Update from Morgans on the MOU. A very positive read. EQ...

Update from Morgans on the MOU. A very positive read.

EQ Resources (ASX:EQR) Market Cap @ A6.4cps: A$93.7M Valuation & TP: A$0.10 Offtake agreements – there are MOUs, and then there are other MOUs
The ASX doesn’t think this is significant because it’s just an MOU. It’s not on IRESS. ● EQ Resources and its existing offtake partner, German metals recycler and trader CRONIMET Group have announced a Memorandum of Understanding (MOU) with Vietnam-headquartered Massan High-Tech Materials Corporation for production from EQR’s 100% owned Mt Carbine tungsten mine, north Queensland. ● Mt Carbine is currently producing tungsten concentrate processing a 12Mt low grade stockpile (0.075% WO3) of tungsten ore in a 50/50 JV with Cronimet Australia. ● EQR has recently upgraded the wholly-owned hard rock Mt Carbine Resource, to JORC Code (2012) standards, to 18.1Mt @ 0.30% WO3, containing 9.6 million metric tonne units (mtu) of tungsten. (1mtu = 10kg WO3) ● Under the MOU approximately 70% of Mt Carbine’s production over the next 4 years will be allocated to Masan, the largest manufaxcturer of mid-stream tungsten products outside China, with production facilities in Vietnam, Germany, Canada and in China. Masan Group’s 100%-owned H.C. Starck is a leading tungsten processor with its headquarters in Germany. A picture of Australian & German cooperation. Our view and interpretation There are Memoranda of Understanding (MOU), Letters of Intent (LOI) and Heads of Agreement (HOA). What are they worth? It depends on the parties. In our view this MOU between Australian and German entities is significant, attested to by the signing ceremony at Federal government level. We believe that it confirms our view that Mt Carbine is a significant tungsten resource – I’m not sure you can use the phrase “world class” for specialty metals deposits, but if you could, I would. As I’ve written before: With a ROM grade of 0.3% WO3 - 4 times the grade currently being processed - and mining 2million tonnes per year (Mtpy), that’s somewhere north of 450,000mtu saleable product per year. EQR is selling a tungsten concentrate, and likely paying a 30% penalty compared with the ammonium paratungstate (APT) price. Cash margin – US$224-US$140=US$84/mtu. You can do the maths on project revenue – before non-cash D & A, ongoing capex (not much), interest, corporate and other, and of course tax. Both Mt Carbine and King Island Scheelite closed in 1987 when China, which dominated the tungsten market, collapsed the ammonium paratungstate (APT) price from US$150/metric tonne unit (MTU) to US$50/MTU. The strategic importance of tungsten is now recognised. Mt Carbine is the most advanced tungsten play in Australia. Our expectation is that the resource will be increased (further) by drilling, and that there will be further additions to the Reserve base. I’m reviewing my valuation and target price, and it’ll probably go up in line with the increase in the Resources.
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).