rbs upgrade, page-10

EQN is set to produce 260ktpa Cu in concentrate in 2015 (200ktpa from Lumwana, Zambia and 60ktpa from Jabil Sayid, Saudi Arabia) implying 85% growth over the coming five years.

EQN looks cheap as these expansions flow through. Price target to A$7.10/share with the inclusion of the Jabil Sayid asset.

Short term buying opportunity - EQN may face short term headwinds with First Quantum recently announcing to sell its 16% stake in EQN and the scrip component of EQN?s CGG takeover adding further shares on issue (expanding issued capital by 19%). This should be a buying opportunity with the company performing strongly, recently upping CY2010 guidance to 140kt and confirming plans it will grow production in CY2011 to 154kt via optimisation of the existing Lumwana plant to 22Mtpa throughput.

Citadel takeover - Under the existing plans Jabil Sayid will add 60ktpa production at a cash cost of US$0.91/lb.
The CGG deal should be a major positive for the company. Copper is today US$4.3504/lb, current the stock price $5.89/sh offers an attractive entry point.

The Citadel transaction now is certain to be successful, which would be a major positive for EQN:
1) It is NPV-accretive;
2) it is EPS-accretive once the operation starts production;
3) it adds 30% to EQN's annual production and boosts exploration prospects;
4) it lowers group cash costs; and
5) it dilutes the Zambian geopolitical risk.

Target price A$7.10/share