Greenstone Ramp-Up And Castle Mountain Expansion Will Transform Gold Operations By 2025

Key Takeaways

• Greenstone, Piaba, and Castle Mountain projects set to enhance gold output, boost revenues, and strengthen earnings.
  
• Operational efficiencies from Bahia complex promise cost reductions and improved net margins.
  
• Ongoing community agreements, high costs, and significant debt alongside operational and environmental risks could threaten Equinox Gold's revenues and margins.

Catalysts

Engages in the exploration, acquisition, development, and operation of mineral properties in the Americas.

• The ramp-up of production at the Greenstone mine, with expectations of achieving higher grades as the year progresses, is a key catalyst expected to significantly boost gold output and revenues in 2025.
  
• Consolidation of Greenstone ownership and achieving commercial production can strengthen earnings as the project contributes fully to Equinox's financials.
  
• Advancing development plans, such as the underground mine at the Piaba deposit in Aurizona, offers potential for increased production, thereby enhancing future revenues and earnings.
  
• Expected permitting of the Castle Mountain expansion could lead to an increased production profile, improving revenue and operational leverage when completed.
  
• The formal combination of the Fazenda and Santa Luz mines into the Bahia complex is anticipated to yield operational efficiencies and cost reductions, potentially improving net margins.

Equinox Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Equinox Gold's revenue will grow by 22.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.4% today to 33.3% in 3 years time.
• Analysts expect earnings to reach $919.0 million (and earnings per share of $1.73) by about May 2028, up from $339.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $690 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.6x on those 2028 earnings, down from 8.9x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 13.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Equinox Gold Future Earnings Per Share Growth

Risks

• Equinox Gold faces ongoing challenges securing long-term agreements with local communities for their Los Filos mine in Mexico, which could threaten continuous production and subsequently impact revenues.
  
• High all-in sustaining costs, particularly at mines like Los Filos, Aurizona, and Castle Mountain, may put pressure on net margins, especially if gold prices fluctuate downward.
  
• The company's significant debt burden, while being targeted for reduction, poses a risk to net income, particularly if future cash flow generation does not meet expectations.
  
• Some operational risks exist in terms of ramping up production, particularly at new or expanding sites like Greenstone, which, if delayed or inefficient, could negatively impact earnings.
  
• Environmental and safety concerns, highlighted by past incidents, may not only lead to operational disruptions but could also result in increased operating costs, impacting the bottom line.

Valuation

• The analysts have a consensus price target of CA$11.961 for Equinox Gold based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$15.42, and the most bearish reporting a price target of just CA$9.95.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $919.0 million, and it would be trading on a PE ratio of 6.6x, assuming you use a discount rate of 8.0%.
• Given the current share price of CA$9.16, the analyst price target of CA$11.96 is 23.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.