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Equinox sees operational uptick ahead

Despite navigating a tough first half of 2019 that saw construction of its second mine, Aurizona in Brazil, delayed by two quarters, Equinox Gold stock hit a new 12-month high on Tuesday.
Equinox sees operational uptick ahead Equinox sees operational uptick ahead Equinox sees operational uptick ahead Equinox sees operational uptick ahead Equinox sees operational uptick ahead

Equinox Gold's third operation, Castle Mountain near Mesquite, is expected to come online by June 2020

The equity is riding a re-rating tide after the company completed its acquisition of the Mesquite gold mine in California on October 30, 2018, bringing immediate production and cash flow to the company and transforming Equinox from a developer to a producer.

Now with a second producing mine under its belt at Aurizona, where commercial production was declared July 1, Equinox has become a two-asset producer. Despite the construction delays at Aurizona, the asset has transitioned from first gold to commercial production at good pace.

The company's recent interim financial report showed that despite lower overall production guidance this year, it was positioned to end the year on a high.

During the June quarter, Mesquite produced 26,799oz of gold at all-in sustaining costs of US$917/oz, an improvement over the 25,310oz produced at AISC of $897/oz over the prior period.

Equinox now expects Mesquite to produce 13% fewer ounces this year at between 125,000-145,000oz at 2% lower AISC of $930-$980/oz.

Equinox said the reduced production profile was mainly owing to lower-grade ore being stacked during the second quarter and a longer leach cycle attributable to non-oxidised transition ore mined and stacked during the first and second quarters.

The company has been taking advantage of higher metal prices to stack more oxide material, sourced from the openpit and low-grade dumps. It is developing additional water sources to increase solution flow to the leach pads.

As a result, gold output is expected to increase during the third and fourth quarters of 2019.

Equinox, backed by leading mining investor Ross Beaty (12%), also lowered the guidance for Aurizona by more than 13% to 75,000-90,000oz, at 18% higher AISC of $950-$1,025/oz.

The reduced production was owing to heavy rains and slower-than-planned final electrical cable pulling and terminations that had delayed project construction, the company said.

Equinox also said initial mill feed had come from lower grade stockpiles. However, mining resumed as the process plant was ramping up and subsequently the mine plan was modified for the rest of the year to focus on accessing higher grades in the Piaba Main pit.

The company expects the grade to increase to reserve grade later this quarter, after stripping in Piaba Main has been completed.

The higher AISC was also attributable to the shorter operating period this year as the company executes on the adjusted mine plan which calls for a higher-than-planned strip ratio, as well as additional capitalised stripping to access the Piaba Main area and preparing the upper benches of the eastern end of the pit for mining early in 2020, during the rainy season.

A third operation, Castle Mountain near Mesquite, is expected to come online by June 2020, with construction expected to start imminently. Castle Mountain will be developed in two phases to produce 45,000oz/y over the first three years and 203,000oz/y from years four-16.

"We maintain our ‘outperformer' rating and expect shares to continue to re-rate as Equinox increases its production base and looks to optimise operations," CIBC Institutional Equity Research analyst Bryce Adams said in a note Tuesday.

The company is aiming at achieving a plus-1Moz production profile by 2023.

Equinox shares trading in Toronto again touched its 12-month high at C$1.45 on Tuesday, after setting the high point early in July. The stock gained 5% from the previous close on Friday to value the company at $801 million.