Ann: Strategic Partner Cronimet Joins EQR Register, page-24

Below is an updated research note from Pac Partners following yesterdays "JV unwind" announcement.
Hopefully, this will provide doubters as to whether or not this is a positive for shareholders
Of course it is ! You would have to be brain dead to think otherwise
Their updated target share price is now $0.15c (Spain not fully factored into this price)

EQ Resources has reached a simplifying agreementwith its offtake partner and initial financier Cronimet. We see this asset for equity swap to be value accretive for EQR shareholdersand simplifies the corporate structure as EQ ramps up Mt Carbine in Queensland and brings into the fold the recently acquired Barruecopardo mine in Spain.

We had previously valued 100% of the Low Grade Stockpile (LGS) JV with Cornimet at ~A$50m. This agreement sees EQ acquire 50% of thatasset for US$7.5m in stock (~A$12m)for an operation that sits alongside, and is complementary to, the Mt Carbine open cut operations. The LGS is now used in concentrate blending, and ore substitution/fallback when higher grade open cut ore is not available, and the equipment used for the original LGS processing forms the basis of the expanded processing plant now in operation.

The issuance of stock to Cronimet will also mean further alignment of Cronimetinterests with other shareholders, including Oaktree (when the Spanish acquisition settles), and all other minority shareholders. With both these insiders taking shares in EQ at 9c per share (30% premium to recent trading), we see valuable insight into a decent “insider” entry price and alignment on long term valuation potential. Our target price of 15c offers 100% upside from current levels, and only partially takes into account asset value in Spain (we’ve measured the liabilities but a full mine model awaits Australian JORC compliance data release).

Cronimet has been instrumental in getting EQ to where it istoday.

In 2018, when the market cap was A$7m, Cronimet stepped in with an initial A$5m offtake prepayment (ended up being US$6.5m in total), assisted in securing backing for a wider equity placement, enabled EQ to purchase the operating quarry, mining leases and establishing the 50/50 JV around the 12Mt long life low grade stockpile operation. Cronimet also took a board position and has been an overwhelmingly positive influence on the growth in company value since.

Deal details – unwinding of LGS JV at Mt Carbine:

• EQ acquires 50% of the JV (PAC value 100% at ~A$50m)
• In exchange, EQ to issue Cronimet US$7.5m worth of EQ shares at A$0.09c (same as the recently agreed Oaktree issue price).
• (we estimate Cronimet would end up with around 8% of EQ on current shares outstanding which would dilute to ~7% when Oaktree takes up its shareholding expected next month).
• EQ to repay US$2.2m of lease financing provided by Cronimet on a longer dated repayment schedule.
• EQ to continue to supply Mt Carbine concentrate to Cronimet for offtake marketing, and enter into a new similar agreement in Spain in due course.
• Cronimet retains its board position, currently Chairperson, amongst a 4 person total board of directors, which increases to 5 when Oaktree makes its nomination.

Catalystsfrom here: Reaching FCF at Mt Carbine, then Spain, plus continued incrementalcorporate value adding

• Australian FCF. Continued ramp up of production and breaking into FCF generation at Mt Carbine in Qld. This aspect alone underpins our positive 12 month view, valuation and target price.
• Turning the Spanish bull. Incremental improvement in overall recovery rates at the Spanish operations building on the 40% pre EQ recovery rate, to the 50% current recovery rate (as disclosed) and towards an achievable (and FCF generating) 60%+ via a series of incremental improvements (including of course the EQ penchant for using ore sorting technology effectively).
• Prices: A reviving defence focused global tungsten market. Geopolitical tensions and warfare throughout the world appear to be a potential reinvigorated driver for tungsten purchases from strategic (national) buyers. We have noted in our sector research ( Tungsten Industry: A Critical Renaissance, March 2023) the dwindling US strategic stockpile of tungsten. Current price US$305/mtu provides for 50%+ margins.
• Continued EQ industry consolidation moves. The EQ-Croniment simplification deal comes after EQ’s Barruecopardo mine acquisition in Spain, operational assumption of the dormant Wolfram Camp mine in Queensland, an MoU with sector leader Masan Group Vietnam (who now purchases Mt Carbine concentrate), and a MoU with the EU Critical Minerals Alliance. All of these corporate style moves in addition to a ramping up production, suggest that EQ Resources, from its modest set up in Far North Queensland, is on a positive long term journey.