Updated note from Morgans analyst - Chris Brown EQ Resources...

Updated note from Morgans analyst - Chris Brown

EQ Resources (ASX:EQR) Market Cap @ A5.6cps: A$107.5M Valuation & TP: A$0.10 EQ Resources share price falls - Oaktree Capital subscribes at 9 cents per EQR share EQR acquired the European tungsten producer Saloro S.L.U., which operates the Barruecopardo tungsten mine in Spain. As part of the transaction, Oaktree Capital subscribed A$25M to EQR for the issue of EQR shares at A9 cents per share. The money is in the bank. Oaktree is a leading global investment manager with $183 billion in assets under management as of September 30, 2023. Oaktree has a value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The EQR shareprice has weakened again, apparently with the release of this downgraded – but realistic and anticipated - resource for Barruecpardo. The resource released today – 7 February – is 24.4Mt @ 0.19% WO3, compared with the reported resource at the time of the acquisition – and treated with some scepticism by EQR at the time – of 27.4Mt @ 0.26% WO3. The current resource table is below. You can buy EQR shares on the ASX at A5.6 cents today. Barruecopardo tungsten mine, Spain The Mineral Resource Estimate (MRE) was recalculated from first principles using the latest geological interpretation and best practices as defined under the JORC 2012 Code by Independent Contractor Jorg Pohl (A Competent Person under the 2012 JORC Code). The Saloro deposit (veins) was historically mined in a small open cut and underground by artisans in the 1900s followed in 1970s by a larger 8Mt pit open cut. The current mining phase began in 2019 with processing through a new 2,500tpd processing plant. The plant failed to achieve nameplate capacity. Successful operation of a single TOMRA XRT ore sorter indicates that additional TOMRAs – a second is now commissioning – will enable Saloro to achieve design performance. Since acquisition, EQR has expressed some caution about the Barruecopardo resource statement, and has now released a revised resource, based on projected operating costs and metrics. The reduction in grade from 0.26% WO3 to 0.19% was not unexpected. The mine life based on this resource still exceeds 10 years. The tungsten system remains open along strike and to depth. The Exploration Potential of the resource could significantly increase the existing resource size with further infill drilling, and a more thorough understanding of operating costs. EQ Resources - the largest tungsten miner in the Western World. With the Barruecopardo acquisition EQR will double tungsten production, with 2 operating mines, each with a 10-year life from existing resources and potential for the addition of resources at both operations. It’s been a wet Wet Season at Mt Carbine, in behind Cairns – Cyclone Jasper, and then Kirilly - and they’re really still ramping up the operation after re-starting the open cut (at 0.19% WO3) in June 2023. In the December 2023 Quarter, Mt Carbine crushed 122,839t (150,600t in the September Q). The sorters processed 89,488t (130,519t previously). I expect the Wet will have some effect on the March Quarter 2024 results. Soloro is still ramping up processing and commissioning the second TOMRA ore sorter, and it’s likely that they’ll need a third TOMRA to reach nameplate. I’m waiting for the June 2024 Quarter to confirm my expectations of the production potential for both operations. I’d expect the discount to my current Valuation – and to the price which Oaktree paid – to decrease as the operating results become evident.
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). Regards, Chris Brown