Equinox Gold Corp.

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:

• Expansion plans: The company announced the results of a Pre-Feasibility Study for an expansion at the company's fully owned Aurizona Gold Mine located in Brazil. This is expected to add 11 years to the mine life with an average annual production of 137,000 ounces of gold/ annum and total life-of-mine production of 1.5 million oz of gold. Peak production from the above mine is expected between 2026 to 2029, with an average of ~160,000 oz of gold/annum.
• Update on mineral reserves and resources: Recently, the company updated on its Mineral Reserve and Mineral Resource for its Mesquite mine, located in California, USA. The company measured and indicated mineral resources increased by 65% to 1,384,000 ounces of contained gold, exclusive of Mineral Reserves. On the other hand, Inferred Mineral Resources from the above mine has been increased by 30% to 912,000 oz of contained gold.
• Constant Decline in Debt to Equity ratio: In recent quarters, the company reported a decline in its borrowing amidst the current sluggish scenario. D/E ratio stood at 0.25x in Q2FY21, improved from 0.56x in Q2FY20. Notably, the company reported total debt of USD 599 million, significantly lower than USD 750.9 million a year ago. Meanwhile, the company’s long-term borrowings to total capital stood at 18.8% in Q2FY21, which improved drastically from 35.4% in Q2FY20. A constant decline in the long-term borrowings to total capital is a healthy sign for the organization.

Q2FY21 Financial Highlights:

• EQX declared its quarterly results, wherein the group posted revenue of USD 226.223 million, climbed from USD 215.387 million in the previous corresponding period (pcp). The increase was driven by a higher average gold price of 1,806/oz to 1,708/oz in pcp. Meanwhile, the company reported gold sales of 124,712 oz, marginally lower from 125,824 oz in pcp.
• Earnings from mine operations stood at USD 45.577 million, down from USD 67.158 million in Q2FY20. The decline was primarily due to a higher operating expense (USD 139.843 million, v/s USD 113.029 million in pcp) coupled with higher depreciation and depletion costs (USD 40.803 million v/s USD 35.200 million in pcp).
• Income from operations stood at USD 18.199 million, as compared to USD 32.090 million in pcp, due to lower earnings from mine operations, coupled with higher exploration and general & administration costs.
• The company turned profitable and posted a net income of USD 325.736 million, as compared to a net loss of USD 77.768 million in Q2FY20. The increase was supported by other income amounting to USD 304.112 million, as compared to other loss amounting to USD 93.530 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: A volatility in the gold prices, along with the delay in project development activity, would affect 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 based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered industry median on an NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 8.59 on September 23, 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 September 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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