Equinox Gold Corp (EQX) 2022 Q4 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Fourth Quarter 2022 Results and Corporate Update. (Operator Instructions) and the conference is being recorded. (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, Ariel, and thank you, everybody, for joining us today for our Q4 call. We will, of course, be making a number of forward-looking statements today. So please do take the time to visit our continuous disclosure documents on SEDAR and on EDGAR and on our website.

I will now turn the call over to our CEO, Greg Smith.

Thanks, Rhylin, and thanks, everyone, for joining us today. On the call with me is our COO, Doug Reddy; our CFO, Peter Hardie; our EVP of Exploration, Scott Heffernan; and of course, our VP of Investor Relations, Rhylin Bailie.

As you all know, we're here to discuss our 2022 fourth quarter and full-year financial and operating results. And as a reminder, Equinox is a diversified Americas-focused gold producer. We've got 7 producing mines across Brazil, Mexico and the United States. We also have several growth projects, including our large-scale Greenstone Gold Mine in Ontario that we are constructing now along with our 40% joint venture partner, Orion Mine Finance.

I'll start with a broad overview for the quarter and the year and then turn the call over to Pete and Doug for more details. Q4 saw our highest quarterly production for the year, of just over 150,000 ounces. In fact, this is the second-highest quarterly production in the company's history. And while inflationary pressures persisted through the fourth quarter, we also achieved our lowest costs for the year, with cash costs of $1,223 per ounce and all-in sustaining costs of $1,523 per ounce.

We finished the year with total production of just over 532,000 ounces, at total cash costs per ounce of $1,328 per ounce and all-in sustaining costs of $1,622 per ounce. We also advanced a number of our assets over the course of the year. We submitted our permit application for the expansion of our Castle Mountain Mine, and that is in process now.

We also received permits for 3 portal locations for exploration ramps at Aurizona. So we can start to advance our underground development potentially later this year once we've completed a feasibility study that we're currently working on. We completed construction and achieved commercial production at our Santa Luz Mine in Brazil, and we're now starting to see some improvements in the recoveries, and Doug can provide some more details on that.

We published a feasibility study on the expansion of our Los Filos Mine to a long-life, large-scale mine with peak annual production of 360,000 ounces per year. And probably most significantly, Eric and his team at Greenstone have continued to advance construction of the mine on budget. As of year-end, the overall project was 65% complete; and today, the project is over 70% complete. And I'm pleased to report we remain on track for first gold in the first half of 2024. Again, Doug will provide more details on the current status of Greenstone later in the call.

On the corporate development side, we completed the sale of the Mercedes Mine to Bear Creek Mining, and we launched Sandbox Royalties, which is a new diversified metals royalty company. Sandbox is private right now but is working on going public sometime in the next few quarters.

I'm very pleased to say we finished the year with an excellent safety and environmental record that has continued to improve year-over-year. We also recently announced our greenhouse gas emissions reduction target of 25% by 2030 as compared to our business-as-usual case. Details of how we plan to accomplish this target are laid out in our first Climate Action Report, which is available on our website, and I encourage everyone on this call to take a look at that report when they can.

Looking toward 2023, we expect an increase in production to between 555,000 ounces and 625,000 ounces, with cash costs of between $1,355 and $1,460 per ounce and all-in sustaining costs of between $1,575 and $1,695 per ounce. These costs remain somewhat elevated, as they reflect a full year of the increasing input costs that we saw over the course of 2022. That being said, we are working to mitigate this cost pressure through optimization opportunities at all of our sites.

Looking beyond 2023, we also expect to see the benefit of lower costs and the overall increase in production from the Greenstone Mine and the Castle Mountain Phase 2 expansion as those projects enter production.

With that, I'd like to hand the call over to Peter Hardie to run through our financial results.

Thanks, Greg. We're on Slide 5. Safety and environmental practices continue to improve over 2022. We ended the year with a 12-month rolling total recordable injury frequency rate of 2.12 and a 12-month significant environmental frequency rate of 0.63. I also want to add we had no LTIs in Q4. These are just great results, and we really want to -- it takes an effort by everybody, the whole company. And so we just want to say congratulations to all of our employees for making Equinox a safe place to work. It's really a great achievement for the year on safety.

For the year, we sold 532,000 ounces. It was really an investment year. We invested $456 million in growth development: $328 million of that was at Greenstone; $49 million of that was at Santa Luz to complete construction there; and we also spent $43 million at Los Filos, that was primarily on Bermejal underground development and preparing the Los Filos open pit for its next phase. The $139 million we spent on sustaining items was primarily deferred stripping at Aurizona, Mesquite and Los Filos.

On Slide 6, as Greg mentioned, we had a good quarter. We had our second-highest output for the company to date. We sold 149,000 ounces, for revenues of $260 million and an average realized price of $1,733 an ounce.

As Greg mentioned, cash costs for the quarter were $1,223 and our all-in sustaining costs were $1,523 per ounce. The interesting thing we saw during the quarter in relation to costs is while our costs are up significantly if you look at it on an annual basis, 2022 versus 2021, or on a quarter-on-quarter basis, (i.e., Q4 2022 versus Q4 2021), costs are up significantly.

The interesting thing that happened in the second half of the year, going from Q3 to Q4, is we actually did not see much by way of cost increases. In fact, costs stayed overall relatively flat. We saw some increases in consumables such as reagents and grinding media in Brazil and the U.S., which were offset by decreases in fuel. So we're quite pleased to see that it looks like costs have peaked sometime in Q3 and at least remained steady for Q4.

With respect to what that means for our financial metrics, we saw improvement in Q4, which we're of course happy about. EBITDA was $65 million, $75 million on an adjusted basis. Net income of $23 million, for earnings per share of $0.07. $7.5 million of income on an adjusted basis, or $0.02 a share. Cash flow from operations also improved. Before changes in noncash working capital, we had cash flow of $80 million, or $0.26 a share. So happy with the quarter.

With respect to liquidity and capital position, we ended the year with just over $200 million. We have $127 million undrawn on our credit facility, for total liquidity of $327 million. We did draw an additional $100 million on the revolving credit facility during Q4.

The market value of our investments at February 17 was about $220 million. And I'll note that we realized proceeds during Q4 of $52 million on Solaris share sales and an additional $20 million in the new year. Net debt increased due to that debt draw, to about $630 million.

And I just want to note a few other things, at least during Q4, we did other things to improve our balance sheet resilience. We filed a base shelf prospectus with the ATM supplement -- I should say, the at-the-market supplement. I will note we have used $25 million of that at-the-market supplement through the end of January, and we've paused that program since.

Also something we did in the new year to help with balance sheet resilience and cash flow funding, we did put in place a strip of hedge collars for 20% of our production through the end of Q1 2024. That represents about 150,000 ounces. The floor of those collars is $1,900 an ounce. And they have significant upside opportunity, up to a ceiling of about $2,065 an ounce.

Another thing we did in the new year is we worked with our lenders and just completed late last week to retool our covenants on our revolving credit facility, which will take us through Greenstone startup. And we, of course, want to thank our leads, Scotia, BMO and ING, for working really constructively with us on that.

On our next slide, Page 7, what does that all mean for Greenstone funding? We think we've got about $340 million as our amount, our share, to fund of the remaining budget, and that's going to be done through our existing cash of $200 million, our revolving credit facility of $127 million. There is a $100 million accordion feature also in place on the revolving credit facility. We of course are using operating cash flows to help fund Greenstone. We have about a $200 all-in sustaining contribution margin per ounce on that. And of course, as we've shown with our Solaris share sales since Q4, we have our investments of $220 million as a lever that we can pull to help with funding. So we deem ourselves well-funded to complete the construction at Greenstone.

On to Page 8, we have our guidance for the year. Greg has already touched on it. So I'll just highlight a couple of things. First of all, the midpoint of guidance represents about a 70,000-ounce increase over 2022 production when you pull out the 14,000 ounces attributable to Mercedes that we sold last year. On costs, our view is that inflation has peaked, but the costs will stay elevated through the year, and you can see that reflected in both our cash and sustaining costs.

Our view is also that the Brazilian real and Mexican peso, which are 2 of the better-performing currencies against the U.S. dollar, will continue to hold their current exchange rates against the U.S. dollar. So that's factored in. Seasonality will continue to weight production and cash flows into the second half of the year.

And we'll just make a couple of final notes on sustaining expenditures. The $137 million we have there includes really only essentials on tailings facility raises, deferred stripping and equipment refurbishments that we need to do. And of course, the growth capital of $324 million is primarily Greenstone, at about $275 million of it.

And with that, I will turn it over to Doug to kind of run through what we're expecting for the upcoming year.

Okay. In addition to the production guidance that we have, I'll also mention that all of our mines have been working on a program that involves continuous improvement as well as consumable reduction and group purchasing initiatives. All of that is above and beyond what we put forward for our production and costs guidance. We've also doubled down on our adherence and reconciliation of mine plans, benchmarking and productivity improvement work, which is all geared towards achieving and beating what we've put forward.

Looking at the individual mines. Mesquite, in Q4, we were mainly in a stripping phase for Brownie and Vista East. That will ultimately contribute to the ore going to the pads in 2023. Due to the emphasis on stripping in Q4, that means we had a relatively low number of new ounces going under leach in that period. And for 2023, we have adopted a new mine plan that will see less stripping and smaller pits in order to reduce costs at Mesquite. We continue with exploration and permitting work at Mesquite for mine life extensions.

In Castle Mountain, in Q4, we were running with both run-of-mine and crushing and agglomeration of the material going to the heap leach pad. The plan is that we should be all going through crushing and agglomeration. So we continue working on increasing our crush and agglomeration throughput. At the same time as working on the Phase 1, we have been advancing our permitting on Phase 2 and met test work in support of the Phase 2 work, and I'll come back to that later on.

At Los Filos, in Q4, we had a production impact related to a shortage of explosives that was caused by a strike at our explosive supplier. We also had some of the ore that was coming from the Guadalupe open pit. It had a higher copper content, which meant that it had a reduced recovery over the leach cycle. So we're now separating that to be able to leach that separately from the rest of the ore feeds.

As we look at 2023, we continue mining in Guadalupe open pit and Los Filos open pit as well as the Los Filos underground, with 20% of the tons coming from the open pits. We will be suspending Bermejal underground. That's given the prolonged development period and the lower productivity than anticipated. Just to put it in context, we have developed down to the central zone, Zone 5, of Bermejal underground.

We've accessed into it and we've been mining from it, but we need to do significant additional development in order to have enough stopes in production at the same time to be able to achieve the 1,500 to 2,000 tonnes per day. So in the meantime, we'll be looking at plans to be able to improve overall productivity and reduce the costs, and we'll also look at the timing for this higher-grade ore to eventually be fed into a CIL plant.

In Aurizona, we had a longer-than-normal rainy season in 2022, and we relied on stockpile material more than usual, which meant lower grades going to the plant over an extended period. By the end of the year, in Q4, we had an increase by our contractor of their mining fleet, with an addition of 9 777s and an additional 6 articulated dump trucks. And so we had a higher total tonnes being moved as we worked towards returning back to our mine plan.

In addition to the expanded mining fleet, we are also bringing in a second contractor, who will come with 14 articulated dump trucks, so that we continue mining at a higher level through the rainy season and have a stronger start once we come out of the rainy season this year. And we want to build up our stockpile significantly during the course of 2023.

In Fazenda, the mine did very well in Q4 and for the year. Open-pit mining contributed to higher grades and tonnes overall and offset the lower production that came from the underground mine this year. Throughput and plant recoveries at Fazenda were both above the overall plan. And our exploration work at Fazenda continues to work on resource and reserve replacement. We also continue the exploration program in the Greenstone belt between Fazenda and Santa Luz.

At RDM, we were processing low-grade dump material in Q4, but we suspended processing in mid-December as we waited for permitting of the additional material for dump material at RDM. And in January, we've restarted the in-situ mining, and we're using owner-operated equipment. We also completed the TSF raise, and we've begun permitting for a filtered tailings storage facility at RDM.

Looking at Santa Luz, Q4 was difficult. We had lower throughput due to the hardness of the ore. We also had a high sulfur content in some of the ore that impeded our recoveries. And we also had to deal with a thiocyanide impact on the resin, which related to overdosing with cyanide. Each time that happened, it happened twice, it takes the system several days to be able to recover from that, and we have to regenerate the resin activity so it can perform properly again.

So I will note the resin and leach plant is achieving higher recoveries overall than were possible by previous operators using carbon and leach processing. So it is working, but we still are working through some of the issues. By December, we had changed our blending strategy and we also adopted a new fragmentation plan in the open pit, and that's enabled us to achieve a higher throughput. And also since year-end, we've seen an increase in stabilization of recoveries as we've come through January and February.

Moving on to Greenstone. Ultimately, Greenstone is going to become the cornerstone for Equinox, one of the largest gold projects in Canada. It's got a 5.5 million ounce reserve, annual production of 400,000 ounces and first production coming in the first half of 2024.

On to the next slide, we are on budget and on track. The project is 70% complete at the moment. And the team has just passed 2.5 million hours with no lost time injuries. So a good record. They have also had great progress, as you can see in the slide, with several of the buildings being fully enclosed. Mining started in Q3, with 4 trucks and 1 shovel, and we now have 4 additional trucks coming and getting ready for use. And a second shovel will be added in the second half of this year.

We're 54% complete on the capital spend at the end of the year. And if you move to the next slide, you can see several more of the buildings. 4 of the buildings are enclosed and heated. And next week, we expect the last 2 buildings to be enclosed. The HPGR building is 1 of the 2 buildings that was just being finished off this coming week and as well as the east end mill building, which I'll note already has the roof on and a lot of the cladding is already done in the photos I saw as of yesterday. So it's progressing really well.

So just moving on to the next page, upcoming milestones for Greenstone. The main ones are the buildings being closed this quarter. Commencement of the ball mill installation will start. In Q2, mechanical piping and electrical installation will be happening as we move inside the buildings, and all the equipment will be on site in Q2. In Q3, we're looking at pre-commissioning of the power plant and the crushing circuit. And by Q4, we're completing the TSF, and the highway relocation will be completed. In the first half of 2024, we'll be in commissioning and first gold pour.

And moving on to the next page, our other expansion projects include Castle Mountain, where we'll see an increase in stacking to over 45,000 tonnes per day going to the leach pads and production of around 218,000 ounces a year over a 14-year life. We submitted the permit application in March. We continue working through the process of permitting. We'll see environmental review and public scope happening in the first half of 2023.

For Aurizona, we're working on the feasibility study which involves mining from both the Piaba underground at the same time as we're mining from open pits. That feasibility study will be wrapped up in Q2.

As Greg noted, we have received permits for 3 portal locations. We have selected one for the initial ramp location, and we would look at establishing an exploration ramp that ultimately will allow us to touch into and mine on ore. At the same time, we would also be able to establish a series of exploration cutouts so that we can do a drilling program from underground, and it would be dimensioned so that it ultimately could also serve as a production decline.

On Los Filos, we delivered the updated feasibility study for the construction of a 10,000-tonne-per-day CIL plant. Reserves in that study were increased 44% after depletion was taken into account. But as we've noted previously, we will make a -- we'll wait on making a construction decision while we're in a high CapEx period for Greenstone and also while we work on our operational efficiencies and having stability with local communities.

I'm going to pass it back to Greg.

Thanks, Doug. I'd like to briefly just acknowledge the Equinox team. We had some challenges in 2022, but the team has been doing a great job at navigating those challenges. We're in solid shape to fund the completion of construction at Greenstone on budget, on schedule. And a year from now, we expect to be commissioning one of the largest gold mines in Canada. We're also working hard to progress our growth projects, as Doug mentioned, manage our costs and improve our operations, and we're looking forward to continuing that through 2023.

I think I'll conclude there and pass it back to Rhylin for Q&A.

Thanks, Greg. Operator, can you please remind people how to ask a question?

(Operator Instructions)

Thank you. And while they're queuing up, Scott, we've got an exploration question for you. I can see from your MD&A that you drilled about 30,000 meters at Aurizona this year, and it looks like you're going to start the underground in Q4. When will we see those results?

The 2022 program at Aurizona had 3 components. We did drill just under 30,000 meters. The first component was a few deep holes on Piaba itself to support the feasibility study that's been mentioned a couple of times on the call so far. Those holes we're looking at converting big areas of inferred resources to indicated to support reserve growth and also address some geotechnical questions in the deeper portions of the mine. So those results will funnel into the feasibility study that will be released midyear, Q3.

The other 2 components included a regional program, approximately 7,000 meters on a number of targets across the 1,000-kilometer square land package. But the majority of the effort was focused near mine, looking to hit targets both east and west of Piaba itself within the main trend to support mine life extension, targeting the shallow open pit targets, the multiple targets that we have there. So those results we'll look to release here probably in Q2, early Q2.

Perfect. Operator, we'll take questions from the phone, please.

Our first question comes from Wayne Lam of RBC.

Just wondering, at Greenstone, can you give a bit more detail on what you see as the bottleneck items and the large items left to spend? And where have you seen some of the savings optimizations? And I'm just curious, given the independent assessment completed last year, how does that reconcile to date? And how much of the contingency has been utilized so far?

So in regards to bottleneck items, I'd say we always knew what our critical path was going to be. It's getting through to building enclosure and then starting in on the east end plant, east end of the process plant building, for ball mill installation. We're 4 buildings done, the last 2 buildings finished off this week, and then we're starting in on installation.

I would say, going forward, that remains our critical path for most of this year. Obviously, productivity is going to be the issue as we move to the more detailed piping and electrical inside the buildings, but the team has been very good at being able to adapt and compensate for where we have delays in 1 area and they'll turn around and work out how to adjust the program to be able to compensate for it.

Really, we're pushing through this spring to be able to maintain our schedule as we come into the summer, where we're most productive, and then we get back into areas such as the TSF and some of the other earthworks projects that we don't progress as much during the winter months.

So overall, I'd say very good against our overall schedule, with minor things that they've been adopting and compensating for elsewhere within the overall construction.

Yes, and it's probably worth mentioning we expect to do another quantitative risk assessment, currently scheduled, I believe, Doug, for around April. So we're looking forward to doing that, getting an update from an independent party on schedule and budget.

With respect to your other 2 questions, Wayne, savings optimization is one of the bigger ones, frankly. It's foreign exchange. The Canadian dollar -- unlike the Mexican peso and the Brazilian real, the Canadian dollar has been a little weaker against the USD. That's helping. It's probably one of our main areas.

With respect to contingency, through the end of last year we had used about $120 million of it.

Okay. Great. And then maybe at Mesquite, just curious, how should we think about the mine beyond this year? Is it kind of a case of a mature asset approaching depletion given the short reserve life? Or how should we think about the future potential for reserve additions once you have greater capability to reinvest in the capital stripping there?

So for Mesquite, essentially, yes, quite right. It is a mature asset. Every year, you'll hear us talk about a stripping program, and then we get into the ore. So it's essentially diving down into particular areas where we have to strip to get down to be able to mine the ore, and that's been cyclical. And this year is no different, where we were doing our stripping in the latter part of 2022 and then we'll benefit from that ore during this year.

We continuously are doing drill programs and looking at revised models to be able to improve the mine plan. It just happens that this year, we have a lower number of ounces being produced while we work through revisions to the mine plan to see what we can do to be able to put more on the table as we go forward.

Wayne, down in the U.S., we had a, like everybody, pretty significant increase in costs. And so when we looked at the mine plans for Mesquite in 2023, it made sense to go with that smaller pit scenario to maximize cash flow over that period of time. And so as we progress through -- 2023, we'll have drill programs on Mesquite and then working to extend that mine life 2024 and beyond, but that requires some additional drilling.

And the other thing is, obviously, permitting is always something that we're doing at Mesquite, and we currently have 2 heap leach pad expansion permits that we're working through, which we expect to get in the next couple of months. So those obviously give us the opportunity to be able to continue to stack more. So it's always add more pad space, while at the same time develop and permit additional resources so we can be able to convert them to reserves. So it's a never-ending process.

Okay. Great. And then maybe just last one. Just looking at the upper end of cost guidance across the operations, it seems like a few of the mines have relatively elevated costs near breakeven, especially in the first half of the year. As part of the optimization review, is there any scenario where you might see improved economics for, say, putting Castle Mountain on pause and reopening that with Phase 2 or maybe putting Los Filos on care and maintenance and reopening that with the CIL construction, just given the higher cost at those mines?

So it's something we discuss, but there's more than one reason why we do Phase 1 at Castle Mountain. Obviously, coming into operation while we're in the permitting process is a good thing for us. We wanted to be back into production during that process. So we're present and working through everything that an operation ultimately needs.

It also means that aside from having our footprint there, we're also able to move the essentially dump material from previous operators and to be able to leach the gold out of that. So it actually works as a pre-stripping for us for the Phase 2. So it's a good outcome and we get that moved during this process.

And then the third one is we did want to get in and try the run of mine versus crush and agglomeration. So we get an opportunity to be able to do a larger-scale test by virtue of doing the Phase 1 operations at Castle Mountain.

Yes, I think you also asked about Los Filos, Wayne. And I mean, Filos is a large mine. It's very expensive to shut down a mine, restart a mine like that. I think it's fair to say our focus right now is trying to improve that operation, and we're working hard to do so. We've reduced some of the CapEx at Filos in the near term, with the suspension of Bermejal underground, but that doesn't mean we're not very focused on the Guadalupe open pit and the Los Filos underground mine. So I don't think that that's on the table at all and not something we're considering at this time.

Nice to see things going well at Greenstone.

Since we're talking about Filos, I'm going to jump in quickly and ask a question from the line. Would you consider selling Los Filos, since it's consuming so much capital?

I mean, the quick answer is no. I don't want to speculate on any individual mine. We've got no plans in process. Obviously, in the past we've been commercial on certain assets in the portfolio, and we have sold mines in the past. But the challenge with Filos, and I think we addressed this in Q3, it's a huge deposit, a huge reserve resource, lots of exploration potential, permitted infrastructure. I mean, that type of a deposit is incredibly rare. And so parting with something like that would be pretty challenging.

I think, again, our focus is working to improve that operation and optimize that operation and turn it into a long-life, very valuable operation for the company.

Operator, we'll take some more calls from the phone line, please.

Our next question comes from Anita Soni of CIBC World Markets.

So I just wanted to address first you mentioned that you had retooled your covenants for the revolving credit facility. Could you give us an idea of what changes were made?

Anita, it's Peter. The covenants reflect more, I guess, what you would call a company-in-development phase. So we effectively took a very conservative case scenario, added a full turn and adjusted accordingly. We're not going to disclose exactly what they are, but we're quite comfortable that there's plenty of room and covenants to see us through Greenstone construction.

Okay. So you mentioned some of the deferrals that you've had, and I think Greg mentioned that the sustaining capital that you are doing in 2023 is the essentials only: tailings lifts, et cetera. So would we expect to see a catch-up in sustaining capital in 2024 and 2025? Is that fair to say?

I think -- I mean, the big -- some of the bigger, chunkier areas where we've deferred capital is Bermejal underground at Los Filos, that's a big one, and then, to a lesser extent, stripping at Mesquite. And those are probably the 2 largest areas where we've retooled the mine plans to reduce near-term capital.

And so with Filos, yes, I mean, eventually, our intention is to get back into the Bermejal underground. We obviously want to develop that. It's a big part of the future at Los Filos. So that is capital we will eventually spend. In the meantime, we're going to work to retool that program and increase the productivity and reduce costs. So we will be back in Bermejal underground. Exact timing of that is to be determined, but definitely at some point.

Mesquite, same thing. I mean, we've got drills going, and continuing to operate that mine will involve stripping. I don't think we're working toward a giant catch-up in 2024 that's going to be crazy or anything; we're trying to smooth that out over time. But you're always going to have that at Mesquite, stripping, as Doug mentioned, to get down to the ore.

But otherwise, I don't think that we've carved out anything critical that we're going to have to be spending a whole bunch of money in 2024. Always looking at capital allocation decisions. And with Greenstone coming online next year, that obviously frees up some funds for additional CapEx.

I think, personally, I want to see us go underground in Aurizona, and that would be another area where we haven't budgeted in 2023 for any sort of a portal construction or decline. But on the basis of the feasibility study and as we move into Q4 this year, once the pit reaches the appropriate level in the west end, that's an area I think we'd like to start spending money on next year and even later this year. So there's stuff that will come, but it's not a situation where we've carved out a bunch of necessary stuff and kicked it down the road.

Sure. So Bermejal underground, though, that was in development capital, right? Not sustaining?

It was a mix, primary development.

I guess, I'm saying capital generally.

Yes. Capital generally, yes. I was just wondering if there was anything sustaining that I should be thinking about that might need to get done in the next 2 years if you're not doing it this year.

And then just in terms of Santa Luz, what kind of recovery rates are you assuming when you guided for this year? I just want to understand where you think the recoveries are going over the course of the year.

So for the budget, we backed it off to focus on getting stability. We were looking at achieving a minimum of 65% in the first half of the year, 70% in the second half of the year. As we came through December and changed the blend, we were at 62% in January, and we're over 70% in February.

So we're -- but the key is stability, and a big key thing to that was ensuring our makeup water coming back in from our water storage dam was 0 or less than 0.5 ppm cyanide, which is a real hindrance to activity of the resin. And now our system is working properly with all the detox. And so we saw that, that was really helping to be able to establish a good activity on the resin.

Okay. And then just last question was reserves and resources. Did I miss that last night? Did you guys update this yesterday? Or is that coming later on?

No, we did not update our global resource reserve statement yesterday. And looking forward throughout the course of the year, there won't be a single consolidated update. They will be updated as available and as studies are complete. Most of our projects are in a study state versus a steady state.

It's consistent with what we've been doing over the last number of years, Anita. I think at some point in the future we do want to get to a onetime annual global update. But what we've been doing is as and when those updates come available, we report it, we integrate it into our consolidated reserve and resource summary on the website. And that's what we've been doing and probably will be continuing to do for another year or so until we get to the point where we've harmonized everything and do an annual update.

Okay. I was just calling from the context of a lot of people are updating their gold price assumptions and then also cost assumptions. So it would be good to have a sort of reset on that.

And then can you just let me know what the interest rate right now is on your floating-rate debt?

Combined, it's about 7.5%.

Is that fixed and floating or just the floating?

Sorry. That's just the floating. Pardon me.

Our next question comes from Kerry Smith of Haywood Securities.

Scott, just a follow-up on Anita's question about the reserves and resources. Would you just generally, as a ballpark, would you expect that you'd replace depletion in your reserves and resources overall for the company on a year-over-year basis are kind of unchanged? Or do you think they're going to be down a bit or up a bit? Like, how would you generally point us directionally?

The primary goal with the exploration and drilling has been to replenish reserves as, again, a primary goal. Secondarily, a lot of our assets have been undercapitalized over the last 3, 5 years. So there's a real need, real push to build up the resource base. So the exploration has been pretty aggressive in that respect in Santa Luz, Bahia -- sorry, Fazenda, and so forth.

So there will be a lag before we're kind of getting beyond replacing reserves resources on an annualized basis, but the hope is that with the significant exploration expenditures that we've put into the ground for the last 3 years now, that 2, 3 years from now that will be paying off with substantive resource and reserve growth.

Okay. Okay. Okay. And just on the, this is for Doug, actually, on the Castle Mountain Phase 2 permit application, given that you're now switching over to 100% crush and agglomeration for Phase 1, are you -- is there any thought that you need to revisit the assumption in the Phase 2 feasibility which only looked at run of mine? Or like, are we expecting that at some point maybe you may have to add some crushing and agglomeration? Or are you pretty confident that Phase 2 will just be a run of mine operation?

Kerry, we're quite confident that we get better performance overall through the crush and agglomeration for the material that we're currently processing. But remember, we're dealing with dump material and we're doing a lot of work to metallurgical modeling on Castle Mountain and lots of additional met test work for the in-situ material.

So if it were all the same material, we would be doing crush and agglom for Phase 2. But that's why we're doing the additional met work, the geometallurgical modeling, because we want to make sure that as we look at in-situ materials, that we're treating it the right way.

So it is part of the work we're doing in the background. We don't anticipate it will change anything in regards to our footprint overall, but we're looking at all opportunities to be able to see whether we can optimize and also prove out everything that we've done in previous test work and concepts.

And Kerry, recall that in that feasibility study you do have a portion of the material reporting to a small mill in the highest-grade material. And so we are looking at potential scenarios where you would ditch that mill, not be required to triage the different ore grades and just put it through 1 circuit. And so that is something that we are kind of looking at and doing some trade-off studies on. If there's an opportunity to simplify the overall operation and flow sheet, reduce some capital, that's something that's pretty interesting to us.

So there is some work being done on that, nothing confirmed, and that will progress over the course of the year.

I can confirm that our permit application does contemplate pretty much any sort of modifications we want to make to that flow sheet. We would not have to go back and do any re-permitting compared to what we've already submitted.

Okay. Okay. So that's all covered off in that application then.

Yes.

Got you. Okay. Okay. And the other question I had was at Mesquite, you reduced the strip ratio in 2023 to lower the costs, just to help with the cash flow in the short term here. Does that impact 2024 mine plans? And what sort of in-house mine plan do you currently have for the life of mine for Mesquite? Like, do you guys model 3 years or 2 years? Like, how do you actually model it internally?

We continuously remodel it. The mine plan that we have in the budget is already -- we're already working on a revision to that. What can I say? It's building in the latest information as it comes in from exploration and as we get permitting. So I know it will change from the budget mine plan.

I think it's fair to say we're working on a mine plan for next year that would bring production back up to previous levels. But there's work to be done on that, Kerry. We had to adjust the mine plan this year. In the United States, especially, we saw really significant increases in diesel, cyanide, explosives, all the major input costs at Mesquite, right, that have an effect on production there and cost of production there.

And so this year kind of takes that into account. And internally here we're working on what can 2024 look like given the current cost structure and this year's mine plan, what will that do for next year. So we don't have guidance on that yet. That will progress over the course of the year. And later this year, we should have some more information.

Okay. Okay. But would it be fair to say that the operating team at the site at Mesquite have a 3-year mine plan that they are working against? Or is it a 1-year plan? Is it, like, just 2023?

I mean, if you didn't have any permitting timeline constraints, then it's very easy to model out a multiyear mine plan, and I'll just throw 5 years-plus out there. But there is timing differences in terms of leach pad expansion, eventually proceeding to the west, right? There's a highway there that we'd want to move -- sorry, to the east. And other areas of the site that would need some permitting in order to continue on a plan that would utilize all the resources that we currently have.

So at constraint is not really the deposit itself. It's actually the permitting timelines around some of that expansion opportunity at Mesquite. So when you model that out, you can kind of play, and the goal for us is continuing with the permitting that we need to do and want to do while filling in those gaps as best as we can.

So as Doug said, it's kind of a continuous process at Mesquite and has been since we bought it. I mean, Mesquite has been a great mine for us. Since we acquired it in 2018, it's made us money every single quarter, I think, except one. We've recovered our acquisition costs, well above our acquisition costs. I mean, it's been a great mine for us and continues to be.

So it's important for us to see it continue, and that's kind of been our process all along, just with a mature asset like Mesquite that requires additional permitting.

Okay. Okay. That's helpful. And then kind of the same question at Los Filos, with the deferral of the Bermejal or shutdown of the underground at Bermejal. Does that impact the long-term plan there in any significant fashion?

Well, it doesn't actually -- I mean, essentially because Bermejal would have been a pure net investment for this year, it actually alleviates some of the cash drain that Los Filos would have this year.

Deferring it gives a couple of opportunities. One, we need to change our productivity there to be able to make it so we can get to the 1,500 to 2,000 tonnes per day that we need. It's just prolonging the pain by doing the development at such a low productivity rate. And the costs per tonne were just coming in too high as we were mining in the initial stopes.

It also gives an opportunity for that higher-grade material to be able to go to a CIL. We know that by sending it to a heap leach it means that certain material you have to leave behind because it's not suitable for going to a heap leach. But you can process it in a CIL. So that approach for us just means that we'll push it off. And then, meantime, we'll look to restructure how we'll deal with Bermejal underground.

The near-term effect is you have a bit of lower production because we're not mining those ounces, but we actually save on free cash flow at Filos because of the deferral of capital.

Longer term, as I said, we're going to go back into Bermejal underground eventually, and the long-term plans for the mine of course include Bermejal underground. And as Doug said, if that material is going through a CIL plant, you're obviously getting higher recovery than you would just on the heap leach itself. And so there is an economic trade-off study to deferring it, where you're going to get those higher recoveries once you put that CIL in place.

Right. Okay. Okay. And just last question for me then quickly. This explosives strike that your supplier had at Filos, I assume that's behind you now. And I just wondered if you could maybe give a little bit of an update on the pulse of the 3 communities and how all of that has been going, Greg.

Yes, that explosives strike was long past. I mean, it was earlier -- affected the earlier part of Q4. So that's done. Pulse in the communities? We're doubling down on our efforts to be in dialogue with the communities. And obviously, Bermejal underground will be another point where we'll be talking to all of the communities. I mean, we've tried to make it clear that there's -- it is a partnership. It's a dialogue that we need to have, and we need to be able to work collectively on our relationship and be able to see what can be a bright future at Los Filos, but it involves everybody working together.

We've increased and strengthened, I would say, our community relations team at Los Filos, including in the last few months. The informal feedback we're getting is that communication has improved quite a bit that's coming from the communities.

So it's been a good, what, 5 or 6 months so far, and we're putting a lot of effort into that relationship, that communication and, as Doug said, making sure that everyone acknowledges and recognizes that we're partners in this project.

So it's been good so far, Kerry, but we've had those challenges in the past. And I can't necessarily say they won't manifest in the future, but we're certainly working hard with the communities to mitigate that.

Right. Okay. And I'm assuming, Greg, that the communities were told a while ago that the Bermejal underground was going to be shut down, so there were some jobs that were going to disappear. So that's not new news today for them, right?

It's officially news today, I suppose, but there's been more informal conversations around the cost profile at Filos and that it can't persist indefinitely under this basis and that some changes are going to need to be made and so action is going to need to be taken.

Our next question comes from John Sclodnick of Desjardin.

Most of them have been answered. So just a couple from me. Impressive gold collar contracts, and just wondering what changed your stance on gold hedging and if there was maybe a push from the lenders? And finally, if Mubadala was good with that?

It's Peter. Good question, John. At the end of October, in October, gold was below $1,700. It had, as we all saw, a very rapid rise right through the end of January. We have a capital-intensive year again this year, especially to fund construction at Greenstone. And with the way gold had continued to rise through January, as a management team we just wanted to take an opportunity to lock in some cash flow. So that was the change in the thinking, and particularly given the floor and the quite high ceiling, that was just kind of a function of the curve as a result of 3 months of steady uptick in gold, I suppose.

So given that large spread that allowed us to or will allow us to enjoy a higher gold price through the end of Q1 next year with those collars, we just thought it was a really prudent thing to do and a fiduciarily responsible thing to do.

With respect to lenders and with respect to Mubadala, they of course were quite supportive. Generally speaking, they like to see hedges in place during a capital-intensive period.

I think, John, if you kind of look back over the last 4 months or so, it's just one more action we've taken of many maybe incrementally smaller actions, but collectively designed to ensure that we've got enough resiliency in our cash flow profile, our balance sheet to absolutely ensure we get across the line on Greenstone and get to commercial production next year.

So we've done a number of different things. That's one more part of it. And it wasn't without consideration. We had just rolled off all of our hedges from the Leagold transaction and were kind of high-fiving on the back of that and gold is going up. And then when we looked at what that collar looked like and rationalizing it, we're, like, well, listen, if we put this in place and gold runs, then hurrah anyways, right? It's going to be great. And if it doesn't, at least this introduces some risk mitigation and cash flow and EBITDA protection over the next 1.5 years while we complete this build.

So that was kind of how we rationalized it. It was opportunistic. I think if we had waited 1 day later, we would have got maybe a slightly higher collar. But since that day, we kind of printed the top of that recent bump and are sitting here pretty happy that we put those in place.

Makes sense. Great levels to get in at. That was impressive. And nice risk mitigation there.

Last one for me. Just at Castle Mountain, just curious how long kind of the status from the Phase 1 operation could continue before additional permits are required.

I mean, probably 10 years-plus. Because you could just keep -- once you get through the dump material, you can get into in-situ. It's a pretty small operation given the size of the overall resource there. So we've got plenty of headroom. I think in the past, we've communicated around 9 years or so, but we have no intention of riding it out that long.

I think -- like, we -- again, it's impossible to pin down exactly the timing of receiving that permit. I like to say mid-next year, plus or minus 6 months. Maybe it's more plus 6 to 8 months than the minus. But we're certainly pushing and trying to target having that permit sometime in 2024, so that we can get busy on expanding that mine.

Our last question is from Mike Parkin of National Bank.

That actually brings up a bit of a good question, is how would you rank-order your project pipeline? In terms of assuming this kind of gold price environment, where would you look to deploy capital after Greenstone first? Is it Castle Mountain Phase 2? Or something else?

I mean, it does come down to capital allocation decisions. And so in the context of the gold price and cost environment in the future, we've made those decisions.

But it's pretty fair to say if you look at our portfolio, you've got some smaller assets and then we've got some bigger, longer-life, chunkier assets. And that would include Greenstone, obviously; Castle Mountain Phase 2; Aurizona, especially with the addition of the underground; and of course, Los Filos.

And so as mentioned earlier, we're very keen to get underground at Aurizona and start to build out that mine, and that's something I think we're actively working on being in a position to start.

After Greenstone is back up and running or is up and running, Castle Mountain absolutely is one we want to get into the expansion of.

The only one that is probably ranked lower right now is Filos. And that's -- it's a big nut to crack. It's got a higher risk profile. And we've got to do more work there, as we've continued to say, before we're ready to start investing heavily at Filos.

So Greenstone is happening. Castle Mountain I think will happen as soon as we get the permit. And Aurizona, subject to results of the feasibility study and where we stand in terms of available capital, by the end of this year is something I think we'd like to get into as quick as we can.

Okay. And maybe just one last question, back to Los Filos, with the Bermejal underground suspension. Does that impact any of the 3 communities far more than the others?

Yes, it would affect Carrizalillo more than the other 2 communities.

Okay. Thank you, everybody. We're actually out of time and didn't have a chance to get to any of the online questions, unfortunately. So we will get back to you later today by email. My apologies for that.

Greg, do you have any closing remarks?

No. I think just thanks again, everyone, for attending the call and for the well-considered questions. And again, you can always reach out to any of us by email or by phone if you have additional questions or comments to make.

Thank you very much, everybody, for joining us today. Operator, you can now close the call.

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