Equinox Gold Corp. EQX-T has suspended operations at its biggest mine after a blockade by locals in Mexico, the latest in a series of setbacks that have hobbled the Canadian gold company over the past few years.
Vancouver-based Equinox said Thursday that an illegal blockade by the Mezcala community is preventing delivery of supplies to its Los Filos mine, located 180 kilometres south of Mexico City.
Equinox has existing land-use and social-collaboration agreements in place with all nearby communities and it did not specify why Mezcala staged the blockade. However, there is a history of pay gripes among workers at the mine.
Equinox said it will engage with protesters to find a way to restart the mine. Los Filos accounts for 28 per cent of Equinox’s production forecast for this year, with predicted output of roughly 162,000 ounces of gold.
This isn’t the first time Equinox has experienced disruptions at Los Filos. In 2020, the Carrizalillo community blockaded the mine for three and a half months. Last year, the Xochipala community staged a one-month blockade, with workers demanding higher pay.
“The continued interruption in operations at the mine highlights ongoing investor focus on stability of relations with the community,” Wayne Lam, analyst with RBC Dominion Securities Inc., wrote in a note to clients.
The blockades have already interfered with a planned expansion at Los Filos. Equinox has ambitions to double annual production at the mine, and plans to build a new plant that would allow it to process higher-grade ore. But Equinox recently said it won’t make a construction decision until relations with local communities are solid enough to guarantee the mine can run without interruption.
Equinox is navigating difficulties at the Mexican mine amid changes at the top executive post. Last month, the company announced the departure of its long-time chief executive officer Christian Milau, who left for another job. He was succeeded by former company president Greg Smith.
Founded in 2018 by veteran mining financier Ross Beaty, Equinox operates six gold mines in North and South America, and it is building another one in Canada. The company has grown in large part through M&A. Equinox acquired Los Filos through its acquisition of Leagold Mining Corp. in 2020.
Equinox’s long-term ambition is to become a one-million-ounce-a-year producer, a category that would put it in an elite group around the world, potentially allowing it to attract more investors who increasingly value size and scale. But at the moment it is far off that goal. Last year, it produced slightly more than 600,000 ounces. And far from showing steady growth, the company has regularly missed its production forecasts because of blockades and other snafus.
Earlier this year, Equinox suspended production for almost two months at its RDM mine in Brazil owing to a delay in obtaining a permit for its tailings dam. Meantime, heavy rain at its Aurizona mine, also in Brazil, curtailed production at the site earlier this year. Kerry Smith, analyst with Haywood Securities Inc., called the first six months of 2022 “terrible,” in a note after the release of Equinox’s second-quarter results.
“Mesquite was the only decent operation for Equinox,” he said, referring to its Californian mine.
Analysts are also closely watching the firm’s progress in building its US$1.2-billion Greenstone mine in Ontario, which is projected to take over from Los Filos as its biggest producing asset. So far, Greenstone is on time and on schedule, but with peers such as Iamgold Corp. experiencing material budget increases in Canadian mine construction, some are worried Equinox might also run into problems.
Greenstone is a 60-40 partnership with Orion Mine Finance. Equinox is hoping to have the mine in production in 2024, and targeting production of 400,000 ounces of gold a year for the first five years.
Shares in Equinox fell by 3.5 per cent on the Toronto Stock Exchange on Thursday to close at $4.45 apiece.
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Niall McGee