Update research piece from Morgans - TP and valuation under...

Update research piece from Morgans - TP and valuation under review.

	I’m trying to get across to you the fact that EQR is: The largest Western (non-Chinese) tungsten producer - one mine in Europe, one in Australia Tungsten is a critical mineral, and Western price and demand are expected to lift The Saloro mine, Spain, is now cashflow positive, with higher recoveries to lift output The Mt Carbine, Queensland, mine has suffered (is suffering) from Townsville’s wet Wet Season EQR’s cash position was tight at 31 December 2024, and is probably tighter now These offtake agreements have an advance component, critical for EQR’s cash position At an annualised 235,000mtu they are what I model as current production I model increasing output at both mines, with Year 2 offtake representing 80% of output EQR has the components in place to move to 400,000mtu per year EQ Resources (ASX:EQR) Market Cap. @ A4.8cps: A$101.5M Valuation & TP: under review In production Offtake agreements for next 24 months of production at the current production rate For 9,400t of 50% WO3 concentrate – 470,000mtu – an estimated US$124M at current prices Given the recent export controls of tungsten products from China, amid growing concern about security of supply of critical minerals, these offtake agreements with North American and European consumers are significant in terms of demand volume and price. In the immediate term these commitments provide certainty for sales and revenue generation. The most significant feature for our analysis is that: “Each long-term offtake contract has an advance payment component, payable against the attainment of certain conditions and milestones. The Company has worked through contract conditions and expects final milestone for the outstanding advance payment to be reached latest by the end of Q2 CY2025.” Production at Mt Carbine, North Queensland, was a low 9,043mtu, with low water availability in the December 2024 Quarter, taking the mine below cashflow breakeven, which we estimate at approximately 25,000mtu per Quarter. March 2025 Quarter production is hampered by the Wet Season. Given the previous, and now current rainfall in Townsville – EQR’s consumables and product exports go through the Port of Townsville – we anticipate another weak production quarter from Mt Carbine. At Saloro, Spain, a record 33,249 metric tonne units (10kg = mtu) of Tungsten in concentrate was produced in the December 2024 Quarter (previously 27,965mtu), with process recovery lifting to 56%. The +70% recovery anticipated is expected to take Quarterly production above 40,000mtu. EQR finished the December 2024 Quarter with A$2.0M in cash. While we assess Saloro as generating cashflow, our concern is the cash position generated by low production at Mt Carbine. The tungsten market The tungsten market is dominated by production from China, responsible for 80-85% of supply. As with lithium and Rare Earth Elements, there is concern in Western countries about the security of supply. This concern about supply security is now being seen in product contract terms. “The global demand for tungsten is growing and our side we are fully committed for the next two years at least. The recent price increases have been fuelled by the China export control, resulting in great uncertainty for downstream customers. This in turn has led to customers looking to lock in future supply via long-term offtake arrangements. There is currently no timeline announced by when exports from China will resume”,
Cashflow, debt and development The December 2024 Quarter cashflow report shows receipts from customers of A$18.9M. Production, staff costs and administration totalled A$23.9M – approximately A$8M per month. The issue of shares (A$4.9M) and Convertible Notes (A$3.0M), and A$1.0M in concentrate pre-payments saw EQR finish the Quarter with A$2.0M in cash. Drawn bank debt was A$41.1M, with a further A$0.7M undrawn. Significant shareholder Cronimet (5.7% of EQR) has advanced an offtake facility of A$10.5M, and a Working Capital facility of A$2.1, totalling A$12.6M. EQR’s resource base is suitable to double output at both centres, but this will require development capital. Disclosure: The analyst involved in the preparation of this Research Flash holds shares in EQ Resources (ASX:EQR).