dh is optimistic, seeking funds in london

Gunson Resources Rolls Into Town, Looking For A$87 Million To Put The Coburn Mineral Sands Project Into Production

By Robert Tyerman

David Harley, managing director of Australian mineral sands hopeful Gunson Resources, is on a mission to persuade institutional investors in London of the merits of the deal his company has done with POSCO of Korea, the world’s fifth largest steelmaker.

With the help of POSCO Gunson plans to develop the one billion tonne 1,200 square kilometre Coburn mineral sands project in Western Australia.

POSCO will come in with an as-yet unnamed Korean investment fund linked to Korea’s development banks and the Seoul government.

According to Harley they have until December to sign the deal and take their interest to a contributing 40 per cent.

An independent estimate has put a pre-tax net present value of A$211 million on Coburn. The project offers a potential 22 per cent internal rate of return (IRR) on likely capital expenditure of A$192 million.

POSCO has agreed to spend the first A$28 million “before we put our hands in our pocket”, explains Harley, a geologist with experience at Western Mining and elsewhere.

He says Gunson is looking to raise A$87.2 million, through a mixture of debt and equity, towards its share of the project.

The plan is to put Coburn into production in 2014, under Gunson’s management.

“We want to fix a debt facility first”, he adds, “which is why we are coming to London”.

This might seem ambitious for Perth-based Gunson which is valued at A$26.2 million Down Under, after its shares lost more than half their value over the past year to trade at their current level of around A11 cents.

However, Harley argues the timing is right for what is seen as Coburn’s chief potential money spinner, zircon.

He also suggests Gunson could have a “company maker” in another venture altogether, the 49 per cent-owned iron ore, copper and gold prospect at Mount Gunson, which lies in the same region as the massive Olympic Dam mineral deposits.

For the time being though, Coburn is the focus. Gunson found the project 12 years ago, and has so far spent A$20 million on it. “The permitting took eight years”, recalls Harley.

But now it’s beginning to attract in some serious names. Aside from POSCO, Harley also notes that entrepreneurial investor John Tilbrook has built up a near-20 per cent holding in Gunson. And there are also some notable London backers, including Richard Lockwood’s Prateorian Resources.

Coburn boasts significant quantities of ilmenite, rutile and leucoxene. But Gunson expects that its 23 per cent zircon content could generate 65 per cent of the revenues. Bulls reckon these could add up to an annual cash surplus of A$37 million for more than 20 years.

Three companies, Iluka of Australia, the UK’s Rio Tinto and Tronox of the USA, now hold 70 per cent of the world market for zircon which, as a key ingredient in ceramics, is in demand from factories in China, Italy and Spain.

And, according to Harley, zircon shows a long-term growth trend of three per cent, albeit interrupted by troughs.

Zircon is in one such a trough now, says Harley, and has recently been trading down as low as US$2,275 a tonne. But he insists, “the current trough is unsustainable”.

Chemical companies and nuclear fuel companies also use zircon, and there is some speculation that POSCO may be interested in the possibility of using the zircon from Coburn in a nuclear capacity.

But the real demand will come from China. “‘The Chinese tile factories have no stocks. When they re-stock, Boy! You watch it”, says Harley

Meanwhile, at Mount Gibson, Gunson is partner with the mighty Xstrata, which has spent A$6.6 million on the project and must take that to A$10 million by next June to up its stake to 75 per cent.

“I don’t think Xstrata will do that”, muses Harley, “and we must then increase our own contributions or dilute.”

Elsewhere, Gunson has A$200,000 to probe its Fowler’s Bay nickel project in South Australia, which is described by Harley as “very similar” to the recent find at Nova, which set shares in its owner Sirius alight.

But for Gunson there’s a little way to go yet before Fowler’s Bay attract the same kind of attention. “We have to do more drilling over 50 kilometres”, explains Harley.

Another project is Tennant Creek in Australia’s Northern Territory, where there’s a long history of mineral development and a perceived potential for gold and copper.

“It is early days there”, comments Harley, describing the project as “high risk/high reward”.

The real issue at hand though, is the funding for Coburn. How hard will it be to put together? Difficult to say in this market, in spite of the supportive noises being made by broker RFC Ambrian in respect of the outlook for mineral sands.

Interested parties can come and hear the story for themselves at this week’s 91st Minesite Forum at the Brewery on Wednesday 24th, and if anyone wants to ask any questions after his presentation, David Harley will be more than happy to answer them.

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