A updated comment from Morgans Resources Analyst Chris Brown...

A updated comment from Morgans Resources Analyst Chris Brown

You will be aware that I sometimes send outinformation and reports from London-based broker SP Angel. This is their takeon the EQ Resources acquisition of the Barruecopardo tungsten mine, SalmancaProvince, Spain. As you may be aware, getting approvals to operate in Spaininvolves a bureaucratic morass of EU, National, Provincial and localregulations (and bureaucracy) – think Highfield potash and Elementos tin. ButBarruecopardo is operating, employing people and producing tungstenconcentrate. It’s through that morass.

Production from Barruecopardo is currently 140t permonth of concentrate at +65% WO3, compared with Mt Carbine’s current 110tpm at+50% WO3. Recovery at Barruecopardo will lift as another 2 or 3 ore sorters aresourced and brought on line. Production at Mt Carbine will lift with the movefrom processing stockpile ore (0.075% WO3) to hard rock ore (0.3% WO3). That’llbe a fourfold increase due to grade alone.

As SP Angel notes, Oaktree Capital (the ultimateowner of Saloro, which owns Barruecopardo), has sold its Euro 80 Millionintercompany loan (A$130M) to EQR for 1 Euro. EQR will also acquire the Euro35Million of external debt. Obviously, not all of that A$190M was well spentdeveloping Barruecopardo, but most of it was. And EQR gets the asset forassuming the debt – less the A$25M which Oaktree will put into EQR by acquiring278M shares at A$0.09 each. This acquisition gives EQR two production centresfor tungsten - a critical and/or strategic mineral - with one of these in theEuropean Union. As EQR has stated, they’re now the largest non-Chinese producerof tungsten concentrate.

With the injection of A$25M from Oaktree it looks likethey’ve got the cash to lift production at Barruecopardo and Mt Carbine to thenext targeted levels. The debt of approx. A$60M is supported by Oaktree for thenext 18 months, but as the production levels lift and the cashflow becomesevident, we’d expect the debt to be re-negotiated. We’re also expecting anunwinding of the 50/50JV with metals trader and tungsten processor CRONIMETGroup, for processing the 11Mt low grade stockpile at Mt Carbine. I’ll updatemy EQR model once I’ve got my head around the financial aspects of theacquisition. But getting the A$190M of asset for A$60M, after management has hada good long look at the project and with the first TOMRA ore sorter installedand operational sounds good to me.

From SP Angel:

EQ Resources (EQR AU) A$0.079, Mkt Cap A$110m –Acquisition of Barruecopardo to create a major western world tungsten concentrateproducer

• EQ Resources which operates the Mt Carbine tungsten mine in Queensland, has announced a binding agreement with the investment company, Oaktree Capital, to acquire the Spanish tungsten producer, Saloro, which operates the Barruecopardo tungsten mine in Salamanca Province.
• EQ Resources will acquire Saloro for “a nominal consideration of EUR1 and the benefit of all of the intercompany loans owed by Saloro to the Oaktree group (which is approximately EUR80,000,000) for EUR1”.
• In addition, EQ Resources will issue 278 million shares to Oaktree at an issue price of A$0.09 per share (approximately A$25m) and grant 78 million Options at A$0.10 per share, exercisable within a period of 2 years.
• As a result, Oaktree will own 15.86% of EQ Resources.
• The A$25m will be deployed to repay A$8.34m of Saloro’s debt, for A$8.34m of additional capital investment at Barruecopardo and for additional working capital.
• EQR says that key operational improvements which will be part of its initial focus include:
  • the installation of X-Ray sorting; and
  • improving metallurgical recovery through optimisation of feed to the jigs, spirals and tables; and
  • “Installation of a new fines recovery circuit”; and
  • “Pit mapping of alteration and fluid flow vectors to understand potential mineralisation extensions” and “gaining a better understanding of the potential strike extent and repetition of jog structures”
• The company says that the transaction will make it “the largest tungsten concentrate producer in the Western World, with a robust growth pipeline across two top-tier mining jurisdictions”.
• The historic Barruecopardo mine was reopened in 2019 “after nearly 40 years of shutdown” and is currently producing “approximately 140 tons/month of high-grade (>65% WO3) tungsten concentrate, with various minor plant expansion projects ongoing for higher recovery and throughput”.
• With world supply dominated by China, tungsten features as a critical mineral commodity in a number of jurisdictions including the US, EU, Australia and Japan. The emergence of a sizeable western world producer is likely to be a welcome development for intermediate processors and end-users in these areas.

Conclusion: The acquisition of an established, Spanish, tungsten producer inaddition to its Australian operation establishes EQ Resources as a significantforce in the supply of western-world tungsten.