Company – Equinox Resources
Ticker – ASX:EQN
Sector – REE / Iron Ore / Niobium / Lithium
What Does EQN Do?
Equinox Resources Ltd (EQN) are currently exploring for rare earths in Bahia Brazil, commencing drilling operations at their district-scale Camp Grande Project, which adjoins the Gina Rinehart backed Brazilian Rare Earths (BRE) currently capped at ~$530M with a JORC Resource of 510MT @ 1,513ppm TREO.EQN also boast diverse portfolio of prospective projects including Mata da Cordo Rare Earths Project in Brazil, The Hamersley Iron Ore Project encompassing a 343Mt JORC Mineral Resource located in Pilbara WA, the recently acquired Canastra Niobium Project in the Alto Paranaíba Igneous Province of Brazil, which currently accounts for over 97% of global niobium production in addition to a suite of lithium projects in Australia & Canada.
EQN Recent Performance
Despite having a signed Native Title Deed, EQN have been plagued by delays associated with their Hammersley Iron Ore project, recently resulting in the filing of a Section 18 application. These delays have hindered the share price growth.Whilst this process plays out, management have however remained active and assembled a diverse portfolio of prospective projects in Tier 1 jurisdictions, generating some positive share price movement for shareholders over the past 6 months.
What is The Sector Thematic?
Rare earths elements (REEs) are fundamental in the global transition to clean energy. Much like other strategic critical minerals, China have positioned themselves as the world’s largest producer of rare earths, and as such there are strong sector tailwinds as Western Nations swiftly look to secure domestic or friendly supply chains in the interest of National security. EQN are looking to capitalise predominately on REEs like Neodymium (Nd) and Praseodymium which are used in permanent magnets found in Electric Vehicles (EVs) and wind turbines which demand is forecast to drastically increase over the next decade.
EQN Investment Highlights
Relatively Low Market Cap Leveraged To Exploration SuccessEQN is currently capped at ~$23M fully diluted, with $3.6M in cash, boasting an enterprise value of ~$17.4M. If a meaningful discovery is made, the share price has the potential to re-rate significantly and closer match their peers located nearby.
EQN Have The Largest Landholding Adjoining ASX:BRE (~$530M MC), Containing 510MT @ 1,513ppm TREOThe Campo Grande Project is one of our textbook, favourite type of investments.EQN have pegged 1,760km2, which is the largest land holding in the region, and the tenements are intertwined with BRE’s Rocha Da Rocha Project tenements, which are well advanced containing a JORC-estimated Mineral Resource of 510.3Mt at 1,513ppm TREO, consisting of both IAC & monazite deposits.
Whilst exploration plays always come with significant risk, these type of nearology plays offer a multitude of benefits over a typical greenfield exploration play.
1. BRE have already proven the geology and their landholdings which are directly adjoining EQN and are prospective for Tier 1 rare earth deposits
2. If EQN continue to prove up their tenements with exploration success, BRE offers a clear valuation pathway for retail investors to valuate EQN
For context, BRE has attracted some of the world’s most successful miners, including Australia’s richest woman Gina Rinehart who is a substantial shareholder.
EQN Have Just Announced A District-Scale Discovery at Campo GrandeOn 2nd April 2024, EQN announced their district-scale discovery, with their initial assay results from surface channel clay samples. Outside of the grades which are in line with higher market cap peers including VMM, BRE & MEI (shown in below table), what we find more intriguing is the widespread occurrence of which these results have been taken, across such a large area of the project.
There have been multiple samples taken across EQNs 1,760km2 of tenements which returned high-grade TREO results. This is largely akin to BRE, which hosts multiple district-scale deposits across their tenement package. This is a crucial first step, confirming that the geology is prospective for IAC deposits and the identification of drill targets.
We know from EQNs peers, that typically, oxidised saprolite surfaces have lower Rare Earth grades, where REE ions tend to leach downward to be more heavily absorbed onto the intermediate weathered layers.The below image highlights a drill assay result from ASX:VMM, showing the ‘accumulation zone’ which in this instance was 8m below surface, which yielded the highest grades within the drill result.
EQN Continue To Build Their Portfolio With Compelling High Potential IAC ProjectsEQN have continued their strategic pegging applications for a ~850km2 Mining Rights package to establish the newly defined “Mata da Corda” Project, located in the rare earth clay prospective province of Patos de Minas, in Minas Gerais State, Brazil.We believe managements continued staking of prospective tenements, with new “Mata da Corda REE Project only costing $18,000, to be a prudent and cost-effective way to bolster shareholder value, as it is not often you see a junior exploration company with such a strong portfolio of projects.
EQN Have Pegged 600km2 in a World-Class Niobium Region of Brazil in Proximity to US ~$13bn CBMM
EQN have acquired 600km² of Mining Rights to establish the newly defined “Canastra” Project, situated in the niobium-rich Alto Paranaíba Igneous Province, between Araxá and Patrocínio in Minas Gerais State, Brazil.
This particular province accounts for over 95% of global Niobium production and is subsequently host to Niobium powerhouse company ‘CBMM’ who is reportedly capped at US ~$13bn The Carbonatite complexes within the APIP are prolific for their niobium-rich carbonatite and phoscorite rocks, which are known to be exhibited in ‘circular’ shapes and characterised by high magnetic gradients.
EQN has acquired Airborne Geophysical Data (AGD) from the Brazilian Geological Service, which displays prospective geological characteristics. For comparison of the potential of this project, WA1 Resources recent Niobium discovery was made after the company drilled into a distinct geophysical anomaly in the West Arunta region of WA, which saw the share price increase from 13c to $10.85 as we write this (~$665M MC).
The Hamersley Iron Ore Project – $10M Spent on Drilling To DateEQNs Hamersley Iron Ore project has a global Mineral Resource of 343.2Mt at 54.5% Fe with ~$10M having been spent on drilling to date. It is also located in a very strategic part of the Pilbara close to existing infrastructure including within 35km of rail infrastructure and only 230km to the nearest port.The project boasts high-grade near-surface iron ore mineralisation above the water table, which lends itself to Direct Shop Ore (DSO).
The project is further bolstered with the mineralisation remaining open at depth with a grade of 61.6% Fe, highlighting potential for resource growth. With EQN having filed a Section 18 application under the Aboriginal Heritage Act 1972, if successful this would allow EQN to commence a program of works required for commercializing the Project. We expect a response from the DPLH approximately 20 May 2024, and if successful we anticipate this will act as a significant share price catalyst. For context of just how significant the Hamersley Project is and its potential for share price accretion, we can compare it to some recent M & A activity in Western Australia:
EQN Also Has Strong Company Fundamentals
Proven Board of Directors EQN has a very experienced board and management team who have a recent proven history of exploration and discovery including world class IAC REE deposits, notably:
- Non-Executive Chairman – Robert Martin: Brings more then 25 years’ experience to this role. Recently has played a major role at Critical Resources (ASX: CRR), leading the company through its flagship project acquisition (Mavis Lake, Ontario Canada), discovering a lithium deposit and defining its maiden MRE (8Mt @ Li20) all within 11 months. Mr Martin is also Non-executive chairman of Battery Age Minerals (ASX:BM8) who have a ~36% holding in EQN.
- Executive Director – Agha Pervez: Recently, Mr Pervez has steered ASX:VMM as Executive Chairman through a rare earths project acquisition in Brazil and subsequent Ionic Adsorption Clay discovery, which has the potential to become a world class project. This has seen ASX:VMM share price increase from ~0.20 to highs of ~2.00 within 6 months and is now in the process of developing their maiden JORC resource, scheduled for release mid 2024.
- CEO – Zekai (Zac) Komur – With over 23 years in the resource sector, Mr Komur is a highly accomplished industry professional who has held several senior leadership roles with the world’s largest resource companies including BHP, INPEX, Fortescue and Northvolt. Mr Komur experience spans across development, project delivery, valuations, mining, and mineral processing operations across a range of commodities,. Zac’s curiosity led him to specialised fields like battery cathode active materials manufacturing, where he played a pivotal role in the commissioning and start-up of Europe’s first Gigafactory at Northvolt in Sweden. Most recently Mr Komur served as head of Commercialisation at Fortescue.
Cash & Expenditure
At the last qtrly report ended 31 Dec 2023, the company held $0 debt, ~$3.2M in cash, with a further ~$465K due from participation of the board in the last capital raise recently approved by shareholders. We believe this to be sufficient capital to undertake the impending drill program at the Campo Grande Project, which if successful should see share price growth and any future capital raises undertaken at a premium to today’s share price.
Directors Financial Incentives & Performance Rights Aligned With ShareholdersTo date directors have purchased a significant amount of shares on market and/or in placements, most recently Robert Martin, Agha Pervez, and Vincent Chye having subscribed for 850,000, 1,275,000 and 200,000 New Shares, respectively, to raise $465,000 of the Placement at $0.20 per share. To date, our calculations have directors spending approximately $615,000 for an average share price of $0.19 per share. Therefore, we see directors financial incentives largely aligned with shareholders in addition to a number of performance milestones and options which if triggered offer significant premium to the current share price.
Successful Top 20 Register & Tight Capital StructureEQN maintains an incredibly tight capital structure with ~113M SOI (fully diluted), in conjunction with the Top 20 shareholders holding ~75% of the register. It can also be ascertained that approximately ~50% of the Top 20 shareholders are made up of directors, vendors, lead brokers and known associates of the before mentioned. We consider this a substantial positive in the company fundamentals, given the past history of these shareholders is that of a long-term view in addition to significant past investment successes. If a new discovery is made, the supply of shares available to buy could be relatively low, which may increase the strength of a re-rate in the company’s share price, should it materialise.
Near Share Price Catalysts & Our Expectations- Maiden drill program to commence in April at Rio Negro following the discovery of widespread mineralised zones and identification of high-priority targets. Any success on the drill bit, we believe should see a significant re-rate
- DPLH response in relation to the Hamersley Iron Ore Project Section 18, which has the potential to re-rate the company over night on positive feedback
- Maiden exploration program to commence at EQNs Canastra (Niobium) Project later this year.
Investment Risks - Exploration risk - Despite EQN tenements existing in a proven REE region, as with any exploration company there is no guarantee that EQN will find a discovery or alternatively the mineralisation may not prove economic.
- Commodity pricing – The broader REE market has been seen a sustained downturn with prices hitting 52 weeks lows, which there is no guarantee this will change in the near term.
- The Hamersley Iron Ore Project – There is no guarantee that the DPLH response will be favourable to EQN and it may adversely impact the share price
- Capital - More capital will be required in the future, however if company milestones are met then capital raise price should be much higher than current level
In the interest of full transparency, Equinox is a client of my company Phoenix Global Investments & Phoenix is paid a fee by all stocks mentioned. No information is personal financial advice & all information is general in nature. Please remember all content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this Website and wish to rely upon, whether for the purpose of making an investment decision. The research provided in this article is considered to be reliable and is accurate as of the publication date.
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