Thank you for standing by. This is the conference operator. Welcome to the conference call and webcast to discuss the Equinox Gold and Leagold Mining merger. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Webcast viewers may submit questions through the text box in the lower left corner of the webcast frame. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox Gold. Please go ahead, Ms. Bailie.
Thank you, thank you everybody for joining us today. We will, of course, be making some forward-looking statements today, so please do take a moment to visit the Leagold website and the Equinox Gold website to find our continuous disclosure documents. I'd like to introduce the people that are in the room with us today. We've got Ross Beaty, Chairman of Equinox Gold, Neil Woodyer, Chief Executive Officer of Leagold, Christian Milau, Chief Executive Officer of Equinox Gold, and Attie Roux, Chief Operating Officer of Leagold. I'm now going to turn the call over to Ross Beaty to make some opening remarks.
Thank you, Rhylin, and good morning, ladies and gentlemen. Thank you also for joining us today. Well, I'm very pleased that our two companies are joining to create a bigger, stronger company. I've always felt that Leagold is, in many ways, a twin of Equinox. We're both young, dynamic companies, both based in Vancouver, both with assets exclusively in the Americas, both with veteran management teams who have created a lot of wealth for many shareholders over time. Besides our common histories, we have common missions to build ourselves into larger, less risky, more diversified gold companies, offering shareholders greater liquidity and larger scale in an investment world where size matters today more than I've ever experienced in my long career in the mining and public markets business. Equally importantly, our merged company will offer our shareholders more leverage to the gold price.
With increased gold production comes greater income exposure to upward movements in gold, greater earnings, greater cash flow, and as soon as possible, dividends to our stockholders. Also greater capital exposure in terms of our larger gold reserves and resources base. It's no secret that I'm bullish on gold, and I share this conviction with Leagold's chairman, Frank Giustra, who has followed and invested in gold and gold companies throughout his illustrious career. Frank has said many times, and I agree, that the macro environment for gold is as strong today as at any time in either of our long careers. In this environment, I look for massive exposure to gold both on the income side and the capital side, and this combination delivers that to shareholders of both companies. This is one of those organic deals that just makes sense. We have real synergies.
We have exclusively Americas assets. We have outstanding management teams on both sides with long, successful track records, strong financial capacity, and it's a true merger of equals, avoiding the kind of unconscionable premiums that investors hate and building true scale and value. I'm very excited by this transformative deal for stockholders of both companies, and I recommend its approval. I look forward to working with Neil Woodyer and the combined team to maintain our record of fast and accretive wealth creation with or without a move in gold. If gold moves higher, as I expect it will in 2020, we'll do really well. Thank you again for joining us today. I'll now turn the call over to Neil Woodyer, CEO of Leagold and CEO of the new, bigger, and better Equinox Gold Corp. Neil?
Thank you, Ross. To go through some of the detail, this is coming together with two companies in a strategic merger to create a premier gold producer. It puts us into the top 20 primary producers, gold producers. Our organic growth takes us to a million ounces of production in the near term. We have six producing mines, two development projects, and two mine expansion projects. Our P&P reserves are 12.7 million ounces, and our M&I resources, 23.6. As Ross said, all our assets in Americas, U.S., Mexico, and Brazil. Very importantly, we are fully funded. We have a strong internal cash flows, and we have a financing package of $670 million. The banks are underwritten a new deal for $500 million. The sovereign wealth fund of Abu Dhabi is doing a second convertible for $130 million.
Most importantly, Ross Beaty is putting $40 million of that market equity into the transaction, in addition to the significant substantial investments he'd made before. He actually will end up as our largest shareholder at 9%. We have a clear path to market re-rate. We have dual listing now, or will have dual listing now in the U.S. and Canada, with a lot of potential for inclusion in the indexes as we go forward. We have increased liquidity and size to attract new shareholders, significant scale, diversification, synergies, growth. We have a lot ahead of us in the next year or so putting this deal together. I'll hand over to Christian Milau to go through some more of the detail.
Yeah. Thanks, Neil. Just want to walk you through the transaction summary on page six briefly here. It will be a merger by a plan of arrangement, fairly standard for this type of deal.
It's been unanimously recommended by both sets of board of directors, and we have a strong set of voting support agreements or lockups. 21% from Equinox side and 42% from the Leagold side. In terms of the consideration, it's 0.331 shares of Equinox for every Leagold share in an all-share deal, and it's an at-market merger at CAD 2.70 per Leagold share, which is the closing price as of Friday last week. The pro forma ownership will be 55% Equinox, 45% Leagold. The concurrent financing, I think Neil's already walked through here, but very strong support from our core strategic long-term partners. We're very excited to be working with them as we move forward and continue to grow the business and fund all of our development internally. The $500 million underwritten bank financing is $100 million in a five-year term loan and $400 million U.S. in a revolver.
The core banks that have been supporting both groups continue to support in this transaction. Very pleased that they have continued on. In terms of leadership and governance, we've already talked about some of that. The board of directors will be split 50/50, four from each side. In terms of key approvals and timeline here, the approvals from shareholders of Equinox will be a simple majority, and the security holders of Leagold will be a two-thirds vote. We'll have customary regulatory and court approvals, and obviously, the Mexican antitrust approval will take a couple of months, which we'll go through. Looking at slide seven. Stepping back, this is an at-market merger. It's a true merger of equals. I think as Ross alluded to before, this is what the market has been asking for, and we're really pleased today to deliver on that.
When you look at this exchange ratio, it's 0.331, but you look back over the last year on this diagram, and it's basically almost the same number, 0.32 effectively. There's some big swings in the short term, but on the average for the whole year, it's been very similar to the final exchange ratio, so we're very pleased about that. Obviously, the exchange ratio is a blend of accretive and dilutive metrics for each company, but in line with that average exchange ratio since the start of 2019. Looking at the asset base on slide number eight. With this transaction, we're creating a premier Americas gold producer. Very few companies are solely focused on the Americas, and certainly not many are of this scale.
This portfolio demonstrates that strong diversification by geography and assets, with 6 producing mines across these 3 countries and 4 growth projects are now internally funded. The large reserve base that Neil alluded to of 13 million ounces is a peer-leading number, as well as a very large resource of almost 24 million ounces of M&I. We'll be producing almost 700,000 ounces of gold based on analyst consensus in the coming year. We have a path to 1 million ounces on a run rate basis. We do need to execute on the expansion of several of these assets, which are now fully funded in this plan. At the bottom line, this will be a cash flow machine. There's $300 million of cash flow from operations and $350 million of EBITDA, so strong cash flow from operations in the future.
The merger is in line with what we stated as our growth strategies, both companies. We look at the next page nine. This combination results in significant growth in mining-friendly jurisdictions. I know both of our shareholders' bases have been asking for that and for us to be focused on these geographies. We have that estimated 1 million ounce annualized gold production within sight here in the next couple of years. We'll have eight producing assets in three mining-friendly jurisdictions, nicely broken down there, as you can see in the diagram to the right. It's diversified, it's a good spread by region. The growth at the very bottom there will allow us to get to that million ounces. The Los Filos expansion, Santa Luz restart, those can be accelerated.
We have Castle Mountain expansion, and for phase 2 and phase 1 will be in production in the next six to seven months. Turning over to slide 10. A premier Americas gold producer. That's been our target. That's been our goal. I think when you look at this slide, you see how we slot into this new set of peers with very attractive growth profile, and we're really excited that we've moved up to that scale and we're within sight of that 1 million ounces per year. Turning to 11. A little more detail on the funding for this growth. We have a fortress balance sheet now, and we have cash flow growth that allows us to be fully funded for this whole program. Our cash balance of $270 million, excluding transaction costs, comes from about $100 million of cash on hand at September 30th.
The Mubadala Investment brings in $130 million on the new convertible proceeds, and Ross's investment brings in $40 million of at-market financing. A strong cash position to come out of the gate here. In terms of drawn debt, we'll have $550 million, which is comprised of this new term loan of $100 million from the banking group, the new Mubadala convertible note of $130 million, and the new corporate revolver, of which $320 million of the $400 million will be drawn. Importantly with that as well, our cost of capital is coming down. We'll be at LIBOR plus 2.5% to about 3.5% on that large loan. Really improving our cost of funds. The overall financing factor is $670 million, and our net debt now is a very low $280 million for a very substantial business.
We're in a strong position to execute on these growth plans. Looking at slide 12, just again, repositioning us within the peers. We're extremely well-positioned now. You look at the 2021, we'll be in that top portion now competing with the other sort of million ounce type producers. The growth is sector leading or peer leading in terms of this sector group. Over the next couple of years, the anticipated growth is about 20% plus. Our P&P or 2P reserves will be in the higher end or upper end of this with almost 13 million ounces. Turning to 13, what's really important here is, we'll have exceptional re-rate potential in the near term, which Neil alluded to earlier. We believe we're well-positioned now that the growth is fully funded
Index inclusion is basically imminent in the first half of this coming year. We have the dual listing, which I think was a good step moving on to the New York Stock Exchange recently. If you look at this graph, on the combined market cap values, you're about at CAD 1.3 million. When you look at the potential re-rate potential to 1 to 1.1 times price to NAV, that's $2 billion-plus of value right out of the gate. I'll turn it back over to Neil right now to walk you through a few more slides here.
Okay. Well, first of all, the Board of Directors, I've stepped through that. Assuming a Chief Executive is allowed to step through his Board. Ross will be Chairman. Coming from the Equinox side, Len Boggio, who has been a Director over there for some time. He was a partner at PricewaterhouseCoopers and was past Chairman of the Canadian Chartered Accountants. Also, the fourth Director is Marshall Koval, who's been a geologist for 38 years and involved in a lot of corporate transactions. From the Leagold side, Wes Clark, ex-general, joins the Board again. Gordon Campbell, former High Commissioner of Canada to the U.K., Premier of B.C. Last but not least, Peter Marrone, Chairman and CEO of Yamana, plus myself.
If we turn to the executive team, the senior executive team, Christian, who's currently CEO of Equinox, has been since 2016, previously CEO of True Gold, and his youth was CFO of Endeavour Mining. He takes on the role of EVP corporate. Attie, who's currently Leagold COO, becomes COO of the new merged company. Peter Hardie, a CFO at Equinox, continues in that role going forward. Looking at the next slide, which shows that the bringing together of these two companies creates a very strong mix of shareholders. Our present shareholder bases have a different profile. We end up with a very broad mix of corporate, institutional, high-net worth, and retail shareholders. Extremely important, we're supported by strong long-term shareholders. Not only do we have the converts possibility going forward, but Ross represents 90% of the shareholder base, the largest shareholder.
Looking at the transaction timeline, theoretically, fairly straightforward. The merger announcement today. Lots of work to be done between now and late December when the special meeting information is mailed out. Shareholder meetings late January. Expected close February, maybe early March. In addition to, as Christian said, the shareholders, we do need the approval of the Mexican antitrust. When we look at 2020 on a nearby basis, we need to look at value creation. From an operational point of view, our priorities are to accelerate Los Filos expansion, complete the Castle Mountain phase 1, advance Castle Mountain phase 2, expedite Santa Luz restart, and optimize Mesquite. We have a lot of exploration potential. We'd like to extend the mine life, Aurizona, Fazenda, Los Filos, and at Mesquite. Corporately, we have the challenge of executing a merger and integrating it, G&A savings.
We also have the opportunity to formalize our external ESG reporting. We believe that by communicating the growth story and the benefits that we see to investors in the future, we should be able to see that market re-rate. Importantly, qualifying for a number of indexes in the first half of next year. We have a clear path to 1 million ounces growing 2021 and beyond. Finally, in summary, I think this is a summary that is conceptual and really very true. We are creating scale, six operating mines with significant cash flow. Stability, long-term mines in favorable jurisdiction. Flexibility, a $400 million corporate revolver and strategic partners. Four growth assets with upside potential. A strong balance sheet, fully funded. Value of scale and growth, pathway to a clear market re-rating. That, ladies and gentlemen, finishes the formal part of the presentation.
I'll hand you back over so we can deal with questions and answers.
Operator, if you could please remind people how to ask a question, please.
Certainly. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Webcast viewers may submit questions through the text box in the lower left corner of the webcast frame. If there is insufficient time to respond to all questions, management will follow up by email. Our first question comes from Bryce Adams of CIBC.
Good morning, all. Thanks for taking the questions.
Morning, Bryce.
I think slide 18 might have addressed my first question, but it was on the phased approach that Leagold was taking with Los Filos and Santa Luz. The financing package rethinks all of that and the improved balance sheet would allow for those projects to be accelerated?
Yes, that's right.
Got it. Under Leagold, the Pilar asset was deemed non-core. Is that true for the pro forma company? Would there be any other assets that now fall into the non-core category?
I think what we have intention is to continue to expand and enhance the quality of our portfolio. From Leagold's point of view, this transaction starts off by doing that. I think we have to look at all our assets and at size and growth and management time are criteria we have to use, so we'll be assessing that in the short term.
We should expect an update in terms of portfolio rationalization in the first half of next year?
Yes, certainly. Correct.
In the opening comments, there was Ross's bullish view on gold. Given the scale of the company that this deal would provide, is there a view to unwind the gold hedging program that was announced earlier in the year from the Leagold side?
We are considering the sensibility of doing that. We put it on not just because of bank debt. We put it on because we were going through a capital expansion phase, and we wanted to protect that. I think the situation has changed now as this goes forward. That's something we're assessing.
Good. Last one from me, just on the ESG report. It was my understanding that Equinox was just about ready to put out a standalone ESG report. Would that still be coming now or the deal defer that until later in next year?
Yeah, certainly. It's Christian here. We certainly will look at combining our forces and our external reporting and look at what we can do. ESG has become a really important topic for the key funds and certainly new funds that are looking at our sector investing. We'll take the best of both worlds and come out with something on a combined basis that will satisfy everyone for sure.
Are you saying, are you going to do one for Equinox, like right now? What's the time? You could do that.
Our plan for Equinox is definitely to do one in the first part of next year, certainly the first half of next year. We'll try and obviously do it on a combined basis.
All for me. Thanks for that.
Thanks, Bryce.
Our next question comes from Kerry Smith of Haywood Securities.
Thanks, operator. Maybe I could just ask a quick question to Ross, just generally in terms of strategy, and I guess I should congratulate you on what I think is a pretty interesting deal. Ross, you had talked about getting to 1 million ounces by 2023, by the end of 2023 actually, which was the original target. You're going to do that way before schedule. Do you have a bigger picture over the longer term? Do you think that this should be a 1.5 million-ounce a year company, or do you think it should be a 1 million-ounce a year producer and you're constantly upgrading the quality of the portfolio as time goes by bringing in new assets and selling off older assets? I'm just curious how you're thinking now.
Thanks, Kerry. Thanks for your comments. Well, you have to walk before you run. First we get to 1 million, and then we decide what to do. There's no magic to 1 million ounces. It's just a number, but it represents scale, and in this game, as I described in my opening comments, scale really does matter. It matters more today than ever before, than ever I've seen it, for all sorts of reasons. We had a target at Equinox to try to get bigger. We just threw out the 1 million ounces because it was sort of a nice little number to sort of use as an objective. To be honest, the real important driver isn't really number of ounces, it's quality of ounces. You know that, and we all know that.
It's quality and cash flow and risk and all those things, and they all are very important. As Neil said earlier, when we get this deal done, it's going to be done in sort of Q1, we hope late Q1 2020. We're going to look at all of our existing assets. We're going to reevaluate things, make sure that all of the reasons that we're doing this remain, and then we're going to try to manage the assets we have as best we can. We're going to do lots of exploration work. We're going to do all the expansion work that we've described, and we're always going to be looking at improving the quality of the assets.
It may mean getting bigger, it may mean getting smaller, but it will try to focus on value and quality and, you're just going to have to wait until we get this deal done to see what we do next, if anything. There's no promises, but certainly, the bottom line today is that the larger companies have better multiples, and they have better multiples for good reasons. They offer better value to shareholders in terms of risk diversification, overall risk, liquidity, and all of the things that are important today. We're going to keep trying to focus on that. At the end of the day, it's the quality of the assets, not the quantity that counts.
Right. Okay. Just secondly, as a converse to that, just on a dividend strategy, if you would call it that, you did mention it in your opening remarks. What would have to happen to get to the point where you could pay a sustainable dividend to us?
Dividends, we can't pay a dividend quickly enough as far as I'm concerned. We won't pay a dividend until we have all of our expansions sort of done, the risk profile of the company lower, and we feel we're generating more free cash flow than we can use back in our operations to drive value. We can't give you a timeline, Kerry. You can look to some of the other companies that I've been involved in, specifically Pan American is a sort of model for how to build a pretty good, successful company, which I really hope we're going to be following with Equinox Gold over the long term.
When you get that happy position where you're generating more cash than you can sensibly use in your operations and you don't have sort of the urge to do a new deal just for the sake of doing a new deal, that's when you return money to shareholders. You do it by dividends, and you do it by share buybacks. We can't get to that position soon enough because when we get there, we'll know we're really a cash-generating machine, and that's all of our objectives, I think, here.
Okay. Maybe I could ask just one final question, maybe to Neil or Christian. Just on the expansion and the restarts, right now you're at, call it 700,000 ounces in 2020, and this path to 1 million ounces in 2021. What are the assets that are included in that incremental 300,000 ounces?
Included in that incremental 300,000 ounces is the expansion of Los Filos, the full operation in Brazil of Equinox's assets there.
Castle phase I.
Yeah
coming to full production as well.
Is Santa Luz?
The Santa Luz, we should be able to start. That has about a 9-12 month start construction period.
Okay. Really outside of Castle, there's three other assets that would be involved in that then?
No, Los Filos, Fazenda, RDM, Pilar a little bit.
Santa Luz.
Santa Luz.
Santa Luz.
Yeah.
Yeah. Okay.
We'll get it back out of Santa Luz.
Great. Okay, perfect. Thank you very much.
That's the annual consensus figure, 700.
Got you. Okay, thanks, Neil.
Thanks, Kerry.
Once again, if you have a question, please press star then one. Our next question comes from Andrew Weekly of SmithWeekly Research.
Congratulations on this merger. Both teams have done an exceptional job of enduring these low levels in the market, and certainly we at SmithWeekly have been strong supporters of both companies. It's good to consolidate these businesses. Neil, Christian, and Ross, what can we expect going forward in terms of taking near-term advantage of continued suppressed asset prices in this market? What specific jurisdictions and stage of assets will you be looking at going forward, and will the focus remain on gold? Thank you, gentlemen, and merry Christmas to you.
Thanks, Andrew. Quick answer, remain on gold. The Americas, we have our hands full putting this integration together. We have a pipeline of projects. We have an intention to improve the quality of our portfolios as we move forward. At some stage, we'll do another transaction.
Okay. All right.
This is like operators. Thank you.
Andrew, any follow-up to that? Okay, we've got three questions.
No further questions, guys, just thank you.
Okay, thank you. We do have four questions online. They're asking the same thing. The first question is, will the stock warrants, the EQX stock warrants, continue to trade with the same terms?
Yes, the EQ warrants will continue. There's no change to the EQX shares and warrants.
Okay. Another question. This is forward-looking statements here. What do you anticipate for your corporate owned sustaining costs for 2020 and 2021?
We haven't got an answer to that question at the moment. We're going through our budget processes to see where we are. We're seeing where our priorities are. We haven't got an answer to that yet. We'll have that start of the new year.
Okay, just one more question. Do you have any sense of what your trend for net debt is going to be over the coming years?
Yeah, in terms of net debt, obviously we have, I'd call it, a low level of net debt going into this transaction with all the cash being raised, and we would see that obviously gradually declining as we deliver on the development projects. The cash flow from operations will actually fund a very significant proportion of that. I'd see a net debt level or ratio trending downwards over the next number of years here.
All right. Are there any further questions on the phone? Nope, we'll hand it back, please, to Neil for closing remarks.
Yeah, can I just speak for a moment as a legal shareholder, and I'm looking at this transaction. I believe it's a step that takes us into another league. I believe it's a step that strengthens our balance sheet with more cost-effective finance and more flexible finance. Importantly, it brings in a long-term strategic partner. We'll have no shareholder over 10%. It's a step that importantly improves our asset portfolio. It's a step that sets us in a greater chance of re-rating and greater shareholder liquidity. It's a step definitely in the right direction for us.
I have nothing to add to that. Well said, Neil. I just look forward to a great new chapter ahead for two great companies and now combined into one. Thank you all for joining us today.
Thank you very much. We will now disconnect the call.
Thank you.
This concludes today's conference.