2023-09-05 07:47:23 ET
Summary
- Equinox Gold reported solid Q2 2023 results, with record sales for the first 6 months of the year.
- The company is on track to meet its 2023 production and cost guidance.
- The completion of the Greenstone project and the potential increase in gold prices make Equinox Gold an attractive investment.
- I recommend buying EQX stock between $4.70 and $4.5, with potential lower support at $4.15.
Introduction
Vancouver-based Equinox Gold Corp. ( EQX ) reported its second quarter 2023 results on August 2, 2023.
This article is an update of my preceding article , published on May 5, 2023. I have followed EQX on Seeking Alpha since February 2021.
CEO Greg Smith said in the conference call:
We had a solid quarter with sales of just over 138,000 ounces at a cash cost per ounce sold of $13.61 and an all-in sustaining cost per ounce sold of 1502. For the first 6 months of the year, we sold 261,000 ounces at cash costs of $13.54 per ounce and all-in sustaining cost of $15.76 per ounce. This reflects record sales for the company for the first 6 months of the year, and we remain on track to meet our 2023 production and cost guidance.
The company is a mid-tier gold producer with seven producing mines, 1 mine in construction, and 3 growth projects with 16.922 Moz in P&P reserves. The company-producing assets are in Canada, Mexico, the USA, and Brazil.
EQX Assets Map (EQX Presentation)
1 - 1Q23 highlights
Equinox Gold produced 137,661 Au oz, a 14% increase over 2Q22 (120,813 Au oz) and up 12.2% compared to 1Q23.
The 2Q23 revenues were $271.56 million , compared to $224.62 million last year. The company posted an income of $5.36 million compared to a loss of $78.72 million last year. The adjusted EBITDA for 2Q23 was $70.9 million .
Also, Equinox commenced Greenstone construction (Developed by Equinox Gold (60%) and Orion (40%)) with 82% of the overall project completed at the end of the quarter.
EQX 2Q23 Highlights (EQX Presentation)
2 - Investment thesis
I am turning more bullish on Equinox Gold and the gold industry because the Gold price is slowly bullish, reacting to the Fed signal of a potential definite pause in early 2024, with one more 25-point increase in December this year.
The immediate effect is that the gold price is potentially increasing and will probably retest $2,050 per ounce before the end of 2023.
EQX 1-Year Gold, Silver, Copper (Fun Trading StockCharts)
Also, the Greenstone project is about to be completed, and the company expects the first gold pour in the first half of 2024. Production is expected to be 400K Au Oz per year. Equinox Gold owns 60% of the project, and Orion Mine Finance owns the 40% remaining.
The most important issue is that the remaining CapEx for the project is down to about $170 million . Equinox Gold expects to fund this remaining CapEx through cash available and the company's operating cash flow.
Note: The remainder of the revolver has been drown in August. Also, the company still has $75 million available from the $500 million ATM. Thus, further dilution can potentially occur.
Therefore, I suggest trading 50% LIFO of your long-term position to protect you from a sudden drop in the gold price.
3 - Stock performance
Equinox Gold has outperformed the VanEck Vectors Gold Miners ETF ( GDX ) on a one-year basis. EQX is now up 43% .
Equinox Gold - Financial Snapshot 2Q23 - The Raw Numbers
Equinox Gold | 2Q22 | 3Q22 | 4Q22 | 1Q23 | 2Q23 |
Total Revenues in $ Million | 224.60 | 245.13 | 259.30 | 234.09 | 271.56 |
Net Income in $ Million | -78.70 | -30.10 | 22.57 | 17.40 | 5.36 |
EBITDA $ Million | -3.75 | -17.70 | 7.35 | 68.00 | 67.27 |
EPS diluted in $/share | -0.26 | -0.10 | 0.07 | 0.05 | 0.02 |
Operating Cash Flow in $ Million | -26.88 | 54.16 | 45.54 | 143.40 | 19.88 |
Capital Expenditure in $ Million | 142.20 | 151.49 | 139.49 | 127.90 | 110.85 |
Free Cash Flow in $ Million | -169.08 | -97.33 | -93.95 | 15.49 | -90.97 |
Total Cash $ Million | 257.41 | 211.97 | 237.64 | 418.85 | 297.04 |
Total Long-term Debt in $ Million | 631.86 | 725.76 | 828.02 | 832.68 | 835.05 |
Shares outstanding (diluted) in Million | 303.68 | 304.98 | 304.00 | 341.62 | 316.42 |
Data Source: Financial statement.
Gold Production And Balance Sheet Details
1 - Revenues were $271.56 million in 2Q23
EQX Quarterly Revenue History (Fun Trading)
The adjusted net loss was $6.3 million or $0.02 per share.
2 - Free cash flow was negative $90.97 million in 2Q23
EQX Quarterly Free Cash Flow History (Fun Trading)
Trailing 12-month free cash flow was an estimated negative $266.76 million, with a negative in 2Q23 of $90.97 million.
As I said in my preceding article, the loss in free cash flow is due mainly to the CapEx attached to Santa Luz and Greenstone. The CapEx remaining is estimated at $170 million.
3 - Net debt was $538.01 million, and cash (including equity investments) was $297.04 million in 2Q23.
EQX Quarterly Cash versus Debt History (Fun Trading)
As of June 30, 2023, the total cash decreased significantly to $297.04 million (including equity investments) . Long-term debt was $835.05 million.
Total liquidity available as of June 30, 2023 was $300 million.
Note: On August 1, 2023, drew $127.0 million on the Company’s revolving credit facility.
Finally, Equinox Gold has $75 million available through an ATM facility under a $500 million base shelf prospectus.
4 - Gold production consolidated details - 2Q23 gold production was 137,661 Au Oz (138,094 Au Oz sold)
EQX Quarterly Gold Production History (Fun Trading) Gold production was 137,661 Au Oz in 2Q23. The company sold 138,094 Au Oz. The increase in gold sales was mostly due to the contribution of production from Santa Luz , which achieved commercial production at the end of Q3 2022, and higher production at Aurizona, RDM, and Los Filos. It was offset partially by lower output at Mesquite and the impact of the sale of Mercedes in April 2022. AISC in 2Q23 decreased to $1,502 per ounce sold , and the gold price realized was $1,962 per ounce . The AISC remains very high this quarter due to Santa Luz and Greenstone project CapEx. AISC is expected to stay elevated during 2023, with the Greenstone project completed in H1 2024. EQX Quarterly Gold Price and AISC History (Fun Trading)
5 - 2023 Guidance unchanged
Equinox Gold expects its 2023 Guidance to be between 555K Au Oz and 625K Au Oz. Furthermore, AISC is expected to be between $1,575-$1,695.
EQX 2023 Guidance (EQX Presentation)
6 - Production details per mine
EQX Quarterly Production per Mine History (Fun Trading)
7 - Proven and Probable Mineral Reserves
Mineral reserves (proven and probable) are now 16.922 Moz with the incorporation of the Santa Luz and Greenstone projects.
EQX Mineral Reserves (EQX Presentation)
Technical Analysis (Short Term)
EQX TA Chart short-term (Fun Trading StockCharts)
EQX forms a descending Triangle pattern with resistance at $5.15 and support at $4.60.
A descending triangle is a bearish continuation chart pattern. The pattern is formed by two converging lines. The first line is a bearish oblique resistance line, also known as the "descending triangle resistance line". The second line is a horizontal support, also known as the "descending triangle support line".
The dominant trading strategy is to maintain a core long-term position and use about 50% to trade LIFO while waiting for a higher final price target for your core position above $7.
Thus, I recommend selling EQX between $5.10 and $5.20 , with possible higher resistance at $5.40 and accumulating cautiously between $4.70 and $4.5, with potential lower support at $4.15.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Equinox Gold: A Good Time To Accumulate