Equinox Partners, L.P. - Q4 2021 Letter

Dear Partners and Friends,

PERFORMANCE & PORTFOLIO

Equinox Partners rose +7.3% in the fourth quarter of 2021 and gained +57.0% for the full year.[1]

CENTRAL BANKS KEEP BUYING GOLD

2021 was a confounding year for gold investors. A forty-year high in inflation translated into a 3.6% decline in gold and 21.3% decline in the GDXJ gold mining index. In early January, The Economist declared that gold had not just lost some of its investment allure but was at risk of becoming irrelevant[1].  In reaching this conclusion, The Economist completely ignores one of the most bullish long-term factors in the gold market, the ever growing list of central banks buying gold.

 

The gold market simply cannot be understood without accounting for central bank participation. In 2021, central banks bought 463 tonnes of gold—13% of the 3,561 tonnes mined.[2] And 2021 was not an outlier.  Over the past decade, central banks have purchased over 5,000 tonnes of gold—a total that understates the gold accumulation by Russia and China. The cumulative total also fail to capture the nascent trend of developed world central banks buying gold.  Last year, for example, witnessed purchases by the likes of Singapore and Ireland. The question is, why are so many central banks buying gold? 

In June of 2021, the World Gold Council conducted a survey asking central banks exactly this question. The responses were intuitive. Central banks are buying gold because of gold’s unique financial characteristics. Specifically, gold is the one asset on central banks’ balance sheets that is no one else’s liability. Consequently, gold may perform particularly well when their other assets do not.  Left unsaid but implicit in the World Gold Council’s survey results is a concern that foreign central bank’s largest asset, the U.S. dollar, has lost some of its safe-haven status. According to some particularly astute market participants, the price action of U.S. Treasuries has been reflecting this concern since the spring of 2020:

                                                                                                                                                 

[F]or 20 years, USTs have been the go-to asset of foreigners to hedge global portfolios with. In every case, whenever you had a problem in the equity market or in the world economy, they fled to USTs and they fled to the USD. Last spring, that was violated. Since then, they’ve continued to sell USTs. 

         - Stanley Druckenmiller on CNBC 5.11.2021

 

From America’s trillion-dollar trade deficit to the Fed’s loose monetary policy, there is good reason to be concerned about the dollar’s fundamentals.  The mere possibility of dollar flight should be particularly worrying given the rapid deterioration in the U.S. net international investment position over the last decade.  According to the Bureau of Economic Analysis, the U.S. net international investment position has deteriorated by $11.5 trillion since 2011.  This massive deterioration in the U.S. net international investment position would make managing foreign capital flight a near impossible challenge.

Proliferation of foreign central bank gold purchases suggest growing central bank concern about the dollar. That said, what these foreign central banks will eventually do with the gold they are accumulating remains a mystery.  No foreign central bank has announced any plans to use their gold for monetary purposes despite having accumulated several hundred billion dollars of the metal since 2008. Regardless as to what they eventually do with the gold they are accumulating, central banks certainly aren’t behaving as if gold may become irrelevant as The Economist suggests.

yearend Top-five holdings

The outperformance of our E&P companies and declines in our gold miners led to two changes in our top-five holdings.  NuVista Energy and IPCO both became top-five positions as their share prices more than doubled in 2021.  RTG and Bear Creek, on the other hand, both dropped out of the top-five after a year of disappointing results.   Specifically, RTG’s continuing legal problems in the Philippines prevented the company from transitioning from an exploration company to a developer. RTG has a shovel-ready project with a high IRR. But until they resolve a legal dispute with their local partner the company cannot move forward.  We remain optimistic that 2022 will be the year RTG begins mining, but this is not a foregone conclusion. Bear Creek’s Corani mine was a causality of the Peruvian presidential election.  When Pedro Castillo was elected in July, Bear Creek’s Corani mine became unfinanceable.  Peru will eventually recover from the Castillo presidency, but it may be several years. 

Paramount Resources

In 2021, Paramount Resources put to rest any lingering questions about its financial stability. As of year-end 2021, the company had conservative leverage ratios. Specifically, the company’s net debt to cash flow declined from ~5x as of December 2020 to 1.3x in December 2021. The stock responded favorably to this deleveraging, increasing almost five-fold last year.

 

During the year, Paramount generated ~$450m of cash flow. This compares favorably to the ~$170m of cash flow it generated in 2020. After interest expense and cap ex, the company generated more than ~$100m of free cash flow from operations. The company also sold several non-core assets in the year to help lower its debt and fund production growth. Proceeds from these sales were $165m, allowing the company to decrease net debt by almost $300m.

 

In addition to lowering its debt, Paramount grew production 20% last year and is on track to grow production double digits again in 2022, from 82k boepd to 92k boepd.  Paramount’s growth is coming from Karr and Wapiti, assets which comprise the vast majority of the company’s production and are among the highest returning energy assets in North America. At current energy prices, both Karr and Wapiti have paybacks for new wells in less than a year. 

 

In 2022, we expect Paramount to generate over $1,000m of cash flow and over $500m of FCF at current energy prices. With a market cap of $3.5b, $300m liquid investments and $300m of net debt, the company trades at a depressed EV/CF multiple with a mid-teens free cash flow yield. We expect energy prices to stay strong and Paramount to continue to rerate.

 

Crew Energy

Crew Energy demonstrated its ability to rapidly deleverage its balance sheet in 2021 and is on the cusp of normal financial ratios. The company’s leverage ratio fell from 5x to 2.5x in 2021. With production up and cap-ex declining, we project Crew’s leverage will fall to close to 1x by the end of 2022. We believe that delivering a de-risked balance sheet will trigger a further rerating of the company’s shares. As it is, the company’s stock climbed five times in 2021.

 

Rather than shrink its production during the crisis of 2020, Crew Energy boldly adopted a plan to grow into its balance sheet and infrastructure. In the spring of 2020, CEO Dale Shewd announced a plan to grow production by 50% over the following 18 months. This countercyclical move came as commodity prices had barely recovered from their historic lows and most of Crew’s peers were still paralyzed by the volatility in the oil and gas markets. 

 

Crew achieved its production goals at the end of 2021 and the rising commodity prices provided a welcomed tailwind. In 2022, the company expects to hold production flat around 32k boepd and generate $200m in cash flow while spending just $85m in cap-ex. The resulting $100m+ in FCF will be used to pay down debt and return Crew to financial normalcy. The continued deleveraging should also put Crew in a good position to refinance its $300m bond due in 2024. The bond currently trades at 99.6 on the dollar and suggests smoothing sailing. 

 

Assuming $125m of FCF in 2022, Crew is trading at a 25% FCF yield. Moreover, the company holds several strategically important assets that generate little to no free cash flow. One of these assets is Groundbirch, a sizable natural gas play adjacent to Shell’s natural gas fields that will be needed to support the massive LNG Canada project. Crew drilled wells in Groundbirch in late 2021 with encouraging results. This asset can support growth for the company for many years into the future. 

 

NuVista Energy

NuVista exited 2021 with strong free cash flows and reasonable leverage ratios. The company’s leverage ratio declined from ~4x in December 2020 to 2.5x at the end of 2021. With production up 20% in 2022, that ratio should fall to less than 1x by the end of 2022. The stock responded very favorably to this deleveraging, increasing over seven-fold in 2021.

 

We purchased NuVista in the fall of 2020 shortly after Paramount announced that it had acquired a 20% position in the company. It seemed to us that Paramount was angling to buy 100% of NuVista. The possibility of a bid from Paramount put a floor under the stock price despite the company’s leveraged balance sheet. To our surprise, the market did not react to the news of Paramount’s purchase, and we were able to build a position at very attractive prices.

 

Paramount knew exactly what they were buying when they acquired 20% of NuVista because the two companies have adjacent land packages. The Wapiti play which constitutes the majority of NuVista’s value is geologically identical to Paramount’s best asset. In addition to being a highly-informed buyer, Paramount’s investment all but guaranteed that John Wright and the management team at NuVista would stay on the straight and narrow to fend off a potential takeover bid from Paramount. 

 

Since the summer of 2020 NuVista’s management has behaved exactly as we expected. They grew production and refinanced their debt, giving shareholders no incentive to sell to Paramount at a discounted price. The stock is up close to ten-times over the past 18 months but the company is still trading at a 20% FCF yield. When NuVista finishes growing into its delivery commitments next year it will have a FCF yield north of 30%.

 

MAG Silver

MAG Silver is the 44% owner of the high-grade, large-scale Juanicipio silver project in Zacateca, Mexico. The quality of the Juancipio project is beyond dispute, and Fresnillo—one of the world’s largest silver producers—is a proven operator. That said, the Juancipio JV has been plagued by a series of delays that have weighed on MAG’s share price over the past 18 months. In 2021, the stock was down 29%.

 

The Juancipio mine was scheduled to begin production in late 2020. Management now anticipates commissioning to start in mid-2022, bringing the project delay to over a year and a half. The latest setback is a result of the state-owned electric monopoly notifying Fresnillo that it was delaying the mine’s grid tie-in for six months.

 

While the JV is awaiting approval for the grid tie-in, Fresnillo has been processing a limited amount of material at two of its nearby mills. The cash flow generated from the milling will help mitigate additional costs from the delay. MAG still had to raise $46m of additional equity as well as take out a revolving debt facility in the fourth quarter to offset the delay. Post the capital raise, MAG has $75m in cash. This should be sufficient to fund the company through 2022, but the additional dilution was a most unwelcomed surprise.

 

Despite the growing number of setbacks, the Juancipio JV remains a top-tier silver asset that has the ability to increase production to 8,000 tpd within a few years of initial production. During 2021, the company released a few exploration holes on the JV property from its 2020 exploration program that confirmed the continued depth of two of the asset’s major veins. The JV has historically been very frugal with exploration dollars, but we expect the JV to continue to outline a pathway to a larger reserve base in order support an expansion to 8,000 tpd. At this point, we believe the JV’s mill must reach commercial production for the shares to rerate.

 

IPCO

An oil and gas company listed in Sweden, headquartered in Switzerland, and with most of its operations in Canada, IPCO is an odd duck. The company’s unique combination of attributes has all but assured that it gets overlooked by most investors.  Even so, the stock was up over two times in 2021. 

 

We are attracted to the company’s strong track-record of execution, high-quality asset base, and well-aligned management team. IPCO is a Lundin company, with the family owning close to 30% of the company’s shares. The Lundin family has a long history of investing in resource businesses, and we have invested alongside them as a minority investor in several other mining investments. As a result of the Lundin influence, IPCO has been a disciplined capital allocator. They have purchased assets counter-cyclically at attractive multiples and bought back shares when the price warranted it. Today, the share price is such that they can buyback the entire market cap in less than five years from its FCF.  While they are unlikely to do this, the company has commenced a share buyback program in Q4 ’21 and is continuing it into 2022.

 

In addition to its FCF generation and prudent capital allocation, there is further upside in the stock in the form of an undeveloped but fully-permitted oil-sands asset. This asset has 1b barrels of resource vs. 300m for the rest of the company. Developing a greenfield oil-sands asset in today’s political environment is a nonstarter, but at the current valuation shareholders are not paying for this potentially significant upside. 



Sincerely,


Equinox Partners Investment Management

end notes

[1] Sector exposures shown as a percentage of 12.31.21 pre-redemption AUM. Performance contribution is derived in U.S. dollars, gross of fees and fund expenses. Interest rate swaps notional value and P&L are included in Fixed Income. P&L on cash is excluded from the table as are market value exposures for derivatives. Unless otherwise noted, all company data is derived from internal analysis, company presentations, or Bloomberg.  All values are as of 12.31.21 unless otherwise noted.


Endnote: Unless otherwise noted, all company-specific data derived from internal analysis, company presentations, Bloomberg, or independent sources. Values as of 12.31.21, unless otherwise noted.

 

This document is not an offer to sell or the solicitation of an offer to buy interests in any product and is being provided for informational purposes only and should not be relied upon as legal, tax or investment advice. An offering of interests will be made only by means of a confidential private offering memorandum and only to qualified investors in jurisdictions where permitted by law.

 

An investment is speculative and involves a high degree of risk. There is no secondary market for the investor’s interests and none is expected to develop and there may be restrictions on transferring interests. The Investment Advisor has total trading authority. Performance results are net of fees and expenses and reflect the reinvestment of dividends, interest and other earnings.

 

Prior performance is not necessarily indicative of future results. Any investment in a fund involves the risk of loss. Performance can be volatile and an investor could lose all or a substantial portion of his or her investment.

 

The information presented herein is current only as of the particular dates specified for such information, and is subject to change in future periods without notic

Payne Points of Wealth Podcast Interview

By Kieran Brennan • February 26, 2025
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Precious Metals Fund - Q4 2024 Letter

By Kieran Brennan • January 18, 2025
Dear Partners and Friends, PERFORMANCE Equinox Partners Precious Metals Fund, L.P. fell -12.9% in the fourth quarter, finishing the year down – 2.9%. The fund’s performance reflects the lackluster performance of the gold mining sector as well as the underperformance of the companies we own. While there were some clear themes, such as producing companies outperforming exploration companies, our 2024 results are most accurately captured through a description of our six best and six worst performing investments during the year. These twelve companies capture every investment that contributed at least 1%, positive or negative, to our 2024 fund performance. A Challenging Year In 2024, the gold price finished up +27.4%. The GDXJ ETF which tracks the index of junior gold mining producers was up +15.7%. Our portfolio of miners in this fund was down -2.9%. The underperformance of the gold miners as compared to gold largely reflects government participation in the gold market. In 2024, governments bought gold, not gold miners. The poor performance of the gold miners also reflects the sector’s continued subpar returns on capital. The S&P TSX Global Gold universe, a group of large, mature gold miners, only generated an 11% ROE in 2024 and a 5.4% free cash flow yield according to RBC. Despite their inadequate returns on capital, producing miners handily outperformed most exploration and development companies. There remains almost no market for most gold mining companies that are years away from first production. As value investors with contrarian instincts, we have found the increasingly irrational valuations of the pre-revenue companies of particular interest. Often as a project advances, the equity market value of the company declines. These share price declines in turn create a self-reinforcing dynamic in which the small, cash-starved companies underperform because they don’t have access to the capital necessary to move their projects forward. At this point, the downward spiral of pre-revenue gold miners is very extended and nearing a floor in our opinion. Not only are the valuations of these companies incredibly low, but these companies have become increasingly attractive acquisition targets. Although exploration companies are the most severely discounted sector, 54% of our fund remains invested in producing companies. In general, our producing companies trade at a discount to the sector because they are executing on significant capex plans and lack free cash flow. During construction periods, the market can become excessively skeptical. This skepticism, in turn, can present an opportunity to buy high quality assets run by good management teams at attractive valuations. We believe that this is clearly the case at Eldorado Gold, K92 Mining, West African Resources and Adriatic Metals. Overall, our miners are incredibly cheap. Assuming a flat gold price, we estimate our producers will generate a 23.5% IRR. Our companies that do not yet generate any cash flow are cheaper still. Ascot, Thesis, Troilus and Goldquest, for example, have an average IRR of over 30% at current metals prices. Six Winners and Six Losers in 2024 Note: Below IRR is our Equinox internally calculated IRR based on 2024 year-end market prices and forecasted future FCF per share to equity. Borealis Mining: 2024 Performance +29%, IRR 48% Borealis was founded by Kelly Malcolm in 2023 to leverage a large heap leach facility in Nevada by acquiring nearby low-grade heap leach assets. We invested in a pre-IPO round at a $30M post-money valuation. At the time, Borealis had approx. $5M worth of crushed stockpiles, a fully permitted heap leach facility, ~60,000oz of reserves ready to be processed with limited capex and substantial exploration potential at depth. In late 2024, Borealis began to acquire nearby deposits. Borealis purchased Bull Run for $6M in cash. This translates to $14 per ounce for ~500,000oz of already defined resources, and confirms managements intuition that there are small, stranded assets for sale in Nevada. We expect Borealis to continue this acquisition strategy and ramp to become a ~75,000 oz per year producer. K92 Mining: 2024 Performance +22%, IRR 17% K92 controls the world-class Kainantu mine in the highlands of Papua New Guinea. This mine is a high-grade, low-cost asset with a 3 million oz resource at 7g/t. K92 produced 120,000 oz last year, and we expect the company’s Phase 3 expansion will take annual production to over 150,000 oz (gold equivalent) in 2025. While K92 has often struggled to meet its ambitious growth targets, the company has strung together two consecutive quarters of meaningfully higher production with higher than reserve grades. K92 recently expanded the milling capacity which had been a meaningful bottleneck for years. If the company can reach Phase 4, the Kainantu mine’s production will produce ~400,000 oz at a bottom quartile cash cost of <$1000/oz while maintaining a clean balance sheet with minimal leverage. West African Resources: 2024 Performance +38%, IRR 31% In 2024, West African Resources (WAF) remained on-time and on budget in the build of the company’s second mine in Burkina Faso, called Kiaka. Once Kiaka is commissioned in Q3 2025, WAF will be a ~450,000 oz annual producer for the next 10 years. While the construction has proceeded as expected, WAF was adversely impacted by the local content language in Burkina Faso’s new mining code. Rather than pay the resulting mark up in their rental of local equipment, WAF elected to purchase their mining fleet outright. This decision added $150 million to the company’s capital budget and resulted in a July equity raise of the same amount. While we were disappointed with the need for more equity capital, ultimately the raise will accelerate WAF’s buy-back and dividend plans. If the company continues to trade at the current valuation, we expect the board will announce a sizable share repurchase as soon as the company’s debt is repaid. Hochschild Mining: 2024 Performance +96%, IRR 18% Hochschild Mining (HOC) is a proven mine builder with the strategy of reinvesting free cash flow into new projects to grow production. In 2024, we visited their newly commissioned mine in Brazil, called Mara Rosa, which was successfully built on time and on budget. Mara Rosa will deliver a 20%+ project level IRR and highlights HOC's competence in executing medium-size projects in Latin America. We expect the company will be able to repeat this success with another mine in Brazil, the Monte Do Carmo project in the neighboring state of Tocantins. Big picture, HOC is a family-owned business with a goal of producing 500,000 ounces of gold per year by 2030. While we would prefer a return on capital goal rather than a growth target, we appreciate the straight-forward way the company organizes its operations, and we believe the company will not undertake projects with less than a 20% cash on cash IRR. Moreover, unlike many growth miners, when the company reaches their targeted 500,000 ounces of annual production – anticipated for 2030 - we expect HOC to transition to return free cash flow to shareholders. Galiano Gold: 2024 Performance +35%, IRR 29% Galiano has been busily working on a new mine plan which will be released on January 28th. We expect the company’s production guidance will increase as Galiano elects to move forward with the redevelopment of their higher grade Nkran pit. We also expect increased exploration spending in 2025 as the company ramps up work on their newly consolidated land package. We are expecting Galiano to guide to a production target of approx. 250,000 ounces per year by 2027. Even at this higher rate of production, we anticipate the company will be able to more than replace reserves given the prospectivity of the Asankrangwa gold belt in which they operate. While Galiano will have to reinvest the vast majority of its cash flow in growth in 2025 and 2026, the company should become a substantial free cash flow generator beginning in 2027. Solidcore Resources: 2024 Performance +22%, IRR 21% Solidcore, a spin-out from Polymetal, is a new position in our fund. Solidcore is run by CEO Vitaly Nesis, and controlled by Oman’s sovereign wealth fund. The company operates two long-lived mines in Kazakhstan and produces 480,000 ounces of gold annually at a competitive All-In Sustaining Cost (AISC) of $1,300/oz. With an EV/EBITDA multiple of 2.2x, Solidcore trades at an almost 50% discount to its peers. This undervaluation is largely due to the company’s sole listing on the Astana International Exchange in Kazakhstan. We expect Solidcore to generate roughly $400 million in free cash flow per year at current gold prices. In 2025 and 2026, this free cash flow will be invested in a new pressure oxidation autoclave. Beginning in 2027, we anticipate that $100 million USD of the company’s free cash flow will be distributed to shareholders. This prospective dividend along with the company’s plan to re-list on the London Stock Exchange offers two catalysts that should drive a significant re-rating. Orezone Gold: 2024 Performance -30%, IRR 27% While Orezone completed its initial build on time and on budget, the company failed to generate the free cash flow necessary to internally finance the expansion of its operations in Burkina Faso. The company’s reliance on high-cost diesel generators and an unreliable power grid proved particularly problematic. Largely due to higher-than-expected power costs, the midpoint of their AISC guidance increased by $100/oz from last year’s projection of $1,338/oz. Despite the elevated power costs, Orezone successfully closed their financing for the hard rock processing plant in December 2024. This financing will enable Orezone to increase annual production from approx. 120,000 oz in 2024 to ~180,000 oz in 2026. We expect 2025 to be a pivotal year for the company as they will begin to generate sufficient cash to pay down debt and continue building towards their 250,000 oz/year target. We are also encouraged by the company’s ongoing exploration program which has the potential to increase the Bombore’s mine life at higher grades. C3 Metals: 2024 Performance -62% C3 stock declined significantly in 2024 even as the company made significant progress advancing their projects in both Jamaica and Peru. With respect to their Jamaican asset, C3 Metals signed a joint venture agreement with the Stewart family, one of the wealthiest families on the island. C3 is now well-positioned to do a JV deal with a larger international mining company that can finance the costly deep holes necessary to test the porphyry copper deposit’s potential. In Peru, C3 Metals received a permit to access one of its land packages located just 40 kilometers east of MMG’s Las Bambas mine. This permit, which took years to secure, opens the door for further exploration in a proven copper-rich region. With the permit in hand, C3 Metals should be able to bring in a larger partner to drill out the asset. Troilus Gold: 2024 Performance -45%, IRR 35% In May 2024, Troilus submitted its feasibility study to the Canadian government. This new study detailed their plan to develop a 22-year open pit mine that would produce approx. 300,000 oz of gold per year. With current gold prices north of $2,600 and copper hovering around $4, the project will likely move forward. The company has received financial support from a handful of export credit agencies interested in its 10% copper production. Troilus is also in the final stages of submitting the Environmental and Social Impact Assessment (“ESIA”), another key milestone as they advance towards construction. Located 300 kilometers north of Chibougamau, Quebec, the Troilus project is a brownfield site in a favorable mining jurisdiction with the potential to become a Top 10 copper gold project in Canada. We are fans of CEO Justin Reid and believe in his ability to permit the project and advance it towards becoming a premier North American copper-gold producer. At a $4/oz equity market cap to gold equivalent ounces in ground ratio, we believe Troilus is one of Canada’s best leveraged investments to rising gold and copper prices. Ascot Resources: 2024 Performance -23%, IRR 38% Ascot Resources put its Premier gold project on care & maintenance in September of 2024. At the time, the company didn’t have enough ore coming from the underground mine to profitably operate the 2,500 tonnes per day mill. To rectify the lack of available ore, the company raised $43 million, extended the term of their debt, and decided to invest in an additional 2,500 meters of development before commissioning the mill. The board then made a change at CEO and brought in Jim Currie for his extensive underground mining experience and added our own Coille Van Alphen to the board. Underground development is currently underway, and we expect the mill to restart in Q2 2025. One more injection of capital will likely be required to ensure the company has a sufficient working capital buffer as they restart the mill. When the mine reaches commercial production, it will be able to generate a sustainable ~$100m of FCF per year which should translate into a stock price of at least $1 CAD per share. Great Pacific Gold: 2024 Performance -47% Great Pacific owns two highly prospective gold exploration projects in Papua New Guinea (PNG). Over the course of 2024, the company refined its exploration targets and drilled 5000m at its Kesar project in the highlands of PNG. The Kesar project looks to be an extension of nearby K92’s mine, and as such may be sold to K92. Great Pacific will begin drilling exploration targets at its second PNG property in Q2 of 2025. This property is a brownfield site with past production at a grade of more than 10 g/t. Great Pacific has a third asset in Australia, which we believe could be sold to fund the company’s exploration activities in PNG. Great Pacific is led by an excellent CEO in Greg McCunn. We got to know Greg through a previous investment in West Africa. As CEO, he brings the necessary vision, discipline, and accountability to an exploration company. We believe the company will deliver exploration success at their two PNG assets and ultimately enable Greg to create shareholder value in a variety of ways. GoGold Resources: 2024 Performance -24%, IRR 30% GoGold has been waiting two years for its permit in Mexico. The delay was caused by the previous Mexican President Andres Manual Lopez Obrador’s (AMLO) staunch opposition to new mining development. In the end, while neither of AMLO’s major proposed changes to the mining code passed, few mining permits of any kind were issued during his time in office. GoGold’s large cash buffer and existing heap leach operation enabled the company to wait out AMLO without needing to raise additional equity capital. We think their patience will soon be rewarded as the new administration of President Claudia Sheinbaum plans to process permit applications on their technical merits. In GoGold’s case, the technical merits of their Los Ricos South project are exceptionally strong with over 100 million oz of silver at an average grade of 276 g/t. Sincerely, Equinox Partners Investment Management

Equinox Partners, L.P. - Q4 2024 Letter

By Kieran Brennan • January 17, 2025
Dear Partners and Friends, PERFORMANCE Equinox Partners, L.P. declined -6.5% in the fourth quarter of 2024, finishing the calendar year 2024 up +17.7% net of all fees. Our poor performance in the fourth quarter was driven by a sharp selloff in gold and silver miners despite a flat gold price during the period. 2024 Year in Review Crew Energy accounted for 100% of our fund’s performance in 2024. We offered a fulsome write-up of Crew in our third quarter letter and need not repeat the details of the acquisition by Tourmaline here, other than to note that the 72% premium resulted in an ~18% contribution to the fund’s total return. While there was significant movement among our other investments, their aggregate contribution was close to zero. This is a disappointing result given the significant progress many of our companies made last year. The market was not impressed by Paramount Resources’ sale of its core asset to Ovintiv for $3.3bn CAD. Nor did the market seem to care that Kosmos energy finally brought its flagship Tortue asset online in December. Thesis Gold’s positive feasibility study elicited an initial positive reaction, which was quickly reversed. Elsewhere, the market remains totally indifferent to the rapid progress that West African Resources is making at their Kiaka asset. While we understand that our sectors are out of favor, we would hope to see at least some of the value they are creating reflected in their stock prices in 2025. We’ve been busy over the past six months, establishing several sizable, new positions. We sold half of the Tourmaline shares we received in consideration for our Crew shares and used funds to make the following investments: an 11% portfolio weight in Solidcore Resources, an 8% position in Kosmos Energy, a 5% weighting in Ensign Energy, and a 5% weight in Gran Tierra Energy. Solidcore and Kosmos are both top five positions and receive a full writeup in the letter that follows. Ensign Energy is a North American energy service company, and Gran Tierra Energy is an E&P company with assets in Latin America and Canada. Both Ensign and Gran Tierra trade at particularly compelling valuations. investment Thesis Review for our top 5 Long Positions by Weight

Kuroto Fund, L.P. - Q4 2024 Letter

By Kieran Brennan • January 17, 2025
Dear Partners and Friends, PERFORMANCE Kuroto Fund, L.P. appreciated +6.5% in the fourth quarter of 2024 and finished the year up +11.1%. Performance for the quarter was driven primarily by the positive performance our operating company holdings in Nigeria, Ghana, and Georgia. A breakdown of Kuroto Fund exposures can be found here . 2024 Year in Review Kuroto’s top five investments made large strides last year. Seplat completed its ExxonMobil Nigeria acquisition, more than doubling its production, cash flow and reserves. Georgia Capital successfully sold a non-core asset and is in a good position to buy back a lot of stock this year. MTN Ghana saw strong operational performance while Ghana’s economy and currency stabilized. Guaranty Trust Bank completed a government-mandated equity raise, and Nigeria made steps towards stabilizing its economy. Lastly, Kosmos brought on its long-delayed Tortue LNG project. In each case, we believe the market has not adequately factored in the progress our companies have made, and we anticipate a more fulsome rerating of our top holdings in 2025.

Precious Metals Fund - Q3 2024 Letter

By Kieran Brennan • November 1, 2024
Dear Partners and Friends, PERFORMANCE Equinox Partners Precious Metals Fund, L.P. rose +3.1% in the third quarter and is up +11.0% through the end of September 2024. Performance for the quarter was driven primarily by our group of explorers, with additional positive contribution coming from the producing segment of the portfolio. These gains were partially offset by the decline of one of our development stage companies which has experienced delays and raised additional capital. As our gold miners have lagged the indices, a substantial valuation gap has opened between the largest gold miners in the industry and the producing companies we own. At spot pricing, consensus sell-side models have Agnico, Barrick, Kinross and Newmont delivering an IRR of just 3%. Our portfolio of producers, on the other hand, models out to an IRR of 20% using the same metals price assumptions. There's substantial value in the gold mining sector, but the largest companies are not the ones to own.

Kuroto Fund, L.P. - Q3 2024 Letter

By Kieran Brennan • October 31, 2024
Dear Partners and Friends, PERFORMANCE Kuroto Fund, L.P. declined -0.8% in the third quarter of 2024 and is up +4.2% for the year through September 30 th . Performance for the quarter was driven by a pullback in our energy holdings, which more than offset the gains in MTN Ghana and several of our financials. A breakdown of Kuroto Fund exposures can be found here . Kuroto Fund's Energy Investments Since SUmmer of 2020 Kuroto Fund began adding oil producers to the portfolio in August 2020. Today, we own four oil companies. Cumulatively, our portfolio of oil companies have added $5mn to our P&L, but more than all of this performance has come from one company, Seplat. By our calculation Seplat will be generating a free cash flow yield of ~28% once it consummates the acquisition of Exxon Mobil Nigeria early next year. While our remaining portfolio of oil companies, in aggregate, have yet to contribute positively to our returns, they are executing and delivering strong fundamental progress. One of these portfolio companies we expect will complete an acquisition this month that should increase production by 60%. Two others should bring on long-delayed fields before year-end and we expect all three to release meaningful exploration results over the next six months. 

Equinox Partners, L.P. - Q3 2024 Letter

By Kieran Brennan • October 31, 2024
Dear Partners and Friends, PERFORMANCE Equinox Partners, L.P. rose +16.4% in the third quarter of 2024 and is up +25.9% for the year through September 30th. The positive performance for the quarter was driven by the revaluation of our largest position, Crew Energy, which was up +70% in the quarter on the news it would be acquired by Tourmaline Oil. A breakdown of Equinox Partners exposures can be found here . Crew Energy Investment Post-Mortem On October 1st, Tourmaline Oil acquired Crew Energy bringing a decade-long Equinox Partners’ investment to a successful conclusion. Crew transacted for $1.15 billion USD, which included $960MM USD in Tourmaline shares and $190MM USD of assumed debt. The 72% premium Tourmaline paid resulted in an 11.6% IRR on our investment. This IRR, however, understates the positive impact Crew has had on our performance in recent years. Since we upsized our investment in Crew in the spring of 2020, Crew has been the most significant driver of our fund’s returns. Over the entire life of the investment, Crew contributed a cumulative +139% to our fund’s performance. Accordingly, we felt an investment review is in order. Attracted by Crew Energy’s low-cost and long-lived natural gas reserves in British Columbia, we first invested in December of 2014. At the time of our initial purchase, the Canadian natural gas strip averaged CAD $3.75. If strip prices held, Crew would be able to grow its production at 20%+ per year for a decade with internally generated cash flow. While our thesis about the quality of Crew’s assets was accurate, our assumptions about natural gas prices in North America proved too optimistic. The North American natural benchmark, Henry Hub, averaged just USD $3.09 over the past decade, and the Western Canada benchmark, AECO, fared even worse averaging CAD $2.59. 

Equinox Partners Precious Metals Fund, L.P. - Q2 2024 Letter

By Kieran Brennan • July 24, 2024
Dear Partners and Friends, PERFORMANCE Equinox Partners Precious Metals Fund, L.P. rose +2.1% in the second quarter, and is up +7.7% for the 2024 year-to-date through the end of June. Our portfolio of producing gold companies have been the primary drivers of contribution to return, while the early stage explorers and developers have traded down despite the rising metals price. A breakdown of Equinox Partners Precious Metals Fund's exposures can be found here . Gold Miners vs. Gold

Equinox Partners, L.P. - Q2 2024 Letter

By Kieran Brennan • July 24, 2024
Dear Partners and Friends, PERFORMANCE Equinox Partners, L.P. rose +5.7% in the second quarter of 2024. The positive performance for the quarter was primarily driven by our mining positions, with additional positive contribution from our energy companies. A breakdown of Equinox Partners exposures can be found here . Gold Miners vs. Gold 
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