While Swiss Gold Letter normally seeks out under-researched junior mining stocks with 10 bagger potential, occasionally large cap gold producers present compelling value opportunities. Equinox Gold (EQX / EQX.TO) ($4.36), a well-diversified gold producer with a clear path to 1 million ounces of production, currently provides a very attractive entry point.
Tuesday, September 26, 2023
Strong Leverage to a Rising Gold Price
With seven mines in the Americas, Equinox Gold (EQX /EQX.TO) is a well-diversified company with good leverage to gold prices. At SGL, we prefer to find under-researched junior mining stocks with a huge potential. We aim for 10 baggers.
Sometimes, especially in downdrafts, unusual risk reward opportunities arise, providing us with good entry points on well established, larger companies.
Equinox Gold: The Ross Beaty Advantage
With 365 million fully diluted shares, the market capitalization of Equinox Gold is $1.6 billion. This is clearly not a drill play or a bet on whether on whether a junior company can develop a resource into production.
Quite the contrary, Equinox Gold is a quality Ross Beaty company. This amazingly successful entrepreneur and founder of Pan American Silver Corp owns 8.2% of Equinox.
As we have frequently remarked, in a bull market an investor can expect to pay a premium (and not a discount) for a company associated with serially successful mining entrepreneurs like Ross Beaty, Robert Friedland, Frank Giustra and Pierre Lassonde.Why is Equinox Gold Trading at a Discount?
So, why is Equinox Gold, a 500,000-ounce gold producer with seven operating mines (two in California, one in Mexico and four in Brazil), trading a discount to its peer group?
Quite simply, the mining investment community has been traumatized by development projects that were marked by massive construction cost overruns. (Remember Iamgold’s Côté?)
Currently, in an inflationary environment, anything that is going into production is viewed with huge skepticism.
In the case of Equinox Gold, most analysts still do not believe that the fantastic Greenstone Gold Mine, near Geraldton, Ontario, can deliver. But construction of this amazing property, which is slated to produce 400,000 ounces at a low cost, is on time and on budget.
Construction of Greenstone is 90% complete. The first gold pour is scheduled for the first half of 2024.
As this bull market develops, the very few gold production companies that show growth will trade at a substantial premium to peers and not a discount as is the case today!
Typically, stocks like Equinox Gold can move quickly upwards in a bull market. In our November 2022 article, "Bull Markets Start with a Bang!", we noted that Equinox had been a fast mover, having revalued upwards of 26% in only two days.
Equinox Gold is Delivering on Ross Beaty’s Vision
As many may recall, Ross Beaty established Equinox Gold with the vision of building a 1-million-ounce gold producer. This is growth story: the company started with production of only 25,000 ounces in 2018, and reached 532,000 in 2022. Equinox Gold’s guidance for 2023 is 590,000 ounces of gold production. (Many of Equinox's operating mines are very leveraged to an increase in the gold price, which is a plus in a rising gold price environment.)
Equinox Gold has a clear path to be among the rare group of one million ounce producers, once the Greenstone Gold Project is up to speed (itself averaging 400K ounces of annual production).
This, we believe, will rerate the stock.
Bottom Line: A Bought Deal Offering Provides an Attractive Entry Point
Last week, the announcement of a bought deal offering of $172.5 million of convertible senior notes (bearing interest of 4.75%, due 2028) pulled Equinox Gold down 20%.
This downdraft is probably mainly due to arbitrage activities, which may be temporary. Consequently, investors are provided with an attractive entry point!
For those who are still cautious about entering the gold market or who are already heavily invested in the sector, risk can be controlled by putting a stop loss around current prices.
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. It has 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.