Tungsten - Morgans Flash Note

Morgans updated their research note with a TP of 7c. .

Summary from Chris Brown
Mt Carbine is the most advanced tungsten play in Australia. As the resource is increased, operational efficiencies confirmed, and the ore throughput increased back to previous levels of 2Mtpy, our expectation is that the EQR price will lift well beyond
our current Target Price.

EQ Resources (ASX:EQR) Market Cap @ A4.7cps: A$68.8M Valuation & TP: A$0.07 Financed for Phase 2 project development
Mt Carbine tungsten mine ramping up production. ● EQR announced it had received funds from the first drawdown equating to 30% of the $6 million grant from the Federal Government’s Critical Minerals Accelerator Initiative in December 2022. ● With other financing in place this completes the funding for the redevelopment of the Mt Carbine open pit and expansion of the existing processing plant to handle the higher grade open pit ore (3.2% WO3 cf 0.075% in current low grade stockpile). ● In the December 2022 Quarter the crushing plant achieved its average throughput of +170tph during operations. The early onset of the seasonal wet weather resulted in stoppages, and the system was changed to wet screening. This enabled EQR to maintaining continuous operations at the back end of the Quarter. Operational optimisation including automation of the crushing plant and upgrading the process water pump delivered increase running times and overall throughput of the plant. ● The three processing plants – (1) Crushing/Screening, (2) XRT Sorters and (3) Gravity processing - continued processing through the various rain events after the upgrades through the end of the quarter, as evident in the Gravity Plant throughput graph below (styled Figure 6, from EQR’s Quarterly). ● EQR continues to grow its tungsten concentrate production output quarter on quarter although the increase in the December 2022 Quarter was less than we’d anticipated, with the limitation on running times. Given the crushing limitations, the gravity processing plant feed was supplemented from the historic tailings. Quarterly concentrate production – with a notional grade of 50% WO3 – is shown below (Figure & from the Quarterly). ● With the continuation of La Niña, some disruption to production should be anticipated in the current Quarter. A positive cashflow from operations at Mt Carbine would be welcome, but the maintenance of increased run-time and optimisation of the process plant ahead of mining the open pit is the more critical issue for EQR. 1. Our view and interpretation EQR has now successfully installed, commissioned and operates two TOMRA XRT ore sorters processing the 12Mt Low Grade Stockpile (LGS) ore from the 1973-1986 mining campaign. This is in a 50/50 JV with European metals recycler/trader CRONIMET GmbH. For us the value for EQR lies in tungsten concentrate production to come from the wholly owned open pit, with the JV enabling EQR to optimise production. CRONIMET has the offtake agreement. A projected cost of US$118/mtu would place Mt Carbine as a low cost producer with a strong margin, given the current APT price is US$320/mtu. EQR’s experience in operating at Mt Carbine gives us confidence in the Bankable Feasibility Study (BFS) numbers. Our expectation is that the resource will be increased by drilling, and that there will be further additions to the Reserve base. Both Mt Carbine and King Island Scheelite closed in 1987 when China, which dominated the tungsten market, collapsed the APT price from US$150/mtu to US$50/mtu. The strategic importance of tungsten is now recognised. Mt Carbine is the most advanced tungsten play in Australia. As the resource is increased, operational efficiencies confirmed, and the ore throughput increased back to previous levels of 2Mtpy, our expectation is that the EQR price will lift well beyond our current Target Price. A detailed Emerging Company report will update a report produced at the start of 2022.
Disclosure: Morgans Corporate Limited was a lead Manager to the Placement of shares in EQ Resources Limited in March 2021 and received fees in this regard Morgans Corporate Limited holds 25.0m Options in EQ Resources Limited at an exercise price of $0.0432 expiring 19 March 2024 as a result of capital raising activities. The Consultant involved in the preparation of this Research Flash holds shares in EQ Resources (ASX:EQR).