Gunson Resources
Gunson Resources (ASX: GUN) has interests in the Mount Gunson copper exploration project in South Australia, with Xstrata’s subsidiary a sole-funding joint venture partner.
Gunson completed a Definitive Feasibility Study at the end of 2009, the results of which were announced on 7th January 2010. This study revealed that Amy Zone can support a high volume, low cost, long life mining operation producing quality mineral products.
Over the 23.5 year mine life modelled, total revenue is estimated at $A2.2 billion, with an operating cash surplus of $A879 million or $A37 million per annum.
At the long term average exchange rate since 1983 of 72 US cents per $A1, the pre-tax ungeared NPV is $A163 million at an 8% real discount rate, with an IRR of 16.8%.
Approximately 67% of the revenue from the proposed mine is from zircon, for which industry experts TZMI forecast a significant supply shortfall commencing in 2013.
The company is currently seeking to attract a minority partner to help fund the mine development, in exchange for an assured long term supply of zircon.
See more information about Gunson Resources
Gunson Resources riding higher zircon prices
Gunson Resources’ (ASX: GUN) progress at its Coburn Zircon Project in Western Australia should generate a lot more investor interest with higher zircon prices and a major East Asian group signing a term sheet.
A forecast increase in zircon and titanium dioxide mineral prices as a result of a supply deficit has led international investors to Gunson Resources’ door.
Share price: $0.21
Shares on issue: 208.8m
Market Cap: $43.8m
Comment
Gunson’s strategically placed, zircon-rich Coburn heavy mineral sands project in Western Australia is construction ready.
Negotiations for offtake contracts for Gunson’s proposed equity share of mine products are advanced. The updated Coburn Definitive Feasibility Study model shows a capital cost of A$179 million and with the latest product price forecasts, an internal rate of return of 28.3% and a net present value (8%) of A$223.7 million.
Bullish for Gunson is that Coburn is one of only a few significant advanced mineral sands projects in the world. Promisingly, it is encouraging that its two peer group companies financed their African mineral sands projects in 2011. With definition from the East Asian industrial group on the financing front the current valuation of Gunson Resources could look exceedingly light.
Significantly, investor reach has extended beyond Australia’s shores with overseas investors also showing a keen interest in Gunson.
The company recently executed a non-binding term sheet with a major East Asian industrial group, allowing the group to earn a large minority joint venture interest in Coburn.
Both companies are targeting completion of due diligence and legal documentation in February 2012.
The deal provides Gunson with an attractive funding path in the current difficult financial market.
Background
Coburn is strategically located, with regional infrastructure nearby including a major highway, natural gas pipeline and port, with the project 250 kilometres north of Geraldton, an established mineral sand port with available capacity.
The project is development ready with full permitting and a Definitive Feasibility Study completed.
Gunson is wasting no time as it moves towards the start of construction at Coburn, which the company estimates will take around 85 weeks.
The company awarded a Front End Engineering, Design and Approvals study agreement to DBP Services – an associate entity of the owner of the Dampier to Bunbury Natural Gas Pipeline – which will provide the design, construction and capital cost information for a 110 kilometre long lateral gas pipeline to the proposed Coburn power station.
The pipeline will link to the main Dampier to Bunbury Natural Gas Pipeline to the east of the Coburn power station, and will be built and operated by the owner of the Dampier to Bunbury Gas Pipeline.
Costs will be recouped from Gunson via a transmission charge.
Gunson has selected Cummins Power Generation as the preferred supplier of the natural gas-fired power station, on a build, own, operate, transfer basis under a standard power purchase agreement.
Cummins has proposed to provide a competitive electricity supply solution with forecast unit power costs well below those assumed in the Definitive Feasibility Study that was released in January 2010.
Offtake Agreements
Gunson is also advancing the finalisation of offtake agreements for its share of production from the Coburn project.
Final internal approvals for an ilmenite offtake agreement between Gunson and a major chloride grade ilmenite consumer are underway.
Strong Zircon Demand
Supply shortages and rising demand for zircon and titanium dioxide raw materials have improved the financial attractiveness of the Coburn project.
While Iluka Resources (ASX: ILU) recently reported a softening in zircon demand in China, it anticipates more favourable medium to longer term supply/demand of zircon and high grade titanium dioxide feedstocks for the pigment and titanium metal industries.
This leaves Gunson well positioned to take advantage of future increased demand as the company approaches production in 2013.
Booming mineral sands prices are based on supply shortages and higher demand, in part, for tiles, zirconium chemicals and paint in Asia.
Independent consultant TZ Minerals International recently forecast that the highly concentrated global zircon market is expected to face a supply deficit from mid-2012 onwards due to continuing supply shortages and growing demand, especially from China, which would lead to further rises in zircon prices.
Zircon, a product used in ceramic tiles and chemicals, is expected to account for 67% of the revenue from the proposed Coburn mine.
With an expected annual production of 146,000 tonnes per annum of heavy minerals, Coburn would produce about 3% of current global zircon production.
Comment
Gunson’s strategically placed, zircon-rich Coburn heavy mineral sands project in Western Australia is construction ready.
Negotiations for offtake contracts for Gunson’s proposed equity share of mine products are advanced. The updated Coburn Definitive Feasibility Study model shows a capital cost of A$179 million and with the latest product price forecasts, an internal rate of return of 28.3% and a net present value (8%) of A$223.7 million.
Bullish for Gunson is that Coburn is one of only a few significant advanced mineral sands projects in the world. Promisingly, it is encouraging that its two peer group companies financed their African mineral sands projects in 2011. With definition from the East Asian industrial group on the financing front the current valuation of Gunson Resources could look exceedingly light.
