Update for June quarter: excellent progress at Mayoko and Badondo.
Mayoko resource drilling is accelerating: Drilling continued at EQX’s 100% owned Mayoko-Moussondji Iron Project in the Republic of Congo (ROC), with 25,832m of RC and DC completed in 2Q12. Drilling at the Makengui Prospect (12km x 5km) is targeting high grade hematite mineralisation. An initial resource estimate is firmly expected in 2H12, with an update in 2013.
Remaining Metallurgical tests positive so far, +63% Fe products: Results include Davis Tube Recovery (DTR) for magnetite BIF (69% Fe, mass recovery 50%, low impurities) and beneficiation testing of colluvial material (63.4% Fe, mass rec 61%). Bulk testing of DSO, pDSO and colluvium (8.4t) is in progress (2H12). Study manager Dr John Clout, ex-FMG and CSIRO, is an expert on beneficiation.
Integrated rail and port feasibility studies in progress: Existing studies of the port at Pointe-Noire and the railway linking to Mayoko-Moussondji have been reviewed by EQX’s integrated project team (ex-FMG). Independent feasibility studies, including cost estimates, will start in 2H12. The port study will focus on a favoured option, which could be either at Pointe-Noire, or the proposed bulk commodity port of Pointe-Indienne where EQX has a designated zone.
Badondo drilling returns high grade hematite: Heli-drilling has started on massively outcropping hematite BIF at Badondo (north west ROC, 20-30 core holes, 5000m). Assays from the initial hole averaged 62.9% Fe from surface to 42m, in canga (detrital) material. The canga is high in phosphorus (P 0.16%) but could be beneficiable. The in-situ BIF is expected to have low P.
Investment View: maintain BUY (Speculative), target $3.88: Near-term price drivers for EQX could be a Mayoko resource and a likely infrastructure JV with Exxaro Resources (EXX.JSE, spending $200m on fast-tracking its own Mayoko Project). If finalised, the sale of Sundance (SDL.ASX) to Hanlong could bring a railway and asset consolidation to north-west ROC, and add value to Badondo..
I think it's a little hard to come up with possible prices based on fundamentals though when none of the information has been released as yet. We are waiting on a maiden JORC, don't know the base case for the project yet (thought it would be 5mtpa but management is looking at larger), and we don't know OPEX & CAPEX figures. It's all a bit 'best guess' at the moment. Some research I had read was talking about an OPEX of around $50p/t and our next door neighbour had calculated a $250-300m CAPEX for a 5mtpa being being taken out by Exxaro. That's what most of us were working off. An Exxaro infrastructure JV may change those assumptions though.
EQX Price at posting:
$1.79 Sentiment: Buy Disclosure: Held
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