Gunson Gets Ready To Reveal A New Asian Partner For The Coburn Mineral Sands Project In Western Australia
By Our Man in Oz
Investors in Gunson Resources could be in for a pleasant surprise next week. That’s because the ASX-listed zircon and titanium project developer is expected to finalise joint venture discussions on its flagship Coburn project, which will move it rapidly into financing, and a start on construction.
Previous false starts, including a time-wasting trip up the garden path with a potential Chinese partner, has dimmed interest in Gunson, but for anyone at The Explorers Conference in the Australian port city of Fremantle on Wednesday 22nd February, it was impossible to ignore the new-found optimism in a presentation from the company’s chief executive, David Harley. In the course of that presentation David said that Gunson’s mine development pathway had been cleared, thanks to a deal with “an East Asian” industrial group.
David did not name his partner in Coburn, saying the company involved had asked to remain anonymous until all details of the joint venture had been agreed. However, he left no doubt that this time it’s the real thing, and that the timing couldn’t be better, because prices for Coburn’s major products - zircon, rutile and ilmenite - are continuing to march higher.
“The Coburn mine development and financing pathway is much clearer than it has ever been before”, David said. “The East Asian industrial group is keen to proceed. We had planned to complete the due diligence in February, but that will now happen in early March. However, technical due diligence has been done, and passed.”
What that means is that Gunson is within days of clearing the final hurdles in a process which started the best part of a decade ago, and which has involved the company overcoming environmental objections, low prices for zircon and titanium minerals, the global financial crisis, and the time wasting of a Chinese tyre-kicker more interested in a high-priced construction contract than participation in a mine.
On the stock market, there has not yet been a reaction to David’s Fremantle talk, but there almost certainly will be when analysts wake-up to the changes taking place in the Coburn project, and to the price of its suite of minerals. The company plans an updated financial summary next week, and those numbers should raise a few eyebrows because the earlier prices used to calculate the value of Coburn have been significantly overtaken on the spot market.
In November last year, Coburn was estimated to have a capital development cost of A$180 million, up from the A$169 million estimated in a January, 2010, study). Revenue, however also jumped strongly in the newer study, with the internal rate of return rising from 15.6 per cent to 28.2 per cent, and the net present value of the project jumping from A$139 million to A$223.7 million. The next analysis will be based on what David called the “hot off the press” forecast of prices from the world’s leading titanium and zircon consulting firm, TZMI, “and a few other things”. One of those other “things” could be Gunson’s first product sale, with the execution of an ilmenite deal said to be “imminent”.
Spot, or short-term, mineral prices are never reliable in valuing a project, but they can be a useful pointer. In the case of Gunson they are particularly useful because there seems little doubt that TZMI will be incorporating a portion of the recent strong rise in prices, which have been driven by supply shortages as much as by Asian demand. Zircon, for example was priced at US$1,715 a tonne in one recent comparison of Coburn with rival projects, though the spot price is today 41 per cent higher at US$2,420 per tonne. The rutile price used for comparative purposes was US$1,000 against the current spot price of US$2500 per tonne, while ilmenite was US$190 per tonne against spot today at US$300 per tonne.
In terms of complexity, Coburn is as close to a plain vanilla mine as is possible. It is effectively on the west coast of Australia, adjacent to a highway which leads to the established mineral sands export port of Geraldton, and has a natural gas pipeline passing close to its eastern boundary. The mining is more akin to gardening, a description sand miners hate, but that’s their problem because the end product, and the profit, is all that really counts.
“Coburn is ready for development”, says David, “fully permitted, with a definitive feasibility study complete, and an 85-week construction period mapped out”. Prices for all of its products are rising in a supply-constrained market, and the economics for a long-life mine are “robust”. All that’s missing is next week’s show-and-tell, starting with the naming of the East Asian joint venture partner, the price it will pay to join the project, the funding assistance it will provide, an updated financial analysis incorporating the latest prices, a construction start date, and a first shipment date.
At the last sale price of A20 cents Gunson is capitalised on the ASX at an untaxing A$44 million, a number which is close to last November’s A$36.8 million forecast annual net operating margin for Coburn. It will be interesting to see if next week’s revised numbers boost the annual operating margin even closer to the market value of the company because it’s not often you see a company valued at one-year’s earnings.
GUN Price at posting:
19.2¢ Sentiment: Buy Disclosure: Held
