The $50k Challenge Update 24 – 05/10/2021
Stock Code: EQN
Shares Purchased: 150,000
Share Price: $0.20
Reason for Buying
SOI: 95,500,001
Shares escrowed: 50,000,000
Cash: $9,000,000
Listing price: $0.20
Market Cap: $19m
EV: $10m
EQN is an iron ore explorer located in the in the Pilbara region of Western Australia. Its existing Hamersley Iron Ore project has a global Mineral Resource of 343.2Mt at 54.5% Fe. 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.
To date the previous owners have spent over $10m over a number of years to define the existing JORC compliant resource. The prospectus has outlined a focus on further drilling programs as well as creating the required mining studies which will derisk the project and create a clear path to production.
In addition to this, EQN has a very experienced board and management team. Notably both Rod Baxter and Daniel Taylor have extensive experience in the development, operation and sale of large scale commodity global projects including Iron Ore. Their financial incentives are also aligned with shareholders, with a number of performance milestones and options being triggered at a premium to the IPO price.
Finally from a competitor analysis perspective, EQNs lease is next door to the JORC compliant Iron ore lease owned by FMS. It has 750mt @55.4% Fe which is currently valued at $130m EV. So EQNs JORC is already 45% of FMSs JORC but only valued at 7% of its value. Hence large upside potential and limited downside risk. A recent acquisition in the Pilbara also highlights the potential of EQNs asset. In July 2021 MIN purchased a 40% stake in RHIs resource which comprised of 820mt at 56.44% Fe. The 40% stake was acquired for $400m which values the entire project at $1B dollars.
To ensure complete transparency, I own a core parcel of shares in EQN in my non public person portfolio which I purchased under the same terms of the IPO.
Risks:
1) Obvious risk with any explorer is share price and success is highly dependent on drill results.
2) More capital will be required in the future, however if company milestones are met then capital raise price should be much higher than current levels.
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