Equinox Gold Corp. Common Shares

Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold third quarter 2021 financial results and corporate update conference call and webcast. 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. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. If you are participating through the webcast, you can submit a question in writing by using the text box in the lower left corner of the webcast frame. I would now like to turn the conference over to Relynn Bailey, Vice President Investor Relations for Equinox Gold. Please go ahead.

Thank you, Sharice, and thank you, everybody, for joining us today for the Q3 call. We will, of course, be making a number of forward-looking statements today, so please visit our website, CDAR, and EDGAR to read the rest of our continuous disclosure documents. I will now turn the call over to Christian Milau, our CEO.

Thanks, Rulin, and welcome, everyone, to our Q3 results. It's been another active quarter for us, and I just wanted to quickly summarize where we're at right now. We've got the seven producing mines here in the Americas, and it's soon to be eight with Santa Luz in quarter one. when it hits production. Also, we've now got the five growth projects. They're nicely distributed amongst our regions, and we'll go through those a little bit later in the presentation. We're working really hard in the fourth quarter here to hit our target of around 600,000 ounces of gold for the year, so it'll be a big quarter in quarter number four. We've got our balance sheet in good shape right now with available liquidity of about $500 million and some investments on the balance sheet. We're funded to achieve our long-term growth objective of about a million ounces a year, so we're working hard on executing on that growth strategy as we've articulated in the past. When I turn the slide to number four, the recent highlights, I just do want to mention these. There's been a lot happening corporately. Santa Luz construction is progressing well at the moment. We're on schedule, on budget. Greenstone construction is starting to ramp up now. We've had a good summer of work, and we'll highlight a bit of that later on in the presentation. Arizona expansion has been demonstrated through the pre-feasibility study, and we've almost doubled the mine life through that. Also, there's more to come there. We think the exploration potential is fantastic as we move forward and we'll keep drilling. We're also completing a drill program in Bahia, and those drill results will come out when we've got all the results in. And corporately, we continue to focus on the ESG front, and you'll see our data on our website is being updated and enhanced on almost a quarterly basis now. And one thing that we're really pleased, we've been able to complete the new water treatment plant at the Arizona Village. So that is basically done here in November, and we're able to provide an enhanced water system for the local community. And as I've said, there's a strong start to Q4. We mentioned that we produced over 65,000 ounces in October and on track for guidance. And we'll be pushing hard towards that 600,000 ounce mark for the full year. Peter, I'll hand it over to you for the quarterly results.

Thanks. With respect to our health, safety, and environment, our lost time injury frequency rate remained low at 1.29 per million hours worked, and with respect to the environment, our significant environmental incidence frequency rate also remained low at 0.86 per million hours worked. As to COVID-19, it continues to have low impact overall in our operations. That's primarily due to Vaccine rollouts in the jurisdictions, mitigating the impact of COVID and starting to eliminate it, hopefully. But we continue with our proactive measures of the mines, doing testing and education. With respect to our operating results, it was our highest quarter for production to date. We produced 140,000 ounces of gold, sold 137 at a realized price of $1,780 an ounce. Our cash cost came in at $1,109 an ounce, and that reflects the upward pressure that everybody's seeing across the world, and I'll comment on that in a minute further. And our minal sustaining costs, reflecting the investment that we've been, as we've previously reported, we've been doing for the first half of the year and into the Q3, what came in at $1,327 an ounce. So coming down from prior quarters, but still reflecting overall investment in our assets. Included in our cash cost is $3 million of write-downs that we don't expect to re-incur. About half of it came out of Los Vilos. It's a very large mine that takes a while to ramp up, and we see it doing that now, so we don't expect that to re-occur. RDM was an unfortunate timing of mining sequence, and when the quarter came to an end, they were in a lower-grade area of the mine. which led to an NRB right down there that we, again, don't expect to see again. We're on track to achieve our 2021 guidance, you know, on the back of a stronger Q3 of production and look forward to a strong Q4. We should be overall in about the mid-range of the guidance, which is 560,000 to 625,000 ounces for the year. On a cost basis, we actually expect to come in on the higher range. of the cash cost and all in sustaining cost. On a mine-by-mine basis, we expect Los Filos to come in at a higher range of the guidance we have there, Mesquite to be in the lower range, and Arizona and the other mines to come in about mid-range overall on an annual basis. With respect to the cost that I just mentioned, like everybody else, we're seeing pressure on consumables, especially cyanide and lime. We're seeing a lot of pressure on diesel. As an example, we've seen diesel costs in the U.S. go up over 50%. Brazil experienced a period of high cost for power due to a lack of rainfall. Most of our power there comes from hydroelectric. It's settled back down. But overall, we're seeing upward pressure year to date. We're up about 4% or $46 an ounce compared to last year. To help blunt or mitigate The cost escalation that we're seeing now that we're a bigger global company, we're putting in place global supply chain measures, A, to help with economies of scale and reduce costs, and also, of course, to help with the logistics and supply chain disruption that we're seeing that are leading to some of the cost increases. With respect to our financial results, on the back of the sale of the 137,000 ounces of gold sold, we had revenues of $245 million. Mine operating earnings of $49 million and adjusted EBITDA of $62 million. We had a net loss of the year of about $5 million, which is about two cents a share on a basic basis, but net income on an adjusted basis of about $7 million, or two cents a share on a basic basis. Cash flow from operations was $48 million before changes in working capital and $65 million after changes in non-cash working capital. and year-to-date $142 million before changes and $165 million after changes in non-cash working capital. Our balance sheet remains strong, $300 million in cash on the balance sheet, a net debt of $245 million, and liquidity, which is when you take our cash and add our undrawn debt of $500 million. This leaves us in a good position to fund greenstone construction, which we announced last week. In addition to that, we have investments with a market value well in excess of $400 million should we need to help bolster cash flow from operations under on debt. And so we're in a strong position to fund GreenStone. Over to Doug to talk about operations.

Thanks, Peter. On the operations side, we had a real focus on stripping programs in the first three quarters of this year. That would be especially Mesquite, RDM, and Los Felos. And now we're getting the benefits. And this was foretold in our guidance that we would have a backhanded weighted year, and that's what we're seeing. During the quarter, we produced our millionth ounce. So that was a good milestone for Equinox. And then as we look at the individual months, Mesquite, We transitioned from waste stripping over to mining oxide ore in the brownie pit. We're now placing ore on a new pad area, and that means that we're providing quick ounces, quick recovery of gold, because the solutions don't have to go all the way through the pad, so we're benefiting from that. And we're also continuing to work on taking that exploration success, where we've had an increase in the resources of 65%, and building that out into... more reserves and adding to the mine life of Mesquite mine. We produce 23,264 ounces of Mesquite at an all-in sustaining cost of $1,402 per ounce. And Mesquite's been a consistent producer. It's done 135,000 ounces for over 13 years. And interestingly, it's going to produce its 5 millionth ounce as we get into 2022. So a good, steady performer for us. At Castle Mountain, we had higher production. That's reflected in the optimization efforts that have been done on the leach pad and in the plant. Q3 production was 7,873 ounces at an all-in sustaining cost of $1,067 per ounce. And the team continues to work on optimization efforts of the feasibility studies. So that includes various studies that we'll work on MET test work and other ways to approach that to make it more efficient overall. We're preparing to submit for the permitting for phase two. That's an expansion that will take this mine to around 218,000 ounces a year for over 14 years. Looking at Mexico, Los Feliz, we resumed full operations in July. We ramped up very quickly, so we benefited and were able to, through that ramp-up, get production of 32,837 ounces for the quarter at an all-in sustaining cost of $1,647 per ounce. The ore has been coming from the Guadalupe open pit, Los Feliz open pit, and Los Feliz underground, and we continued drilling in the Guadalupe and Los Feliz underground areas. Los Feliz Underground has had annual drilling programs that are focused on reserve replacement, and given the higher grade nature of that ore, it's always a benefit for us to be able to extend that life so we continue working there. And on the expansion projects, that'll take production overall to about 350,000 ounces per year. I have already mentioned that Guadalupe has now transitioned from stripping to being part of the ongoing operations. Bermahal Underground, we are continuing with primary development. We did produce the first ore from there, 2.5 gram per ton, but the real focus is getting the development down to the central zone, which is the highest grade portion of the Bermahal Underground. We continued work on the CIL plant, especially on the front end engineering and design. That's an 8,000 ton per day plant, and it's being incorporated in the rest of the production schedules for that mine. Over to Mercedes, works underway on a large development program that will increase access to multiple ore bodies. We currently produce from Deluvio and La Pita, and we're going to add in Marianas and then the Ray de Oro area, and that will enable us to increase the plant throughput, which is currently working on a campaign basis. In Q3, Mercedes produced... 9,722 ounces at an all-in sustaining cost of $1,261 per ounce. Going to Brazil, production of Arizona was 34,583 ounces at an all-in sustaining cost of $957 per ounce. Really good production at Arizona in the quarter. And during this quarter, we delivered the pre-feasibility study on the expansion. That saw the mine life get extended to 11 years. It was six before, so it's a real nice result. And that will be by mining the underground and additional satellite open-pit deposits. Production will peak at 160,000 ounces a year, and total production will be 1.5 million ounces going forward. We continue with additional drilling that we'll look to add more on the underground, especially adjacent to the mine design. We saw the opportunities to do infill and on-strike extensions within Pieva Underground, so we're looking forward to that coming into the underground next year. Our next step will be applying for permitting for portals and we'll probably apply for more than one location and just continue advancing on that project. At Fazenda, production was 15,598 ounces at an all-in sustaining cost of $1,098 per ounce. Exploration success offset mining depletion. That was shown by the delivery of a technical report that was filed in the quarter which showed almost three years of production was totally offset by resource reserve replacement, and so net unchanged on the reserves. So for Fazenda, it's been a very good result. But we've also ramped up exploration in a big way in the Fazenda-Santa Luz district. So at Fazenda, it's really three parts to the exploration and the resource reserve work. We do a resource-to-reserve conversion program. We do drilling operations. for near surface deposits that are near the mine, because we're seeing a shift at Fazenda towards not just being an underground mine, but underground combined with open pit feed to the plant, plus this big effort in the belt between Fazenda and Santa Luz, which ultimately, those targets could contribute to either one of those mines. At RDM, the stripping program continued. It goes right through this year. We were mining higher volumes of low-grade at the end of the quarter. That did ultimately end up with a $1.5 million write-down. That's been reflected in the cash costs. And production was 15,880 ounces at an all-in sustaining cost of $1,733 an ounce. Importantly at RDM, we restarted the exploration program, focused on strike extensions from the open pit area. That's the first exploration program that's been done on this program in several years, so we're looking forward to seeing results come out of that and work on doing more exploration in the RDM area. Okay, looking at Santa Luz, construction is on budget and on schedule to pour gold in Q1. This is a past producing mine, which means refurbishing existing infrastructure, so we benefit from that, and retrofitting the process plant, but there's lots of additions that are happening. There's a new ball mill, new resin and leach circuit, gravity circuit, primary crusher and conveyor is totally being redone, and ultimately we end up with a 2.5 million ton per year plant. The cost of that will be $103 million on the initial capex. We've spent $51 million to date. We're committed at 84 million to the end of Q3. This mine will be delivering 110,000 ounces per year for the first five years, and it averages out over the almost 10-year life at 95,000 ounces a year with an all-in sustaining cost of $877 per ounce. Construction, 70% complete. Mining commenced in June. We are well ahead of schedule on the mining. All major concrete pours have been completed already. SAG mill refurbishment is 95% complete. Ball mill is complete for the installation. Both of them are in commissioning now. Secondary grinding has 85% of equipment in place. And the work on the TSF and the water storage dam will be finished this quarter. So I would encourage you to have a look at the photo gallery on the website and check out the time lapse video that goes right to the end of September. And you'll see the advance on all the work that's been done at the all the work on the process plant at Santaluz. With that, I'm going to hand it over to Christian.

Thanks, Doug. And I do want to stop here and sort of pause as we look at Greenstone a little more closely. It's the big news for the quarter, the announcement we made, I guess it was last week. You know, we're building one of the largest gold mines in Canada. It'll be in the number three or number four gold mine, and we're doing that alongside our partner, Orion, who own 40% of the project. You know, just as a refresher, it's a 5.5 million ounce gold reserve, and there's significant exploration upside, both underground and some satellite potential deposits there. So we start out with a great 14-year mine life and about 400,000 ounces of annual production. Just as a refresher, the infrastructure there is excellent. We spent a bunch of time in the last few weeks out there with the team, and We're right along the Trans-Canada Highway. We've got good communities right in the nearby region, so we're really looking to integrate into those communities and not be sort of a permanent camp for people to live in. So it's a real opportunity to become part of that region. We'll have about two years of construction and six months of commissioning, so that'll put us in place to pour gold in the first half of 2024. This will be a cornerstone asset for Equinox, and it's something we're really excited about and really excited to get going on, and As we turn the slide, you can take a good look at a few of the early works projects that we've progressed along very nicely, particularly over the summer months. You can see there the temporary camps open and actually in place. We got to have our meals there in the last trip and actually use the facilities. You look also at the water treatment plant, the temporary water treatment plant. That's now operational. Great to see, and that's a key factor for getting the project up and running and allow us to get the mining and the excavation work going in due course here. We're also starting the road building and tree clearing, which will allow us to get into the tailing facility, which that work is just underway. And also the engineering is about 85% complete. Turning over to the next slide, you know, the groundbreaking ceremony, it was just a fantastic event and opening we had last week at site. We had full participation from all the local communities, the mayor, the First Nation chiefs were there, as well as the Minister of Mines of Ontario and There's a real groundswell of support for this project. It's been a long time coming. I think it's a project that's been on the radar for this region for many years, and it's really not had a quick start or ramp up until basically this April when the two new partners came into place. And I think the real feedback we got was there's been excellent, significant progress since April when they closed the actual acquisition of Premier. So really pleased to see that support and the ceremony really just highlighted. And if you do want to see it, we did live stream it actually online, so you should be able to get access to that on our site Looking a little more at the project, you know, on a 100% basis, it's a 5.5 million ounce reserve, 7.1 million ounce resource, which is on an inclusive basis. We'll be doing between 360 and 400,000 ounces in the early years. We'll be at the higher level there. So really nice large-scale producer, and it'll be a low-cost mine. We expect it around that $700 all in sustaining costs. So really good cornerstone asset for this company going forward. Construction costs, we'll go through the detail a little bit later, but just over $1.2 billion U.S. Expansion potential I mentioned, there's 3.5 million ounces in inferred resources, but lots of potential underground and in the near mine deposits. Looking more closely at the capital, the updated capital costs, we did take the time since the acquisition in April to actually update these costs. The $1.23 billion initial capital, that's a U.S. dollar figure, About 80% of that's in Canadian dollars, just as a reminder. We've got $177 million contingency in there, which is approximately 14% of initial capital, so a healthy number. We've obviously factored in the recent escalation in that that we've seen as well. We have about $125 million for the mining fleet, and we hope to lease up to $100 million of that, which would reduce their upfront cash spend. And we haven't factored in, we've excluded actually all the upfront pre-production revenue which is about $70 million. So this is gross capital that we're talking about. The key changes from the 2020 estimate, which was about $1 billion when you grossed it up for the $50 million of pre-production revenue, our foreign exchange, we've actually used a more conservative rate and more basically the spot rate right now of 1.25, which has increased it by $50 million. Inflation and escalation, we've added $80 million. And our contingency has increased by about $90 million, which also includes COVID-related costs. So the total increase is about a 20% increase from that original number, which is kind of in line with a number of other projects that you've seen out there. We've had the benefit of seeing other projects and how they've reacted to the escalation and inflation. On page 17, just looking at the timeline, we thought it would be worth highlighting this because this project will be new for some people, but this is an area that was mined in the 30s, 40s and onwards and it was very interesting being out at site meeting some people where their actual parents had worked at the mine and so there's a real understanding of mining in this region and a real excitement to see the mine coming back up in the near term here. In 2018 and 19 the environmental assessments were approved. In 2020 there was the updated feasibility and really from there we've seen a quick move towards construction obviously under the Equinox and Orion ownership so I think the real feedback we got was they were amazed at how quickly we were able to move it from sort of a concept and a mind that we hope to build in the next few years to actually being in production and actually seeing activity on the ground. Page 18, just quickly touching again on our ESG. We do publish our data quarterly on the website, so I do encourage you to look at that. We're trying to enhance it on almost a regular basis and adding new data regularly. We just awarded a Chairman Safety Award to Castle Mountain. They had a LTI-free construction at the site, so kudos and well done to them. We're also planning on our long-term strategy under ESG as well. We've been gathering data, we've been setting up our baseline information, and we do need to be looking at our long-term opportunities around ESG and And we really do look at ESG as something that's a fundamental part of our business. You know, what's smart in terms of our business, what will save us costs, but also what's good for the environment and what's good for our footprint going forward. And you'll start to see more and more data, more information coming out on that. You know, and I think I've mentioned previously, we're looking at things like independent power sources in Brazil that could come from full solar and wind power, but it will save us, you know, potentially $10 million a year in costs. So, That kind of initiative we see is really a perfect mix of what we want to see as a smart business decision, but also good for the environment and for our footprint. And then stepping back and looking at the company again on page 19, we're now a diversified four-jurisdiction, four-country, mid-tier gold producer with an ambition to be in that sort of top 10 to 15 in the world very soon. So we continue to advance the diversification of the portfolio. We've got an opportunity also to have these growth projects in all of these regions. And, you know, we do have to phase them. We're focused obviously on Canada after Santa Luz is done and looking to ramp up Greenstone. Then we also have the Castle Mountain Phase 2, which we'll be looking to permit over the couple of years while we're building Greenstone. And we also have the expansion down at Los Felos. So lots of growth coming from all four regions. When you step out on page 20 and you look at the three right-hand sides, graphs here on this page. We're near the top in terms of production over the next few years towards a million ounces or just over a million ounces. We're by far at the top end of growth with over 90% growth in that period from 2021 to 2024. We've got just an excellent reserve base of 16.4 million. And again, we're targeting reserve and resource growth through all the exploration programs that we have in place. We're still working on obviously the left-hand column, which is the price to net asset value multiple. We're trading at just under 0.6 times at the moment, and we really do need to just continue to execute on that growth platform, keep delivering the ounces and the on-time, on-budget projects. And we've been building basically a mine per year over the last three years, and Greenstone will be a slightly longer build, but we just have to keep executing on that, and we'll start closing that valuation gap towards one times multiple. On page 21, just stepping back, I know Pete touched on this previously, but I do want to hammer it home here in a really simple way. We have about $500 million in liquidity. That's cash and undrawn revolver. We have almost half a billion dollars in market investment. So it's almost $1 billion of available liquidity investments that actually will support our growth as well as the ongoing operating cash flow. And next year we should be well over 700,000 ounces a year. And so we'll be starting to see also the operating cash flows starting to increase as well as we grow the production base. And in summary on the final slide, you know, there are a lot of catalysts that we've been working on this year and there's a lot more to come. Operations and development have had a lot of activity, obviously, with all the construction builds and the focus on integrating the new mines into the portfolio. So execution is the key in that area. And we'll be working very hard to get towards that 600,000 ounces of production for this year. As Peter said as well, you know, we're working on various programs to manage the inflation across the board. It's something that we're definitely starting to see in Q3, and we'll be working hard on our 2022 budgets to try and manage that as well. Exploration, we've had good results. That continues to be ongoing. You should expect to see more news from that this quarter. And just in summary, you know, that 600,000 ounces of production growth from the five projects that we have, we'll be working on that over the next three, four years to bring that into our portfolio. And that 1 million ounce mark is within eyeshot here of a couple of years as we get greenstone up and running so a lot on the plate a lot happening and q3 was a nice improvement over q2 results in terms of production and q4 we're really looking forward to seeing the results from that and obviously we gave you a preview of that with the october production at over 65 000 ounces so i think i'll end it there and open it up for questions perfect thank you christian operator can you please remind people how to ask a question certainly

Once again, to join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. If you are participating through the webcast, you can submit a question in writing by using the text box in the lower left corner of the webcast frame. We will pause for a moment as callers join the queue.

So the only question we've got online right now is when is Greenstone going to go into production?

Yeah, so Greenstone, it's about a two-year construction build. We started, obviously, here in October, and we expect to be pouring gold in that sort of first half of 2024. You know, construction completion will be done around the end of 2023 and the early part of 2024, so we can get it up and running and get first door into the mill in quarter one, so we can be pouring gold in the first half of 2024. Thank you.

We can go to the phone lines now, please.

The first question comes from Carrie Smith with Haywood Securities. Please go ahead.

Thanks, operator. Christian, maybe just kind of a general comment. The contingency that you raised for Greenstone is $177 million, which was on a percentage basis and an absolute basis up pretty significantly from the old study. Just wondering how you think about that as it relates to Santa Lucia or 70% through that build, are you expecting to use all your contingency on that project? That contingency was actually quite a bit lower on a percentage basis. And then also how that might relate to the contingency that you've put out in the studies on Castle Mountain Phase 2 and which you might use for this Los Feliz updated study, which is coming out by year end.

That's a fulsome question there. Well, let me start with Santa Luz. I guess Santa Luz You know, it's a past-producing project. A lot of the infrastructure is there. We also have the team that was building Arizona, and to be honest, learned a lot from that process, and this is a slightly different environment. You know, it's not the wet northeast of Brazil. It's a slightly drier environment, obviously, and we just felt that, you know, a much smaller contingency was warranted there, and we're tracking really nicely. Do we expect to spend it all? Yeah, probably we'll spend most of it, I think, and that's probably a fair assessment. We should assume that it will hit $103 million, but tracking really well. Even some of the challenges we experienced at Arizona, we've been obviously keeping a very close eye on, and we seem to be ticking those boxes as we go along, so we're feeling pretty comfortable with that smaller contingency on that one. With Greenstone, you know, it's a big greenfield project in a new area, and we just felt that with the current sort of supply chain logistics issues that are being experienced around the world and escalation, that it was better to have a slightly larger contingency. We think it's maybe at the upper end of things, but in this environment, it's more prudent to have that in place. We'd love to over-deliver on that and obviously build it under budget, so I think it gives us a much better chance. There's a lot more that we need to do on that project. Yes, there's good infrastructure there, but we are building a lot of it from scratch in a sense. We don't have a tailings dam in place like we did at Santa Luz. We don't have the power line set up. We have to put in place the power plant and all that. There's more to do, and I guess there's a different environment where when we were ordering equipment and that for Santa Luz, we found the supply chains were a lot easier. We had a lot of the equipment on site as well, which were actually ordered pre, I guess, the merger. And so we benefited from that. We're here, obviously, we're ordering everything brand new pretty much, so. And you kind of asked a little bit about Castle, and I'll steal this up a little bit further down the line, I think. You know, as we go into, call it construction, at Castle and hopefully a couple years' time here after Greenstone's built, we'll obviously look at that a little more closely in that environment at that time. One of the things the guys are looking at right now is how to enhance that project. The operators are getting very involved in that study and the permitting process and looking at ways to maybe reduce capital and also speed up permitting. A lot of that's got to do with how we actually present ourselves on the environment in terms of permitting, what kind of footprint we have. They're doing everything they can to keep it as tight as possible, look at any kind of cleaner sources of energy, less emissions, you know, anything that makes it more amenable to quicker permitting, obviously.

Okay, okay. I guess that's helpful. And I'm just a bit nervous, I guess, that the contingency that we might see on Los Filos could be bigger than maybe what we expect, I guess. And Christian, or maybe Doug, just a second question on Los Filos. You mined, I think it was about 100, just slightly over 100,000 tons from the underground in Q3. What might that number look like in Q4? And perhaps you could also comment just on the whole labor relations situation at Los Feliz. You seem to be able to keep it operating now. I'm just wondering how things are with everybody. Okay.

On the production side from Los Feliz Underground, it's probably going to be a little bit lower than it was in Q3, but pretty consistent through into next year. Eventually, we'll be shifting most of the effort towards the north side of Los Feliz Underground. It's more giving in regards to resource reserve replacement than the south side, but otherwise, for the next quarter, it should be just a bit off of what it was in Q3.

In terms of the community, maybe I'll just take that. It's still fairly raw and recent, and we need to continue to work on building that trust and those relationships back. We are back and operating, and we have seen good enthusiasm from the workforce to be back. We're hoping to actually go down and visit in the near term here and actually speak to the communities as well. But we've been pretty straight up here. This mine, we need to have a partnership. We're experiencing excellent partnership in Ontario with the communities and the local government there. And we need to see the same sort of thing in Los Felos. And we've said, we'll focus on Greenstone right now, put our capital into that mine. And when we're ready and things are stable, we'll go back to investing in a bigger way at Los Felos, but not at this stage. And so it's a process of repairing those. We've got to go through union negotiations in the latter part of this year, so that's something that's on our radar and something that we need to work through, but that's something that's had a reasonable track record in the past. They're always hard negotiations, but the mind's always got through them, and they're more straightforward in a sense that it's a contract and an ongoing relationship that needs to be resolved and worked out. We're seeing an inflationary environment we've got to manage as well in terms of the labour relations as well.

Okay. Okay, that's helpful. Thank you, Christian and Doug.

Since we're on the topic of Los Feliz, I'm going to ask an online question. When do you think Los Feliz costs are going to come back in line with previous cost levels?

Well, because of Guadalupe going through a stripping program and actually Los Feliz Open Pit also had stripping, that's elevated it. As we go through Q4 and into the new year, it should start to become more normalized.

But I do think there's going to be a period of time next year. We're still working to get into the higher grades at Burma Hall, and we don't have the CIL plant in, so I'm expecting also some elevated costs. We're not going back to where they were as quickly next year. There may be another higher, a little more elevated year next year.

Thank you. Aubrey, we'll take another question from the phone, please.

Sure. The next question comes from Anita Soni with CIBC. Please go ahead. Good morning. Thanks for taking my question.

With respect to the capital guidance that you guys have for this year, I think you reiterated with this release the 186 for sustaining and 251. And I noticed in your disclosure that you spent, I think, about half of that, 102, on the sustaining capital out of the 186 and about 60% of the capital of the non-sustaining at 150-ish out of the 250. So does that imply a really big capex spending Q4? Will you be underspending? I would assume at Los Vilos, as you mentioned, you're not really gonna be catching up on that non-sustaining capital that you had originally guided to, but some of the other assets as well on sustaining capital are being underspent. And then second question, again, a long question. would be what does that have, what kind of implications does that have going into next year? Because obviously underspending is not cost savings in this environment. It's just a matter of, you know, not being able to get the work done. I'll pause there and listen.

I'll take that. I need it, Peter. I'll take the first half of the question. Q4 is traditionally a high sustaining expenditure period for us. That's in part driven by seasonality in Brazil, where they do tails lifts in the fourth quarter. And we do expect a high Q4 sustaining CapEx spend rate, which is why in the earlier comments I mentioned that we expect to come in at the higher end of our guidance on sustaining costs. It's also in part driven by operative behavior. They start to realize our budgets are annual. They don't get to carry over into following periods, and so they tend to take a look at where they're at at the end of Q3 and realize some of those projects that had been lagging need to get done in Q4 because otherwise they don't get to do them. So, yeah, we do expect that rate to be high for Q4 and in line, as I mentioned earlier, in line with guidance.

And I do think what Peter was saying, I was just going to add, you know, we're doing the TSF rates, particularly in Brazil, we see a higher stripping rate because they're able to in Arizona to move double the tons in the dry season, so you're going to see a lot more stripping in the second half, and into quarter four particularly. The other thing on the non-sustaining piece, we're ramping up Greenstone very significantly in this quarter. We're also seeing Santa Luz is hitting its peak probably right now, and it's a lagging capital, so a lot of work's been done during Q3, and you're going to see a lot of that capital flow into Q4, and we're kind of at probably almost peak manpower right now, so quarter four is pretty heavy, and I think you're probably right. There's usually a little bit of a lag, and a bit of it will slip in the next year. But we don't feel that we won't achieve what we need to achieve this year in terms of capital spend and the work on the ground, per se.

Except for Los Feliz, where disruptions obviously cause us to have to restart on capital development programs, and so it just pushes things out. You're quite right. it doesn't mean it's being done cheaper. It's just being shifted. So unfortunately, you don't get the work done. It pushes into 2022 for some of the COPEX work.

That's it for my question.

Thank you.

Thanks, Ian.

The next question comes from Arun Lamba with TD Securities. Please go ahead.

Hey, guys. I'm sorry if you already mentioned this earlier, but Is the Los Vilos study still coming by year-end, or do you think because there's still some negotiations going on, it might push over into early 2022?

I would say no. We've been through the front-end engineering design work on the CIL. That went really well, but then we also have to update all the production scheduling and everything, and when there's a disruption, we have to go through and update all of that. it's a delay not just on things like CapEx spend, but also on the study work. But we continue working on it. It'll be into 2022.

Great. And just lastly, I know you've got several organic growth projects in the pipeline, so M&A is not really the focus, but is there any interest in divesting some of your smaller mines? to focus more on the growth, or are you just happy with your current portfolio?

I think we still consider that as an opportunity to really enhance the portfolio. It's a healthy process, so we will entertain and consider maybe selling one of the small assets along the way here. We haven't stopped that process. and you're right, we absolutely want to focus on those bigger sort of development projects, and that's our focus in terms of internal growth at the moment, and probably more the external M&A from an acquisition perspective is probably secondary to that internal growth and development of our key projects.

That's great. Well, thanks a lot. That's it for me, and I appreciate you guys giving me the October production. It was a nice little boost. So thanks again, guys. Thanks, Aaron.

The next question comes from Wayne Lamb with RBC. Please go ahead.

Good morning, guys. Just curious, in Brazil, you had noted higher power costs, but I was just wondering if you've seen any risk of power outages or blackouts in terms of impact operations as well?

Yeah, Wayne, it's Pete. The higher costs were driven by low-rain drought conditions. Interestingly, they've actually had quite a bit of out-of-season rain since. So the reservoirs and dams are full again, and we've seen the power costs come right back down. So there's been, you know, costs are back down, supply is back on, there's been no interruption. We don't anticipate any going forward.

Great, thanks. And then just wondering about Santa Luz, in light of the inflation you've been seeing in Brazil, I guess two questions. The first is, have you been experiencing any impact in terms of hiring as you ramp up the operations? And the second is, I guess, how should we think about the costs in relation to the technical report as you guys, in terms of operating costs, as you guys move into production here?

For hiring, we've had most of our ops team coming on board for a while now. We've actually deployed a lot of them to go to some of our other mines for training. We've consistently had a group working on our pilot plants. That has been well in the works for a long time. Proximity to Fazenda meant that a lot of our team that had worked at Santa Luz previously had moved over to Fazenda, so we were able to have them come back over to Santaluz. So I think we're in good shape there, and we've got the full project team working with the ops team right now as we will enter through commissioning and then ultimately the handover as we get into Q1. On the cost side, yes, there is inflationary pressure. Obviously, consumables will be going up, so we've initiated a program several months ago, where we're looking at how we can improve our group purchasing, leverage that towards trying to bring some cost benefits, but also being more proactive with our suppliers, ensuring that we're getting the quality in delivery and timing on delivery. So that is part of the overall thinking to make sure that we're taking that into account. We'll do everything we can to ensure that the costs as we come on stream are as low as possible, but we do acknowledge that obviously costs have been going up.

Okay, got it. And then maybe just lastly, at Mercedes, is there any guidance that you guys are able to provide on the level of capital needed for the underground development program? And how are you thinking about the level of spend there in relation to how the asset kind of fits in the portfolio?

Well, the Mercedes, everything was being done on owner mining teams. And what we knew is that eventually we needed to do the primary development to get into additional mining areas. We brought in a contractor. They've been set up. They've been doing development for, I think, about a month and a half now. We're getting to the development levels where they should be. We know we'll be bringing in Marianas and Rada Orof. But that's going to be an ongoing thing. So it's all about taking advantage of availability in the plant and being able to bring in additional mining areas so we can fill it up because we can get more ounces out of it overall rather than having an idle plant for a few days each month.

Okay, got it. That's it for me. Thank you.

Thanks, Wayne.

The next question comes from Mike Parkin with National Bank. Please go ahead.

Hi, guys. Thanks for taking my questions. Mostly just focused on Greenstone. Can you remind us what percent of engineering is complete on that project?

It's 85% complete.

Okay. And then we've been hearing about some from other – peers about some labor tightness in Australia and Canada with Greenstone in Canada and Ontario specifically with a lot of other activity on the mine development side going on in this province. Can you give any color in terms of what you're seeing? You are at least removed jurisdictionally a bit from where some of the other activities focus, but are you finding labor availability both on workforce and contractors good?

We already had a team in place at Greenstone. That's the benefit. It wasn't just picking up a project that had a stale feasibility study. It was an active team that just delivered the feasibility study and was raring to go. So it's been a matter of augmenting their team. They added a lot of people very quickly. And then also we have a salt and pepper arrangement with G Mining where they are putting in probably about 30 to 40% of the overall team. So a team that's already experienced with the project because they worked on the feasibility study and the engineering. And I think overall it helped us to be able to come up the curve in regards to staffing for the project faster than if you had to build up your team from scratch and then bring in the BCM contractor or something like that. In regards to operations, there are a couple areas where they're hunting very actively. A lot of the key positions have already been filled. There's a lot of interest in this project due to its location being not too far of a drive from Thunder Bay and being in northern Ontario, so they've had good interest overall in the project.

And we're doing our best, obviously, to bring in the local First Nations and communities into the workforce, train them up. Some of them of other experience that's related to forestry or mining. And there's some local contractors as well that are trying to engage as much as possible. So far, I think we've had a pretty good experience. There are certain key roles maybe that are tougher to find at the moment, but generally it's been not too bad.

I'd say they're more ultimately going to be on ops side, but we have time for that versus project where they've been filled.

Excellent. Thanks very much, guys. The other questions I've had have been answered.

Thanks, Mike. Thanks, Mike. But two questions from the webcast. Does your long-term million-ounce production target include greenstone? And where could the portfolio peak out over the next five years with all your projects and exploration underway?

Yeah, the million ounces does include greenstone. So that's why we sort of indicate, you know, probably call it the second half or later in 2024 if the run rate starts to hit that million ounces on roughly a quarterly basis. And it could peak out at a little bit higher than that. I think we have 1.1 million ounces in there. As an estimate, it could peak out a little bit higher depending on the timeline of all these growth projects. A couple of them might come down a little bit, but then we've got obviously Castle coming in a couple of years later as well, which is another 150,000 ounces, so probably a little bit higher.

One of our investors has been very impressed with Mesquite Step-O's. It seems like the gift that keeps on giving. Do you foresee an expansion of operations for Mesquite given the relative inexpensive production and exploration cost versus your other assets?

I think it's going to be a two-fold answer here. From my perspective, it's been really rewarding to see all the investment in the drilling that's been done over the last few years at Mesquite progressively increase the resources. There's a lot of work underway towards turning that into reserves. Obviously, year on year, it's been adding into the reserves and extending the life. What we want to do now is try to make a big jump and show big steps in how we're going to increase the reserves overall. And I'm going to ask Scott Heffernan to make a few comments about exploration opportunities and potential there.

Yeah, the exploration has been focused inside the fences, as we like to say, growing the deposits. Brownie is a big driver behind that resource growth, and that deposit continues to grow. along strike and at depth. And certainly when one looks at the gold price environments we're in, there's much more opportunity at Brownie as well as at BE2 and Rainbow as well. And then bigger picture, you have the real blue sky, which is the distal strike extents where they do project across the highway and that's blue sky for the medium term, five plus years down the road. So it's been a real success story, a real turnaround story. We've had the asset for three years. When we bought it, we've got a three-year mine life. We still have that three-year mine life. We have a couple hundred million tons measured, indicated, and inferred on the books now, and the drills are still turning, so pretty great story.

Another way to look at our view of Mesquite is we transitioned the mining fleet and put new, more efficient mining fleet. And we did that because we can see the long-term opportunity here for that mine. And clearly, as it's produced over the last 13 years, 135,000 ounces a year, and we're looking forward to the 5 millionth ounce next year, it's the gift that keeps giving. It's a great mine.

The one thing I don't think we expect to really expand it in terms of higher production rates or anything. I think it's probably going to be more consistent. It's ranged from 100,000 to 140,000 or 50,000 ounces, and I think that's still a consistent sort of range that we'll be working within.

Yeah, it has a tonnage per year cap that we can deal with. So keeping within that means that it makes for consistent production in that kind of 130,000, 140,000 ounce per year level. Perfect.

We have no further questions, and we're closing into the one-hour mark, so I'll turn it back to Christian for closing remarks.

Well, thanks, everyone, for joining, and again, another active quarter. We're really looking forward to the fourth quarter and sitting down after year-end, and this should be our best quarter ever. I think October is a great preview, as mentioned by one of the callers. 65,000 ounces in one month is a heck of a month, and so we're really looking forward to finishing this year strong and Keep updating you on our growth projects because Santa Lucia will be in production in Q1 and Greenstone is off and running now, and we're seeing real activity on the ground, so stay tuned on that front. Thank you again for joining, and we'll speak to you again soon.

Thank you for joining us today. Operator, you can now disconnect the call.

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