Equinox Gold: Growth for Free

Last year when Equinox Gold ($EQX) CEO Greg Smith announced the start of construction of its huge high-grade, open pit Greenstone mine in Canada, no one believed that this Ross Beaty company could deliver a brand new large gold mine on time and on budget.

SGL had faith in this team and suggested in September 2023 that the company was a good bet for the next phase of the gold bull market. SGL anticipates a re-rating of the stock as investors recognize that Greenstone will significantly contribute to Equinox’s gold production.

March 11, 2024

Big Projects are Hard to Build

There is a reason why most analyst and most institutional investors did not believe that the huge Greenstone Mine could be built on time and on budget.

Why?

Simply because less very few of these big undertakings meet expectations. Approximately 91.5% of large construction projects (i.e., those with more than US$ 1 billion) show big cost overruns and large delays. Worse, apparently less than 1% of these projects are completed on time, on schedule and deliver the benefits promised.

Congratulations to the Equinox Gold team on completing their build!

Exceptional Historical Growth

In 2018, Equinox Gold produced 25,601 ounces of gold.

In 2023, Equinox Gold produced 564,000 ounces.  The company has seven operating mines in four countries and 16 million ounces of gold in the ground in the measured and indicated category.

This growth is exceptional.

The Greenstone Mine is a Terrific Asset

Once Greenstone is in full production, the mine will be one of Canada‘s top gold mine producing assets.

This open pit mine is projected to produce 400,000 ounces of gold at 1.27 grams per ton.

It currently has 14 years of mine life with plenty of expansion possibilities - including underground.

Equinox Gold owns 60% of this project, along with 40% owned by its joint venture partner Orion Mine Finance. It is known that Orion is ready to sell its 40% interest in the project.

Equinox Gold would certainly be motivated to acquire the remaining 40% of this asset, but it will face significant competition from other mining companies.  Aurion Resources Chairman Dave Lotan has said that until Orion sells its stake in Greenstone, other mergers/acquisitions of gold projects of significant scale might not be finalized.

Irrespective of whether Equinox Gold acquires the remaining 40% of this asset, Greenstone Mine will significantly lower its all in sustaining costs, while reducing Equinox Gold’s exposure to political risk.

Attractive Valuation

With 404 million shares fully diluted, this diversified gold producer in the Americas has a market capitalization of only US$1.86 billion.

Although Equinox Gold has a fairly strong balance sheet, it trades only at a Price to NAV  of 0.65x vs 0.95x for its peer group.

Equinox Gold’s 2025 Price to Cash Flow could very well be as low as 2.2X.

This is very favorable!

Positive Newsflow

Now that construction is nearly complete, the company will be much more vocal in marketing its story to retail as well as institutional investors.

The company presented at the BMO Conference in February and at PDAC this week.

Greenstone’s first gold pour will be announced in the first half of this year.

A very important analyst tour is scheduled for August to show the overall functioning of this new behemoth mine.

Full production could be reached by the end of 2024 adding a significant 240,000 ounces to Equinox Gold’s 2023 production of 564,000 ounces.

Bottom Line: A Re-Rating in Process

Although Equinox Gold is up from its low of $4.22 in mid-February as well as up from the price in which we initially discussed it in Swiss Gold Letter, "Production Growth at a Discount"we anticipate the re-rating of the stock to continue, although the re-rate could be bumpy. Institutions and sophisticated analysts will want to see evidence of a ramp up, and some will wait for the latter part of 2025 to witness three quarters of much higher earnings.

However, given the breakout in the price of gold, an investor could seek to capture higher returns for limited long-term risk, by building or adding to their positions around the current price.

Finally, SGL believes that the historical breakout to an all time high in the price of gold should cause gold miners to play "catch up" in the weeks and months ahead. This could be very beneficial to this still highly leveraged gold equity.


Disclaimer: SGL does not provide investment advice and is not a registered investment advisor. Always do your own due diligence before making an investment. Investing in securities, especially junior miners, can be risky and never invest money you cannot afford to lose. SGL cannot guarantee the accuracy of the information in this post. SGL has attempted to present the information fairly, but it or its contributors may own shares of Equinox Gold so bias cannot be excluded. SGL and its contributors have no relationship with Equinox Gold. SGL or its contributors may buy or sell shares at any time.

SGL makes no representations, and specifically disclaims all warranties, express, implied, or statutory, regarding the accuracy, timeliness, or completeness of any material on this website. You should seek the advice of a securities professional regarding any stock transactions. SGL cannot guarantee in any way that it is providing all of the information that may be available. Please do your own due diligence before buying or selling any security.

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