Equinox Gold Corp. (EQX) Q2 2022 Earnings Call Transcript

Equinox Gold Corp. (EQX 0.10%)
Q2 2022 Earnings Call
Aug 04, 2022, 10:30 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 Second Quarter 2020 Results and Corporate Update. 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. [Operator instructions] I would now like to turn the conference over to Rhylin Bailie, vice president, investor relations for Equinox Gold. Please go ahead.

Rhylin Bailie -- Vice President, Investor Relations

Thank you, operator, and thank you, everybody, for joining us today for the Q2 conference call. We will, of course, be making a number of forward-looking statements today. So, please do visit our website, SEDAR, and EDGAR to read the rest of our continuous disclosure documents. I'm now going to turn the call over to our chairman, Ross Beaty, to make some opening remarks.

Ross Beaty -- Chairman

Thank you, Rhylin, and good morning, ladies and gentlemen. I don't usually get involved in these quarterly calls, but this particular one is important. I think I'm going to talk a little bit about the CEO transition and a little bit of the background of that. Obviously, it was a poor quarter.

And I just want to make a couple of editorial comments here to all investors whether they're short-term investors or medium-term or long-term. If you are short-term, I want to point out that our Q3 and Q4 this year should be much better than our first two quarters. We signaled that at the beginning of the year, and we expect that to happen again, just like it did last year, where we had a blowout quarter in Q4 last year. So, short-term things should be much better as the year progresses.

If you're a midterm investor, I would like you to focus on our growth. Obviously, Greenstone is the biggest growth project we have that will add a couple of hundred thousand ounces at least to our gold production profile in the next couple of years, but we also have a dramatic growth potential at Los Filos in Mexico, Arizona, in Brazil, Castle Mountain phase 2 in United States and of course, our new Santa Luz mine in Brazil. Tremendous amount of growth. I think we probably leave the entire sector in terms of growth of our production profile and our decrease in cash cost profile.

And if you're a long-term investor like me, you should be looking to simply own a company that is being built into one of the world's major gold producers. This will provide a sustainable business over the long term. It will be low cost and it will be a significant generator of strong cash flow and long-term dividends when we complete our growth to produce more than 1 million ounces a year, which is our medium-term target. There'll be lots of detail on our second quarter coming later in this call.

But right now, I want to talk about the news last night that we announced about the CEO transition. Christian approached me and others on the board some time ago, expressing the desire to shift into a different business. These things happen sometimes, and you can't fight them. You have to just simply go along with them and deal with the succession as best you can.

Luckily for us, we had a built-in successor who had always been considered as successor to CEO, and that was our President, Greg Smith. Greg and Christian were both founding members of the Equinox Gold management team, joined me right at the start in building Equinox from an idea to what is now a major gold producer with seven operations and a whole bunch of growth as I've just described. Christian, obviously, will be missed, but we are very content with a strong successor who we know well, knows all the team, a veteran industry expert in the mining business. Greg has had a long pedigree in other companies before joining and forming Equinox Gold at the beginning of 2018.

So, it's a healthy transition. It was a unanimous decision by the board. We did have a significant succession plan and succession procedure that we followed. And so, Greg will start at the beginning of September.

Today, he's on a well-earned holiday, I think, just getting ready for the new job. But he's been in the saddle as president. A lot of his analysts know him. A lot of investors know him, and I look forward to him really stepping up and taking this company on to new levels.

Needless to say, I want to express my thanks to Christian. He was a strong CEO, a great guy. We worked together very, very well. And we've had a lot of, I think, enjoyment building Equinox together with the rest of the management team and building the management team.

Really, under Christian's reign, he really added to a small team at the start and what is now a fully functional major company build-out team really starting to admin-finance, ESG team, and, of course, all the operations team as required. I think we have 67,000 employees now, and it's a significant company that's going to become even bigger and better. So, many thanks to Christian, welcome to Greg, and I look forward to investors being able to talk to Greg once he's in the saddle in September, and then, of course, on future calls like this. I can't resist completing my comments with a couple of words about gold.

I feel gold is like a coiled spring right now. Even though it came down just under 10% from its highs, it's still outperformed almost every other asset class this year and the general decline of all asset classes, but there's still a very, very strong case for gold and a very strong case for gold moving higher in the foreseeable -- in the very near-term future and longer-term future. Obviously, it responds well in the geopolitical turmoil, which I think we can say we have today between what's going on in Asia, what's going on in Ukraine. Certainly, we have persistent inflation.

This is not going to go away anytime soon. Gold always does well in terms of inflation. Even though in bonds interest rates have risen, bond yields have risen, somewhat there's still negative returns on a real basis and why anybody would buy bonds is beyond me. We have decline in equities, decline in values in real estate, and so on.

In the face of all of those negative other asset classes, you've got 2,000 years where gold has been a store of value and has held its value. So, I think all things included, I have a good outlook for gold in the short term and in the medium term, and in the long term. And in that environment, Equinox Gold is really being built as a great way for investors to play the gold market, plus play a great growth company, which is what we're all working hard to build. So, with those comments, once again, thanks to Christian, and welcome to Greg.

And I'm going to turn the call over to Christian for his last CEO role really in terms of presenting Q2 results. And, Christian, I'll turn the call over to you. Thank you very much, one and all.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Thanks, Ross. And if you'll bear with me, I just want to add a couple of comments to what Ross has said. It's obviously a very emotional decision for me. As Ross said, I was here when we founded this with Greg and Ross, and a lot of the team around the table with me today, and I'm very proud of what we've achieved so far.

And I know the journey isn't done, and as Ross said, this is well on its way to becoming a 1 million-ounce producer and the plans are all in place. And I'm also excited about the new opportunities that are going to come my way, but I'm also very pleased with the succession and transition plan that we have in place, and I think it would be very orderly, as Greg steps in. I have the utmost respect for him and the team, and I think you'll see very little change as we move forward. And I want to thank all of them for their hard work.

It's been an exceptional six years. And also, I want to say a very special thanks to Ross and his support and the board over those years, too. It's easy to say you're going to build the company and focus on growth, and it's really hard to do and execute. And I think this team has done a wonderful job in that sense.

And there's been bumps along the road, but as Ross said, the pathway is clear or 1 million ounces, and that will be achieved. So, it will be exciting to be watching Greenstone progress, along with all the other projects. You can't find that kind of growth, as Ross said, in many companies around the sector. And I'm keen also to make a difference in the carbon finance sector as I do move on to a different space and excited about that as well.

But really, the business has had, we should cover that today, and that's the Quarter 2 results and where Equinox is and is going. As of Page 3 with our summary, just to rehighlight, it's a diversified portfolio of six producing mines and really the seventh is almost in commercial production right now. And we have that peer-leading growth with the four growth projects. I'm really excited about those as they start to come to fruition over the next couple of years.

We've got the large reserve resource base, 16 million-ounce reserve, 30 million ounce resources. We've got a strong balance sheet with almost $400 million of liquidity and $250 million-plus of investments on the balance sheet. As Ross said, it was a tough quarter, we have reduced guidance. RDM, we expended the guidance early in the year, so no surprise there.

And also, Santa Luz's been a slightly slower ramp-up as we have a refurbished plant that's starting to hit its stride a bit more these days. So, that will be about 580,000 average production for the year, slightly down on the expectations at the beginning of the year. And that clear path to 1 million ounces is well funded, and it's well on its way to being achieved over the next few years. Turning to the next slide and the Q2 operating results, health, safety environment, and other strong performance well onto the team again.

And I do want to highlight, we did award [Inaudible] the Safest Mine award just recently, and they poured their 5 million balance. So, very good milestones for them to achieve. And also Aurizonaachieved the most improved mine last year. So, well done to all of them.

In terms of consolidated offering results, we produced 120,000 ounces, slightly shy of what we did expect at the beginning of the year, and that's predominantly due to the suspension of RDM during the quarter due to the delay in the TSF or tailings lift permits and also the slower ramp-up in Santa Luz. Those will be discussed a little bit further and the cost as well, as Pete and Doug run through the mines. All-in sustaining costs were a little bit higher than expected, primarily due to those operational items that RDM and Santa Luz, inflation was running about 6%, but again, there's a bit more detail later on. Nonsustaining capital we spent $134 million, a little bit higher than planned as we spend a little -- a few more dollars on Santa Luz, and Greenstone, we were able to bring forward a little bit of capital, and there's a little bit of inflation in there as well, but not a material change this year to the Greenstone capital.

Overall, for the second half, as Ross alluded to, we do expect a decrease in the all-in sustaining cost by about 10%, down into sort of the mid to low 1,400s and also the vast majority of our operating cash flow in the second half of the year as expected. Looking at the construction development exploration, Santa Luz is ramping up the commercial production in Quarter 3. Pleased to see the recovery is working well. Doug will walk through a little bit more of the detail on that ramp-up.

Greenstone, as we announced last week, tracking very well on schedule, on budget. Very pleased to have the independent QRA quantitative risk assessment review done and confirm basically what we expected. So, it's progressing well in the middle of its first summer. Construction is in high gear and the site is very busy at the moment.

And looking forward to having analysts and investors to site in early September to actually see it with their own eyes. It's for the first time since COVID that actually we'll have a group of people on site. We've got two days of visits coming up, so that should be exciting. Corporately, again, very busy quarter.

Sandbox Royalties have spun out in partnership with Sandstorm, another company that we hope to realize some value from in the long term but create more value in just selling it outright on day one. Also, we sold them at Mercedes, as everyone knew, and we announced in -- around the year-end last year. And we received the first $75 million of the $100 million proceeds during the quarter, and we own still a 16% stake in Bear Creek, and we received almost $50 million in Solaris' proceeds from the warrant that was exercised on the sale of that stake about a year ago, I guess, and as we mentioned and Ross alluded to, obviously, the transition upcoming with Greg moving to CEO as of September 1. And I'll turn it over to Pete on the next couple of slides at the end of this slide to talk about the balance sheet.

Pete Hardie -- Chief Financial Officer

Thanks, Christian. We are poised for growth. Our balance sheet is also poised to sustain that growth. A week ago, we announced that we've amended our credit facility to increase the revolving portion from $400 million to $700 million as part of amending that facility.

We also rolled our term loan, which had about $73 million left in principle into that revolving credit facility. The advantage there, of course, is that it postpones the principal payments that otherwise would have come due, while we're trying to build Greenstone and pushes them out beyond the time when Greenstone will be completed in construction. We also added a $100 million accordion feature. It is uncommitted, which means we do need to go to the banks to ask for more, but we're happy that we have that available.

We extended the maturity of the credit facility out to mid-2026 with a one-year extension feature. And of course, that pushes it out beyond again our capital commitments that we have for Greenstone. And we did all that while allowing for the cost of capital, which we're happy about. We've reduced overall the borrowing cost by about 25 to 50 basis points on average for that.

And we do want to -- we want to thank our lead Scotia, BMO, and ING who helped us put together the amended facility, and as well our entire banking syndicate for their strong support that they've shown to the company to date and as we move forward. I'll mention that we drew $100 million of the revolver in July. So, we've got $473 million drawn today. But what does this mean overall as we look forward? We've strengthened our balance sheet.

Christian mentioned some of the corporate items that we did and selling Mercedes and selling some Solari shares. But with our existing cash flow of the increased facility that I've just highlighted, we've really increased our liquidity. That does not include the accordion feature when we say that we've got $390 million in liquidity right now. And that's just our treasury and our undrawn balance on the revolver.

And we frequently mentioned that we have other levers that we can continue to pull on the balance sheet. And it's a tough macroeconomic environment. And those levers are there. So, we're well poised for the path forward in funding our growth.

With respect to the Q2 financial highlights, I already mentioned, we're not happy with them. Very similar actually overall on the sales and revenue side to Q1, and we expected them to be higher. We had mine operating -- well, revenue of $225 million, mine operating earnings of $17 million, and adjusted EBITDA of $24 million. We had a loss of $79 million, which is $0.26 a share.

And on an adjusted basis, when you remove some of the noise that the fair value accounting introduces into the income statement, we had an adjusted loss of $48 million, which is $0.16 a share. Our cash flow from operations before changes in working capital was $16 million, which translates into $0.05 a share. And I've already mentioned that we have a strong capital position as we move forward here. On our next slide, I'll touch on some items in our updated guidance.

Generally speaking, we've decreased our production by about 85,000 ounces. And most of that is attributable to, as Christian just mentioned, the slower ramp-up than otherwise was expected to Santa Luz, which -- and we've decreased there by about 30,000 ounces on the year. And RDM as well, we had a couple of temporary stoppages there. And there'll be a shift to moving just low grade at RDM, but Doug will run through all that as part of his overall run-through of the operations here in just a minute.

But at RDM, guidance has been decreased by 45,000 ounces, and that's the bulk of the 85% decrease with those two mines. The remainder really is in Los Pelos, where we reduced 7,500 ounces and then a little bit elsewhere. With respect to costs, Christian has mentioned, we have seen inflation. I think everybody is seeing inflation.

Generally speaking, we plan for about 6% on the year, and that's in addition to the inflation we experienced last year. And this guidance really adds another about 6%. What that means on a cost-per-ounce basis is -- and overall, we've increased $125 an ounce. So, our updated guidance is $1,470 to $1,530 an ounce.

And about $70 an ounce, $75 an ounce of that is inflation. About two-thirds of that is fuel and the remainder is really attributable cyanide and lime where we've seen really large increases. And again -- and with the remainder really being some of the unfortunate underperformance in the first half of the year, the remaining $50 an ounce and some of that -- a bunch of that is attributable to grade. But again, Santa Luz, Los Filos, RDM are where we're seeing our principal increases in our guidance.

Aurizona as well, during the first half of the year, there was heavy reliance on the low-grade stockpile. Interestingly, we had -- and again, I don't want to steal Doug's thunder too much, but we actually moved more material during the rainy season than we have before. But that was higher up in the pit, which didn't allow us to access some of the better ore. And so, we did rely on the low grade in the first half of the year.

But the second half of the year, we expect almost double. So, we were about 0.91 grams per tonne in the first half, most double for the second half. So, overall, with respect to guidance, as Christian mentioned, from a production basis, we're going to do 550 to 615,000 ounces this year. Most of that is weighted into the second half of the year.

Costs are up but likewise, cash flow, like with last year, it's weighted in the second half of the year. So, we're very happy this quarter is behind us, and we look forward to the second half of the year, our performance will just continue to improve. And with that, I will turn things over to Doug to run us through the operations.

Doug Reddy -- Chief Operating Officer

Thanks, Pete. So, Pete has gone through a lot of the items I would have covered, but I'll reemphasize this is a tough quarter. We had signaled lower production in the first half and the very unexpected impacts have hit us principally at RDM and Santa Luz with weaker production at Aurizona and Los Filos. But let's start off with the U.S.A.

and I would say, the best mine in the group for the quarter. Mesquite has done really well in Q2 and Q3. They're benefiting from the stripping that was done principally in Q1 that provided access to the Brownie ore body. And we've now started stripping -- while we're still mining from Brownie ore body, we've started the stripping for the next phase of mining in the Vista East pit that will provide ore as we come into 2023.

Overall, mining and processing at Mesquite are ahead of plan and about 60% of the gold production should come from Mesquite in the second half of the year. As was noted earlier, in July, just into Q3, we celebrated the 5 million ounce being poured at Mesquite and also safety milestones. And at that point, we were 4.3 million hours lost time incident free. So, a really good quarter for Mesquite.

Moving over to Castle Mountain, the crusher and conveyor are now in place. That's been coming for a while as we needed to make a change away from run-of-mine ore going to leach pads. We've now seen an improvement in the permeability and the overall flows have increased. We'll be watching this quarter as the leaching of the new cells happens.

We'll be looking for faster leach times and improved recoveries overall. With faster leach times, we also hope to be able to put a larger area under leach with the same volume of solution. And we benefit from just having done an expansion of our leach pad, that's complete. Therefore, the costs associated with that will not be carrying over into H2.

So, our all-in sustaining cost at Castle Mountain will reduce in the second half of the year. The leach pad areas are now sufficient for all of the remainder of phase 1 operations. And our phase 2 permit application, we did previously state that it was submitted in March. So, it's in the process of being reviewed by government agencies at the moment.

Looking at Los Filos, we did have good production from the Guadalupe open pit. It's performing according to plan. In fact, it gets additional run of mine material from the waste areas, which reduces the overall strip ratio, the run of mine material is lower grade and does have a longer leach time. So, it takes a while to get the benefit of moving that material.

Grades will improve in Q4 in Guadalupe coming up to about 1.2 grams from the current just under one gram per tonne. Los Filos open pit was behind plan in the quarter and mine lower grades than anticipated, but it should be getting better as we come into the latter part of the year. Bermejal underground development has improved now, and we're focused on getting access to the higher-grade Zone 5 area. We should be hitting the higher grades late in Q3 and into Q4.

Los Filos underground was mining in areas of lower grade, but it's on plan as of this month, and we hope to keep it that way. Our updated technical report, including updated mineral resources and mineral reserves for Los Filos, will be ready for filing in Q4. Moving on to the next page. In Brazil, in the first half of the year, Aurizona had 2.7 meters of rain.

So, 1.4 meters of that came in Q2. The heavy rain reduced our mining rate, our mining productivity, and limited access to the ore in the bottom of the pit. That increased our reliance on stockpile ores, which were mostly consumed during this rainy season. And at the end, had relatively low grade in Q2 at about 0.9 grams per tonne.

I'll note that the process plant did very well. Planned recoveries were up around 92%. And the throughput was good, but we had slugs of war that had high moisture content and caused problems for feeding into the mill. So, the mill did well, but suffered when we had the very high moisture content material coming in.

So, each year, at Aurizona, as we come out of the rainy season, we have a significant ramp-up in mining. And this year, we will be looking at about 65% of the total tons being done in the second half of the year. That's already been happening in July and needs to continue to happen. We not only need to be able to get access to the rest of the ore at the bottom of the pit where H2s processed grades come up to about 1.7 grams per tonne and therefore, a significant increase in overall gold production, but we also need to be able to put in place the stockpile in advance of the next streaming season.

Other things happening at Aurizona include the new TSF, which will start shortly and be completed at the start of the next streaming season, and we continue to advance studies and permitting for the underground expansion, which will include drilling for the -- below the Piaba open pit that occurred in 2021. Moving over to Fazenda. We've seen consistent production at Fazenda. Mining is about 25% from open pits, 75% from underground.

We should see an overall improvement in all-in sustaining costs to about $1,200 an ounce as we come to the second half of the year. On the exploration, teams continue working on annual reserve replacement drilling and very importantly, on investigating the several targets that have been identified in the belt between Fazenda and Santa Luz. Moving on to RDM, very disappointing performance in the first half of the year impacted principally by two suspensions. Firstly, there was a change in regulations governing TSF freeboard requirements.

It came in and was with immediate effect. So, that's when we reduced our TSF water level by pumping from the TSF to the open pit. And secondly, there was a delay in the receipt of the permit to do the next TSF raise. We have received the permit and we have -- we are in the process of doing that raise now that will be completed late in the quarter.

As we've been building up the TSF raise, we have restarted operations on July 3, but we still have water in the open pit that we're evaporating and pumping out -- and I'll note that we were in the midst of a large stripping program. So, essentially, it was negative cash flow, and the stripping program wasn't necessary to be able to access higher-grade ores for future years. So, at this time, we did an assessment, and we have determined that we will stop mining a primary ore and process the low-grade stockpiles that are available. We have enough roll through this year and next year, if necessary.

So, in situ, ore grades are about 0.9 grams a tonne, whereas stockpiles around half a gram per tonne. So, this is being done to maximize our cash flow at the time where we need it for putting capex into Greenstone. And essentially, we're at the same time, preserving our long-term value at RDM while we pump out water and while we get the TSF raises completed. Guidance has been reduced to less than 30,000 ounces for the year.

We are also implementing vacuum cycloning of tailings at RDM. That gives us the ability to optimize the tailings storage capacity in our TSF and will also allow us to recycle more water at that mine. So, moving on to Santa Luz. It has been a prolonged ramp-up to production.

But I will note, resin works well. Recoveries are consistently over 70% and up to 82%. That's almost double the recoveries that we would get with carbon using kerosene as a blinding agent. And this is the only operating resin leach process plant that's treating gold ore with total organic carbon.

So, technically, it's a success in using the resin, but we got to give the resident chance to do its job. And so, the prolonged ramp-up has been largely due to modifications and repairs to some areas of the plant. As we scale up from a pilot plant to industrial scale means that we experienced certain challenges such as high corrosion of the cathodes. Now, we've gone and replaced the cathodes with a higher quality stainless steel, and now performing well.

We've also had issues with some of the piping and with leach tanks, we've been progressively fixing these over the last few months. At the same time, we've continued to keep the process plant in operation. The fixing fixes of the leach tanks should be completed this month. We have been operating even while having at least one tank off-line during this period at about 80% of nameplate, so 6,300 tonnes a day.

And we have run at full capacity of 7,400 tonnes per day, but we will -- we're doing a change out of the trommel on the primary mill, which should allow us to be able to run consistently at 7,400 tonnes per day plus. The other challenge has been achieving a consistent blend of about 0.65% total organic curve. Carbon, of course, affects the recovery that the resin can achieve. We are learning a lot about balancing out the TOC while at the same time trying to maintain as high gold grade as we can.

Unfortunately, they seem to come hand-in-hand, and so it's a real challenge to keep it consistent and give the resin the chance to be able to perform where we wanted to. So, we expect to achieve commercial production in Q3 at the end of Q3. Moving over to Greenstone. So, yes, it's one of the largest gold -- will be one of the largest gold mines in Canada.

We just did a news release on July 27 that provided progress following an independent quantitative risk assessment. That was completed when our engineering was over 96% complete, and the project was over 25% complete, and it confirmed that the project is on schedule, on budget. We have an experienced and dedicated team building Greenstone. They react very well to the challenges they face.

It's an owner-managed team so their interest lies very much parallel with exactly what Equinox and Orion want to see on the project. I do note that as of mid-July, the project achieved 1 million hours with no lost time incidents, a very good safety culture at site. Inflationary pressures have been addressed partly by contingency and also through offsetting savings opportunities where possible. And that's one of the aspects of where our on-site team comes up with the ideas on how they can compensate for any potential overrun by approaching things differently.

So, Q2 activity is focused on earthworks, structural concrete, structural steel, the first of four mining trucks are received and being assembled at the moment. Those are CAT 793s. And we look at Q4 for what preproduction mining will commence 50% -- sorry, 56% of total costs are contracted, 28% of total costs are in fixed costs and 26% of total costs have been spent as of the end of June. You can see a few photos showing progress on some of the main buildings.

And as we move over to Page 12, as at July 22, there's a series of statistics on the completion in various areas. Overall project is 35% complete. The construction itself is 28% complete. And then we see how we're doing on earthworks being a big factor, 48% complete overall.

And individual areas, including process being 14% complete, power plants at 18%, and tailings facility 29% complete. There's more detail that's provided in the news release and also a series of photos on our website showing the progress on site. The majority of the buildings are on schedule to be enclosed by year-end. Obviously, we want to have that complete before we head into the height of winter.

So, we'll just move on to the next page. That's the first of eight leach tanks being completed. And we have commissioning on the effluent water treatment plant should be occurring in Q3 and Q4. You can see the inside building there.

And then finally, on the next page, an overview of the site showing the progress on all of the buildings. The site is changing rapidly. We see progress on a weekly basis, some of the good advance rate and the photos are up on our website, and we'll also be hosting a site visit in September. So, we look forward to having two groups come through and seeing the progress as we come to the end of the summer building season.

So, with that, I'm going to hand it back to Christian.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Yes. Thanks, Doug. And just on the last couple of slides here, I just want to reemphasize the current position and say thanks to Peter, Seb, Susan, and her team has done an excellent job in getting the balance sheet matured and refinanced, and thanks again to the support of our lenders who continue to support us from early days right through to now as being a mid-tier to a larger gold mining company, and it's great to see the balance sheet maturing. And as Greenstone construction progresses and derisked the balance sheet, cash flow, investment portfolio put us in a strong position to continue to fund that and achieve all of our development goals over the next couple of years.

And on the last slide, I just want to make a couple of closing comments, and I just want to say I'm proud of what we've accomplished so far and very excited to watch is Equinox, Ross, Greg, and the team take the next steps toward becoming a 1 million-ounce producer. We're only partway down the road, but I'm very confident in the team on achieving that over the next couple of years. And the scale, the diversity, the growth, looking at the four countries we're in are very exciting and what we always set out to achieve. And it's really the credit and to a strong team and all the hard work done to date.

I want to thank the teams, thank shareholders for your support. It's not easy always to back a growth-oriented company and a part of a cycle where people aren't valuing growth but will in due course. The board and Ross have been extremely supportive and other stakeholders on the ground across all these countries. And it's one of the hardest decisions I've ever had to make in my life, but I'm super excited about being a supportive shareholder and sheer leader in supporting Equinox from the sidelines as we move forward here.

And I'll miss Equinox desperately, but I'm also really excited to make a small difference in the carbon finance space as I move forward. And all will be CEO here at Equinox until the end of August, so not going anywhere too quickly, and Greg will transition in at the end of the month. And so, please feel free to reach out. I'm here and available and happy to chat and excited to pass on the reins and the keys as we move forward.

So, I just want to close personally by saying thank you to all of you in this journey so far.

Rhylin Bailie -- Vice President, Investor Relations

Thank you, Christian. Operator, can you please remind people how to ask the question?

Questions & Answers:

Operator

Certainly. [Operator instructions]. We will pause for a moment as callers join the queue. Thank you.

Rhylin Bailie -- Vice President, Investor Relations

I'll take a question from online from a shareholder in Europe. So, as always, questions about cost. So, once you get into the higher-grade ore at Los Filos in Q4, what do you expect for the all-in sustaining cost profile there?

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Yeah. I could jump in there. We expect in the last part of the year that, obviously, Guadalupe will continue on with sort of close to one gram material. And I know the underground will start contributing sort of three to three and a half gram material, which will allow us to bring those costs down into that 1,300 to 1,400 range, I think, for the fourth quarter, which is a much more respectable level than obviously the last couple of quarters.

Rhylin Bailie -- Vice President, Investor Relations

And with the change in mines on at RDM, do you have a sense of what the cost will be there?

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

In terms of RDM, it will run at a higher cost with that lower grade for now. Doug, I don't know if you wanted to add to --

Doug Reddy -- Chief Operating Officer

Yes. Also, as we get through Q3, we'll be finishing off the current TSF, but we have TSF raise. We have already submitted for the next TSF raise. So, we want to get that done.

So, all the TSF raises and will be done implementing the cyclone -- vacuum cyclone of the tailings will be another cost that will come into the second half of the year. So, those costs will elevate things, but they're not ongoing costs. It's just the one-off of doing those. And at the same time, processing the half gram material will be -- obviously our costs will be up.

But it's all about maintaining the status quo when we pump up the bits as well.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

And it's probably worth in the same vein -- Castle Mountain bore the burden of actually building all of leach-pad 1B in the first half of the year. So, give or take, $600 an ounce of, call it, sustaining capital built into that cost. And you'll see in the second half of the year, that drops off and you're $600 lower on average, which will put that into a very respectable range for the all-in cost in the second half of the year at Castle going forward.

Pete Hardie -- Chief Financial Officer

Yeah. I would just add one more point on RDM that with the reduction in the total amount of ounces that it will be producing those cost increases on a per-ounce basis will, of course, increase the profile there quite a bit. But the general impact on the company will be lower because the overall production profile is quite a bit lower.

Rhylin Bailie -- Vice President, Investor Relations

I'll ask this question with the caveat that it's obviously a forward-looking statement and a forward-looking response. But going into next year, we've got a couple of years now while we wait for Greenstone to come in production, which will obviously significantly lower the cost with that size of production. But what do you see from the mines over the next couple of years?

Doug Reddy -- Chief Operating Officer

Well, we've had obviously work being done at all the mines on cost reductions. We've seen evidence of that already in some of the mines with Mesquite and Fazenda. Some of the investments we've been doing will drive us toward lower costs. For example, Castle Mountain coming off of the pad expansion and putting in the crush and agglomeration, we expect that that should bring down our all-in sustaining cost.

The other mines are actively working on plans, which include group purchasing, but also cost reductions overall. So, it is an active part where they're proactively working on that. It's been happening for a while now. It just takes a while to put into effect.

Rhylin Bailie -- Vice President, Investor Relations

Operator, can you please take a call from the phone?

Operator

Yes. We have a questioner from Anita Soni from CIBC World Markets. Please go ahead.

Anita Soni -- CIBC World Markets -- Analyst

Good morning. Thanks for taking my questions. So, first one, I think, is related to C1. So, first off, just a purely mechanical question.

45,000 to 55,000 ounces, is that including commercial and noncommercial production? And then secondly, your cash costs, would that just be the commercial production loan?

Pete Hardie -- Chief Financial Officer

There was a question about Santa Luz. So, for Santa Luz, the $45 million to $55 million is the whole year. The cost guidance that we provided is just for once it's in operations. So, as Doug mentioned, we expect that to be later in Q3.

So, the cost that we have there for effectively Q4 and a little bit of Q3.

Rhylin Bailie -- Vice President, Investor Relations

OK. Second question is a little bit more big picture. I think I've asked a few times, but just wondering if you're thinking about whether or not all of the assets that you have, would you consider asset sales. I mean, I think I look at this and I think for the amount of production you have, it's a significant number of assets and perhaps you're spread a little too thin.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Yeah. I mean, I'll take that. I mean, I think we've shown that we're willing to actually divest of either noncore or smaller assets. And I certainly think at the smaller end of the scale, we will have to be open to that kind of thing.

And we have done that, demonstrated that over the last couple of years with certainly the Mercedes sale and a couple of other asset spinouts. So, I think we've been open to that at the lower end of the portfolio.

Rhylin Bailie -- Vice President, Investor Relations

And could you identify which assets perhaps that may fit into that portfolio? I would think RDM and Castle Mountain don't seem to be bringing the size number that I would expect.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Yeah. So, RDM is the smallest, obviously, in the portfolio. So, that's a fair comment. But Castle Mountain will be a 220,000-ounce producer in a few years and the permitting is going well there.

So, we see that as a core long-term asset.

Rhylin Bailie -- Vice President, Investor Relations

OK. I will ask one more question and then leave it to someone else to ask. So, I wanted to pull it back even more. So, I think I've asked a couple of times as well on this one.

The life of mine technical report that was put out by the prior operator in December, I think, of 2021. Some of the unit costs are coming in significantly below what we've seen benchmark now for Detour operations for Agnico Eagle as they put out their new life of mine update and Cote, both of which are operations that are operating in Ontario. So, pretty good benchmarks. I'm just wondering when do you think you're going to address your unit cost.

Because as we push toward making sure that the capex number is correct and building this, I think we need to keep an eye -- as investors or analysts, I'm trying to keep an eye on what exactly you are building at the end of it.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Yeah. Certainly, they need updating as we move forward here. And as the operating team gets built up, I think in 2023, we'll be updating those costs. But clearly, with the inflation that's ongoing, we expect it to be higher than the -- I can't remember the exact number, $650 an ounce approximately all-in sustaining cost.

We expect it to still be a very, very attractive level, but it will be higher due to the inflation for sure. But as the operating team comes in, they will build up from a ground-up zero-based budget next year.

Rhylin Bailie -- Vice President, Investor Relations

OK. That's it. Thank you for taking my call.

Operator

The next question is from Wayne Lam from RBC. Please go ahead.

Wayne Lam -- RBC Capital Markets -- Analyst

Hey. Good morning, guys. I was just wondering if you might be able to give us some detail on the covenants for the extended facility. And then just curious, when negotiating the increase in size, were there any assumption made on the conversion of the converts? And is the intention to fully draw down on the facility for construction?

Pete Hardie -- Chief Financial Officer

So, on the first question on the covenants, they were updated to reflect the -- our previous facility didn't contemplate capital debt market issuances. The facility was updated to have both net total net senior debt covenants and they were loosened from what we had before. So, obviously, we're quite pleased with that. On your second question on the -- I think you're referring to the bottle of converts that we have.

We have two of them, one of them maturing in 2024 and the other in 2025. They were not contemplated as part of it, and we have -- and there have been no changes or moments. Otherwise, obviously, we would have announced it to those converts. And on the third question, do we plan fully drawing down on it? Generally speaking, no, we do not.

We see it as a backup to our ongoing funding through cash flow and other means.

Wayne Lam -- RBC Capital Markets -- Analyst

OK, great. Was there anything specific that you would be able to provide on, say, the interest coverage ratios or anything like that?

Pete Hardie -- Chief Financial Officer

Yeah. We're four times on our total net and two and a half times on our net senior covenant.

Wayne Lam -- RBC Capital Markets -- Analyst

OK, great. And then just wondering at Mesquite, can you provide some detail on the mine plan changes? I'm just wondering how the change in the deferred strip near term might impact the ability to sustain the production profile in future years and extend the mine life there.

Pete Hardie -- Chief Financial Officer

So, I'm not exactly sure what you're asking, but I'll elaborate on Mesquite. So, we were stripping in Q1 for Brownie. We're mining ore in that same phase for Brownie. We did a modification to our mine plan, which has allowed us to start our stripping on Vista East pit earlier than originally intended, which means that we can look forward toward providing that for from Vista East pit as we go into 2023.

Beyond that, we are continuing to do drilling and we've been doing -- I've got Scott Heffernan in here with me. He leads the exploration team. We've been doing $6 million or $7 million of drilling every year at Mesquite for the last several years. Every year is about adding and replacing an updating model.

So, it is a constant effort at Mesquite. And we basically go straight from exploration into the hands of the operations team, and they turn it into an update on mine plan and we roll forward with it. So, it is, I'd say, fairly dynamic given that it's been a short life since the operation was acquired, and it didn't maintain at the same life all the way along. So, we look to be able to bump it out several years, but that -- it is tough to do enough drilling to be able to do that in one fell swoop.

Scott, do you want to add anything?

Scott Heffernan -- Executive Vice President Exploration

I mean, you covered it pretty well, given that the asset is here. At least when we bought it in 2018, it had a three-year mine life on it. And four years later, we're working on a significant resource reserve update. The challenge is that each of these deposits, there's a big stripping campaign before you get into mineralization and ore and so it's a sequencing thing in trying to balance this between Brownie and rainbow and Vista deposits and so forth.

And so, it's an ongoing exercise to pit economics and alter the sequencing and so forth. And we're very much at work, hard at work at an updated checkerboard. Now, that will come out in Q3, detailing a fully updated complete picture during results so far the last two years, and we're quite excited about it, and there's a lot of work to be done quite over the next couple of months.

Wayne Lam -- RBC Capital Markets -- Analyst

OK. Got it. And then maybe just last one for me. Just curious in terms of Greg's role with the company.

How is that going to coincide with his leadership with the Sandbox team? And then should we see this more as an interim role? Or is it more of a permanent position going forward? And how will the time be split between the two?

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

I mean, I think a good analogy at least to start is to think about it the way we did with Solaris, Greg, he was President of this company and very involved, and then he also spearheaded that into a successful sort of spinning out ultimately and becoming its own company with its own life. And that's how we see Sandbox going over time here as well. And at the moment, actually, there's a bit of a team there that's helping manage the day-to-day. So, it's actually well advanced beyond where we were with Solaris when we first spun it out, probably learned a few things, and that's been out, and this one is more advanced in a sense.

So, there will be a period of time, certainly, we'll be managing that and helping it through.

Wayne Lam -- RBC Capital Markets -- Analyst

OK. Perfect. Thanks for answering my questions. And, Christian, wish you best of luck in your next endeavor.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Thank you very much, Wayne.

Operator

The next question is from Kerry Smith from Haywood Securities. Please go ahead.

Kerry Smith -- Haywood Securities -- Analyst

Great. Thanks, operator. Doug, can you talk a bit about RDM? I'm not clear on how the mine plan would evolve here if, in the next 18 months, you're going to be dewatering the pit so you can get it basically dewatered to be able to get back in there and get to the ore or the higher-grade ore and then also completing the stockpile loss so you're not going to be mining any fresh ore. What happens after you've completed that process, it sounds to me like you would still have a pretty big pre-strip.

So, what will happen -- when is the last date you could actually start that pre-strip to make sure that you had uninterrupted order flow to the plant?

Doug Reddy -- Chief Operating Officer

So, just to clarify, we were already in the midst of a stripping program. So, the stripping program would have been an investment, would have been a negative through the year for RDM when we were hit with the two stoppages. Obviously, for the first half of the year, we're quite negative. We looked at the remainder of the year.

And given that we are pumping out of the open pit, that means that on the bottom of the open pit where we do have access to the in-situ doesn't really occur until we get into Q4. So, we needed -- we knew the process plant was available for operation. We decided to start working with some of the half-gram material that we knew we had on the dumps available or stockpiles available. And we have enough for about two years of production of 0.5-gram stockpile material.

So, that is the short-term plan while we work through an overall approach to how we would look at strategically being able to transition back from doing stockpiles to doing -- resuming the stripping program and resuming full operations. So, I'm really only elaborating on what we're looking at for the remainder of this year, while we're still investing in the TSF raise and then the next TSF raise and the vacuum cyclone tailings and the processing of the stockpiles, but we are working on the overall long-term plan as well.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

It allows the mine to roughly cash-neutral during the next few years where we're building Greenstone and the investment can happen after that.

Doug Reddy -- Chief Operating Officer

So, we'll still have to do a strict program.

Kerry Smith -- Haywood Securities -- Analyst

Right, right, right. No, I understand that. So, as I understand it, though, the dewatering would be done by the end of this year, the raise on that --

Doug Reddy -- Chief Operating Officer

It should be done by -- I believe it's early Q4.

Kerry Smith -- Haywood Securities -- Analyst

OK. Early Q4. And when does the rate finish on the dam?

Doug Reddy -- Chief Operating Officer

Late Q3 for the current rates, but we're already -- we did the initial -- as soon as we achieve the required freeboard on the TSF, we resume the operation of the plant. So, we will finish off the rest of the current rate, and we've already been in permitting for the next raise, which we will immediately do rather than waiting. And then the vacuum cycle and tailings, essentially, what it does is it optimizes the volume of material going in. So, we're putting in less water, more tails and it gives us more bang for our buck in the TS.

It's something that we're looking at all the mines that have TSF.

Kerry Smith -- Haywood Securities -- Analyst

And the second TSF raise, would that be the last raise you would need for the current reserves?

Doug Reddy -- Chief Operating Officer

That would be the last raise that we're permitted for the current TSF. Our approach would be to no longer look at permitting a conventional TSF. We would look at doing thickened and vacuum tails to a dry stack facility instead of doing TSF. TSF has become more and more onerous to be permitted in -- especially in [Inaudible].

Kerry Smith -- Haywood Securities -- Analyst

Right. OK. OK. So, when is the last quarter that you would need to start to pre-strip then to dovetail into the two years of ore that you've got remaining in the stockpiling, Doug?

Doug Reddy -- Chief Operating Officer

Putting it in another way, are you asking how long can we process stockpiles before we need to be resuming stripping? It's over two years from now if we chose to just do stockpile.

Kerry Smith -- Haywood Securities -- Analyst

I was asking it the other way. How long will it take to do the pre-stripping to give you access to ore before the two years of stockpile material runs out?

Doug Reddy -- Chief Operating Officer

The stripping does give access to ore, but it doesn't -- it's still a net negative. So, while we're doing a stripping campaign that does give access to ore, but it allows us to be able to get the benefit. Essentially, stripping campaign will go for -- that we interrupted would go for another year.

Kerry Smith -- Haywood Securities -- Analyst

OK. OK. So, the plan is pre-stripping finished before the stockpile runs out and you're planning to run two years stockpile go, and then you'd be milling fresh ore.

Doug Reddy -- Chief Operating Officer

That is the replanning exercise that's currently underway, and we're looking at what the optimal way to do it and what our options are to be able to run as long as we need to mitigate cash outflow, keep it as cash neutral as possible, and to resume at the right time.

Kerry Smith -- Haywood Securities -- Analyst

Right. Ok. OK. And, Doug, can you remind me what the targeted recovery is for Santa Luz for the resin circuit?

Doug Reddy -- Chief Operating Officer

Santa Luz, our target with optimal blend was 84%. We've gotten up to 82%. We're still working on trying to get it up to 84%. We may temper our expectations at the end of the day.

It is scaled up from the pilot plant to the industrial scale. We do find it a challenge to get quite as high as we originally influenced planned. But we're not done yet. We have to do all the fixes and then stabilize the blend at the same time with full throughput.

Kerry Smith -- Haywood Securities -- Analyst

OK. OK. And with the share price probably -- the company has been probably one of the worst performers in the sector. Has there been any insider buy-in lately?

Doug Reddy -- Chief Operating Officer

Personally, yes.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

I bought some in the summer, earlier just before the summer.

Rhylin Bailie -- Vice President, Investor Relations

Yeah. I know a bunch of the spot sort of back when it was around $750, thinking that was below -- I can get back to you on that, Kerry. I get quarterly updates from my Corporate Secretary, but I haven't had anything recently.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

It was a bunch of buying around $7 and $6.

Pete Hardie -- Chief Financial Officer

Yeah, for sure. Right. OK. And there's already carry for many -- as Christian mentioned, many of us around the table have been around since the very beginning.

There is already a very high level of insider ownership, especially compared to our peers. We probably, compared to our peers, have the highest level of insider ownership.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

And at the beginning of the year, we implemented an employee share purchase plan, where we can buy shares as well on an ongoing basis, and that is now implemented. I believe, 81% of corporate staff are doing it.

Pete Hardie -- Chief Financial Officer

OK. Great. Yes, great. Thank you.

Operator

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

Mike Parkin -- National Bank -- Analyst

Hi, guys. Can you just comment on the equity portfolio? Are you seeing that as a potential source of capital to fund Brimstone or is it more of a long-term holding?

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Yeah. I mean, the equity portfolio consists of everything from Solaris to I-80 to Bear Creek, to Pilar, to Sandbox. There might even be more in there, but a whole bunch of names, obviously. And we've been supportive shareholders and spinning out a number of those companies along the way.

And they are, as Pete, I think, described, part of the levers that are available if need be. They're not necessarily going to be our primary certainly, if their gold companies, our primary source of funds, but they're there if need be. I mean, the -- most of them are not core holdings, they would come from spinning out or selling the company, but we're also supportive as well.

Mike Parkin -- National Bank -- Analyst

OK. And then we heard from [Inaudible] this morning having an impact on their projects with respect to crane operators in the second quarter. Did you guys experience that as well at Greenstone?

Doug Reddy -- Chief Operating Officer

Yeah. We did experience the crane operators and corporates going on strike. We had a recovery plan that made up the difference. I think the crane operators affected us more, but that's all behind us.

We did double up on ships and made other adjustments that we were a matter of a couple of weeks delay. The recovery was in the order of $2 million to $3 million to be able to make it all back on that material. Very proactive in addressing it.

Mike Parkin -- National Bank -- Analyst

On the Greenstone contingency budget team, can we get an update on -- I think it was around $175 million. Are you proportionately through that as you are as percent complete? Or is that tracking at a greater rate than the percent completion of the project?

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Yeah. That overall contingency, which increased when we put out the original budget, it's about $180 million. And probably not a bad way to think of it is it's kind of proportionately being used up and allocated as we move through. And we're also finding offsetting areas such as leasing and other areas of financing of small things like some of the infrastructure is actually going to be handled by either local municipality or the first nations in that.

So, between the contingency and that, we're actually tracking nicely. And we are expecting to use it as we move through. That's what it's there for. And certainly, with this inflation, we are tracking roughly in line, I think, with the project.

Mike Parkin -- National Bank -- Analyst

OK. That's it for me, guys.

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Thanks, Mike.

Rhylin Bailie -- Vice President, Investor Relations

All right. Thank you. We're over the hour, so I think we're going to wrap it up. Do you have any closing remarks, Christian?

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

I think I kind of made them earlier, but just again, a big thank you to everyone, including all the analysts, all shareholder supporters, and the team here. Really enjoyed it so far. I'm going to just love watching the ride as it goes forward, and I'll be a supportive shareholder here, too. So, thank you again, and that's it.

Rhylin Bailie -- Vice President, Investor Relations

Thank you, Christian. Thank you, everybody, for joining us today. Operator, you can now conclude the call.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Rhylin Bailie -- Vice President, Investor Relations

Ross Beaty -- Chairman

Christian Milau -- Chief Executive Officer Chief Executive Officer and President

Pete Hardie -- Chief Financial Officer

Doug Reddy -- Chief Operating Officer

Anita Soni -- CIBC World Markets -- Analyst

Wayne Lam -- RBC Capital Markets -- Analyst

Scott Heffernan -- Executive Vice President Exploration

Kerry Smith -- Haywood Securities -- Analyst

Mike Parkin -- National Bank -- Analyst

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