Equinox Gold Corp, (TSX: EQX) is a Canadian mining company with a portfolio of production, near-production and exploration-stage projects. The company's principal assets are - Aurizona gold project in Brazil and Castle Mountain.

Key Highlights:

• Operational Update from Santa Luz Gold mine: The management highlighted that the company completed ~41% of the project development activity in Santa Luz Gold mine, located in Brazil. The group acquired the mining asset of Santa Luz in May 2018 and started its development activities in the second half of FY21. The total budget was allocated at USD 103 million and expects gold production from Q1FY22 onwards. Notably, the above mine is expected to produce 110,000 ounces of gold/ year for the first five years of operations, which would likely improve the company’s overall production profile.

• Ample Liquidity: The company reported decent liquidity of USD 550 million at the end of Q1FY21, which includes USD 200 million of available credit from corporate facilities. The current liquidity seems to be sufficient to support the company’s near-term working capital and CAPEX requirements.

• Diversified Asset-base to support future operations: The company’s operations are located across four countries, namely, the USA, Canada, Mexico and Brazil. Moreover, the group is constantly adding new mining assets, which would enhance the company’s reserve profile and would reduce overhead costs lower on a per ounce basis in the coming years. Hence, going forward with an enhanced scale and diversified mining base, we expect a balanced risk profile for the company due to lower dependence on a particular mine.

Additional Production Outlook (Source: Company Presentation)

Q1FY21 Financial Highlights:

• EQX announced its quarterly results, wherein the company reported revenue if USD 229.702 million, significantly higher than USD 130.035 million in the previous corresponding period (pcp). The increase was driven by higher gold sold of 128,555 oz v/s 82,629 oz in the previous corresponding period (pcp). Additionally, the average realized gold price also stood higher at USD 1,786/oz, higher than 1,574/oz in pcp.
• Earnings from mine operations increased to USD 44.244 million, from USD 36.626 million in Q1FY20. The surge was supported by higher sales, partially offset by a surge in operating expenses and depreciation & depletion.
• Income from operations stood at USD 31.905 million, higher than USD 26.405 million in pcp, supported by higher earnings from mine operations, while higher exploration and general & administration costs remained a drag.
• Net income soared to USD 50.317 million, as compared to USD 5.582 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: A slide in the international gold prices, along with the delay in project development activity, would take a toll on the overall performance of the company. Moreover, the group reported a surge in total cash cost to USD 1,141/oz sold, higher than USD 842/oz in pcp. Continuation of the above trend would hamper the company’s margin.

Valuation Methodology (Illustrative): Price to Cash Flow 

Stock Recommendation:

The group reported a surge in its cash flow from operations at USD 79.363 million, as compared to USD 3.479 million in the previous corresponding period (pcp), which is a key positive. The group is conducting exploration activities in order to increase its resource and reserves base. We have valued the stock using the Price to CF value-based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered peers like Torex Gold Resources Inc, Altius Minerals Corp etc. Hence, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 8.44 on July 13, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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