2023-05-05 05:11:17 ET
Summary
- Equinox Gold's first Q1'23 revenues were $234.09 million, compared to $223.16 million last year. The company posted an income of $17.40 million compared to a loss of $19.78 million last year.
- Equinox Gold produced 122,746 Au oz, an 18.4% decrease over Q4'22 (150,439 Au oz) and up 4.5% compared to Q1'22.
- I recommend buying EQX between $4.8 and $5, with potential lower support at $4.50.
Introduction
Vancouver-based Equinox Gold Corp. ( EQX ) reported its first quarter 2023 results on May 2, 2023.
This article is an update of my preceding article , published on April 25, 2022. I have followed EQX on Seeking Alpha since February 2021.
Also, on March 24, 2023, Equinox announced up to $200 Million in Gold Prepay and Gold Purchase and Sale Arrangements (emphasis added):
Equinox Gold entered into a gold forward sale and prepay arrangement (the "Gold Prepay") with a syndicate of its existing lenders whereby the Company has received an upfront payment of $140 million , based on gold forward curve prices averaging approximately $2,170 per ounce, in exchange for equal monthly deliveries of gold from October 2024 to July 2026 totaling 79,310 ounces.
The Company also signed a non-binding term sheet for a gold purchase and sale arrangement with Sandbox Royalties (the "Sandbox Arrangement") whereby, on closing, the Company will receive a payment of $50 million from Sandbox Royalties
Those deals support Equinox Gold in the 2023 building phase of the Greenstone Project. This new financing will reduce the need to use the ATM, which has always been a cause for concern from a shareholder's perspective due to the risk of dilution.
CEO Greg Smith said in the conference call :
During the first quarter, we produced just under 123,000 ounces and sold just over 123,000 ounces of gold. Cash cost per ounce sold was 1,376 and all-in sustaining cost per ounce sold was 1,658. This was a good start to the year for us and we're on track to meet our 2023 production and cost guidance of 550,000 ounces to 625,000 ounces of gold with cash costs between 1,355 and 1,460 per ounce and all the sustaining costs between 1,575 and 1,695 per ounce.
The company is a mid-tier gold producer with seven producing mines and 4 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 Presentation (EQX Presentation)
1 - Q1'23 highlights
Equinox Gold produced 122,746 Au oz, an 18.4% decrease over 4Q22 (150,439 Au oz) and up 4.5% compared to 1Q22.
The 1Q23 revenues were $234.09 million, compared to $223.16 million last year. The company posted an income of $17.40 million compared to a loss of $19.78 million last year. The adjusted EBITDA for 1Q23 was $57.0 million.
The Santa Luz mine is ramping up with continuous commissioning and delivered 14,485 Au ounces this quarter. The mine achieved commercial production effective October 1, 2022.
Also, Equinox commenced Greenstone construction (Developed by Equinox Gold (60%) and Orion (40%)) with 73% of the overall project completed at the end of the quarter.
EQX Greenstone Project (EQX Presentation)
2 - Investment thesis
I am turning more bullish on Equinox Gold because the company has advanced the Greenstone Project in Canada and secured deals that seem sufficient to support the CapEx requirement in 2023-2024.
Thus, despite weak production this quarter, I still consider Equinox Gold Corp. a long-term investment and view this period as an excellent opportunity to accumulate a strong mid-tier gold miner.
However, the stock is now reaching a solid resistance at $5.80-$6, and unless the gold price can reach 2,075 per ounce or higher, it is likely a temporary top that could be used to take some profits off.
EQX 1-Year Gold, Silver, Copper (Fun Trading StockCharts)
Therefore, I suggest trading 50% LIFO of your long-term position to protect you from a sudden drop in the gold price. I recommend this dual strategy in my marketplace, "The Gold and Oil Corner."
3 - Stock performance
Equinox Gold has significantly underperformed the VanEck Vectors Gold Miners ETF ( GDX ). EQX is now down 21% on a one-year basis. As always, it takes time and CapEx to deliver future growth.
CFO Peter Hardie said in the conference call:
Q1 gold production and cost results have us on track for our 2023 guidance. Our EBITDA in Q1 was 65 million or 57 million on an adjusted basis, and we had net income of 17 million for basic earnings per share of $0.06 or $0.05 per share of fully diluted.
Equinox Gold - Financial Snapshot Q1'23 - The Raw Numbers
Equinox Gold | 1Q22 | 2Q22 | 3Q22 | 4Q22 | 1Q23 |
Total Revenues in $ Million | 223.16 | 224.60 | 245.13 | 259.30 | 234.09 |
Net Income in $ Million | -19.78 | -78.70 | -30.10 | 22.57 | 17.40 |
EBITDA $ Million | 35.91 | -3.75 | -17.70 | 7.35 | 65.00 |
EPS diluted in $/share | -0.07 | -0.26 | -0.10 | 0.07 | 0.05 |
Operating Cash Flow in $ Million | -16.35 | -26.88 | 54.16 | 45.54 | 143.40 |
Capital Expenditure in $ Million | 123.88 | 142.20 | 151.49 | 139.49 | 127.90 |
Free Cash Flow in $ Million | -140.23 | -169.08 | -97.33 | -93.95 | 15.49 |
Total Cash $ Million | 328.54 | 257.41 | 211.97 | 237.64 | 418.85 |
Total Long-term Debt in $ Million | 536.25 | 631.86 | 725.76 | 828.02 | 832.68 |
Shares outstanding (diluted) in Million | 302.23 | 303.68 | 304.98 | 304.00 | 341.62 |
Data Source: Financial statement.
Gold Production And Balance Sheet Details
1 - Revenues were $234.09 million in Q1'23
EQX Quarterly Revenues History (Fun Trading)
2 - Free cash flow was $15.49 million in Q1'23
EQX Quarterly Free cash flow History (Fun Trading)
Trailing 12-month free cash flow was an estimated loss of $344.87 million, with a gain in 1Q23 of $15.49 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.
Therefore, it should not be considered a negative but an excellent investment for future growth. Progress has been made this quarter even if CapEx was still elevated.
3 - Net debt is $413.87 million, and cash of $418.82 million in Q1'23
EQX Quarterly Cash versus Debt History (Fun Trading)
As of March 31, 2023, the total cash increased significantly to $418.82 million. Long-term debt was $832.68 million.
EQX Balance Sheet (EQX Presentation)
In January 2023, Equinox sold 4.5 million common shares of the Company's investment in Solaris for proceeds of $20.0 million.
4 - Gold production consolidated details - Q1'23 gold production was 122,746 Au Oz (123,795 Au Oz sold)
EQX Quarterly Production History (Fun Trading) Gold production was 122,746 Au Oz in 1Q23. The company sold 123,795 Au Oz. AISC in 1Q23 increased to $1,658 per ounce sold, and the gold price realized was $1,895 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 AISC and Gold Price History (Fun Trading)
5 - 2023 Guidance
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 project.
EQX Mineral Reserves (EQX Presentation)
Technical Analysis (Short Term)
EQX TA chart short-term (Fun Trading StockCharts)
EQX forms an Ascending Triangle pattern with resistance at $5.85 and support at $4.90.
The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns. Regardless of where they form, ascending triangles are bullish patterns that indicate accumulation.
The dominant trading strategy I usually promote in my marketplace, "The gold and oil corner," 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.
It is safe to accumulate long-term, but there is a definite risk of dilution here, albeit less pronounced now. The company will probably continue to partly finance its Greenstone project using its stocks (bought-deal or ATM).
On the brightest side, the gold price is now reaching $2,050 per ounce, and the company is expected to generate solid cash flow in 2Q23.
Thus, I recommend selling EQX between $5.80 and $6.00, with possible higher resistance at $6.75 and accumulating cautiously between $5 and $4.8, with potential lower support at $4.50.
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: Gold Price On Fire Is What The Company Needed This Year