Gunson Resources receives interest from East Asian industrial group for Coburn joint venture

Gunson Resources' (ASX: GUN) Coburn zircon project in Western Australia has caught the eye of the international investors, with the company executing a non-binding term sheet with a major East Asian industrial group, (with this group's name not yet released).

The group is no doubt interested in the project due to revised project returns, with financial modelling using updated TZMI price forecasts revealing a NPV (8%) of $223.7 million and an IRR of 28.3% on a pre-tax and pre-financing basis, at the current 5% State royalty rate.

The East Asian company, which already has existing resource development investments in the state, may earn a large minority joint venture interest in the project by contributing its proportionate share of mine development expenditure, together with an additional contribution that reflects a project earn-in value well in excess of the company’s current market capitalisation.

The agreement provides Gunson with an attractive funding path in the current difficult financial market.

A three month due diligence has been agreed, during which a binding joint venture agreement is to be prepared and executed, with Gunson to be the project manager.


Potential construction timeline

Gunson has forecast that after finalising the remaining funding arrangements, Gunson and the East Asian group intend to immediately commence mine construction, which Gunson has estimated to take 85 weeks.

Providing a boost to the economics of the project, metallurgical test work on the bulk sample collected in May 2011 have confirmed the revenue assumptions contained in the projects financial model.


Potential funding options

Gunson said that the it is envisaged that around half of the total project funding will be in the form of financing by way of bank loans, with the East Asian company to guarantee its share of any such debt finance and use its reasonable endeavours to assist Gunson as required to raise its share of such loan funds, either jointly or separately.

These funds would only have recourse to either party in proportion to its interest in the joint venture.


Off-take negotiations stepped up

Gunson has not entered into product off-take agreements due to the possibility of a strategic investor taking a contributing interest in the project as a means of gaining access to off-take rights.

Now that Gunson’s off-take position has been clarified in the term sheet, negotiations for off-take contracts have been stepped up, the most advanced being with a major pigment producer for the purchase of the company’s equity share of ilmenite product.

Strategically located with infrastructure

Another plus for Coburn is the strategic location, with regional infrastructure nearby including a major highway, natural gas pipeline and ports, with the project 250 kilometres north of Geraldton, an established mineral sand port with available capacity.

Gunson remains well funded and at the end of the September quarter had over $2.5 million in cash. Forecast exploration expenditure for the December quarter is $400,000.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/22463/gunson-resources-receives-interest-from-east-asian-industrial-group-for-coburn-joint-venture-22463.html