Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Second Quarter 2019 Results Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. I would now like to turn the conference over to Rillen Bailey, Vice President, Investor Relations for Equinox Goldcorp.
Please go ahead.
Thank you very much. Just a reminder that if you're on the webcast, you also have the opportunity to ask a question. There'll be an ask a question tab in the corner of your screen there. I will remind you that we are making forward looking statements today. So please visit our website and our continuous disclosure documents on SEDAR to make sure that you're fully informed.
Will now turn the conference over to Christian Milau, our CEO.
Thanks, Rillyn, and good morning, everyone, and welcome to the Q2 webcast probably our first official quarterly webcast. So excited to be here today. Turning to page 3, just as a quick refresher, here and a reminder on where we're located in our strategy before we dive into Q2. We've got the 2 projects in California, 1 in operating mine being skeet run of mine heap leach and as well a Castle Mountain project, which we plan to construct starting later this year. As well, we've just been completing the build of Aurizona, Northeast, Brazil, and Marion State.
So we're now a 3 project company with 2 operating mines So really quickly here in the last sort of 18 months to 20 months, we've gone from sort of a 1 development asset company to 2 mines and we soon have a project to be in construction. So that's a big step forward within the last 2 years here. So we're really proud of that. And we've achieved this through internal growth. And construction, as well as M and A and adding assets like Mesquite in the late 2018 period.
Things have moved really and we have an ambitious goal here of reaching 1,000,000 ounces a year of annual production by the end of 2023. So turning over to Slide 4 and diving into second quarter here in corporate highlights. It's been a busy 3 to 6 months. We've had a good safety record with no lost time injuries and no reportable environmental incidents. We've also had a good CSR recognition, and we're really proud of the 2 awards we received in Brazil, which are national awards.
As well, we've focused on restructuring our balance sheet, which we said we'd do at the beginning of the year. We thought we'd be doing it in late part of this year, but kudos to the team for getting it done early. And we're really pleased to be inviting or having Mubadala joining our capital structure here. They recognize an opportunity to refinance some more expensive debt through their Sovereign Wealth Fund of Abu Dhabi, which is Mubadala's ultimate parent. We've also put in place a corporate revolver with Global Banks.
So we have no longer the expensive siloed project debt that we had at the beginning of the year. So interest costs have been reduced significantly from about 10% coupon to about 5% and that's roughly a $5,000,000 a year savings. As well. We pushed out the principal payments for a number of years. So, well done to the team for getting that restructuring done early.
And during Q2, we've continued to advance Castle Mountain, not just in the second half of this year. We've also sold out gold for about $10,000,000. That was a small remnant project in BC that we had. We sold that. We've also updated our expected CapEx for the year, you'll see, it was originally in the low 60s, now $69,000,000, and we spent $48,000,000 of that to the end of June, and that excludes any capital spending for phase 1 CapEx on Castle Mountain.
There's a slight increase obviously here, and most of that is due to slight amount of extra capital at Aurizona, and also a couple of $1,000,000 of extra drilling at Mesquite. The $69,000,000 is primarily made up of Aurizona. It's roughly $36,000,000 of capital till the end of June. We'll also be doing a TSF raise down at Aurizona or tailing raise of about $10,000,000 in the second half of the year. And the rest of it mostly is capitalized waste at our two mines.
And so approximately 40,000,000 of the 69,000,000 is non sustaining, which is obviously mostly Arizona. So turning over to slide 5, and the operating results for the 2nd quarter. Mesquite had a slightly improved production in the 2nd quarter of almost 27,000 ounces Obviously, that number excludes the 7500 ounces that we produced at Aurizona in the pre commercial production period. So our total actual gold production for the quarter would be about 4300 ounces if you included the Aurizone ounces. Mining was very recently, been focused on the oxide and the mineralized historical waste dumps and pads at Mesquite.
So we've moved away from the off from the non oxide material that was being mined at the very beginning of the year. And we had very good cost management shorter hauls, which has kept our costs well within the range, if not just below the range for Mesquite. We do plan to do some drilling on new concessions across the highway from Rainbow and potentially elsewhere once we get the permits to drill. And we hope those will be with us around year end. So we're starting to look forward now that we have our mines fully into operation, both of them.
Arizona, we poured gold. We made our first shipment probably at the 5 year high gold price, in early June there. So really pleased in the 13.80s. Hadn't seen that for a few years. And it's ramped up really well thereafter.
There was a slight 4 month delay in the construction, but we've made up a lot of time in the ramp up. So kudos team. And this slight delay was due mainly to the heavier rains. We had about 3 point 7 meters of rain when normally we have an average for the whole year 2.8 meters. So that had an impact on final cable pulling, electrical terminations and piping installation.
We're past that now. The final CapEx for Arizona bills is about $165,000,000 or roughly 13% over the original budget. And also, I'd like to just thank this opportunity to thank the team for their commitment and hard work and getting this done in a remote location and getting it done very close to the date that we planned. And the ramp up has been very smooth. The updated guidance, which we've included obviously in our press release for quarter 2.
So for Mesquite, we expect a strong second half, but we have updated guidance to reflect the first half being a little bit below expectations. And that really reflects the longer leach cycle and the stacking of the non oxide or in the 1st 4 plus months of the year. But we're still at the bottom end of the original guidance range, basically. We're now focused stacking the oxide ore and particularly on the historical waste dumps and pads that grade about 0.25, maybe to 0.3. Those have a faster and higher recovery, more in the range of the original in the 1,000,000 short tons.
And we're also increasing the solution flow from a booster pump that we've put in place in July, and as well, we'll be refurbishing a third well at Mesquite. So this takes time to come through, but it's been implemented and we plan to see an increase in solution flow of up to actually 50% by later in the year. So a real change there. Aurizona, we also expect a good second half. Really excited to see this mine, up into full production now.
We've updated guidance slightly to reflect the 4 month extension to construction, but again, we're still at the bottom end of the original guidance range, despite that slight delay. Cost guidance has increased slightly due to the fact that we need to strip a bit more in a shorter period of time in the second half of the year. We've also spread this would have been spread over the full year had we started, wrapping up a little bit earlier. So we expect the grade to increase we rely less on lower grade stockpiles and ramp up mining this summer, August should be processing reserve grade. Construction delays and rains result in a subsequent modification of the mine plan to focus more on the Piaba main pit, which has higher grades and also will leave our cells, Piaba East to mine in the rainy season next year, which had shorter hauls and slightly easier to manage in the rains.
This will result obviously in more strictly in second half and the slightly higher all in sustaining cost, but the operating costs are broadly in line with expectations in our original estimates. In terms of recent production has also continued to increase as the grade has increased as well. So in addition to this, we're also commissioning the ball mill We've been running on the SAG Mill so far, and it's been operating very well. But we're commissioning the ball mill right now. It's almost done.
It'll be done in August. And will allow us to maybe stabilize the grinding a little bit more and increase recovery slightly, although we don't need it at this point in time with the soft saprolite ore. So total ounces produced in Q2 did not include Aurizona. I just want to remind you that, so pre commercial production ounces at Aurizona are about 7500 ounces. Turning over to Slide 6, the financial results for the quarter at a high level, revenues of $35,000,000, but we expect that to increase substantially in Q3, obviously due to the gold price increase that seems to be hanging there above $1400 and also having a full order from Aurizona.
Obviously, no Aurizona is included. No Aurizona ounces are included in the Q2 revenues. Our cash balance was $33,000,000 at the end of the quarter, at the end of June, We did also have restricted cash of $15,000,000 and marketable securities about $1,500,000. And we've also got a drawn debt of approximately $130,000,000 and also $30,000,000 still available on our corporate revolver. Turning over and looking at the mines individually a little bit more closely, I'm going to turn right to slide number 8, which is the Mesquite overview.
We've had a slight increase in production as I mentioned for the second quarter and we expect a much stronger second half. July has been stronger already with about 10,500 ounces produced and we're increasing our ore stacking cap, as I mentioned earlier, to 37,000,000 short tons from 25. So it gives us a lot more flexibility here to stack ore in the second and use the year and onwards in 2020. We've already commented on guidance. The second last piece is really we expect the permits to drill across the highway and other parts of the property later in the year, and we're excited to go explore beyond Rainbow in late 2019 or early 2020.
We really believe that exploration is an important focus in Mesquite as we move forward. Turning over to slide number 10 and looking at Aurizona a little more closely. As we mentioned, we're really pleased with the ramp up of Aurizona, the nameplate of 8000 tons per day. In some days, we've even done over 9000 tons. There's some real satisfaction for myself and some of the team.
You know, when we started here a few years ago, this really was a dream and, it was an unfunded development project. So to see it come to fruition in less than 3 years and get Aurizone up and running well is really exciting for us. We really always felt that we had great prospectivity and this could be a a camp around Aurizona. So now we've got all the pieces in place and we've got a mill to treat all types of ore. So thanks to all the supporters and local stakeholders as well.
It's have supported us along the in July has continued, as we said, about 9500 ounces produced in July, and we expect August to be even stronger as we move towards reserve grades. So based on our guidance, we'll be averaging over 12,000 ounces a month for the rest of the year. And as well as we said, the ball mill will be commissioned in August our mining fleet will reach full capacity in August. So we'll be humming along as we move through August 20 with Aurizona up from fully running. And really, we're excited.
We want to get back to exploration at Tatajuba in 2019 and we're planning a small program for the second half of the year and then into 2020. So turning over to Slide number 12 and looking at Castle Mountain, which is obviously future here. Castle Mountain is advanced significantly during the first half of the year. We're ready for construction. Now we've done all the engineering.
We've done some of the land preparation And as we have the permissions and basically the water to go ahead and construct, so we're ready to go. So we plan to start official construction later this year. We really wanted to show Aurizona's ramped up and running fully before we launch into that. So there's been lighter spend on early works and we'll continue that during this period at the moment. And we'll give more guidance on CapEx and other details as we formally launch into construction later this year.
We expect the CapEx to reflect the PFS levels in the mid $50,000,000 range. And in the current gold price environment, we feel we have the internal funds to move forward here. Overall, the plan remains the same, get phase 1 into production around mid-twenty 20, so that we're pouring gold, reestablish our tenancy in goodwill with low stakeholders and show that we're a good operator and then prepare for phase 2 in the next few years. The plan is to start the phase 2 feasibility imminently here. Then we'll work with the permanent amendment on the back of this, which will go on behind the scenes as we get phase 1 into production.
As well, we're also expecting to get the permits to drill for water for phase 2, which has always been something in the works, and we expect those around year end this year. So that's Castle Mountain. And I just want to turn over to Slide 13 and bring this all together. So looking sort of back at our history and looking forward here, We're really pleased with our progress over the last 18 months to 2 years. It's a lot of hard work by the team to build and acquire and finance what is now a well positioned multi asset mid tier producer We went quickly from a single asset developer to a multi mine producer, and we have now the potential path towards 500,000 ounces a year of annual production.
So we'll look to supplement through organic growth, exploration and development internally, as well as we'll continue to look for M And A opportunities, which we've been pretty quiet on over the last little while here. There's nothing imminent in the pipeline, but we're focused on the Americas and we'll keep our eyes open on opportunities as they come along in the future. Turning on to page 14, looking at it for more of a sector positioning view, we now have 2 operating mines. We're no longer a developer. We think we're well positioned.
We're really enthusiastic about our prospects for the second half of this year and potential for a rerating. We really want to show the investment community that Aurizona coming along. We've got obviously Mesquite in production and then we're firmly in place. We're constructing, Castle Mountain Phase one and can show that we'll be a multi mine intermediate producer very soon here. So we hope to start climbing this chart and move towards the right and get evaluation more in line with our peers, but that will come in due course in time this year.
The other piece as well, we've had very good support recently the investment community, a lot more volume in our stock, a lot more interest. So pleased to see that volume ticking up. And we will consider a U. S. Listing at some point here that later year and graduating to the TSX as we mature as a company.
And we had the strong few months of trading have had a good indication of the potential to get included in disease we hope in 2020. So in summary, in conclusion on page 15, just wanted to close and say that, you know, we've been working very hard to meet our 20 19 targets. They're ambitious, but we've now turned a corner here with Aurizone up and running and the 2 mines producing well. Our vision is ambitious and we hope to move forward very quickly here and work towards becoming a 1,000,000 ounce producer over the next 3 to 4 years as we get towards the end of 2023. So That concludes the formal part of the presentation.
I'd like to thank everyone for attending and I'll open up for questions.
Thank you. Questions. We don't have any questions online yet, so we'll go directly to the phone lines, please. Thank you. Our first question comes from Bryce Adams of CIBC.
Good morning. Thanks for taking my questions.
Hey, Bryce.
Fisher, I just want to touch on the guidance update quickly. So at Aurizona, to get to the bottom end of guidance, I was you, if I assumed 8000 tons a day, and 91% recoveries need to use about a 1.6 grams per tonne to get to the bottom end of guidance. To get to the top end of the guidance, so we need to be a little bit more than 2 grams a tonne. You mentioned that, July was 9500 ounces and that August will be running at about 1.5 grams per tonne because that's the reserve grade I'm just wondering how should we think about those grades in the back half of the year need to use, do you think I need to use between 1.6 grams per tonne to to get within guidance?
Well, I think just, stepping back, I mean, we will expect to be through having throughput levels 8000 to 9000 tons a day. So, nameplates 8000, we're running ahead of that and our recoveries are slightly higher already as well, not So we're sort of running in that 92% range, maybe a little higher. So those would be slight benefits. And we do expect to average between 1213 ounces for the second half of the year. So grades will reflect that and it will be reserve grade a bit better.
Okay. I can appreciate that you have those good days above 9000 tons, but 8500 would be okay as an average for the second half?
8500 is a reasonable average.
And then I guess a similar question for Mesquite. To get to the top end of guidance, you need about 46,000 ounces each quarter. What are the operating parameters that you'd need to achieve that?
Yes, I mean, we've as we've got this increase in the stacking tonnage stacking cap from $25,000,000 to $37,000,000. We obviously have the ability to stack a lot more ore. So that's something that we've been ramping up and we'll be doing. Grades are probably a little bit better in the second half of the year. And the big thing also is solution flow.
We've been limited to sort of 10, 11,000 gallons per minute we'll be ramping up towards that 18,000. So there's a big increase potential in solution flow there as well. And as we move into the oxide material more. Because the first part of the year is really non oxide, which is a 35% recovery in a longer leach cycle. So we get into the oxide material we've been doing recently.
You're going to have 75% type recoveries in much shorter leak cycles. So all of those things benefit.
Okay. On the better grades, do you think that half a gram per ton would be too aggressive?
Oh, yes, half a gram is too aggressive. I mean, it's between 0.3 and 0.4 most.
Okay. And on the stacking cap, is that done? You have it in hand already?
We do.
Okay. So would you be looking to maximize that stack, go straight to 37 for this year?
Off the top of my head,
I can't say if we're going to max the 37.0, but we'll certainly be well above the 25%.
Okay. And you'd need to balance that with this pressure as well, I imagine.
Yes. And interestingly, obviously, we're our 2nd phase is we are looking at the overall maximum tonnage moved. I think it's 65,000,000 short tons Again, we're looking at potential to increase that. I don't expect that'll happen before year end, but yes, we do need to manage that strip. But one of the benefits obviously of having these dumps and leach pad material that Scott's drilled off is they have a very low strip, if almost no strip in certain cases.
All right. That's it for me. I'll jump back in the queue. Thanks so much.
Great. Thanks, Bryce.
Our next question comes from Andrew Mikitchook of BMO Capital Markets.
I just wanted to come back a little bit on this Mesquite. Are you seeing the leach curves picking up as expected for this non oxide material that went down on the heap kind of the first half, in line with expectations at this point? Or is that still something you're expecting to happen?
Yes, I think, I mean, one of
the challenges we've had is because it is slower and it's obviously a lower recovery that, we've needed more solution flow so we could continue to stack and irrigate as much as possible. And I think we've been limited in the amount of time that we can actually spend on each part of the heap as we stack that non ops material. So with the greatest solution, load allow us to cover that for a longer period of time. So it'll gradually move towards that.
And, just the number for the year, at $200,000,000 $235,000,000. Does that conceptually include the noncommercial ounces at this point?
Yes, our guidance basically, we did include, because we originally included them in the Aurizona number. So we included it.
Yes.
Okay. I think the rest was fairly clear. Thank you for your time.
Our next question comes from John Scolnick of National Bank Financial.
Hey guys, thanks for taking my call. Just had a couple of questions. I guess, yeah, with the strip ratio at Aurizone, you said you're kind of adjusting the mine plan for the second half of the year. Could you give us a sense on what the strip ratio is that you'd be expecting there?
I think a strip ratio is around that sort of 8 to 9 times. So it's quite a bit above, obviously, what our average is for the whole life of
mine. Right, okay. Okay, nice. And also just in terms of the costs that you guys saw at Aurizona, I know you said you're kind of in line with what you were expecting. Would you be able to provide any unit costs?
I mean, we're just in the 1st month and we haven't even closed off the 1st month. So I don't wanna too much guidance. So, I mean, you can look back at what we we've our cash cost effectiveness that are in line with what we expected. And our original plan was to be mining at around $2.40 to $2.50 a ton. So we're expecting in that sort of range, which was obviously original contract and feasibility numbers.
I don't really want to give too much more guidance on that, but basically the cash costs are roughly in line. It's that extra stripping that's basically being divided over a lot less ounces over half of the year that effectively is hitting that cost amount.
Right, okay. And similar question at Mesquite, it's pretty impressive all in sustaining costs. Hit this quarter despite kind of the lower than expected production. You mentioned kind of the shorter haul distances. Would you be able to give a little bit of color on unit costs there and kind of what your vacations are to drive that?
I know obviously kind of the strip ratio would come into play there. Do you give any color on kind of unit cost and strip ratio at Mesquite for the back half?
Yes. So Mesquite basically, has had the shorter hauls, particularly we've been taking some of the material off that old leach pad for a few of the dumps and those are obviously very close to the leach pads that we're stacking them on. So that's a lot shorter haul strip ratios than those, like I said, are rather negligible relative the rest of it. So the average is, I think, around 1.5,1.7 times 5 times strip for the rest of the year. And, our mining cost has ranged anywhere from sort of 150 to 161.75.
So it's been quite efficient. I mean, they've done a great job of mining efficiently. And that's the key driver down there, of course. We'll probably use a little extra on the reagents front. Obviously with the longer leach cycle and going after some of that non oxide material, so a little bit higher on the reagent front.
Right. Okay. Yeah. No, that's an impressive result there. Last one, just that Castle Mountain, if you give a little color on your spending plan, if I missed that, the comments there.
Yes. So it's Castle Mountain obviously this year. It's been engineering sort of preparation of the property and some of the more technical work has been kind of low spend so far. The goal is at some point here in the second half of the year, once we can kind of demonstrate kind of more empirically to the market and investors that Arizona is up and running, really well, which it is at the moment. And we'll launch into construction and then we'll sort of announce the campaign essentially.
But be light spending of a few $1,000,000 here and there as we move towards that with some early work stuff just to keep things moving because we've now got firm bids and quotes on things. So we keep things going on behind the scenes before we get into official construction.
Right. Okay. So you're still kind of targeting maybe some gold coming out in 2020?
Oh, yes, yes, yes. I mean, let's say Q3 around midyear 2020.
Okay, perfect. Thanks. In my model there. That's great. Then that's all the questions I have.
Thanks very much.
Thanks, John.
Great. We've got a few questions from investors online. The first is from in Canada who asked, what is your plan to pay down debt once all three mines are in production?
Yes, I mean, long term or midterm here as we get towards our ultimate goals, we do want to pay down debt. We want to have a slightly less, I'll call it, or have a more conservative capital structure One active decision we made, particularly with Ross being our largest shareholder last year was we wanted to acquire assets kind of at the bottom of the cycle, whether we were right or wrong about the bottom, I'm not sure, but I remember when we were acquiring Mesquite Gold hit 11.70, I think it was at 11.74. Timing looks pretty good there. And we use the reasonable amount of debt to fund roughly half of that acquisition value. And we look paid out down over time.
And with gold at 1400, it will give us the opportunity to as we get the 3rd mine into production here to pay down a bit of debt, over the next sort of year, year and a half. So we'll start that once, Castle is in place.
Okay. I've heard, mentioned another question from Canada. I've heard mentioned that you're planning a US listing. Will you have to do a consolidation for that?
Yeah. If we do do a US listing, you know, you need a minimum $2 US share price. So our share price, obviously, is $1.35 or whatever it is Canadian today. And, we would need to consolidate a bit. We'd probably consider something like a round consolidation number, something like a five times if we have to.
Okay. We'll go back to the phone lines, please. Our next question comes Ray your line is live.
No question.
Okay. Our
next question comes from Robert Zitzer, a private investor.
Yes, my thank you very much. My question is, I was a large shareholder of Castle Mountain. And then with the merger, I owned, Equinox Gold, and I bought, had bought some more shares. My question is, Richard Walky, who was the largest shareholder of Castle Mountain. Is he still a strategic investor in Equinox Gold And if he has that large proposition, why isn't he listed as a substantial investor in the company?
Yeah, Richard Work actually is still, he's our 2nd largest shareholder, actually. I think Ian's about 6% to 7% after Ross is 12%. We don't tend to necessarily list, individuals' names, for privacy, I guess, purposes, but Richard is still a large shareholder. And he has continued to participate in financings acquired Mesquite he participated in that financing to support us alongside Ross as well. So, we keep a good dialogue with him as a key strategic shareholder.
Thank you very much.
All right. We've got another question online. This one's coming from Turkey.
You've mentioned that you were quiet on M and A recent Is it because you haven't found any good targets that align with your strategy or is it because you've been focused on developing and optimizing your existing assets?
Yes, with the M and A strategy, we've been really inwardly focusing for, I'm going to say 6 to 9 months for sure here, getting Aurizona done getting Mesquite integrated, getting Castle ready. There's been a lot of focus and we wanted to keep our attention on the ball in a sense and really leaves where we've gotten to. But now I think with 2 mines in operation and basically Castle ready to go here, we can start sticking our head up again and looking around. It's not easy. It's almost a shame in a way that gold prices run a little bit quickly here because opportunities tend to be cheaper and a little easier at bottom of the market when capital is a little more scarce, but we'll start looking forward now.
We'll continue to focus on the Americas, would be our primary focus ideally we'll do an acquisition in the next 6 to 18 months here.
All right. We'll take another question from the phone lines, please. Thank you. Our next question comes from Bryce Adams of CIBC.
Hi, question. I came back for 1 more. Hope that's okay. That's okay. Yeah.
In the Mesquite tech report, 2020 2021 did have elevated strip ratios. Is that something we should still be looking for?
Yeah, I mean, obviously, that's going to change quite a bit here. You know, Scott's drilled off all these leach pads and dump material. You know, we've got sort of 150,000 to 175,000 ounces in there of recoverable ounces. So we've got a lot of flexibility to sort of smooth that out in a sense and reduce the strip. And now with the extra flexibility on stacking, we've got also the ability to put more tons up.
So I would say it's going to be a smoother profile than that. Unfortunately tech report is almost outdated now.
Yes, got it. Okay. Thanks so much.
All right. Well, at the moment, we don't have any more questions. Online or from the phone line. So I'll just remind people that the webcast will be archived. If you do think of
a question, please send us an email and we'll get back to you.
Yes, thanks for the Lynn. Thanks for everyone for joining our first real quarterly webcast here. I think we're turning the corner here. We're really excited about Q3 and Q4. Equinox is so well positioned for the rest of this year and we'll be an official mid tier producer here as we launch into Q3.
So stay tuned. I think we're going to have some for the rest of