In a March 11, 2020, research note, BMO Capital Markets analyst Ryan Thompson reported that coverage of Equinox Gold Corp. (EQX:TSX; EQX:NYSE.A) resumed following a period of research restriction related to its merger with Leagold and was transferred to him.
BMO increased its target price on the gold producer, which it rates Outperform, to CA$16.50 per share from CA$12. The stock is currently trading at around CA$7.99. "The new Equinox offers investors a well-capitalized growth opportunity, with increased scale and liquidity," Thompson wrote.
He also pointed out that the current "valuation appears compelling" and "shares of Equinox can rerate higher as the company delivers on its growth objectives in the coming years."
He presented the important components of this Canadian company's story. For one, "a robust project pipeline should result in peer-leading growth," he noted. BMO models 2020 production at 588,000 ounces (588 Koz), increasing to about 900 Koz in 2021 and resulting in meaningful cash flow per share growth, to US$2 from US$1.31, in the next few years. This takes into account the expansion of Los Filos, the restart of Santa Luz and the start-up and future expansion of Castle Mountain.
To support that growth, Equinox is well funded, Thompson pointed out. It has a CA$40 million equity investment from Ross Beaty, a new CA$130 million convertible debenture and CA$500 million in underwritten commitments from the banking group. BMO estimated that as of the recent closing of the Leagold merger, the new Equinox has about CA$316 million in cash and CA$697 million in debt, for net debt of CA$382 million.
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Disclosures from BMO Capital Markets, Equinox Gold, March 11, 2020
IMPORTANT DISCLOSURES
Analyst's Certification
I, Ryan Thompson, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Equinox Gold within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Equinox Gold within the past 12 months.
Disclosure 6A: Equinox Gold is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services
Disclosure 16: A research analyst has extensively viewed the material operations of Equinox Gold.
Disclosure 17: Equinox Gold has provided at its expense some or all of the itinerant travel for the research analyst related to facilitating a material site visit.
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