Equinox Gold Corp. (EQX) Q1 2020 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Corporate Update and First Quarter Results 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. [Operator Instructions] I would now like to turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox Gold. Please go ahead.

Thank you very much operator. Thank you very much for joining us today. We will of course be making a number of forward-looking statements in today's presentation so please take a moment to visit our continuous disclosure documents on our Web site, on SEDAR and on EDGAR. I will now turn the conference over to Ross, our Chairman to discuss the results of the ATM and take you through the presentation.

Thank you very much Rhylin and welcome ladies and gentlemen to this call. I really first of all want to start by apologizing for doing this on a Friday afternoon just before a Canadian long weekend. This is normally what happens when a company wants to deliver bad news. But nothing could be further from the truth for Equinox Gold. We had a great quarter. We are just hitting on all cylinders. And I just want to make that front and center for everybody, the reason we're doing this today is to accommodate our accounts. We took about a month or two longer to close our Leagold deal than we had expected and this -- put them right up against the wire to get the consolidation done. Tremendous amount of accounting to be done and changes that were required, a lot of scrutiny, a lot of review. And they asked us to go to the very last day before they had to file the quarterly statements and that was today. So we accommodated that won't happen again. I acknowledge it's a rotten time to be doing this for everybody and by Tuesday morning when we reopen, some people will have forgotten that we've put out such good results and they'll be moving on to whatever is going on next week. What is good about it is that we are ending the week on a very high note for gold. And all the reasons we did the Leagold merger and has had such rapid growth in our gold production or gold reserves is because of our conviction that we are in a secular gold market, gold bull market. And I think all events that have happened in the last -- really the last two years, but particularly the last month or so have confirmed that that's been a very wise strategy. So what we're going to do now is I'm going to run through a few slides in our presentation that's in our webcast. Give some kind of -- some high level or reviews of what we're up to, some of the things we set out to do in 2019. This is like a report card of how we did. This is the third year we've done this now we started out our first year was in 2018. We did a report cards and of what we were hoping to do that year. We did another one a year ago, where we set out what we did in 2018 versus our objectives, what we plan to do in 2019, and today I'm going to talk about what we actually did in 2019 versus our objectives we set out a year ago and I'm going to tell you what we're planning to do this year. So that next year at this time, we can do exactly the same thing. So the first thing I'm going to do is, I'm going to start on Page 3 of our webcast presentation and I'm going to talk about our leadership team because after all, it's the people in a company that build it not anything else. If you have great people, you end up with a great company and great results. I'm going to start with their Board of Directors. This is a relatively new board for many of the traditional Equinox shareholders, unfortunately, we had to lose some of our very valuable board when we did the Lea deal, but we brought in some great new directors from Leagold. Besides myself, I want to acknowledge Neil Woodyer, who is the previous CEO of Leagold, who is our Vice Chair, Christian Milau, of course, who is a brand new director as of today because he's the new CEO of the combined company. He's Of course taking transitioning from being CEO of Equinox Gold. And he is going to be coming on as a Director as of today. Lenard Boggio, who is independent board member also who's Chair of our audit committee, and I want to warmly welcome Maryse Belanger to our Board as an Independent Director. Maryse has a long track record of very successful engineer, miner in many places. She speaks fluent French, of course, fluent Portuguese, and she lives near Vancouver and I'm very happy to be welcoming her first female on tour Board as well, it's overdue. We need more diversity. I'll say that right away. And we'll be looking for that in the future as well. But I'm particularly happy to welcome her on to our Board. Tim Breen, a Director who is a representative of Mubadala whose post conversion of the convertible securities they hold will be our largest shareholder. Tim Breen is an excellent director and is representing Mubadala in a very competent fashion. Two new directors who've joined Equinox from Leagold, Gordon Campbell, who I've had the personal pleasure of knowing for many, many years, and General Wesley Clark, both Independent Directors. And Marshall Koval, who is soon going to be Independent. He was the Chair of -- the CEO of Anfield Resources, which is one of the three companies that formed Equinox Gold back at the end of 2017, also a dear personal friend and strong engineer and very, very solid project manager over the last 20 or 30 years of his career. Peter Marrone, who is the Chair of the Yamana Gold also Independent Board Member, and then on management our senior top three really, but really these three only represent the top of the pyramid -- and it's a very flat pyramid, where we have literally thousands of competent people reporting to these three strong managers, Greg Smith, our President Heads Business Development as well. Attie Roux, our COO, with a big, big team of Equinox staff. That's under his leadership. And then, of course, Peter Hardie, who's responsible for all our financial statements, and of course, banking relationships, and I can't speak highly enough about Peter and his team. Moving on to Page 4, the 2019 report card, how did we -- what do we say we were going to do and what did we do? Well, we guided the market to production of 200,000 to 235,000 ounces at an all in sustaining cost of 940 to 990. We hit both numbers, we built our mind at Aurizona successfully it opened up more or less on budget, more or less on schedule, we hit gold production for Aurizona gold production for Mesquite. And we produced just over 200,000 ounces and beat cost guidance with all in sustaining cost of 931. So I'm going to say we ticked that off pretty successfully. In exploration, we targeted extending the mind lives of Aurizona and Mesquite, which were the only mines that we owned a year ago. We had great success at both. We put out a reserve report earlier this week where we demonstrated we'd extended the mine lives at both of those mines and I'm going to tick that one as well. In development we said we wanted to advance Castle Mountain into production and at least start construction in 2019 and open it in 2020 and also develop the Aurizona underground plan. And once again we start a construction at Castle Mountain. It's underway. Christian will talk a little bit more about its status and of course working on phase two at Castle Mountain, doing the feasibility study, as well as an underground preliminary economic assessment at Aurizona, that gets ticked as well. On the next page, we said we wanted to refinance our balance sheet. We had some high cost debt. We got rid of all the high cost debt from Sprott and we reduced our -- we converted the debt into a package -- debt package with Scotiabank, and syndicative of banks, as well as $130 million convertible note with Mubadala, retired the high cost debt and refinanced our balance sheet. So we'll tick that as well. We also said we wanted to improve our liquidity and market visibility. We listed on the New York Stock Exchange in October, we advanced to the TSX name board from the TSX Junior Board in December, and we increased our daily trading value by about 400% in 2019 versus 2018. And we've increased it again very significantly this year. And we'll tick that one as well. And then lastly, we said we wanted to work on an on an accretive acquisition. We also reminded our investors that we aren't here to grow for growth's sakes, we're here to grow and try to make money. We're trying to add value, not just size. But in the context of the year -- late in the year in December, we announced our at market merger with Leagold Mining. And this really has added fuel to our ambition of becoming a major gold producer, accelerating revision of producing more than a million ounces per year. And we could hit this in the near very near future by the end of next year, or shortly thereafter. We also put together a $670 million financing package to fully fund our growth to get us to a million ounces of gold production per year. So we're going to take that one as well. And I would say we hit all of our objectives in 2019. So what are we going to do this year? Well, we have a very ambitious plan again this year. We hope to do a lot of development in operations, enhancements, we are going to work hard in those fields expansion. Just today we approved at our annual meeting -- at our Board Meeting, the restart of our Santa Luz project. So we're going to get that rolling. We are going to complete Castle Mountain mid-year to produce about 45,000 ounces in phase one. And we're going to push ahead with phase two as fast as we can. And we set out as an objective completed in the PEA for Aurizona underground, and we completed that as well announcing the highlights about a week or so ago. Exploration, our plan is to extend the mind lives at four our mines and upgrade the Aurizona underground resources to support a preliminary feasibility study. We're working on that right now. In corporate, we set out as an objective to get included in the GDXJ and the GDX, which were both successful where added in March and April respectively. We also have been informed that we will be added to the S&P/TSX indexes in both June and September. We also want to work hard on our environmental and social governance reporting. We're doing that right now. And we're going to publish this on our website quarterly. It's a very important part of our business to make sure we look after our communities, our employees and the environment. And that will be a fundamental part of our business plans going forward. And finally, again, if we see value, we will seek to exploit it, we are coming from a position of strength. And we are going to try to take advantage of that by adding values, not necessarily just growth, but ultimately, we aim to be even a bigger company by the end of this year than we are right now. So that's our plan for 2020. And I very much look forward to reporting to you throughout the year as we achieve those different objectives. Page 7, we show here what our growth profile is and will be. I'm going to start with 2018, which was our first year in business. We produced in that year about 25,000 ounces that came to us from the acquisition of the Mesquite mine in the fall of 2018. In 2019, we added Aurizona. We started producing from Aurizona mid-year and at a full year from Mesquite. So we produced about 200,000 ounces in 2019. Our objective in 2020 is to produce just under 600,000 ounces a year and that goes from -- that will include operations at Los Filos which we of course -- came to us in the Leagold deal, some smaller Brazilian operations Pilar, Fazenda and RDM. Our own Aurizona, a full year at Aurizona, and another full year at Mesquite, as well as the tag end of production from the first partial year from Castle Mountain Phase 1 and that's going to get us to just under 600,000 ounces in 2020. Beyond this, you can see we have a very, very ambitious development plan, which will lead to production, potential production of about 1.1 million ounces by -- in the future when we add to Santa Luz mine, Castle Mountain Phase 2, we expand those windows and we continue with operations in all of our other mines. So it's a very ambitious growth platform. I don't know of any other gold company in the world that has such a strong growth platform either in the last couple of years or in the next couple of years from internal growth without needing any new acquisitions. So we're very pleased with that incredible growth outlook. On Page 8, this is just sort of a snapshot where the mines are, our reserves, our gold production 2020, the path to gold production, the growth we have different projects we have, just under 22 million ounces of measured and indicated gold resources plus -- which include 12.2 million ounces of proven and probable gold reserves. Our estimate for this year just over $1,000, all in sustaining costs, which should give us a fabulous margin. Today's gold price is 1750. It doesn't take too much to figure out how much money we're going to be making for our shareholders in 2020. And we start from with a very, very good financial base, we have about $350 million in cash in our bank at today's date. And Christian will go into some more details of that shortly. Page 9, this is a kind of a busy chart, but it shows all our peers or some of our peers and where they rank in terms of their price relative to net asset value, the price to net asset value ratio. What we've done is we've moved in terms of our 2021 estimated gold production so we're going to be estimating producing in the range of 800,000 plus or minus ounces in 2021 could be higher. And if we don't change our valuation, we're currently -- our current price and net asset value is about 0.71 more or less,0.71 on average, maybe point 0.71 to 0.75, so we're going to be a much bigger company. But what the next to the right is that you'll see a hashed blue circle with a very strong blue arrow upwards. That's really where we expect to get to. We expect to get to, in the next year or so, a much, much higher multiple price to net asset value multiple. In fact, we should be there today and we would be much higher value. In fact, we've actually, I'm going to say in the last month or two we've probably underperformed our peers, whereas we outperformed our peers for the period since December when we announced the merger and here's why. When you do these mergers, our merger was concluded on March 16, I think something like that, March 10. Almost always you have a lot of churning in the shareholder base. So the shareholders of both Equinox and Leagold who maybe didn't necessarily want to see the combination or for some reason wanted to exit. This is a normal thing. We've had lots of people exiting, and particularly non-core holdings such as the Yamana. Yamana held, I think 8 million -- they sold 8 million shares, which was a significant stake. And that's fine. We accept that. But there was a lot of selling from could be Lea chose or Equinox shareholders. And fortunately for us, it was taken up by a lot of buying from the indexes, from new shareholders, we've had a wonderful, wonderful group of new shareholders come into us who've actually bought stock just in the last couple of months. But because we've had so much of this sort of you could say overhang pressure and there's been a lot of warrants exercised as well, and they're continuing to be exercised today, as warrants expire. So before they expire, they get exercised where they have to be counseled. And in fact, we've got some warrants that are being exercised right now that expire on May 22. So some of that is holding us back. I think when we go through those dates, we're going to see a nice pop and we should kind of recover from what I think has been under performance in the last month or so. And we should get more of that blue arrow heading up towards a more of a one to one or 1.25 to 1 price to net asset value and get us more in what I think is a fair place relative to our peers who have the same kind of production we do the same kind of profitability we do and the same sort of size. Moving to Page 10 This is the right time to build a gold company. We -- I say all of us in management and our Board we're all bullish on gold. And I want to remind shareholders this. This is not -- the gold market -- the gold froth we're seeing this week for example in the -- the optimistic outlook for Gold. It's nothing new. We could see this coming. That's why we started Equinox Gold in late 2017, when we put it all together. The gold market has actually -- it actually broke out from a four or five year lows in January of 2016. And so we were already in a secular bull market, I was confident gold was going to keep doing well and blow through its previous high of $1900 in this cycle. I didn't know when, I didn't know where it was going to end up, but I was sure that we are -- the underpinnings of macro environment in the world is so bullish for gold right now. I assure that gold was going to do well. What I didn't know -- that a COVID crisis was going to come along and add gasoline to the fire, which is exactly what it's done. And I'll talk about that in just another minute. But we did know it was good time to build a gold company. But look at what in this chart, look at what gold equities have done relative to the gold price. They're still undervalued, they're under owned. We need a lot more generalist investors to own gold stocks. I think it's starting to happen. But there's a long way to go. when gold investors start buying equities, instead of simply the precious metal itself, you're going to see what happened back in 2010, 2011, you're going to see a tremendous outperformance of the equities relative to gold itself. And you're going to see this catch up, which has not yet happened. So I see a lot of opportunities still for higher gold equity valuations and specifically to Equinox higher share prices. And I'm going to end on the next slide Page 11. Just with a couple of comments about gold. As I said, I felt gold was in a pretty healthy secular bull market for the last two or three years. In that environment, to build a gold company that successful you want to build a big one, you want to build a gold company that has big production and big reserves and big resources. And that will give huge leverage to your shareholders both on your income statement, and on your balance sheet and economic in your economic reserves and your resources. And so, we've done that we've built from nothing in just two years, this tremendous amount of leverage, and we're going to keep doing that. But this year, we've had this very, very unusual, tremendously harmful, costly, deadly, in many cases, pandemic, the COVID-19 crisis. Well, without talking about all the terrible things that's done to a lot of people's livelihoods and jobs and companies, it's been extremely good for the gold price. Why? Because all this easing and all this synchronized stimulus that is happening in every single country in the world to the maximum extent of government's ability to help stimulate the economy, get people back to work, help the people who are suffering from this from this tremendous crisis and the economic consequences, all of that is causing currencies to be debased, governments are printing money like crazy, they're writing checks to try to get the public to spend money again. It's just, I mean, it's like just an orgy of money printing, an orgy of debasing currencies. At the same time we have zero or even negative interest rates, trillions and trillions of dollars of negative interest rates. So, gold doesn't have a carry, but it has at least a zero carry doesn't have a negative carry the way, the way some of these bonds have now, that of course with the COVID crisis, we're seeing supply issues. We were seeing suppliers in gold anyway, the average grade of most gold mines was dropping. Gold mining was becoming more difficult, more socially difficult in many, many countries, countries were increasing taxes, it was just getting to be a more and more difficult business. We had for five years declining gold prices down to a price of 1050 ounce. Well, most gold mines are economic at below, $1,100 an ounce and so in that period, companies stopped exploring. So you have this tremendous lag time now between discovery and operation of a mine. I'm going to say today it's actually closer to 20 years. So when people start exploring again, which they're doing, now, it's going to take a long, long time before that really filters through to higher mine supply. And so, the COVID crisis is just again, is this increasing those supply problems. And so the last comment I'm going to make is, really I just want everybody to try to use some sense of history. For 5000 years, we've seen every single Empire that's ever existed from the Greek Empire, the Roman Empire, the Holy Roman of like every other Spanish Empire, British Emperor and even though the American Empire, their solution to the problem of spending money and trying to control their budget deficits, is to print money. And what that means is that, fiat currencies they are allowed to print become less valuable over time. Gold keeps its value, it's kept its value for 5000 years. It's a great place to hold value. That's why it's money. And what we're producing is money for the world, to replace or to substitute for fiat currency and other forms of investment. More and more people will recognize that gold is a solid store of value, some of those and that will increase the gold price. Some of that money will flow into equities like solid companies like Equinox Gold. That's why we were built. That's why we exist to provide that gold for those investors. And that's why I'm extremely positive about the continuing bull market for gold and the prospects for Equinox gold itself. And with those comments, I'm going to turn things over now to Peter and Christian, to talk about our quarterly results. Thank you again for joining us today.

Great, thank you, Ross. It's Christian here. Just want to take one second to say acknowledge actually our long-term and existing and a new shareholders to support through this period of growth and buying into and believing in us in the vision, and also say thanks to the team and the workforce because it's been a really challenging time and I would never imagine going through a merger and managing putting two companies together in a COVID world pandemic and really exceptional performance of people roll up their sleeves and actually working very closely together. So I will walk you through the couple of slides here on the operating results, we had a very good and strong first quarter, we're very pleased with it. Both production and costs were ahead of plan. And please remember that there's only 20 days of the Leagold assets included in our results. So I'll sort of highlight those as we go through. From a health and safety perspective, we had a good result. From an operating result perspective, we had about 90,000 ounces of gold produced, on a full three month basis, we would have done almost 150,000 ounces, if you had full three months of the four Leagold assets included. So, a real step change over the last few years. And again, on the cost front as Ross mentioned, $968 an ounce all in sustaining costs was below that initial guidance range that we gave out and we're seeing the benefits of FX savings and some cost savings and good cost control in this environment and traditionally the first or first and second quarters tend to be a little bit higher than the last quarter or two of the year. So we're really pleased to see that at the beginning of the year. And just looking through the individual mines, Mesquite produced almost 37,000 ounces, not quite as much as it produced in quarter four last year. But again, another strong quarter is really hitting its stride at the moment. We continue to process a bunch of the mineralized old dump material, which is fully oxide. And we're seeing the results of that at the moment, just under 1000 thousand dollars, all in sustaining costs, which again, is within guidance and is reflecting also a lower diesel price that we're seeing in the U.S. these days. Aurizona produced just over 32,000 ounces a good quarter. It's our first quarter in the rainy season. And it's great to see that the mine actually produced at $952, all in sustaining cost. And that's well below our guidance range. So we're appreciative of the grade reconciliations been strong there we had benefits from FX costs and as well good cost control. And then the newly merged assets from Leagold we had 20,000 ounces of contribution, which is on plan, but it's only for the last 20 days of the quarter. Turning on to Slide 14, in terms of financial results, revenue was $130 million. But what that translated to or good mine operating earnings of 43 million and EBITDA of 65 million, which is $50 million on an adjusted basis. So we've had good production, good cost control, benefits and tailwind from FX and diesel costs. So ultimately, it translated to some very good earnings for the quarter. Net income was about $11 million, with adjusted net income of 17 million. We had a few non-cash items that were impacted there. There's the warrant liability, revaluation, some foreign exchange callers and as well as the historical Leagold hedge, there's some unrealized losses in there as well. In terms of cash from operations, we had a strong cash flow quarter we did have the impact of some transaction costs and that impacted our overall cash flow. And in terms of a net cash flow basis, we did have about $17 million of gold shipments, particularly from Brazil, that went over the quarter end and turn into cash proceeds in the first couple of days of April. Flight delays did impact us right at the end of the quarter there particularly with the COVID situation in Brazil. So, cash came in the door, but it was just after quarter end. So ultimately, we ended up with just over 300 million of cash at the end of the quarter. And as of May 14, yesterday evening, we had $350 million of cash and it continues to climb. We're seeing the benefits of some warrant exercises and the anti-dilute that was exercised just post the quarter-end. So overall, our net debt position and our balance sheet in a very strong place, our net debt to EBITDA debt ratio is about 1x and we have a very strong cash position as we work our way through this COVID situation. Turning the Slide to 15 in terms of development, corporate highlights Castle Mountain Phase 1 construction is more than 75% complete now. Continues along, not completely unaffected by COVID but very minimal impact so far, few staff not being able to make it to site on a couple of days of the week, if they're having to look after their children or manage family matters during the COVID situation, but overall, it continues along nicely. We advanced the Phase 2 feasibility study, it should be done in the second half of this year. As well the Los Filos expansion activities have continued on although the actual on the ground activity has stopped for main April, which I'll touch on in a minute about the Mexico situation. We continue also to look at the carbon and leech plants and the appropriate size when we go to actually constructing it starting probably later this year. I'll touch on that later as well. As well at Santa Luz the other project down in Brazil. We think it's very exciting project. We're just at the moment updating the CapEx and the engineering work so that we can launch into construction as well at the appropriate time. And obviously corporately, the merger was completed on March 10, the refinancing was done and we've been added to both the GDX and the GDXJ just before and after the quarter end, so we've seen 20 million shares of buying in that process. I mentioned earlier, there was extra cash that came in post quarter end, so about $12 million from the anti-dilute right, as well as over $42 million from warrants. So we continue to see some cash from that exercise. And I'll touch on the recent updates in reserves and resources and the underground PEA at Aurizona. Looking at Slide number 17, in terms of more of an operational updates and how the business is going, I don't want to dwell on and stop too much here on the COVID situation, it's been mentioned and talked about a lot in our recent publications. But, we're putting everything in place to both protect the people in our areas, including workforce and community members. We're also trying to protect their jobs and the income and keep contributing to the local governments and communities as well. So it's a fine balancing act that we're managing at the moment. On the health and safety front, we have the typical protocols you'd expect under these situations with a very contagious virus, as many travel restrictions and remote working policies in place as possible, heightened hygiene protocols, as well as we're looking at the business continuity side and we put in place contingency plans with suppliers, alternate supplier groups as well. We stockpile critical supplies, extra supplies on site. And as well of course, we've fortified our cash reserves, we now have over $350 million of cash. And then on the workforce support front. We've gone to protect high risk personnel by asking them to work at home or to stay off site during this higher contagious period of COVID. We're also providing mental health services and some guidance were needed as well. So we're not out of the woods yet. We see the virus case is still continuing in Brazil and Mexico. They're not quite at the top of that curve yet it appears but we'll do everything we can to manage through this process. Looking at overall production for the year on Slide number 18. We put out guidance just before the COVID situation hit, obviously, we will come out to update that, at a practical time here when lost fuels resumes production. So in Mexico, the main impact has been the temporary suspension during April. And it looks to be that the Mexican government's just come out to say that we can ramp up production around the end of May. So at the moment, that's the plan. So we got a few more weeks here of getting ready to go back into production. So we've delayed the underground development at Burma Hall. We've also delayed some of the stripping here at Guadalupe, so some of our CapEx numbers will be adjusted to reflect that lower spend during the last two months. And as well we'll look at our overall production as well once we have a high certainty of going back to production -- into production at the end of the month. As well the other five mines in the portfolio they operate, they continue to operate not completely unaffected. We have different protocols on site and minor impacts. We did have minor shutdowns at both RDM and Pilar in Brazil for anywhere from 8 to about 14 days they are now fully operating. So overall, the portfolios managed the storm nicely and we see the real benefits of diversity and having multiple jurisdictions in multiple mine sites. Turning over to 19, looking a little more closely at Los Filos', currently, it's producing give or take 180,000 ounces per year. And it has a nice runway over the next sort of 12 to 18 months to get to 350,000 to 400,000 ounces of production per year. And I have to just say that the Leagold team did a wonderful job of taking this from 1.7 million ounces reserve up to 4.5 million ounces, plus another 6 million ounce resource. So there's lots of upside here in this in this sort of complex in Mexico. So currently just the heap leaching operation and when those two expansion projects are done Guadalupe and Burma Hall underground, will see the higher grade materials, increased production solely using the heap leaching technology. But on the back of that with the actual optimization of the CIO plant that were undergoing at the moment. We plan to have that done by about mid-year this year, and we're likely to go from about a 4000 ton per day plant to something more like a 6000 or 8000 ton per day plant. So we're in the final stages of getting that updated. We're looking at the mine plant to support that. And also in this new higher gold price environment, we think there's some real opportunity to expand and extend this mine life. And always ideally we'd like to get to the point where we're actually going into construction in the second half of this year for that CIO plant. Turning to Aurizona in Northern Brazil, just last week, we had results out on the Piaba underground study, we put out a new underground 740,000 ounce PEA study, as well, we've added the Tatajuba resource to our reserve and resource update that came out just a couple of days ago as well, it's 112,000 ounces. And we're really looking this year to actually continue to test those two areas. Mine extension along strike at Tatajuba, we're investing about $4 million in exploration this year as well. We're going to be spending another 4 million plus in the underground, so basically continue to delineate more ounces there. And as well we'll continue to spend a little bit of effort on regional targets. So this is a really big 1400 square kilometer property with lots of upside potential. And we're really been able to turn our attention to it now that it's been in production for about three quarters. When you turn the Slide to 21, just a quick, high level, look at the PEA results from the underground, it's almost 750,000 ounces. And remember a reserve there it's just under a million ounces. So this is a meaningful potential impact. It's over 230 million of net present value in a very nice IRR. And with 70 million of initial capital, this is a low capital intensity expansion or increase in our production levels. And the 2.8 grams per ton is about double our open-pit grade. So very nice enhancement potential to the grade that we coming out from underground and as well it would feed about one-third of our plant capacity at 2800 ton per day. And again, it's open at depth and to the East and West and we've got about $8 million this year for exploration at Aurizona. Turning on to 22. And coming back to California now, the next expansion project in our portfolio is really Castle Mountain. Now, just quick refresher, it's a 3.6 million ounce reserve with a 16-year mine life to a fantastic large, Western U.S. based project. It'll produce just under 50,000 ounces a year for the first phase, that phase could go for up to 10 years, and it's only 60 million of capital. So again, we're about 75% of the way constructed there. We're in the final stages right now. So in the next few months, we'll be in the place to start stacking or in quarter three, we plan to be pouring gold. And on the background, we're also working on a feasibility study for Phase 2, which would take this to 200,000 ounces a year. That should be ready in the second half of this year. And we'll be able to look at amending and applying for a permanent amendment on the back of that feasibility study when it's ready. And also in the near-term, we're also drilling for water for that Phase 2, we need some extra water sources. And that really work should start this month. Turning on to Slide 23, and back to Brazil and the next projects in the pipeline that's Santa Luz. Really excited about this one, now that we've got a bit of time to get closer to it and understand it better, it's an 11-year mine life, just over a million ounce reserve, lots of upside and a very similar fashion to Aurizona. It's got parallel trends and underground potential, it'll be 100,000 to 225,000 ounces a year production at a very attractive cost. And all of that for well under $100 million. So really, when we look at this, this could be a $500 million net asset value net present value type project at current goal prices and foreign exchange rates, it becomes very exciting this current environment. So we're really looking forward to finishing off the cost update and really launching into construction here this year so that we can have this up in production, late 2021 or early 2022 at the latest. And on Slide 24, I'll just quickly go through the other four assets, Mesquite, again it's been producing on and off for 30 years as synergies with Castle Mountain and it will actually smelt the gold for Castle Mountain in the early years. Reminder is that we bought this back in 2018 for when gold was about $1200 an ounce for $150 million. This is 125,000 ounces producer at a good attractive all in sustaining costs of just under $1,000 an ounce. Now we've mined out about a year and a half, we originally had a three year mine life, we still have probably two and a half years or more of mine life plus residual leaching left. And there's lots of potential upside on site. Scott and team has done a wonderful job of identifying, more than mineralized dump material and old leach pads with ore grade material. There's another 40 million tons that we highlighted in our press release earlier this week. That needs to be drilled out this year. And Scott's got the money to do it. So we're really looking forward to the results of that over the next sort of six months or so. Fazenda in Brazil produces about 75,000 ounces a year. It's been operating on and off for 25 years, a low cost operator, it's actually been performing, at or below its all in sustaining cost estimate for the year and had a good first quarter. RDM in Brazil similar size 75,000 ounces a year on average, all in cost slightly higher. It's now on grid power now has a more permanent water source and storage area, so it has a more sustainable cost structure going forward. And as well Pilar is the sixth mine in the group, which is slightly smaller and higher costs but contributes about 30,000 to 40,000 ounces a year. Just touching on a few other areas coming back to the overall company. Since the merger closed in March, as Ross mentioned, we've had extremely good liquidity of anywhere from sort of $20 million to $50 million to $90 million a day of trading. About 40 new institutions have come into the name, but a billion dollars in values have been traded since December. So a lot of interest in the story and we've seen the overall liquidity go from -- under a million dollars day up two numbers that are 25 times more than that. So we've really been pleased with the uptick in the interest in the stock. And turning on to 26, that is translated into a much larger institutional proportional ownership of the stock. But one thing that really I think sets us apart makes us very unique to other companies is the unparalleled insider ownership. Almost 11% of the company is owned by insiders, Ross, ourselves as management, other Board Members are very well aligned with long-term shareholders here. We think it's a unique feature of this company. When you look at all of our peers that produce about 300,000 ounces or more, there's almost none that are above 2% ownership from the insider. So really good selling feature where we're well aligned with shareholders. And just to summarize on page 27, and bring back to the catalyst for 2020, before I open up for questions. Operations and development have a lot ongoing. It's all about execution at the moment. We've got expansion projects we're working on. We also have a bunch of exploration work to do to extend mine lives to look at all the exciting upside at Los Filos, Mesquite, Fazenda and Aurizona and as well, corporately, we were looking towards being included in the TSX composite in June and September, could bring another 10 million shares of buying. As well, as Ross said, we think on the back of all that there's a real chance for a rewrite in the next 6 to 12 months as we continue to execute. And don't forget, this platform is a fully funded growth platform. And that's a unique position to be in this kind of market as well. So just wanted to conclude by saying thanks to the team for managing through a very successful integration and thanks to shareholders for the support through another successful year and then we'll just pass it back to Ross or open up for questions.

Sure. Operator, can you please remind people how to ask the questions.

[Operator Instructions]

So we do have a few questions from online. So I'll start with those while people line up on the phone line. I'm going to combine two questions. They're both talking about how we're managing the COVID virus. So the U.S. and Brazil and so sort of responded differently than some of the other countries around the world. What are our plans to mitigate the spread of the virus in the two countries and how do we think it will affect operations as 2020 unfolds?

Attie, do you want to comment on that, and I can add comment as well.

Okay. Christian, thanks. If you look at the two countries, we started up pretty early, COVID prevention program by introducing preventative measures at our gates. This included the normal, heat screening, the handwashing, the social distancing, which we started long before it was promulgated in these countries. We have advanced on that further with activities that came from methodologist, where we get information on what's the best practices in the world at the moment and we introducing all of that. Things like the risk group screening from the mine, and to make sure that they don't enter the mine areas.

I was just going to add that we've also looked at various rotations and people's travel and obviously limited that and try to limit the impacts and introducing any kind of new potential transfer of this virus in any areas that we're working in and working very closely with the local community as well to dialogue with them and get their assistance.

Operator, can you please take a question from online?

Our next question comes from Kerry Smith with Haywood Securities.

Christian, have you seen much cost pressure at the site from the extra measures you've had to implement for the COVID program? Obviously, it costs more money, it's probably slowing your productivity a little bit and just wondering if you are seeing a noticeable increasing cost because of that, or if it's either not that big of an increase or it's being offset by the FX?

Yes, I mean, Attie please add a comment after but I'll have a first go with that. Basically, we are seeing small amounts of sales increases, we certainly are looking for extra sort of, -- there might be extra cost because of rotations and shifts and people and covering off all the sanitary and hygiene measures that we have in place. I think we're being more than offset at the moment by FX and costs like diesel going down very significantly. It's a little early to know because I think we're seeing in Mexico and Brazil, certainly the virus spread has been increasing, but the U.S. is probably a little more stable where we are anyways. And at the moment, I would say it's been minor or limited in the sense. And the other side of it, maybe Kerry to think about is working capital, we probably put a little extra money into having extra stockpiles and supplies at various sites, although, that'll translate into cash in due course as well. So I call the impact so far pretty minimal.

Okay. And maybe a second question if I could. Ross was saying in his introductory remarks that the Board approved the Santa Luz restart today at the Board Meeting. Do you have a rough timing for us in terms of when you would expect to start construction?

Yes. I think we want to officially, get into construction sort of in the second half of this year, maybe early second half of this year. We're still finishing off all the final bits of engineering and that to prepare ourselves. And in this current COVID environment, we don't want to rush into it either. We want to sort of build up the project team in that. So as I indicated earlier, I think certainly second half of this year is a good starting point.

And then I think you said production in late 2021, early 2022, correct?

Exactly. Once we actually pin that date, then we can give you the exact timing on that, but it's give or take 12 months to build process once you get going.

Our next question comes from Andrew Weekly with SmithWeekly Research.

Can anyone speak to what types of assets are being sought through the M&A activity going forward, I know you can't give much detail for strategic reasons, but a few hints as to what is being considered? Why are we are still in the lower valuations for potential growth deals?

Sure. Thank you very much Andy. It's hard to be specific, we try to be opportunistic. We want to add value and that's very much easier said than done. We certainly got that with our two deals that we've done. We did our Mesquite purchase at the bottom of the gold market that year when we were able to acquire that as a startup company from a distressed seller. And we then of course, combined with Leagold on terms that I think we'll all agree are good terms. We could be looking at acquiring another operating company, if combination made sense, although I can say we have absolutely nothing in our horizon right now, mostly because we've spent the last couple of months integrating the Leagold deal that's to happen successfully. And I'd say that's pretty much behind us now and it has gone successfully, We could look at potentially even a development play if we thought it was going to be a really great long-term asset for us. So, I think the two criteria that I would personally push for us are number one, value and number two, you're looking for an asset that's at least as good as anything we've already got. And those are rare, they're hard to come by. They're hard to get wrapped up, particularly in a bull market, like we're seeing right now. But they are out there. And if we can pull them in off, we'll do it. And if we can't, we are very content with our existing internal growth pipeline, we will simply execute that plan, which will lead us to great things as well.

And we continue to be focused on the Americas.

Yes, very well. I appreciate that Ross and Christian. I certainly agree that too, Leagold deal and Mesquite's, fantastic. Christian, can you speak a little bit more about Mesquite? I know you've mentioned it just a moment ago. Can you speak to Mesquite area potential? What does management see as mine life expansion that could be had at Mesquite through exploration? And does it believe that the trend at Mesquite provides sound economic reason to remain in the district?

I'm just going to make one comment. I'm going to actually let Scott speak a little bit to that. But basically, when we bought it, we knew we had a certain amount of ounces in the ground and a certain like mine life that was limited. In the year or so since then, we've really been able to develop both the near pit and waste dumping or old mineralized dump material into mine life extension, very materially and very profitably, and it's already been about 60% of our production last year. And Scott continues to identify more plus think about the bigger, longer term upside across the highway into the east of our property and there's definitely potential there. We'll wait for drilling permits in that area. But Scott, I don't know if you want to comment on anything that's near nearby.

Yes, sure. I see it kind of threefold. With our most recent resource and reserves update there earlier this week. The new resource estimate stated exclusive shows 430,000 ounces at M&I, these are exclusive reserves. So these form an immediate exploration target, looking to convert these resources to reserves and incorporate that into mine plan. So obviously, bringing those ounces, adding ounces to bring forward production faster is a guiding principle, guiding philosophy. So that's one-prong. There is the dump material, which is proven to be a fantastic value and big success. We are focused on that currently testing another 40 million short tons that are identified on site working quite hard on that we've drilled 35,000 meters so far this year. And then, thirdly, for the upside is the bigger picture. And there is Rainbow, which represents several hundred thousand ounces of resource sitting there with expansion potential and a little bit slower to permit to some of these exploration targets. So when they're outside of the immediate mine footprint, but there certainly is a significant boost that potential unlock in time.

Okay. Well, Scott, thank you for that. And just one other question, gentlemen and ladies there have appreciate the time. Can you speak briefly to the diesel procurement practices in place and does management see an opportunity to secure additional diesel fuel reserves due to lower prices and uncertainties?

Yes. I mean, we've seen -- we were budgeting. I think California diesel, it was closer to $3 in the high twos, late last year and we've seen current prices more in the $1.8 per gallon type range, so we're seeing almost a 30% benefit there. Interestingly, in my former life, when we owned Mesquite, we did do save 50% of the year's cost we actually hedged out and that's something we're certainly looking at the moment. And we've certainly looking at our fuel suppliers and seeing what we can put in place that has a little bit more longevity to it and secure some of that fuel at a very attractive price at well below budgets right now.

Okay. Very well. Thank you to you all. Keep up the efforts and stay well.

We've got quite a few questions from online, all are talking about the same thing. So I'm going to package them into a few different versions. So someone noticed that we've run through ourselves as the premier American gold producer. So I know you already touched on this Christian, but do we intend to stay in the Americas and we'll be considering expanding into other hotspots. And on the back of that I'm going to parcel in, do we think there's any risk of nationalization of the projects in Brazil given the markets we can?

Yes. I'll start on this and Christian could add anything he wants. Yes, we really like being in the Americas, their jurisdictions we know very well, they've been very successful for us and for many, many other companies, specifically Mexico, Brazil and North America. We see nothing whatsoever in talk or in even fact, even in reasonable whoever that suggests there's ever going to be a nationalization those days are long past and we just think that's absolutely impossible in this day and age. There could be pressure to increase their tax take, I think that's possibly going to happen everywhere in the world. And that's just kind of a normal battle between producers of wealth like mining companies and consumers of wealth like governments. And there's the rational governments that realize that they can't go to the bowl if they do they kill everything and nobody gets anything. So we have always valiant, we will continue that in the periods to come, I think. But, never say never on jurisdiction. We certainly like being in the Americas. But, if there was a great value opportunity just about anywhere we might look at it. I'd like to say, we'll never go outside the Americas you never know. But for the moment, it's not in our plan.

I just echo Ross's comment on there, particularly on Brazil. I've had conversations directly with the mines ministry over the last few years. And interestingly, that topic of nationalization came up and they felt a bit aggrieved by that comment. They're a very developed mining country that's very mining friendly, and they see themselves as very much being at the forefront of mining globally and it's just not something that's done there.

Thank you. So a shareholder in Germany would like to know that if we're planning to sell any assets that we currently have on our portfolio and then a shareholder in the U.K., would like to know, would we consider selling the entire company is the right offer came along from Barrick or anyone?

Yes. I can address that too. The answer to the question of whether we would sell to anybody. Well, of course, never say never once again. But Equinox Gold has been built to be an acquire or not a seller. We are planning to be in this business for a very long time, we'd like to build ourselves as a household name in the gold business and become one of the world's best gold producers with the best reputation for growth and quality and finance and management and everything else. That's our ambition. And it's not simple to set us ourselves up for sale to someone else. What was the German question?

Someone else want to know, we were considering to sell any of our assets?

Ever we selling any of our assets Christian?

Yes. I mean, I think we'll go through that natural process of, as we continue to grow and optimistically sort of enhance the portfolio with larger, longer life. higher quality type assets along the way. We naturally probably won't want to manage some of the smaller assets in the long-term. And I think it's a natural progression of the portfolio. And so, I won't say again, never say never, but we would consider the smaller end of things potentially selling along the way.

Our next question comes from [Robert Sigler] [ph], a Private Investor.

Yes. Thank you very much. My question is, I was originally, I'm a U.S. investor, and I was a holder of Castle Mountain which became Equinox Gold. And part of that we received a dividend from Equinox Gold and Solaris Copper, which became Solaris Resources. And as a U.S. investor we have never received any update on what's going on. The only thing I did hear through your conference call last time we had was that the Augusta Group was involved with this company now. Is there any way that a U.S. investor like myself can get information on what's happened since Equinox gave Augusta Gold whatever deal they made, with the Augusta Group to run this company to see if there's been any new developments, as have been any private placements and things like that? And what's in the future? Thank you.

Yes. Thanks for that question. It's a good point. As we've grown, it's become a smaller proportion. We own about 30% of, of Solaris Resources, as it's called now. And basically, they have a website that you can get that information if you want to see it, it's Solaris Resources, and you'll be able to obviously contact the management there, Richard Warke and Dan Earle leading that company at this stage. And it basically does continue to progress. It acts like a basically a public company, because you can find all of its press releases and its information on the website, and also on SEDAR. So if you can use both those sources and also you can reach out to them, they are based in Vancouver in Toronto. And they are currently not publicly listed, but the intention is, when the market conditions are right, they would like to get back to the public markets. So I think keep an eye out for that. We still continue to be very excited about that as an investor and we own that 30% block and we think it will be a very valuable company one day. They have started drilling there in Ecuador. And we think it's a really interesting situation with COVID ongoing, obviously, to put a little wrinkle in the timing of getting that drilling work done. But keep an eye out on that Solaris Resources website.

Thank you very much.

Thank you, Robert. We have a question from online and it's from Saudi Arabia. So it makes sense that the question is about oil prices. So how much is economical benefiting from the low oil prices, are you considering hedging your oil prices?

That was good. I will just say on oil prices, we're particularly feeling and seeing the benefit in California where I'm going to say about 15% of our costs, give or take or are linked to the diesel price and we're seeing roughly a 30% decrease in the diesel price currently will that continue, I don't know. But at the moment, we're benefiting from it. Diesel prices probably more like 10% of our costs in other jurisdictions, it's not quite as significant. And interestingly, in both Mexico and Brazil, the diesel and oil prices tend to be more government controlled. So they don't tend to oscillate like the open markets like it does in the U.S. as much where instead of getting a 30% benefit right now, we're probably getting more like a 10% to 15% benefit on that 10% of our costs.

Yes. It's Peter here. I will also add that for operations like Mesquite in the U.S., it does take some time for the costs to reflect that because they work their way through they heap leach, and there's a recovery curve that takes a couple months there. So, and for the operations that have plants associated with them, you see the benefit of that cost quicker.

Thank you. Ross, I know you've been asked this question before at previous conferences with Lumina Gold for sale would we consider investing in Ecuador?

I think I answered that question exactly one year ago. And what I said then was, it's very hard for me to be buying and selling at the same time. It's kind of an obvious conflict. I'm going to try to maintain a pretty good reputation for avoiding those things. And I will do so with that as well. So it's very unlikely, I guess not impossible, but it's extremely unlikely. Unfortunately, it's a great deposit.

And we have one final question from online just asking about guidance. So you still have the same guidance targets for 2020?

Yes. With the guidance we said, we'd update our guidance when practical, when we have the clarity of the startup in Mexico, I mean, it's looking very much like early June or late May. And we'll basically be able to reassess our plan and update the guidance then. The other five mines so far has called minimal impact. So at the moment, it's going mostly Mexico but it is a very fluid environments. So we'll update as soon as we can there in the next month or two.

Perfect. I'll remind people that this webcast will be archived on the website for three months. And we'll also post the full transcript in a few days. So thanks very much for joining us today and I'll turn it back to Christian and Ross for closing comments.

Any more questions on the phone? No more questions on the phone. Okay. Well, I have no further comments. So thank you all for joining us and apologies again, for doing this on a Friday afternoon before a long weekend. It will not happen again.

Thanks very much, everyone.

Thank you very much. Enjoy your weekend.

This concludes today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.