2023-04-25 13:31:20 ET
Summary
- The Equinox Gold Corp. Q4 2022 revenues came in at $259.30 million, compared to $381.19 million last year.
- Equinox Gold produced 150,439 Au oz in Q4 2022, a 4.8% increase over 3Q22 (143,615 Au oz) and down 28.5% compared to 4Q21.
- I recommend buying Equinox Gold Corp. between $5 and $4.8, with potential lower support at $4.50.
Introduction
Vancouver-based Equinox Gold Corp. (EQX) reported its fourth quarter and full-year 2022 results on February 21, 2023. The company will announce its unaudited first-quarter financial and operating results on May 2, 2023 post-market.
This article is an update of my preceding article , published on November 21, 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 will support the company during the 2023 building phase of the Greenstone Project. This new financing will reduce the need to use the ATM, which is always a cause for concern from a shareholder's perspective. EQX also owns about $165 million in equity investment that could be used if needed.
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.
1 - 4Q22 and full-year 2022 highlights
In Q4 , Equinox Gold produced 150,439 Au oz, a 4.8% increase over 3Q22 (143,615 Au oz) and down 28.5% compared to 4Q21.
The 4Q22 revenues came in at $259.30 million, compared to $381.19 million last year. The company posted an income of $22.57 million compared to $108.89 million last year. The adjusted EBITDA for 4Q22 was $74.7 million.
The Santa Luz mine is ramping up with continuous commissioning and delivered 14,680 Au ounces this quarter. The mine achieved commercial production effective October 1, 2022.
Also, Equinox commenced Greenstone construction with 65% of the overall project completed at the end of 2022, probably over 70% at the end of 1Q23.
2 - Investment thesis
Equinox Gold has gone through a difficult financial and technical period in 2022 and will probably struggle in 2023. The company has spent a significant CapEx to advance the Greenstone Project in Canada and recently secured deals that seem sufficient to support the CapEx requirement in 2023-2024.
Thus, despite this weak financial period that may stretch until the end of 2023, I still consider Equinox Gold Corp. a long-term investment and see this period as an excellent opportunity to accumulate a strong mid-tier gold miner at a good discount.
Furthermore, the gold price is turning bullish and is now above $2,000 per ounce or up nearly 5% on a one-year basis, another reason to be optimistic for 2023.
Therefore, I suggest trading 65% LIFO of your long-term position to protect you from a sudden drop in the gold price. I offer 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 34% on a one-year basis. As always, it takes time and cash (CapEx) to deliver future growth, and the
CFO Peter Hardie said in the conference call:
For the year, we sold 532,000 ounces. It was really an investment year. We invested $456 million in growth development, $328 million of that was at Greenstone, $49 million of that was at Santa Luz to complete construction there. And we also spent $43 million at Los Filos, that was primarily on Bermejal underground development and preparing the Los Filos open pit for its next phase. The $139 million we spent on sustaining items was primarily deferred stripping at Arizona, Mesquite and Los Filos.
Equinox Gold - Financial Snapshot 4Q22 - The Raw Numbers
Equinox Gold | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
Total Revenues in $ Million | 381.23 | 223.16 | 224.60 | 245.13 | 259.30 |
Net Income in $ Million | 184.08 | -19.78 | -78.70 | -30.10 | 22.57 |
EBITDA $ Million | 162.86 | 35.91 | -3.75 | -17.70 | 7.35 |
EPS diluted in $/share | 0.31 | -0.07 | -0.26 | -0.10 | 0.07 |
Operating Cash Flow in $ Million | 155.42 | -16.35 | -26.88 | 54.16 | 45.54 |
Capital Expenditure in $ Million | 107.44 | 123.88 | 142.20 | 151.49 | 139.49 |
Free Cash Flow in $ Million | 47.99 | -140.23 | -169.08 | -97.33 | -93.95 |
Total Cash $ Million | 546.03 | 328.54 | 257.41 | 211.97 | 237.64 |
Total Long-term Debt in $ Million | 540.69 | 536.25 | 631.86 | 725.76 | 828.02 |
Shares outstanding (diluted) in Million | 350.97 | 302.23 | 303.68 | 304.98 | 304.00 |
Data Source: Financial statement .
Gold Production And Balance Sheet Details
1 - Revenues were $259.30 million in 4Q22
2 - Free cash flow was a loss of $93.95 million in 4Q22
Trailing 12-month free cash flow was an estimated loss of $500.59 million, with a loss in 4Q22 of $93.95 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.
3 - Net debt is $627.3 million, and cash of $237.64 million in 4Q22
As of December 31, 2022, the total cash was down to $237.64 million. Long-term debt was $828.02 million. CFO Peter Hardie said in the conference call:
With respect to liquidity and capital position, we ended the year with just over $200 million. We have 127 undrawn on our credit facility for total liquidity of $327 million. We did draw an additional a $100 million on the revolving credit facility during Q4. The market value of our investments at February 17th was about $220 million, and I'll note that we realized proceeds during Q4, $52 million on solar share sales and an additional $20 million in the new year.
Note: As of February 21, 2023, the Company has issued 6,651,017 common shares under the ATM Program at an average share price of $3are for total gross proceeds of $24.9 million.
Also, 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 - 4Q22 gold production was 150,439 Au Oz (149,386 Au Oz sold)
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.
CEO Greg Smith said in the press release:
Looking forward, we expect to produce between 555,000 to 625,000 ounces of gold in 2023 at all-in sustaining costs of $1,575 to $1,695 per ounce. Growth capital of $324 million in 2023 is directed primarily to Greenstone construction. We entered 2023 with $327 million in total liquidity which, along with cash flow from our operating mines and marketable investments currently worth about $220 million, leaves us well funded to complete construction at Greenstone and pour gold in the first half of 2024.
6 - Production details per mine
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.
Technical Analysis (Short Term)
EQX forms an ascending channel pattern with resistance at $6 and support at $5.
Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices, but only after a downside penetration of the lower trend line.
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 65% 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. The company will probably continue to finance its Greenstone project using its stocks (bought-deal or ATM).
Thus, I recommend taking Equinox Gold Corp. profits off between $5.80 and $6.00, with possible higher resistance at $6.50 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: This Attractive Valuation Will Not Last Forever