Equinox Gold Corp. (TSX: EQX) is a growth-focused gold producer operating entirely in the Americas, with projects in Canada, the USA, Mexico and Brazil. The company has seven operating mines and a clear path to achieve more than one million ounces of annual gold production from a pipeline of development and expansion projects.

Key Highlights

• Improved operational performance: In 9MFY21, the company recorded a greater gold sale of 390,412 oz, compared to 336,891 oz in pcp. Furthermore, the company recorded an improved average realized gold price of 1,790/oz, up from 1,748/oz in the previous corresponding period. The company's overall performance is anticipated to be bolstered in the approaching quarters if the above pattern continues.

• 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.

• The management's bullish stance:Recently, the management stated that their 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. The company is on track to achieve its guidance with 391,678 oz of gold produced to end of Q3 2021 and strong start to Q4, with more than 65,000 oz in October. The company expects its Q4 to be the strongest quarter, which is a key positive.

• Divesting stake at Mercedes Gold-Silver Mine: Recently, the company announced that it has entered into a definitive agreement to sell its Mercedes Gold-Silver Mine in Mexico to Bear Creek Mining Corporation (TSXV: BCM) for aggregate consideration of USD 100 million in cash, along with 24.73 million common shares of Bear Creek valued at approximately USD 25 million at current trading prices, and a 2% net smelter return payable on Mercedes production.         

Risks associated with investment

A volatility in the international gold prices, along with the delay in project development activity, could dampen the overall performance of the company. 

Financial Overview of Q3 2021 in 000 of USD

Source: Company Filing 

• In Q3 2021, the group posted its revenue at USD 245.1 million, stood marginally higher from USD 244.4 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 49.2 million, from USD 88.7 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 25.1 million, as compared to USD 64.6 million in pcp, due to lower earnings from mine operations, coupled with higher exploration and general & administration costs.
• The company reported its net loss at USD 5.2 million, compared to a net profit of USD 3.2 million in pcp.
  

Valuation Methodology (Illustrative): Price to Cash Flow 

Stock recommendation 

Equinox Gold have a successful third quarter, the fourth quarter will account for about one-third of 2021 production, with over 65,000 ounces of gold already produced in October. Furthermore, the sale of its Mercedes mine will add USD 100 million to its balance sheet, allowing it to focus on growth through expansion and development of larger gold projects, such as Greenstone. Furthermore, its impressive pipeline of growth and expansion projects would help to boost cash flow over time, which is a big plus. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the current market price of CAD 8.12 at 10:01 am Toronto time on December 29, 2021. We have considered, Alamos Gold Inc, Centerra Gold Inc, Lundin Gold Inc., etc. as the peer group for the comparison.

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

Technical Summary Analysis

One-Year Technical Price Chart (as on December 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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