Chris Brown updated his target price to 9.8c EQ Resources (EQR)...

Chris Brown updated his target price to 9.8c

EQ Resources (EQR) PDF A major resource upgrade SPECULATIVE BUY (maintained) | Target price: A$0.098(previous: A$0.073) | Current price: A$0.064

EQ Resources has reported an increased in situ hard rock resource of 28.7Mt @ 0.30% WO3, containing 8.6 million metric tonne units (M mtu) pf WO3 (previously 6.5Mmtu) at its wholly-owned Mt Carbine tungsten mine. Production continues treating the 11 Mt low grade stockpile ore (0.075% WO3) in its 50/50 JV with partner European metals trader and recycle CRONIMET Group. The Mt Carbine open pit is now de-watered and the mining contractor has mobilised to site, with the scheduled re-start of mining in June 2023.

The resource upgrade EQ Resources has maintained a drilling program to evaluate the hard rock Mt Carbine tungsten resource beneath and adjacent to the existing open pit, mined during the 1973-86 campaign. The hard rock resource is reported at 28.74Mt at 0.30% WO3, with 18Mt in the Indicated category and 10.7Mt in the lower confidence Inferred category, both to JORC Code (2012) standards. This resource contains 8.6Mmtu of WO3. In production to optimise processing The A$6M grant from the Federal Government's Critical Minerals Accelerator Initiative has enabled EQR to finance Phase 2 of the re-development of its wholly-owned Mt Carbine tungsten mine. Phase 1 involves processing 1 million tonnes per year (Mtpy) from the existing stockpile in the 50/50 JV with CRONIMET. Metallurgical performance is now in line with modelling. Phase 2 involves dewatering and then mining from the existing open pit, projected for mid-2023. Crushing, screening and XRT sorter capacity is to be further upgraded to handle the higher-grade ore – 0.30% WO3 compared with the current 0.075% stockpile. Tungsten - a most strategic metal China supplies +80% of the World's tungsten demand, estimated at 8 million mtu per year. Over 60% is consumed for hard-facing machine tools, drills bits and wear surfaces used in industrial production, mining, petroleum and gas, and construction industries. Tungsten alloys are used in turbine blades and permanent magnets, amongst other uses including for armour. Valuation and Target Price With the increased resource base of 9.6Mmtu, we have lifted our projected mining rate to 2Mtpy from the open pit, which rate was achieved from the pit footprint during previous campaigns. We anticipate 80% recovery to a 50% WO3 concentrate. Our net present valuation (NPV) uses a 10% discount rate to derive a Valuation of A$0.13 per share. We discount this by 20% to generate a Target Price of A$0.10. We use a projected APT price of US$320/mtu, a 30% discount for sales of a 50% WO3 concentrate, and given that EQR is operating the processing plant, we accept their cost estimates. Price catalysts We see the demonstrated achievement of stable monthly production of 90 tonnes of 50% WO3 concentrate (4,500mtu) from the LGS and cashflow profit from operations, which we expect this March Quarter, as the initial share price catalyst Pit de-watering is completed, and with the mining contractor mobilised, open pit mining is scheduled to re-start mid-2023, with higher-grade ore from the open pit (0.30% cf 0.075%) and the move to 100% EQR increasing attributable production. Compared with the current 50/50 JV. Risks In our view, successful sustained processing of the LGS by EQR limits processing risk in terms of cost and recovery, and the prior 13-year open pit mining history gives us confidence in EQR re-entering the open pit and re-starting mining. The “critical mineral” status of tungsten, with the market dominated by China, gives us confidence that the price has limited downside. Profitability is dependent on the tungsten price in US dollars and the AUD/USD exchange rate, and operating efficiency and unit costs of production.

Chris Brown +61 7 3334 4885 [email protected]