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Vancouver-based Equinox started construction of the Greenstone open-pit gold mine in Geraldton, Ont. late last month.Greenstone Gold Mines

Equinox Gold Corp. is betting big on a new gold project in Ontario, but with the mining industry’s history of cost overruns and start up problems at new mines, the venture is far from risk-free.

Late last month, Vancouver-based Equinox started construction of the Greenstone open-pit gold mine in Geraldton, Ont. Greenstone promises to be an important economic driver for Northern Ontario, creating more than 2,000 jobs during the construction phase, and another 500 positions once the mine starts production in 2024.

The project is 60 per cent owned by Equinox, with New York-based Orion Mine Finance Group owning the rest. Greenstone is on track to be the fourth biggest gold mine in Canada, with annual production of 400,000 ounces over 14 years.

Founded in 2018 by mining financier Ross Beaty, Equinox currently operates seven gold mines in the Americas, and has grown in large part through M&A. Equinox acquired its stake in Greenstone last year through its $612-million acquisition of Premier Gold Mines Ltd.

Once Greenstone is in production, Equinox should be producing about a million ounces of gold a year, a significant milestone for any gold miner. Greenstone is also a key part of the company’s strategy to reduce its exposure to more volatile mining jurisdictions. Equinox’s share price has come under repeated pressure after several blockades because of community unrest at its Los Filos mine in Mexico.

Few gold mines are built on budget these days, and with inflation creeping into the mining supply chain, investors will watch for any rise in Greenstone’s construction costs. Iamgold Corp., which is also building a mine in Ontario, has jacked up its cost estimate on its 70-per-cent-owned Côté Gold mine on several occasions, most recently in the summer to US$1.8-billion from US$1.4-billion a year earlier.

Equinox too recently increased its capital-cost estimate on Greenstone by US$200-million to US$1.2-billion, in part to account for an anticipated rise in diesel and steel prices. However, Equinox’s chief executive officer, Christian Milau, is optimistic the company can stick to the latest cost tally, which includes a sizable contingency of US$177-million.

“We’re feeling pretty confident in the number and we’ve got a good track record of delivering on-time and on-budget projects,” he said.

Investors will also be on the lookout for any startup problems at Greenstone. In Ontario, operational setbacks at new gold mines have become commonplace, in part because the geology is notoriously tricky.

About five years ago, shareholders in Rubicon Minerals Corp. were completely wiped out when the company was forced to seek creditor protection after it made basic geological and engineering mistakes. (Rubicon eventually emerged from creditor protection under new management, and the project was resurrected on a much smaller scale.)

More recently, Pure Gold Inc. has struggled this year with startup problems at its newly constructed Madsen mine, with the junior miner experiencing a shortfall in both production and grade. But Mr. Milau says there is little or no chance that Equinox will run into similar geological problems.

“Pure Gold didn’t have enough of a handle on how they were going to mine [the deposit], and maybe the grade. That’s the one thing we actually feel really confident about in this project,” he said.

And unlike both Rubicon and Pure Gold, Equinox already has considerable experience building mines, having constructed both the Aurizona and Castle Mountain mines in Brazil and California, respectively. The company is also nearing the end of construction of the Santa Luz mine in Brazil. While much smaller in scale than Greenstone, all three mine constructions have gone well.

Kerry Smith, analyst with Haywood Securities Inc., said the team behind the construction of Greenstone is mostly made up of former mine builders with Agnico Eagle Mines Ltd. Agnico has a sterling reputation in mine building, giving Mr. Smith comfort that the Greenstone construction should be relatively smooth.

“That team’s been together for quite some time. They’re very capable,” said Mr. Smith. “They’ve built projects in the past. They know what they’re doing.”

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