Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Third Quarter 2019 Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. If you need assistance during the conference call, you may signal an operator by pressing star and zero. If you are participating online, you can submit a question using the Ask a Question tab on your screen. I would now like to turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox Gold Corp. Please go ahead.
Thank you very much. Thank you everybody for joining us today to discuss our third quarter financial and operating results. We will, of course, be making a number of forward-looking statements today, so please take a moment to see the continuous disclosure documents on our website, on SEDAR, and now on EDGAR after we did our U.S. listing in September. I'll now turn the conference call over to our CEO, Christian Milau.
Yeah. Thanks, Rhylin. Welcome everyone today. It's an exciting day for us. We've come a long way in the last two and a half years. From a single asset developer roughly two years ago, we now have two operations in California and in Brazil, and we soon have a third one on the way. It's a good milestone for us today. The strategy's been clear, and we've been focused on growth in the Americas. We wanted to build a company during this sort of period of disinterest in the gold sector, and I think we've come a long way in two years. Very proud of the team and all the supporters along the way and want to thank them here in Vancouver and at our sites both in California and Brazil.
I also want to thank all the shareholders and stakeholders who've been patient and supportive of us through this process. A lot has happened in the last two years. Today, we hit two key milestones. Some said Aurizona wouldn't work, and some said that Castle wouldn't go back into production. Today, we hope we start to dispel those myths, I guess. First, we had a strong quarter from Aurizona, its first quarter of actual commercial production in Brazil, and we also started construction at Castle Mountain during quarter 3, and today or yesterday, we announced official construction. We'll start putting some photos on the website soon that you'll be able to see that progress. We continue to move towards our goal of producing 1 million ounces per year, and I think we've come a long way in the first two years of this plan.
We've still got three, 3 and a half years to go to get that million-ounce production profile, but we've come a long way to start. When we look on page four at the operating results, we're pleased with this quarter. Another safe quarter, no lost time injuries. We produced just over almost 63,000 ounces of gold. A few ounces below expectations for the quarter, but it does exclude about 3,000 ounces of gold at Aurizona that were poured on October 1st that really relate to September production. Please remember that our guidance for the year for Aurizona did include pre-commercial production ounces of 67,000 ounces. Overall, our combined cash or all-in sustaining cost was $953 per ounce, so in line with plan. Obviously, we've been selling gold at close to $1,500 per ounce at both mines.
The top line has been very strong for the quarter. At Mesquite, we produced 33,000 ounces of gold, we continue its gradual improvement quarter-on-quarter, we expect quarter four to continue that improvement. Overall, all-in sustaining cost at Mesquite was $855 an ounce, good cost management for the quarter well within our expectations. At Aurizona, we hit commercial production on July 1st, a good milestone. We had a very quick ramp-up. Very pleased with how Aurizona's performed in the third quarter. Produced almost 30,000 ounces of gold, again, that excludes the 3,000 ounces that were poured on October 1st. The all-in sustaining cost was $1,053 an ounce. Turning over to the development and corporate highlights for the quarter.
In terms of development, now that we're producing cash flow at Aurizona, we've been able to reinvest some of that money back into Tatajuba. Scott's been given some money to go and explore Tatajuba this quarter. He's got a 6,000-meter drill program that's underway. Two to three drill rigs have been on the ground for the last six weeks. We commenced early works at Phase 1 construction at Castle Mountain during quarter 3. We've only spent about $3.5 million so far. We have quite a plan for the rest of the year. We initiated the Phase 2 feasibility study. That will go in parallel with the construction of Phase 1 at Castle Mountain. Obviously, we've updated our non-sustaining capital guidance expenditure to almost $75 million.
The main change on virtually all of the change is the $28 million we've added for Castle Mountain Phase 1 construction. In terms of corporate updates, obviously one key milestone for quarter three was we commenced trading on the New York Stock Exchange American under the symbol EQX. We have the same symbol on both stock exchanges. We're looking towards a potential TSX listing in the near future. With that, in terms of corporate visibility, we've really increased our liquidity and market visibility. Our volume has gone from several hundred thousand dollars a day of trading well into the millions, $2 million-$3 million a day. We've been very pleased with the reaction from that listing. Looking at the financial results on slide number six. Very strong results. We're very pleased with these for this quarter. Revenues were almost $92 million for the quarter.
All our operating earnings, our EBITDA, our net income, and our cash flow from operations have been very strong. A big quarter-on-quarter improvement, obviously, with having the two mines in operation this quarter. Cash and cash equivalents have increased to $45.5 million, excluding the restricted cash, and that's up from $33 million last quarter. I'm very pleased with that result, considering we've just wrapped up Aurizona, and we've started to reinvest, obviously, in Tatajuba drilling as well as Castle Mountain phase 1. We still have $30 million available to draw on revolving credit facilities, and our convertible notes are in the money after the recent share price performance being fairly strong. We're over $6 a share U.S., and that conversion price is $5.25. Again, a good performance there. Turning to slide seven, looking at it on a quarterly basis.
I don't want to spend a lot of time on this, but I think the key takeaway from this slide is the trends that are developing. On a quarter-on-quarter basis, we've shown a real positive move in terms of all of our financial metrics and our operating metrics on this page. Quarter-on-quarter growth in terms of our revenues, our earnings, our EBITDA, our cash, and our cash flow from operations have all been very positive, so pleased to see that. Looking a little more closely at the mines. We'll look at Mesquite first, so on slide number nine. Looking at quarter three, we continue to show an increase over quarter one and two to 33,000 ounces of gold of production. As I said before, we'll be increasing that again in quarter number four.
In terms of development activities, we've continued to drill the historical mineralized dumps and leach pads to identify economic grade material. We're well over 100,000 ounces that have come out of that material so far, and we'll be updating that with our year-end reserve and resource update. We've also implemented measures to increase production, which has started to come through, as we've seen in the quarterly results. We've been stacking a higher percentage of oxide material. We've increasing solution flow and extending the leach cycle, so we've been able to leach more ounces, and we'll continue to see that trend in quarter number four. In terms of guidance, we expect to meet the lower end of guidance for production. In terms of costs, we're well within the guidance range there.
In terms of the rest of 2019 and the outlook, we'll continue executing on these opportunities to increase production and reduce costs. Solution management obviously has been a focus of ours, and we're working on bringing in a third well here, as we mentioned at the bottom, around year-end. That will continue to enhance that ability to leach more of the pad. Turning to Aurizona now. Aurizona started production in May, hit commercial production on July 1st. We produced almost 30,000 ounces of gold, excluding those 3,000 ounces poured on October 1st, so a good first quarter. We're very pleased with that. Our first gold sale for this mine actually hit the five-year gold high of almost $1,390 per ounce in June, so again, perfect timing for that ramp up. In terms of development, we've been optimizing the plant.
We're looking at the SAG versus AG mill configuration with the ball mill. We've obviously now brought the ball mill into the circuit. We're actually operating to a SAG/ball mill combination, which will allow us to manage the grind size as we move forward here, and the consistency. We've also been ramping up the mining with our local contractor. We're now at pretty much full capacity. We're preparing for the rainy season. They'll have an articulated fleet that will also supplement their current fleet of 777 trucks. We've also initiated the next tailing storage facility lift to 35 meters. That's well underway and on track during this dry season here in the last part of the year. We've also recommenced, as I mentioned, exploration at Tatajuba. Hopefully you'll start to see those results early in the new year.
In terms of guidance, we expect to meet the lower end of guidance, as mentioned. Please take note that that does include the 6,000 to 7,000 ounces of pre-commercial production ounces. The grade has come up in the fourth quarter here. We're now mining in the heart of the pits, in the main part of the pit, so we're mining around that reserve grade, where previously in the early part of this year, we were actually processing material from our stockpile, which was between 1.1 and 1.3 grams per ton. We're also expecting to meet our own sustaining cost guidance of up to $1,025 an ounce. In terms of the outlook for the rest of the year, we're stockpiling ore.
We hope to have a 750,000-ton stockpile by year-end, preparing for the rainy season through preparing our roads, exposing higher ore in the pit and closer to the actual plant, and also working on water diversions. As well, we're advancing the underground studies, which we hope to make available to the public in the first half of 2020. We're excited that we'll be able to get that potential growth opportunity out into the market. The new topic for us really this quarter is Castle Mountain, and I just want to refresh everyone on that on page 13. This is about 1.5 hours from Las Vegas on a paved road, very easy access from Las Vegas. It's a past-producing mine from the Viceroy days in the 1990s. It still has permits in good standing, and that's something key to remember here. It's about a four-hour drive from Mesquite.
This is a 3.6 million-ounce deposit. This is 3.5 times the size of Aurizona already. We have our key permits in place to resume production. We have all the permits we need to resume construction, which obviously we've started about 6 weeks ago. It has a long life at 16 years and a good low cost as well. One of the keys when we actually acquired Mesquite was actually how Castle and Mesquite would fit together, and I think we'll start to realize some of those benefits next year when this comes into production around Q3. This is only 200 miles away from Mesquite. We'll be able to smelt the gold from phase 1 down at Mesquite, so we'll truck the loaded carbon down there. We're going to look at joint purchasing.
Obviously, things like cyanide, tires, other supplies like lime we'll be sharing between the two sites. As well, there'll be some shared back office services, et cetera, and some tax consolidation. A lot of benefits from having these two sites in California. Looking at slide 14 in terms of how we're approaching this. We're looking at it as a phase 1 and phase 2 for this project. Phase 1 is underway. It'll produce 45,000 ounces a year for years 1-3 of this overall mine life. Years 14-16 will be 200,000 ounces a year when we get to the full-scale capacity. One thing to note for phase 1, we've done all the engineering work and the studies. We've obviously got locked-in contracts with a lot of our contractors.
With our life of mine for this, we could go for up to nine years at this kind of level of production. It's $58 million of CapEx, so well within reason versus our PFS study that we put out a year and a half ago. It'll be a run-of-mine heap leach operation, very similar to Mesquite, obviously, on a smaller scale. We'll be processing 12,700 tons per day, and we'll be trucking that loaded carbon down to Mesquite and actually taking advantage of the capacity and the facility down at Mesquite to smelt the gold. We'll be able to make money from phase one on a standalone basis. This will be a standalone operation that will have a return.
For phase 2, the slightly larger scale, we'll go to run-of-mine plus a small mill that'll basically process 2,300 tons per day of higher grade material that'll be over three grams. It'll be about $175 million of CapEx, plus we'll be leasing or buying a fleet from someone like a Caterpillar or another supplier. The key things for us for phase 2 is getting the feasibility study done, which is going on in conjunction with the construction of phase 1. We'll be able, on the back of starting production, finishing that feasibility study, submitting our permit amendment to the EIS for phase 2. It's only an amendment, remember, it's not a full new permit. We'll be in operation with existing permits. We'll also be drilling for more water. We have all the water we need for phase 1.
We'll be drilling for more water in 2020, and we're expecting permits to be able to drill late this year or early next year. Obviously, as a fallback, we'll be looking at piping in options in terms of piping in water from nearby areas and communities. Looking at slide number 15. Our focus here really for Q3 is now turning our attention to this as our new project and our key internal growth. We've started early works, as we mentioned, so detailed engineering is complete. We now have a nine-year mine life for phase one if we need it. Contractors are mobilized to site. Topsoil removal has been completed. Road upgrades are complete. We have had first deliveries of pipe and liner to site. There's real activity, and you'll see photos of that very soon on our website.
We've received the conditional use permit approving modifications to the mine. We've also got the air emissions permit, which is required for operation. We've, again, made progress on those kind of minor permits for operations for phase 1. We've commenced that feasibility study. We have all the water we need for phase 1. We have all the permits for construction, and we expect to start drilling for phase 2 water in the first part of next year. Our outlook for the rest of this year and kind of leading into next year is we're in full-scale construction right now, board approved as of yesterday. We expect first gold pour in Q3 2020, it's a really quick timeline to gold production here. This is a small project. We've got firm quotes, the capital budget's quite firm at this stage.
We've worked in working capital, a 12% contingency into that budget. We've already spent $3.5 million. One key thing, obviously, is we're fully funded into production here for phase 1. Something to remember as well, phase 1 really is a key part to us starting phase 2. 50% of the capital expenditure is considered early build for phase 2. Turning to 16 to wrap it up and bring it all together here. 2019 has been a year full of catalysts. We've achieved a lot in 2019. It was an ambitious year. As you can see by, I think, all the tick marks we put on this page, we think we've achieved almost all the items we planned to do at the beginning of the year. We have a couple of months left here to finish off this list.
One of the key things here for us in the new year at the bottom, as you can see, we still have work to do on is work towards a TSX listing as well as index inclusion. We're not included in any of the indices in the U.S. or in Canada at this stage. With our recent liquidity, with our U.S. listing, with the greater visibility of having two mines going into three in the next year, we're getting more visibility for that purpose, and we hope to be looking towards index inclusion next year. In addition, as we said, we want to achieve being a million-ounce producer by the end of 2023. We've got our internal growth profile and assets. We're going to continue working on those and focusing on those, but we will start to turn our attention towards the acquisition front again.
We would love to add another producing asset in the Americas. 2020 will be a busy year. 2019's been a good year so far, and we're pretty excited about what we've achieved. Obviously, the gold price and gold market's improved alongside all the achievements we've had internally. Overall, I'd say it's been a really satisfying year so far, and we've got one quarter to go, which we expect to be our best quarter for the year. I think with that, I'll sort of wrap it up and turn it over to questions.
Sure. operator, if you can just please remind people how to ask a question.
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Thank you. While people are queueing up for questions, I will ask a question. I was just down at a Silver & Gold Summit conference in San Francisco, which is in California, and lots of people said to us, "How can you permit a mine in California? How can you move ahead with Castle Mountain?" Can you just remind people, Christian, about the permit process?
Yeah, sure. It's obviously very topical for us today. Remember, Castle Mountain's a past producing mine from the Viceroy days in the 1990s that only shut down because of the low gold price in the early 2000s when it was $250 an ounce. It had exemplary reclamation. For any of you who have been to our site, we've had a couple of site visits, you'll have seen that it's been really well reclaimed. The permits remain in good standing. This is not a greenfield site, this is a brownfield site, we're not looking for brand-new permits. We'll be relying upon the existing permits in place. We have all the permits we need for construction.
I think good evidence of that will be the photos that'll be up on the website very soon here to show that we're actually making progress, obviously, with the good dialogue and relationship with the regulators in San Bernardino County. Hence, we've started construction. We also have all the water we need. The existing wells that were in place have been basically put back into production and have been tested, and we're happy with the water production from those wells. They've been reestablished. Phase 1, we're working within our existing permits. For phase 2, we will be amending the permit, but again, it's an amendment to the permit, it's not a brand new permit. Once we're in operation on the back of our feasibility for phase 2, we'll amend that permit, but stay within our EIS boundary, which is one of the key things here.
It's not disturbing much more land than we historically had disturbed there. We're happy with where the permit stands and obviously with our investment and our commitment to this investment in the last day here with the board, I think we're showing that.
Great. We'll take questions from the phone now, please.
The first question is from Bryce Adams with CIBC. Please go ahead.
Morning, Christian and Christian. Thanks for taking my questions.
Yeah, good morning.
The first, starting on Mesquite, there's a line or a paragraph in the MD&A talking about the higher percentage of oxidized materials being stacked throughout the year. I was wondering if you could talk to the percentage of the oxide material, quarter-over-quarter, how that's progressed during the year? I mean, obviously it's positive increasing, but can you quantify it for me?
I don't know if I have the exact numbers off the top of my head. In the first part of the year when we took over, obviously they were focused on stacking the non-oxide material, so it was well, I would say, over 50%. In the last quarter or so, I'd say it's 80%-90% at least would be in the oxides. We'll continue with that for the rest of the year.
Okay. Continuing that through Q4 is going to help the Q4 number. Q3 looked good over Q2, but you will need a big Q4 to get to the bottom end of the guidance. Do you think that is achievable?
Yeah. Like I said, the key for us at the moment has been solution flow and being able to actually basically irrigate as much of the pad as possible because we've stacked a lot of ounces. If you look there, we've got 180,000-200,000 ounces up there. Solution flow has been a key managing factor. With the higher percentage of oxides and that 75% recovery, we do believe we will achieve that.
Yep. Regarding the windstorm that you had in September, there's a comment also on the disclosure that talks about offsetting the impact of the storm. What specifically was your reaction to the storm that can right the ship with that one?
Yeah, basically right at the end of September, there was a windstorm, electrical storm that put out the power, I think, for a couple of days. We worked on backup gen sets. It just slowed the operations and being a heap leach operation, you just have to ramp it back up to full capacity. We don't expect any material change, but it's something that did happen, and it's sort of a freak event in Southern California there. Obviously, we don't have any forest fires because there's no forests or trees around at all. We do get the odd occasional windstorm or flash flood like that.
That remediation work is all backwards looking now?
Yeah, it's all done. It's all fine. Operating as normal.
At Aurizona, given that it's pretty much into November now and the rainy period is coming around the corner, can you talk to the ore stockpile that you had on-site at the end of the quarter and then maybe how that's progressed to the current day?
Yeah, I think at the moment we're about 400,000 tons on the stockpile, which obviously has made a significant advancement since, I think, your visit about four weeks ago there to site. The fleet is actually operating at give or take, 100,000 tons per day or more at the moment. Actually, it's more. We've got all the 777s going, so it's piling up fairly quickly.
By year-end, what's the target for the stockpile?
Three-quarters of a million or so. More if there's capacity.
The 400,000 tons you have at the minute, do you have an estimated grade for those tons?
I don't have an estimate. In the historical, what we were putting through the plant was between 1.1 and 1.3. I think you'll see that grade maybe creep up a little bit, maybe 1.2-1.4 or 1.4, 1.5.
Got it. One last question. You mentioned the potential for a nine-year life of mine for Castle phase one. That nine years, is that all based on previously mined material, i.e., mineralized waste from the former operation? Or would there-
No
drill and blast component in that nine years as well?
I'll let Scott answer that, actually. He's here.
Yeah. We're currently looking at probably four and a half, five years, straight from previously mined material. It's fully permitted. There's a lot of high-grade ore exposed on surface that we can mine as well. It contemplates chasing some of the higher grade portions of that are of the highest margin.
What would be the mining cost difference delta, when you go to mine and stack the previously mined material versus fresh rock?
Drill and blast and slightly longer haul.
What's that in dollars per ton?
I think it's a little bit early to give that out. We'll put out guidance. The PFS study gives you a good indication of kind of the difference between, I think, phase 1 and phase 2. Remember, phase 1 is a contractor, so I believe that'll probably be over $3 a ton, and then phase 2 will be a lot cheaper. More in the Mesquite type range of cost because it'll be owner operated fleet.
Got it. All right. Thanks again.
Yep. Thanks for the questions.
The next question is from Andrew Mikitchook with BMO Capital Markets. Please go ahead.
Morning, Andrew.
Thanks. Good morning. Congratulations on the good quarter. Just wanted to come back to Aurizona. I think we've gone through the whole stockpile thing, but I just wanted to get some commentary from you. Is building that stockpile a priority to make sure that the Q1 rainy season gives you the utmost flexibility? Is that the goal, and to what degree would that relatively large stockpile likely be drawn down over Q1?
It's a priority. As when we had the site visits, as everyone picked up, it's very much a priority for during the rainy season to have that flexibility. When you look at the historical operation here for the four years it operated prior to our time as management here, they did operate during the rains. They had an articulated fleet and, like we indicated on the site visit, they could probably mine at give or take 50% of the normal rate. This will add that flexibility of three and a half months of literally being able to process without any mine effectively. Gives us lots of flexibility during that rainy period.
Great. Maybe just to close, one more question on Aurizona. How's the mill throughput been? Is it staying essentially above nameplate or as you're mining into more, I guess, harder rock, is it coming back or how's the performance of the mill?
The mill's continued basically. It's continued at the same sort of rates. There's really been no change so far. We're still mostly in the saprolites and the softer rock, but we've been tweaking the SAG/AG, and it's coming towards 50/50, I guess, but it's still continued to be over that 8,000 tons per day nameplate. I would say more in that 8,500 ton per day range.
Okay. I think that's it. Congratulations. I'll let other people follow up with further questions.
Yeah, great. Thanks, Andrew.
The next question come from Jack Kopnisky with National Bank Financial. Please go ahead.
Great. Thanks, Christian and Rhylin. Just got a question on Mesquite again, with this, the historical dumps and leach pads, and just wondering what the grade is there, that you're pulling from that and how long you expect to rely on those?
I'll let Scott answer that one.
Hey, Jack. Yeah, grade's variable. Like the story that we refreshed this morning on Castle, a lot of the historic operations in California were in a much different gold environment. If you look back at historical grades mined, some of the grades in the upper portions of deposits were gram and a half type material. Their cutoff grades for them at the time, like Castle, were in that half gram even plus type range. It's quite variable. Obviously putting resources and reserves on historical dumps is interesting, dare I say, challenging, but it's quite variable.
I think what you've seen for quarter three in that $0.25-$0.3 range is reasonable indication of what we're seeing.
Yeah, it's nominally in line with the average grade of in-situ ores at this point.
Okay, fair. Yeah, thanks, Scott. Just with the heavy rains that you guys have experienced there and the kind of impact of the leaching, do you have any sort of guidance for recoveries there and for Q4?
No, we expect the same. I think it was a bit of a blip there. We don't really expect any change. We're seeing the actual pad performance is actually pretty good for October so far. We're pleased with it.
Okay, great. Sorry, back to Aurizona with the stockpiling there. To achieve that throughput rate of fresh material, or mined material I should say, what kind of mining rate are you expecting for Q4 and into 2020 in order to get the stockpile up there as well?
I'll comment on that. Jim, correct me if I'm wrong, but we're looking at that sort of 100-120,000 tons a day is probably a pretty good estimate.
Bang on. That's where we're heading is 120, but yeah, we're up well over 100 right now. Right. Okay. Perfect. That's great. Sorry, last one for me. Just with the BRL hedges there, I noticed, if you could just give sort of a sense on what percentage of your costs that are denominated in reais are hedged there?
I'll let Pete answer that one.
Hey, Jack. The substantial part of our cost in Brazil is denominated in real. A fair figure to use is touching up closer to 90%.
Okay. That's perfect. Great. Thanks for answering my questions, guys, and congrats on the good quarter.
Yeah, thanks, Jack.
Great. Well, we don't actually have any questions online today, which is unusual, so if somehow you think of a question after we're done, the webcast will be archived on the website for three months, and you can always reach us by email or by phone. I will turn it over to Christian now for closing remarks.
Yeah. Thanks, Rhylin. Thanks for joining us today here. This is a key milestone for us today and yesterday here. Hitting two key milestones by starting Aurizona and having a great first quarter, as well as getting into construction at Castle Mountain. There'll be lots of news over the next sort of 6-9 months as we get Castle into production, and we're excited for the next year coming up here. Thanks again. We'll speak to you soon.
Thanks for joining us today.