RCR just put out a report today on GUN you'll need to sign up to download the full version www.rcresearch.com.au
here is the summary:
The world's fifth-largest steelmaker, POSCO, has given GUN's Coburn Zircon Project a tick of approval after extensive due diligence, agreeing to take up a 40% JV project equity to get its hands on a strategic zircon supply. Our valuation of GUN is now A$0.26/share after allowing for the required equity raising.
Key investment points:
GUN has spent ~12 years and >A$20m bringing the Coburn Zircon Project ("CZP") in WA to DFS completion and now attracting a major partner.
CZP is strongly underpinned by positive price outlook for zircon (~59% of revenue based on RCR forecasts).
South Korean giant POSCO has undertaken extensive due diligence and intends to take up 40% project equity which entails a ~A$105m project funding commitment, including A$28m to fund part of GUN's share.
CZP estimated capex is A$192m after recent detailed review. Construction could begin in 1Q13, first production in 2H14. All environmental approvals in place.
CZP is strategically important - only two other major new zircon development projects globally are likely to contribute to production in next five years.
Our assessed NPV (nom.) of the CZP is A$207.6m using a 10% discount rate and long term zircon price of US$2,000/t (current ~US$2,500/t).
Before any assumed equity raising, the assessed NAV for GUN is A$0.52/share (with CZP project NPV risk-discounted by 30%).
Assuming GUN raises a required A$39m at A$0.10.share to fund its project equity, the valuation still equates to A$0.26/share.
Greenfields exploration potential – Xstrata exploring for deep IOCG Olympic Dam style deposits at Mount Gunson (SA), (49% GUN).
Our six month price target for GUN assuming the CZP JV is consummated and GUN raises its equity component is A$0.20/share.
GUN Price at posting:
11.3¢ Sentiment: LT Buy Disclosure: Held
