Strategic Acquisitions Could Boost Equinox Gold’s (NYSE:EQX) Value

The precious metals market continues to expand following record increases in gold and silver prices. This is primarily due to high demand from central banks and the expected decline in interest rates due to the Federal Reserve’s monetary policy. Precious metals mining and royalty companies, including Equinox Gold (NYSE: EQX), have caught the attention of investors. Equinox Gold aims to capitalize on its growing production capabilities through operational expansion and strategic acquisitions. The stock is up more than 20% this year, and there is still room to grow. Investors interested in mining stock exposure should take a close look at this stock.

Equinox Moves Forward with Greenstone

Equinox Gold is a mining company focused on the exploration, acquisition, development and exploitation of gold mining assets. The company continues to grow, with seven operating mines in Brazil, Mexico and the United States, and several development projects, such as the Greenstone gold mine in Ontario.

Of particular note is Equinox Gold’s acquisition of the remaining 40% interest in Greenstone, one of the largest and highest quality open pit gold mines in Canada, giving them full ownership of the valuable open pit gold mine, strengthening their position in the industry. When operations begin this year, Greenstone is expected to significantly reduce operating costs and increase cash flow.

Equinox Gold expects production to increase to 780,000 ounces this year and to more than 1.05 million ounces in 2025, largely driven by its greenstone operations.

However, the company has recently experienced a sharp decline in its all-in-sustaining cost (AISC) margin. However, with gold prices well above AISC, the company has some time to increase its production profile in terms of volume and quality as its new high-margin gold mine in Canada comes fully online.

Equinox’s Latest Financial Results and Outlook Analysis

The company recently released its Q1 2024 results. Revenues of $241.30 million were below analysts’ expectations of $284.00 million. The company produced 111,725 ​​ounces of gold and sold 116,504 ounces, securing an average realized gold price of $2,066 per ounce. However, their cash costs and all-in sustaining costs (AISC) per ounce were $1,567 and $1,950, respectively.

This resulted in cash flow from operating activities before changes in non-cash working capital of $47.7 million. Adjusted EBITDA for the quarter was $52.2 million and earnings per share (EPS) of -$0.04 missed the consensus estimate of -$0.03.

Management provided 2024 guidance projecting production and costs of 660,000-750,000 ounces of gold at cash costs of $1,340-1,445 per ounce and AISC of $1,630-1,740 per ounce.

CEO Greg Smith indicated on the Q1 earnings conference call that with the close of the Greenstone consolidation, the consolidated pro forma guidance would increase to a midpoint of 780,000 ounces, with a corresponding reduction in consolidated cash costs and all-in sustaining costs. He indicated that the company would formally update 2024 guidance after the close of the transaction, likely in the Q2 earnings report.

What is the target price for EQX stock?

Analysts following the company have adopted a cautiously optimistic stance on the stock. For example, Scotiabank analyst Ovais Habib recently raised his target price on the stock from C$6.75 to C$7.75 while maintaining his Sector Perform rating, noting an improving outlook for the precious metal in 2024E and 2025E.

Overall, Equinox Gold is rated a Moderate Buy based on the cumulative recommendations and price targets recently assigned by eight analysts. The average price target for EQX stock is $7.40, implying a potential upside of 25.21% from current levels.

The stock is in an uptrend, up over 12% over the past year. The stock is trading in the upper half of its 52-week price range of $3.95-$6.50 and has ongoing bullish price momentum, trading above its 20-day (5.44) and 50-day (5.41) moving averages. The stock appears to be relatively undervalued based on its P/B of 0.95 compared to gold’s industry average of 1.77.

Final Thoughts on EQX – An Opportunity for Value Investors

Equinox Gold is well-positioned to capitalize on growing production capacity and significantly reduce operating costs with strategic acquisitions such as the Greenstone gold mine. While their recent financial results have shown some weakness, partly due to a decline in all-in-sustaining cost (AISC) margins, the company is forecasting increased production and lower costs in the future, suggesting potential growth. The stock is trading at a discount, making it an opportunity for value investors looking to gain exposure to the mining sector.

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