Equinox Gold Corp.

Equinox Gold Corp. (TSX: EQX) is a Canada-based mining company, engaged in the development and operation of mineral properties. It has a gold reserve base and operates approximately six wholly owned gold mines.

Key highlights 

• The management's bullish stance: Recently, the management stated that 2021 production would be in a range of 600,000 - 665,000 ounces of gold, a 33% increase over 2020 production of 477,200 ounces of gold. While cash costs would be USD940 - 1,000 per ounce of gold sold and all-in-sustaining costs "AISC" of USD1,190 - 1,275 per ounce of gold sold.  

• Higher free cash flows: Through agile management and higher average realized gold prices, the company increased its operating cash flow and free cash flow. In FY 2020, they generated record operating cash flows of USD 391 million and reported a free cash flow of USD 278.5 million.

Source: Company 

• Acquired Premier Gold Mines: Recently, the company acquired Premier Gold Mines, which would further increase its diversification and scale with the addition of a producing mine in Mexico and a construction-ready project in Ontario, Canada. It sold its Pilar Gold Mine in Brazil to Pilar Gold Inc. for aggregate consideration of USD 38 million along 9.9% equity interest in Pilar Gold Inc and 1% net smelter returns royalty on production from the Gold Mine.

• Enhanced liquidity: On December 31, 2020, the company’s cash & equivalents increased to USD 344.9 million, against USD 67.7 million in 2019. Furthermore, working capital stood at USD 423.4 million, compared to USD 16.7 million in 2019. The increase in working capital was mainly due to the Leagold Merger and USD 171.5 million in proceeds received from warrant and option exercises. 

• Event update: the company will announce its first quarter 2021 financial and operating results on May 5, 2021.

Financial overview of FY2020

Source: Company 

• In FY 2020, the company sold 471,786 ounces of gold at an average realized price of USD 1,783 per ounce and generated revenue of USD 842.5 million, an increase of 199% against USD 281.7 million in FY 2019. The rise in revenue was primarily based on higher gold sold, and higher realized gold prices.
• Earnings from mine operations were reported at USD 288.6 million, against USD 83.9 million in the previous corresponding period.
• Income from operations increased to USD 171.3 million from USD 55.1 million, although it registered higher operating expenses. 
• The Company reported a net income of USD 20.7 million in FY2020, against a loss of USD 20.3 million in 2019. 

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company’s 2020 results reflected delivery on its growth and diversification strategy. Its seven operating mines generated 477,200 ounces of gold and operating cash flow of USD 217 million in the year, compared to 2019 production of 201,000 ounces of gold and USD 60 million in operating cash flow. Furthermore, with solid cash flow from operating mines and a healthy balance sheet, the company is in an excellent position to achieve ambitious goals in 2021 and beyond in terms of gold production and cash flow as it continues to develop the extraordinary pipeline of development and expansion projects. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 10.92 on April 22, 2021. We have considered, Kinross Gold Corp, B2Gold Corp, Alamos Gold Inc. as the peer group for the comparison.

1-Year Price Chart (as on April 22, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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