Broker Ocean Equities believes there will be "strong appetite" from potential strategic partners and financiers to bring Equatorial Resources’ (ASX:EQX) Mayoko-Moussondji iron ore project into production.
Its comments come following Equatorial’s June quarterly report, which highlights the results of the completed scoping study on the Mayoko-Moussondji iron project in the Republic of Congo.
The study flags up the company’s relatively low capital requirement of US$231mln to develop a 2Mtpa (million tonnes per annum) production of a premium quality 64% Fe iron fines product, notes Ocean analyst Adam Lucas.
"There is also the potential for Equatorial to lease US$82mln worth of rolling stock, reducing the upfront capital requirement, and combining this with the company’s strong cash position on its balance sheet, we believe there will be strong appetite from potential strategic partners and financiers to raise the required capital to bring the Mayoko-Moussondji project into production."
He adds that Equatorial is one of the few mining developers that has sufficient financial resources to see it through to the start of project development.
Morgan Stanley recently published a base case valuation of US$255mln for the project, with an expected internal rate of return (IRR) of 33%. This compares very favourably with Equatorial’s current market capitalisation of only US$85mln, especially considering the company’s strong cash balance – a fact not missed by brokers.
Equatorial has now commenced with the preparation of its mining licence application for Mayoko-Moussondji as well as associated agreements over rail and port. A key component of the mining licence application is the submission of a completed Environmental & Social Impact Assessment which the company announced it had successfully lodged with government during the quarter.
The quarter also saw the completion of the current drilling campaign, with an additional 15,000 metres of drilling to be incorporated into a resource upgrade for the project before the end of the calendar year. The completion of drilling, combined with a restructuring of management and operations teams is expected to lead to deliver a greater focus on value creation, increased efficiency and cost savings.
At the company’s Badondo iron project in the northern Congo, which neighbours the likes of Sundance’s Mbalam Project and Affero’s Nkout Project, Equatorial announced that it has hired consultant WorleyParsons to conduct a concept study designed to promote the optimum development path and attract financing for this massive region of untapped iron ore.