Equinox Gold Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 10 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Third Quarter 2023 Results and Corporate Update. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

Then 0. If you are participating through the webcast, you can submit a question in writing by using the text box in the lower left corner of the webcast frame. I would now like to turn the conference over to Rylin Bailey, Vice President, Investor Relations for Equinox Gold. Please go ahead.

Speaker 1

Thank you, Charisse, and thank you, everybody, for joining us this morning to discuss our Q3 results. We will, of course, be making a number of forward looking statements today. So please do visit our website and our continuous disclosure documents on SEDAR and EDGAR to learn more about the company. I will now pass the conference over to our CEO and President, Greg Smith.

Speaker 2

Thanks, Rylin. Good morning and thanks everyone for joining the call today. On the line with me is our COO, Doug Reddy our CFO, Peter Hardy our EVP of Exploration, Scott Heffernan and of course, our VP of Investor Relations, Rylin Bailey. Again, today, we're discussing Equinox Gold's 2023 Q3 financial and operating results, and I'll just start with a broad overview for the quarter and then turn the call over to Pete and Doug for more details. So this was a record quarter or record 3rd quarter for the company in terms of gold sales and revenue with just over 148,000 ounces Gold sold at a realized gold price of $19.17 per ounce.

Speaker 2

Cash cost per ounce sold was $13.63 with all in sustaining cost per ounce sold of $16.03 I would note that these costs do include a write down of inventory at Los Filos, which totaled approximately $70 per ounce on a consolidated basis. For the 1st 9 months of the year, we sold 409,000 ounces at a cash cost of $13.57 per ounce and all in sustaining cost of $15.95 per ounce. These also take into account the inventory write down at Los These results also reflect record sales for the company for the 1st 9 months of the year, and we remain on track to In September, we had a site visit to our Greenstone mine in Ontario That included our analysts, our lenders and some of our shareholders. Just a reminder that Greenstone is being developed as a joint venture in cooperation with our 40% joint venture partner Orion Mine Finance. Again, the site shows very well and it was a great opportunity for all the visitors To see the site and the progress in person, all of our analysts attended, so there are fairly recent analyst reports out there.

Speaker 2

And you can get in touch with Rillyn, if you'd like See any of them. The full site tour deck is also available for download on our website, and you can track progress in Greenstone photo gallery, which we update weekly. Greenstone continues to progress very well. As of September 30, we were 93% complete overall with And Doug will have more on Greenstone, but the punch line is the project remains on budget and on schedule. I want to take a quick minute now to talk about the convertible note financing we closed in September.

Speaker 2

To remind everyone, we announced $150,000,000 convertible note offering on September 18 with an annual interest rate of 4.75 percent, a 5 year term and a conversion price of US6.30 dollars per share. With the overallotment being exercised, we closed the total financing of 100 and $72,500,000 As many of you on the call would have noted, the market did not react positively, But we strongly believe in the merits of this financing. The new notes have a lower interest rate, a higher conversion price and a longer term than the convertible notes that mature in April 2024. So we've secured better terms for the company and mitigated the risk of having to cash settle The April 2024 notes if they mature out of the money. And in the interim, in early October, we did use the proceeds to partially pay down our revolving credit facility.

Speaker 2

This results in substantial interest savings to the company, while ensuring the funds are available to settle the maturing note in April, if needed. So with that financing closing just prior to quarter end, we finished the quarter with an unrestricted cash balance of approximately $357,000,000 Before I hand the call over to Peter Hardy to run through our financial results, I want to take a moment and thank Francois Bellemare for his contributions to the company as a Director of Equinox since January of 2022, but Francois has actually been in the mix at Equinox since several years before then. At the same time, I'd like to welcome Fras Siddiqui to the Board of Directors as the new Board appointee for Mubadala Investment Company. So with that, Pete, I'll turn it over to you to discuss our financial results.

Speaker 3

Thanks, Greg.

Speaker 2

I'm

Speaker 3

now on Slide 5 of the presentation. For Q3, for the 149,000 ounces sold, we received an average realized price of $19.17 per ounce, Generating $285,000,000 in revenue, we had $201,000,000 in operating expenses in the quarter, which is an increase compared to the $93,000,000 of operating expenses from Q2, an increase compared to last year's quarter, which was $189,000,000 The increase is primarily due to the contribution of operating expense at Santa Luz and higher operating expenses at Aurizona and RDM as a result of higher production, With RDM achieving its highest quarterly gold production since Q4 2020, offset partially by lower operating expense at Mesquite as a result of lower production. On a per unit basis, our cash cost per ounce of $13.63 is consistent with the previous quarters of this year. Our all in sustaining cost per ounce of Q3 is in line with Q1 and increased as planned from Q2, thanks to additional sustaining spend at Aurizona on deferred tailing facility work, which is a typical Q3 activity at that operation. When compared to last year, cash cost per ounce decreased in Q3 to 13 From $213,63 from $13.91 and all in sustaining cost per ounce decreased to $16.30 from $17.51 One of the trends we've seen this year is an increase in leach pad inventories.

Speaker 3

We've seen a year to date increase of $130,000,000 in those inventories related to and increased in ounces on the pads at Mesquite and Los Filos. For Mesquite, most of the increase occurred during Q3. At Los Filos, the increase occurred in the first half of the year. During Q3 at Los Filos, we saw an overall drawdown on pad ounces. Doug will speak to Pat Leach Pad Dynamics during his review of the operations.

Speaker 3

We're seeing decreases in input costs in Brazil and Mexico from Q2 of this year. There was an increase in the U. S. Though, which was driven by higher fuel prices. In Mexico and Brazil, some of the benefits of decreases in Input costs unit input costs are offset by strong performance in the local currencies against the USD.

Speaker 3

Equinox manages its foreign exchange exposure with a corporate hedging program. Year to date, the company has realized gains of $26,000,000 on its peso and real risk management. Those gains are recorded below the line and other income and are not included in our company's mine operating earnings or cash and all in sustaining cost metrics. Had those realized foreign exchange gains been included with mine operating earnings, they would have decreased cash and all in sustaining costs by $76 an ounce for Q3 $63 an ounce on a year to date basis. And those savings are attributable about 60% to Los Filos and 40% to the Brazilian operations.

Speaker 3

Our EBITDA in Q3 2023 was $65,000,000 or $81,000,000 on an adjusted basis. We had net income of $2,000,000 for basic and fully diluted earnings of per share of $0.01 Included in net income is an income tax recovery of $8,000,000 On an adjusted basis, we had net income of $29,000,000 or $0.09 a share. The differences between net and adjusted income include $18,000,000 for unrealized losses on foreign exchange contracts, dollars 11,000,000 in unrealized losses recognized in deferred taxes and $6,000,000 for unrealized gains on gold contracts. Cash flow from operations before changes to non cash working capital was $83,000,000 or $0.26 a share, which is Entirely in line with our Q2. With respect to our remaining sustaining spend, year to date, we spent 77,000,000 And we expect to be a little under our guidance for the year by the end of the year of $136,000,000 Moving to Slide 6, In terms of liquidity and capital position, we ended the quarter with $357,000,000 of unrestricted cash, which includes the net proceeds of the convertible bond that Greg already discussed.

Speaker 3

And yesterday, we closed a $75,000,000 long term prepay arrangement with funds provided by SandBox Royalties And Regal Resource Royalties in exchange for delivering 90,000 ounces of gold over 15 years with monthly deliveries that are greater of 500 ounces a month or 1.8 percent of Greenstone gold production. The gold deliveries can be satisfied with production from any of our And they start next month. We will receive 20% of spot gold price for every ounce delivered and we have the option at any time to buy down as much as 75% of any undelivered gold ounces for spot gold, assuming a minimum price of $2,000 per ounce. With respect to Greenstone, we are ahead on spend. Our guidance for the year was $277,000,000 and we spent $270,000,000 through Q3 with $90,000,000 spent during Q3.

Speaker 3

Based on construction progress to date, we believe construction spend will decelerate and our share of the remaining Construction budget is about $80,000,000 to $85,000,000 which is about $140,000,000 on a 100% basis. We expect to fund our remaining share of the spend through our cash at the end of the quarter, our operating cash flow and the proceeds of the $75,000,000 long prepay that we just closed. Additionally, we have the $100,000,000 accordion feature on our revolving credit facility that remains available and undrawn. And finally, we have other levers in our investment portfolio and ATM should they be needed. And I will note, we have not drawn on the ATM since January.

Speaker 3

With those sources of liquidity, we believe we are well funded to complete Greenstone Construction. I'll turn things over now to Doug

Speaker 2

for a review of the operations.

Speaker 4

Thanks, Pete. We're on Slide 7 in the presentation. At Mesquite, during Q3, the mine switched from waste stripping to ore movement and stacked 7,600,000 tonnes on the leach pad. The strip ratio reduced from 2.0 in Q2 To 0.6 in Q3. Those stacked ounces began to come under Leach during the quarter, so now we're waiting for them to start Early in the quarter, they're actually in the end of Q2 and into start of Q3, There were issues with precipitation of a magnesium silicate and also low pH levels were caused by Re leaching of some older areas of the pad, both of those were addressed and resolved.

Speaker 4

During the quarter, The site has also been working on a plan to mine the Ginger deposit, which is a new zone that's next to the brownie pit. So we look forward to Seeing how ginger can come into our mine plan going forward. At Castle Mountain, crushing and agglomeration throughput continues to improve. We were at 67% of the ore being crushed before it's being stacked. We continue to make up the difference with the run of mine ore, which It does have a lower slower percolation rate and a lower overall recovery.

Speaker 4

We are working on additional modifications to the crusher That will well, we'll end up with improving overall throughput. Scaling on the drip lines on the leach pads did occur at Castle Mountain in the quarter. Those have been addressed and resolved. Los Filos productivity improvement program in the open pits and the underground mines has been underway from Q1 onwards. That program has seen a strong increase in the total tonnes being moved year on year And a reduction in dilution from the underground and at the same time delivering more ounces overall to the pads.

Speaker 4

80% of the ore is coming from Los Filos, Bermejal and Guadalupe open pits and the underground ore is from the Los Filos underground only. On the leach pad, we had delays in gold recovery as noted in Q1 and Q2, but we're starting to see those ounces Drawdown in Q3. One of the areas was previously reported problem with broken leach pad piping. That was fixed, and we believe all of those ounces have now come off the pad in that area. We also had some areas with carbonate precipitation in an area where the pH had gotten very high, and that was in preparation for The rainy season, where there was a drawdown of the overall solution on the pad.

Speaker 4

The area where the carbonate precipitation has now been turned and Being re leached, so that's been addressed. And then the higher grade ore with copper content continues to be separated. That receives a higher cyanide dosage and a long leach cycle time. And for clarity, this impacts Less than 14% of the recoverable ounces that have been stacked year to date. More recently, the mine sustained no damage as a result of the hurricane that devastated the coastal region around Acapulco.

Speaker 4

Our employees at Los Filos have initiated a voluntary donations campaign that's in an effort to support the affected families in Acapulco and other impacted areas, and Equinox Gold will be supporting this effort. On the next page, In Brazil, all of our mines have had tailings storage facility construction either recently completed or currently underway. So as Pete noted, this is the time of the year where we do the big push in all of our tailings facilities, and that's reflected in our sustaining capital expenditures for each of these At Arizona, Q3 production was higher than the prior quarter as they mined more tons and had access to higher grades. We continue mining With a second contractor on the site, that's to help move more waste and help build up an ore stockpile for the coming rainy season. Currently, we're over 400,000 tonnes on the stockpile.

Speaker 4

We've largely caught up on waste movement with almost 8,000,000 tonnes being moved in the quarter. Pazenda was mining from a combination of open pit and underground sources. Underground mining was up on both tons and grade in the quarter and the feed grades going into the plant, plus the plant throughput was above plan. So a very good quarter, Fazenda. Drilling was over 16,000 meters in the quarter.

Speaker 4

This is in the underground. That brings our underground drilling To over 39,000 meters year to date, that's focused on reserve replacement. That's been a successful program for the last half dozen years and is Looking to be the same for this year as well. Exploration overall in the Pazenda Santa Luz Greenstone belt continues on several promising targets. At RDM, the mine achieved its highest quarterly gold production since Q4 2020, Primarily due to sending higher grade in situ ore to the plant.

Speaker 4

You'll recall that much of the previous year, We were supplementing feed to the plant with low grade stockpiles, so we've been able to focus more on the in situ ore. The RDM team has been doing a great job in mining with owner operated equipment, and that's a combination of our trucks plus additional rented trucks. RDM is also in the permitting process for a filter tailings storage facility that was submitted at the start of the year. So we're looking for that to come through sometime the end of the year or into the New Year, but it doesn't have an impact. We have sufficient space to carry on in any case.

Speaker 4

Santa Luz continues to work on changes to overall recoveries. They were running at 67% in the quarter. We've been running just size 70% in October. So it's the small changes that make a difference That's Santa Luz. I'll note that in the quarter, the total organic carbon content of the plant feed was running higher than planned.

Speaker 4

But we did have recoveries well into the mid-70s when the lower total organic carbon levels are being fed in. Our work continues on increasing overall recovery, increasing the throughput and being able to feed ore with higher total organic carbon into the plant. And one of the initiatives that we're currently working through engineering work, we've done a lot of test work on it already, is The impact of de sliming of carbon from the ore that's currently being fed. So we See that this will result in an overall enhancement to recovery and essentially it's removing the highest Carbon portion of the ore and the remaining mass therefore ends up with the improved overall recovery. Moving on to Greenstone on Page 9.

Speaker 4

Full scale construction of Greenstone was announced in October And 2 years later, the project remains on budget and on track for H1-twenty 24 production. We are fortunate to have a very experienced and focused diligent team at the site. And this is a great photo showing the progress in the last 2 years. In the foreground is the ore storage dome. On the left hand side is the primary and secondary crushing building feeding into the HPGR building that's near the center of the photograph.

Speaker 4

Behind the HPGR is the truck shop and warehouse building. And on the right hand side is the Mill building, process plant building with the thickener in the foreground of the building and the leach tanks to one side. In between the Thickener and the ore storage dome is the on-site power plant. The project had one LTI in the quarter and has had over 5,000,000 hours worked so far. Moving on to Page 10.

Speaker 4

Progress at the site as of September 30, the overall project is 93% complete with Construction at 92% complete, procurement is 90% complete and then mechanical piping and electrical, those are the big focus, The big focus at site as we reduce the personnel on-site in the Q4, this is how The construction team will start to ramp down as our ops team has been building up and we're in towards pre commissioning and commissioning. The capital spend is at 89% complete. On Page 11, PerSys plant is 91% complete, both ball mills are mechanically complete, conveyor's installed, built installation underway, The crusher reclaim and HPGR is substantially complete and the hydro testing and leach tanks has been underway. Our pre commissioning activities are underway in several areas. Process of the power plant It's already complete and has been through commissioning.

Speaker 4

It's fully operational. The pipeline And we've been switching over to powering portions of the plant during Q3. Full transition happens in Q4. The tailings facility is 94% complete. South portion is complete to the Final elevation, 3:40 elevation and buttress work continues.

Speaker 4

It will be it is on schedule For completion and ready for use in Q4. There's a list of additional infrastructure over to the right, And I'm not going to read that through. Suffice to say that the key areas that remain are the tailings Storage facility and the process plant. We've already done the realignment of the Highway 11 that was open for traffic in 20 in August of this year, And we've relocated the Ministry of Transportation Petroleum. So going to Page 12, looking at key milestones.

Speaker 4

As noted, the highway is open. Process plant is 90% complete, and we've moved into pre commissioning. So our operational readiness and Commissioning teams are in place and very active on-site. In Q4, the big focus is the mechanical piping and electrical installation. And then we move into wet commissioning on the process plant.

Speaker 4

The TSF, as noted, will be ready for use And preproduction mining ramps up. We'll have 800,000 tonnes on the stockpile. Currently, it's over 400,000 tonnes on the stockpile. The mining fleet will be augmented in Q4 going with an 8 6 additional trucks Bringing our fleet to 14, and then we'll continue adding trucks to the point where we're at 22 trucks by Q3 of next year. So H1, 2024, we'll see hot commissioning, 1st gold pour, mining at 145,000 tonnes a day and the buildup of the ore stockpile.

Speaker 4

Looking at our other expansion projects, Castle Mountain isn't permitting. The application was submitted in March of 2022. In the meantime, we continue with our optimization work. We're doing additional met test work and we continue with front end engineering. The Aurizona expansion will see concurrent mining of Piava Underground along with Piava Open Pit and The engineering work continues on supporting infrastructure, For example, additional power that's required for vent fans and supporting the underground.

Speaker 4

And the underground Development will happen in 2024. The ramp and drill stations and the ramp provides drill stations and We will be doing test mining and it provides the basis for future production. At Los Filos, The CIL plant would add life and improve overall recovery. We're looking for the conditions that are conducive to investing in the construction and the So in the quarter, we have met with communities. We've started the dialogue and that would need to involve all parties.

Speaker 4

We'll need everyone to be involved so that we can all stakeholders to be involved so that we can put Filos on the path towards being able to invest in the CIL, Additional stripping and ultimately extending the mine life. With that, I'm going to hand it back to Greg.

Speaker 2

Yes. Thanks, Doug. Rillyn, why don't we move on to Q and A?

Speaker 1

Sure. Operator, can you please remind people how

Speaker 5

to ask a question? Certainly.

Operator

You will hear a tone acknowledging your request. If you are participating through the webcast, You can submit a question in writing by using the text box in the lower left corner of the webcast frame. We will pause for a moment as callers join the queue. Sure.

Speaker 1

So I've got a couple of questions online, and we'll take one of those while we're waiting for people to queue up. First question here, why did the convertible notes now, why not wait until the spring

Speaker 2

Yes, I'll handle that one, Reland. So, As you noted, in April 2024, we had $140,000,000 convertible note that was maturing. And the company has been involved in a large capital program for the last 2 years in building Greenstone, And we did not want to be in a position just as we're in the heat of commissioning and ramping up Greenstone where we had to make $140,000,000 Debt payment. So we've been pretty clear in the past that we wanted to get ahead of that maturity, effectively refinance that note. And so, we've been looking at a number of options to do that.

Speaker 2

Why now? Why September? In a large part because the market was Operating, the terms were very attractive in the context of the note that was maturing, again much higher conversion price, lower interest rate and Of course, you get the extension of the term and we were able to do it in market conditions that were favorable to the company at a period where we were able to then park those funds on a revolving credit facility and save fairly material amount of interest, So from our perspective, we have to control or focus on the things we can control. We don't know where the gold price is going to be, where the market is going to be in April 2024 and so to mitigate having to make that payment in cash, if those notes matured out of the money, we wanted to get well ahead of that and that's why We executed on those notes in September.

Speaker 1

Perfect. Thank you. Operator, can we go to the phone lines now, please?

Operator

Certainly. The first Question comes from Wayne Lam with RBC. Please go ahead.

Speaker 6

Yes, thanks. Good morning, everyone. Just wondering maybe at Los Filos, just wondering what the expected leach cycle is now for those delayed ounces beyond the 60 days? And I guess given that it's been a couple of quarters now, should we be expecting a big catch up announces coming off the pad in Q4?

Speaker 4

So on for example, the longest leach time is on the High copper ores, so that's 120 day overall lead cycle. Yes. It's a longer drawdown of those ounces. It will go through Q3 probably into Q4 For those ounces, and we had hoped that it would be quicker and we'd all come out in Q4, but it's likely going to drag into 2024.

Speaker 6

Okay, great. Thanks. And then just maybe related to that, it looks like the heap leach inventories have built up by quite a bit this year. What proportion of that number is related to Los Filos versus, say, Mesquite and Castle Mountain? And at what point in time would you have to consider taking a bigger write down on those inventories if they don't come off the pad?

Speaker 6

Like would that come with impairment testing at year end?

Speaker 3

Yes, Wayne. So about 2 thirds of the buildup is at Mesquite and most of the buildup at Mesquite occurred during Q3 3, which was frankly planned with the stacking activity and our budgets for the year. And I'll note that At Los Filos, during the year, we saw a net drawdown overall of the ounces. So the ounces that we had expected A little earlier in the year. We have started to see those come through during the year.

Speaker 3

And as Doug just mentioned, we hope that, of course, that, that continues.

Speaker 4

One of the things to note at Mesquite is we saw an opportunity to optimize our mine plan a little bit, which meant A bit more stripping to get more ore, and that pushed us out a little bit. So we knew it was a risk that some of the ounces Push into 2024, but you see the large number of tonnes that we've managed to stack in Q3. We were opportunistic and You took that opportunity to optimize the mine plan.

Speaker 3

Yes. I guess a final note on the Mesquite stacking is it's Typical of the operation where you do your big pushbacks followed by periods of stacking and then leaching and recovery.

Speaker 6

Okay, got it. Thanks. And then maybe just last one at Greenstone. Can you give us a sense of timing of spend through the completion of the project into next year? And then how should we kind of think of CapEx into Q4 given the spend this quarter seems to be quite elevated and to date looks like it's Pretty close

Speaker 7

to the full year guide.

Speaker 2

Sure, Wayne. This is Greg speaking. So yes, to your point, we've spent about $270,000,000 of the $270,000,000 of the $277,000,000 that we planned for the year. For the most part, this is a timing issue. The overall Budget in aggregate is still valid.

Speaker 2

What we're seeing at this stage is a fairly rapid deceleration in construction burn, And that is everything from obviously the installation of equipment, But also just a number of people on-site is starting to drop fairly significantly. Most of the major work In terms of construction is coming to completion here, including the tailings facility, which we said Q4, but really we're weeks away from that being entirely complete. So most of the big burn that we had through 2022, 2023 is now coming off Pretty significantly. There's about $140,000,000 at 100% left to spend. In total, 60% of that related to us, it should be about $85,000,000 I think for the rest of 2024, We're going to be in that sort of $30,000,000 to $40,000,000 range.

Speaker 2

And then obviously, we're moving into To hot commissioning here in Q1 and as quick as we can to gold production. So we're no change to the overall budget. Things are moving quite quickly at Greenstone. And like I said, the overall burn is now coming off quite significantly and really The spending is starting to orient more toward just mining.

Speaker 6

Okay, great. Thanks. Thanks for taking my questions and best of luck in the months ahead.

Speaker 8

Thanks, Wayne.

Operator

The next The question comes from Kerry Smith with Haywood Securities. Please go ahead.

Speaker 9

Thanks, operator. Greg, does that $80,000,000 to $85,000,000 Your share of the remaining CapEx, does that actually include the working capital buildup?

Speaker 2

In terms of Or like stockpiled ore and first fills and all that?

Speaker 9

Yes, yes.

Speaker 2

Yes.

Speaker 9

Okay. Okay. That's great. And are you having any issues for the operating side because I know you're adding Equipment as we move into every quarter here going forward, are you having any issues sourcing equipment from the suppliers or maybe any issues Sourcing people as you build up your staffing levels or is all that kind of running in line with what you expected?

Speaker 2

Yes. So on the equipment side, no, because everything had been previously acquired. So We haven't had any issues around that or certainly not at this stage in the game. In terms of hiring, things have accelerated quite significantly. We're working towards having, I think, around 360 people on-site by year end.

Speaker 2

We're at about 300 now And that will continue to increase. And I'm talking about the operating team, which will get us to sort of 550 at some point next year. The number of people on-site in terms of construction is coming off, as I said, quite rapidly. We went from over 800 people just a Few weeks ago, that's now dropped to sort of $500,000,000 and continuing to drop.

Speaker 9

Okay. And can you remind me what the peak work the peak Employee levels are once the operation is running if you're 360?

Speaker 2

About 550.

Speaker 4

About 550.

Speaker 2

That's about 550. Yes.

Speaker 9

Okay. Okay. And just for Mesquite with this buildup of inventory, do you have even a directional Comment on the production in Q4 from Mesquite that you would expect? I mean, do you think it's going to be 10% better than Q3? I'm just Thinking about how we try and model this?

Speaker 2

Yes, I hear you, Terry. And it's we've actually stacked a lot more ounces And recoverable ounces in the year that we budgeted, but we did it a bit later, as Doug mentioned, because we extended the stripping program. And we've seen this in the past with Mesquite where the recovery starts to incrementally increase and all of a sudden it starts to really increase and sort of reach The levels that we anticipate. And so it's one of these situations where we're totally comfortable Reiterating our guidance, we're going to be within our guidance for the year. Whether we're in the back end of that guidance or closer to the midpoint of that guidance, That could be a matter of a couple of weeks at Mesquite just based on the recovery of those ounces.

Speaker 2

So we're sort of in the same position as you. We We anticipate those ounces starting to accelerate significantly over the course of the quarter, which we've seen every year that we've been mining Mesquite, But the exact timing right around that year end time will could have some effect on the overall production for the year. It obviously will.

Speaker 4

Okay. Remember, it's a large number of tonnes. Adele doesn't go under leach at the same time. We had to finish leach cycles on other areas As it was coming on, and then you've got your normal lease cycle, plus it's a very high pad. So the pad height means that the percolation takes quite a while To work its way through.

Speaker 4

So all that combined, and we've done lots of discussions and analysis on that, it means that any day now When it starts to happen, that's it through Q4.

Speaker 2

Kerry, the Mesquite like it's a good story at Mesquite. We had very positive reconciliation in the pit this year. And so we've had a lot more recoverable ounces available to mine, put on the pad. We also are, as Doug mentioned, integrating this new ginger deposit, working on mine plans that are going to extend mining at Mesquite into 2026. So we're very happy with what's happening in Mesquite.

Speaker 2

The timing of recovery of these ounces, again, it's we're talking about So the couple of weeks right around that year end that could affect 2023 production, but still will be well within our guidance.

Speaker 9

Okay. And then just one last question for Doug on Santa Luz is, I know when you started the resin Project, you were kind of thinking recoveries in the low 80s, but is 70% maybe the best that we can ever hope to expect For this project or how are you thinking about it now?

Speaker 4

We have I mean, obviously, the team at site is very optimistic On the additional modifications that they're doing, we have to do it in a stepwise fashion so we can understand what works and what doesn't. I'd say desliming is the big one that Should have a step change for us on the recovery, and we're doing the engineering at the moment, and we look to be able to implement that in 2024. We're looking at around the mid-70s, around 75% as being A realistic target that we should be able to push up to, but it's incremental. And what I will say is 84%, The original target is not Google. We will acknowledge that scaling up from Bench scale to pilot plant to industrial scale just did not follow through on the overall recovery, Well, we can see getting to the mid-70s.

Speaker 4

And blending has been a big item for us. And obviously, the opportunity to be able to bring in and blend down the TOC is another thing we're Looking at long term, but it takes quite a while to be able to develop other areas that we might be able to blend with the ore to be able to Bring down the total organic the TOC levels in the plant.

Speaker 3

Yes. And Carrie, we'll have we expect to have more on the addition of that deep slamming circuit, how that will when we can expect that Stepwise change in recovery, thanks to that circuit as part of our year end call next time we chat On results and which will probably involve guidance as well.

Speaker 9

Okay. And is the is it the de Sliming that you think could get you to the mid-70s recovery range or is it so that and then there are some other Yes. Step change opportunities that you would have to look at, but they have to be done in sequence is what you're suggesting.

Speaker 4

Exactly. Yes. So I mean, basically, desliming would bring us up to probably around 73% and then continued work on And a couple of other areas would give us another couple of percent. So hence, why I'm saying around 75%.

Speaker 9

Okay. Okay. Okay, that's great.

Speaker 4

Thanks for that. Site is going to stay focused on 73 for now, but I think long term we're going to continue working on So it's a long term target.

Speaker 9

Okay. Okay, yes. Thanks very much guys.

Speaker 1

Quick question from online. What are you thinking for timing of the Castle Mountain permit?

Speaker 2

Yes, that's a tough one. We submitted the permit in March 2022, and we did have fairly Rapid engagement from the state and the county. The BLM, the federal authorities have been a little slower. If you'd asked me sort of a year ago, I would have said, we should have that permit sometime near the end of 2024. I think it's more likely at this stage just given the progress Sort of later 2025, give or take.

Speaker 2

So it's a hard question to answer specifically. The permitting or Process is going well. There's no drama. There's no significant issues, but it has been slower than we anticipated.

Speaker 1

Thanks. And I guess with Q4 halfway through, people are already starting to think about next year. So I've got about 5 questions about Sustaining capital spend next year and cost next year and Greenstone cost, you just want to remind people about when guidance is going to come in?

Speaker 2

Yes, we'll be issuing our 2020 For guidance in connection with our year end results, which will be sometime in February, mid to late February.

Speaker 3

Which is typically when we do release our guidance In the second half of February.

Operator

The next question comes from John Zlodnick with Desjardins. Please go ahead.

Speaker 7

Yes. Thanks for taking my question, guys. Just looking at The covenants for the revolver and the credit facility there, it looked like the coverage ratio was 4.1 in Q3. Just wondering if you see this remaining tight moving forward, obviously, it depends on the gold prices and production, but just kind of wondering how you're thinking about it internally and managing that?

Speaker 3

Yes. As we mentioned on previous calls, we worked with our lenders To Aleutian covenants during the construction phase of Greenstone, we do expect them to remain tight until construction is complete, But we're very comfortably on-site with our covenants.

Speaker 7

Okay, perfect. Yes, no, I appreciate that. Just in reference to Doug's comments on removing some of that higher carbon material from Santa Luz. What kind of grade is associated with that? And just really is this going to impact the head grade in any material way?

Speaker 4

So you're asking what the mass pull is of the carbon material?

Speaker 7

Yes. And really if that change in your planning there removing that the higher carbon material if that's going to impact your plant head grade?

Speaker 4

No. So I mean, I'd have to double check. I believe the mass pool that we're looking at is 10% to 20%. But the gold that's lost there is tied up intrinsically with the carbon. So What we're removing is the most refractory as it were material and we're allowing the remaining mass To be able to be properly leached.

Speaker 4

So we've done test work on it. It worked quite well, gave us a good bump. It depends on the TOC of the material that goes in on how much of a bump you get. So the grade that we're looking at is about 1.3 grams that ends up getting lost, but That's okay, because that gold wasn't coming anyways. So and it gives us a bump on the remaining material.

Speaker 7

Perfect. Yes, no, that makes sense. Yes, no, definitely. I know it's different when you're actually operating versus working a spreadsheet, but appreciate that color. Yes.

Speaker 7

Last one for me. No, fair enough. Just I mean, obviously, balance sheet looks like it's in good shape for the cash to get through the rest of the Greenstone build. Just curious how you're thinking about divestitures At this point at one point in the past, there is a bit of a discussion on maybe divesting a smaller asset there. Just curious your thoughts at this point.

Speaker 2

Yes, I mean, we've always said that we're commercial and we've sold mines in the past, sold assets in the past When it's made sense and when there's been a reasonable offer on the table. So we're I'd say we're always open minded. I never want to comment on Specific mines, I would say that it's a pretty challenging environment to try to sell assets. There's not a lot of especially if you're looking for cash, there's not a lot of financing out there. Interest rates are high.

Speaker 2

You got a high gold price, but with equity values depressed and high interest rates and just sort of tight conditions, It's just not the best time to try to sell assets. Even on some of our smaller operations, where we've really been focused is looking at mine plans We can sort of optimize our cash flow and optimize value. So we do get comments on having some of these smaller assets. But to the extent that we can mine them for more value than we can sell them, which I think right now is absolutely the case, That's going to be the focus. Not to say we wouldn't be commercial, John, but this is just a tough environment to look at those types of transactions.

Speaker 7

Yes. No, I appreciate that. And also I know public forum questions on M and A are every CEO's favorite question to get, so appreciate that color. That's it for me. So congrats on the great quarter.

Speaker 7

Thanks, guys.

Speaker 2

Thanks, John.

Operator

The next question comes from Anita Soni with CIBC World Markets. Please go ahead.

Speaker 5

Hi, good morning. Thanks for taking my questions. So the first one relates to Los Filos operations. So just looking at the grades, They've come off in the open pit. Is that what you can expect going forward?

Speaker 5

Or is that just a temporary sequencing issue?

Speaker 4

It's a sequencing issue. We did pivot at Filos between 2 areas. We Had a delay in finalizing an archaeological review of 1 area. We've got the permit But we need to sign off on the archaeological review at Guadalupe. And so we pivoted to an There in Bermejal and another area in Los Filos, which lower a little bit lower grade Required a bit more strip to get back into them, so we had to pivot.

Speaker 5

Okay. And

Speaker 2

Yes, I think year to date, Anita, we Actual open pit grades, a few of those are quite a bit higher than they were last year in aggregate. So it's just the sequencing within the year.

Speaker 5

Okay. And then moving, I guess, so Los Filos confused me a bit. And maybe The cash flow from operations question that I have is related to Los Filos. But in your last slide, I think it's 17, you still reiterated this 55% of production and more 85% of operating cash flow expected in H2. 85% still, is that the case or is this these Write downs that you're taking at Los Filos like moving and the inventory buildup, is that like affecting that forecast and you just haven't updated that 85%?

Speaker 2

Well, the big push or the big driver of that is as you start to pull, especially at Mesquite, you start to pull ounces off these leach pads, right? So you've already spent the cash to get those ounces up there. And now in terms of cash, you pull those ounces off In the Q4, that really drives that cash flow number. So we haven't changed that guidance. I'm not going to find it on the call, but that's really where that number comes from.

Speaker 2

It started you go through a big campaign, you stack a bunch of ounces, we saw that at Mesquite, and then you start to recover them off the pad.

Speaker 5

Okay. Maybe we'll take this offline because on the first half, you're like around $200,000,000 So 85% in the back half would be Significant number. So maybe we'll follow-up on that one. And then Another question with regards to the sorry, with Santa Luz and just in terms of You mentioned something about the sorry, it will come through with the reserves. So is there any impact to reserves given the fact that you're not delivering or expecting now to deliver the prior recovery rate than you had previously were looking for?

Speaker 4

We've been working that through. And because we're still working on things such as the desliming, we're not ready To concede any change at this point, essentially, we've also been looking at opportunities to So hence why I talk about it's not just a matter of improving the recovery, improving the throughput, it's also improving the ability to deal with the higher TOC ores. So we're meeting that head on.

Speaker 5

Okay. And then just pivoting back to Los Filos. So The delay in the ounces, you're going to get some in Q4. Am I still right to think that perhaps your Accounting costs at Los Filos will be higher than anticipated in Q4 or will they end up taking NRV write down as well? I'm just trying to get figure out where you guys are in 2023 costs.

Speaker 5

Is it more like right now you're tracking to the bottom end of that of the guidance range? Will it trend up more towards the middle or should we be sticking to the bottom end of the guidance range after accounting for a potential write down in Q4 as well?

Speaker 3

Yes. So Anita, it's Peter. I'll answer that question kind of twofold. I'll address the cash cost of those, good questions. So yes, we do expect See an increase as those ounces are realized.

Speaker 3

And then I'll just reiterate it as well, With respect to sustaining spend, we have some to do in the quarter. So that's going to affect all in sustaining cost as well with the increased spend in Q4. So on both counts, we're expecting things to be higher in Q4 and as a result year to date for the whole year Than for the 1st 3 quarters year to date.

Speaker 5

Okay. All right.

Speaker 4

Thank you, Jessica.

Speaker 3

But still sorry, and I'll just finish, but still in range. Yes.

Speaker 5

Okay. Sorry, cut you off there. Thanks. That's it for my questions.

Operator

The next The question comes from Mike Parkin with National Bank. Please go ahead.

Speaker 8

Hi, guys. Thanks for taking my questions. Most of them have been asked. With Greenstone, if you're are you tracking ahead of budget On the total tons mined at the pit and could that like and if so, I guess that would explain Some of the CapEx spend versus maybe what you originally budgeted at the start of the year.

Speaker 4

For tonnes mined, no, we're on track.

Speaker 8

And then can you just speak to You mentioned how many people you have hired at about 300. Are you already making the transition to owner operated With say mining and or did you always start owner operated?

Speaker 4

Yes. Owner operated from day 1. We started mining August, I think it was, of 2022, a couple of months ahead of schedule. Yes. And then we switched to 20 fourseven on November or December of last year.

Speaker 4

So it's been owner mining all the way along.

Speaker 3

Okay. Thanks so much. And Mike, there's other aspects of the operation or of the Projects that have been transitioned to owner operated, all the ancillary buildings were transitioned and other aspects have been as we advance here through construction.

Speaker 8

Okay, excellent. Thanks very much, guys.

Speaker 1

All right. If there's questions online that I haven't got back I'll get back to you by e mail. There's no further questions on the phone. Greg, do you have any wrap up comments?

Speaker 2

No. Just once again, thanks everyone for attending the call today. You know where to find us. If you need information, you can reach out to Rylin or myself. The website has, again, All the updates on Greenstone, including the site tour deck.

Speaker 2

And thanks again, and we'll talk to you in the near.

Speaker 1

Thanks everybody for joining us this morning. Operator, you can now conclude the call.

Operator

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

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Key Takeaways

  • Q3 delivered a record with 148,000 ounces sold at a realized price of $1,917/oz, cash cost of $1,363/oz and AISC of $1,603/oz (including a $70/oz Los Filos inventory write-down).
  • Greenstone mine progress is 93% complete and remains on budget and schedule for H1 2024 production, with construction spending set to decelerate as commissioning ramps up.
  • Closed a $172.5 million convertible note financing at 4.75% annual interest, extending maturities and boosting unrestricted cash to $357 million for interest savings and revolver pay-down.
  • Year-to-date leach pad inventories increased by $130 million at Mesquite and Los Filos, extending gold recovery cycles into Q4 and potentially into 2024, with continued write-down risks.
  • Secured a $75 million long-term gold prepay arrangement for 90,000 ounces at 20% of spot over 15 years, further funding the Greenstone build.
AI Generated. May Contain Errors.
Earnings Conference Call
Equinox Gold Q3 2023
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