Equinox Gold: This Negative Market Reaction To Results Offers An Opportunity

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Vancouver-based Equinox Gold (NYSE:EQX) reported its first-quarter 2022 results on May 3, 2022.

1 – 1Q’22 highlights

EQX: 1Q22 Highlights Presentation (Equinox Gold)

Equinox Gold produced 117,452 Au oz during 1Q22, a 9.1% decrease over 1Q21 (129,233 Au oz) and down 44.2% sequentially.

The company announced that it restarted plant operations at RDM on March 14 after a temporary suspension on February 26 to lower water levels in the tailings storage facility.

The revenues came in at $223.16 million, down 2.8% from the last year’s quarter. The company posted a loss of $19.78 million compared to an income of $50.32 million last year.

The adjusted EBITDA for 1Q22 was $43.4 million, a decrease from $130.0 million in 4Q21 due to lower earnings from mine operations

2 – Investment thesis

Equinox Gold caught the market by surprise with its weaker-than-expected gold production, which resulted in a significant stock selloff.

However, this temporary weakness is not enough to change my recommendation. The company enjoys a solid balance sheet and tremendous future growth that deserve a long-term investment status.

The company is about to add a new producing mine to its group. The Santa Luz mine produced its first gold on March 30, 2022, and commissioning is underway with commercial production soon. The 2022 production guidance is 70K-80K Au oz.

EQX: Santa Luz first gold pour March 30 (Equinox Gold)

Equinox Gold is essentially an Americas gold producer with nearly seven producing mines and four projects. Excellent mineral reserves with an estimated 670K Au ounces in 2022.

EQX: Map presentation (Equinox Gold)

Thus, I consider Equinox Gold a long-term investment despite this quarterly hiccup.

3 – Stock performance

Equinox Gold has significantly underperformed the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) and plunged over 30% after announcing weak 1Q22 results. EQX is now down 26% on a one-year basis.

Data by YCharts

CFO Peter Hardie said in the conference call:

As to operations, we produced 117,000 ounces of gold, as Christian said, that was a little lower than expectation. We did sell 119,000 ounces of gold. We had lower production. The production was primarily affected by RDM in Brazil, which experienced rain events late in Q4 that affected ore access heading into the quarter. And in addition to that, we had a 10-day suspension of plant operations.

Equinox Gold – Financial Snapshot 1Q’22 – The Raw Numbers

Equinox Gold 1Q’21 2Q’21 3Q’21 4Q’21 1Q’22
Total Revenues in $ Million 229.70 226.22 245.13 381.23 223.16
Net Income in $ Million 50.32 325.74 -5.24 184.08 -19.78
EBITDA $ Million 118.73 364.16 47.55 244.29 35.62*
EPS diluted in $/share 0.14 0.96 -0.02 0.54 -0.07
Operating Cash flow in $ Million 79.36 20.17 64.76 155.42 -16.35
Capital Expenditure in $ Million 70.87 94.41 71.51 107.44 123.88
Free Cash Flow in $ Million 8.49 -74.24 -6.75 47.99 -140.23
Total Cash $ Million 317.53 513.91 459.93 546.03 328.54
Total Long term Debt in $ Million 547.36 540.53 545.09 540.69 536.25
Shares outstanding (diluted) in Million 291.62 343.63 300.51 350.97 302.23

Data Source: Company release

Gold Production And Balance Sheet Details

1 – Revenues were a whopping $223.16 million in 1Q’22

EQX: Quarterly Revenues history (Fun Trading)

Equinox Gold reported revenues for the first quarter of 2022 of $223.16 million compared to $229.70 million in 1Q21. It was surprisingly low due to a weak gold production sold this quarter.

Net loss was $19.78 million or $0.07 per diluted share compared to an income of $50.32 million or $0.14 per diluted share in 1Q21.

2 – Free cash flow was a loss estimated at $140.23 million in 1Q’22

EQX: Quarterly Free Cash Flow History (Fun Trading)

Note: The generic free cash flow is the cash from operations minus CapEx.

Trailing 12-month free cash flow was a loss of $173.23 million with a loss in 1Q22 of $140.23 million. The loss in free cash flow is due to the CapEx related to Santa Luz and, therefore, should not be considered a negative.

3 – Net debt is $207.7 million and cash of $546.03 million in 1Q’22

EQX: Quarterly Cash versus Debt history (Fun Trading)

As of March 31, 2022, The total cash was $328.54 million, and total liquidity is ~$505 million now. However, the company indicates a Net debt of $385.1 million on March 31, 2022 (which includes $278.9 million of in-the-money convertible notes).

Total liquidity decreased slightly to $465 million from $505 million the preceding quarter.

EQX: Financial and balance sheet presentation (Equinox Gold)

4 – Gold production consolidated details – 1Q22 gold production was 117,452 Au Oz (119,324 Au Oz sold)

EQX: Quarterly Gold Production history (Fun Trading)

AISC in 1Q22 was $1,578 per ounce sold, and the gold price realized was $1,862 per ounce. The AISC is particularly elevated this quarter due to the low production sold.

EQX: Quarterly AISC and gold price (Fun Trading)

5 – 2022 Guidance

Production guidance is the same as indicated in my preceding article. Production is expected to be 625K to 710K oz of gold and AISC of $1,330 to $1,415 per gold sold.

EQX: 2022 Gold production guidance (Equinox Gold)

6 – Production details per mine

EQX: Quarterly Gold production history per mine (Fun Trading)

Equinox Gold owns eight operating mines, including Santa Luz, which is ramping up to commercial production and production estimated at 70K-90K Au ounces for 2022.

Also, Equinox began full-scale construction at the Greenstone project in Canada. The project is 20% complete on schedule and budget at the end of 1Q22.

7 – Proven and Probable Mineral Reserves

Mineral reserves are now 16.077 Moz.

EQX: Mineral reserves Presentation (Equinox Gold)

Technical Analysis (Short Term)

EQX: TA Chart short-term (Fun Trading)

EQX forms a descending triangle pattern with resistance at $7 and support at $5.8.

The dominant trading strategy that I usually promote in my marketplace, “The gold and oil corner,” is to maintain a core long-term position and use about 40%-45% to trade LIFO while waiting for a higher final price target for your core position between $9 and $10.

After the recent selloff, I believe it is safe to accumulate for the long-term, and I recommend buying EQX at or below $6.

Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States to generally accepted accounting principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stocks, one for the long term and one for short-term trading.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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