Equinox Gold Corp. (NYSE:EQX) Q3 2022 Earnings Conference Call November 3, 2022 10:30 AM ET
Company Participants
Rhylin Bailie – Vice President of Investor Relations
Greg Smith – Chief Executive Officer
Peter Hardie – Chief Financial Officer
Doug Reddy – Chief Operating Officer
Conference Call Participants
Dalton Baretto – Canaccord Genuity
Wayne Lam – RBC
Mike Parkin – National Bank
Anita Soni – CIBC World Markets
Operator
Thank you for standing by, this is the conference operator. Welcome to the Equinox Gold Third Quarter 2022 Results and Corporate Update. [Operator Instructions] The conference is being recorded. [Operator Instructions]
I would now like to turn the conference over to Rhylin Bailie, Vice President, Investor Relations for Equinox. Please go ahead.
Rhylin Bailie
Thank you, operator and thank you, everybody, for joining us this morning. We will, of course, be making a number of forward-looking statements today. So please visit our website and our other continuous disclosure documents on SEDAR and on EDGAR to read all of those cautionary notes.
I will now turn the call over to our CEO and President, Greg Smith.
Greg Smith
Thanks, Rhylin and thanks, everyone, for joining us today. On the call with me is our COO, Doug Reddy; our CFO, Peter Hardie; and our EVP of Exploration, Scott Heffernan; and of course, our VP of Investor Relations, Rhylin Bailie.
I know most of you on the call are familiar with the company. But for those that aren’t, Equinox is a diversified Americas-focused gold producer and with our Santa Luz mine now in commercial production, we have 7 producing mines and 4 growth projects, including our large scale Greenstone joint venture projects in Ontario which is in construction now. Just a reminder, we announced the CEO change in August and so this is my first quarterly call since taking on the role in early September. I’ll start with a broad overview for the quarter and then turn the call over to Pete and Doug for more details.
We expected increase in gold production through the year. And during the third quarter, we did see a meaningful increase with production of over 143,000 ounces of gold which is a 19% increase from Q2 and a 22% increase from Q1. That said, we also experienced some operating challenges at our Los Filos and Aurizona mines and a slow start at Santa Luz that impacted production. This, in addition to inflationary cost pressures and an inventory write-down of Los Filos, resulted in lower production and higher costs than we had planned. With consolidated cash costs in the third quarter of $1,400 per ounce and all-in sustaining costs of $1,749 per ounce.
We are addressing the operating challenges at Aurizona and Los Filos and we are making progress. However, production in Q4 will also be affected. And looking forward, we now expect gold production for the year to be approximately 540,000 ounces. We are seeing inflation start to ease, particularly in Brazil but we also see inflationary cost pressures persisting through Q4 this year. As a result, we expect our all-in sustaining cost to exceed the upper end of our guidance of $1,530 per ounce by about 5%. Pete and Doug will provide more information on our Q3 operating results and financial results shortly.
On to our projects. During the third quarter, we continued with commissioning of our new Santa Luz mine in Brazil and we announced commercial production commencing on October 1. This makes Santa Luz our seventh producing mine. We also advanced an updated feasibility study for the Los Filos mine during the third quarter. And in October, we filed a technical report outlining the potential expansion of Los Filos through the construction of a 10,000 tonne per day CIL plant which would complement the existing heap leach infrastructure.
The study confirms that Los Filos could grow to be a large-scale, long-life mine with peak average annual production of over 360,000 ounces of gold per year. However, we have no immediate plans to proceed with the expansion. In part, this is due to the capital needs at our other projects and primarily Greenstone but also due to the continued risk of community blockades, the most recent of which occurred in September.
On to Greenstone. The team has made significant progress during the quarter and construction continues to go very well. I was on site with our analysts and other stakeholders in September and the site is very impressive. I encourage everyone on the call to go to our website and you can check out the photo gallery there. Overall, we’re now over 57% complete and Eric and his team have successfully executed on the critical path with major components being shipped on time, including from China in October and the building enclosures are progressing well for the year-end and for the winter work.
I’m very pleased to confirm the project continues to be on schedule and on budget. Finally, as was discussed on the Q2 call, we did amend our credit facility during the third quarter which termed out our debt, increased our total available credit and reduced our overall interest rates.
With that, I’d like to hand over the call to Pete to run through our financial results.
Peter Hardie
Great. I’ll start with our operating results. We continue with a strong safety and environmental practices in Q3 with no lost time injuries for the quarter, total recordable injury frequency rate of 1.10 and a significant environmental frequency rate of 0.71. We’re obviously proud of those figures and being able to continue to operate safely.
During the quarter, we sold 143,000 ounces of gold at an average realized price of $1,711 per ounce for revenues of $245 million. Our mine operating costs were $189 million which translates into cash costs, as Greg mentioned, of $1,400 an ounce and all-in sustaining cost of $1,750 an ounce. We continue investing in our operations. We spent $41 million on sustaining capital. That’s primarily waste stripping at Aurizona and Los Filos and $132 million in non-sustaining capital. That’s primarily spending on Greenstone construction of $111 million as well as Santa Luz, the mine we just brought into commercial production, we spent $10 million there.
On our next slide, you’ll see our consolidated financial results. Compared with Q3 2021, the decrease in average gold price that I mentioned, combined with higher cost, compressed our margins. On the revenue side, we’re down $70 an ounce compared to Q3 last year. On the cost side, examples of the inflationary pressures driving up our consumables costs compared to Q3 last year included in the USA, fuel is up 60%, cyanide is up 40%, lime is up 27%. In Mexico, cyanide is up 36%, power and lime were up between 15% and 20%. In Brazil, all of those items are up about an average of 40% with the exception of power which decreased a little.
All of that said, we are quite happily seeing signs — early signs of inflation having peaked or even starting to reduce a little in Brazil. We obviously hope that, that continues and we hope it spreads to all of the other regions where we operate. That compression in margin is demonstrated by the decrease in income from mine operations that we had for the quarter of $7 million from the $54 million we had in Q3 last year.
EBITDA was $30 million, that’s $26 million on an adjusted basis and the company had a net loss of $30 million or $0.10 a share for the quarter. On an adjusted basis, it was similar at $26 million and $0.09 a share. Cash flow from operations before changes in noncash working capital was $15 million or $0.05 a share. Our liquidity and capital position at the end of the quarter, we had cash of $142 million. Our net debt was $584 million. I’ll note that we drew an additional $100 million from our revolving credit facility in October and that leaves us with $127 million undrawn and the $100 million accordion feature still in place. As to our investments, we had about — they were worth about — the market value was about $220 million at the end of October.
On the next slide, what does that mean for overall funding status? We have about $435 million left to fund at Greenstone that’s our share of the remaining construction. And we expect to fund that using future cash flow along with the sources I just outlined. We always continue to try and optimize our capital structure. We demonstrated that earlier this year by refinancing our revolving credit facility. I’ll note that in late October, we filed a preliminary base shelf prospectus with the exchange that when finalized will be effective for 25 months and allow for raising up to $500 million through various sources of capital. We see this as a very normal course for a company the size of Equinox.
Years ago when Equinox was a single asset developer, we did have a base shelf in place. Since then, the company embarked on a rapid growth strategy. We completed through acquisition and merger transactions. And now that we’ve had a period of relative calm from that activity, we’ve had time to put a base shelf prospectus back in place. We see that as, again, as being normal course and especially prudent given our current economic environment. As part of that prospectus, we’re also assessing the implementation of at the share — or pardon me, at the market share facility. We hope to finalize the prospectus in November.
I will turn the presentation over to Doug for a discussion of our operations.
Doug Reddy
Thanks, Pete. On operations for the quarter, Mesquite performed well in Q3 as we finished mining of Phase 2 of the Bernie pit and we benefited from a large amount of ore that was stacked in Q2 and came under leach in Q3. Mining at Mesquite is now transitioned to stripping and brownie Phase III and the Vista East pit which will provide ore as we go into 2023. The mine celebrated pouring its 5 million ounce in over 4.3 years with no lost time incidents in the quarter as of the quarter.
At Castle Mountain, crushing agglomeration has been providing better percolation and better recovery but we needed to increase the crushing capacity so that all of the ore can be crushed and agglomerated. In Q2, we had lower tonnes being stacked and there were mainly run-of-mine or no crushing. Therefore, we had lower ounces coming out in Q3. So the transition as we move from leaching of run of mine ore to putting all ore through crushing and agglomeration will take several months as we gradually bring on new cells that are crushed and agglomerated and eventually turn off the run of mine cells and we’ll begin to see the overall results as that happens.
At Los Filos, both Guadalupe and Los Filos open pits were under reconciling on grades. In part, they had gains in more tonnes of low grade but overall lower average grade overall. And they fell behind against the mine plan. So we’re currently working on revisions to the mine plan to adjust for that. At Guadalupe, we also had some high sulfur and copper content ore which has a lower recovery. That has been — essentially slowed down the recovery that we can get from that material. We are drilling at the moment to look ahead to see how localized this has been and to anticipate how we have to adjust the mine plan to compensate for areas where we will need to mine through a high-sulfur, copper content ores.
In Bermejal underground, we had slower development and slower mining rate than anticipated in the quarter. We did have an improvement during Q2 but it’s slowed back down again in Q3, essentially providing fewer tonnes than expected and so we are doing an operational review on Bermejal. Overall, we will expect the Los Filos will be the lower end of production guidance for the year. At Aurizona, we had an extended rainy season. That made it difficult to access higher grade areas at the bottom of the open pit. And this meant that the operation relied on processing of lower grade stockpiles for longer than usual.
Typically, 2/3 of our mining is done in the second half of the year as we come out of the rainy season, go into the dry season. So we are doing some catch-up now. The contractors brought in an additional excavator and 5 more 777 trucks. We’re also looking at bolstering the fleet of articulated trucks that are on site with an additional set of trucks. So we can continue mining into the rainy season and get caught up on what is a slower overall ore and waste movement in the second half of the year than originally intended. So we are doing catch-up but we do expect that Aurizona will be below on production guidance for the year.
At Fazenda, the mining is by open pit and underground. So the increase in the open pit mining this year has given a chance for the underground to catch up. So we’ve been able to do additional development and bring more stopes online. So that’s worked out well. Plant throughput and recovery has been increased over prior quarters. And overall, Fazenda is on track to achieve the upper end of production guidance for the year. And I note that they’ve achieved 1 year with no lost time incidents, so a good result at Fazenda.
At RDM, we continue processing low-grade stockpiles but we’ve also started work in the open pit this quarter. Gradually, we will restart in situ mining in the open pit as we go into 2023. The mine is on track to achieve the upper end of production guidance and the TSF raise is scheduled for completion this month. At Santa Luz, we declared commercial production effective October 1 and the resin has been working well but we continue working on optimizing recoveries and on increasing throughput. So for the quarter — for Q3, we had an overall recovery of 70% and throughput was 85% of the design capacity of 7,400 tonnes a day. But we still do have challenges on maintaining the blend of total organic carbon, at the same time on increasing the throughput and also working on increasing the recoveries over where we currently are at.
Moving on to Greenstone. The Greenstone project is tracking on time and on budget. As noted, overall project is 57% complete and that compares to — sorry, 35% complete at the end of Q2. So really good progress during the summer months. The team has completed over 1.8 million hours with no lost time incidents. And during the quarter, we had four 793 trucks and a PC 5,500 excavator. They were assembled in the quarter and mining commenced ahead of plan and the team has moved over 550,000 tonnes so far.
Just going to the next 2 photos. All of the buildings are to be enclosed in Q4 with the exception of the East end plant — the East end of the plant building which is scheduled to be enclosed in Q1. So they’re doing really well. That is on schedule, that is as planned. All of the major items are arriving in the next 2 quarters. And I note that the natural gas pipeline is now complete. The MTO relocation is now complete and we’re on schedule with the tailings storage facility and ahead of schedule on the highway relocation work. Those, as per our schedule, the work on those will be suspended during the winter months and we’ll pick them up again in the spring and they will be carried to completion.
So the site photos, they show great progress by the construction team. And as Greg noted, you can see up-to-date photos on our website and also on the Greenstone project website. So, back to Greg.
Greg Smith
Thanks, Doug. I’ll just make a few quick concluding remarks. Just going back in time a little bit here, Equinox is still a young company. We launched this company in 2018 with 2 development projects, no production but we did have an ambitious goal and that was to build a gold company of scale with significant leverage to the gold price which we believed was going to do well over the coming years.
And — our strategy at the time included both acquisitions and internal development. We executed on this first through our acquisition of Mesquite and then the development of Aurizona, and then the acquisition of Leagold and the development of the first phase of our Castle Mountain mine. And the strategy worked very well. In 2020, our shares significantly outperformed as the gold price rose to over $2,000 an ounce. At that time, we were then able to buy Premier Gold which, of course, delivered us the large-scale Greenstone gold project which we’re building now. But leverage works both ways. In these current inflationary conditions and with this sort of decreasing and stagnant gold price, it’s challenging for all gold companies but particularly for higher cost, high-growth companies like Equinox that are spending capital to grow and build our mines. And so in this macro environment, our strategy underperforms.
Now we’ve got to live with this to some extent and stay focused on the task at hand which for us is delivering on construction at Greenstone, on time and on budget and also performance at our existing operations. We did plan to do better at our operations than we did in Q3 and we intend to do better. We have a dedicated team at Equinox, supportive shareholders, a world-class project at Greenstone with Orion Mine Finance as a great joint venture partner. And we’ve got a portfolio of assets that are going to support a much higher production profile as we continue to expand and develop them. So I’m very confident in our future and we’re going to continue working very hard to build a great company here at Equinox.
I think with that, I’ll conclude and pass it back over to Rhylin for Q&A.
Rhylin Bailie
Thanks, Greg. Operator, can you please remind people how to ask a question?
Question-and-Answer Session
Operator
[Operator Instructions]
Rhylin Bailie
Thank you. As we wait for people to queue up, I’ll take a question from online. When you announced the Los Filos update, it made it quite clear that you weren’t going to build the expansion right now and that you were prioritizing Castle Mountain. How are the expansions going at Castle Mountain and Aurizona?
Greg Smith
Well, why don’t I take the Castle Mountain question first. Castle Mountain, we did develop the Phase 1 operation there which is a fairly small-scale operation, primarily in place in order to advance the Phase 2 expansion which would take production to over 220,000 ounces per year. So earlier this year, I believe in March, we did file a plan amendment or let’s just call that our permit application to the regulators. And since that time, we have received notice of completion of that plan amendment from both the state and the county regulators. We’re just waiting on the BLM and we expect to have their conclusion by the end of this year.
Then that will set the stage for determination of whether we’re doing just an environmental assessment or a full environmental impact statement. We should know that early next year. And then the time frame to complete that would have us ideally permitted sometime in mid-2024 with an outside date of mid-2025. At that point, we would hopefully look to start that expansion at Castle Mountain and increase production there.
Rhylin Bailie
And Doug, Aurizona?
Doug Reddy
I’ll take Aurizona. So on Aurizona, after we finished the PFS, we had been drilling during 2021. So we’ve continued working towards a feasibility study, while we were also putting in permit applications for 3 portal locations. So we are working towards a mineral resource, mineral reserve update for Aurizona underground. We have received permits for the 3 areas where we want to do the portals. We are — did a trade-off that confirmed our selection of the West end portal location. Essentially, our mining will have that, that area is available at the end of Q3 this year. So we will have the ability to be able to start with development of a portal in Q4 of this year.
Greg Smith
Q4 of next year.
Doug Reddy
Sorry. Q4 of next year. So it’s progressing really well. We’re seeing overall a good result — and at the same time, we continue exploration in the area around Aurizona.
Rhylin Bailie
Perfect. Thank you. Operator, please go ahead with the questions on the phone.
Operator
The first question is from Dalton Baretto with Canaccord Genuity.
Dalton Baretto
Greg or maybe Peter, I want to start kind of with the elephant in the room here. On my numbers, it looks like at spot prices, there’s still a reasonable funding gap even after considering your stakes in Nati and Solaris. You guys mentioned the shelf, you mentioned the ATM. I was just wondering what other options are available to you? And kind of how would you rank all these options in terms of deploying them?
Peter Hardie
I’ll start. Greg can feel free to jump in any time. option number one is cash flow. When we did our guidance for the year, cash flow and it’s part driven by seasonality is weighted into the second half of the year. And we underperformed for the quarter. And as Greg mentioned, we expect to come in below our guidance for the year. Our expectation is that, that cash flow will push into next year. We’re going through our budgeting now. And obviously, we’ll confirm all that when we do our guidance for next year. So option number one is cash flow. We generated lots of it last year. We expect to return to profitable and good margin production going forward.
We have our existing treasury of the $142 million at the end of the year, obviously, that is immediately available. And we have our undrawn revolver portion of $127 million. Following that, our next most liquid source of capital, our investments. We’re strong and supportive shareholders of those companies and have been for some time. That said, that is a lever we can pull. Following that, with respect to most available or immediately available, we have the accordion feature on our revolving credit facility. That’s an additional $100 million. That requires an additional approval by our lenders but it’s set and ready to go. And those approvals assuming everything is in order with the company, can be done quite quickly. And so those are our most ready and immediate sources of capital.
Dalton Baretto
Okay, great. And just maybe switching gears to Greenstone. And I’m looking back at the notes from the September slide presentation that I took. So first, on the schedule, — so at the end of Q2, you were at 35% versus target of 40%. And at September 30, you were supposed to be at 60% but on October 21, you were at 57%. I’m just wondering, you’re still kind of lagging behind but you keep saying that you’re on schedule. I’m just wondering when that delta is going to be made up?
Greg Smith
I mean I can jump in here. Dalton, I don’t think our numbers agree with your numbers. I think we are — we did the re-baseline in this summer. And I think we’re tracking very closely to that. Pete’s waved me down here.
Peter Hardie
Yes. Dalton, I was at site with [indiscernible] SVP Projects a week before last. What we saw was that we are at most 0.5% behind currently the schedule.
Doug Reddy
If you want, we can follow up, try to reconcile to see where the misunderstanding may be there but we don’t believe that those numbers jive with what you’ve mentioned.
Dalton Baretto
Okay, fair enough. I mean we’re only halfway through, so there’s probably some give and take there. But just kind of in that same vein but on the CapEx side of things, also on the site visit. At that point in time, you had 55% of the CapEx contracted but you only had 1/3 of your contingency left. And now you’ve got 67% committed. And I’m just wondering how much of the contingency is still left?
Greg Smith
I mean, Dalton, again, I think we talked about this on the site visit. When we were showing consumption of contingency on the site visit forecasting to the end of the year, that was us taking our forecast, allocating contingency to the various buckets, assuming full construction complete cash out the door. So to be clear, we have not consumed that much of our contingency at that time. The — and the forecast at the time is also based on trends that the team at Greenstone and our advisors determine where prices are going. And those trends can change over time. And I think in some cases, we have seen some easing which is obviously a good thing. But again, our CapEx, including our contingency, is tracking very well against with what we’ve publicly reported we’re going to spend. And we don’t see any issues again on making budget at this time.
Peter Hardie
Yes. And I’ll add 1 final point to that which is when we report our expected spend and budget at Greenstone, that’s a gross cost. It doesn’t include what you might call typical offsets such as gold produced during the preproduction period or pre-commercial production period and other similar items. So we track against gross budget. And then if we have pickups along the way, those are obviously pluses to help reduce the budget.
Operator
The next question is from Wayne Lam with RBC.
Wayne Lam
Just wondering at Los Filos for the update fees. Can you comment on what was driving the lower reserve grade there? And then just wondering in terms of potential optimization on costs, can you outline some of the things that you’re looking at? And is there a potential scenario where you might be able to — or where you might evaluate the potential to put the mine on care and maintenance during the Greenstone construction period?
Doug Reddy
So in regards to the lower average grade at Los Filos, you’ll note that the reserve gold price is lower than it was before, hence it brings in more material. And at the Los Filos open pit, you rapidly add a lot of additional lower grade material which ultimately becomes the raw or uncrushed ore that goes to the leach. We also did resource model reviews which have — we’ve taken a more conservative approach and some of the deposits to be able to account for some reconciliation issues that we’ve had in the past. So we believe that those are prudent measures and it brings down the average grade overall. You did 3 questions in 1.
Peter Hardie
Cost optimization and then care maintenance possibilities.
Doug Reddy
Yes. So on cost optimization, I think that’s a 2-part question for — obviously, we’ve — the site has been working hard to see how they can use less consumables wherever possible. They have some approaches that they’ve been taking in regards to pumping and managing the large leach pads. Obviously, cyanide cost being up is 1 of the hugest impacts for us. But they’ve been going through and trying to work on essentially the reduction in the consumables that we use. On — I think the big impact we’ve had is like going from — in Q3, having less ounces than we anticipated, means that overall cost per ounce basis, it’s hit us hard. And some of those ounces that were supposed to come in Q3, they’re still going to come, they’re just going to come in Q3 — in Q4 and then into Q1 of next year.
Peter Hardie
Yes. Another item, Greg mentioned that we are in relative terms still a young company and other initiatives that we have in place is a global procurement strategy. We have a new executive at Equinox. He started over the summer. He’s in charge of supply chain and he has started visiting those opportunities to use the economies of scale and the larger purchasing profile that the company has to help bring down those costs.
Greg Smith
Yes. And on your third question regarding care and maintenance, I mean we have no current plans to put any of our operations on care and maintenance. Obviously, Los Filos has been a challenge for us in terms of production and operations over the last couple of years. And we’ve continued to invest in Los Filos, both in the Guadalupe open pit and in the Bermejal underground. We’re in our 2023 budgeting process right now. We are looking at mine plans at Los Filos that could see us deferring some of that capital into the future, particularly given we’re not going to be building that CIL plant anytime soon. And so that can take some of the edge off the capital investment at Los Filos over the next year or 2. But as of now, no intention to go into care and maintenance, no.
Wayne Lam
Okay, perfect. And then maybe just on the updated revolver. Can you help us understand any of the covenants in terms of net debt or interest coverage? And what are the conditions to drawing on the accordion feature?
Peter Hardie
So with respect to covenants, they’re typical of a company our size that is growing and maturing. We’re well on site with our covenants for Q3, we expect to be well on site for Q4. With respect to the — and onward — with respect to the accordion, there is nothing else that’s required for the company other than to make a request for it. And assuming that we’re — we remain in compliance with, obviously, the agreements, the credit facilities — or facility pardon me.
Wayne Lam
Okay, great. And then maybe just last 1 at Santa Luz. Can you kind of comment on the performance and the recoveries as you ramp up and scale there? And then how much more improvement should we expect to see over the coming quarters?
Doug Reddy
So yes, obviously, we had hoped that going from a pilot plant through to industrial scale would be a lot smoother but resin is not — I think we’re the only resin operation in all of the Americas, who are dealing with — or with the organic carbon in it. And as we started up, we found that maintaining a consistent blend is critical but we have variable ore. So we have been trying different feeds to see what works better. And it is the time to be to working it through. So 70% in Q3 was what we achieved and we’re essentially looking at Q4 and I’m just planning on 70%. We do see that we should be up around 74%, 75%. Overall target, I’d say — I’m saying that if we can get up to 80%, that would be good. I have a tough time seeing getting to 84%. It’s just very difficult to get there with the overall ore body we have.
Total organic carbon is the key item. There are a few other elements that are issues for us but it’s really the carbon that causes the issue.
Operator
The next question is from Mike Parkin with National Bank.
Mike Parkin
One question on Greenstone. You mentioned on the site tour, the milling closure was a little delayed. You’ve got kind of a good chunk of it enclosed. It looks like the pictures continue to show progress there. What’s the latest in terms of expectations of having the full mill enclosed?
Doug Reddy
The West end of the mill building is done. The grinding area will be the structural steel, well, we just put in the e-room and then the structural steel will be going up. The mill building will be enclosed in Q1 of next year. So essentially, the East end remains open into Q1 and then it becomes enclosed. All the rest of the HPGR, the crushers, they’ll be enclosed prior to Q1 of next year.
Greg Smith
And Mike, we had always intended and I think we did talk about this on the site tour that the grinding end of the mill building would be enclosed in Q1 next year, that would be the last piece.
Doug Reddy
As the last pieces of the ball mill arrive on site.
Mike Parkin
Right. Okay. And then on the crushing you’re adding in Castle Mountain, is that equipment you’re purchasing? Or are you using like a contractor for that?
Doug Reddy
We have a contractor. We are actually reassessing our arrangement at the moment and — because we know that we need more capacity than we currently have. We’ve increased the capacity. But to be able to achieve pull-through first, we know we need to do a bit more. So that’s going through a review at the moment. But first thing was to see the crush and the coloration was a good improvement and it’s faster and gives us an overall recovery improvement because our leach cycle is actually getting — being achieved whereas with the run of mine, the leach cycle was so long that you had to have huge areas under leach. So it is an overall improvement but we’re still working on it and it will take time to transition everything over. But it’s a small operation. We saw this as being a valuable way to start with Phase 1, while we’re also doing the permitting of Phase II. So it gives us a good opportunity to learn and to also do some — as you’re aware, we’re processing dump material at the moment. We’ll also be shifting towards processing some in situ or so we can do tests with that as well.
Mike Parkin
So is that something you’re looking to add to a contractor or actually purchase the crushing equipment yourself?
Doug Reddy
We’re looking at both at the moment. That we’re doing the trade-offs, currently a contractor but we may just switch.
Mike Parkin
Okay. And do you guys have a sense of like — I don’t have the numbers right in front of me but if you went 100% crush, where your expected recoveries would shift to?
Doug Reddy
We do intend on shifting 100% crush and agglomeration. Overall — I mean, talking overall, not just dump material but everything, the anticipation is that total recovery would be in the low 70s. But we consider that we have an operational recovery that would be around 67% and that you get the last 7% as a residual leach as you’re leaching the lifts that are above those initial lifts and during the full life of the mine. So the way I think about it is 67% plus the 7% comes out over time.
Mike Parkin
Okay. And you’d be looking to have a 100% crush capacity sometime in 2023?
Doug Reddy
Yes.
Mike Parkin
Okay. And then I noticed the accounts payable is up about $24 million quarter-over-quarter. Is that primarily tied to Greenstone’s construction or other factors?
Doug Reddy
Yes, primarily.
Mike Parkin
And then just following up on the RCF, like just wondering why the accordion option would be kind of a last resort in that order of priority given the interest you’ve expressed in maintaining our equity holdings in the past? Does it carry a different interest rate?
Peter Hardie
No, I was speaking more in terms of immediately available capital like with respect to liquidity and just trying to — I think the question was what order and liquidity would we do it? That’s the order that I — hence, the order I mentioned.
Operator
The next question is from Anita Soni from CIBC World Markets.
Anita Soni
A couple of questions. Firstly, on Greenstone and the CapEx. When you’re on the tour on September 7, I guess it was or 8 and kind of well into the quarter at that point, you had said that you would spend about $210 million. Just looking at the mine tour disclosures that you had given us for capital spend and you ended — only ended up spending $182 million. Is there a reason for the differential and why there was such a vast difference in the spending?
Doug Reddy
I think this mainly relates to the lag time that we have in spend.
Anita Soni
Okay. So as you look at the — okay. So as you look at these bar charts which show a drop off to like $150 million in Q4, we should assume that there is a certain differential or a cascade, a waterfall there, like that there’s a $30 million difference as we go? Or how should we think about the rate of spending?
Peter Hardie
Yes, Anita. That is the case.
Anita Soni
Okay. And then secondly, I wanted to ask for next year, as we think about your budget, when you talk about the 12 months forward in your liquidity available to you and what your projections are, when you’re doing that forecast, could you give us an idea of what costs you’re using? I mean obviously, at the $1,600 ASIC and the current spot price we sit at, unless there is a reduction in the cash cost or the ASIC going forward, it’s going to be — it’s going to put you in a fairly tight position from a liquidity scenario under my estimate. So, I’m just trying to understand what you guys are forecasting and what levers you could pull in order to improve upon your current cost structure? I’m assuming Los Filos and trying to improve grade or the way you mine there would be 1 of them.
Greg Smith
Yes, Anita. This is Greg speaking. As I kind of mentioned in my comments, when you have this, the increase in costs and the sort of decreasing and stagnant gold price, it does result in some margin compression. And we are in — right in the middle of our 2023 budgeting process. And I think it’s fair to say we are looking at scenarios, as I mentioned earlier on the call, where we can maximize cash flow from our assets. And that could include deferring some capital. And then also, as both Pete and Doug mentioned, looking for cost optimization that we can do across our sites. Obviously, it’s a huge focus for us and is part of our funding plan. And so that’s — we’re in the — right in the mix of that right now.
Rhylin Bailie
Okay. We’ve had about 20 questions come in — I’m sorry, are you done Anita? I think so. Okay. We’ve had about 20 questions coming from online, so I’m going to try to group them together in something that makes sense. So we’ll start with Los Filos. Obviously, been underperforming. When do you think you’re going to get into better grades and see it either cash flow neutral or positive? And if you can’t improve performance there, would you consider an outright sale of that asset?
Doug Reddy
I’ll talk about the first part. In Guadalupe and Los Filos, Los Filos was going through a big stripping campaign in the first part of the year. And as we came out of Q2 and into Q3, we started to see the ore coming out of Los Filos. Los Filos open pit, on average, is a lower-grade open pit but very reliable recoveries for that ore. So we benefit as Los Filos open pit comes online. Guadalupe open pit was the hiccup where we got reduction in the ounces — the recoverable ounces coming out of Guadalupe because of a slug of high sulfur and copper content. That’s the one that caused us to stumble on what is higher grade ore that comes out of a portion of the Guadalupe open pit. And with Bermejal underground with the slower development, it is a very vertical deposit in Zone 5 which is a higher-grade deposit than Bermejal underground. We have just tapped into the top end of it. We need a lot more development to be able to be mining on multiple levels to have the mining tonnes per day that we need to really make Bermejal underground work.
So we are getting grade material from Bermejal underground but not at the rate that we needed to be coming from in that mine. So it’s a challenge to both develop and have the tonnes per day that we need and the — basically, that’s — the higher grade material is still — has been coming in Bermejal underground but not at the rate we want. Higher grade material from Guadalupe open pit, we got hit. So I would say we should be looking for that to come in Q4 and Q1. We are drilling ahead to make sure we’re not going to have any other areas with the high sulfur, high copper that we did not pick up in our long-term model.
Greg Smith
This is Greg speaking here. On the question of whether we’d sell Los Filos. I mean it’s kind of a tough one. We’ve sold mines in the past and I like to consider as a commercial company and if there’s opportunities that we think make sense, we’re always going to consider them. But Los Filos is a very large gold system, lots of growth potential, lots of expansion potential and a pretty large production profile long mine life. And as the technical report notes, it’s a good long-term all-in sustaining costs as well. So parting with an asset like that would be very painful for us, I think. It certainly is not something that we’re considering at the moment. And so I think that’s what I would say to that. It’s a big part of our portfolio right now.
And my strong preference would be support the asset and kind of get through this macro environment to be able to expand it and really surface the value there. Obviously, we’ve had challenges to date but that’s an area we’re also focused on.
Rhylin Bailie
Okay. So in terms of the sort of the order in which you would do your funding if you need to, circling back to what Pete said, would you consider a sale of the other assets or sale of your equity investments before you did an equity raise?
Greg Smith
I mean I think it’s — an equity raise at this valuation would obviously be very painful. This is not our first choice. It’s not something we intend to do or want to do. We do have the preliminary base shelf filed. We will finalize that as a base shelf and we are assessing the — putting an ATM facility in place which would give us some optionality and flexibility if we needed it. Obviously, at these prices, it’s not something we prefer to do. There are other levers we can pull that Pete went through. We’ve got obviously other assets in the portfolio that aren’t necessarily core but ideally, our first choice, of course, is our credit facilities and cash flow and cash on hand.
Peter Hardie
Yes. I’ll just add to that, that we’re — everyone in the room is a shareholder. I can speak personally that it’s a substantial — holdings in the company are a substantial part of my own personal portfolio. So from — on behalf of my — well, for myself, on behalf of everyone in the room, shareholders. And our largest shareholder, will note is Ross Beaty, our Chairman. And on behalf of everybody, it’s very much the last lever. We ever like to pull equity. Raising equity is expensive form of capital. And so it’s the last lever that we would ever want to have to pull.
Rhylin Bailie
When you started the company, you have the 1 million-ounce target. Is that still a target? And is this — from a capital allocation perspective, are you better focused on the expansions versus optimizing your assets?
Greg Smith
Yes. I mean I think we had 1 million-ounce target. And I would say that target is and has always been really just an indicator of scale. There’s nothing magic about the number itself. I think Ross has said that in the past as well. But we do still have a plan to grow this company to a company of scale. And if 1 million ounces is the right number, then that’s the number we’ll use. And with Greenstone, Castle Mountain expansion and Los Filos by themselves fully producing, that’s over 700,000 ounces a year. And then that’s before we actually would do Los Filos expansion. If you were to do that, that’s 800,000 plus your Brazilian business. So our current portfolio can support 1 million ounces a year.
We are working toward that. We’re building Greenstone now. We’re permitting Castle Mountain. We’ve done the technical report feasibility study on Los Filos. We’re working on the Aurizona gold underground. So none of that has changed. I think the current environment means we have to be very careful in where we allocate our capital and focus on those areas that are most important. And right now that is getting Greenstone through its construction period. So that — it may take a little longer but we still have that portfolio that can get us to that scale. I think there’s just a tremendous amount of value sitting in these assets. And it’s a situation where we just got to focus on servicing that value over time. Tough market, doesn’t change what we need to do.
Rhylin Bailie
Thank you. Do you have any intention to hedge against rising diesel prices or falling gold prices?
Peter Hardie
I’ll deal with that. On the latter, in relation to gold hedging, we finally are off the gold hedge program that we inherited as part of one of our mergers that ended in September and very happily — we very much believe in keeping the company fully exposed to gold price. So we will not be hedging gold going forward. And then with respect to diesel price hedging, we do — we have no hedges in place against diesel currently. We see diesel is decreasing a little going forward. So we’re not keen on hedging at really what are — have been very close to peak diesel prices, at least we think they are. They’re very difficult to make effective and put in place. We focus instead on hedging of the currencies where we operate the real, the peso and in the case of Greenstone, the Canadian dollar.
Rhylin Bailie
The gold price has obviously been weak recently which causes a squeeze on the margins. What is your view on the long-term gold price?
Greg Smith
Well, I think the gold price is actually doing pretty well given the strength of the U.S. dollar. And I think as long as rates keep going up here and — or indication of rates going up, the U.S. dollar will stay strong and that’s going to put pressure on gold. I don’t think that’s a surprising opinion to anybody. But I also know that at some point, the rates will get too high and then we’re going to be back in a situation where they’re going to have to start easing again. The yields will come down, dollar will come down, that will be positive for gold. So I think, yes, right now, we’re in a situation that is headwinds on gold but I also see it as a situation that will reverse and historically has reversed and that should be very good for gold. And so long term, we’re bullish on gold.
Rhylin Bailie
And one wrap-up question. Brazil elections, do you see any impact on mining in Brazil?
Greg Smith
The short answer is no. I mean, nothing right now indicates that we would expect substantial changes. The previous Luo administration wasn’t unfriendly to mining and I don’t think it will be unfriendly to mining this time either.
Rhylin Bailie
Thank you. At the moment, there are no further questions online or on the phone. So Greg, I’ll turn it over to you for closing remarks.
Greg Smith
I think that’s all I have, Rhylin. I guess I’ll just say thanks again to everyone for attending the call today and you can always reach out to myself or Pete or Doug or Rhylin if you have any other questions. And we’ll talk to you next quarter.
Rhylin Bailie
Thank you, everybody, for joining us today. Operator, you can now conclude the call.
Operator
Thank you. This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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