Research update from Morgans (without the two photos. While he...

Research update from Morgans (without the two photos. While he hasn't increased his target price. The summary suggest that it will be done in the coming months as production lifts.

EQ Resources (ASX:EQR) Market Cap @ A7.6cps: A$112.1M Valuation & TP: A$0.10 Largest tungsten miner in the Western World – and a cash injection at A$0.09 per EQR share
EQR has acquired the company which operates the Barruecopardo tungsten mine in Spain, with resources to JORC Code (2004) standards (not yet updated to 2012 standards) of 27Mt @ 0.26% WO3. This compares with the resource to JORC Code (2012) standards of 29Mt @ 0.30% WO3 at EQR’s wholly-owned Mt Carbine mine, Far North Queensland, and which is now in production from the re-developed open pit. EQR management has extensive experience with TOMRA XRT sorters and operates three at Mt Carbine mine. EQR management and its technical advisers have been involved with the installation and commissioning of the first TOMRA XRT sorter at Barruecopardo, and have evaluated the improvement to Barruecopardo’s operational performance. The project has had a chequered history, commissioning the mine – without sorters – through the COVID-19 pandemic. The ultimate owner of Barruecopardo, Oaktree Capital Management L.P. will subscribe for 278 million shares in EQR at A$0.09 per share. The funds will be equally split repaying bank facilities on Barruecopardo, upgrading the Baruecopardo process circuit and adding further TOMRA sorters, and for EQR’s working capital. Barruecopardo has a mining history dating back almost 100 years. Historic activities ceased at the old mine in the early 1980s. After 10 years of preparation including a 15-month construction period, Saloro brought the Barruecopardo mine back online in early 2019 leveraging modern technology after nearly 40 years of shutdown. Mining and concentrating activities at the mine are designed to minimise any environmental impact while ensuring a high mineral recovery. Current production is approximately 140 tons/month of high-grade (>65% WO3) tungsten concentrate, with various minor plant expansion projects ongoing for higher recovery and throughput. Our view and interpretation With the acquisition EQR will acquire the debt of approximately Euro35 million owed to various “reputable third parties”, listed in an annexure to the announcement. A condition precedent is that these facilities are extended to at least 18 months after completion of this transaction. The owners of Barruecopardo will subscribe for 278 million shares in EQR at A$0.09 per share, and will be issued 78 million options to subscribe at A$0.10 per share with a 2-year life. As we noted last time we issued a RSEARCH FLASH: Our expectation is that the (Mt Carbine) resource will be increased (further) by drilling, and that there will be further additions to the Reserve base. My valuation and target price are currently A$0.10, and it’ll probably continue to go up as the hard rock mining re-starts (it has) and as the optimisation of extracting the resource evolves (it has as well). Now they’ve doubled production, acquired Euro35M in debt and A$25M in equity. Sure, some of that is earmarked for debt repayment (A$8.34M) but the same amount is to improve the Spanish operation, and the same for EQR’s working capital. I like it.
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).