Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Second Quarter 2021 Financial Results and Corporate Update 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.
Up. If you are participating through the webcast, you can submit a question in writing by using the text box in the lower left corner of the webcast frame. I would now like to turn the conference over to Rylin Bailey, Vice President Investor Relations for Equinox Gold. Please go ahead.
Thank you, operator, and thank you everybody for joining us this morning. Update. We will, of course, be making a number of forward looking statements today, so please do take the time to visit our website, SEDAR and EDGAR to download our continuous disclosure documents. I will now turn the conference call over to Christian Milau, CEO for opening remarks.
Thanks, Raline, and welcome everyone to the quarter 2 results call. We're pleased with the quarter and as usual there's been no shortage of news and activity. The company has just been so active in the And really pleased to get to this point where we said this was a year of big investment as we invested in our mines, we look to Projects ready to build or continue building them to explore our assets and to keep investing money and to build the future of this Company. And we have a long term vision that's in place here. And things are basically ended this quarter as expected.
It's a quarter very similar to quarter We produced about 125,000 ounces of gold and we had a good safety record for the quarter. Pleased with that performance. COVID continues to sort of moderate. Obviously, the new Delta variant does seem to peak its head a little bit in various locations, Options, although it's had minimal impact on the operations and really pleased with how the operations have adapted to the new environment with COVID there. We've probably hit that trough, which we thought we would do around mid year this year, where we said the 1st couple of quarters will be a little tougher.
We are coming out of the rainy season in Northern Brazil as well. And Investment periods at Mesquite and Castle ramp up and obviously we've had a challenge with Los Filos over the last year as We've taken over ownership, but pleased to be coming through a period and getting towards hopefully a period of stability going forward here at Los Filos. So We're turning to a very catalyst rich period of the year in the second half of this year and excited to walk you through this presentation and indicate where we see U. S. And that long term vision.
In terms of the actual results, like I said, just we sold just under 125,000 Our all in sustaining costs were slightly down from previous quarters and Pete will walk you through some detail on that in our slightly revised guidance. We did take a $28 per ounce write down on the Los Filos inventory with the shutdown there and the lower production. The cost of the actual ounces going up on the leach pad was fairly high for the quarter. So that does impact the overall all in sustaining costs, which we hope not to see much in the future. We turn over to the recent highlights on the next slide number 4.
In terms of construction development and exploration, we continue along with Santa Luz. Doug will walk you through that, but Pleased to see it on budget and on time. We're getting to about half complete now. We're still on track for roughly building a mine per year over the Upstream. We've advanced early works at Greenstone.
We're getting ready for construction here in the near term. In the second half of this year, we'd like to be launching into Upstream. In the second half of this year, we'd like to be launching into full construction, but we have had a very productive summer. The team has done a great job of getting Up. Camps and tree clearing and all that work done.
So Doug will walk us through a little more detail on a couple of photos on that. Lots of drilling ongoing and I'll leave that Doug to talk about, but really excited with the areas we have decided to invest in from an exploration perspective and expect to see some results from that in the second half of the year as well. In terms of the operations, I mean the one key point I will stop on for a second here. Obviously, the Los Filos blockades that we had last quarter Were frustrating for us, I'm sure for shareholders as well. And we've come through that period.
We have got those results and obviously a lot shorter period than the original one last year. The union had go back to work and I think there was a real frustration level with not being paid For a period that they had walked out on in a legal blockade there and they've gone back to work. There was pressure from communities and certain union leaders to get back to work start earning a wage again. So pleased to see them back on the job and really kudos to Greg and the team. They've got things ramped back up fairly quickly there And we'll give you a bit more color on the operation in a few slides here.
And also the community blockade from Xochitlala, smaller community, quite a distance away from the mine, another unfortunate legal blockade. That situation has been resolved. We do appreciate the support from the communities and from the government and the District Attorney to actually step in and really put some pressure on to get them back to work as well. And again, we've gotten back into the Guadalupe open pit. So pleased to see us operating at full capacity across all the Pits and Undergrounds on the site there in Los Filos.
And in terms of other corporate actions for the quarter, we completed the acquisition of Premier Gold Mines. It feels like a long time ago, but it actually completed during the Q2. I think there's some exciting stuff going to be coming from that and we'll walk you through The Greenstone project Mercedes has been integrated. Ewan is doing a great job on I-eighty and we're really excited about that as Things are going well there. We've also acquired an additional 10% of Greenstone as I think most are aware, but we love 50% of the project, we love 60% even more.
And we've been working well with Orion and the project team to get that ready for launch into construction here in the second half. We sold Pilar. It's a gain on the financial statements, but we sold it for almost $50,000,000 when you add in the royalty and the equity interest that we have. And we published our 1st ESG report. And again, that's a really important area for us to now start communicating and Putting out a lot more public disclosure.
So I think you should expect to see a lot more information on a quarterly basis, but also we'll be looking very closely at things like our emissions, Managing our key areas where we think we can make a big difference going forward, which areas that have diesel emissions and obviously our energy sources in various countries will be looked at for more efficient ways of running the business. And I'll pass it over to Peter to walk you through the financial highlights for the next couple of slides.
Thanks, Christian. During the quarter, we sold 125,000 ounces at a little over $1800 an ounce For revenues of $226,000,000 On a cost per ounce basis, our cost actually came down from Q1, up to $1, about $50 an ounce for cash cost to a little over $10.80 an ounce and about $100 an ounce to about $13.82 on an all in sustaining cost per ounce basis. That resulted in mine operating earnings of $46,000,000 which is an increase of about $4,000,000 over the prior quarter. As Christian mentioned, we had a very busy quarter on the corporate activity front. It resulted in a lot of net income for $326,000,000 earnings per share of about $1.10 Included in there are a number of non cash gains, including $50,000,000 on the sale of those Solaris shares that Christian mentioned.
In addition, with the sale of the shares, we have a change in classification update. Of how we account for that investment from effectively a cost basis to a fair value basis that resulted in an increase or a gain of 186,000,000 We had a gain on the sale of Pilar of $45,000,000 and then we have the other items that typically are non cash items, which were gains for the quarter like unrealized gains on foreign exchange hedges, etcetera, were about $43,000,000 When you adjust our net income for those items, We arrived at $3,100,000 on an adjusted basis and $0.01 a share earnings also on an adjusted basis. Our Our cash flow before changes in non cash working capital was $32,000,000 and that equates to about $0.11 a share on a basic basis. With all of the activity in our operations with respect to our balance sheet, it remains strong. Our June 30 Cash and equivalents was $334,000,000 and our net liquidity was $530,000,000 when you add in the $200,000,000 of undrawn revolver And our net debt is $216,000,000 This leaves us in a great position to fund our growth profile With respect to our investments, we did put some money into IED Gold to maintain our 30% interest.
Current market value of that is a little over is over $100,000,000 and we sold 10,000,000 shares of Solaris And warrants. And when you look at the fair value of that investment, it's over $300,000,000 So included so the value of our investments is now over $400,000,000 And that is not included in the net liquidity figure that I mentioned previously of 530,000,000 We updated our guidance for 2021. The range is now 5 on a production basis, the range is now 500 up. Overall, our mines are actually performing on or better than planned, generally Speaking with the obvious exception of Los Filos, we decreased guidance there by about 50,000 ounces. That's offset by increases at Aurizona of 10,000 ounces.
We're expecting access to higher grade ore there in the second half of the year and up 5,000 at RDM because they had a great first half of the year. Castle Mountain, we've decreased production guidance by about 10,000 ounces and that's due to the weaker start in the first half of the At Los Filos, the reduction is obviously in part due to or primarily due to the blockades, which Upstreamed Operations for parts of June July. And it also had an impact on the Bermejal Underground development to push it out further, which delays our access Up to higher grade ore. On a cost basis, our range is now $1,0.25 to $1,075 an ounce, And that's a result of 2 primary influences. The first is, of course, the reduction in overall production for the year.
And the second is we are seeing cost escalation on consumables and energy, primarily in the U. S. And Brazil. Overall, looking at the figures, Aurizona Pardon me. So those cost increases, pardon me, carry through on all in sustaining basis.
Our sustaining capital itself, as you can see With respect to our all in sustaining cost per ounce, we're down about $50 an ounce at Aurizona. That's a result of a decrease in some sustaining capital. And you see the primary increases, of course, at Los Filos due to the reduction in overall ounces. And at Castle Mountain, where We're doing a pad expansion and there's been an increase in liner costs. On a non sustaining basis, you can see that Costs have come down.
That's primarily at Santa Luz where we have a reduction in $19,000,000 ounces or pardon me, dollars 19,000,000 for the year. And that's primarily a result of timing of spend. The project is on budget. It's on schedule. We're just not incurring the payables as quickly as expected.
So that update over to Doug Reddy, our Chief Operating Officer, for an operations update. Thanks, Pete.
I just I would like to say that there are 2 main themes For the operations on how what's happened in the first half and how it affects the second half of the year and going into 2022. The first one is waste stripping, where we've had large programs at Mesquite and RDM, as well as waste stripping happening at Aurizona and Los Filos. So all of those investments in the waste stripping makes for a stronger second half of the year and into next year. And the second aspect is a big effort on our by our exploration team, 51,000 meters have been built has been drilled so far this year. And that's an investment in the long term at each one of our mines, both within the mines and near to the mines.
So I look at those as how they affect the future for each Up. If we look at Mesquite, we completed the Brownie stripping campaign and we're looking at a stronger H2 as we mine oxide ore in that pit. The exploration has been focused on mine life extension and that's the same thing we've done every year with Mesquite where there's opportunity to be able to It is a very giving overall system there. Q2 production, 24,180 5 ounces and all in sustaining cost of $15.20 per ounce. At Castle Mountain, we've continued Our team has continued to work on optimizing the leach pad and plant.
We have had issues with percolation on the leach pad, but we've Managed to see the daily ounces being doubled and Q2 versus Q1 has been doubling of the ounces being produced at Castle Mountain. Q2 production was 6,128 ounces at an all in sustaining cost of $10.26 per ounce. Los Filos, the operations restarted well after the interruptions that we've had. H2 should be a Strong second half of the year. We are in mining at the Guadalupe open pit.
And as Pete mentioned, we have We've been doing the underground development of Bermejal Underground. We should see ore coming through late in the year from Bermejal. Our Q2 production was 27,079 ounces and all in sustaining cost of $20.16 per ounce. We also look forward to the completion of the updated CIL plant study, which will come in the second half of this year. Mercedes mine is a steady producer.
We are campaign milling. So that means that we do have an opportunity to increase throughput and production And there's good exploration upside. There's a program happening in several areas of Mercedes with good results coming in. The Q2 production attributable to Equidox was 10,708 ounces at an all in sustaining cost up $12.26 an ounce and H2 should be a consistent level of production from Mercedes for the company. Looking at Brazil, Aurizona had a heavy rainfall in the quarter, but the mining went really well.
That was a contrast to a year prior. The team did a very good job of being able to mine during the rainy season and the processing plant was able to also utilize a Up portion of the stockpile that had been built up during the previous dry season. So we're looking at a strong second half of the year as we come fully into the dry season in that portion of Brazil. And production in the second quarter was 26,800 Up-thirty ounces at an all in sustaining cost of $10.83 per ounce. We're very much excited For the delivery of the pre feasibility study that's been looking at the underground potential at Aurizona, large drill program was done in 2020, Wrapped up at the start of 2021 and that study is coming to completion in the second half of this year.
So we'll see how that impacts Aurizona and Looks at the overall production that will come from that mine in the long run. For Fazenda, it's had steady underground production in the 2nd quarter, albeit mining from a few lower grade areas. We had scheduled to open up a new open pit, which is now opened up, just didn't happen as early as we expected. So that will be contributing in the second half of the year. Q2 production was 13,130 ounces at Up.
At an all in sustaining cost of $12.63 per ounce. And we're doing consistent long term exploration program both within mine and around the mine, Including the area between Fasenda and Santa Luz, which I think is going to be very exciting in the coming months for the company and results of numerous targets that we have in the 70 kilometer long Greenstone belt that's between Pazenda and Santa Luz. RDM, we had we now have a very full water dam. I would say it's the first time I can look at that water dam and say that we have ample water for the rest of 2021 and all of 2022. And in spite of an exceptional rainy season, we mined 19% more ore than we did in Q1.
And we're doing a major pit expansion Q2 production was 14,089 ounces and all in sustaining cost of $10.73 per ounce. And we're looking steady production through H2 and a strong 2022 based on the expansion work that's been happening in the pit. So looking at our growth and development projects, I'll say it's really good to be with a company that has such a great pipeline of growth projects. Looking at Santa Luz, which is in construction now, as Christian mentioned, we are 50% complete on the construction and our first gold pour is on track for Q1 of 2022. I'll elaborate a bit more on Santa Luz on the next slide, but let's move down to the other growth projects.
Los Filos expansion, we've been developing additional open pit and underground mines. Guadalupe is now providing ore. So that one is already part of the expansion at Los Filos. Bermejal Underground Development has resumed. We'll see ore coming from that late in the year.
And we've been finalizing the study for the new 8,000 tonne per day CIL plant, which will process the higher grade ore site. That study will also see the potential to increase reserves and possibly extend the overall mine life. What critical for us is to work out a longer term stability with the communities so that we can continue U. S. Dollars to work on expansions at Los Filos.
For the Greenstone project, very exciting project overall, 5,500,000 ounces of reserves in a 14 year mine life. The early works are already underway and we're looking at full scale construction being targeted for Q4 of 21. So keep an eye out for that later on this year as we work through all the preparatory work that's been happening on that project. And then Castle Mountain expansion, the average gold production that was in the Phase 2 expansion is 218,000 ounces per year. We would expect to start the Phase 2 permitting in the second half of this year.
So if we move on to the next page on Santa Luz, We are on budget, on schedule. The overall budget is $103,000,000 for the initial CapEx. This project will bring in 110,000 ounces a year for the 1st 5 years at an all in sustaining cost overall of $8.77 Up. And in the area, as I mentioned already, there's excellent potential both near surface and also at depth. We in the photos on the left, you can see the advance that we have on the leach tanks.
They're going up well. The ball mill, which is in place and there are lots of photos and videos on the website that I encourage you to have a look at as well as the time lapse Shows the progress of the site. And I want to congratulate the team. As of June, they achieved 1 year LTI Free and 1,200,000 hours LTI Free at site. So they had a recognition of that at site and I just want to recognize that they've been going well and they're going to keep up that focus on safe Construction.
So turning the page to Greenstone. It is one of the most attractive development assets in Canada. Previous underground mines produced over 4,000,000 ounces in this area from the Greenstone Belt. It's got a good excellent reserve of 5,500,000 ounces and the opportunity to produce 358,000 ounces per year over the initial 14 year mine life. The project benefits from excellent infrastructure being right on the TransCanada Highway.
Community and indigenous agreements are in place and it's The first phase is already complete. The temporary camp is already the first phase of it is already complete. And the temporary water effluent Treatment Plant is complete. So very good focus by the team moving that project forward. I'm going to hand it back to Christian.
All right. Thanks, Doug. And I'm going to step back and look at the bigger picture on the next few slides here. And I do want to emphasize, our long term focus here has been on growth. It's been on building a large diversified Top tier gold mining company and during the downturn of the gold cycle, although obviously gold held nicely at $1800 and our producing assets Generating good cash flow.
But what we see here on Slide number 13 is the diversified portfolio is starting Come into place. And we've been really focused on all four of these countries and regions. We've been building 1 mine per year. We're working on expanding virtually every one of these countries in terms of production levels and reserve basis. The asset values and production will be Split about a quarter, a quarter, a quarter between all four of these countries when we finished our job of expanding and developing them.
And really what you do see is potential production growth from our expansion projects and exploration in all four of the countries. Our goal here is not to be reliant on any one key asset or whatever, it's to have a nice diversified portfolio that can weather the ups and downs of the sector and cycle. So Well on track to creating that through this portfolio. And when you look at the next slide, this is something we have talked about in the past, but Don't
want to
lose sight of here. We're moving towards 1,000,000 ounces of production there in that second column. We'll be in that top tier of the mid tiers and moving towards that senior level. Our growth profile in the 3rd column is at the top of the charts, the highest amongst peers of almost over 75% over the next 3 years as we Develop and expand our assets and our reserve base is already 16,000,000 ounces and I think as Doug alluded to, we're pretty excited for what's coming from Aurizona Mesquite, the Bahia exploration programs and we really do see opportunities including Mexico as well to expand the reserve and resource base and not just Our ounces, but actually add to them over time. The portfolio we have is very prospective and I think we haven't given enough attention publicly and We'll start to do that as we finish this key investment year.
And when you look at the far left, I mean, that's the part here, which I think Exciting, but also a little bit disappointing, obviously, with the Los Filos blockade. We've had a fall in the share price. But When I look at the value potential here on a price to net asset value basis, we're really at the bottom end of that scale. And we do need to rebuild the confidence and the stability in the Los Up Elo situation, which we're obviously determined to do. But the rerating will come.
This investment year, we're halfway through it or Almost 2 thirds of the way through it and we'll be seeing progressively better quarters here. Q3 will be slightly better than Q2 and Q1 and Q4 should be A really good quarter as we move into the New Year. And we turn it over on to Slide number 15, how are we going to be able to deliver that and what Support that we have. And as Pete alluded to, the balance sheet is rock solid right now. Dollars 330,000,000 of cash, it holds very firm.
And we do our planning at more absurd of gold prices, but even assets like RDM where we're investing a lot of the cash flow back into the business is actually cash flow positive despite plans for it to be leading cash support from the corporate. So really pleasing to see that. We still got our $200,000,000 availability in the revolver and a very strong lending and banking group that's supporting us. And really exciting for me to see is the $420,000,000 of investments as Pete alluded to. Solaris has just gone fantastically Well, Richard and Dan have done a wonderful job there.
And we always believe that asset would be worth
a heck of a lot
and would be worth as much as our debt one day. And I I think it actually almost is right now. So well done to the team there and great to see. And I-eighty is at an earlier stage, but I know Ewan has ambitious plans and We've given him great support to start and I think he'll be creating some wonderful value there as well. So we're coming through that trough in terms of call it Production, cash flow, etcetera for this year.
Q3 will get progressively stronger and Q4 should be a great quarter. We have a strong balance sheet. We'll be able to fund all our growth projects, including Greenstone. So I think we'll see exciting announcements to come in the second half of the year with some of our catalysts. And when I turn to the last slide just to bring it all together, Again, lots on the go.
We're most of the way through this investment year. We're working towards around an 800,000 ounce type year next year, which will be on the back of getting San Luis up and running, getting stability back into Los Filos and starting to hit our stride at mines like RDM and Mesquite. So really exciting going into next year. We have reduced our guidance slightly in this quarter, but it's still straddling that original level. We had 600,000 to 665,000 ounces.
We're still potential to do up to 625,000 ounces. And that's Upside a big disruption we had at Los Filos this year and a tough start with lots of investment going into our mines. So, kudos to the team for finding a way to Keep that production level at a very respectable level. And I think keep your eye out for the Aurizona underground study and exploration results coming from Aurizona and Bahia, also Mesquite. It's the Energizer Bunny, as we always say.
It just keeps on giving and giving here, had a 2.5 year mine life, still has that kind of mine life and I think we'll be increasing that in due course as well. So really pleased with the results there and what the team has done at Mesquite. And we'll be getting out our 1st consolidated reserve and resource update as well in the second half of this year. So that'll allow people to have a good consolidated look at the business. And we'll continue to support our investment companies.
And as we always sort of say, we'll look at opportunistic M and A, but right now we're inwardly focused. We've got lots of projects to deliver, lots on the go. The team coming into place here is very strong and I think we're well prepared to deliver on these projects this year. So Keep an eye out for all those catalysts in the second half of this year. I think I'll end the formal part there and thanks for your time and open up to questions.
U. S. Box in the
lower left corner of the webcast frame. We will pause for a moment as callers join the queue.
Thank update. While we wait for our phone callers to queue up, I'll take a couple of questions from online. Let's just get the inevitable out of the way. What steps have you taken to manage the risk of further disruptions.
Yes, I mean, that's something that we're obviously laser focused on and stability there is the key goal and partnership is a word we use a lot. So it's been a tough go since we've taken over. We've had obviously COVID overhang and taught us significant ability to visit the site to build relationships. We did change the senior level management during this process About 5, 6 months ago and I think they've done a great job of actually getting engaged and involved with the communities and really establishing that we are all in this together and having that Up. And having that mine operating is to the benefit of all stakeholders there locally.
And that's something we've learned even more so in this most recent blockade situation is that All parties want this mine operating, government, unions, employees, us, all stakeholders that are getting some kind of benefit I think what's happened here is we have taken a fairly principled approach to resolving this. We're always open to working with our communities, employees and other stakeholders on finding resolutions and sharing in The benefits that this mine will provide for many years to come. But also we do have to manage it ethically and responsibly and make update. And a number of the requests that have come from whichever of these parties that had a challenge to the mine is Looking for almost sole access to contracts, jobs, the economics and we do have at least 3 communities We have a union, we have employees and we have governments as well. And we are fine to obviously create as much local up.
Sharing of the pie is possible, but we do need to make sure it's fair as possible. And when we disadvantage one community, it obviously creates a problem over there. So we want to make sure that all communities Up. They affect each other as well. And so I think part of it's been a communication program, part of it's been also on certain areas.
We have to take a bit of a principal view that We have contractual relationships and things that we must deliver on and we owe to other communities, unions and employees that we can't break And we do honor those. So I think situations also where the mines are not producing and people are not getting the economic benefits through salaries and Upcoming contracts and that which we can't pay those indefinitely without operating, I think has focused the mine of many people as well that everyone needs this mine operating. So it's been a painful process and myself as a big enough shareholder has felt that pain as well. But I think with that sort of principled Approach. I think we are establishing that there are certain boundaries in areas that we can operate within and we can negotiate within, but we can't also accept certain things that disadvantage others, including the mine to a certain level as well.
And I think we're setting a new baseline and Upcoming. There is no guarantee. I don't want to mislead anyone in that sense, but I do think we're slowly establishing Those parameters. And we do have big plans to work with communities to build joint programs and partnerships. It will take time to rebuild that trust.
But we have some very good people in there and the spirit of the mine and the employees, which are members of the community mostly, is actually quite good despite all this disruption. So I'm quite optimistic, but it does need some time to heal those wounds.
Thank you. We'll now take some questions from the phone, please.
First question from the phone is from Dalton Barreto from Canaccord. Please go ahead.
Thanks. Good morning, Christian and team. I kind of want to I'll open that same line of questioning there. So you touched on this a little bit in your prepared comments. But Christian, can you give us a little bit more color in terms of How the blockades actually did get resolved?
And what if anything you had to give up?
Yes. I mean, I'll give you a bit more color. Obviously, I don't go into all the intricate details, but the union situation, there's requests for bonuses that are well beyond what's and contracts and formulas in that. And in a situation also where the mine is having a very challenging time, we can't be entertaining I guess it resulted in this block illegal blockade. And at the end of the day, what I think most of the employees realize is that actually lost wages add up to more than Very quickly and jobs are vitally important in the region and steady income.
And at the end of the day, I think there was a loss in support for the And the groups voluntarily agreed to come back to work. We didn't have to really give up much. I mean, other than obviously the downtime and the impact on our financials and the morale, etcetera, but they came back to work in the end. So I wouldn't say we've given up a lot in that sense. I hope we've earned some respect and trust In terms of the community, again, I think it's a brand new community.
They only owned about 2% of the land, most of I think in Guadalupe and they have some exploration land. So very different than the other communities. There's very few people that actually work at the mine. So I think part of the process is I call it education, maybe that's not a fair word, but also getting familiar with mining, the economics of mining. We can't process the ore in their community from pit that they happen to own part of the land front.
We have a processing site on-site. It has to be managed through regulations and locations that are Obviously suitable. So part of that's just education. Part of it is that we can't give all jobs and all economics for, call it, that pit to community because we do need to have flexibility to move our workforce and our contractors around the organization to be Upcoming. The District Attorney was heavily involved, who's a state representative, although that's the federal government, although they Really relied on the state to be involved.
And the District Attorney tried to help with, I call it, the education process, but also we're filing Criminal charges against groups that are legally blockading. And I think that has some impact as well that we're serious about this. And we're not just going to stand by and accept Legal blockades on our land that we actually own. So I think through a number of measures there, it resulted in obviously less support for a small group of leadership that was leading this blockade. I would say it wasn't a wide community support for this.
I mean, honestly, I would suspect that not many people have much involvement with the mine It's an hour and a half away and there's only 30 employees, so much less influence in that community. And over time, we're just going to have to work with them on agreements and as we rent land for exploration, etcetera, to continue to build that trust with them.
Okay. And then I know
you said there's no guarantees in your last response there. Is there anything you can put in place prior to sinking some real capital into this thing to build the plant and so on?
Well, I think something that we do want to do is get out and talk Update. I get the messaging in front of them that we want to build some stability and partnership here as we make decisions to invest in this mine. Obviously, we're investing in Guadalupe and Bernaljal as we Upbeat and they're benefiting very significantly. And I think those were the 2 key areas that these groups focused on. There's new jobs, new contracts, new investment there, and they want as much of that pie as possible.
The CIL will be the next one, obviously, and update? We want to proceed cautiously with that and build stability before we start investing in that. But we'll take a bit of time, but we're going to have to communicate. I'll go with some of our senior leadership here and at site. And they need to understand that there are consequences ultimately to not having stability.
We have 3 other extremely attractive countries and sites where we're investing, call it, dollars 1,000,000,000 of capital, and We'll continue to allocate the capital there. And as this one becomes more stable, we'll reallocate capital back here.
Okay, good. And then just one last one
for me and then I'll jump
back in queue. So the blockade was in place for about 34 days. A 50,000 ounce guidance, Scott, seems disproportionate even with the Bernal Hall underground being pushed out. Can you wrap some context around that? Like How much are you actually expecting from the Bernahal Underground?
And is there anything else at play here?
Yes. I mean, I'll let Doug piggyback on any of my comments Up. But don't forget that this is a big leach pad and you don't just turn it on and off. So there's unfortunately, it is time to ramp it up and You have to get the solution flow going again. And this time, they absolutely ramped it right down when they had that union blockade.
So we had to turn in a certain sense. And so it will take a little time to ramp it up. But what it does also with all this development is it pushes some of those good months That were meant to add quite a few ounces into the New Year. And that's probably one of the biggest disproportionate impacts as well is that Those ounces just get pushed out and really Bermejal, I don't think it contributes many tonnes of ore this year now unfortunately.
No, it's mostly development with small contribution at Upstream. So it's really pushed out the production from Guadalupe, pushed out our contribution from Bermejal Underground And the impact of essentially bringing down the ounces on leach pad and then having to bring it all back up again. It all pushes out UBS. What would have been a very good Q4, still going to be a better second half of the year, but the very good finish to the year will actually be Going over into 2022.
We do take it really seriously. We have almost 2,000 people working down UBS. COVID testing and getting people back to work. It doesn't again just happen overnight. So we do have to work through that process and These people back in and sort of retrain or redo some of the safety protocols just to get them up and ready to go.
And so It's a little bit of a big shift to turn.
Got it. Thanks for
the color guys. I'll jump back in queue. Thanks, Phil.
The next question is from Kerry Smith from Haywood Securities. Please go ahead.
Thanks, operator. So Christian, maybe just to follow-up on Amalfiose again. If you've got 2,000 employees and you've already got 30 employees Better from Chicago. I mean, if they want more, it seems like they're already kind of at their pro rata share, If you will, it's roughly 2% or maybe it's even right around 2%, I guess. So how do How do you deliver more jobs for that community when it seems like the pro rata formula maybe wouldn't suggest that they deserve more jobs Because that has to come at the expense of the other communities.
Yes. I mean, it's it is always tricky with all Communities on that kind of front and certainly with Xochitlala, one thing that we are doing is we've committed to training program, so we can end up with some skilled Up. Labor in the region from that community. I think we're making a little bit more of a call it an overt commitment to hiring some of those people that come out trained. So it's not perfect.
But the other side of it too is I think I don't want to get too far ahead of myself, but sort of looking at Scott and Doug around the table is Some of the future exploration upside in that is in their land. They have a long, call it, strip of land coming to their community right into ultimately the Guadalupe pit. And Some of the future exploration and excitement certainly is in that exploration area. So what we see and we're articulating to them and I think we need to continue to do this is We have a small piece of actually exploitation land that they get paid for some jobs, etcetera. But that exploration, probably a lot of future is on their land.
So there's more to come, but we can't jump ahead of the queue and they do need to allow us the time to explore. We pay less obviously per hectare for exploration land because we're not exploiting it and it will come. And so I think a little bit of patience is required there and Education on the timing and process. So that's how I see it.
Okay. And just on the 3 communities, just so I'm clear, do you have agreements in place with all three communities update today and Ochocahala just chose to basically ignore that agreement. Is that kind of what happened?
Yes, we do have agreements in place with all three communities. And with Sochipala, we do have an exploration and an exploitation agreement. Really straight up here is that there's also a misunderstanding I think by them on really exploration versus exploitation. They see it as All the same thing. If you're out there drilling on land, it's almost like you're mining it.
And
Doug, if you had any comments, Please add them. But that's I think part of the process is kind of explaining that once we're mining for gold and making profit from it, we obviously pay a higher rate for access to that land, but when we're exploring it, it's all of our risk capital going into the ground.
We had agreements with Carrasilio and Mezkala for Since the start of the mine, I guess, in 2008. So and the agreements for those 2 communities were renewed in 2019. So Chapala, this was the first time that an agreement has been established with So Chapala. So it's A new relationship, but as Christian mentioned, very important properties on the south end of our mining license, very perspective and it impacts The Guadalupe open pit, very small piece of ground, but it's important to us. And so it's been essentially Working through the buildup of a newer relationship with Xochitlala versus the other communities that we've been working with for over a decade.
Right. And so Doug, the agreements you have with Siqueira Zulu and Mezcal, those were renewed in 2019. 7, were they 6 year or 5 year terms? I forget.
5 for Carrizalillo and I think it's 10 for Mosquela.
Okay. And then again, the new agreement that you struck with Osha Power, what would the term be on that agreement? Is it 5 or is it 10?
The new one there is 20 years exploration, I think is a shorter term one that gets I'm not sure if it's annually, but every few years it gets renewed, but the exploitation of the 20 year.
Okay. Got you. Okay. And just a question on maybe Doug can answer this on Casa Mountain. Why what is the issue with the percolation?
It's an oxide ore body. I've been there. There's really no clays at all. I'm just wondering why you're having these percolation issues. And then secondarily to that, The mining cost per ton seems really high at CasaMon.
I'm not sure why that's the case. Mesquite seems like probably a good comp and it's significantly less on a per ton basis. I just wonder if you could comment on those two issues.
Sure. It's fine. It's not place. This is JSLA material is previously mined material is So there's a fair component of fines in that material. And when we Initially, we're irrigating the leach pads with spray emitters, essentially there was a penetration problem.
So several things I would say the most productive approach has been bearing emitters, which is of course takes a while to step through and try each change. If you do model once, you don't know which thing is working. So it's been a process of working it through and the bearing of the emitters has been the most successful one, which has allowed us to Ramp up our gallons per minute that are being applied to the pad and essentially doubling the production between Q1 and Q2. We continue to work on other efforts, but we know that the percolation is the key item and driven by high percentage of clients. Mining costs, it's essentially
It is a contractor number 1 versus owner mining.
Yes. And trucking over to the lease pad. So it's been run of mine and I'd I have to look into it if there's anything else abnormal about it, but Yes,
I think it's Seth. It's Peter here. It's in part just a lower denominator, Carey. While the production Has come up significantly from Q1. It's not quite at the level we would expect it.
And so and obviously, it's not a large production volume. So With that reduced denominator, it just amplifies on the per unit basis.
The denominator you're referring to is lower tons, not lower ounces,
Obviously. Yes.
Yes. Okay. And so Doug is the bearing emitters, Do you think that's the best solution now? Like you've kind of got that fine tuned and that's the solution you're going to run with and now you can focus on other areas to up to get the production up. Is that kind of the goal here?
No, we're not resting on that. We've got more to do. And It's been a very I'll applaud the efforts that have been done by the team at site for the series of Actions that they've taken and to methodically work their way through. And they have a couple more things that they want to try, which we're just going through at the moment. So I would say that it's an important process of being able to step through and Yes, higher percolation and obviously better recovery overall and that's what we've been doing.
It takes a while on a leach pad.
Yes, of course. Okay. Okay. And maybe just one last question for Peter. The G and A quarterly run rate, I mean, it fluctuates a lot quarter over quarter.
What would be A good run rate going forward on a quarterly basis or an annual basis, whatever you prefer for G and A.
For G and A, sorry, I didn't hear the initial part of your question. Yes, it was higher in the quarter for a couple of different reasons. One, we obviously
We had a lot of transaction costs
that flowed through with respect to professional fees
due to corporate
activity, the sale of Pilar, the Premier acquisition. And then also during the quarter, there was a cleanup item related to share based comp and that It was about $4,000,000 and that was an integration of the Leagold and Equinox plans that carried over unfortunately until now And was resolved in this quarter. We expect about $7,500,000 a quarter overall as a run rate. We tend to think of it in dollars per ounce. And so on an annualized basis, normalized basis, we would expect to be in around $40 an ounce.
Okay. Okay, that's helpful. Thanks very much.
Thanks, Carrie. I'll take a couple of questions from online. We have a whole bunch of questions about all in sustaining costs that I'm going to try to combine into 1. So you've You raised your all in sustaining cost guidance, but you say there will be lower costs in the second half of this year. So just trying to figure out what your all in sustaining costs are look like sort of into 2022 and then even farther down the road when you hit that 1,000,000 ounce goal, what would your all in sustaining cost target be at that point?
I mean, I'll take the high level question. Pete, please jump in if there's anything more granular or details that you can add. From an overall long term perspective, I think what you're going to see is, as we move into and finish these investments in some of the mines, you'll see the costs naturally come down. We're putting big investment into Areas like Mesquite and RDM, stripping and that. And a lot of that or part of that goes into, call it, sustaining capital, so affects all in costs.
But also when you're opening up some of these new areas, you end up with higher grades, more production, bigger denominator. So you'll naturally see Some of those costs come down. Then you have the additional impacts and benefit of Santa Luz, Greenstone, Certain expansions projects that will be naturally lower cost. Those are the projects that are the prize for us where we have a lower cost, so the average will come down. In terms of this year, just H1 versus H2, I think the increase in the all in sustaining cost, there's probably 2 key factors that jump out to me are, Helos had a big outsized impact for H1, it's $2,000 an ounce effectively.
So that brings up our all in So that brings up our all in cost across the whole year because you're going to have a much lower cost for the second half, but you much higher cost in the first half, so your average is higher, just the simple math of it. And we have 1 or 2 sites in addition to that that have a similar metric where H1 was higher cost. So on average, just to bring up this average for the year. But also there's a bit of inflation in there, and I don't want to overplay that, but Give or take 5% in certain areas, fuel, reagents, etcetera, that's having a little bit of an impact as well. We're still getting benefits of FX ups?
Foreign exchange offsetting that certainly in Brazil.
Good. Okay. Given the undervaluation of your stock, are you considering share buyback?
It's a really good question. I mean, it's something we'd love to do. But one thing we are focused on right now We have a lot of capital in front of us, a lot of investment to make and we have to look at those trade offs. And I think with Greenstone coming up finishing off Santalude, still investing in a couple of other assets. That's where our capital is best allocated and spent today.
As we start to get more visibility come through that, announce those projects, start to deliver on them, we certainly if the share price isn't moving, we certainly want to be looking at something like share buybacks along the way. But I think for as of today, we want to commit that capital to investing in our assets.
And I think it's fair to say that longer term, we absolutely want to be returning capital to shareholders. That's the whole plan of investing now for future growth And then returning that making those returns for shareholders.
Thank you. Operator, we'll take the remaining questions from the phone please.
Certainly. The next question over the phone is from Anita Soni from CIBC World Markets. Please go ahead.
Hi. First question is with regards to Los Filos and the $83,000,000 that you have in non sustaining capital there this year. Could you just give me an idea of what that's being spent on this year then?
I mean, I'll give a very high level and if either Doug or Pete has a little granularity that can add to it. But I mean, the key areas obviously are opening up Bermejal and Guadalupe. There's lots of stripping that was particularly the first half of the year at Guadalupe and Bermejal, so that kind of continues on for this year. And as those are brand new ore bodies adding to the mine life, those are, call it, Growth Projects for us. Those are the 2 key areas.
Okay. So that number was that reduced from a prior number? Or was that the same number that you had before?
No, it's slightly reduced.
Yes, we reduced it by $12,000,000 from before.
Okay. Update.
All right. And then next question, I guess, is with regards just more of a big picture. So I noticed on the sidebar on slide 2016, Update. On slide 16 that you've got 800,000 ounces is the kind of what you're gearing towards for 2022 in terms of production. I think that's taking into account the impact at Los Filos.
Is there can you just give us an idea if any proportion of that is maybe assuming a slower start up at SeaOne Santa Luz or is it still kind of the $100,000 plus for next year?
Well, for next year, I mean, whether to achieve $100,000 or not Depends on the date we actually pour gold and get to that commercial production, but it probably will not be far off that. We expect to pour gold in the first So if we have a really quick ramp up of like Aurizona 4 to 6 weeks, then you'll be probably pushing towards $100,000 if it's a little bit slower to probably But you'll have the addition obviously to get the $800,000 of Santa Luz. You have Mesquite has it's hitting that brownie stride in Q4 where it's actually a lot of ore in Q3 and Q4 this year and that falls right through to next year. So you see a sort of nice improvement there. Aurizona is producing at a nice steady level.
We've got full year from Castle as well and obviously, Los Filos hopefully will be an uninterrupted year next year.
Update. Okay. And then the last question I just wanted to ask, given one of your competitors or colleagues, I guess, in the business that Cote is Struggling with capital cost inflation in their new project build. Have you taken will you take a look at ups. The feasibility study for Hard Rock to reassess as you start that capital spend into the second half of the year?
Yes, absolutely. I mean, one of the key jobs I think for us is we've taken over. We've hired a Head of Projects UBS. And challenges that other operators and builders have had and foreign exchange is another piece that's Separate to the actual project, but it's something that we need to manage as well, which I think we can do from a corporate perspective. So absolutely, when we come out with our initial capital number will factor in any of those points and hopefully you'll see that in the next few months.
Okay. And then just in terms of the original capital spend, I think maybe you guys had indicated that you were trying to sort of push that in the next 24, 30 months. Could phasing that CapEx spend be an option? Or would you still want to accelerate the capital?
Sorry, we're just talking about Greenstone specifically here?
Yes. We're talking about Hardrock, yes.
Yes. So yes or sorry No, we're not planning to say this. Sorry, I don't want to give you any indication. No, we think the best way to do it and our methodology and thinking here and I know Cost stands behind this as well. Build the mine right.
Don't try and build it in phases or cut corners to push capital into the operating period. We've seen that happen way too many times. Let's make sure it's well financed, well understood and let's deliver the project that will actually be the best operating project on day 1. So no, we don't have any intention to phase it.
All right. That's it for my questions. Thank you for taking it.
Yes. Thanks, Anita.
The next question is from John Tumazos from John Tumazos Very Independent Research. Please go ahead. We'll go to the next question. Next question is from Wayne Lam from RBC. Please go ahead.
Hey, good morning everyone. I was just wondering in Mexico there seems to be a lot more update. Recently around subcontracting and PTU payments. I'm just wondering kind of to what extent Do you guys subcontract that most Filos and if you might be able to provide kind of a ballpark amount that's update annually in terms of the PTU profit sharing payments at the mine?
Yes. I mean, There are some changes coming to the laws and how that outsourcing and contracting is coming. I mean, it's still in the call I don't know that number off the top of my head. I have to admit Wayne, so I can't give you I'm not going to even ballpark it for you there. But the team at site is well versed in this.
They're experienced operators in Mexico and we'll adapt the mine necessary with the contractors to make it work and it may be a slight shifting into a profit sharing into the entity and bringing employees call it in house a bit more. Could we expect it to have much impact? I don't think it's going to have a massive impact. It may shift how our costs it shouldn't from an outsourced perspective have much impact or you shouldn't see it, But it may shift on where the call it the profit sharing or bonus or whatever is paid out and allocated.
Okay, perfect. Thanks. And then just curious kind of thinking about that path to 1,000,000 ounces, obviously the Expansion at Los Filos was a big part of that. Given some of the interruptions that have happened over the past year And you guys had talked to wanted to see more stability. Kind of how should we think about the timing of that expansion?
And are you guys still comfortable moving ahead with that over the near term and proceeding with the CIL plan? Yes.
I think it's still a key part of our investment in the future for that mine. I mean, it's a great mine and great deposit there. And What we want to do and maybe we just proceed a little more cautiously here, but we want to rebuild the stability, indicate to them that until we have that clear We won't invest in that CAL yet, but it will be on the radar. So maybe we don't launch into it quite as quickly here in the second half of the year. We still need to get the study out as well and then we can use that articulate what the plans are to the communities and local stakeholders.
We will continue obviously investing in Guadalupe and Bermejal Underground. Account. Those are obviously well underway and Guadalupe is most of the way there. But we may just take a little bit Cautious approach to the CIL. And the good thing here, I guess, is that we don't need the CIL to operate.
It's more efficient, obviously, with certain parts of the deposit to run it through the CIL plant, but ounces are not lost. They may be just deferred if we put some of that material on the leach pad and ultimately reprocess some of it later.
Okay, great. And then maybe just on the cost inflation that was flagged, Would you be able to provide a bit more detail in terms of percentage terms and what you're seeing on labor and cyanide reagents uptick in the U. S. And Brazil?
Yes. It's Peter here. We're not Seeing as much on labor to date. It's definitely more on the energy. So in Brazil, electricity And diesel and then and also on consumables.
So on an overall basis, you call about 5% And we're seeing it similar in the U. S, say 5% of the overall cost structure in each jurisdiction. In the U. S, it's more On fuel and reagents as well. Okay.
I suppose you could add grinding media to the issue in Brazil. I mean, you hate to use the term, but I think The whole world is probably on a wait and see on are these going to be structural increases or is this just a COVID recovery supply chain issue that's going to come down over time and we're in the same position.
Okay, got it. And kind of on that similar line, maybe in terms of budgeting At Santa Luz, nice to see that it's tracking well on budget, but how are you guys kind of thinking about cost as we head into the ramp up here?
We're on for Centeludes construction, we're on budget and we've spent a lot of I'm going through everything in regards to first builds and The remainder of the construction, all the equipment, over 90% of I think over 95% of Materials for the construction is already on-site. So we're well advanced on Santa Luz and I think we're good.
In terms of operations, obviously, we've got Fazenda and Aurizona and others around us, call it benchmarks. And We're actually even call it using some of the similar people that we're operating some of our other mines. So we've got a good basis. We're also using the same mining contractor and we now have the volume benefit. We have 3 mines on the same contractor and so I believe Santa Luz maybe our most favorable contract out of the 3.
So hopefully that helps offset any kind of call it cost pressures. And as Doug said, I I think the guys are saying the other day, there may be only 3 pieces of equipment that still are to arrive on-site in their peripheral. They're none of the big mills or any of the core pieces of equipment. Fortunately, any of those logistics challenges are probably behind us generally at Santa Luz.
And as a multi mine Producer, we of course look at the opportunities where we can for being able to do purchasing beyond just individual So that effort is ongoing in the background because we know that's an important thing to be doing at this time and it reaps benefits if there's continued Operations, but long term obviously benefits us no matter what if we can do group purchasing and bring overall costs down. So That's going on as well.
And another thing that we're looking at and this is a look forward quite a ways is there's opportunities to look to Fantastic from a cost perspective, but also from an ESG perspective because they're using renewable sources of energy. So kind of win win in that sense. And We're very serious about looking at those kind of opportunities, partly because it's smart business in terms of cost, but it's also great from perspective and as we get our baselines for all of our emissions and things that becomes more in focus for us.
Okay, perfect. That's all for me. Thank you.
Thanks, Wayne.
Thank you everybody for joining us today. That's the end of our questions. If you do think of anything, Update. I will turn it back over to Christian for closing remarks.
Thanks, Raline. And I think it's a pretty comprehensive run through. And update. As I said early on, we're really looking forward to the second half of this year. It's been a little bit more of a challenge in the first half.
We knew it would be. It was well telegraphed and Second half should be pretty exciting. So stay tuned for Q3 and Q4. Thank you very much.
Operator, you can now disconnect the line.
Thank you. This concludes today's conference call. You may all disconnect your lines. Thank you for participating and have a pleasant day.