In the wake of record-breaking highs for gold and silver, the precious metals market continues to thrive. This is primarily attributed to high demand from central banks and the expected decline in interest rates due to the Federal Reserve’s monetary policy. Precious metal mining and royalty firms, including Equinox Gold (NYSE:EQX), have attracted investor attention. With the company’s operational expansion and strategic acquisitions, Equinox Gold is set to capitalize on its growing production capabilities. The stock is up over 20% so far this year, with room to run. Investors interested in exposure to mining stocks should take a long, hard look at this one.
Equinox Moving Forward with Greenstone
Equinox Gold is a mining company focused on exploring, acquiring, developing, and operating gold mining assets. The company has consistently grown with seven active mines in Brazil, Mexico, and the United States and several expanding projects, such as the Greenstone gold mine in Ontario.
Particularly notable, Equinox Gold’s acquisition of the remaining 40% of Greenstone, one of Canada’s largest and highest-grade open-pit gold mines, gives them complete ownership of a valuable open-pit gold mine, consolidating their position in the industry. As it commences operations this year, Greenstone is set to significantly lower operating costs and increase cash flow.
Equinox Gold expects an upturn in production to 780,000 ounces in the current year, growing to 1.05 million+ in 2025, largely driven by the operations at Greenstone.
However, the company has recently experienced a sharp decline in all-in-sustaining cost (AISC) margins. Nonetheless, with the price of gold substantially above the AISC, the company has some time to ramp up its production profile in terms of volume and quality as its new high-margin gold mine in Canada fully comes online.
Analysis of Equinox’s Recent Financial Results & Outlook
The company recently published its Q1 2024 results. Revenue of $241.30 million underperformed analyst expectations of $284.00 million. The company produced 111,725 ounces of gold and sold 116,504 ounces, securing an average realized gold price of $2,066 per oz. However, their cash costs and all-in sustaining costs (AISC) per oz were reported at $1,567 and $1,950, respectively.
This led to a cash flow from operations before changes in non-cash working capital of $47.7 million. Their adjusted EBITDA for this quarter was $52.2 million, and earnings per share (EPS) of -$0.04 came in below consensus estimates of -$0.03.
Management has offered guidance for 2024, projecting production and cost of 660,000 to 750,000 ounces of gold at cash costs of $1,340 to $1,445 per oz and AISC of $1,630 to $1,740 per oz.
CEO Greg Smith indicated on the Q1 earnings call that, with the closing of the consolidation of Greenstone, the consolidated pro forma guidance increases to a midpoint of 780,000 ounces with a corresponding decrease of consolidated cash costs and all-in sustaining costs. He indicated the company will formally update 2024 guidance following the transaction’s closing, likely on the Q2 earnings report.
What Is the Price Target for EQX Stock?
Analysts following the company have taken a cautiously optimistic stance on the stock. For instance, Scotiabank analyst Ovais Habib recently raised the price target on the shares from C$6.75 to C$7.75 while maintaining a Sector Perform rating, noting an improved outlook for precious metals in 2024E and 2025E.
Overall, Equinox Gold is rated a Moderate Buy based on the cumulative recommendations and price targets recently assigned by eight analysts. The average price target for EQX stock is $7.40, which represents a potential upside of 25.21% from current levels.
The stock has been on an upward trend, climbing over 12% in the past year. The shares trade in the upper half of their 52-week price range of $3.95 – $6.50 and show ongoing upward price momentum, trading above their 20-day (5.44) and 50-day (5.41) moving averages. The stock appears to be relatively undervalued based on its P/B value of 0.95 compared to the Gold industry average of 1.77.
Final Thoughts on EQX – An Opportunity for Value Investors
With strategic acquisitions such as the Greenstone gold mine, Equinox Gold is well-positioned to capitalize on its increasing production capabilities and significantly reduce operating costs. Although their recent financial results showed a slight underperformance, due in part to a downturn in all-in-sustaining cost (AISC) margins, the company anticipates an increase in production and a decrease in costs moving forward, suggesting potential upside. The stock trades at a discount, making this an opportunity for value investors keen on gaining exposure to the mining sector.
