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 Updates:

• Improved operational performance: The group reported a higher gold sale of 390,412 oz in 9MFY21, higher than 336,891 oz in pcp. Moreover, the company reported an improved Average realized gold price of 1,790/oz, as compared to 1,748/oz in pcp. Continuation of the above trend is likely to support the company’s overall performance in the coming quarters.

• Update on Santa Luz Project: The company showcased prudent capital management and strict operational efficiency, which led to the completion of its construction activities across the Santa Luz Project within its proposed time of Q1FY22. The above project is expected to add an average of ~110,500 oz/year gold production in the first five years, at an average AISC cost of USD 877/oz.

• Positive Technical: On a daily price chart, the INE stock closed near the lower range of its 20-days Bollinger band, indicating a possible up move from the current level. Moreover, the RSI of the stock is hovering at an oversold zone of 29.66, which might lead to a price appreciation in the current trading sessions.

Technical Price Chart (as on December 10, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Q3FY21 Financial Highlights:

• EQX declared its quarterly results, wherein the group posted its revenue of USD 245.129 million, stood marginally higher from USD 244.454 million in the previous corresponding period (pcp). The increase was driven by a higher gold sale of 137,144 oz, in Q3FY21 v/s 124,712 in pcp, partially offset by lower realized price (USD 1,780/oz v/s USD 1,806/oz).
• Earnings from mine operations declined to USD 49.206 million, from USD 88.717 million in Q3FY20. The decline was primarily due to a higher operating expense coupled with higher depreciation and depletion costs.
• Income from operations stood at USD 25.123 million, as compared to USD 64.648 million in pcp, due to lower earnings from mine operations, coupled with higher exploration and general & administration costs.
• The company reported its net loss of USD 5.240 million, as compared to a net profit of USD 3.236 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: A volatility in the international gold prices, along with the delay in project development activity, would likely to dampen the overall performance of the company. 

 Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

For FY21, the company expects its production of 560,000 - 625,000 ounces, while cash costs are expected in between USD 1,025 to 1,075/ ounce, and AISC cost is expected in between USD 1,300 to 1,375/ounce. 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 Pure Gold Mining Inc, Lundin Gold Inc etc. Hence, we recommend a ‘Buy’ rating on the stock of EQX at the last closing price of CAD 8.21 on 10 December 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 December 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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