Equinox-Calibre tie up lifts miner to Canada’s fourth largest

[Redator]

The combination of Equinox Gold (TSX, NYSE-A: EQX) and Calibre Mining (TSX: CXB) should move the new company up to the fourth largest gold producer in Canada even as it looks to trim its portfolio of non-core assets. 

The C$2.56 billion ($1.83 billion) all-stock deal, set to close this month, will bring to nine the number of producing mines under Equinox from the current seven, as well as Calibre’s Valentine project in Newfoundland that’s currently under construction. Calibre operates one mine in Nevada, and its three sites in Nicaragua are counted as one under the company’s hub and spoke model. Equinox will have gold reserves of about 24 million ounces. 

“It makes sense where one and one is what becomes three,” Equinox board chair Ross Beaty told The Northern Miner in an early May phone interview. “We should graduate to a subset of gold producers that are very large, as opposed to mid-cap. To the extent that we end up producing more than 1 million oz. [of gold] a year, we expect to trade at a higher multiple as a result of getting bigger. We also have the effect of having many operational synergies to drive our costs down.” 

The combination, approved by shareholders on May 1 will create the newest large Canadian producer.  

It will also bring two low-cost assets under the same umbrella – Equinox’s Greenstone open-pit mine in northern Ontario, which achieved commercial production last November; and Valentine, where the first gold pour is expected at the end of the third quarter. The move gives Equinox exposure to Canada’s east coast and further expands its reach into Latin America.

The deal follows a series of other gold sector transactions over the past 18 months, including Gold Fields’ (NYSE, JSE: GFI) purchase of Osisko Mining, Newmont’s (TSX: NGT; NYSE: NEM) Newcrest purchase and AngloGold Ashanti’s (NYSE: AU) acquisition of Centamin. 

Rise to fourth place 

With targeted annual output of more than 1 million oz., the new Equinox could end up in fourth place among Canadian gold producers – between Kinross Gold (TSX: K; NYSE: KGC) in the third spot and B2Gold (TSX: BTO; NYSE-A: BTG; NSX: B2G) in fifth. Kinross produced 2.13 million oz. last year, compared with B2Gold’s 804,778 ounces. Equinox booked 621,893 oz. in 2024 and Calibre logged 242,487 ounces.  

At a hypothetical market cap of C$5 billion to C$7 billion, and if analysts re-rate Equinox at a higher valuation due to better profitability or less risk, it would again rank fourth between Kinross and B2Gold. Equinox is currently valued at just over C$4 billion, and Calibre at C$2.64 billion. 

The integration of the Calibre assets will be key to achieving a re-rate, Canaccord Genuity analyst Jeremy Hoy said in a note.  

“The combined company provides investors with increased exposure to tier-one Canada, a larger and more diversified platform with a coherent focus on the Americas, enhanced capital markets profile, and a strengthened team,” he said in April. 

Projects pending 

Producing more than 1 million oz. a year will “certainly” happen within the next five years, Beaty said. Equinox is awaiting permits on a few projects, such as Castle Mountain in California, where a second stage expansion will add 200,000 oz. to production.  

Equinox had planned a growth project at its Los Filos mine in southwest Mexico that would have extended the mine life by four years and raised production to 280,000 oz. per year, a 64% increase from its current capacity. However, the company suspended the mine in April after it managed to reach land use agreements with only two out of three local communities.  

“We’re [waiting] for one of the communities to agree with a revised agreement that we’ve put in front of them,” Beaty said.  

A March letter signed by almost 100 community and human rights groups from Mexico, Canada and internationally alleges various threats against the local Carrizalillo community. The letter, addressed to Equinox CEO Greg Smith, claims the community has lost agricultural lands and water sources to the mine, and it decried the company’s alleged inflexible stance in negotiations for an agreement. 

Another factor likely to impact its ranking is streamlining of operations.  

“We’ll end up with nine or 10 mines,” Beaty said. “We’ve built bought and sold mines. We’ll do that again in the next while once we complete the Calibre merger. I won’t say what they’ll be, but they’ll improve our cost structure, and we’ll use the proceeds to retire our debt even more than quickly. We’ll make a call on which operations to look at over the next six or nine months.” 

Gold rally 

As the yellow metal has risen 27% this year, touching an historic high of $3,500 per oz. on April 22, the shares of Canada’s top producers have gained at least 20%. Equinox has gained by 22% and Calibre rose by 42%.   

“The rise in the gold price is nothing but positive for the entire gold space,” Beaty said.  

“It’s particularly good for the larger producers, because the larger production you have, the more leverage you have to higher gold prices. I don’t think it’s over. I can’t predict how high it’s going to go and when it’s going to peak out, but it is on a glorious run right now.” 

Goldilocks zone move  

While Equinox is taking on some political risk by acquiring the Nicaragua assets, the merger differs from much of the M&A activity during the gold super cycle of 2001-2011. At C$2.56 billion, the Equinox merger is smaller than the super cycle deals, includes low-cost producing mines and being all-stock it reduces balance sheet risk.  

Beaty said he’s not leery about the rising price of gold pushing up the costs of M&A for producers. 

“The gold price normally would bid up all companies but not this time because of the disconnect between the gold price and the equities,” he said, pointing to the under-valuing of both junior explorers and major producers over the last two and a half years amid rising gold prices. 

Meantime, Beaty believes gold’s current bull run could be set to benefit all players in the metal’s exploration and production space.  

“As cash flows are generated and returned to shareholders, you’re going to see a significant market pickup amongst the big gold producers, followed by the intermediate gold producers, followed by the junior explorers,” he said. “That is what has always happened, and when that happens, I expect you’re going to see quite a significant bump in the valuations being afforded to the junior explorers in Canada and internationally.”