Equinox Gold Corp. (EQX) Q2 2022 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Second Quarter 2022 Results and Corporate Update. 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, operator and thank you everybody for joining us today for the Q2 conference call. We will of course be making a number of forward-looking statements today, so please do visit our website, SEDAR and EDGAR to read the rest of our continuous disclosure documents. I'm now going to turn the call over to our Chairman, Ross Beaty, to make some opening remarks.

Thank you, Rhylin, and good morning ladies and gentlemen. I don't usually get involved in these quarterly calls but this particular one is important. I think I'm going to talk a little bit about the CEO transition and a little bit of the background of that. Obviously, it was a poor quarter. And I just want to make a couple of editorial comments here to all investors whether they're short-term investors or medium-term or long-term. If you are short term, I want to point out that our Q3 and Q4 of this year should be much better than our first two quarters. We signaled that at the beginning of the year and we expect that to happen again just like it did last year where we had a blowout quarter in Q4 last year. So, short-term things should be much better as the year progresses. If you're a mid-term investor, I would like you to focus on our growth. Obviously, Greenstone is the biggest growth project we have that will add a couple of hundred thousand ounces at least to our gold production profile in the next couple of years, but we also have a dramatic growth potential at Los Filos in Mexico, Aurizona in Brazil, Castle Mountain Phase 2 in United States and, of course, our new Santa Luz mine in Brazil. Tremendous amount of growth, I think, we probably leave the entire sector in terms of growth of our production profile and our decrease in cash, cash cost profile. And if you're a long-term investor like me, you should be looking to simply on a company that has been built into one of the world's major gold producers. This will provide a sustainable business over the long term, it will be low cost and it will be a significant generator of strong cash flow and long-term dividends when we complete our growth to produce more than 1 million ounces a year, which is our medium-term target. There'll be lots of detail on our second quarter coming later in this call. But right now, I want to talk about the news last night that we announced about the CEO transition. Christian approached me and others on the board some time ago expressing a desire to shift into a different business. These things happen sometimes and you can't fight them. You have to just simply go along with them and deal with the succession as best you can. Luckily for us, we had a built-in successor who would have always been considered a successor to CEO and that was our President, Greg Smith. Greg and Christian were both founding members of the Equinox Gold management team, joined me right at the start in building Equinox from an idea to what is now a major gold producer with seven operations and a whole bunch of growth, as I've just described. Christian obviously will be missed. But we are very content with strong successor who we know well. Of all the team of veteran industry expert in the mining business, Greg's had a long pedigree in other companies before joining and forming Equinox Gold at the beginning of 2018. So it's a healthy transition. It was unanimous decision by the Board. We did have a significant succession plan and succession procedure that we followed. And so, Greg will start at the beginning of September. Today, he is on a well-earned holiday, I think, just getting ready for the new job. But he's been in the saddle as President. A lot of analysts know him, a lot of investors know him and I look forward to him really stepping up and taking this company on to new levels. Needless to say, I want to express my thanks to Christian. He was a strong CEO, great guy. We've worked together very, very well, and we've had a lot of, I think, enjoyment building Equinox together with the rest of the management team and building the management team. Really under Christian's reign, he really added to small team at the start, and what is now a fully functional major company build-out team, really started admin, finance, ESG team and of course all the operations team that is required. I think we have 6000 or 7000 employees now, and it's a significant company that's going to become even bigger and better. So, many thanks to Christian, welcome to Greg and I look forward to investors being able to talk to Greg once he is in saddle in September and then of course on future calls like this. I can't resist completing my comments with a couple of words about gold. I feel gold is kind of like a coiled spring right now. Even though it came down just under 10% from its highs, it still outperformed almost every other asset class this year and the general decline of all asset classes. But there is still a very, very strong case for gold and very strong case for gold moving higher in that foreseeable, in the very near-term future and longer-term future. Obviously, it responds well in this geopolitical turmoil, which I think we can say we have today between what's going on in Asia, what's going on in the Ukraine. Certainly, we have persistent inflation. This is not going to go away anytime soon. Gold always there as well in times of inflation, even though bond interest rates have risen, bond yields have risen somewhat. There're still negative returns on a real basis and why anybody would buy bonds is beyond me. We have decline in equities, declining values in real estate and so on. In the face of all of those negative other asset classes, you've got 2000 years where gold has been a store of value and held its value. So, I think all things included. I have a good outlook for gold in the short term and in the medium term and in the long term. And in that environment, Equinox Gold is really being built as a great way for investors to play the gold market plus play a great growth company which is what we're all working hard to build. So with those comments, once again thanks to Christian and welcome to Greg. And I'm going to turn the call over to Christian for his last CEO role really in terms of presenting Q2 results and Christian, I'll turn the call over to you. Thank you very much one and all.

Thanks, Ross. And if you'll bear with me, I just want to add a couple of comments to what Ross has said, it's obviously a very emotional decision for me. As Ross said, I was here when we founded this with Greg and Ross and a lot of the team around the table with me today and I'm very proud of what we've achieved so far and I know the journey isn't done and as Ross said, this is well on its way to becoming 1 million ounce producer and the plans are all in place. And I'm also excited about the new opportunities that are going to come my way, but I'm also very pleased with the succession and transition plan that we have in place and I think it will be very orderly as Greg steps in. I have the utmost respect for him and the team and I think you'll see very little change as we move forward. And I want to thank all of them for their hard work, it's been an exceptional six years and also I want to say a very special thanks to Ross and his support in the Board over those years too. It's easy to say you're going to build the company and focus on growth and it's really hard to do and execute. And I think this team has done a wonderful job in that sense. And there has been bumps along the road, but as Ross said, the pathway is clear towards and have 1 million ounces, and that will be achieved. So, it'd be exciting to be watching Greenstone progress along with all the other projects. You can't find that kind of growth as Ross said in many companies around the sector and I'm keen also to make a difference in the carbon finance sectors. I do move on to a different space and excited about that as well. But really the businesses at hand, we should cover that today and that's the quarter two results and where Equinox is going. As of Page 3 with our summary just to re-highlight, it's a diversified portfolio of six producing mines and really the seventh is almost in commercial production right now and we have that peer leading growth with the four growth projects and really excited about those as they start to come to fruition over the next couple of years. We've got the large reserve resource base 60-million ounce reserve, 30-million ounce resources. We've got a strong balance sheet with almost $400 million of liquidity and $250 million plus of investments on the balance sheet. As Ross said, with a tough quarter, we have reduced guidance, RDM. We suspended the guidance early in the year. So, no surprise there and also Santa Luz has been on slightly slower ramp up as we have a refurbished plant that's starting to hit its stride a bit more these days. And so that will be about 580,000 average production for the year, slightly down on the expectations, beginning of the year and that clear path to 1 million ounces is well funded and it's well on its way to being achieved over the next few years. Turning to the next slide in the Q2 operating results, Health Safety Environment and other strong performance. Well done to the team again and I do want to highlight we did award Mesquite the safest mine award just recently ending for their five millionth ounce. So very good milestones for them to achieve and also Aurizona achieved the most improved mine last year, so well done to all of them. In terms of consolidated offering results, we produced 120,000 ounces slightly shy of what we did expect at the beginning of year and that's predominantly due to the suspension of RDM during the quarter due to the delay in the TSF or tailings lift permits and also the slower ramp up in Santa Luz. Those will be discussed a little bit further and the cost as well as Pete and Doug run through the mines all in sustaining costs were a little bit higher than expected, primarily due to those operational items that RDM and Santa Luz. Inflation was running about 6%, but again there's a bit more detail later on. Non-sustaining capital, we spent $134 million, a little bit higher than planned as we spent a little a few more dollars on Santa Luz. And Greenstone, we were able to bring forward a little bit of capital. There is a little bit of inflation in there as well, but not a material change this year to the Greenstone capital. Overall for the second half as Ross alluded to, we do expect that decrease in the all in sustaining costs by about 10% down into sort of the mid to low 1400s and also the vast majority of our operating cash flow in the second half of the year as expected. Looking at the construction development exploration, Santa Luz is ramping up to commercial production in quarter three. Pleased to see the recovery is working well. Doug will walk through a little bit more of the detail on that ramp up. Greenstone as we announced last week, tracking very well on schedule, on budget. Very pleased to have the independent QRA, quantitative risk assessment review done and confirm basically what we expected. So, it's progressing well in the middle of its first summer. Construction is in high gear and the site is very busy at the moment and looking forward to having analysts and investors to site in early September to actually see it with their own eyes, it's for the first time since COVID that actually we have a group of people on site and we've got two days of visits coming up, so that should be exciting. Corporately, again very busy quarter. Sandbox Royalties spun out in partnership with Sandstorm, another company that we hope to realize some value from in the long term, but create more value in just selling it outright on day one. Also we sold Mercedes as everyone knew and we announced around the year end last year and we received the first $75 million of the $100 million proceeds during the quarter and we own still 16% stake in Bear Creek and we received almost $50 million in Solaris proceeds from the warrant that was exercised on the sale of that stake about a year ago, I guess. As we mentioned and Ross alluded to, obviously the transition upcoming with Greg moving to CEO, as of September 1. And I'll turn it over to Pete on the next couple of slides in the end of the slide to talk about the balance sheet.

Thanks, Christian. We are poised for growth. Our balance sheet is also poised to sustain that growth. A week ago, we announced that we have amended our credit facility to increase the revolving portion from $400 million to $700 million. As part of amending that facility, we also rolled our term loan, which had about $73 million left in principle into that revolving credit facility. The advantage there of course is that it postpones the principal payments that otherwise would have come do what we're trying to build Greenstone and pushes them out beyond the time when Greenstone will be completed in construction. We also added $100 million accordion feature. It is uncommitted, which means we do need to go to the banks to ask for more, but we're happy that we have that available. We extended the maturity of the credit facility out until mid-2026 with a one-year extension feature, and of course that pushes it out beyond again our capital commitments that we have for Greenstone and we did all that while lowering the cost of capital, which we're happy about. We've reduced overall the borrowing cost by about 25 to 50 basis points on average for that. And we want to thank our leads, Scotia, BMO and ING, who helped us put together the amended facility and as well our entire banking syndicate for their strong support that they've shown to the company to date, and as we move forward. I'll mention that we drew $100 million of the revolver in July. So we've got $473 million drawn today, but what this has been overall as we look forward? We've strengthened our balance sheet. Christian mentioned some of the corporate items that we did and selling Mercedes and selling some Solaris shares. But with our existing cash flow of the increased facility that I've just highlighted, we've really increased our liquidity that does not include the accordion feature when we say that we've got $390 million in liquidity right now and that's just our treasury and our undrawn balance on the revolver. And we frequently mentioned that we have other levers that we can continue to pull on the balance sheet and it's a tough macro-economic environment and those levers are there. So, we're well poised for the path forward in funding our growth. With respect to the Q2 financial highlights, I already mentioned we're not happy with them, very similar actually overall in the sales and revenue side to Q1 and we expected them to be higher. We had mine operating of the revenue of $225 million, mine operating earnings of $17 million and adjusted EBITDA of $24 million. We had a loss of $79 million which is $0.26 a share. And on an adjusted basis when you remove some of the noise that the fair value accounting introduces into the income statement, we had an adjusted loss of $48 million which is $0.16 a share. Our cash flow from operations before changes in working capital was $16 million, which translates into $0.05 a share. And I've already mentioned that we have a strong capital position as we move forward here. On our next slide, I'll touch on some items in our updated guidance. Generally speaking, we've decreased our production by about 85,000 ounces and most of that is attributable to as Christian just mentioned, the slower ramp up than otherwise as expected in Santa Luz which and we've decreased there by about 30,000 ounces on the year and RDM as well, we had a couple of temporary stoppages there and there'll be a shift to moving just low grade at RDM, but Doug will run through all that as part of his overall run-through of the operations here in just a minute. But at RDM, guidance has been decreased by 45,000 ounces, and that's the bulk of the 85 decrease with those two mines. The remainder really is in Los Filos where we've reduced 7500 ounces and then a little bit elsewhere. With respect to costs, Christian has mentioned, we have seen inflation. I think everybody is seeing inflation. Generally speaking, we plan for about 6% on the year, and that's an addition of the inflation we experienced last year and this guidance really adds another about 6%. What that means on a cost per ounce basis is an overall we've increased $125 an ounce. So our updated guidance is $1,470 to $1,530 an ounce and about $70 an ounce, $75 an ounce of that is inflation. About two-thirds of that is fuel and the remainder is really attributable cyanide and lime where we've seen really large increases, and with the remainder really being some of the unfortunate underperformance in the first half of the year, the remaining $50 an ounce and some of that -- a bunch of that is attributable to grade but again Santa Luz, Los Filos, RDM are where we're seeing principal increases in our guidance. Aurizona as well during the first half of the year, there was heavier reliance on the low-grade stockpile. Interestingly, we had -- and again I don't want to steal Doug's thunder too much, but we actually moved more material during the rainy season than we have before, but that was higher up in the pit, which didn't allow us to access some of the better ore and so we did rely on the low-grade in the first half of the year but the second half of the year we expect almost double. So we are about 0.9 g per ton in the first half, almost double for the second half. So overall, with respect to guidance as Christian mentioned, from a production basis, we're going to do 550,000 to 615,000 ounces this year. Most of that is weighted in the second half of the year. Costs are up, likewise cash flow. Like with last year, it's weighted in the second half of the year. So we are very happy this quarter is behind us and we look forward to the second half of the year where our performance will just continue to improve. And with that, I will turn things over to Doug to run us through the operations.

Thanks, Pete. So Pete's gone through a lot of the items I would have covered, but I'll reemphasize it is tough quarter. We had signaled lower production in the first half and the very unexpected impacts have hit us principally at RDM in Santa Luz with a weaker production at Aurizona and Los Filos, but let's start off with the USA and I would say the best mine in the Group for the quarter, Mesquite has done really well in Q2 and Q3. They're benefiting from the stripping that was done principally in Q1 that provided access to the Brownie ore body and we've now started stripping while we're still mining from Brownie ore body. We've started the stripping for the next phase of mining in the Vista East that will provide ore as we come into 2023. Overall, mining and processing at Mesquite are ahead of plan and about 60% of the gold production should come from Mesquite in the second half of the year. As was noted earlier in July just into Q3, we celebrated the five million ounce being poured at Mesquite and also safety milestones and at that point, we reported 3 million hours lost time incident free. So, a really good quarter for Mesquite. Moving over to Castle Mountain, the crusher and conveyor are now in place that's been coming for a while as we needed to make a change away from run of mine ore go into leach pads. We've now seen improvement in the permeability and the overall flows have increased. We'll be watching this quarter as the leaching of the new sales happen. We'll be looking for faster leach times and improved recoveries overall. With faster leach times, we also hope to be able to put a larger area under leach with the same volume of solution. And we benefit from just having done an expansion of our leach pad that's complete. Therefore, the costs associated with that will not be carrying over into H2, so overall in sustaining cost that Castle Mountain will reduce in the second half of the year. The leach pad areas are now sufficient for all of the remainder of Phase 1 operations and our Phase 2 permit application we did previously state that it was submitted in March. So it's in the process of being reviewed by government agencies at the moment. Looking at Los Filos, We did have good production from the Guadalupe open pit. It's performing according to plan. In fact, it gets additional run of mine material from the waste which reduces the overall strip ratio. The run of mine material is lower grade and does have a longer leach time. So, it takes a while to get the benefit of moving that material. Grades will improve in Q4 in Guadalupe coming up to about 1.2 gram from the current just under 1 gram per ton. Los Filos open pit was behind plan in the quarter and mined lower grades than anticipated, but it should be getting better as we come into the latter part of the year. Bermejal underground development has improved now and we are focused on getting access to the higher grade zone five area. We should be hitting the higher grades late in Q3 and into Q4. Los Filos underground was mining in areas of lower grade, but it's on plan as of this month and we hope to keep it that way. Our updated technical report including updated mineral resources and mineral reserves for Los Filos will be ready for filing in Q4. Moving onto the next page. In Brazil in the first half of the year, Aurizona had 2.7 meters of rain. So, 1.4 meters of that came in Q2. The heavy rain reduced our mining rate from mining productivity and it limited access to the ore in the bottom of the pit that increased our reliance on stockpile ores which were mostly consumed during this rainy season and at the end, had relatively low grade in Q2 of about 0.9 gram per ton. I'll note that the process plant did very well. Land recoveries were up around 92% and the throughput was good, but we had slugs of ore that high moisture content and cause problems for feeding into the mill. So the mill did well but suffered when we have the very high moisture content material coming in. So each year at Aurizona as we come out of the rainy season, we have a significant ramp up in mining and this year, we will be looking at about 65% of the total tons being done in the second half of the year that's already been happening in July and needs to continue to help and we not only need to be able to get access to the rest of the year or the bottom of the pit where H2 sees process grades coming up to about 1.7 grams per ton. Therefore, a significant increase in overall gold production, but we also need to be able to put in place the stockpile in advance of the next rainy season. Other things happening at Aurizona include the new TSF which we will start shortly and be completed at the start of the next rainy season and we continue to advance studies and permitting for the underground expansion, which will include drilling below the Pilar open pit that occurred in 2021. Moving over to Fazenda. We've seen consistent production at Fazenda. Mining is both 25% from open pit, 70% from underground. We should see an overall improvement and all in sustaining cost to about $1,200 an ounce as we come to the second half of the year. And the exploration teams continue working on annual reserve replacement drilling and very importantly on investigating the several targets that have been identified in the belt between Fazenda and Santa Luz. Moving on to RDM, very disappointing performance in the first half of the year, impacted principally by two suspensions. Firstly, there was a change in regulations governing TSF3 Board requirements. It came in and with immediate effect. So, that's when we reduced their TSF water level by pumping from the TSF to the open pit. And secondly, there was a delay in the receipt of the permit to do the next TSF raise. We have received the permit. And, we are in the process of doing that raise now that will be completed late in the quarter. As we have been building up the TSF raise, we have restarted operations on July 3, but we still have water in the open pit that we are evaporating and pumping out and I'll note that we were in the midst of a large stripping program. So essentially it was negative cash flow and the stripping program was not necessary to be able to access higher grade ores for future years. So, at this time, we did an assessment, and we have determined that we will stop mining of primary ore and process the low-grade stockpiles that are available. We have enough roll through this year and next year if necessary. So in situ, ore grades of about 0.9 gram a ton, whereas stockpiles around half a gram per ton. So this is being done to maximize our cash flow at the time where we need it, for putting capex into Greenstone, and essentially we're at the same time preserving our long-term value at RDM while we pump out water and while we get the TSF raises completed. Guidance has been reduced to less than 30,000 ounces for the year. We are also implementing vacuum side cloning of tailings at RDM that gives us the ability to optimize the tailings storage capacity in our TSF and will also allow us to recycle more water at that mine. So, moving on to Santa Luz, it has been a prolonged ramp up to production, but I will note resin works well. Recoveries are consistently over 70% and up to 82%. That's almost double the recoveries that we would get with the carbon using kerosene as the blinding agent and this is the only operating resin in leach process plan that's treating gold ore with total organic carbon. So, technically, it's a success using the resin but we got to give the resin a chance to do its job and so the prolonged ramp-up has been largely due to modifications and repairs to some areas of the plant. As we scale up from our pilot plant to industrial scale, means that we had experienced certain challenges such as high corrosion of the cathodes. Now, we've gone and replaced the cathodes with a higher quality stainless steel and now performing well. We've also had issues with some of the piping and with leach tanks and we've been progressively fixing these over the last few months. At the same time, we've continued to keep the process plant in operation. These fixes of the leach tanks should be complete in this month. We have been operating even while having at least one tank offline during this period at about 80% of nameplate, so 6300 tons a day and we have run at full capacity of 7400 tons per day. But, we're doing a change of trommel on the primary mill, which should allow us to be able to run consistently at 7400 tons per day plus. The other challenge has been achieving a consistent blend of about 0.65% total organic carbon. Carbon, of course, affects the recoveries of the resin can achieve. We are learning a lot about balancing out the TOC well and the same time trying to maintain as high gold grade as we can. Unfortunately, they seem to come hand in hand. And so it's a real challenge to keep it consistent and give the resin the chance to be able to perform where we wanted to. So we expect to achieve commercial production in Q3 -- at the end of Q3. Moving over to Greenstone. So, yes, it will be one of the largest gold mines in Canada. We just did a news release on July 27 that provided progress following an independent quantitative risk assessment that was completed when our engineering was over 96% complete and the project was over 25% complete and it confirmed that the project is on schedule, on budget. We have an experienced and dedicated team building Greenstone. They react very well to the challenges they face. It's owner-managed teams, so their interest lies very much parallel with the exactly what Equinox and Orion want to see on the project. I do note that as of mid-July, the project achieved 1 million hours with no lost-time incidents, very good safety culture at site. Inflationary pressures have been addressed partly by contingency and also through offsetting savings opportunities where possible. And that's one of the aspects of where our onsite team in terms of up with the ideas and how they can compensate for any potential overruns by approaching things differently. So Q2 activities focused on earthworks, structural concrete, structural steel. The first of four mining trucks are received and being assembled at the moment. Those are kept 793s. We look at Q4 for what pre-production mining will commence. A 56% of total costs are contracted, 28% of total costs are in fixed costs and 26% of total costs have been spent as of the end of June. You can see a few photos showing progress on some of the main buildings and as we move over to page 12, as of July 22, there is a series of statistics on the completion and various areas. Overall, project is 35% complete, the construction itself is 28% complete and then we see how we're doing on earthworks being a big factor 48% complete overall and individual areas including the process of being 14% complete, our plants at 18 and tailings facility 29% complete. There's more detail as provided in the news release and also a series of photos on our website showing the progress on site. The majority of the buildings are on schedule to be enclosed by year-end. Obviously, we want to have that complete before we head into the height of winter. So, we will just move onto the next page. That's the first of eight leach tanks being completed and we have commissioning on the ethylene water treatment plant should be occurring in Q3 and Q4. You can see the inside of building there. And then finally on the next page, an overview of the site showing the progress on all of the buildings. The site is changing rapidly. We see progress on a weekly basis, sort of the good advance rate and the photos are up on our website and will also be hosting a site visit in September. So, we look forward to having two groups come through and seeing the progress as we come to the end of the summer building season. So with that, I'm going to hand it back to Christian

Yes. Thanks, Doug. And just on the last couple of slides here, I just want to reemphasize the current position and say thanks to Peter, Seb, Susan and their teams on an excellent job in getting the balance sheet matured and refinanced and thanks again to the support of our lenders who continue to support us from early days right through to now is being at mid-tier to a larger gold mining company and it's great to see the balance sheet maturing. And as Greenstone construction progresses under the derisk, the balance sheet cash flow investments portfolio put us in a strong position to continue to fund that and achieve all of our development goals over the next couple of years. And on the last slide, I just want to make a couple of closing comments and then I just want to say I'm proud of what we've accomplished so far and very excited to watch as Equinox, Ross, Greg and the team take the next steps towards becoming a 1 million ounce producer. We're only part way down the road, but I'm very confident the team on achieving that over the next couple of years. The scale of the diversity of the growth looking at the four countries we're in are very exciting and what we always set out to achieve, and it's really the credit to a strong team and all the hard work done to date. And I want to thank the teams, thank shareholders for your support. It's not easy always to back the growth-oriented company in a part of a cycle where people aren't valuing growth but will in due course. The Board and Ross have been extremely supportive and other stakeholders on the ground across all these countries. It's one of the hardest decisions I ever had to make in my life, but I'm super excited about being a supportive shareholder and cheerleader and supporting Equinox from the sidelines as we move forward here. And I'll miss Equinox desperately, but I'm also really excited to make a small difference in the carbon finance space as I move forward. I'll be CEO here at Equinox until the end of August. So, I'm not going anywhere too quickly and Greg will transition in at the end of the month. And so, please feel free to reach out, I'm here, I'm available and happy to chat and excited to pass on the reins and the keys as we move forward. So, I just want to close personally by saying thank you to all of you in this journey so far.

Thank you, Christian. Operator, can you please remind people how to ask a question.

[Operator Instructions] We will pause for a moment as callers join the queue.

Thank you. While we wait for the phone callers, I'll take a question from online from a shareholder in Europe. So as always, questions about costs. So once you get into the higher grade ore at Los Filos in Q4, what do you expect for the all in sustaining cost profile there?

Yes. I can jump in there. We expect in the last part of the year that obviously Guadalupe will continue on with sort of close to 1-gram material, and I know the underground will start contributing sort of 3- to 3.5-gram material, which will allow us to bring those costs down into that 1300 to 1400 range, I think for the fourth quarter, which is a much more respectable level than obviously the last couple of quarters.

And with the change in mine center RDM, do you have a sense of what the cost will be there?

In terms of RDM, it will run at a higher cost with that lower grades for now. Doug, I don't know if you wanted to add something.

Also as we get through Q3, we'll be finishing off the current TSF but we have TSF raise. We have already submitted for the next TSF raise, so we want to get that done, so all the TSF raises will be done, implementing the vacuum cycle of the tailings. It will be another cost that will come into the second half of the year. So, those costs will elevate things but they're not ongoing costs and the one off of doing those and at the same time processing the half-dry material will be obviously our cost will be up, but it's all about staying -- maintaining status quo while we pump up the pits as well.

And it's probably worth in the same vein Castle Mountain bore the burden of actually building all of leach pad 1B in the first half of the year. So give or take $600 an ounce of sustaining capital built into that cost and you'll see in the second half of the year that drops off and you're $600 lower on average, which will put that into a very respectable range for the all-in costs in the second half of the year at Castle going forward.

I would just add one more point on RDM that with the reduction in the total amount of ounces that it will be producing, those cost increases on a pronounced basis will of course increase the profile there quite a bit. But the general impact on the company will be lowered because the overall production profile is quite a bit lower.

I'll ask this question with the caveat that it's obviously a forward-looking statements on a forward-looking response, but sort of going into next year, we've got a couple of years now while we wait for Greenstone to come in production, which will obviously significantly lower the cost with that size of production, but what do you see from the mines over the next couple of years?

Well, we've heard obviously work being done at all the mines on cost reductions. We've seen evidence of that already in some of the mines with Mesquite and Fazenda. Some of the investments we've been doing will drive us towards lower costs. For example, Castle Mountain coming off of the pad expansion and putting in the crush and agglomeration, we expect that should bring down our all-in sustaining costs. The other mines are actively working on plans, which includes repurchasing but also cost reductions overall, so it is an active part where they're proactively working on that. It's been happening for a while though, just takes a while to put into effect.

All right. Operator, can you please take the call from the phone.

Yes. We have a question from Anita Soni from CIBC World Markets. Please go ahead.

Good morning, thanks for taking my questions. So first one I think is related to C1. So first off to some purely mechanical question, 45,000 to 55,000 ounces. Is that including commercial and non-commercial production? And then secondly, your cash costs would that just be the commercial production alone?

Yes. So for Santa Luz, the 45 to 55 is the whole year. The cost guidance that we provided is just for once it's in operation. So, as Doug mentioned, we expect that to be later in Q3, so the costs that we have there for effectively Q4 and a little bit in Q3.

Okay. Second question is a little bit more big picture, I think I've asked a few times, but just wondering if you're thinking about whether or not all of the assets that you have, would you consider asset sales? I mean, I think I look at this and I think for the amount of production you have, it's a significant number of assets and perhaps your spread a little too thin.

Yes, I mean I need all take that. I mean, I think we've shown that we're willing to actually divest of either non-core or smaller assets and I certainly think the smaller end of the scale, we will have to be open to that kind of thing and we have done that, demonstrated that over the last couple of years with certainly the Mercedes sale and a couple of other asset spinout. So I think we've been open to that at the lower end of the portfolio.

And could you identify which assets perhaps that may fit into that portfolio? I mean, I would think RDM and Castle Mountain don't seem to be bringing the size number that I would expect.

Yes. So, RDM is the smallest obviously in the portfolio. That's a fair comment, but Castle Mountain will be a 220,000-ounce producer in a few years and the permitting is going well there. So we see that as a core long-term asset.

Okay. I will ask one more question and leave it to someone else to ask. So I wanted to be put back even more, so I think I've asked a couple of times as well on this one. The Life of Mine Technical Report that was put out by the prior operator in December I think of 2021. Some of the unit costs are coming in significantly below what we've seen benchmarked now for our de tour operation for Agnico-Eagle as they put out their new Life of Mine update and Cote, both of which are operations that are operating in Ontario. So, pretty good benchmarks. I'm just wondering when do you think you're going to address your unit cost because as we push towards making sure that the capex number is correct and building this, I think we need to keep an eye -- I mean as investors or analysts, I'm trying to keep an eye on what exactly you are building at the end of it.

Yes. Certainly, they need updating as we move forward here. And as the operating team gets built up I think in 2023, we'll be updating those cost. But clearly with the inflation that's ongoing, we expect them to be higher than the exact number $650 an ounce approximately all in sustaining cost. We expect it to still be a very, very attractive level, but it will be higher due to the inflation, for sure, but as the operating team comes in, they will build up from a ground up zero based budget next year.

Okay, that's it, thank you for taking my call.

The next question is from Wayne Lam from RBC. Please go ahead.

Hi, good morning guys.

Hi.

I was just wondering if you might be able to give us some detail on the covenants for the extended facility. And then, just curious when negotiating the increase in size, was there any assumption made on the conversion of the converts and is the intention to fully draw down on the facility for construction?

So on the first question on the covenants, they were updated to reflect that our previous facility didn't contemplate capital debt market issuances. The facility was updated to have both total and net total, net senior debt covenants and they were loosened from what we had before. So obviously, we're quite pleased with that. On your second question on the, I think you referring to them a bottle to converts that we have. We have two of them, one of the maturing in 2024 and the other in 2025. They were not contemplated as part of it. So, there have been no changes or amendments. Otherwise obviously, you would have announced it to those converts. And on the third question, do we plan fully drawing down on it? Generally speaking, no. We do not. We see it as a back up to our ongoing funding through cash flow and other means.

Okay, great. Was there anything specific on that you will be able to provide on, say, the interest coverage ratios or anything of that?

Yes, we're four times on our total net and 2.5 times on our net senior covenant.

Okay, great. And then, just wanted at Mesquite, can you provide some detail on the mine plan changes? I'm just wondering how the change in the deferred strip near-term might impact the ability to sustain the production profile in future years and extend the mine life there.

So, I'm not exactly sure what you're asking. But I'll elaborate on the Mesquite. So, we were stripping in Q1 for Brownie. We're mining ore in the same place before Brownie. We did a modification to our mine plan, which has allowed us to start our stripping with these pits earlier than originally intended, which means that we can look forward towards providing that more with these pits as we go into 2023. Beyond that, we are continuing to do drilling and we've been doing, I've got Scott Heffernan here with me. He leads the exploration team. We've been doing $6 million or $7 million of drilling every year at Mesquite for the last several years. Every year is about adding and replacing and updating models, so it is a constant effort at Mesquite. And we basically go straight from exploration into the hands of the operations team and they turn it into an updated mine plan as we roll forward with it. So it is, I'd say fairly dynamic given that it's been a short life since the operation was acquired and been maintained at the same life all the way along. So we look to be able to the pump it out several years, but it is tough to do enough drilling to be able to do that in one fell swoop. Scott, do you want to add to this?

You covered it pretty well given that the asset is here. When we bought it in 2018 and had a three-year mine life on it, four years later, we're working on a significant resource reserve update. The challenges that each of these deposits, there is a big stripping campaign before you get into mineralization and ore. And so it's a sequencing thing and trying to balance this between Brownie and Rainbow vista deposits and so forth and so it's an ongoing exercise due to pit economics alter the sequencing and so forth. We're very much at important part of work at an updating tech report now it will come out to in Q3 detailing fully updated complete picture drilling results so far this, over the last two years and we're quite excited about it. Lot of work to be done quite over the next couple of months.

Okay, got it. And then maybe just last one for me. I'm just curious in terms of Greg's role with the Company. How is that going to coincide with his leadership with the Sandbox team? And then should we see this more as an interim role or is it more of a permanent position going forward? And how will time be split between the two?

I think a good analogy at least to start us to think about it, the way we did with Solaris. Greg, he was President of this company and very involved in it and he also spearheaded that into a successful sort of spinning out ultimately and becoming his own company with his own life. And that's how we see Sandbox going over time here as well. At the moment actually, there is a bit of a team there that is helping manage the day to day. So it's actually well advance beyond where we were with Solaris. We first spun it out, probably learned a few things. And that's been out and this one is more advanced in a sense, so there will be a period of time, certainly he'll be managing that and helping it through.

Okay, perfect. Thanks for answering my questions. And Christian, wish you best of luck in your next endeavor.

Thank you very much, Wayne.

The next question is from Kerry Smith from Haywood Securities. Please go ahead.

Great. Thanks, operator. Doug, can you talk a bit about RDM. I'm not clear on how the mine plan would evolve here? If in next 18 months, you're going to be dewatering the pit, you can get it basically dewatered to be able to get back in there and get to the ore for the higher grade ore, and then also completing the stockpile loss. So you're not going to be mining any fresh ore. What happens after you complete that process. This sounds to me like you would still have a pretty big pre-strip, so what will happen, when is the last day that you could actually start that pre-strip to make sure that you had uninterrupted ore for the plant?

So, just to clarify, we were already in the midst of stripping program. So, the stripping program would have been an investment, would have been a negative through the year for RDM when we were hit with the two stoppages obviously in the first half of the year were quite negative. We looked at the remainder of the year and given that we are pumping out of the open pit that means that on the bottom of the open pit where we do have access to the in situ ore doesn't really occur until we get into Q4. So, we knew the process plant was available for operation. We decided to start working with some of the half-gram material that we knew we had on the dumps available or stockpiles available. And we have enough for about two years of production of half-gram stockpile material. So, that is the short-term plan, while we worked through and overall approach to how we would look at strategically being able to transition back from doing stockpiles to resuming the stripping program and resuming full operations. So, I'm really only elaborating on what we're looking at for the remainder of this year, while we are still investing in the TSF raise and then the next TSF raise and the vacuum cycle and tailings and then the processing of the stockpiles, but we are working on the overall long-term plan as well.

It allows the mine to be roughly cash neutral during the next few years, where we're building Greenstone and the investment could happen after that.

Though we will still have to do a strip program.

Yes.

Right. I understand that. So as I understand the dewatering would be done by the end of this year, the raise on --

Well, it should be done by, I believe, it's early Q4.

Okay. Early Q4. And when does the raise finish on the dam?

Late Q3 for the current raise. But already, we did the initial. As soon as we achieved the required free board on the TSF, we resumed operation of the plant. So we will finish off the rest of the current rates and we've already been in permitting for the next raise, which we will immediately do rather than waiting and then the vacuum cycle and tailing. Essentially what it does is it optimizes the volume of material going in. So we're putting in less water, more tails and it gives us more bang for our buck in the test. It's something that we're looking at all the mines that have TSFs.

And the second TSF raise, would that be the last raise you would need for the current reserves?

That would be the last raise that we're permitted for the current TSF. Our approach would be to no longer look at permitting a conventional TSF. We would look at doing thickened and vacuum tails to a dry stack facility instead of doing TSFs.

Right.

TSFs have become more and more onerous to be permitted, especially in [indiscernible].

Right. Okay. So when is the last sort of quarter that you would need to start pre-strip than to dovetail into the key areas of ore that you've got remaining in the stockpile, Doug?

Putting it another way, are you asking how long can we process stockpiles before we need to be resuming stripping? It's over two years from now if we chose to do stockpile.

That's going the other way. How long will it take to do the pre-stripping to give you access to ore before the two years of stockpile material runs out?

The stripping does give access to ore but it doesn't, it's still a net negative. So why wouldn't stripping campaign that does give access to ore, but it allows us to be able to get the benefit. Let's say, essentially the stripping campaign that we interrupted would go for another year.

Okay. So the plan is that free shipping finished before the stockpile ore runs out and you're planning to run two years of stockpiled ore and then you'd milling fresh ore?

That is the re-planning exercise. It's currently underway, and we're looking at what the optimal way to do it and what our options are to be able to run as long as we need to mitigate cash outflow, keep it as cash neutral as possible and resume at the right time.

All right. Okay. And can you remind me what the targeted recovery is for leach for the resin circuit?

Santa Luz, our target with the optimal blend was 84%. We've gotten up to 82%. We're still working on trying to get it up to 84. We may temper our expectations at the end of the day. It is scaled up from the pilot plant to the industrial scale. We do find it a challenge to get quite as high as we originally planned, but we're not done yet, we have to do all the fixes and then stabilize the plant at the same time with full throughput.

Okay. And with the share price, Company has been probably one of the worst performers in the sector. Has there been any insider buying lately?

Personally, yes. And I bought some in the summer, earlier just before the summer.

Yes, I know. bunch of the spot sort of back when it was around 7.50 thinking that was the low. I can get back to you on that, Kerry. I get sort of like quarterly updates from my Corporate Secretary, but I haven't had anything recently.

And there was a bunch of buying around 7 and 6 bucks, I know that.

Yes.

For sure.

Right. Okay.

And there is already a carrying for many as Christian mentioned, many of us around the table have been around since the very beginning. There is already a very high level of insider ownership, especially compared to our peers. We probably compared to our peers have the highest level of insider ownership. So...

And at the beginning of the year, we implemented an employee share purchase plan where we can buy shares as well on an ongoing basis and that is now implemented, I believe, 81% of corporate staff are doing it --

Great. Thank you. The next question is from Mike Parkin from National Bank. Please go ahead.

Hi guys. Can you just comment on the equity portfolio? Are you seeing that as a potential source of capital to fund Brimstone or is it more on a long-term holding?

Yes. I mean, the equity portfolio consists of everything from Solaris to i-80s to Bear Creek to Pilar to Sandbox. I think, there might even be more in there, but a whole bunch of names obviously and we've been supportive shareholders and spinning out a number of those companies along the way and they are, as Pete, I think, described part of the levers that are available if need be. They're not necessarily going to be our primary, certainly if their gold companies are primary source of funds but there, if need be, I mean, for most of them are not core holdings. They'd come from spinning out or selling the company, but we're also supportive as well.

Okay, and then we heard from [indiscernible] this morning having an impact on their projects with respect to crane operators in the second quarter? Do you guys experience that as well at Greenstone?

Yes, we did experience the crane operators and carpenters going on strike. We had a recovery plan that made up the difference. I think the crane operators affected us more, but that's well behind us. We did double up on ships and made other adjustments. We were a matter of a couple of weeks delay the recovery was in the order of $2 million to $3 million to be able to make it all back up.

Raw material?

Yes.

Thanks and then just on...

…addressing it.

On the Greenstone contingency budget, can we get an update on I think it was around $175 million? Are you proportionately through that as you are as percent complete? Or is that tracking at a greater rate than the percent completion of the project?

Yes, that overall contingency which we increasingly we put out their original budgets for $180 million and probably not a bad way to think of it is, it's kind of proportionately being used up and allocated as we move through and we're also finding offsetting areas such as leasing and other areas of financing of small things, like some of the infrastructure is actually going to be handled by the local municipality or the First Nations in that. So between the contingency in that, we're actually tracking nicely and we are expecting to use it as we move through and that's what it's there for and certainly with this inflation, we are tracking roughly in line, I think, with the project…

Okay, that's it from me guys.

Thanks, Mike.

All right, thank you. We're over the hour. So I think we're going to wrap it up. Do you have any closing remarks, Christian?

I think I kind of made them earlier, but just again a big thank you to everyone, including all the analysts, all the shareholders, supporters and the team here. I really enjoyed it so far, and going to just love watching the ride as it goes forward and I'll be a supportive shareholder here too, so. Thank you again and that's it.

Thank you, Christian. Thank you everybody for joining us today. Operator, you can now conclude the call.

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