Mr. Christian Milau reports
EQUINOX GOLD RELEASES SECOND QUARTER FINANCIAL RESULTS
Equinox Gold Corp. has released its unaudited condensed consolidated interim financial statements and related management's discussion and analysis (MD&A) for the three and six months ended June 30, 2018.
Equinox Gold's principal assets are its wholly owned, past-producing Aurizona gold mine in Maranhao, Brazil, and its wholly owned, past-producing Castle Mountain gold mine in California in the United States. The company's primary focus is completing construction and achieving production at Aurizona, which is on track to pour gold before the end of 2018, with an average annual production of over 136,000 ounces. The company also recently completed a prefeasibility study for Castle Mountain with the objective of commissioning phase 1 production by the end of 2019.
Second quarter 2018 financial highlights and recent developments:
Aurizona construction on schedule to achieve year-end 2018 gold pour: Overall project 60 per cent complete and plant construction 51 per cent complete at June 30, 2018;SAG (semi-autogenous grinding) and ball mills delivered to site, installation under way;Preproduction mining activities commenced in April;Ore stockpiling commenced in July;$146-million Aurizona construction budget on track and fully financed. As at June 30, 2018: $64-million spent (includes project construction activities from Q4 2017);Cash on hand of $65-million;Undrawn portion of construction debt facility of $30-million;Receivables in excess of $12-million;Castle Mountain prefeasibility results announced:16-year mine life with 3.6 million ounces of gold reserves;2.8-million-ounce life-of-mine (LOM) gold production;$763-per-ounce LOM all-in sustaining costs (AISC);$865-million after-tax LOM cumulative cash flow;$406-million after-tax net present value discounted at 5 per cent (NPV 5 per cent);Divestiture of non-core assets:Shareholders approved spinout of copper assets to create Solaris Copper;Koricancha sale announced for gross proceeds of $19.9-million (Canadian) ($15.1-million (U.S.));Received milestone payment of $4.7-million related to December, 2017, sale of Coringa project.
Aurizona
Aurizona construction is proceeding on schedule to achieve first gold pour by year-end 2018. The overall project was 60 per cent complete and plant construction was 51 per cent complete at the end of June. Preproduction mining activities commenced in April and ore stockpiling commenced in July in preparation for commissioning later in 2018.
During the quarter, the company expended $21.9-million on Aurizona construction activities, which, when added to the amount expended on early project works during Q3 2017, Q4 2017 and Q1 2018, brings the total construction expenditures at June 30, 2018, to $63.5-million. With a construction budget of $146-million, the remaining project capital will be financed by cash and marketable securities of $65.5-million, receivables of more than $12.0-million, and $30.0-million of undrawn construction debt financing.
While the Aurizona construction team is focused on achieving production, Equinox Gold's exploration team is focused on mine life extension and district-scale opportunities. During the quarter, the company announced that an initial drill program is under way at Tatajuba, the western extension of the main Piaba trend that hosts Aurizona. The Tatajuba target measures over four kilometres in length as defined by coherent gold-in-soil anomalism, geophysics (magnetics), auger drilling and limited diamond drilling. The initial 2,000-metre drill program is focused on an approximately 600-metre-long portion of the trend where historical drilling intersected significant shallow gold mineralization. Other district-scale targets will be tested with upcoming exploration programs and a study is under way examining opportunities to develop the underground potential of the Aurizona gold deposit. Drill results from more than 15,000 metres of drilling in 2017 at the Piaba and Piaba West targets are being incorporated into a resource update that is targeted for completion in Q3 2018.
Castle Mountain
The company expended $1.7-million on exploration and related technical activities during the quarter to support completion of a prefeasibility study for Castle Mountain. The company released the results of the prefeasibility study on July 16, 2018, contemplating a low-cost heap leach gold mine that will produce 2.8 million ounces of gold and generate $865-million in after-tax cash flow over a 16-year mine life.
Castle Mountain will be developed in two phases with annual average gold production of 45,000 ounces over the first three years (phase 1) and annual average gold production of 203,000 ounces from years 4 to 16 (phase 2), for total LOM gold production of 2.8 million ounces. LOM AISC is estimated at $763 per ounce, which is in the lowest quartile of the industry. The project demonstrates strong returns with an after-tax NPV 5 per cent of $406-million and an after-tax internal rate of return of 20 per cent using the base case gold price of $1,250 per ounce ($534-million and 25 per cent at a gold price of $1,350 per ounce). The project is expected to generate average annual after-tax net operating cash flow of $83-million with cumulative LOM after-tax net cash flow of $865-million. At $1,350 per ounce gold, the project would average more than $96-million in after-tax net operating cash flow annually and generate more than $1-billion in cumulative after-tax net cash flow over the 16-year mine life.
Initial capital for phase 1 construction is estimated at $52-million, with many aspects of the phase 2 expansion incorporated into the design to reduce total LOM capital costs. Initial capital for phase 2 construction is estimated at $295-million. LOM sustaining capital is estimated at $142-million.
Corporate and other
With completion of the Castle Mountain prefeasibility study, Equinox Gold's proven and probable reserves increased by more than 350 per cent to 4.5 million ounces of gold at a gold grade of 0.65 gram per tonne (g/t), with 3.0 million ounces in the proven category contained in 145.0 million tonnes at a gold grade of 0.63 g/t and 1.6 million ounces in the probable category contained in 72.4 million tonnes at a gold grade of 0.68 g/t. The company's combined measured and indicated mineral resources are now estimated at 6.0 million ounces of gold (inclusive of reserves), with 3.5 million ounces in the measured category contained in 169.8 million tonnes at a gold grade of 0.64 g/t and 2.5 million ounces in the indicated category contained in 101.5 million tonnes at a gold grade of 0.76 g/t, and additional inferred mineral resources of 2.9 million ounces contained in 178.5 million tonnes at a gold grade of 0.51 g/t.
Standby loan
At the time of its acquisition by Equinox Gold, Anfield Gold Corp. and its largest shareholder, Ross Beaty, offered future support to ensure cash receivable in relation to Anfield's disposal of its Coringa project would be realized by Equinox Gold prior to the end of 2018. On Aug. 2, 2018, the company formalized this offer of support by entering into a standby loan arrangement with its chairman, Ross Beaty, wherein he will make available up to $12-million that can be used by the company for the continued development, construction and general working capital requirements of the company's Aurizona gold mine located in Brazil.
The remaining $12-million receivable under the Coringa disposal is not due until December, 2019, and, when received, will be used to repay any amounts drawn under the standby loan.
The standby loan is unsecured. In the event the company draws on the loan and defaults on repayment, Mr. Beaty has the right to assume a share pledge the company holds as security for its $12-million receivable from Serabi Gold PLC.
The standby loan will bear interest and fees at commercial rates, draw availability will be from Sept. 1, 2018, to Dec. 20, 2019, and repayment will not be before the end of the draw availability period, which is expected after receipt of payment of $12-million in relation to the receivable due from Serabi.
Mr. Beaty is considered a related party of Equinox, and the loan transaction constitutes a related party transaction within the meaning of Multilateral Instrument 61-101, Take-over Bids and Special Transactions. The transaction is exempt from the minority approval requirement of Section 5.6 of MI 61-101 as neither the fair market value of the transaction, nor the fair market value of the consideration for the transaction, exceeds 25 per cent of Equinox's market capitalization. In addition, the transaction does not require a formal valuation since the transaction does not fall within any of paragraphs (a) to (g) of the definition of related party transaction under MI 61-101.
To the knowledge of Equinox or any director or senior officer of Equinox, after reasonable inquiry, no prior valuations (as defined in MI 61-101) in respect of Equinox that relate to the transaction, or are relevant to the transaction, have been prepared within the 24 months preceding the date hereof.
All of the terms and conditions of the transaction were reviewed and unanimously approved by the board of directors of Equinox at a duly constituted meeting on Aug. 2, 2018.
Grant of restricted share units (RSUs)
Pursuant to the company's stock option plan and restricted share unit plan, the company has granted a total of 292,368 RSUs, issuable in common shares of the company to certain directors and employees. The RSUs vest 50 per cent after 12 months from the date of grant and the remaining 50 per cent after 24 months from the date of grant.Incentive stock options were granted to an employee to purchase 15,000 common shares at $1 (Canadian) per share, vesting 50 per cent after 12 months and the remaining 50 per cent after 24 months from the date of grant, expiring after a term of five years.
Also pursuant to its restricted share unit plan, the company has made a one-time grant to Mr. Beaty of four million restricted share units with performance-based vesting conditions (pRSUs) to be settled in common shares of the company if certain performance criteria are met. The pRSUs vest in four separate tranches based on the company's share price performance and contain performance multipliers ranging from one to three times, depending on the share price achieved. Of the pRSUs, 15 per cent (with a multiplier of one time) will vest on the company's share price reaching $1.50 (Canadian); 20 per cent (with a multiplier of two times) will vest on the company's share price reaching $2 (Canadian); 30 per cent (with a multiplier of 2.5 times) will vest on the company's share price reaching $2.50 (Canadian); and the remaining 35 per cent (with a multiplier of three times) will vest on the company's share price reaching $3 (Canadian). The performance multipliers provide for a total of up to 9.4 million shares to be issued if all share price thresholds are achieved, however, if these thresholds are not achieved, no shares will be issued.
The grant is valid for five years and any shares issued in connection with the grant will have a mandatory hold period of two years, resulting in a long-term performance incentive and commitment by Mr. Beaty.
Additional information regarding the company's financial results, activities under way at Aurizona and Castle Mountain, and the company's long-term business strategy is available in the Q2 financial statements and accompanying Q2 MD&A, which are available for download on the company's website and on SEDAR.
Qualified person and disclosure
David Laing, BSc, MIMMM, Equinox Gold's chief operating officer, and Scott Heffernan, MSc, PGeo, Equinox Gold's executive vice-president, exploration, are the qualified persons under National Instrument 43-101 for Equinox Gold, and they have reviewed, approved and verified the technical content of this document.
About Equinox Gold Corp.
Equinox Gold is a Canadian mining company with a multimillion-ounce gold reserve base and near-term production from two past-producing mines in Brazil and California. Construction is under way at the company's Aurizona gold mine in Brazil, with the objective of pouring gold by year-end 2018, and the company is advancing its Castle Mountain gold mine in California, with the objective of commissioning phase 1 operations by the end of 2019.
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