Thank you for standing by. Welcome to the Equinox Gold Third Quarter 2019 Results Conference Call and Webcast. As a reminder, all participants are in a listen only mode and the conference is being recorded. Session. Session.
I would now like to turn the conference over to Erin Bailey, Vice President, Investor Relations for Equinox Gold Corp. Please go ahead.
Thank you very much, and thank you for 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. Turn the conference call over to our CEO, Christian Mila.
Yes, thanks, Roulyn, and welcome everyone today. It's an exciting day for us. We've come a long way in the last two, two and a half years. And from a single asset developer roughly 2 years ago, as we now have 2 operations in California and in Brazil, we soon have a third one on the way. So it's a good milestone for us today.
You know, the strategy has 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 2 years. So very proud of 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. And 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 2 years.
So today, we hit 2 key milestones. Some said, Aurizona wouldn't work and some said the castle wouldn't go back into production. Well, today, we hope we start to dispel those, those myths, I guess. First, we had a strong quarter from Aurizona. It's 1st quarter of actual commercial production in Brazil.
And we also started construction at Castle Mountain 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. You know, we continue to move towards our goal of producing 1,000,000 ounces per year and I think we've become a long way in the 1st 2 years of this plan. We still got 3, 3.5 years to go to get that 1,000,000 ounce production profile, but we've come a long way to start.
So when we look on page 4 at the operating results, we're pleased with this quarter, another safe quarter, no lost times injuries, We produced just over almost 63,000 ounces of gold. A few ounces below expectations for the quarter but it does exclude about 3000 ounces of gold at Aurizona that were poured on October 1st that really relate to September production. Also, please remember that our guidance for the year for Arizona did include pre commercial production ounces of 67,000 ounces. So overall, our combined cash or all in sustaining cost is $9.53 per ounce, so in line with plan. And obviously, we've been selling gold at close to $1500 per ounce at both mines.
So the top line has been very strong for the quarter. At Mesquite, we produce 33,000 ounce of gold and we continue its gradual improvement quarter on quarter and we expect quarter 4 to continue that improvement. Overall all in sustaining cost at Mesquite was $8.55 an ounce, so good cost management for the quarter and well within our expectations. At Aurizona, we get commercial production on July 1st, so a good milestone. We had a very quick ramp up.
So very pleased with how Aurizona's performed in the third quarter. Produced almost 30,000 ounces of gold, but again, that excludes the 3000 ounces that were poured on October 1st. And the all in sustaining cost was $10.53 announce. Turning over to the development corporate highlights for the quarter. In terms of development, now that we're producing cash flow at Arizona, we've been able to reinvest some of that money back into Tatajuba and Scott's been given some money to go and explore Tadajouba this quarter.
So he's got a six thousand meter drill program that's underway. 2 to 3 drill rigs have been on the ground for the last 6 weeks. We commenced early work at phase 1 construction at Castle Mountain during quarter 3. We've only spent about $3,500,000 so far, but we have quite a plan for the rest of the year. We initiated the phase 2 feasibility study.
So that will go in parallel with the construction of phase 1 at Castle Mountain. And obviously, we've updated our non sustaining capital guidance expenditure to almost $75,000,000. And the main change, virtually all of the changes $28,000,000 we've added for Castle Mountain Phase 1 construction. In terms of corporate updates, Obviously, one key milestone for quarter 3 was we commenced trading on the New York Stock Exchange American under the Cymbal EQX. So we have the same Cymbal on both stock exchanges.
And we're looking towards a potential TSX listing in the near future. So with that, in terms corporate visibility. We've really increased our liquidity and market visibility. Our volume has gone from several $100,000 a day of trading well in the 1,000,000, so $2,000,000 to $3,000,000 a day. So we've been very pleased with the reaction from that listing.
Looking at the financial results on slide number 6, very strong results. We're very pleased with these for this quarter. Revenues were almost $92,000,000 for the quarter. And 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 having the 2 mines in operation this quarter. Cash and cash equivalents have increased to $45,500,000 excluding the restricted cash and that's up from $33,000,000 last quarter.
Very pleased with that result considering we've just ramped up or Arizona and we've started to reinvest obviously in Tatajuba drilling as well as Castle Mountain phase 1. We still have $30,000,000 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 share U. S. And that conversion price is $5.25.
So again, a good performance there. Turning to slide number 7, looking at 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 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 9, Looking at quarter 3, we continued to show an increase over quarter 12 to 33,000 ounce of gold production I said before, we'll be increasing that again in quarter number 4. 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 4. In terms of guidance, we expect to meet the lower end of guidance for production and in terms of costs, we're well within the guidance range there. In terms of the rest of the 2019 and the outlook, we'll continue executing on these opportunities to increase production and reduce costs solution managers 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.
So that will continue to enhance that ability to leach more of the Arizona started production in May, hit commercial production on July 1st. We produced almost 30,000 ounce of excluding those 3000 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 5 year gold high and when $13.90 per ounce in June. So again, perfect timing for that ramp up.
In terms of development, we've been optimizing the plant looking at the SAG versus Ag Mill configuration with the ball mill. We've obviously now brought the ball mill into into the circuit, and we're actually operating to a sag ball meal 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 and we're preparing for the rainy season. So they'll have an articulated fleet that will also supplement current fleet of 777 trucks.
We've also initiated the next tailings storage facility lift to thirty five meters that's well underway and on track during this dry season here in the last part of the year. And we've also recommenced, as I mentioned, exploration at Tatajuba and 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 6000 to 7000 ounces of pre commercial production ounces. The grade has come up in the 4th quarter here.
We're now mining in the heart of the pits and 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 1.11.3 grams per tonne We're also expecting to meet our all in sustaining cost guidance of up to $10.25 in the year. We're stockpiling ore. We hope to have a 750,000 ton stockpiled by year end preparing for the rainy season through preparing our roads, exposing higher, or in the pits and closer to the actual plants 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 twenty twenty.
So we're excited that we'll be able to get that potential growth opportunity out into the market. Now the new 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 right viceroy days in the 1990s, it still has permits in good standing, and that's something key to remember here.
And it's about a 4 hour drive from Mesquite. So this is a 3,600,000 ounce deposit. This is 3.5 times the size of Arizona already. We have our key permits in place to resume production. Have all the permits we need to resume construction, which obviously we've started about 6 weeks ago and 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 around Q3. This is only two hundred 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.
Going to look at joint purchasing, obviously things like cyanide, tires, other supplies like lime will be sharing, between the two sites. And as well, there'll be some share back office services, etcetera, and some tax consolidation. So 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 to 3 of this overall mine life.
Years 4 to 16 be 200,000 ounces a year when we get to the full scale capacity. But one thing to note for phase 1, we've done all the engineering work and the studies. We've obviously got locked in contracts a lot of our contractors. And with our life of mine for this, we could go for up to 9 years at this kind of level of production. It's $58,000,000 the 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 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 facility down in Mesquite to smell the gold. And we'll be able to make money from phase 1 on a standalone basis. This will be a standalone operation that will have a return.
For phase 2, the slightly larger scale will go to run a mine plus a small mill that will basically process 2300 tons per day of higher grade material that will be over 3 grams. It'll be about $175,000,000 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 IIS for phase 2. And it's only an amendment. Remember, not a full new permit will 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, early next year. And obviously as a fallback, we'll be looking at our piping in options in terms piping and water from nearby areas and communities. Looking at slide number 15, our focus here really for 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 complete. We now have a 9 year mine life for phase 1 if we need it. Contractors are mobilized to site. Topsoil has been removal has been completed.
Road upgrades are complete. We have 1st deliveries of pipe and liner to site. So there's real activity and you'll see photos of that very soon on our website. We received the conditional use permit approving modifications to the mine. We've also got the air emissions permit, which is required for operation.
So we've again made progress on those kind of minor permits for operations for phase 1. And we've commenced that feasibility study. So 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 1st part of next year. So 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 1st gold pour in Q3, twenty twenty. So it's a really quick timeline to gold production here. This is a small project. We've got firm quotes.
So the capital budget is quite firm at this stage. We've worked in working capital, a 12% contingency into that budget. We've already spent $3,500,000. And one key thing obviously is we're fully funded into, into production here for phase 1. And something to remember as well, phase 1 really is a key part to us starting phase 2.
So 50% of the capital expenditure is considered early build for phase 2. Turning to 2016 to wrap it up and bring it all together here. 2019 is 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 plan to do at the beginning of the year. We have a couple of months left here to finish off this list. And, one of key things here for us in the new year. At the bottom, as you can see, we still have work to do on is, you know, 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, but with our recent liquidity, with our U. S. Listing, with the greater visibility of having 2 mines going 3 in the next year. We're getting more visibility for that purpose.
And we hope to be looking towards index inclusion next year. And addition, as we said, we want to achieve being a 1,000,000 ounce producer by the end of 2023. So we've got our internal growth profile and assets. We're gonna 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 America.
So 2020 will be a busy year. 2019 has been a good year so far, and we're pretty excited about what we've achieved. And, the gold price and gold market has improved alongside all the achievements we've had internally. So overall, I'd say it's been a really satisfying year, and so far and we've got 1 quarter to go, which we expect to be our best quarter for the year. So I think with that, I'll sort of wrap it up and turn it over to questions.
Sure, operator.
Session.
You.
Thank you. Well, people are queuing up for questions. I will ask the question. I was just down at the Silver And 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? So can you just remind people of Christian about the permit process?
Yeah, sure. It's obviously very topical for us today. So remember, Castle Mountain's past producing mine from the viceroy day 1990s. It only shut down because of the low gold price in the early 2000s when it was $2.50 an ounce. And an 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. So, the permits remain in good standing. This is not a greenfield site.
Is a brownfield site. So we're not looking for brand new permits. We'll be relying upon the existing permits in place. And we have all the permits we I think good evidence that will be the photos that will be up on the website very soon here to show that we're actually making progress obviously with a good dialogue and relationship with the regulators in San Bernardino County. So hence, we 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. So 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 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 one of the key things here. It's not disturbing much more land than we had 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.
Good morning, Christian, Rowland. Thanks for taking my questions.
Yeah, good morning.
The first, starting on Mesquite, there's a line or a paragraph in the MD and 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?
Don't know if they have the exact numbers off the top of my head in the 1st part of the year when we took over, obviously, they were focused on stacking an on oxide material. So it was well, I would say, over 50%. In the last quarter. So I'd say it's 80%, 90% at least would be in the oxides. And we'll continue with that for the rest of the year.
Okay. So that with this, the 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 to the bottom end of the guidance, you think that that is achievable?
Yes. And I mean, like I said, the key for us in the moment has been solution flow and being able to actually basically, irrigate as much of the pad as possible because we stacked a lot of ounces. So you look there, we've got 180,000 to 200,000 is up there. So solution flow has been a key managing factor. And with the higher percentage of oxides and that 75% recovery, we do believe we will achieve that.
Yes. 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 you can ride the ship with that one?
Yes, 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 gensets, but It just slowed the operations and being a heap leach operation. You just have to ramp it back up to full capacity, but we don't expect material change, but it's something that did happen. And, you know, and that's sort of a freak event in Southern California there. Obviously, we don't have any forest fires because there's no forest or trees around at all.
But we do get the aud occasional windstorm or flash flood like that.
So that remediation work is all backward looking now?
Yes, it's all done. It's all fine. Operating is normal.
At Aurizona, given that it's pretty much into November now and the rainy period is coming, 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 to the current day?
Yes, I think at the moment, we're about 400,000 tons on the stockpile, which obviously has made a significant advancement since I think visit about 4 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. And, we've got all the 777s going. So it's piling up fairly quickly.
And by year end, what's the target for the stockpile?
3 quarters of a 1,000,000 or so more if there's capacity.
And the 400,000 tons you have at the Do you have an estimated grade for those tons?
I don't have an estimate. Historical what we were putting through flat was between 1.11.3. You know, I think you'll see that grade maybe, you know, creep up a little bit, maybe 1, 2, to 14, 1415. Got it.
One last question. You mentioned the potential for a 9 year life of mine for Castle Phase I, is that based on that 9 years? Is that all based on previously mined material? I. E.
Mineralized waste from the former operation or would there be a blast component in that 9 years as well?
Well, let's Scott answer that, actually. He's here.
Yeah. I mean, we're currently looking at probably four and a 4 and a half, five years straight from previously mined material, it's fully permitted. There's a lot of high grade ore exposed on service that we can, mine as well. So it contemplates chasing some of the higher grading portions of that that, our highest margin.
What would be the mining cost difference delta when you go to mine the mine and stack the previously mine material versus Freshrock?
Drilling blast and slightly longer haul.
What's that in dollars per ton?
I don't think it's a little bit early to give that out. I mean, we'll put out guidance, but in the PFS to give you a good indication of kind of the difference between, I think, phase 1 and phase 2. And 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 on our operated fleet.
Got it. Thanks again.
Yes. Thanks for the questions.
Your next question is from Andrew Mikitzcoach with BMO Capital Markets. Please go ahead.
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?
I mean, we certainly it's a priority. I mean, as one we had to say, as everyone picked up, it's a very much a priority, for during the rainy season to have that flexibility. You know, when you look at the historical operation here for the 4 years that operated prior to our time as management here. They did operate during the rains. They had an articulate fleets.
And, you know, like we indicated on the site visit, they could probably mine and give or take 50% of the normal rate. So this will add that flexibility of 3, 3a half so literally being able to process without any mine effectively. So it gives us lots of flexibility during that rainy period.
And, maybe just to close one more question on Arizona. 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?
Yeah. The mill's continued, basically. It's continued at the same sort of rates. You know, there's really been no change so far. I mean, we're still mostly in the saprolites and the off to rock.
But, we've been tweaking this ag ag, and it's coming towards fifty-fifty, I guess, but it's still continued to be over that 1000 tons per day nameplate. I mean, I would say more in that 8500 ton per day range.
Okay. I think that's it. Congratulations and I'll let other people follow-up with further questions.
Keybooks questions come from John Klosnick with National Bank Financial. Please go ahead.
Great. Thanks, Christian and Rillan. Just got a question on mesquite, again, with this, the historical dumps and leach pads and just wondering what the grade there that you're pulling from that and how long you expect to rely on those?
I'll let Scott answer that one.
Yeah. I mean, it creates variable. Like, like the story that we refreshed this morning on Castle, a lot of the historic operation California were in a much different gold environment. And if you look back at historical grades, mined, I mean, some of the grades in the upper portions of deposits were gram, gram and a half type material, and they're, you know, cut off material, cut off grades for them at the time like Castle were in half gram, even plus type range. So it's quite variable.
Obviously, putting resources and reserves on historical dumps is, is interesting. Dairy say challenging, but, it's quite variable.
But I think what you've seen for quarter 3 and that sort of 0.25to0.3 range is reasonable indication of what we're seeing?
Yeah. It's normally in line with the average grade of, in situors at this point.
Okay, fair. Yes. Thanks, Scott. And, just with the heavy rains that you guys have experienced there and the kind of impact to the leaching, Do you have any sort of guidance for recoveries there and for Q4?
No, we expect the same. I mean, I think it was a bit of a blip there. So 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. And sorry, back to Aurizona with the stockpiling there. To achieve kind of that throughput rate of fresh material, or mine material, I should say, what kind of mining rate are you expecting for Q4 and into 2020 in order to get the stock pile up there as well?
I mean, I'll come in at Jim correct, if I'm wrong, but we're looking at that sort of 100,000 to 120,000 tons a day is probably a pretty good estimate. Hang on. That's where we're heading. It's 120, but yeah, we're up well over 100 right now.
Right, okay. Perfect. That's great. I'm sorry, last one for me. Just with the BRL hedges there, I noticed you 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, John. Yeah. The substantial part of our cost in Brazil is denominated in reais, a fair figure to is touching up closer to 90%.
Okay. That's perfect. Thanks for answering my questions guys and congrats on the good quarter.
Yes, thanks John.
Great. Well, we don't actually have any questions online today, which is unusual. So if somehow you think of question after we're done. The webcast will be archived on the website for 3 months, and you can always reach us by email or by phone. I will turn it over to Christian now for closing remarks.
Yes, thanks, Lynn. Thanks for joining us today here. It's a key milestone for us today and yesterday here hitting 2 key milestones by starting Aurizona and having first great, great first quarter as well as getting into construction at Castle Mountain. So there'll be lots of news over the next sort of 6 to 9 months as we get Castle into production. And we're excited for the next year coming up here.
So thanks again. We'll speak to you soon.