Gunson Gains with Lower Operating Costs for Coburn Zircon Project

2012-12-03

Dec. 2, 2012 - A review of operating costs for Gunson’s Coburn Zircon Project indicates potential cost savings of AUD 122 million across the 23 year mine life. Further improving the financial returns from the project, an additional USD 1.2 million could be saved on mining costs by mining Pit B first instead of Pit A. All eyes will now turn toward completion of the POSCO JV agreement.
Gunson Resources has estimated it can achieve a 6.3% reduction in the life of mine estimated annual average operating cost from AUD 85.1 million to USD 79.8 million for its Coburn Zircon Project. The finding comes after a review of operating costs for the Western Australian operation which shows that over the 23 year mine life Gunson will save USD 122 million in costs.
Coburn is set to be the second largest zircon producer of the only three mines in the world that have a completed Definitive Feasibility Study and are fully permitted for construction, behind Grande Cote in Senegal.
Further improving the economics of Coburn, rescheduling of the open pit mining sequence so that Pit B is started before Pit A results in a decrease of USD 1.2 million in annual average mining costs in the first five years of the project, related to the lower overburden to ore ratio in Pit B. This adjustment has a positive impact on the net present value and internal rate of return of the project.
An important reason for the cost reduction is that the review has shown the cost of mining overburden is about 50% higher than that of ore, due to the longer push distance required with the dozer trap mining method. Gunson now plans to focus on pit optimization to reduce the volume of overburden and the overall mining cost. The pit optimization study is scheduled for completion in February 2013.
Strong market outlook;- The Coburn Project is tipped to deliver annual revenue of around USD 124 million with a strong market outlook for zircon and titanium dioxide products. Rio Tinto forecasts the titanium dioxide market to grow 46% to 9.5 million tonnes per annum in 2020, with titanium dioxide consumption linked to GDP growth in emerging economies.
Importantly, Gunson and the Coburn Project have the backing of major Korean steel producer, POSCO which is earning a 40% interest by spending AUD 28 million. Gunson has also secured an offtake agreement with DuPont, the world’s largest pigment producer for its proposed share of chloride ilmenite production from the Coburn Project over a five year period. The company is also nearing the execution of offtake agreements for zircon and HiTi 90. First production is slated for the September quarter of 2014, subject to financing by early 2013. Annually, Coburn is expected to produce 41,000 tonnes of zircon, 89,000 tonnes of ilmenite and 19,000 tonnes of HiTi 90. Zircon accounts for 65% of annual revenue.
POSCO JV progress; - Negotiations on the final terms of the Joint Venture Agreement have continued with Gunson, POSCO and Korean Resource Investment Fund a minority partner in POSCO SPV reaching substantial agreement on the JVA wording.
Final resolution of the JVA is expected during December 2012. Importantly, the financing condition precedent in the draft JVA has been extended for completion at the end of March 2013 replacing the previous end 2012 deadline. Due diligence for a debt facility covering part of Gunson’s funding requirement is in progress. Equity funding will follow once a debt agreement has been reached.