Million $) | 2.2 | (30.1) | Turn to Profit | | Adjusted EBITDA (Million $) | 81.2 | 25.6 | +217.2% | | AISC per ounce sold ($/ounce) | 1,630 | 1,751 | -6.9% | - Gold sales increased in Q3 and the first nine months of 2023, primarily due to higher production at Los Filos, Aurizona, and RDM mines[19] - Net income for Q3 2023 was $2.2 million, a significant improvement from a $30.1 million net loss in Q3 2022, driven by higher mine income and fair value gains on warrants[22] Sustaining and Non-Sustaining Expenditures (Nine Months Ended Sep 30, 2023) | Category ($ millions) | Sustaining | Non-sustaining | Total | | :--- | :--- | :--- | :--- | | USA | 11.1 | 18.8 | 29.9 | | Mexico | 17.7 | 0.5 | 18.2 | | Brazil | 48.5 | 15.4 | 63.9 | | Canada (Greenstone) | — | 270.3 | 270.3 | | Total | 77.2 | 305.0 | 382.2 | Operations This section details the operational performance of each gold mine, including production, costs, and specific challenges or improvements Mesquite Gold Mine, California, USA In Q3 2023, Mesquite's production fell 46% year-over-year to 24,050 ounces due to mine sequencing and temporary leach pad issues. Despite lower output, AISC per ounce sold decreased by 13% to $1,129, benefiting from minimal sustaining capital expenditures. The mine's 2023 strategy involves a small pit approach to reduce waste stripping and manage costs Mesquite Q3 2023 vs. Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 24,050 | 44,953 | -46% | | Gold Sold (ounces) | 24,049 | 44,711 | -46% | | Cash Costs per ounce sold ($/ounce) | 1,073 | 921 | +16% | | AISC per ounce sold ($/ounce) | 1,129 | 1,292 | -13% | - Lower production in 2023 is due to mine sequencing, with most ounces expected on the leach pad in H2 2023[29] - 2023 production guidance for Mesquite is 80,000 to 90,000 ounces, with AISC guidance of $1,415 to $1,480 per ounce[36] Castle Mountain Gold Mine, California, USA Castle Mountain's Q3 2023 gold production decreased by 17% year-over-year to 4,237 ounces, a result of placing fewer recoverable ounces on the leach pad. AISC per ounce sold rose 17% to $1,648, as the transition to higher-cost crushing and agglomeration has not yet delivered the anticipated throughput and recovery improvements Castle Mountain Q3 2023 vs. Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 4,237 | 5,093 | -17% | | Gold Sold (ounces) | 4,237 | 5,093 | -17% | | Cash Costs per ounce sold ($/ounce) | 1,384 | 1,104 | +25% | | AISC per ounce sold ($/ounce) | 1,648 | 1,410 | +17% | - Lower production resulted from fewer recoverable ounces placed, with plans to relocate the crusher plant in 2024 for improved throughput[41] - 2023 production guidance for Castle Mountain is 25,000 to 30,000 ounces, with AISC guidance of $1,865 to $1,950 per ounce[46] Los Filos Gold Mine, Guerrero, Mexico Los Filos saw a 71% year-over-year surge in Q3 2023 production to 39,455 ounces, driven by increased ore mining. However, recoveries were hampered by solution management issues and high-copper content ore. AISC per ounce sold fell significantly by 41% to $2,082, benefiting from higher production volumes and lower inventory write-downs compared to Q3 2022 Los Filos Q3 2023 vs. Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 39,455 | 23,121 | +71% | | Gold Sold (ounces) | 39,817 | 22,677 | +76% | | Cash Costs per ounce sold ($/ounce) | 1,863 | 3,105 | -40% | | AISC per ounce sold ($/ounce) | 2,082 | 3,499 | -41% | - Production recovery was delayed by solution management and high-copper ore, with most built-up inventory expected to be recovered in Q4 2023[53][54] - Mexico enacted significant mining law changes in May 2023, impacting concession life, water rules, and community profit sharing, with the company assessing the operational impact[62] Aurizona Gold Mine, Maranhão, Brazil Aurizona's Q3 2023 production rose 25% year-over-year to 32,185 ounces, thanks to better access to high-grade ore and increased mill throughput. AISC per ounce sold remained stable at $1,492, as the benefit of higher gold sales was offset by increased mining costs and sustaining capital for a new tailings storage facility Aurizona Q3 2023 vs. Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 32,185 | 25,709 | +25% | | Gold Sold (ounces) | 31,247 | 25,507 | +23% | | Cash Costs per ounce sold ($/ounce) | 991 | 1,006 | -1% | | AISC per ounce sold ($/ounce) | 1,492 | 1,476 | +1% | - Production increased due to better access to higher-grade ore and increased processing, supported by an additional mining contractor[66] - 2023 production guidance for Aurizona is 120,000 to 130,000 ounces, with AISC guidance of $1,410 to $1,500 per ounce[71] Fazenda Gold Mine, Bahia, Brazil Fazenda's Q3 2023 production was stable year-over-year at 17,503 ounces, supported by a higher average underground gold grade. However, AISC per ounce sold increased by 19% to $1,431, driven by higher unit costs in both mining and processing due to contract adjustments and maintenance activities Fazenda Q3 2023 vs. Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 17,503 | 17,234 | +2% | | Gold Sold (ounces) | 17,434 | 17,057 | +2% | | Cash Costs per ounce sold ($/ounce) | 1,239 | 1,055 | +17% | | AISC per ounce sold ($/ounce) | 1,431 | 1,207 | +19% | - Higher AISC resulted from increased mining unit costs due to contractor adjustments and underground maintenance, alongside higher processing costs[79][80] - 2023 production guidance for Fazenda is 60,000 to 65,000 ounces, with AISC guidance of $1,390 to $1,430 per ounce[83] RDM Gold Mine, Minas Gerais, Brazil RDM achieved its highest quarterly production since Q4 2020, with Q3 2023 output jumping 58% year-over-year to 16,327 ounces. This was driven by higher grades from mining in-situ ore. AISC per ounce sold decreased by 4% to $1,547, reflecting the significant production increase and lower mining costs after transitioning from contract to owner mining RDM Q3 2023 vs. Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 16,327 | 10,321 | +58% | | Gold Sold (ounces) | 15,987 | 10,231 | +56% | | Cash Costs per ounce sold ($/ounce) | 1,140 | 1,281 | -11% | | AISC per ounce sold ($/ounce) | 1,547 | 1,617 | -4% | - Production increased due to higher grades from in-situ ore mining and reduced reliance on low-grade stockpiles, improving from 2022 permit delays[89] - 2023 production guidance for RDM is 50,000 to 60,000 ounces, with AISC guidance of $1,685 to $1,870 per ounce[93] Santa Luz Gold Mine, Bahia, Brazil Santa Luz, which reached commercial production in October 2022, produced 15,332 ounces in Q3 2023, consistent with Q2 2023. AISC per ounce sold was $1,834, a 15% increase quarter-over-quarter, mainly due to higher mining unit costs from longer haul distances. The operational focus remains on stabilizing the plant and improving gold recoveries Santa Luz Q3 2023 vs. Q2 2023 Performance | Metric | Q3 2023 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Gold Produced (ounces) | 15,332 | 15,321 | 0% | | Gold Sold (ounces) | 15,459 | 14,856 | +4% | | Cash Costs per ounce sold ($/ounce) | 1,644 | 1,480 | +11% | | AISC per ounce sold ($/ounce) | 1,834 | 1,592 | +15% | - The mine's resin-in-leach process is undergoing optimization to increase recoveries, which remained consistent with Q2 2023[98] - 2023 production guidance for Santa Luz is 60,000 to 70,000 ounces, with a focus on achieving 70% or more recoveries in H2 2023[103] Development Projects The company is advancing key development projects, including the Greenstone construction, and optimizing expansion plans for Los Filos, Castle Mountain, and Aurizona Greenstone Project, Ontario, Canada The Greenstone Project (60% owned by Equinox Gold) reached 93% overall completion as of September 30, 2023. The project remains on budget and is on track for its first gold pour in the first half of 2024. As of quarter-end, $1,087 million (89%) of the $1,225 million construction budget had been spent on a 100% basis - The Greenstone project is a 60/40 partnership with Orion Mine Finance Group, with Equinox Gold's Q3 2023 spending share at $90 million[106][111] - Key Q3 2023 milestones included Highway 11 realignment, power plant commissioning, and process plant pre-commissioning activities[110] - The project is expected to produce over 400,000 ounces of gold annually for its first five years of operation[106] Los Filos Expansion, Guerrero, Mexico The company has deferred a construction decision on the Los Filos expansion, which includes a new CIL plant. The decision to proceed will depend on operating stability in the region, market conditions, and capital availability. The current focus is on optimizing cash flow and community relations - A construction decision for the CIL plant, originally planned for 2023, has been deferred[114] Castle Mountain Expansion, California, USA The company is advancing optimization and engineering for the Phase 2 expansion, which is expected to increase average annual production to 218,000 ounces. The required permit amendment application is under review by US federal and county agencies, with a draft Environmental Impact Statement (EIS) anticipated to be developed throughout 2024 - The Phase 2 expansion is projected to yield 3.2 million ounces of gold with lower industry quartile AISC[115] - The permit amendment application, submitted in March 2022, is expected to lead to a draft Environmental Impact Statement (EIS) in 2024[116] Aurizona Expansion, Brazil The company is advancing plans for a potential long-life underground mine at Aurizona. Rather than completing a full feasibility study at this time, the focus is on planning for the construction of a portal and underground decline in 2024 to facilitate bulk sampling and further exploration drilling - The expansion aims to extend mine life beyond 10 years through an underground mine and satellite open pits alongside the existing operation[117] - Plans include constructing a portal and decline in 2024 for bulk sampling and underground exploration prior to full expansion commitment[118] Health, Safety and Environment The company reported a low Total Recordable Injury Frequency Rate and addressed environmental incidents at Castle Mountain - In Q3 2023, there were three lost-time injuries, with a 12-month rolling TRIFR of 1.28 per million hours worked, below the 3.25 target[119] - Three significant environmental incidents occurred at Castle Mountain in Q3, related to bird mortalities, which were addressed with deterrent devices[120] Community Development and ESG Reporting The company published its inaugural Water Stewardship Report, submitted climate and ESG data, and engaged in extensive community development activities - The company published its inaugural 2022 Water Stewardship Report in July 2023, aligned with ICMM framework[128] - Climate change data was submitted to CDP and ESG data to S&P Global CSA during the quarter[127] - Extensive community engagement included project updates for First Nations, skills training in Brazil, and community facility construction in Mexico[123][124][125] Corporate Corporate activities included convertible note issuance and debt repayment, strategic divestitures, and gold hedging to manage cash flow - On September 21, 2023, $172.5 million in convertible notes were issued, with net proceeds of $165.1 million used to repay $166.0 million of the Revolving Facility on October 3, 2023[131] - On March 31, 2023, 11.6 million units of i-80 Gold were sold for $23.6 million, resulting in a $34.5 million gain and reclassification of the investment[140][141] - In Q1 2023, 12.0 million shares in Solaris Resources Inc. were sold for gross proceeds of $53.4 million[142] - Gold collar contracts were entered into during Q1 and Q2 2023 to manage cash flow variability during Greenstone construction, covering 13,694 ounces per month through March 2024[137][138] Financial Results The company reported a significant increase in Q3 2023 revenue and a return to net income, driven by higher gold sales and improved financial instrument valuations Selected Financial Results (Three Months Ended Sep 30) | $ millions (except per share) | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | 284.7 | 245.1 | | Income from mine operations | 25.2 | 7.4 | | Net income (loss) | 2.2 | (30.1) | | Basic EPS ($) | 0.01 | (0.10) | - Revenue for Q3 2023 increased by 16% year-over-year, driven by a 4% increase in gold ounces sold and a 12% increase in average realized gold price[145] - Net income significantly improved in Q3 2023 due to higher mine operations income and favorable fair value changes, including a $1.6 million gain on warrants compared to a $13.4 million loss in Q3 2022[22][153][154] Liquidity and Capital Resources The company maintained a strong liquidity position with substantial cash and working capital, supported by increased operating cash flow and strategic financing Liquidity Position (as of Sep 30, 2023) | Metric | Value (Million $) | | :--- | :--- | | Cash and cash equivalents | 356.7 | | Net working capital | 510.0 | | Revolving Facility Drawn | 700.0 (fully drawn) | - Cash provided by operating activities for the nine months ended September 30, 2023, was $232.6 million, a substantial increase from $10.9 million in the prior-year period, largely due to $149.4 million from gold prepay arrangements[168] - Cash used in investing activities for the nine months ended September 30, 2023, was $319.2 million, primarily for $386.3 million in capital expenditures, with $265.8 million allocated to the Greenstone project[169] Outstanding Share Data The company's share capital structure includes issued and outstanding shares, along with potentially dilutive securities from stock options, RSUs, and convertible notes Share Capital Structure (as of MD&A date) | Security Type | Number of Shares | | :--- | :--- | | Issued and Outstanding | 312,980,933 | | Issuable under Stock Options | 1,155,194 | | Issuable under RSU | 6,861,543 | | Potentially Issuable on Conversion of Notes | 71,839,167 | | Fully Diluted Outstanding | 392,836,837 | Commitments and Contingencies The company has significant contractual commitments and has recognized provisions for legal matters, while assessing potential environmental fines - As of September 30, 2023, total contractual commitments were approximately $2.17 billion, with $582.0 million due within one year[173] - A provision of $8.4 million has been recognized for various legal matters[174] - Potential environmental fines of $10.2 million related to a 2021 rain event at Aurizona are not provisioned, as cash outflow is not deemed probable[175] Related Party Transactions No significant related party transactions were reported for the three and nine months ended September 30, 2023 - No significant related party transactions occurred during the three and nine months ended September 30, 2023[177] Non-IFRS Measures This section defines and reconciles non-IFRS financial measures, including adjustments to cash cost calculations for peer comparability - This section defines and reconciles non-IFRS measures like cash costs, AISC, adjusted EBITDA, adjusted net income, and net debt to comparable IFRS figures[178] - Effective Q2 2023, cash cost calculation was adjusted to exclude sustaining lease payments, aligning with World Gold Council standards for improved peer comparability, with restated comparative periods[181] Reconciliation of Net Income to Adjusted EBITDA (Q3 2023) | Item ($ millions) | Value | | :--- | :--- | | Net income (loss) | 2.2 | | Add: Income tax (recovery) | (8.1) | | Add: Depreciation and depletion | 58.9 | | Add: Finance expense | 15.3 | | Less: Finance income | (3.0) | | EBITDA | 65.2 | | Add/Less: Adjustments | 16.0 | | Adjusted EBITDA | 81.2 | Accounting Matters The interim financial statements adhere to IFRS, with consistent accounting policies and critical estimates as the prior annual period - The condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards (IFRS)[197] - Accounting policies and critical estimates are consistent with the December 31, 2022, annual audited consolidated financial statements[197][198] Internal Controls Over Financial Reporting and Disclosure Controls and Procedures Management confirms responsibility for internal controls over financial reporting, with no material changes identified during Q3 2023 - Management is responsible for internal controls over financial reporting, with no material changes identified during Q3 2023[199] Cautionary Notes and Forward-looking Statements This section highlights that the MD&A contains forward-looking statements subject to risks and uncertainties, with mineral reserve estimates prepared under Canadian standards - This MD&A includes forward-looking statements on production guidance, project timelines, and financial performance, subject to various risks and uncertainties[200] - Key assumptions include stable gold prices, currency exchange rates, operating conditions, and timely receipt of permits[201] - U.S. readers are cautioned that mineral reserve and resource estimates adhere to Canadian NI 43-101 standards, differing from SEC disclosure requirements[205] Technical Information Qualified Persons under NI 43-101 have reviewed and approved the technical content of this document - Doug Reddy and Scott Heffernan, Qualified Persons under NI 43-101, have reviewed and approved the technical content of this document[206]