Ann: EQR acquires Tungsten Producer and Secures $25M Funding, page-69

PacPartners

EQ Resources becomes a globallycritical, critical minerals producer…

Link to note

KEY POINTS

· EQ’sacquisition of the operating Barruecopardo mine in Spain launches the companyonto the global critical minerals stage,with production Hubs in Australia and Europe. The transaction lifts forecastproduction by 30-50% and adds significant mine life (~15 years) which wasotherwise wanting in EQ’s current investment case. While only running at 50% ofplanned nameplate capacity, the mine is currently modestly FCF positive and thekey to future success is lifting recovery rates (by ore sorting and otherprocess improvements such as those trialled and implemented by EQ at MtCarbine… and pilot tested in Spain as part of the Due Diligence).

· The vendorappears to be a willing seller of a mine it inherited full control of in recentyears when its project partner was forced toexit. In addition to selling its mine for a nominal amount, Oaktree shallcontribute $25m cash in exchange for 15% of EQR (9c per share 30% premium), aboard seat, 2 audit committee positions and EQ shall take on EUR 35m in projectlevel debt (~A$55m) guaranteed by the vendor for some time yet.

· Our modelling and valuation are updated to reflect MtCarbine progress but not yet fully integrating this transaction pending releaseof further mine metrics for Spain. However our scenario modelling suggests netcash within 15 months (detail in note).

· Our targetprice increases to 15c from 12c previously, based purely on Mt Carbine’s latestfeasibility study update.

kEY dRIVERS:

· Q3 Report: Should see EQ report positive significant FCF from Mt Carbine as itramps up to full production. We expect this to drive positive share price performanceas EQ proves out its operating credentials.

· A CriticalMineral Slipstream: Now that EQ hascatapulted itself into prominence as a western critical minerals producer, weexpect the company to further pursue critical mineral funding opportunities tounderpin security of supply to wanting customers/geographies.

· Increasingproduction and recovery in Spain:The key success in the transaction shall be EQ’s ability to apply its knowhowto lift recovery and production rates (from 40% towards industry expected 70%,and 140t/month production towards 200t/month).

RISKS

· Risks include(and not limited to): Tungsten prices, rampup risks at Mt Carbine (although our recent site visit did not reveal anythingof note), management capability to integrate this acquisition and operate 2production hubs that are hemispheres apart.

See notefor more detail: Link to note

Our previous sector note provided extensive tungsten industry overview: (TungstenIndustry: A Critical Renaissance, March 2023).