Equinox Purchases California Gold Mine for US$158 Million

Equinox Gold (TSXV:EQX,OTCMKTS:EQXFF) has moved towards becoming a gold producer with its US$158-million purchase of the Mesquite open-pit gold mine in California from New Gold (TSX:NGD,NYSEAMERICAN:NDG), the Canadian firm announced on Wednesday (September 19).

Equinox reported that the Mesquite mine produced 64,900 ounces of gold at an all-in sustaining cost of US$864 per ounce during the first half of 2018, and also has a cost guidance of US$1,000 per ounce to US$1,045 per ounce for the year.

“The Mesquite gold mine will bring immediate production and cash flow to Equinox Gold from a well-established operation in an attractive mining jurisdiction,” said Christian Milau, CEO of Equinox Gold.

“Mesquite is the perfect fit for our portfolio of gold assets at this stage of growth and advances our strategy of becoming a major gold producer over the next few years,” he added.

This new acquisition will add to the company’s existing portfolio, which includes the 136,000 ounces a year construction-stage Aurizona gold mine in Brazil and the Castle Mountain project in California.

“In 2019, Equinox Gold will own and operate both the Mesquite and Aurizona gold mines and have substantial near-term growth from development of Castle Mountain,” Milau said.

The company noted that Mesquite’s gold deposit has approximately 1.13 million ounces of proven and probable reserves with an additional 1.18 million ounces of measured and indicated resources as of December 31, 2017.

These numbers represent a 25 percent and 40 percent increase, respectively, to Equinox’s current reserve and resource base. 

As per the agreement, Equinox will indirectly acquire all the outstanding shares of New Gold’s subsidiary Western Mesquite Mines for a cash consideration to New Gold of US$158 million. 

Completion of the acquisition is expected to occur during the fourth quarter of 2018 and is subject to customary closing conditions, including closing of the financing and receipt of certain regulatory and other approvals.

For New Gold’s part, the company states that the sale will allow the miner to crystallise “several years’ worth of future free cash flow.”

“Mesquite has generated significant value for New Gold, averaging more than 135,000 ounces of gold per year over the last ten years since Western Goldfields, a predecessor to New Gold, brought the mine back into production,” stated Renaud Adams, president and CEO of New Gold.

“On behalf of New Gold, I would like to thank the Mesquite team for their tremendous contributions to New Gold’s portfolio of assets, and we wish them continued success as they join the Equinox team,” he added.

New Gold plans to use the funds from the sale to strengthen its balance sheet and enhance the overall financial flexibility of the company.

As of 1:31 p.m. EST on Thursday (September 20), Equinox Gold was down 5.71 percent following the acquisition news, trading at C$0.99. Meanwhile, New Gold was down more than 10 percent in Toronto, trading at C$1.31.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.