Equinox Gold = A STRONG BUY or DROWNING IN DEBT?

In this video, we delve into the world of Equinox Gold, exploring its current market status, the game-changing Greenstone mine, potential profitability, and the looming debt concerns.

As a shareholder, I’ll share my insights, but remember, this isn’t financial advice—do your research!

📈 Key Points Covered:

📉 Market Evaluation: Equinox Gold is seemingly undervalued. We dissect why and highlight factors contributing to its current stock price.

⚙️ Greenstone Mine Transformation: A deep dive into the $1.6 billion investment in the Greenstone mine, its production increase, reduced all-in sustaining costs, and enhanced political security.

💰 Profitability Projections: Analyzing potential scenarios, we examine the company-wide all-in sustaining costs and production numbers post-Greenstone mine commissioning. Profitability projections are outlined based on different gold prices.

⚖️ Debt & Dilution Concerns: Addressing the elephant in the room—Equinox’s substantial debt. We explore the company’s ability to manage upcoming debt payments, potential dilution from convertible notes, and the impact on future cash flows.

🔄 Stock Re-Rating Potential: Despite existing debt, we discuss the potential for a stock re-rating as Equinox transitions from heavy investments in the Greenstone mine to generating cash flow.

🔍 Conclusion:
While Equinox Gold faces debt challenges, the Greenstone mine’s transformative impact, coupled with potential profitability, indicates an undervalued stock. Watch until the end for a comprehensive understanding of Equinox Gold’s future prospects.

📊 Important Metrics Mentioned:

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In my opinion, Equinox Gold is stupid cheap right now. And in this video, I’m going to show you why I think it’s so cheap. But also, they have a lot of debt. And after that, I’m going to talk about whether we need to be worried about that debt they

Have and how worried should we be. By the way, I’m a shareholder of Equinox. These are my opinions based on my analysis. So don’t take any of this as investment advice and always do lots of your own research before investing any of your hardearned money.

Just a few days ago, we got a press release from Equinox saying that they produced 564,500oz of gold in 2023. But we don’t know the all in sustaining cost, the AISC, for the entire year. That’s what it cost them to produce an ounce of gold. But we do know that for the first

Three quarters of 2023, it was $1,595. But Equinox is going through a big change right now because they’re building the greenstone mine in Canada. So what this is going to do, it’s going to increase their production a lot. It’s going to add 240,000oz of production, but in

Addition to that, it’s going to lower their all in sustaining cost by quite a bit. And third, it’s going to improve their political risk dramatically, because right now they have operations in Brazil, they have operations in Mexico, a little tiny mine in California, and this is

Going to be in Canada, which is considered one of the world’s premier jurisdictions. So when you decrease your jurisdictional risk, you increase the multiples you’re getting. And in addition to that, number four, it makes it a bigger company. It’s getting closer to that million ounce producer mark, which

Is kind of the limit to be considered a major. And as you approach that number, you should see increased multiples as you go from like a junior producer to a mid tier to a major. So this greenstone mine, it cost $1.6 billion to build, and they’ve been building

It for a couple of years now. Now it’s totally built, and now they’re commissioning it. So now they have to turn on the mine, put some ore in it, run it, test it, and make some changes based on the results, and then do that over and over and over again

Until they get it operating just the way they want to. So the full commissioning will happen over a series of months. Now, after full commissioning, it’s expected to produce 400,000oz of gold for the first five years. But Equinox owns 60% of the mine, so their share is 240,000oz. And what about cost?

How much will it cost to produce an ounce of gold at the equinox mine? Well, in the 2020 feasibility study, it said that it was going to average $850 an ounce for the all in sustaining cost. However, there’s been inflation since then. So are we going to be producing at that number?

I would guess probably not. So let’s go through a series of possibilities to figure out what the all in sustaining costs might be after the Greenstone mine is fully commissioned and in full production. So if they can hit this $850 an ounce number all in sustaining costs at Greenstone, they would

Be producing 804,500oz at 1372, all in sustaining costs. And this would be company wide. And this was their all in sustaining costs for their other mines that are already in production. And this number has actually gone down from 2022 to 2023. It dropped by, I think, about $60 or so.

So that number is actually trending down. But in today’s video, I’m going to assume that this all in sustaining cost and this production number stays the same, although I do expect this production number to increase and this to improve a little bit because they’ve been making some improvements to their mines.

And they had a mine blockade in Mexico for a while. So that one was shut down for a while, which increased costs. But anyway, let’s say that the greenstone mine comes in producing at $1,000 an ounce. Well, that brings the company wide all in sustaining cost to one $417.

So what does it look like if we’re here? Well, gold today is a little over $2,000 an ounce. So if the greenstone mine is producing at $1,000 an ounce, the company would be making approximately $600 per ounce. And here I have the worst case scenario where

The greenstone mine comes in producing at an all in sustaining of one $150 an ounce. That brings the company wide AISC to 1462. So this is a lot of numbers, but what does this all mean for the company’s profitability? Well, down here, I’m going to show you this.

So on the left hand column here, we have the cost of the Greenstone mine, the all in sustaining cost. We don’t know yet what that number is going to be, but the feasibility study said 850. So let’s say the average gold price is 1800 and that’s company wide.

They’re going to be selling their gold for $1800 an ounce. So that would have to go down quite a bit from where the gold price is at today. This is the worst case scenario. Of course, it could go lower than that, but this is the worst case scenario.

For this example, if gold is one $800 an ounce and greenstone comes in producing at $850 an ounce, the company is going to have cash flow of $344,000,000 a year. But like worst case, Greenstone comes in at a high cost, $1150, which would still be their best

Mine, by the way, because all their other mines have a higher cost than that. So if Greenstone comes in producing at $1150, and the average gold price is $1800, well, then the company will have cash flow of $272,000,000 a year. And compared to the market cap today, that

Is a 5.2 times cash flow multiplier. So, even in the worst case scenario, after greenstone is fully in production, we have a pretty low cash flow multiplier, indicating that the stock is pretty cheap. So now, let’s say the greenstone costs come in at $1,000 an ounce, and the gold price for

2024 is $2,000 an ounce, they’re going to be making $469,000,000 in cash flow per year after the greenstone mine is in full production. And it will take a little bit for that to happen, which would put the cash flow multiplier at three times the company trading at three times future cash flow.

Now, let’s say we have a pretty high gold price in the coming year, and the average price of gold is $2,500 an ounce. And greenstone costs come in at the low end of $850, the company would have a cash flow of $907,000,000 a year. So that’s a cash flow multiplier, based

On today’s market cap, of 1.6. So, based on this, and considering Equinox has some of the biggest reserves of any mid tier gold company out there, well, I think Equinox is very cheap today. However, they have a lot of debt, and we have to have to look at the balance sheet

And when that debt is going to come due. And also, they have some convertible notes. So we could see some more dilution as well. So now let’s take a look at that and see how big of a risk that dilution is and how big of a risk that debt is.

So I expect the upcoming cash flows to be somewhere in this range here. This $2,500 gold is kind of just for fun, just to give you an idea of what it could possibly be, but most likely scenario is somewhere in here. But now let’s look at the debt they

Have and see what kind of cash flows they will have to pay that upcoming debt. So this is pretty rare to see. They have a revolving credit facility that funds most of their long term debt, and that has an interest rate anywhere from 7.8% to 9.8%, and that’s $692,000,000.

So they’re paying a significant chunk in interest every single year that that isn’t paid down, so they need to pay that down fast. And then they have convertible notes of $451,000,000, none of which are in the money right now. And today’s closing price was $4.45. But they do have 137,000,000 of those

Coming due in just three months. And those convert at $5.25. They’re convertible at $5.25 into shares. So if the share price is below $5.25, those are out of the money, and the owners of those notes are not going to convert them into shares. However, if the stock price goes above that, well,

Then they’re now in the money, and the owners of those will convert them into shares. So since that’s only a few months away and the stock price would have to go up $0.81 from today’s price to be in the money, we will probably see Equinox have to

Pay the principal balance on that, which is $137,000,000. Well, right now, in cash and marketable securities, they have $315,000,000, and they do have more than $137,000,000 in cash. So they do have enough cash to pay that in April. So that shouldn’t be a problem if the

Stock price is below $5.25 when those expire. But keep in mind, if the stock price goes above $5.25, well, then those are going to be exercised, and we will get some dilution. There will be a share dilution. However, Equinox will receive a bunch of cash from that

If they’re exercised, because the owners of that are going to have to pay $5.25 per share, and that cash would help them to pay down this debt. So you have that revolving credit facility of almost $700 million, and then you have $451 million in convertible notes.

You add those together to get the total amount of debt. Everything except this. The $137,000,000 is considered long term debt in that it’s due more than a year from now. But to get the net debt, you then have to subtract the cash and marketable securities for a net debt of $828,000,000.

Now, when you see that they have debt of $828,000,000, these multiples over here that we talked about earlier start to make more sense because basically they would have to use that cash flow to pay down debt. And then after we pay down debt, we should see these multiples increase.

So considering as of September 30, they have $192,000,000 in cash, they should easily have enough to pay this upcoming payment of $137,000,000 due in April, if the stock price stays below $5.25. And going forward, should the gold price stay somewhere around where it is?

And I think $2,000 is kind of looking like the new floor, and it’s struggling to go under that now. Before that was resistance, and now it seems like it’s the floor. But going forward, if the gold price stays around there, Equinox should have somewhere between about $450,000,000 and

$500 million in annual cash flow, compared to the market cap today of $1.3 billion. However, we could potentially see them adding another 71.8 million shares. Currently, there are 313,000,000 shares. However, we could see a potential expansion of shares because there’s a few options out. But the big thing is these convertible notes.

They could be converted into shares if the stock price of Equinox goes up. Now, these are all out of the money right now. So if the stock price stays where it’s at, none of these are going to turn into shares. However, I expect that we will get a significant

Re rating in this stock as we decrease the all in sustaining costs of the company, as we improve its political jurisdiction by a lot. And also, we get closer to that million ounce producer, mark. But in addition to that, we’re going from Equinox spending $1.6 billion to build this greenstone

Mine, to have it generating cash. So now we’re not outlaying that money every single quarter, spending lots and lots of money to build that mine. Now, it’s going to be bringing in cash, which should mean a re rating in the stock, especially considering how great of a mine it is in

One of the world’s best jurisdictions. And it’s producing a lot of ounces at a really good price. So I think we’re going to see a significant re rating in the stock. And although they do have a lot of debt right now, I don’t see it as much of a concern.

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