Capitalize on the Coming Gold Bull Run with Equinox Gold Corporation

EQX (NYSE: EQX) is a Canadian mining company formed in December 2017 through the merger of Lowell Copper, Gold Mountain Mining and Anthem United. The company is active in the acquisition, exploration and development of mineral deposits. Today, EQX counts six producing gold mines, a multi-million-ounce gold reserve base and a strong production growth profile from four growth projects.

In December 2019, EQX announced the acquisition of Leagold Mining Corporation for $584 million. This deal adds Leagold’s four mines in Mexico and Brazil to EQX’s portfolio, which consists of two mines in California and one in Brazil. This merger results in the creation of one of the world’s top gold producing companies operating in the Americas.

EQX is trying to capitalize on what the founder believes is an upcoming bull run in the gold market. Gold is up 25% since 2015, reaching a high of almost $1700 last year, but the coronavirus crisis is causing the price to drop as investors rush to take their money out of all markets (stocks, precious metals and cryptocurrencies alike).


Do we still have reasons to be bullish about EQX?

I will analyze the following aspects of the company before providing my thoughts and recommendations:

  • Revenue Growth
  • Assets & Liabilities
  • Cash Flow
  • Insider Activity
  • Management
  • Ownership Breakdown


The first metrics I look at when analyzing a stock is the company’s Revenue Growth: I want to see revenue growth of at least 15% per annun. In this regard, EQX surpasses my expectations as Total Revenue has exploded since 2016, jumping an astonishing 26,251% in just three years.

Analysts forecast EQX’s annual growth at 55%/year for the next 3 years and the company expects to become profitable in that time. Becoming profitable will depend on the company’s production and the gold’s continued increase in price.

source: yahoo finance

The obvious red flag of EQX’s income statement is the negative net income. This needs to be monitored closely over the next three years to judge whether the company can control its costs.

However, we must bear in mind that growing businesses usually incur losses during the first stages of their development as they need time to establish market presence and generate revenues. Further, a loss does not always mean that cash flow is negative just as profit does not automatically mean that cash flow is positive. Accounting rules require businesses to record their transactions when they occur, not when they receive or pay cash.

We need to examine EQX’s finances in further detail to get a better idea of the business’ health.


The second step of my study is the analysis of the company’s Debt Ratios to evaluate the company’s debt burden. Staying true to Buffet’s recommendation, I am looking for a Current Ratio equal or superior to 1.5 and Debt/Equity Ratio equal to or inferior to 0.5.

source: yahoo finance

The Current Ratio (CR) is calculated by dividing the company’s Current Assets by its Current Liabilities. In 2019, EQX’s Current Assets are equal to $148,656 and its Current Liabilities to $131,929, which gives us a CR of 1.12. This is much lower than Buffet’s ideal of 1.5. However, given that EQX is an emerging company, I’m more interested with the evolution of this metric over the past 4 years, to judge whether or not the business is being led in the right direction. Using the same CR formula, we notice that EQX’s CR was 31.88 in 2016, 2.82 in 2017 and 1.28 in 2018. This signals that EQX’s liabilities are increasing. EQX’s CR is considered to be barely above average as it has just about enough assets to cover its short term liabilities.

The Debt / Equity Ratio (D/E) is calculated by dividing Total Liabilities by Total Shareholders’ Equity. In 2019, EQX’s Total Liabilities are $436,291 and Total Shareholders’ Equity is $403,059, which gives us a D/E of 1.08. This is not good because it means that the business’ equity is insufficient to cover its liabilities. This could become a real problem in case of a severe economic downturn.

As you can see on the chart below, EQX has long term debts of $202 million. This figure needs to be monitored closely in the coming quarters to make sure it’s kept under control.

source: yahoo finance


Lastly, it is of crucial importance to analyze the company’s Cash Flow Statement.

I want to look at Cash flow of operating activities, investing activities and financing activities.

The Cash Flow from Operating Activities is $59.7m which indicates that the company is generating a reasonable amount of cash.

The Net Cash Used for Investing Activities is $111.2m. In 2019, EQX invested $97.5m in property and plants and $14.5m in acquisitions. This good because it shows that the company is investing in internal and external growth.

The Net Cash used for financing activities is $56.9m. EQX allocated $136.8m to debt repayment, which shows that the company is serious about repaying its debt.

source: yahoo finance

In 2019, EQX’s Cash at end of period is $67.7m but the Free Cash Flow is ($37.8m).

Is this worrying?

If EQX were a well established and mature company, then yes, it would be. However, this is a growth company that is still in the early stages of its development and it will need a few years to consolidate and mature. The first milestone will be in three years’ time when the company expects to be profitable. If it misses this target and its debt explodes there will be reason to worry.


One useful metric for judging a company’s potential is the volume of insider transactions. If multiple insiders are buying shares, it means they believe in the company’s future; if a single insider is buying, this could be due to contractual obligations, not a strong belief in the company’s future.

Interestingly, three different insiders have purchased EQX shares this month:
Rhylin Pauline Bailie, Vice President Investor Relation, bought 2,861 shares on Jan 29th at a price of $10.96 CAD and an additional 1,000 shares on March 4th at a price of $10.82 CAD,
Ross Beaty, Executive Chairman, bought 5,825,242 shares on March 10th, at a price of $8.51CAD,
Wesley Clark, Director, bought 5,000 shares on March 16th at a price of $9.33 CAD.

Also interesting to note is that Ibtissam Drier, VP at Pan American Silver, bought close to $40K CAD of shares on July 1st, 2019.

This is a sign that insiders believe the company is undervalued.



When analyzing a company to invest in, Warren Buffet requires that the management team be competent and committed to growing the company.

How can one measure commitment? This is very difficult to do unless you know the management team personally so we must to rely on other criteria. I like to look at the management’s credentials.

Ross Beaty, legendary billionaire resource entrepreneur, is the founder and Executive Chairman of EQX and its second largest shareholder, with an 8.85% stake in the company. Inducted to the Canadian Mining Hall of Fame in 2018, Beaty has created “13 companies that have generated close to $6 billion in shareholder value since 1994. He built his flagship, Pan American Silver, into one of the world’s largest silver producers with seven mines in Latin America“. This is a man who has a distinguished track record of success in the precious metals industry. You can read his full biography here.

Christian Milau is EQX’s CEO since March 2017. He was previously CEO of several mining companies including of Luna Gold Corp, Trek Mining Inc and True Gold Mining Inc. He boasts vast experience in both the mining and financial advisory sectors. Having a CEO who is an industry insider with deep knowledge of finance is a very good sign.

Neil Woodyer, CEO of Leagold Mining Corp since 2016, also has an impressive resume with vast experience in the mining sector. He notably founded Endeavour Mining Corp.

Several other members of EQX’s board also have impressive resumes. EQX’s Board is composed of very experienced industry insiders who have a proven track record of success in the precious metals business.

In sum, EQX passes Buffet’s test.


A perfect ownership model does not exist because each model has different characteristics. Nonetheless, I like it when Individual Insiders, Public Companies and Institutions own an important stake of the business because their main focuses are achieving profitability and maximizing shareholder value.

As you can see on the chart below, Insiders and corporate/institutions own 30% of EQX while the General Public owns 70%. This is a fair balance but we could see an increase in institutional ownership if the company succeeds in achieving profitability.


Looking at the shareholders list, we notice that behemoths such as BlackRock, Shell Asset Management Company, Commerzbank AG and Morgan Stanley, among others, are all invested in the company. This is a good sign because these entities only invest in companies they believe will make them money. They have done their due diligence, analyzed the business model and concluded that the investment is worth the risk.



Here’s a chart summarizing my findings:

    The CEO has a proven track record of generating shareholder value    The company is in the early stages of its development and has negative net income and free cash flow.
  The management team is composed of highly experienced mining and finance insiders.The company has a debt burden that could become problematic in case of economic hardships.  
  The company has achieved a lot in a very short amount of time. In just three years it has already become a major player of North American gold mining.    The company’s future profits are dependent on the price of gold. Although the price of gold is on an upwards trend it is very volatile and has huge impact on the quarterly and annual earnings of mining companies.  
The company’s revenues are increasing every year
    Institutions and public companies are invested in the company 
  The merger with Leagold Mining expands the company’s scope and will generate additional revenue   
In sum, there are more positives than negatives

We must remember that EQX is an emerging business who is aggressively pursuing growth by investing heavily. However, the strategy of using debt to finance growth is somewhat risky and investors must take this into consideration before investing. If the company keeps growing and generating revenues, the debt burden will not be a problem but if the price of gold decreases and prevents the company from becoming profitable then it weighs over the company’s head like a sword of Damocles.


  • RISK ADVERSE INVESTOR: Wait for the company to become profitable before investing;
  • INVESTORS WITH MODERATE RISK AVERSION: Initiate a small position and add to it progressively as the company releases positive earnings;
  • INVESTORS WITH HIGH RISK TOLERANCE: Initiate strong position.

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Disclaimer: At writing, author holds small position in EQX. This is not financial advice. Do your own research before investing in any asset.

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