Equinox Gold Corp. (EQX) Q2 2020 Earnings Call Transcript

Equinox Gold Corp. (EQX -8.57%)
Q2 2020 Earnings Call
Aug 11, 2020, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Corporate update and second-quarter results conference call and webcast. [Operator instructions] And the conference is being recorded.

After the presentation, there will be an opportunity to ask questions. [Operator instructions] I would now like to turn the conference over to Rhylin Bailie, vice president, investor relations for Equinox Gold Corp. Please go ahead.

Rhylin Bailie -- Vice President, Investor Relations

Thank you very much, Anastasia, and thank you very much for joining us today at the Equinox Gold second-quarter update. We will, of course, be making a number of forward-looking statements today, so please do take the time to visit our website and our continuous disclosure documents on both SEDAR and EDGAR to be fully informed. I will now turn the conference call over to our CEO, Christian Milau.

Christian Milau -- Chief Executive Officer

Yeah. Thanks, Rhylin, and welcome, everyone, to the second-quarter call. Just to note here, Peter Hardie, CFO, is with me today, as well as, Doug Reddy, head of technical services, soon to be COO; and Attie Roux, our current COO is here as well; and Scott Heffernan who is head of exploration. So the whole team ready for questions at the end as well.

As a quick summary, we had a very good quarter despite the challenges of COVID that we know all of the industry and other industries have been dealing with. Los Filos in Mexico is temporarily suspended for most of the quarter, but is up and running again and we had two of our Brazilian mines suspended for a little less than two weeks. And overall, we had a very strong cash flow performance and very strong cost performance for the quarter we're really pleased with. And that gave us the ability to repay a little bit of our debt.

And as we sort of transition here after a reasonably smooth integration during the COVID crisis, I'm very happy with how things have gone since March 10th when the two companies, Leagold and Equinox came together. And the management team really has gotten on to the same page here. And I'd say, it's gone, as well as, could be expected. And I really want to say thanks to Attie Roux who has been the COO since the merger.

And I worked with Attie for about five years at Endeavour Mining as well and he made the transition here very smooth and really, it was a challenging time as COVID came on literally within days of us completing the merger. So thanks to Attie and he'll be retiring at the end of August. So hopefully, he'll enjoy a little more downtime in his, I would say, semiretirement. And pleased to welcome Doug Reddy to the team as the COO.

Worked with Doug, again, for five years at Endeavour, so it feels like a fairly seamless transition and I think shareholders should be very happy with the results here of this kind of transition from one experienced leader to another. So looking forward to the future, there's lots of exciting stuff to come and we'll run through that here today. And just starting on Slide 3 with health and safety. We did have three lost time injuries over the 2.6 million hours for the quarter, a respectable performance there.

And with COVID, you know, the impact was a little disruptive at Los Filos being down for most of the quarter, but all the mines are currently operational. But let's not forget here, the risk hasn't gone away with COVID. We're finding a new way to operate in the new normal for now. Until a vaccine is found or things change, we certainly are operating with a lot more testing at our sites.

We've implemented quite regular testing in California. We're doing the same in both other countries as well. We're even instituting potentially some labs on our sites and we're using the local labs that are in the regions. So we're taking it very seriously and we've integrated a lot of those costs.

And as you can see, we've had about $16 million of temporary costs for the quarter. So overall, a good performance. And I'm going to actually pass over to Peter Hardie to run you through the rest of the op -- or the financial results here.

Peter Hardie -- Chief Financial Officer

Thanks. So we had another record quarter with production of 127,000 ounces. And on the back of that, we sold just under 126,000 ounces of gold at a realized price of $1,712 per ounce. I'll note that the sales for the quarter are more than 40,000 ounces more than over Q1 and that was with Los Filos down for most of the quarter due to government-mandated temporary standby due to COVID.

Our mine cash cost -- our cost for the quarter were also quite strong with mine cash costs of $776 an ounce and an all-in sustaining of $900 an ounce. Those costs are driven by, first of all, good cost controls by our operating teams on the ground, favorable foreign exchange, and of course, low fuel prices. Also influencing the costs for the quarter was adjustments for purchase price accounting. Our consolidated financial results.

We had revenues of $215 million and mine operating earnings of $85 million. Adjusted EBITDA was $83 million and our adjusted net income was $27 million or $0.12 a share. Including in those adjustments, as Christian has mentioned, were adjustments for our gold hedges and warrants liabilities as we have Canadian dollar-denominated warrants. For the gold hedges, it was $38 million and warrants $49 million, and then, also an adjustment for foreign exchange.

All of these non-cash charges are unrealized for a total of about $90 million. Our cash flow from operations after changes in working capital for the quarter was $84 million and would note that before changes in working capital was $61 million. On to Slide 4. For our corporate highlights, we received $157 million in exercises on warrants and options during the quarter.

Those warrants are predominantly legacy Brio warrants that came in through the Leagold merger. We were added to the GDX and S&P/TSX Composite Indices. And in addition, of note, Solaris Resources, which was the copper spinout from the company in the summer of 2018, listed on the TSX-V. They came out with a strong news release yesterday of good drill results and our 30% investment in that company is now worth at a market rate of $70 million.

On our balance sheet, of course, we carry that at cost and so that market rate is not reflected there. With respect to our liquidity and capital position, of course, the warrant exercises from the quarter and option exercises really strengthened or continue to strengthen an already strong balance sheet. Our cash was $494 million at the end of the quarter and that was after repaying $22 million in debt. Our net debt, which includes our in-the-money convertible notes is $244.3 million.

And if you exclude those because they're well in the money at an average convert price of $6.50 a share, we actually have a net cash position of $8.3 million. With respect to our share price or share liquidity and volume, since the merger, we've experienced a huge increase in both with an average daily trading volume of over $48 million recently. Going to Slide 5, noting again, we had our second consecutive quarter with record results. That was on the back of, first of all, of course, having a full quarter of results from post Leagold merger and having the assets now in the portfolio.

Mesquite had a very strong quarter producing just shy of 40,000 ounces for the quarter and 76,000 ounces in the first half of the year at very good costs. The Brazil assets, despite all of the difficulties with COVID in that country and thanks to the very strong management on the ground, is meeting expectations for where we thought they would be from the beginning of the year. So they had a strong quarter and Los Filos, even though it was down for the quarter, still produced just shy of 18,000 ounces at quite low cost. The rationale or the basis for those costs is, first of all, with the mine being on temporary suspension.

We postponed sustaining capital and expenditure activity to the second half of the year and you'll see that in our guidance in a minute when Christian walks us through it. Of course, we had favorable foreign exchange there and the activity of residual leaching in and of itself is fairly low cost. And finally, purchase price accounting also contributed somewhat to the low cost as well.

Christian Milau -- Chief Executive Officer

And just going back to the operational results and walking through each mine in a little more detail. Los Filos first in Mexico. You know, mining and development recommenced in June. The ramp-up took place probably midway through June.

We retested the whole workforce for COVID. So we took a very cautious approach to restarting. One of the impacts from actually the quarter delay in development has been that the higher-grade ounces that we expected from the Guadalupe open pit and the Bermejal underground are being deferred to 2021. So we did have a delayed quarter and essentially of production in Q2, but we also have a knock-on effect in Q4 moving those ounces into next year.

So that's why we've reset that guidance. And our all-in sustaining cost benefited from the FX rates and fuel -- fuel rates that Peter alluded to. We're still seeing those nice depreciated currency rates helping us in Q3 as well. Aurizona in Brazil.

It was the first full rainy season, had good production. Overall, we met our expectations for production and the only thing, I think we're a little behind in our waste mining for the quarter, and we expect to catch that up here in the dry season. We benefited from having a nice stockpile of lower-grade ore that we were able to draw upon as needed during the rains and we plan to have the same going into next rainy season at the end of the year. Again, FX rates and fuel helped our costs and what we're really focused on now and Scott spending a lot of time on is, as we come out of this rainy season is, how to extend the mine life.

Drilling is ongoing. We're looking at, obviously, advancing to a pre-feasibility study for the underground potential there and there's drilling going on at depth, as well as, at satellite pits and along strike. So keep an eye on that space. We plan to have some news, obviously, as we get results from that program.

Mesquite, as Peter said, was really kind of the star of the first half, it was ahead of production, a little below our cost targets. We're definitely prioritizing the oxide ore from the historical dumps, which we continue to find more and more of as Scott's programs continue to bear fruit. For the second half and part of June, we're starting to stack more and more non-oxide ore. So there'll be a longer leach curve, slightly lower recovery.

So we have sort of tempered our expectations for the second half. We don't expect exactly the same sort of results. We expect slightly lower production. But what's really exciting there is the exploration is ongoing and we've had really good results to date.

Remember, this mine was acquired for $158 million in 2018 when gold was $1,200 an ounce and it had a three-year mine life. We now have been mining for almost two years and we still have almost a three-year mine life. So really pleased to see that exploration bear fruit. We're also excited, obviously, it's a very sort of leveraged to gold operation where it has a very good margin right now.

And when you look at it on a potential EBITDA basis here, at these types of gold prices we're seeing, even with the big fall today in the gold price, potential EBITDA generation on an annual basis could be in excess of actually the purchase price. So the free cash flow from that operation is very exciting. And the other added benefit now is, we're just ramping up Castle Mountain into production here in the near term and we'll be able to smelt the gold and share some of the actual back office and services between the two mines. When we turn back to Brazil and Fazenda on the next slide on Slide 7.

Fazenda basically was affected slightly by COVID. The mining workforce was reduced for a short period there. The local Mayor had put in place some restrictions to manage the COVID situation in local communities. So we were impacted slightly by that but it's now operating at full capacity.

Grades were slightly lower for the quarter. We do expect to see ourselves through that period and probably into late Q3 and into Q4 we'll be seeing return to sort of the normal grades we're used to seeing out of Fazenda. Again, good costs, slight deferred expenditures for the -- for the quarter into the later part of this year. And then when you look at RDM, the other Brazilian mine of some scale had a very strong first half.

We're very happy with the grades and the mining performance, slightly better than plan. And what's exciting as well is, there's been a capturing of water and the storage of water has been very good for this year where we expect to make it through the full year with the water sources that we have available to us. Again, costs were good, some slight deferred stripping spend from the first half. And what we're planning to do is actually have a big pit extension once we receive the permit for that and we'll be able to access some higher-grade ore later this year.

So overall, very pleased with RDM performance. And Pilar, the smallest mine in Brazil had a pretty respectable first half. It was affected slightly in April. There was a temporary suspension there as well for a couple of weeks, but had an overall good performance and benefited again from FX and fuel rates.

Looking on Slide 8. Our cost guidance and our production guidance for the year, we have updated it despite there still being some risks out there in all three countries that we operate in due to COVID. Los Filos has been the biggest adjustment. We've come down from about 170,000 to 190,000 ounces to about 100,000 ounces of expected production for the year.

Again, impacted by that Quarter 2 COVID impact and temporary suspension, as well as, the pushing of the higher grade ores in Quarter 4 into next year. Cost performance has been good there. So we've moderated that down a bit. For Aurizona, we've increased our guidance by about 5,000 ounces and reduce the cost after a very good first half performance.

Mesquite, we've increased the production guidance by about 10,000 ounces. And Fazenda, we've reduced it just slightly by 5,000 ounces after the slightly slower first half. But overall, our guidance for the whole year is about 470,000 to 530,000 ounces, which is down about 12% overall and our costs are down slightly to $975 to $1,025 per ounce. And on a capital basis, we're about the same as we expected at the beginning of the year, about $90 million on a sustaining capital spend basis and about $144 million on expansion capital.

And interestingly in there, we've added a few million dollars for early works at Santa Luz. When we turn over to the growth and development projects on Slide No. 9, Castle Mountain is the first one, which is very topical today. Phase 1 construction is substantially complete.

I think as of yesterday, we were 95% or 96% complete. We've commenced stacking ore in June. Commissioning is under way. We certainly expect to meet guidance for this year.

We're slightly delayed with COVID slowing down a couple of the contractors in getting the final completion of the physical construction, but we don't expect that to cause us any major delays or issues this year. So to be conservative, we did sort of delay the gold pour by a couple of weeks into early Q4, and we expect to produce about 50,000 ounces on average there per year. And then in the background, we've been working on the Phase 2 feasibility study, which we still expect before year-end, which will basically demonstrate the 200,000 ounce per year mine potential of this project. And in the background, we've also been drilling for water on-site for Phase 2 and also in the nearby town area.

So that's all ongoing, and of course, we'll be giving you results when that comes to light in the next six months here. Switching back to Los Filos in Mexico. Despite the temporary suspension, they had actually some very exciting stuff has been happening at Los Filos behind the scenes. This is a project producing on average 200,000 ounces a year, but we really do see the potential to 350,000-plus ounces in our near future here.

And in addition to developing the Guadalupe open pit and the Bermejal underground, we've been looking at upsizing the carbon-in-leach plant size. So Doug and the team down in Mexico have been working on moving from a 4,000 tonne per day plant up to something like 8,000 tonnes per day expandable to about 10,000. The plan is to make that study public in the next sort of about three, four, five months here in early Q4 or mid-Q4. Hopefully, we should have that result out and the really exciting part on the back of that, it's allowed us to look at the actual mine plan and scheduling of our actual mining.

And obviously, with the new gold price environment, it really does change things. And so, we have a 4.5 million ounce reserve there, we have a 6 million ounce resource base, and we really do see the potential to increase the reserves in the short term here. So sort of watch this space and when we come out with those results, you'll see the all-new, brand-new plant, the upsized overall production capacity, and we should be able to convert some of that resource as well. And then secondarily, on a little bit smaller basis, Santa Luz in Brazil, we're excited about that restart as well.

It's a little bit ahead of Los Filos in Mexico. We're just finalizing the capex and economics on it. We should be able to get that study out here in the second half of the year as well. We've already given the go-ahead to start some early works and small construction works and maybe a few orders in advance of that full construction announcement.

But we fully expect to be announcing that in the second half of this year, and remember, that's a 100,000 ounce producer with an initial 11-year mine life. And similar to sort of Aurizona, we're pretty excited about the upside potential on surface and underground there. So we're pretty excited about having these three fully financed projects in our portfolio. And when you think about Castle, it's got two phases to it.

So we've got four projects in the pipeline here and it's pretty unique compared to our mid -- mid-tier competitors here. We've got a funded internal growth profile. And when you move on to or flip onto Page 10, we kind of illustrate that projection over the next couple of years here. It's a funded organic growth profile toward 1 million ounces a year of annual production.

It's roughly a 20% per annum growth rate and really what peers have that kind of growth internally. We really think that the opportunity here from a valuation perspective as well is that we've been trading a little bit on a single asset to maybe now a multi-asset producer around 0.7 times, 0.8 times price to net asset value range. A lot of our peers are now in that 1 times to 1.5 times. They're more established.

They've been around for a number of years and are a little more steady state. Our market cap is below CAD 4 billion and a lot of our peers that are producing about 0.75 million ounces per year are in that $6 billion to $10 billion range. So if we can execute on these projects and deliver on that sort of goal of meeting that sort of 750,000 to 1 million ounces of annual production, we really think there's an exceptional potential here for a rerate and the leverage to gold is outstanding. When you look at our portfolio now, we've got 20 million ounces in resource, we've got over 12 million ounces in reserve, we've got a 20% per annum growth rate, and key to us now is really executing on this profile of growth.

And turning on to Slide No. 11 just to summarize and bring it all together. We've had a good first half of the year. Despite the disruptions, we're very happy with the performance of the mines and the integration of the team and the assets.

Second half of this year is very catalyst-rich. So our long-term plans are on track despite some of these disruptions. The team is in place to deliver on it. And so, Los Filos and the CIL plant construction is looking to start in the second half toward year-end this year and get that study out, which will give you a lot more detail on it.

Santa Luz construction is already sort of under way in terms of early works and we plan to get that study out in the second half of this year. Castle Mountain Phase 1 gold pour should be in the first half of Quarter 4. Castle Mountain Phase 2 feasibility study is in Quarter 4, and as well, we're going to be starting the Aurizona underground pre-feasibility with an expectation of completing that in 2021. On the exploration front there's probably too much to talk about here, but we certainly got our eyes focused on extending the mine lives at our core mines but also looking at a midterm exploration plan, which Scott and team are looking at right now and plan to set the stage for the next two to three years.

Corporately, as Pete said, we've been included in the indices. We completed the merger. We've just got out some sustainability reporting information on our website. It's now operational if you go to our website and look for that.

And as I mentioned, the rerate potential here is exceptional. So we'll continue to focus on the fully funded growth platform internally. We've got a strong balance sheet. We've got about $500 million of cash.

And as Pete said, we're pretty much net debt free when you exclude the in-the-money convertible notes, which Mubadala holds, who's our long-term partner and shareholder, ultimately. And our net debt is below 1 times EBITDA. So we're in a very strong position to deliver on this profile. So I think I just want to say, thanks to the team and to you, our shareholders, for support for the first half of the year.

It's not been an easy half, although, the gold price has made up for some of the challenges we faced in our business on a day-to-day basis in-country. But the teams performed very well despite all the in-country disruptions from COVID and the new normal that we now live in. So with that, I'll conclude it and maybe open it up to a question-and-answer session.

Rhylin Bailie -- Vice President, Investor Relations

Thank you very much, Christian. Operator, could you please remind people how to ask a question?

Questions & Answers:

Operator

[Operator instructions]

Rhylin Bailie -- Vice President, Investor Relations

Thank you very much. While we wait for people to ask questions on the phones, I will ask a question from our online listeners. How will the development delay at Los Filos affect your production in 2021 at that project?

Christian Milau -- Chief Executive Officer

You know, in terms of Los Filos for 2021, I mean, obviously, we're just starting our budget process so I don't have detailed information on that yet. But what we do expect to see here is, as we move toward the higher grades at both Guadalupe and Bermejal, we expect to see the production increase incrementally into next year. Obviously, we won't have the benefit the CIL plant probably until the end of 2021 or into the first half of 2022 when it becomes operational. So you'll see an incremental improvement, an increase in the production rates and levels, and obviously, 2022 will show an improvement beyond that because of, obviously, the CIL plant coming into play.

So it would be a nice sort of, call it, steady upward trend here over the next sort of 18 to 24 months.

Rhylin Bailie -- Vice President, Investor Relations

OK. Thank you. Can we please take a question from the phones?

Operator

Certainly. Our first question comes from Ovais Habib with Scotiabank. Please go ahead.

Ovais Habib -- Scotiabank -- Analyst

Hi, Chriatian and team, and congrats on a good quarter despite the COVID impacts that we saw in Q2. A couple of questions for me, Christian. Number one, starting off with Aurizona. Obviously, production was lower as a result of the rainfall, which reduced access to some of the high-grade areas.

How have you increased your guidance at the mine as well for the year? Now grade is a likely reason of the increased guidance, can you give us a ballpark of what the grades you're expecting in second half? And also -- are you looking to do anything else to mitigate any sort of risk for the next rainfall or rainy season going into 2021?

Christian Milau -- Chief Executive Officer

Maybe I'll take part of that and let Scott comment a little bit on sort of where we're focused for grade, etc. You know, I think we were trying to be fairly prudent and conservative going into the rainy season being the first one for us. So we did factor in some potential less mining in a sense, maybe not be able to access all the higher-grade ore. We had a good stockpile, which is obviously lower grade, and I'd say, we slightly outperformed that.

The plant operated well and performed well. We see going into the dry season here the potential to slightly outperform in terms of throughput going through in the second half. And I think in terms of grade, maybe, Scott, if you want to just comment on that?

Scott Heffernan -- Head of Exploration

Yeah. Grade was slightly lower in the first half, largely due to sequencing in areas that we could access during the rains. And then, of course, keeping that -- managing of the rains, a strategy in play to keep production up, drawing from the stockpile during the rain, setting ourselves up for the next rainy season as well. So we expect to see the grade come up as the team has been able to access the more central areas of the pit, so grades in the 1.5, 1.6 range.

There'll be much more of that in the mine plan for the second half.

Christian Milau -- Chief Executive Officer

You know, and again, Ovais, we plan to move the mining rate up significantly. We plan for sort of half the rate during the rainy season. And obviously, I think it's going to be quite a bit higher here in the dry period. So just like we experienced last year and we'll be making up for that stockpile again, so that going into the rains we have that stockpile in place and we're ready for it.

Ovais Habib -- Scotiabank -- Analyst

OK. That's great. And just on -- on just sticking with Aurizona, you're looking to modify the processing from CIP to CIL to basically, I guess, to enhance recoveries. Was this conversion in the works since you started production in Aurizona or was this something new that has come up? And also, if you can just comment on the cost of this conversion?

Christian Milau -- Chief Executive Officer

Yeah. I mean, I don't know if, Attie, you want to comment on it generally. I can comment about the history and the cost, if you want. But do you want to comment on it generally?

Attie Roux -- Chief Operating Officer

Yeah. I think if you look at the change in ore characteristics at Aurizona, it's moving to areas where there's a little bit more carbonaceous material and also more sulfitic material. So that's more suited to the CIL rather than the CIP circuit. So Christian, maybe you can comment on the cost structure.

Christian Milau -- Chief Executive Officer

Yeah. I mean, in terms of the cost, Ovais, I believe it's less than $1 million. So it's pretty minor and it really has no disruption to the operations that can be done sort of in the background as we operate here and it'll kind of seamlessly happen. I don't think people will even notice it.

It will give us a little bit more stability in probably those recovery rates along the way, but overall, pretty minor impact.

Attie Roux -- Chief Operating Officer

Most -- most of the equipment is already on site, you know, like, the interstage screens to be able to modify the tanks. So as we said, it's not a major issue.

Ovais Habib -- Scotiabank -- Analyst

Perfect. And just switching gears and just going to Castle Mountain. Christian, you were mentioning that you've started drilling for water at site. Can you comment on any sort of, I mean, is this going according to plan? Can you give us some color on that front?

Christian Milau -- Chief Executive Officer

Yeah. I mean, obviously, I can only give you so much color on that at this stage. I can tell you we're drilling. I think we're on hole No.

4 or 5. There's water in all the holes. We got to do our pump test. We got to do our work to actually see the recharge rates in that.

But good news is there's water there. We're being, call it, prudent by also drilling and going out to sites that are give or take 15 or 20 miles away, private lands that we could access as supplemental backup or alternative water sources. So we're taking all options into play here. And as we hoped and expected, we are finding water and it's just a matter of doing the work now to prove up which site it's coming from, but there are multiple sites.

And so, I think we'll get that out in the next few months here. We just need enough time to actually go through the pump test and the recharge rates.

Ovais Habib -- Scotiabank -- Analyst

Sounds good. So that's it for me. Thanks for taking my questions, Christian.

Christian Milau -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Kip Keen with S&P Global. Please go ahead.

Kip Keen -- S&P Global -- Reporter

Hi, everyone and thanks for taking my questions. What's the strategy -- your view on shareholder returns? I know you're still in a growth phase here. But as you come into more cash, assuming gold prices remain elevated for some quarters or years, how might you approach that?

Christian Milau -- Chief Executive Officer

Yeah. It's a good question, actually and we're getting that question much more often nowadays in this current gold environment despite our growth profile. So in terms of our cash flow, and as I said, we probably have operating cash flow at these kind of gold prices where we're going to be funding our growth profile from operating cash flow rather than needing to use our balance sheet. So one of our plans here in the next few weeks is actually probably to repay $200 million on our revolving credit facility, to pay that down.

And then I think secondarily, we're just starting the budget process here and we have to entertain the thought of a dividend. I've had a few people ask about share buyback, but certainly, a dividend or a share buyback for next year. Despite the fact we're in heavy growth phase at the moment, we just feel that at the moment, if we continue with the sustained high levels of gold prices, we'll have the cash ability to start returning some capital to shareholders in some form or another, so sort of watch this space. I think for this year, let's get through this end of this year and the COVID sort of stabilization, and then, in next year with our guidance, and coming out, we should be able to comment on that a little more detail.

But dividends are coming up the radar screen and we're certainly getting a lot of those questions today.

Kip Keen -- S&P Global -- Reporter

OK. Thanks and just a follow-up on another question. In terms of your operations and staffing levels, have you made any changes, say, at Aurizona or Mesquite in terms of staffing levels sort of pre versus post-COVID, any savings there or are things essentially the same?

Christian Milau -- Chief Executive Officer

I mean, I'll comment generally and Attie, please jump in if I miss anything. But overall, I'd say staffing levels have stayed fairly similar. There's a few places where maybe we actually look to add a couple of people because we have to modify shifts or rotations in that. We've actually added a little extra in terms of testing in that for sure, in terms of the regularity of testing of people and physical distancing, etc.

So it might cause a slight increase but not that significant. We're obviously being completely offset by FX rates and fuel prices, etc. So in terms of net-net cost, it's probably actually down at the moment despite some frictional costs, if you want to call it that, from slight changes to the way we operate.

Attie Roux -- Chief Operating Officer

OK. Thanks. I think one of the other things we did was also a bit of cross-training to make people multi-skilled so they can be used elsewhere to cover the shortages resulting from COVID. And in one instance, we had a contractor come in to do some of the work in place of our own people but that's very minor.

Kip Keen -- S&P Global -- Reporter

OK. Thank you.

Rhylin Bailie -- Vice President, Investor Relations

Thank you. We've got a question now from a shareholder online in Saudi Arabia. When do you expect the company to be profitable on GAAP measures?

Christian Milau -- Chief Executive Officer

Yeah. I mean, at the moment, we would be but the gold price and the share price have been outperforming and we have those non-cash losses that are coming at us from an increased share price, which obviously, revalues our warrant liability on the balance sheet and as well from the gold hedge from the Leagold merger. It actually gets revalued at higher gold price. So I mean, I think this quarter, if things stayed flat on both the share price and a gold price basis or they happen to drop back a little bit, which we've seen happen today, you have a potential for minimal to no impact or even a positive impact from those two factors.

And if that is the case, we're going to be seeing profitability here this quarter. So really, we're on the cusp of that right now.

Rhylin Bailie -- Vice President, Investor Relations

Thank you. Another question from online. You mentioned in your catalyst slide that you have accretive M&A in 2020. Is that still the plan despite rising gold prices?

Christian Milau -- Chief Executive Officer

Yeah. I mean, accretive M&A is probably, it's not item number one on this list anymore. It's kind of down the list. We're still opportunistic and keen to grow the business even externally, but we've got a lot of growth internally.

We've got our focus on executing on that and we'll kind of keep an eye on the market and keep an eye on opportunities, and we will look at things. We would love to continue to grow and expand the portfolio in the Americas, if possible. But I would say, we don't need to get bigger for growth's sake anymore. We've got the diversity, the scale, the liquidity now.

But if there's something attractive, we'd love to add it to the portfolio. Continue to up-tier the portfolio, looking for lower cost, longer life, good jurisdiction mines along the way, but we don't need to do it. It's something that would be a nice add-on.

Operator

Our next question comes from Dalton Baretto with Canaccord Genuity. Please go ahead.

Dalton Baretto -- Canaccord Genuity -- Analyst

Thanks, guys. Christian, the online fellow actually beat me to the accretive M&A question, but I do want to follow up on that, though. You know, it's one you didn't touch on when you were talking about the rest of the catalyst there. So just in terms of the current gold price, how are you thinking about the portfolio right now in terms of the number of assets you have, the quality of the assets? And then, as you look externally and try to up-tier the portfolio as you said, what is it you're looking for? Are you looking more for greenfield-type stuff? Is there something else you want to build? Do you think you'll get the assets you're looking for in this environment at the price you want? Just any comments on that.

Christian Milau -- Chief Executive Officer

Yeah. I mean, it's certainly harder to find those opportunistic deals at $2,000 gold than $1,200 gold, that's for sure. But again, it quite often can be on a relative basis when you look at these. So we will look on a relative basis.

We do need to execute, continue to get our rerating to allow us to be a little more opportunistic on these opportunities. But I'd say that's under way at the moment. We're focused on things that are -- ideally, it's producing assets in the Americas, 150,000 ounces plus type annual production. But obviously, a number of those are getting a rerating in terms of -- because of the gold price and they're trading at a higher value today.

So they may not be as attractive or as accretive as they used to be. So we may pass on a number of things like that. So I'd say the door is opening. I know Ross has certainly said before that the discount between producing and development assets wasn't big enough in the past.

I would say maybe now would start to open up a little bit where producing assets are being rerated and revalued, and maybe we're going to look at some of the development assets as well. And because over the next 12 to 18 months here, we should be executing on three of our growth projects. You know, we'll continue to look at that development pipeline in the long term. So I'd say, we're a little more open to a development asset than we were a year ago or two years ago.

Dalton Baretto -- Canaccord Genuity -- Analyst

OK. Great. And then just given where Solaris is trading now, what -- what are your thoughts on your holding there?

Christian Milau -- Chief Executive Officer

I mean, we're -- we love that asset as individual investors, as a company for years now, and it's been kind of hidden in our portfolio until, what is it, mid-2018. Great to see it get the light of day and Richard and Dan have done a good job, obviously, so far, for its short life on the stock exchange again. And I think our value right now is $70 million, $75 million for our third of it, and we have no plans to be selling that in the near term. We believe it's worth a heck of a lot more in the longer term.

And we love the Warintza asset in Ecuador. I know Scott's sitting beside me and he's -- he and Greg, who are both here, love that asset. And then, there's three or four more assets in the Americas in that portfolio. And so, we see the potential there in the long term of creating significant value.

This is just the start and we're a core shareholder and we plan to be there supporting them.

Dalton Baretto -- Canaccord Genuity -- Analyst

OK. Great. Maybe just one last one for me. Are you able to comment at all in terms of what Mubadala's thinking now just given where your share price is versus the exercise price on the converts?

Christian Milau -- Chief Executive Officer

Yeah. It's been a great partnership since they got involved. I think there is sort of a win-win and it's -- it's kind of been that with them. You know, they've gotten some good returns.

We've gotten a great, stable, long-term partner and shareholder, and we really do view them as a shareholder. They did come in through a hybrid instrument. They're such a large fund and deep pool of capital. I think they manage about $1 trillion that they normally don't do deals of the scale and small size that they did with us.

So they came in through a hybrid convertible and we're now with the liquidity and scale where I think it's a really interesting opportunity for them in the long term to be a partner with a good-sized gold mining company that will be 1 million ounce producer, and we see them as a long-term shareholder alongside Ross Beaty, so great support. And you'll -- I think you'll see them convert that at some point in the next few years here, but there's no urgency to doing that. They've still got three or four years left on their convertibles and -- but I do see them as a long-term partner supporting our growth.

Dalton Baretto -- Canaccord Genuity -- Analyst

OK. Great. Thank you. That's all for me.

Christian Milau -- Chief Executive Officer

Thanks, Dalton.

Operator

Our next question comes from Kerry Smith with Haywood Securities. PLease go ahead.

Kerry Smith -- Haywood Securities -- Analyst

Thanks, operator. Christian, I apologize if this question got asked. I got jammed up on another call. But could you just go through with me the permit status for Castle Mountain Phase 2, the expansion of Los Filos, and the restart of Santa Luz, just so I understand which permits you need, if any, for each of those and just the timing.

Christian Milau -- Chief Executive Officer

So I'll comment maybe on Castle and maybe I'll let Doug comment on the other two. So for Castle, basically, we've got our permits for Phase 1, it's going operation here. The thought is on the back of the feasibility study for Phase 2, which should be out in Quarter 4, we'll submit that -- use that ultimately as our plans for a Phase 2, and we'll submit an amendment application ultimately to the regulators in California there on the back of that. So give or take Quarter 4, Quarter 1 next year, we'll be able to submit an amendment to upsize the area of disturbance within our current EIS boundary.

So we assume that will take us at least a couple of years to do. It is the U.S. and California so it's a methodical permitting process. But remember, it's an amendment to an operating mine.

We've been very successful so far with both Castle in terms of permitting, as well as, in Imperial County with Mesquite. So we see it as a process that will take time and resources, but we need to do the right thing first and show that we're a good citizen and operator, and then, we'll go and amend it. In terms of the other two, maybe, Doug, do you want to comment on Los Filos and Santa Luz?

Doug Reddy -- Head of Technical Services

Yeah. Los Filos, obviously, the optimized feasibility study work is under way at the moment. We -- previously, we had the permit for the plant location. It was conditional on confirming the final footprint for the plant.

At this point, we will be moving that to a site that -- when we did our geotechnical program, we made it quite comprehensive, covered some other areas that we thought would be superior and it looks like we will be moving the plant site. So we would revise that permit, which my understanding will take about a six-month period to go through that revision of just the outline. It's still permitted. It's just a revision of where the footprint would be.

The other ones would be the filter tailings deposition, which in the permit, again, it was final confirmation of the outline. We previously had been putting -- planning to put the filter tailings onto the heap leach pad, so line facility. Nothing changes there. So it's just a matter of confirming the outline.

We may shift it slightly because we anticipate that the heap leach pad will ultimately be a bigger design, which is a good thing. And then for the Bermejal underground --

Kerry Smith -- Haywood Securities -- Analyst

Sorry, Doug, when would that permit for the filter tailings be put in then? Is that going to happen this year? Is that after the feas is done or how does that work?

Doug Reddy -- Head of Technical Services

It'll go -- it'll go as soon as the study goes in. It'll be submitted, but that will come through before and that is just a confirmation of the footprint. So it should be a straightforward revision and that would happen while we're in the midst of the detailed engineering and moving into construction. And then, the final one that we have had all along was permit for the Bermejal underground.

We will be using the currently permitted portal and ramp. We do have additional sites for extra portals that were already permitted. And so, we are just looking at one of those as being an additional opportunity in the future. So we just have to revisit that and confirm that all the permitting is lined up for that one.

So no change there anticipated.

Kerry Smith -- Haywood Securities -- Analyst

So all of those permits for Los Filos and it sounds like they would all be in hand by middle of next year. Would that be reasonable then?

Doug Reddy -- Head of Technical Services

That will be a reasonable time frame.

Kerry Smith -- Haywood Securities -- Analyst

OK.

Doug Reddy -- Head of Technical Services

Beyond that, for Santa Luz, we have all the permits with -- there is one thing that we're doing at the moment, which is a geotechnical drilling program to do a design for the next phase for the tailings impoundment. So when that geotechnical design is finalized that will go in for a permit for that particular lift, for which will be a longer life lift on Santa Luz.

Kerry Smith -- Haywood Securities -- Analyst

And then other than that all the permits are in place then?

Doug Reddy -- Head of Technical Services

Yup.

Kerry Smith -- Haywood Securities -- Analyst

OK. OK. And then -- OK, that's great. And then maybe just on the amendment at Castle Mountain, Christian.

Do you -- is it only a state approval that you need for an amendment then, so there would be no federal involvement in that process for Phase 2?

Christian Milau -- Chief Executive Officer

Yeah. It'll be BLM in San Bernardino County would be the lead agency.

Kerry Smith -- Haywood Securities -- Analyst

OK. OK. So just the BLM is the only federal agency then. OK.

Great. Thanks very much.

Christian Milau -- Chief Executive Officer

Yeah. Thanks, Kerry.

Rhylin Bailie -- Vice President, Investor Relations

Thanks, Kerry. We have another question from a listener online in Vancouver. Could you please provide a bit more color on your comment about sharing resources between Mesquite and Castle Mountain and to what extent this can be done in a way to reduce costs and increase efficiencies?

Christian Milau -- Chief Executive Officer

Yeah. Sure. It's a good question. Now that we're coming to operation, the first key one is we didn't build the very back end of the plant there at Castle.

We're actually trucking loaded carbon, high-grade gold on the carbon down to Mesquite, which is about a four-hour drive on a paved highway directly down to site effectively. So we'll be able to smelt it down there. There's excess capacity so we've been able to save about, say, 10% of the capital by doing that. We're using, obviously, an experienced team and process there.

So we don't need to commission the back end of the plant in a sense. There'll be back office staff. There'll be reporting. There'll be IT systems.

There'll be HR support. There'll be permitting support. There'll be tax consolidation between the two sites. So any start-up losses versus profits in Mesquite could potentially be offset against each other.

Things like joint purchasing in the midterm here when we're buying either cyanide or tires or spare parts, etc. we'll be able to do that jointly and something like a fleet. Mesquite, if we continue to extend the life there, maybe we need to be replacing part or all of that fleet. And in the long term, it could be moved up to Castle if need be or it will just stay at Mesquite, if we continue to extend life there.

So it's all those kinds of opportunities.

Rhylin Bailie -- Vice President, Investor Relations

Perfect. Well, at the moment, there are no more questions online or from the phone. So I guess we'll wrap up the call. Thank you again for joining us today.

If you do think of any other questions, please don't hesitate to get in touch. I understand there was a bit of an audio glitch at the beginning of the webcast, but the audio was captured on the conference call. So we'll be able to fix that up in the archive, which will be available on our website in a few hours. I'll now turn it back over to Christian for closing remarks.

Christian Milau -- Chief Executive Officer

Thanks, Rhylin. Thanks again, everyone, for attending and for your support during these challenging times. The business is in a great place. Growth is intact and the long-term plan here is exceptional.

So you know, stay tuned, half -- the second half of this year is going to be pretty exciting, lots of good news, I think, coming as we manage in this new environment that we live within. So please stay tuned. Thanks.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Rhylin Bailie -- Vice President, Investor Relations

Christian Milau -- Chief Executive Officer

Peter Hardie -- Chief Financial Officer

Ovais Habib -- Scotiabank -- Analyst

Scott Heffernan -- Head of Exploration

Attie Roux -- Chief Operating Officer

Kip Keen -- S&P Global -- Reporter

Dalton Baretto -- Canaccord Genuity -- Analyst

Kerry Smith -- Haywood Securities -- Analyst

Doug Reddy -- Head of Technical Services

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