Canadian firm Equinox Gold is set to graduate to a gold producer with the $158-million acquisition of the Mesquite openpit gold mine, in the California, from New Gold.

Describing the Mesquite mine as the “perfect fit”, Equinox CEO Christian Milau said on Wednesday that the mine would produce 140 000 oz to 150 000 oz of gold this year and noted that it had produced an average of 135 000 oz/y over the past ten years.

In the first half of 2018, Mesquite produced 64 900 oz of gold at an all-in sustaining cost of $864/oz. The cost guidance for the year is $1 000/oz to $1 045/oz.

The company believes the new acquisition will complement its existing portfolio, which includes the 136 000 oz/y construction-stage Aurizona gold mine in Brazil and the Castle Mountain project, in California.

“In 2019, Equinox Gold will own and operate both the Mesquite and Aurizona gold mines and have substantial near-term growth from development of Castle Mountain,” Milau said in a statement.

Castle Mountain is about 320 km south of Mesquite and will benefit from the new mine’s qualified openpit heap leach operations team with extensive experience operating in California.

Mesquite’s gold deposit, at December 31, 2017, was estimated at 1.13-million ounces of proven and probable reserves and an additional 1.18-million ounces of measured and indicated resources, representing a 25% and 40% increase, respectively, to Equinox Gold’s current reserve and resource base.  

Under the terms of the agreement, Equinox will indirectly acquire all the outstanding shares of New Gold’s subsidiary Western Mesquite Mines, which holds a 100% interest in Mesquite, for a cash consideration to New Gold of $158-million.  

Completion of the acquisition is expected to occur during the fourth quarter of 2018 and is subject to customary closing conditions, including closing of the financing and receipt of certain regulatory and other approvals.

The acquisition does not require shareholder approval.

The acquisition will be funded from a combination of debt and equity including a fully underwritten brokered private placement and a fully subscribed non-brokered private placement for aggregate gross proceeds of $75-million, a $100-million acquisition credit facility from the Bank of Nova Scotia and a $20-million credit facility from Sprott Private Resource Lending.

New Gold president and CEO Renaud Adams said that the sale of Mesquite would allow the company to crystallise “several years’ worth of future free cash flow”.

"Mesquite has generated significant value for New Gold, averaging more than 135 000 oz of gold per year over the last ten years since Western Goldfields, a predecessor to New Gold, brought the mine back into production.

"On behalf of New Gold, I would like to thank the Mesquite team for their tremendous contributions to New Gold's portfolio of assets, and we wish them continued success as they join the Equinox team," he said.

New Gold will use the proceeds of the transaction to strengthen the balance sheet and enhance the overall financial flexibility of the company.