Equinox Gold Issues Strong Guidance for 2019


Small cap gold company Equinox Gold released its 2018 highlights and its guidance for 2019 in a report issued on January 8, 2019. According to TD Securities, in Q4 2018, Equinox produced 26k ounces of gold from its recently acquired Mesquite Mine in California. Full-year production at Mesquite was 140k ounces. Mesquite is currently Equinox’s only producing gold mine.

The company’s 2019 production guidance is 230k-265k ounces with AISC of $900-$950 per ounce. TD’s forecast for 2019 is 236k ounces with an AISC of $1,023 per ounce. Equinox’s 2019 capex is forecast at $62 million ($27 million sustaining and $35 million non-sustaining).

At Mesquite, Equinox is planning to: 1) spend $11 million in sustaining capital (capitalized waste stripping) and $4mm in non-sustaining costs, primarily related to drilling mineralized waste dumps and leach pads that are expected to be classified as ore and 2) complete a $4mm drill program to extend the open-pit mine life.

At the Aurizona mine in Brazil, the company ended the year with $60 million of cash and $10 million available on its Aurizona construction facility. Remaining spending at Aurizona includes $31 million to complete construction and commissioning in Q1 2019 and an additional $16mm of sustaining capex over the year that includes completion of the second tailings storage facility lift.

Equinox is also planning to: 1) update the resource based on near-mine drilling completed in 2017 and 2018; 2) explore Tatajuba and other targets in H2 2019 to extend the open-pit mine life; and 3) complete a preliminary assessment of the potential for an underground mine. Estimated production at Aurizona in 2019 is 145k to 160k ounces.

At Castle Mountain in California, the company is planning to: 1) complete engineering and final permitting for Phase 1 and arrange financing in order to commence construction around mid-year at a capital cost of $50 million, with the objective to achieve first gold production in H1 2020 and 2) advance permitting and development of water wells for the Phase 2 expansion, and complete a feasibility study by year-end 2019.

TD’s long-held thesis for Equinox has been that a significant re-rate from a developer discount to a premium producer multiple would occur with production.

TD has Equinox trading at 0.5x NAV and junior to mid-tier producers in TD’s coverage universe generally trading between 0.7x-1.4x NAV, with multi-mine producers at the higher end of the range.

TD currently has a speculative buy rating on Equinox with a $2 target price. Under TD’s definition of speculative by, the stock's total return is expected to exceed a minimum of 30% over the next 12 months (with higher thresholds for less liquid securities); however, there is material event risk associated with the investment that could result in a significant loss.

Equinox is a small-cap gold company focused on the producing Mesquite Gold Mine in California, the past-producing Aurizona Gold Mine in Maranhao State, Brazil and the exploration and redevelopment of the past-producing permitted Castle Mountain Mine in San Bernardino County, California. All three mines are 100% owned by Equinox.

 

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