broker report

Equinox Minerals (EQN, $3.85) Buy EQN has secured additional trucks, which should lift material movements significantly and provide more flexibility to manage stockpiles. We remain positive with the stock trading at 20% below our NPV, productivity on the rise, solid growth options and leverage to copper, which is our preferred base metal. The key positive from the quarterly is that Hitachi is to mobilise an additional five 240t trucks to make up lost availability (due on site in mid-2010). Once the lost hours are made up, EQN is to purchase the trucks at their depreciated value (around mid-2011), which we estimate at US$20m. EQN currently has 27 240t Hitachi trucks on site, running at 80- 83% availability. We calculate an additional five 240t trucks would notionally increase availability to 98% for the existing fleet. We believe this will lead to a step change in material movements and provide significant flexibility to manage stockpiles. Overall a very good outcome, in our view.
EQN is trading 20% below our NPV, which looks cheap to us relative to the rest of the sector.

This discount should narrow as production results improve as we expect through 2010 and expansion plans move closer to reality. EQN is the most leveraged stock to copper that we cover, which remains our preferred base metal. In our view, the outlook for the company has improved materially due to the additional trucks coming to site, and unit costs should improve as production ramps up. We maintain our Buy recommendation and A$4.71 target price.