Updated research from Pac partners. They had already assumed a...

Updated research from Pac partners. They had already assumed a resource upgrade in their 12c target price. The update just strengthens their conviction.

COMPANY	EQ Resources (ASX:EQR)	4 April 2023
EVENT	Resource and Company Update Ahead of Open Pit Mining
LINK SECTOR RPT	Tungsten Industry - A critical renaissance (March-23)
LINK EQR REPORT	EQ Resources: Small start, significant potential (Dec-22)

Ahead of starting open pit operations, EQ Resources has released a significantMineral Resource update.

1. An increase in total in-situ Mineral Resource of ~30%,

2. An increase in Indicated Category by 64% (to ~10 million mtu of WO3),

3. This follows the recent 24’000 metre diamond drilling campaign which revealed some industry leading higher grade results at depth (8.65m @ 0.56% WO3, 18.24m @ 1.00% WO3).

4. The increase in Indicated Resource Classification is key to potential conversion into Mineral Reserves so as to extend EQR’s modest beginnings (of a 4-year reserve life).

EQR has also updated its near-term outlook as it approaches first openpit mining:

1. Mining contractor is set to fully mobilize in May

2. Open cut mining is on track to commence in June

3. Year 1 production guidance issued: 760kt ore mined at 0.44% WO3.

Figure: Mt Carbine MRE April 2023

Source: ASX

Track record of positive updates: This Resource increase follows onfrom other recent updates confirming EQ’s ability to deliver on expectations:

1. Fully Funded Development Confirmed: $5m Drawn from Royalty Pre-payment Agreement. Plus $4.2m due to be received from Critical Minerals Grant Program (31-March)

2. Mining Lease Renewed 19 years (24-March)

3. $2.6m in Revenue from Tungsten and Quarry Rock Sales 6 months to 31-Dec Half Year (15-March)

4. Regulatory Approval to Commence Open Pit Mining (6-March)

5. High grade mineralisation identified (27-Feb)

Where to from here? FCF in sight…

1. Expect an updated mining Reserve by mid-year. We already model 8 years of open cut mining within our ~$200m or 12c valuation, so for us this should be confirmatory (or otherwise) of our positive view on valuation.

2. The high-grade drilling results at depth also indicate a long-term underground extension of Mt Carbine is likely, providing other long term valuation upside.

3. This should see a step change in the Mt Carbine project from modest beginnings as a tailings processing operation, into a multi-year open cut and underground mining project capable of being financed from FCF.

Sametonnage, more concentrate? Astailings swapped out for mined ore.

The risks of restart of the open pit are top of mind given the tumult wesee elsewhere in the global tungsten industry (refer Tungsten West’s recentrecapitalization announcement).Our riskassessment discussions with EQR management broadly confirm:

1. Fully funded development with drawdowns from royalty and grant agreements announced.

2. Processing risk low given tailings have been processed for 18 months now (“trail mining”) and plant throughput to be unchanged except for the introduction of roll crushers and more jigs. The company has already processed higher 0.3% material in recent months within expected recoveries (up from the 0.07% material currently).

3. Visibility on 1^st year production with guidance 760kt @ 0.44% WO3 to be sourced from a low risk pit floor location. This production guidance is inline with our estimates.

4. Open pit has been successfully dewatered, mining fleet and contractor staff sourced and on schedule.

5. FCF in sight: Management are confident that as first production commences, profitability will follow fast as tungsten prices $320-$330/MTU are well over cost of production ~$170/MTU (PAC estimate).

6. We reiterate our positive view on EQR.

Figure: Higher Grade “Pit Floor” Material to beMined in Year 1

Source: ASX

Meanwhile in the UK

Tungsten West (LSE:TUN) shares were down 53% on 3-Aprilas they launched a recapitalisation plan, largely due to capex inflation andthe difficulty in finding finance for a vast lower grade (0.12%) tungstenmine. We profiled the company and its large Hemerdon Mine redevelopmentin our recent sector note on page 13.Previous guidance was to commissionproduction later this year. This development highlights that despite widemargins currently on offer from tungsten mining, it remains notoriouslydifficult to get a tungsten mine financed, developed and into productionincluding successful process plant realisations. This is covered in our recentsector note: Tungsten Industry - A critical renaissance (March-23)

James Gurry -PAC Partners

Director/ Senior Analyst

Mobile: +61 451 349 688

Level 29, 360 CollinsStreet , Melbourne VIC 3000