Hi Zoomy,I did a similar analysis myself about a week ago, but...

Hi Zoomy,

I did a similar analysis myself about a week ago, but am still waiting to get figures back from the company which would help me understand the cost side of the equation a bit better, before finalising my conclusions. However, even while taking into consideration a very high exchange rate, my feeling is that GUN should have a value at least north of AUD1.00 when considering both the non-Xstrata copper angle, and the Coburn Zircon project. Without some cost sensitivities, it's a bit hard to nail this down further for now.

As you say, MG14 is economic for its Copper content alone and could yield north of AUD25mm per year (other variables permitting). For now, it seems the company has been reasonably content to consider that MG14 would pay for a plant which could then be used to tackle the larger Windabout deposit. However, to project similar profit outcomes from MG14 onto Windabout is a little misleading: for starters, recoveries at Windabout are about 15% lower, the cost sensitivities will be higher, so it could turn out that part of the deposit may not be economic to mine, initially or at all.

Over and above the usual input factors, at least three considerations are therefore important for GUN.AX when considering Windabout: (a) Can metallurgical tests improve the recovery of the copper content in Windabout? (GUN is working on this) (b) Can Gunson demarcate a "higher grade" portion of the Windabout deposit which could be mined/processed in the initial years to boost cashflow and make the project worthwhile? (plan in motion) (c) What possibilities Gunson has for extracting and selling the Cobalt? Ironically, it may well be the value of the Cobalt that tips the feasibility of developing Windabout on favourable terms.

I understand that the CEO was in Dubai, again, last week, and confidence is strong that a deal on the Zircon will be done. Given the history of GUN.AX we know these things drag on, but I'm feeling that in 1Q11 people will look back at the current share price with nostalgia.

All the best,

G