Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Fourth Quarter And Fiscal 2019 Results Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. Questions Conference
Call.
On your screen. I would now like to turn the conference over to Rylyn Bailey, Vice President of Investor Relations for Equinox Gold Corp. Please go ahead.
Thank you, operator, and thank you very much for joining us today for Q4 and fiscal 2019 quarterly results. We will of course be making a number of forward looking statements today, so please do take a moment to visit our continuous disclosure documents on our website on SEDAR and on EDGAR. I will now turn it over to our CEO, Christian Milo.
Thanks, Rillyn. Welcome everyone to our last standalone quarterly webcast prior to the close of the merger with Leagold. Exciting times, turbulent in the markets in the last few days, but we're really pleased with our quarter 4 results and full year 2019 results and we'll walk you through these results here and touch on the merger at the very end. On the first page 3 here, health and safety wise, Mesquite continues to have no LTI 3 year period and a very well done job there by them. We've had 2 minor incidents at Aurizona in the final quarter, so 2 LTIs.
Overall a good year. In terms of our combined operating results, we had a really good quarter here with 80,000 ounces of gold produced, and at a lower cost. So it translates through to very good financial results with a realized gold price of $14.82 as the gold price continue to appreciate in the quarter 4 period. Mesquite produced 40,000 ounces and its costs at $8.81 all in sustaining costs per ounce of gold were well below guidance. So it had an excellent quarter.
And Aurizona, again, had another ramp up versus Q3 into Q4 where they produced 40,000 ounces at $814 all in sustaining costs, which again is well below guidance. So Good job well done by the teams of the operations for the quarter. Turning to the next page, the quarter 4 financial results The consolidated financial results in terms of mine operating earnings and adjusted EBITDA were very strong and significantly improved on quarter 3, due to the individual mine performances. So we produced $39,000,000 of operating earnings from the mines and almost $50,000,000 of adjusted EBITDA. In terms of net income, we had an adjusted net income of $21,000,000 and that was in line with our expectations.
The overall net loss on the P and L was 8 $500,000 and the reason for that difference primarily is due to a $27,000,000 noncash loss related to the change in the fair value of Canadian dollar warrant which are treated as a derivative liability under IFRS. And as a result of having a very substantial increase of our share price since the announcement of the merger, end up recording a loss for a fair value adjustment on these warrants in our P and L. So it's non cash. And if these were denominated in U. S.
Dollars under the IFRS rules, there would be no change, so it's a bit of an accounting quirk. In terms of our liquidity and cash position, we had cash at the end of the year of $68,000,000, so a very solid cash position surpassed our expectations for sure. With drawn debt of just over $130,000,000, which again is being financed in the merger with Leagold and convertible notes outstanding of just over $125,000,000. Turning to the next page, looking at development, there's a lot of activity in the quarter end, of course, in the full year. But we commenced the phase 1 construction at Castle Mountain will do short review of that in a couple of slides here.
We initiated the phase 2 Castle Mountain feasibility study, which is moving along nicely. And we advanced 2 things at Aurizona, the underground study, which we have targeted for mid-twenty 20, as well as almost seven thousand meters of drilling at Tatajuba, which will get out in a maiden resource around midyear this year. And in terms of the corporate side of things, we've graduated from the Venture Exchange to the TSX during the fourth quarter. So that'll allow us to be included in the TSX composites in quarter 2 of this year. And again, we announced the at market merger on December 16th with Legal Mining.
We've had great market reaction and support from that, so very pleased with how the market interpreted this nil premium merger. And on the back of that, our liquidity on a daily basis has gone from $1,000,000 to $2,000,000 a day up to 10 $20,000,000 a day. So again, lots of trading with also the expectation of going into the indices later this quarter. And again, at the same time as announcing that merger, we announced a $670,000,000 refinancing, which will close at the same time as the merger. Part of that is $40,000,000 investment by Ross Beatty At Market at the time of the merger announcement, another $130,000,000 convertible for Mubadala, which is the Sovereign Wealth fund of Abu Dhabi, so they're doubling their investment.
And then we're refinancing the revolving credit facilities and term loans from both Leagold and Equinox into one main facility that includes a $400,000,000 revolver and $100,000,000 term loan, which should close at the same time as the merger. Turning on to Slide 6 here, looking at the 2000 quarter 42019 highlights, we achieved guidance for production and costs, had very solid operating results that translate to strong financials for the quarter. So the 80,000 ounces of produced gold sold at $14.82 an ounce with a cost of $8.48 per ounce, resulting very strong margins. And when you look at metrics like our adjusted EBITDA of almost $50,000,000 on a quarterly basis. That makes up almost 50% of the whole year's $100,000,000 EBITDA.
So good performance in quarter 4. And again, on an operating cash flow basis, we had $39,000,000 of operating cash flow in the quarter, which is about 65% of our annual $60,000,000 operating cash flow. So again, quarter 4 being a very, very important part of our year. And turning to the individual mines, so starting with Mesquite in California, the mine we bought in late 2018, Gold produced, as we mentioned earlier, was 40,000 ounces, so not quite a third of the year's production, but it had a very good cost performance in the quarter of $8.81 per ounce. We had slightly lower CapEx, a little bit better grades and good cost control for the quarter.
And on a full year basis, we met at the bottom end of our guidance for production, and we were at the bottom end for cost as well, so commendable on drilling. So we did 48,000 meters on the historical low grade dumps and leach pads, which were resulting in significant number of ounces being stacked and also in the plan for this coming year as we enter 2020. In addition, we drilled 21,000 meters on targets in and peripheral to the pits as well. And those will be factored into our upcoming reserve resource update. And early in the year, as we mentioned previously, we did amend the operating permit flexibility.
So we can now stack 37,000,000 short tons of ore annually on the pads instead of 25. So it's allowed us a lot of flexibility this year. Looking at what that translates to on operating metrics and financial metrics on Page 9, despite stopping mining in December, we did actually, mine a lot of ore and placed a lot on the leach pad with 5500 tons. 5,500,000 tons and the grade was slightly higher for the quarter at 0.31 versus 0.29 for September, which resulted in 40,000 ounces. Overall a very good cost quarter for Mesquite.
When we turn to Aurizona, looking briefly at Aurizona's results, on page 11. It was the 2nd full quarter of operations. The commercial production was achieved in early July right at the beginning, and it was a nice improvement on quarter 3 as we expected. Gold produced was almost 40,000 ounces, so significantly more than quarter 3 and costs were $8.14 per ounce. So a lot of that relates to the increase in grade, just above reserve grade for the quarter.
And overall, for the full year, we achieved 75,282 ounces is just above the bottom end of guidance and our costs were well below the bottom end of guidance for all in sustaining costs at $9.28 per ounce. In terms of overall developments, remember at the beginning of the year, we finished construction of the mine in April, basically, and we spent $47,000,000 on non and sustaining capital, the vast majority of that related to the construction. And then we spent another $13,700,000 of sustaining capital, which a lot of that was relating to tailings facility raise, which happened mostly in fourth quarter. And then at the end of the year, our goal was always to be prepared for the rainy season, which starts in February February of the New Year, and we had stockpiled over 660,000 tons of ore on the ROM pad just below our 700,000 ton target. Mineing has been going well in January, and we're really pleased to see that we mined almost 1,500,000 tons, particularly with the articulated fleet that we brought in for the rainy season.
And then as we mentioned earlier, there was drilling at Tatajuba and the underground study continued to advance as well. In terms of how it translates into operating data and financial metrics, overall, as we as we mentioned, the mining rate was almost 3,000,000 tons per month during the dry part of the season there, double what we were doing in the rains, which is always what was expected. And the reserve grade, you can see there at 1.62 is a nice jump from the 1.3 in quarter 3. So we continue to mine from the main part of the pit with reserve grade and a little bit better, resulting in 39,000 ounces of production. As well, there's a small amount of sustaining capital you can see there in quarter 4.
A lot of that's relating to the tailings facility raise. And overall, the all in sustaining cost of $8.14 is well below quarter 3. It was $10.70 and overall for the year $9.28. So a good result in terms of costs at Aurizona. Turning over to the expansion of our portfolio and looking into California, again, at Castle Mountain.
I'll Page 14, you can see a nice diagram of the work been done to date. That's fairly recently taken. You can see the leach pad liner laid down there. We're we've been putting on the drainage layer and a second liner on top of that at the moment. So that continues to advance.
A lot of the earthworks are done on-site. And the tanks are being fabricated. So we're seeing good progress on our plan for pouring gold in quarter 3 this year and we're on schedule and on budget, which is good to know. Looking at 15 in terms of progress at the end of February, the pond excavation is complete. Leach pad earthworks are complete.
As I mentioned, the double liner system is partway through, so we're about 35% complete. Concrete works are 65% of the way done. Stills structural steel erection is underway at the CIC plant with a quarter of it complete, and the equipment manufacturing is in progress tanks, etcetera, being manufactured by the OEMs. Ground as we get phase 1 into production. And as we mentioned previously in previous calls, it does require additional water just over double, what we require for phase 1, which obviously is in place at this stage.
And just we received late last week, our record of decision for phase 1, which will allow us to go ahead and start drilling water for phase 2 in few months here. So some good news that just happened recently. And just a quick refresher on the 2 phased approach that we have here. Phase 1 is under 50,000 ounce a year and the total capital is just under $60,000,000, which we're tracking towards for the end of Q2 and into Q3 this year when production starts. Phase 2 will be a few years out here as we amend the permit and we finish off with the water drilling, but that'll be $175,000,000 of capital to get to 200,000 ounces a year.
And that includes a small mill in addition to an enlarged run of mine heap leach operation. Turning over to the merger and obviously the recent events. On page 17, just an update on the timeline here. January 28, we received shareholder approval, well over 99% for both Leagold and Equinox, so really good support from shareholders. It was actually overwhelming.
Then in January February, we received the other approvals we needed to get, which is the Supreme Court approval in BC, conditional Stock Exchange approval we received as well, And on Friday, as we announced this morning, we received the Mexican antitrust approval on February 28. So we're done with those approvals. And now the key item is to move towards closing. So we expect to close in the 2nd week of March, which is the week of March 9th. So 7 to 10 or 11 days from now.
So working hard to get towards that completion next week, and then we can come out on a combined basis. Looking at page 18, what does 2020 hold in store for us. Completing the merger we mentioned, we're also looking to achieve our corporate and site integration benefits. That'll start to take effect after close. In terms of operations, we want to accelerate Los Filos and the expansion.
We've already gotten underway and the team at Legal has started the Bermejal Underground. That's moving forward nicely. Completing Castle Mountain as we mentioned should be done in Q3 when we pour gold, reviewing Castle Mountain Phase 2, feasibility study will be done in the second half of this year. And of course, there's Santa Luz, which follows on from Los Filos, and we'd like to expedite the Santa Luz restart. We could be starting construction as early as 2021 in the 1st part of the year, and we'll give a bit more guidance on that when we come out with our guidance in the next number of weeks here.
In terms of exploration, that's something that we'll be able to look at in the long term basis with a much more solid footing from the balance sheet and we'll be able to make some plans for the key mines in terms of mine life extension. Scott and Doug will be turning their attention to that shortly after close. And on a corporate basis, we're really looking forward to here the multiple index inclusions for H1 2020. The GDX and the GDXJ should be coming into play here towards the end of March. I think the next rebalance dates around March 20th, and then the TSX composites are in quarter 2 when we've had 6 months on the TSX.
And then we'll continue to formalize our external ESG reporting, which is obviously a a continuously improving area of focus in guidance after the merger is complete. So, in conclusion, for 2019, we had an exceptional 2019 hit all of our metrics, and we're really well positioned for 2020. Gold, with the merger with Leagold, will create a diverse, scaled, peer leading growth company that's really in the mid tier to larger gold space. 1 of top 20 gold producers in the world. We'll have exceptional leverage to gold with almost 13,000,000 ounces in reserve, and we have a 4 balance sheet with the refinancing that's been put in place as well.
So that'll bring that to a conclusion in terms of the overall review of last year and maybe open it up for questions.
Thank you very much. At the moment, we don't actually have any questions online or on the phone, so I'll ask the operator to quickly remind people in case they've forgotten, but it may be a short Q and A period. Thank you.
Session. Our first question comes from Kerry Smith with Haywood Securities. Please go ahead.
Thanks, operator. Christian, just a couple of things. 1, could you give me an update on the drill permits that you're trying to get at Mesquite for some of this drilling to try and see if you can expand out the resources. I know there was the, the target on the other side of the road, etcetera. And also, I just wondered how the preparations went for the rains at Aurizona.
I think you said you mined a 1,500,000 a half tons I'm not sure if that was for January, but just maybe an update on how you've been making out at Aurizona through the, through the reins.
Sure. Maybe I'll let Scott start with the first question on the drill permits in Mesquite.
Yes, Gary. It's Scott here. We've been revisiting the permitting approach there. There's several different land use criteria or classifications that apply on those lands you referred to on the east side of the highway. And given other permitting efforts at site, we've stopped and kind of reined things in a little bit to re strategize and prioritize how we go about permitting different elements, including moving more material and looking to explore to the northwest as well.
So we're probably going to be submitting our applications here in the next quarter. And guidance on timing on that would probably be anywhere from 6 to 18 months, depending on the various sensitivities, but crews have been out in the field and doing the work, the various flora and fauna surveys and so forth, the advanced in preparation for that.
So Scott, if, if you don't, this is the application in Q2 for the permits on the other side of the road, right?
Correct.
So if you don't, is there other drilling that you don't need permits for or are there other targets that you want to drill at Mesquite that, that you can drill while you're waiting for those permits to come. If it takes, you know, 6 to 18 months to get those permits, I guess that's going to be the end of 2021, right?
Absolutely. We actually have a fairly aggressive budget at Mesquite this year, committing some $8,000,000 to drilling that doesn't include anything on the side of the highway. This is focused primarily on drilling off the remaining historic dumps. There's another 250,000,000 tons of potentially mineralized historic dump material there that we've already drilled some 89,000 feet on this year alone. In between that, we're going to be doing some testing on some in situ targets along the north wall.
These targets represent incremental growth on in situ on Institute resources that we hope to convert to reserve. And then I alluded to it in my previous comments, we are with the new geological models and with the pending resource reserve updates, we have recognized structures controlling mineralization in Brownie and VE2, and we this gold environment, we will be looking to hopefully incrementally grow the in situ reserves and resources as well.
Okay. And sorry, the budget you said for this year is how much for drilling?
$16,000,000.
Okay. Okay. That's great. Thank you, Scott.
Welcome. And in terms of the range, maybe I'll make a quick comment. If Jim has anything to add, please go ahead. But I did mention about 1,500,000 tons mined in January, which I know when we did our site visit, we'd indicated, we do roughly $3,000,000 when we're at full capacity in dry season and then roughly half of that in the rains. And that's what we did in January effectively.
And there's been an increasing number of articulated trucks in which has allowed us a little extra flexibility. And I think the guys have done a good job of planning for water drainage, and planning for certain areas to be mined during the rains. As well as having about a 660,000 tons stockpile.
Okay. So it sounds like that's going pretty much as the way you thought it would go. And that's good. And maybe Christian or Scott, what is the expiration budget for Aurizona for this year?
I mean, you're kind of jumping a little ahead of us here. When we come out with combined guidance after closing, we'll give you that, but it's a similar amount in terms of spending to what we're going to be doing at Mesquite. And we'll refine that a little bit as we come out, but it'll be a similar amount.
Our next question
Sorry. Our next question comes from Aaron Lambda with TD Securities. Please go ahead.
Hey, guys. Just quickly for Zona, the Brazilian real continues to weaken. Can you just remind us you guys have any currency hedges at Arizona in place? And, I know it's kind of, after, the company reports combined guidance, but would you guys look to potentially hedge further currency hedges going forward?
We do have some callers in place at Aurizona. Certainly, we've been protecting some of the 2020, real position at sort of above 4 to 1 and I think the top end of the call is around 4.4. And, it's a portion of the spend because a lot of our spend is in real, and we we'll continue to evaluate that as move forward. Obviously, our budget period, we were probably in around that 3.6 level. So we've been able to sort of protect that at a higher or the low or depreciated level.
So it's been a good result, obviously, so far. As we obviously bring more Brazilian mines into the plan, going forward when the merger is complete, we don't certainly review our overall strategy on the Real, but, so far for Aurizona, it's been a good benefit.
That's great. Thanks a lot.
Thanks, Aaron. We'll now take a question from an investor who's joining us from the country of Turkey. The question is, upon completion of the merger, what do you plan on doing with the Leah Gold Hedging Program?
So, there's a historical, gold hedge program, which was originally about 300,000 ounces. I believe it's 250 or slightly less still remaining on that, which is spread out over a 3 year period almost equally. We'll inherit that obviously as a combined Equinox and, those prices I think range from about 13.50 up to almost 14.30 or slightly above. Depending on somewhere fixed forwards and somewhere callers. And we'll continue to deliver into that hedge for now.
You know, certainly we'll evaluate our capital and whether we'd ever want to take it out. But I think it's slightly out of the money at the moment and maybe a fairly large chunk of capital to commit to it at this stage. We'll certainly look at our capital priorities before we would that are taking out, but we have no intention of hedging gold in the future.
Thank you. We now have 3 private investors who are joining us on the phone line. Operator, please go ahead with those questions.
Not a problem. Our next question comes from Lawrence Danny, a private investor. Please go ahead.
Good morning, gentlemen. Congratulations on all your successes and thanks for your hard work. My question is about Castle Mountain. When do you foresee the 1st full quarter production on Castle Mountain?
So at the moment, our current expectation is to be pouring gold in Q3. And obviously, it's a heap leach operation, so it'll take a little time to ramp up. So if all goes really well, I think quarter 4 could be a 1st full quarter, but certainly quarter 1 of the following year.
Thanks. And has this coronavirus affected any of your operations at all?
It's an interesting question. Very topical at the moment. Obviously, we look at our supply lines. We also look at our travel of our employees in that. I would say it hasn't had any kind of material impact at the stage and we're obviously looking at anything that's sourced out of certain countries and alternative sources of supplies.
But at this stage, we really have had virtually no impact.
Our next question comes from Philip Verstherete, a private investor. Please go ahead.
Good morning. Very good quarter. I have a follow-up question on the Mesquite Mine, both on exploration and on the recent quarter. Maybe first on the recent quarter, can you explain me how the the all in sustaining cash cost was far lower than your guidance. Is that due to the grade or is that because Q4 is a bigger quarter than other quarters or has anything to do with heap leach variability.
Hi, Scott here. I think one of the big drivers in the lower cost that we're seeing is because we did pivot and we are mining a lot more of the historic dump material that's carrying 0.3 grams per tonne. The associated mining costs with this are a lot lower. There's no drilling, there's no blasting. It's basically pick it up and haul it.
And the way we've prioritized the drilling off of the historic dumps, we've started with the most proximal dumps first. So we're also looking at a lot shorter haulage lengths. And I think that's probably the biggest driver in our lower costs. And being oxide is also the recovery process and period is
much shorter than some of the non oxide material and we probably had a little more non oxide factored into our plan.
How much of that historic material do you have remaining, for the future?
Stay tuned. We're in the middle of our year end resource reserve updates and the material that was drilled off that remains that was remaining as of December 31st. 2019 will be included. And of course, we're drilling now to continue that exploration of those dust. We've seen
some positive upsides to that and we'll continue to add that to the program.
Yes. And regarding exploration, When looking at your measured and indicated resources on Mesquite greatest, somewhat lower than your reserves going forward, if you expand your resources or your reserves, would that be on the lower grade side or is it too soon to comment on that?
Steve battled with the resource reserve grades and pad performance and there's a bit of fuzziness with that, if you will. But everything that we've done through the course of last year to increase confidence in the resources, reserves, grow or convert resources suggest should be expecting more of the same. Nothing materially different.
Our next question comes from Robert Seitzer, a private investor. Please go ahead.
Thank you very much and good morning. My question concerns Solaris copper, which is now Solaris resource. I noticed on my statement from my brokerage firm. The name was changed. Are there any plans for that company?
Yes, it's actually a good question. Haven't talked about it recently. There's been so much activity with the merger. But yes, Solaris Resources is now obviously being managed through, Dennyll, who's now the new CEO and full time on that project and company. And he's also got the backing of Richard Work behind the company in terms of Augusta Group.
So It has a real champion and supporter that's taking it forward. We continue to own about a third of the company, and, they've started drilling at Rorinsa there. Was always our goal before it went public. And I think they have now have an ability to consider going public in the next number of months here. So Ultra working really well.
We're really excited as a big shareholder and see that as a nice long term investment for us. So I think stay tuned to keep an eye on that and hopefully you'll be having a liquid stock that you'll be able to trade at one day, back into your brokerage account.
All right. So we have a question online from Aviso B. Apologies, Aviso, you weren't able to get into the phone line. That's strange. And in any case, I will ask your question for you.
So Evace says, and who's an analyst from Scotiabank, forgive me I should have introduced Sylvace properly. Obay says it's great to see that you've received approvals to start drilling for water at Castle Mountain for phase 2. So a 2 part question, what are the next steps going forward, assuming you're successful in discovering the water you need and what are your other options in backup plans to bring water to Castle Mountain.
Well, just at a high level, Aerospace, we'll go out and drill all the targets on our property, which have been pre identified We also bought some in holdings in the monument and, preserved land, which would be our 2nd option for drilling that's land that we now own. And that will start the drilling in terms of the on our permit area in the next couple of months here. So we should be able to see some results this year. And as a backup, of course, we mentioned we were also sourcing water from other places, including various, towns and private properties that are, give or take, 15, 20 off of our permit area. And those will be our backup sources of water, which have a slightly higher cost and haulage distance.
So first prize would obviously be drilling straight on our property and getting access to the water right there.
All right. At the moment, there are no further questions online or from the phone lines. The webcast will be archived on our website for 3 months, and we'll have the transcript up there soon. So if you do think of any other questions, please don't hesitate to get in touch with us turn it back now to Christian for closing remarks.
Thanks, Arlene. You know, thanks everyone for your support this year, shareholders, and an analyst. We've had an exceptional year in 2019. I think 2020 shaping up to be really exciting as well. So, please continue to follow the story and we forward to talking to you on the next webcast as a combined group here once we close the merger's legal next week.
So thank you very much.
Thank you for joining us today.
This concludes today's conference call. You may disconnect.