Gunson Resources: Encouraging Progress On Coburn Project
Edison | Dec 02, 2012 11:54PM ET
Gunson (GUN.AX) has reported encouraging progress on the construction-ready Coburn Zircon project in Western Australia. Following protracted due diligence by POSCO and a Korean resource investment fund, final resolution of the Joint Venture Agreement (JVA) is now expected during December 2012. Meanwhile, due diligence for a debt facility covering part of Gunson’s funding requirement is in progress. Important operating cost savings have also been indicated and a pit optimisation study is due in Q113.
Negotiations on the final terms of the JVA, with the Korean parties (POSCO SPV), have now reached substantial agreement, including extension of the deadline for completing the financing condition precedent from end-2012 to end-March 2013.
An operating cost review now estimates a probable 6.3% decrease in annual average costs, representing a life-of-mine (LOM) reduction of A$122m and, in addition, pit re-scheduling could decrease annual average mining costs by A$1.2m in the first five years of the project. When details of the JVA are finally agreed, we will review our August 2012 NPV10% project valuation (A$0.51/s adjusted for the subsequent equity issue) which is already a multiple of the current price.
JVA negotiation delays have eroded investor support in the validity of the Coburn project and the current share price at a long term low is reflecting these concerns. Given the company has made progress with the JVA and is nearing completion of funding negotiations, any further positive news flow could justify a turning point in market confidence.
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