Equinox signs gold prepays worth US$200M for Greenstone construction

Equinox Gold (TSX: EQX; NYSE: EQX) has secured US$200 million in funding via two new gold prepay arrangements. Analysts say the deals will allay any concerns that the company could be underfunded for its 60% share of construction costs for its Greenstone gold JV in Geraldton, Ont., which is slated to pour first gold by the middle of 2024.

The deals include a US$140-million streaming arrangement executed by ING Capital Markets as lead arranger and including National Blank of Canada and Bank of Montreal. It is based on gold forward curve prices averaging US$2,170 per ounce. From October 2024 to July 2026, Equinox has agreed to make monthly deliveries totalling 79,310 oz. Gold deliveries can be made from any of Equinox’s mines.

A second non-binding term sheet for a US$50-million gold purchase and sale arrangement was signed with Sandbox Royalties, a company that was created last year by Equinox and Sandstorm Gold (TSX: SSL; NYSE: SAND), and which is 34% owned by Equinox. When it closes, Equinox will receive US$50 million in exchange for monthly deliveries equal to 333 oz. gold or 1.2% of the monthly output from Greenstone, whichever is larger, until a total of 60,000 oz. have been delivered. 

Equinox owns 60% of the Greenstone project, and Orion Mine Finance 40%. 

Greenstone will be Equinox’s first gold mine in Canada and one of this country’s largest at about 400,000 oz. per year in the first five years and 350,000 oz. average over the 14-year life of the mine. The project features an initial open pit mine and a 27,000 tonnes per day carbon-in-pulp processing facility. Equinox says the US$1.2-billion mine remains on budget and on schedule.

“With these announcements, we continue to forecast EQX to be fully funded through construction and ramp up of Greenstone, barring a significant decline in the gold price or operating hiccups,”Canaccord Genuity mining analyst Dalton Baretto wrote in a Mar. 29 note to clients. “The prepay agreements were arranged at a relatively attractive cost of capital in the current environment; we calculate a combined cost of capital of 7.7% based on our current price deck. That said, we are somewhat surprised to see further liquidity being added to the balance sheet given the current robust gold price environment and management’s contention that the project remains on schedule and budget. We continue to assume a 20% capex overrun at Greenstone.”

In February, Greenstone was 70% complete overall, and the preconstruction spending was 54% competed at the end of last year. Mining began late last summer, and 2.6 million tonnes had been moved by year-end. 

The deposit contains 3.3 million oz. of gold in 81.2 million tonnes of proven and probable reserves grading 1.27 grams gold per tonne. Measured and indicated resources are 9.5 million tonnes grading 2.9 gram gold, containing 881,000 ounces.