Lumwana finding form after wet season􀂄 Event: Production update...

Lumwana finding form after wet season

􀂄 Event: Production update - April/May exceed expectations
Equinox produced 30kt of copper in concentrate in April/May, a sharp increase from the rain-affected first quarter. Lumwana?s Q2 production could exceed our prior estimate by 39% due to higher-than-expected ore grades and a mining rate which is running 15% ahead of our expectations due to improved operational management.

􀂄 Impact: Guidance remains unchanged, expansion options clarified CY10 production guidance remains unchanged at 135kt at $1.35/lb. However, incorporating the strong April/May result we lift our forecast to above guidance levels at 146kt (from 134kt) at $1.38/lb. EQN has also commenced a feasibility study for a 20% debottlenecking project (to 24Mt) due for commissioning in mid- 2012, in line with UBSe. More significantly, EQN will evaluate an expansion to 35Mt, for delivery by 2014/2015 for $300-$400m (EQN estimate). This compares favourably with our prior assumption of 32Mt for $350m.

􀂄 Action: Upgrade to Buy ? positive momentum anticipated
We have upgraded our recommendation on EQN to a Buy after incorporating the increased expansion potential and the strong Q2 production to date. We also anticipate further positive momentum supported by Lumwana?s ramp-up during the dry season.

􀂄 Valuation: A$4.65 (DCF, 10% discount rate)
Both our NPV and target price have been upgraded by 9%. Our target price of $4.90/sh is derived from a P/NPV multiple of 1.05x.