Equinox closes $1B Brazil mines sale to China’s CMOC

[Ben Graham]

Equinox Gold (TSX, NYSE-A: EQX) has closed the sale of its Brazilian operations to a subsidiary of China’s CMOC Group for up to $1 billion. 

The transaction covers the producing mines of Aurizona, in Maranhao state; RDM in Minas Gerais; and the Bahia Complex (Santa Luz and Fazenda) mines in Bahia state. Equinox received $900 million cash – before closing adjustments – in the deal and is to gain a production-linked contingent payment of up to $115 million next January.

“We expect valuation multiples for EQX shares will benefit from a more focused portfolio of North American gold assets and a stronger balance sheet,” BMO Capital Markets analyst Kevin O’Halloran said in a note on Monday.

‘Streamlined portfolio’

“Equinox now features a more streamlined portfolio of assets, with Greenstone and Valentine as the flagships, and multiple organic growth opportunities including Valentine expansion and Castle Mountain development,” O’Halloran said, citing Equinox’ projects in northern Ontario, Newfoundland and California, respectively.

The Brazilian asset sales come just over 18 months after Equinox’s $1.83 billion all-stock merger with Calibre made it one of the largest gold producers in Canada. Equinox board chair Ross Beaty suggested to The Northern Miner in an interview last year that transactions such as those in Brazil would happen through re-focusing on core operations.

Equinox’ portfolio now comprises the producing mines of Greenstone, Valentine, Mesquite (in California) and El Limon/La Libertad in Nicaragua. Its projects not yet in production include Castle Mountain and Los Filos in Mexico.

Debt repayment

Through the deal for the Brazil mines, Equinox is to immediately fully repay its $500 million term loan, pay $300 million to finish a loan from Sprott and other obligations and pay down some of its revolving credit facility, it said. That will reduce its senior debt to about $580 million, its net debt to $150 million and lower its interest expenses.

“Monetizing the Brazil operations has streamlined our portfolio and transformed our balance sheet,” Equinox CEO Darren Hall said in a release. “Equinox Gold is now well established as a leading North America focused gold producer, with greater financial flexibility to self-fund high return, near term organic growth opportunities and consider capital return initiatives.”

Equinox’ development pipeline could add 450,000 to 550,000 oz. of gradual annual gold output in the coming years, Hall said. An improved balance sheet and consolidated production guidance this year of 700,000 to 800,000 oz. will provide strong cash flow generation, delivering better per-share value for shareholders, Hall added.

Company shares fell 3% to C$21.70 apiece on Tuesday morning in Toronto, valuing the company at C$17 billion ($12.5 billion).