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. 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. 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 Corp. 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'll 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. I will now turn the conference over to Christian Milau, our CEO.
Thanks, Rhylin, and good morning everyone, welcome to the Q2 webcast, probably our first official quarterly webcast. Excited to be here today. Turning to page three, just as a quick refresher here and a reminder on where we're located and our strategy before we dive into Q2. We've got the two projects in California, one an operating mine being Mesquite, run-of-mine heap leach, and as well, Castle Mountain project, which we plan to construct starting later this year. As well, we've just finished completing the build of Aurizona in Northeast Brazil in Maranhão State. We're now a three-project company with two operating mines. Really quickly here, in the last sort of 18-20 months, we've gone from sort of a one development asset company to two mines, and we soon have a project to be in construction.
That's a big step forward within the last two years here. We're really proud of that. We've achieved this through internal growth and construction as well as M&A and adding assets like Mesquite in the late 2018 period. Things have moved really quickly and we have an ambitious goal here of reaching 1 million ounces a year of annual production by the end of 2023. Turning over to slide four and diving into the second quarter here in the corporate highlights. It's been a busy three to six 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 two awards we received in Brazil, which are national awards.
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 the late part of this year. Kudos to the team for getting it done early. We're really pleased to be inviting or having Mubadala joining our capital structure here. They recognized 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. We have no longer the expensive siloed project debt that we had at the beginning of the year. Interest costs have been reduced significantly from about 10% coupon to about 5%. That's roughly a $5 million a year savings. We pushed out the principal payments for a number of years.
Well done to the team for getting that restructuring done early. During Q2, we've continued to advance Castle Mountain, not just build Aurizona, and it's now ready for construction. We hope to be launching into that construction in the second half of this year. We've also sold Elk Gold for about $10 million. That was a small remnant project in B.C. 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 at $69 million. We've spent $48 million of that to the end of June. 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 the slight amount of extra capital at Aurizona, and also $2 million of extra drilling at Mesquite.
The $69 million is primarily made up of Aurizona. It's roughly $36 million of capital till the end of June. We'll also be doing a TSF raise down at Aurizona, our tailings raise of about $10 million in the second half of the year, and the rest of it mostly is capitalized waste at our two mines. Approximately $40 million of the $69 million is non-sustaining, which is obviously mostly Aurizona. Turning over to slide five and the operating results for the second quarter. Mesquite had a slightly improved production in the second quarter of almost 27,000 ounces. Obviously, that number excludes the 7,500 ounces that we produced at Aurizona in the pre-commercial production period. Our total actual gold production for the quarter would be about 34,300 ounces if you included the Aurizona ounces.
Mining was very recently been focused on the oxide material and the mineralized historical waste dumps and pads at Mesquite. We have moved away from the non-oxide material that was being mined at the very beginning of the year. We have had very good cost management and 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. We are starting to look forward now that we have our mines fully into operation, both of them. Aurizona, we poured gold. We made our first shipment probably at the five-year high gold price in early June there, really pleased in the $1,380s.
It's ramped up really well thereafter. There was a slight four-month delay in the construction, but we've made up a lot of time in the ramp up, so kudos to the team. This slight delay was due mainly to the heavy rains. We had about 3.7 meters of rain when normally we have an average for the whole year of about 2.8 meters. That had an impact on final cable pulling, electrical terminations, and piping installation. We're past that now. The final CapEx for Aurizona build was about $165 million or roughly 13% over the original budget. Also, I'd like to just take this opportunity to thank the team for their commitment and hard work in getting this done in a remote location and getting it done very close to the date that we planned.
The ramp-up's been very smooth. The updated guidance, which we've included, obviously, in our press release for quarter two. For Mesquite, we expect a strong second half, but we have updated guidance to reflect the first half being a little bit below expectations. That really affects the longer leach cycle and the stacking of the non-oxide ore in the first four plus months of the year. We're still at the bottom end of the original guidance range, basically. We're now focused on stacking the oxide ore and particularly on the historical waste dumps and pads that grade about 0.25-0.3. Those have a faster and higher recovery, more in the range of the original oxide material of about 75%.
To mitigate, in the future, the slower non-oxide leach cycle, we've also increased our ore stacking cap from 25 million tonnes to 37 million short tonnes. We're also increasing the solution flow from a booster pump that we've put in place in July. As well, we'll be refurbishing a third well at Mesquite. This takes time to come through, but it's been implemented, and we plan to see an increase in solution flow of up to potentially 50% by later in the year. 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 four-month extension to construction. 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. This would have been spread over the full year had we started ramping up a little bit earlier. We expect the grades to increase as 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. Also, we'll leave ourselves Piaba East to mine in the rainy season next year, which has shorter hauls and slightly easier to manage in the rains.
This will result, obviously, in more stripping in second half and a 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 and performance, July has continued on a similar trend to June. We've had good mill availability, great throughput, good recoveries. Production has also continued to increase as the grade has increased as well. 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 it 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.
Total ounces produced in Q2 do not include Aurizona. I just want to remind you of that. Pre-commercial production ounces at Aurizona are about 7,500 ounces. Turning over to slide six, the financial results for the quarter. At a high level, revenues of $35 million, but we expect that to increase substantially in Q3, obviously due to the gold price increase that seems to be hanging there above $1,400 and also having a full quarter from Aurizona. Obviously, no Aurizona ounces are included in the Q2 revenues. Our cash balance was $33 million at the end of the quarter, at the end of June. We did also have restricted cash of $15 million and marketable securities about $1.5 million. We've also got the drawn debt of approximately $130 million and also $30 million 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 eight, 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. We're increasing our ore stacking cap, as I mentioned earlier, to 37 million short tonnes from 25. It gives us a lot more flexibility here to stack ore in the second half of the year and onwards in 2020. We've already commented on guidance. The 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 at Mesquite as we move forward. Turning over to slide number 10 and looking at Aurizona a little more closely. As I mentioned, we're really pleased with the ramp up of Aurizona to nameplate of 8,000 tons per day. Some days we've even done over 9,000 tons. There's some real satisfaction for myself and some of the team. When we started here a few years ago, this really was a dream, and it was an unfunded development project. To see it come to fruition in less than three years and get Aurizona up and running well is really exciting for us. We really always felt that we had great prospectivity, and this could be a district or a camp around Aurizona.
Now we've got all the pieces in place, and we've got a mill to treat all types of ore. Thanks to all the supporters and local stakeholders as well at the time who have supported us along the way and also funded us along the way. Construction was completed in April. We had a very strong May and June ramp-up to commercial production. July has continued, as we said, about 9,500 ounces produced in July, and we expect August to be even stronger as we move towards reserve grades. Based on our guidance, we'll be averaging over 12,000 ounces a month for the rest of the year. As well, as we said, the ball mill will be commissioned in August, and our mining fleet will reach full capacity in August. We'll be humming along as we move through August here.
We're in a solid position for an exciting second half of 2019 and also into 2020 with Aurizona up from fully running. 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. Turning over to slide number 12 and looking at Castle Mountain, which is obviously our future here. Castle Mountain has 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. We have planned to start official construction later this year. We really wanted to show Aurizona is ramped up and running fully before we launch into that.
There's been lighter spend on early works, and we'll continue that during this period at the moment. 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 million range. In the current gold pricing 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 2020, so that we're pouring gold. Reestablish our tenancy and goodwill with local 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 two feasibility imminently here, and then we'll work with the permit amendment on the back of this, which will go on behind the scenes as we get phase one into production. As well, we are also expecting to get the permits to drill for water for phase two, which has always been something in the works, and we expect those around year-end this year. That's Castle Mountain, and I just want to turn over to slide 13 and bring this all together. Looking sort of back at our history and looking forward here, we're really pleased with our progress over the last 18 months to two years. There's been 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. We'll look to supplement this through organic growth, exploration, and development internally, as well as we'll continue to look for M&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 from more of a sector positioning view. We now have two 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 the potential for a re-rating.
We really want to show the investment community that Aurizona is humming along. We've got obviously Mesquite in production, that we're firmly in place. We're constructing Castle Mountain phase 1 and can show that we'll be a multi-mine intermediate producer very soon here. We hope to start climbing this chart and move towards the right and get a valuation more in line with our peers, that'll come in due course in time this year. The other piece as well, we've had very good support recently from the investment community, a lot more volume in our stock, a lot more interest, pleased to see that volume ticking up. We will consider a U.S. listing at some point here later this year in graduating to the TSX as we mature as a company.
We had the strong few months of trading, a good indication of the potential to get included in indices we hope in 2020. In summary and conclusion on page 15, just wanted to close and say that we've been working very hard to meet our 2019 targets. They're ambitious, but we've now turned a corner here with Aurizona up and running and the two mines producing well. Our vision is ambitious, and we hope to move forward very quickly here and work towards becoming a million-ounce producer over the next 3-4 years as we get towards the end of 2023. 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.
Operator, can you please remind people how to ask a question?
Certainly. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. If you're participating online, you can submit a question using the Ask a Question tab on your screen. Once again, to join the telephone queue, please press star then one now.
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.
Christian, I just wanted to touch on the guidance updates quickly. At Aurizona, to get to the bottom end of guidance, if I assumed 8,000 tons a day and 91% recoveries, I'd need to use about a 1.6 grams per ton to get to the bottom end of guidance. To get to the top end of guidance, it would need to be a little bit more than two grams a ton. You mentioned that July was 9,500 ounces and that August will be running at about 1.5 grams per ton, so that's the reserve grade. I'm just wondering how I should be thinking about those grades in the back half of the year. Do you think I need to use between 1.6 and two grams per ton to get within guidance?
I think just stepping back, we will expect to be having throughput levels at sort of 8,000-9,000 tons a day. Nameplate is 8,000. We're running ahead of that, our recoveries are slightly higher already as well, not by 91%, we're sort of running in that 92% range, maybe a little higher. Those will be slight benefits. We do expect to average between 12,000 and 13,000 ounces for the second half of the year. Grades will reflect that, and it will be reserve grade and a bit better.
Okay. I can appreciate that you have those good days above 9,000 tons, but 8,500 would be okay as an average for the second half?
8,500 is a reasonable average.
Okay. I guess a similar question for Mesquite. To get to the top end of guidance, you'd need about 46,000 ounces each quarter. What are the operating parameters that you'd need to achieve that?
Yeah, as we've got this increase in the tonnage stacking cap from 25 to 37 million, we obviously have the ability to stack a lot more ore. That's something that we've been ramping up and will be doing. Grades are probably a little bit better in the second half of the year. The big thing also is solution flow. We've been limited to sort of 10,000, 11,000 gallons per minute, and we'll be ramping up towards that 18,000. There's a big increase potential in solution flow there as well. As we move into the oxide material more, because remember the first part of the year is really non-ox, which is a 35% recovery and a longer leach cycle. We get into the oxide material, which we've been doing recently, you're going to have 75%-type recoveries and much shorter leach cycles.
All of those things benefit.
Okay. On the better grades, do you think that half a gram per tonne would be too aggressive?
Oh yeah, half a gram is too aggressive. It's between 0.3 and 0.4 at the most.
Okay. On the stacking CapEx, is that done? You have it in hand already?
We do.
Okay. 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 out, but we'll certainly be well above the 25.
You'd need to balance that with the strip ratio as well, I imagine?
Yeah. Interestingly, obviously our second phase, we are looking at the overall maximum tonnage moved. I think it's 65 million short tons, and again, we're looking at the potential to increase that. I don't expect that'll happen before year-end. Yes, we do need to manage that strip. One of the benefits, obviously, of having these dumps and old leach pad material that Scott's drilled off is, they have a very low strip, if almost no strip in certain cases.
Got it. All right. That's it for me. I'll jump back in the queue. Thanks so much.
Great. Thanks, Bryce.
Our next question comes through 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 in the first half, in line with expectations at this point, or is that still something you're expecting to happen?
Yeah, I think, 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 can continue to stack and irrigate as much as possible. 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-ox material. With the greater solution flow, it'll allow us to cover that for a longer period of time. It'll gradually move towards that, yeah.
Okay. Just the number for the year, at 200, 235, does that conceptually include the non-commercial ounces at this point?
Yes. Our guidance basically, we did include, because we originally included them in the Aurizona numbers, so we included it, yes.
Okay. I think the rest was fairly clear. Thank you for your time.
Great. Thanks, Andrew.
Our next question comes from Shane Nagle of National Bank Financial.
Hey, guys. Thanks for taking my call. Just had a couple questions. I guess, yeah, with the strip ratio at Aurizona, you said you're kind of adjusting the mine plan for the second half of the year. Could you give a sense on what the strip ratio is that you'd be expecting there?
I think the strip ratio is around that sort of eight to nine times. It's quite a bit above, obviously, what our average is for the whole life of mine.
Right. Okay. Okay, nice. Also, just in terms of the cost 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?
We're just in the first month, and we haven't even closed off the first month, so I don't want to give too much guidance. You can look back at our cash costs, effectively, that are in line with what we expected. Our original plan was to be mining at around $240, $250 a tonne. 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 the year that effectively is hitting that cost amount.
Right. Okay. Similar question at Mesquite. It's pretty impressive, all-in sustaining costs you guys hit this quarter, despite the lower than expected production. You mentioned the shorter haul distances. Would you be able to give a little bit of color on unit cost there and what your expectations are to drive that? I know obviously the strip ratio would come into play there. If you'd give any color on unit cost and strip ratio at Mesquite for the back half.
Yeah. Mesquite basically has had the shorter hauls. Particularly, we've been taking some of the material off that old leach pad 4 and a few of the dumps, and those are obviously very close to the leach pads that we're stacking them on. That's a lot shorter haul. Strip ratios on those, like I said, are rather negligible relative to the rest of it. The average is, I think, around 1.5, 1.7 times, five times strip for the rest of the year. Our mining cost has ranged anywhere from sort of $150 to $160, $175. It's been quite efficient. They've done a great job of actually mining efficiently. That's the key driver down there, of course.
Definitely.
We're probably using a few, 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 was an impressive result there. Last one, just at Castle Mountain, if you'd give a little color on your spending plans. I'm not sure if I missed that during the comments there.
Castle Mountain, obviously this year it's been engineering, sort of preparation of the property and some of the more technical work. It's been low spend so far. The goal is at some point here in the second half of the year, once we can demonstrate more empirically to the market and investors that Aurizona's up and running really well, which it is at the moment, and we'll launch into construction, and then we'll announce a campaign essentially. It'll be light spending of a few million dollars 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 can keep things going on behind the scenes before we get into official construction.
Right. Okay. You're still kind of targeting maybe some gold coming out in 2020?
Oh, yeah.
Yeah.
Let's say Q3 or around mid-year 2020.
Okay. Perfect. Nice. It's in my model there. That's great then. That's all the questions I have. Thanks very much.
Thanks, Shane.
Great. We've got a few questions from investors online. The first is from an investor in Canada who asks, what is your plan to pay down debt once all three mines are in production?
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 more conservative capital structure. One active decision we made, particularly with Ross being our largest shareholder last year, was we wanted to acquire assets 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 $1,170, I think it was, or $1,174. Timing looks pretty good there. We used a reasonable amount of debt to fund roughly half of that acquisition value. We look to pay that down over time.
With gold at $1,400, it'll give us the opportunity to, as we get the third mine into production here, to pay down a bit of debt over the next year and a half. We'll start that once Castle is in place.
I'm sorry, another question from Canada. I've heard mention that you're planning a U.S. listing. Will you have to do a consolidation for that?
Yeah. If we do a U.S. listing, you need a minimum $2 U.S. share price. Our share price obviously is CAD 1.35 or whatever it is Canadian today. 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 from [Ray Doop], Private Investor. Ray, your line is live.
No question.
Our next question comes from Robert Zeitzer, a private investor.
Yes, 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 had bought some more shares. My question is, Richard Warke, who was the largest shareholder of Castle Mountain, is he still a strategic investor in Equinox Gold? If he has that large of a position, why isn't he listed as a substantial investor in the company?
Yeah, Richard Warke actually is still, he's our second largest shareholder, actually. I think he owns about 6%-7% after Ross's 12%. We don't tend to necessarily list individuals' names for privacy, I guess, purposes. Richard is still a large shareholder, and he has continued to participate in financings. When we acquired Mesquite, he participated in that financing to support us alongside Ross as well. 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&A recently. Is this 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?
Yeah. With the M&A strategy, we've been really inwardly focusing for, I'm going to say six to nine months for sure here, getting Aurizona done, getting Mesquite integrated, getting Castle ready. There's been a lot of focus and we've wanted to keep our attention on the ball, in a sense, and really pleased with where we've gotten to. Now I think with the two 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 the bottom of the market when capital is a little more scarce. We'll start looking forward now.
We'll continue to focus on the Americas, would be our primary focus, and ideally, we'll do an acquisition in the next 6-18 months here.
All right. We will take another question from the phone lines, please.
Thank you. Our next question comes from Bryce Adams of CIBC.
Hi, Christian. I came back for one more. Hope that's okay?
That's okay, yeah.
In the Mesquite tech report, 2020 and 2021 did have elevated strip ratios. Is that something we should still be looking for?
Yeah. Obviously, that's going to change quite a bit here. Scott's drilled off all these leach pads and dump material. We've got sort of 150,000, 175,000 ounces in there of recoverable ounces. We've got a lot of flexibility to sort of smooth that out in a sense and reduce the strip. Now with the extra flexibility on stacking, we've got also the ability to put more tons up. I would say it's going to be a smoother profile than that. Unfortunately, that tech report's almost outdated now.
Yep, got it. Okay, thanks so much.
Yep.
All right. Well, at the moment, we don't have any more questions online or from the phone lines, 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. I will now hand the call back to Christian for closing remarks.
Yeah. Thanks, Rhylin. Thanks 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 Gold 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. Stay tuned. I think we're going to have some fun here for the rest of the year. Thanks.
Excellent. Thank you for joining us today.