Opportunities With Growth-Oriented Gold Producers – Part 4
Excelsior Prosperity w/ Shad Marquitz – Feb 2nd, 20024
It’s nice to be back with all of you again for another article reviewing some of the opportunities still presenting themselves with the growth-oriented gold producers. After taking a few side tangents into the uranium equities, and critical minerals trends in a few of the last weekly reports, let’s dive back into this exciting niche’ within the gold equities arena.
Before we do dive into the fundamentals on another one of the companies on this list, it should be noted that we did get some key news this last month from the last 2 companies featured in the prior Parts 2 & 3 of this series; Calibre Mining and Karora Resources.
Yes indeed; in both cases these 2 companies (wait for it….) grew their production over previous years, and exceeded their annual guidance. Gotta love it when a plan comes together!
Calibre Delivers Record Full Year 2023 Gold Production of 283,494 Ounces, Exceeding the High End of Guidance; Setting Up for Stronger 2024 With Production Guidance of 275,000 – 300,000 Ounces
January 9, 2024
https://www.calibremining.com/news/calibre-delivers-record-full-year-2023-gold-produc-7199/
Additionally, 2 weeks back I spoke again with Ryan King, VP of Corporate development for Calibre Mining. He did great job in this interview of summarizing 2023 operations and development, and building the case for where the company will keep growing in 2024 with more throughput, with higher grade, and through aggressive exploration.
Calibre Mining – Record Q4 Gold Production, Beats Annual Guidance With 283,494 Ounces In 2023
Jan 15, 2024
Karora Exceeds High End Of 2023 Gold Production Guidance With Record Annual Gold Production Of 160,492 Ounces And Record Gold Sales Of 157,034 Ounces
Jan. 15, 2024
While Calibre and Karora were not the only gold producers to see growth in Q4 or for the full year of 2023, they still stand out in a sector that has mostly treaded water operationally or even seen production declines in some cases. This is precisely why it is important to sift through all the information, news, and noise out there and identify the teams and companies that continually deliver operationally, with regards to production, development, and exploration.
Let’s now take a look at a somewhat larger and higher-profile gold producer, that has been executing on a strategy of building a foundation for growth for the longer-term in their production profile.
Equinox Gold (EQX) :
When I speak to other investors, fund managers, and newsletter writers about Equinox Gold, they usually mention 3 things: 1) It gets a premium with Ross Beaty at the helm 2) EQX is a higher cost producer 3) It’s all about Greenstone
I’m going to use those typical responses back as jumping off points, but also expand the vision of where this company is headed over the next few years as a legitimate growth-oriented gold producer.
1) Yeah, I also like Ross Beaty at the helm and for this reason, this company does deserve a slight premium. People give lip service all the time to “It starts with quality people at the top” and then end up passing on one of the greats in the space. Ross has been a serially successful resource investor, company builder, deal maker, and one of the good guys in the mining sector over and over again, which is why he has become a legend.
Here is Ross speaking as a headliner at the VRIC Conference stage just a few weeks ago.
Since Ross is so widely followed and respected, it stands to reason that Equinox Gold will be tracked by many investors large and small… which is a net positive for EQX. Ross has publicly stated in a number of prior interviews that this will likely be the last gold mining company he builds. So with this being his “swan song,” it gives me confidence that he is going to ensure this company grows, matures, and then ends on a high note before he takes a bow from the global mining stage.
With regards to Equinox Gold though, they also have a solid management team on the ground operationally. This team is executing at 7 existing mines, and working hard to bring on the large Greenstone mine #8 into production by the end of H1 2024. This management team and board of directors is made up of many solid individuals in their respective areas, and it should be noted that ultimately they are the ones that are going to propel this company forward. Rick Rule has mentioned repeatedly that one of Ross Beaty’s biggest strengths is hiring the right team for the job.
https://www.equinoxgold.com/leadership-team/
2) Yes, EQX is a higher cost gold producer at this point. However, that is going to start changing towards the end of 2024, and definitely in 2025 as the Greenstone Mine will then be up and running at full production throughput. 2024 is thus a transition year from higher costs, to gradually starting to lower costs by Q3 and Q4, during ramp up in Greenstone production. Then by 2025, these improvement in efficiencies will start to become more obvious to analysts and investors. My thesis is that a further market rerating will likely unfold by early next year, once analysts and investors see proof of concept and execution. However, the goal of contrarian investors is to see this playing out in one’s mind eye, before the move happens, and “skate to where the puck is going.” The key here is to be in position, BEFORE these efficiencies become more obvious to the masses, and during this final period of “boring” construction, when there still is some execution risk.
Another point is that with most investors, there remains a sticky recency bias in peoples mindset as to how things have gone previously, even if big change is afoot. In the case of analyzing gold producers, there is this strange compulsion to only look at prior quarters and then extrapolate those results out to infinity; versus actually listening to a given company’s messaging for their upcoming guidance on production and costs.
This often means that the pricing of company shares and thus their overall valuation can remain more muted, even as the operational tide turns the ship around in plain sight. When a few better quarters are under a company’s belt, then investor recency bias will extrapolate out those better results into the future, and gradually a better valuation unfolds. When Equinox demonstrates they’ve increased production and lowered their costs post Greenstone production, then a much higher valuation will likely correspond with that by the end of next year. Why not get in front of that move?
3) Yes, “It’s all about Greenstone”… and yet there is so much more than that on the table with additional mine expansions for the next few years. These other project initiatives will go on in tandem with the evolution at the Greenstone mine to completely transform the growth profile, reduce costs, improve margins, and bolster the related valuation of this company.
Beyond the additional 240,000 ounces per year that Greenstone will add to the production profile:
A) There are plans to go underground at the Aurizona Mine in Maranhão, Brazil for an additional 30,000 gold ounces per annum
B) There is a large expansion slated for the Castle Mountain Mine in California, USA that could add an additional 180,000 ounces of gold producer per annum
C) There is a literal “Mexican standoff” with labor groups, workers, and community stakeholders at their Los Filos Mine in Guerrero, Mexico. Either that mine eventually gets phased down to “0” ounces of production and all parties get $0, or they find a resolution to terms, and then expand the operations by constructing a 10,000 tpd CIL plant to complement existing heap leach facilities, and then this will boost annual gold production by 125,000 ounces per annum.
If one adds to the 575,000 ounces of current annual production, the 240,000 ounces from Greenstone, 30,000 bump higher from the Aurizona underground, the 180,000 ounces at Caste Mountain, and the potential of an additional 125,000 ounces at Los Filos, then that would take the Equinox Gold production profile up to 1.15 Million ounces per year. That would also graduate EQX to a Major gold producer, which I define as a company doing over a million ounces of gold production per year from multiple mines in multiple jurisdictions.
Another point for investors to consider, is that these projects described above are already in the Equinox pipeline of projects to grow their production profile, with clearly defined metrics and strategies. However, this does not account for the potential of future acquisitions by the company to also bolt on more production.
Taking a look at the current production profile, on January 11th, the Company announced its strongest production quarter for the year with 155,000 ounces of gold produced in Q4 2023. For the full year in 2023, total production was 564,500 ounces of gold, demonstrating that the EQX team achieved consolidated production guidance. (production guidance for 2023 was 555,000 to 625,000 ounces of gold). So the 575,000 ounces per annum target from those current operations in 2024 seems right on target.
Greg Smith, President & CEO of Equinox Gold commented: "Strong fourth quarter results capped off a good year for Equinox Gold. With 564,500 ounces of gold produced, we achieved our full-year production guidance. We also continued to advance Greenstone on budget and on schedule. Installation activities were effectively complete at December 31 and commissioning is underway to pour gold in the first half of 2024.
"We ended the year with approximately $192 million in cash and equivalents, $165 million available to draw on our revolving credit facility plus another $100 million undrawn accordion feature, and equity investments with a market value of approximately $123 million."
2023 Production Summary
So there is solid performance from the 7 mines, but with plenty of upside present at Los Filos, Aurizona, and Castle mountain, as noted above. The issue for Equinox has not been their production profile or the quality of their assets, but rather their higher costs. You can see that their guidance for “All-In Sustaining Costs” (AISC) was $1,575 - $1,695 per ounce. This has really been the monkey on their back the last few years, but we’ll look at how that overall number shifts and changes as Greenstone comes online by the midway point of the year, and then really starts ramping up in the second half of 2024.
I sat down with Rhylin Bailie, VP of Investor Relations, at the Vancouver Resource Investor Conference (VRIC), for a great chat at the company booth. I fired off a number of pressing questions with regards to Greenstone being on-time and on-budget, and then she addressed them quite confidentially and with solid details; not just on Greenstone, but on a number of the company mines and expansion projects. Rhylin is a class-act, knows the projects, catalysts, concerns, and strategy, and is both candid and professional in communicating the key takeaways. As a current shareholder of EQX, I came away from that conversation feeling very satisfied, that there don’t seem to be any foreseeable “gotchas” or “sucker punch surprises” in the year ahead, and more upside than I realized. (not something that can be said about most mining companies)
As an aside, I really recommend that if investors have questions or concerns about any company, that rather than falling down negative rabbit-holes with on-line chat forum speculation, narratives, and conspiracy theories, that instead they simply just reach out to the company and speak to them directly. So much more can be accomplished in a 15-30 minute conversation, than hours of poking around through mostly garbage comments to try and find any relevant data. I use chat rooms to source questions/concerns/red flags/areas that need clarity, but then I take them directly to management to address and listen very carefully to how they answer them.
There are also a number of areas for expansion at Greenstone to keep feeding the operations for longer at higher rates than have been mapped out in the current economic studies. Of course, most companies and projects will tell you projects are open for expansion (at depth or along strike, yada… yada…), but I was impressed with how detailed of a plan the EQX exploration and engineering team has defined and highlighted. I could spend a lot more time here, but for the sake of the length of this article and key takeaways, the image and bullet points in their slide deck get the main points across.
So, for the sake of not running on too long in this quick overview of Equinox Gold, I’m not going to get off too far in the weeds here with all the other projects that can be expanded. What I will say is that the expansion in production at Castle Mountain and Los Filos, both could end up being very substantial increased contributions, and yet hardly anyone casually discussing EQX ever factors those into the the growth profile 2-4 years out. Most have Greenstone tunnel-vision and are negating all the other growth areas. Also, as previously mentioned, in 2025, the company will be working to bring the underground mine production into effect at their Aurizona Mine in Brazil, which should make a small contribution to next year’s production profile.
I see Equinox today as a higher-cost mid-tier gold producer, but over the course of the next few years it will be transforming into a better-cost major gold producer; with a pathway to over a million ounces per year in production. If readers are bullish on the gold price over that period of time, then it’s likely that EQX will be trading at a much higher market cap, because higher metals prices in concert will falling costs will boost margins in an out-sized way, compared to many gold producing peers. (not investing advice… just sharing my perspective).
Even in the more medium-term of 2024 & 2025, I see Equinox as a company poised for solid production growth compared to its mid-tier peers and expect to see it get revalued accordingly. Check out the table below for comparables:
I’ll have more to say about Equinox Gold in the future, as this is going to be an evolving story to follow. For now, I’ll turn it over to Ross Beaty himself to review the company’s score card for last year and to paint a picture of the year ahead.
Equinox Gold - Investor Reception 2024
Jan 23, 2024
Just as a sneak preview of some of the smaller growth-oriented gold producers I’ll be writing about in the weeks to come, I’ve recently conducted some interviews over at the KE Report with both Mako Mining (TSX.V:MKO – OTCQX:MAKOF), and Steppe Gold (TSX: STGO) (OTCQX: STPGF). There are a lot of other mid-tier to smaller growth-oriented gold producers I’ll be sharing more details about, so if Equinox was “too big” of a company, that’s fine. We’ll also be working in some smaller company profiles, possibly ones with a bit more upside torque in a bull market to the broader discussion on growth-oriented gold producers as this series continues.
Mako Mining - Q4 Operations And Gold Production Results & 4 Exploration Priorities At San Albino
Jan 17, 2024
Steppe Gold – Acquisition Of Boroo Gold Mine As The Next Step In Gold Production Growth In Mongolia
Jan 31, 2024
As always, the opinions shared in this article and the list of gold companies shared that I hold in my portfolio, is definitely not investing advice. I’m not recommending any of these for anyone else to purchase, but rather; I’m simply sharing my opinion on how I view the gold stock sector, and sharing which stocks animate me personally.
Everyone should do their own due diligence, talk to their financial advisors before making any investing decisions, and ultimately make their own decisions on what are appropriate risk speculations and appropriate position sizing. This editorial is simply to illustrate the overriding concepts on why I’ve isolated these types of companies in my own portfolio, and their potential value drivers from my unique vantage point.
Thanks for reading and stay tuned for my Week In Review and Week Ahead article out on either Sunday afternoon or Monday morning.
Ever Upward!
- Shad