Coburn is strategically located, with regional infrastructure nearby including a major highway, natural gas pipeline and port, with the project 250 kilometres north of Geraldton, an established mineral sand port with available capacity.

The project is development ready with full permitting and a Definitive Feasibility Study completed.

Gunson is wasting no time as it moves towards the start of construction at Coburn, which the company estimates will take around 85 weeks.

The company awarded a Front End Engineering, Design and Approvals study agreement to DBP Services – an associate entity of the owner of the Dampier to Bunbury Natural Gas Pipeline – which will provide the design, construction and capital cost information for a 110 kilometre long lateral gas pipeline to the proposed Coburn power station.

The pipeline will link to the main Dampier to Bunbury Natural Gas Pipeline to the east of the Coburn power station, and will be built and operated by the owner of the Dampier to Bunbury Gas Pipeline.

Costs will be recouped from Gunson via a transmission charge.

Gunson has selected Cummins Power Generation as the preferred supplier of the natural gas-fired power station, on a build, own, operate, transfer basis under a standard power purchase agreement.

Cummins has proposed to provide a competitive electricity supply solution with forecast unit power costs well below those assumed in the Definitive Feasibility Study that was released in January 2010.


Offtake Agreements
 
Gunson is also advancing the finalisation of offtake agreements for its share of production from the Coburn project.

Final internal approvals for an ilmenite offtake agreement between Gunson and a major chloride grade ilmenite consumer are underway.


Strong Zircon Demand

Supply shortages and rising demand for zircon and titanium dioxide raw materials have improved the financial attractiveness of the Coburn project.

While Iluka Resources (ASX: ILU) recently reported a softening in zircon demand in China, it anticipates more favourable medium to longer term supply/demand of zircon and high grade titanium dioxide feedstocks for the pigment and titanium metal industries.

This leaves Gunson well positioned to take advantage of future increased demand as the company approaches production in 2013.

Booming mineral sands prices are based on supply shortages and higher demand, in part, for tiles, zirconium chemicals and paint in Asia.

Independent consultant TZ Minerals International recently forecast that the highly concentrated global zircon market is expected to face a supply deficit from mid-2012 onwards due to continuing supply shortages and growing demand, especially from China, which would lead to further rises in zircon prices.

Zircon, a product used in ceramic tiles and chemicals, is expected to account for 67% of the revenue from the proposed Coburn mine.

With an expected annual production of 146,000 tonnes per annum of heavy minerals, Coburn would produce about 3% of current global zircon production.


Comment

Gunson’s strategically placed, zircon-rich Coburn heavy mineral sands project in Western Australia is construction ready.
 
Negotiations for offtake contracts for Gunson’s proposed equity share of mine products are advanced. The updated Coburn Definitive Feasibility Study model shows a capital cost of A$179 million and with the latest product price forecasts, an internal rate of return of 28.3% and a net present value (8%) of A$223.7 million.

Bullish for Gunson is that Coburn is one of only a few significant advanced mineral sands projects in the world. Promisingly, it is encouraging that its two peer group companies financed their African mineral sands projects in 2011.  With definition from the East Asian industrial group on the financing front the current valuation of Gunson Resources could look exceedingly light.

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.

The next hole in the 2011 drilling program was to be first pass testing of a gravity magnetic geophysical target around 1.8 kilometres east of the north east shore of Lake Windabout, which is positioned 17 kilometres south of Emmie Bluff. However, drilling was postponed until next year due to access issues.


Noranda Pacific funding

Drilling is being funded by Noranda Pacific which has the right to earn an extra 24% interest in the project, in addition to the 51% equity it already holds, by spending an additional $6.5 million (for a cumulative amount of $10 million) on exploration by mid-June 2013. At the end of September 2011, Noranda had spent around $5.2 million.

Deep diamond drilling commenced at the Emmie Bluff Prospect on 20th July 2011. The first hole (MGD 68) tested the western flank of the major north westerly trending 5 kilometres long Emmie Bluff gravity geophysical anomaly, shown to be associated with narrow zones of high grade copper-gold mineralisation by mid 2009 drilling.

Hole MGD 55 drilled in mid 2009, intersected two narrow zones of higher grade copper-gold mineralisation in basement rocks that included 7 metres at 2.2% copper with 0.5 g/t gold from 974 metres.

Hole MGD 68 was stopped in broken ground at 1,044 metres depth on 4th September 2011. The top of the basement in the hole was intersected at 876 metres, where it passed into altered felsic volcanic rocks interpreted to be Gawler Range Volcanics.

No copper sulphides were observed in the hole but the company said  basement core will be split and submitted for assay.

The rig commenced drilling the second hole (MGD 69), 2 kilometres north west along strike from MGD 68, on 5th September. The basement target zone in this hole is expected at about 900 metres.

Drilling at the Emmie Bluff Prospect is being funded by Xstrata Copper  subsidiary Noranda Pacific Pty Limited.

Noranda has the right to earn an extra 24% interest in the Project, in addition to the 51% equity it already holds, by spending an additional $6.5 million (for a cumulative amount of $10 million) on exploration by mid June 2013.

At the end of June 2011, Noranda had spent $4.3 million.

Due diligence on the 100% owned MG14 and Windabout copper prospects by two small-mine operating companies is in progress, with a view to concluding a profit sharing development agreement by the end of 2011.

The Coburn Project, which is Gunson‘s lead project, is focused on mineral sands namely Zircon (66% ZrO2); Ilmenite (61% TiO2); Rutile (95% TiO2); and Leucoxene (90% TiO2) is located in Western Australia and contains proved (53 million tonnes (Mt) and probable (255Mt) reserves of 308Mt at 1.2% heavy minerals.

A Definitive Feasibility Study (DFS) announced in early 2010 revealed that Coburn Project has the potential to support a high volume, low cost, long life mining operation producing quality mineral products.

Approximately 67% of the revenue from the proposed mine is expected to come from zircon.

The updated product prices outweigh the effect of increased capital and operating costs that reflect a recent engineering cost review, the proposed Federal Government carbon tax and reduction in the diesel fuel rebate.

The costs also took into account other changes suggested during due diligence by potential strategic investors and banks.

Proposals from some potential strategic investors have been received, with further proposals from companies currently finalising their due diligence expected by the end of this month.

The further improvement in the market for mineral sand commodities was reflected in the price rises for the second half of 2011 negotiated by industry leader Iluka Resources (ASX: ILU).

Updated price forecasts by consultancy TZMI received at the end of July 2011, were used to revise the previously announced estimates of Project financial returns on 28th April 2011.

The new estimates incorporate:

- Increased Capital Cost: Estimated capital costs have been increased by 6% from the January 2010 Definitive Feasibility Study (DFS) estimate, reflecting a recent capital cost review by the Company’s engineers, Sedgmans, as outlined in the release of 20th May 2011.

- Increased Fuel Cost: Estimated diesel fuel costs have been further increased to conservatively reflect the proposed 6.2 cents per litre reduction in the Federal Government’s diesel fuel rebate announced on 10th July 2011.

- Increased Power Costs: Estimated power costs have been conservatively increased to reflect the effect of the proposed new Carbon Tax on the price of natural gas to be used for power generation.

- Product price increases: Estimated zircon and titanium mineral product prices have been increased in line with recently updated forecasts by TZMI, which reflect continued tightening in the mineral sand commodities markets.

In addition, there is a strong case for a royalty reduction on finished mineral sand products in Western Australia, to reflect the Government’s policy of encouraging downstream processing in the state.

Over the 23.5 year mine life modelled, total revenue is estimated at $A2.2 billion, with an operating cash surplus of $A879 million or $A37 million per annum.

The company is now strategically placed for its construction ready Coburn zircon mineral sands project to be in production in 2013, subject to project funding decision.

With zircon prices forecast by Goldman Sachs to reach US$2,000/tonne, Gunson's Coburn project should be cast in a new light with an IRR of 35% as demand for ceramic tiles and paints in housing in developing economies should boost Gunson's current valuation of around $30 million, which is likely to appear undervalued once the project finance is finalised.

A Definitive Feasibility Study (DFS) announced in early 2010 revealed that Coburn Project has the potential to support a high volume, low cost, long life mining operation producing quality mineral products.

The company has completed drilling to obtain a representative bulk sample from proposed Pit A and processing of an estimated 7 tonnes of bulk sample will commence next week.

Pit A is the first open pit scheduled for production, and this further bulk sample material will provide additional zircon and titanium mineral samples for potential offtake customers.

Gunson has also begun assaying of samples from the infill / extensional drilling program reported on 20 May 2011, with about 10% now complete.

Importantly, the company expects these assays to facilitate an upgrade to the Inferred Resource in the northern third of the project and to test potential ore extensions to the south east of proposed open Pit E.

Gunson continues to progress discussions with funding providers and technical, legal and financial due diligence by several potential strategic partners is now in advanced stages.

Mineral sand commodity prices prices have nearly doubled since early 2010 due to the inability of existing producers to meet the extra demand and the very limited “pipeline” of new mine development projects.

The zircon and titanium mineral price rises for the third quarter of 2011 recently announced by Iluka Resources (ASX: ILU), are ahead of the price forecasts used in the Coburn financial model, which are based on the most recent forecasts of global mineral sand market consultant TZMI.

After TZMI releases its next price forecast update, which is expected in late July 2011, Gunson will provide an update on the Coburn Project economics.

Gunson believes that the price rises are sustainable and “structural” in nature, reflecting the ongoing demand growth and lack of new supply of both zircon and titanium mineral products.

According to TZMI's June 2011 monthly Mineral Sands Report, senior industry participants on both the supply and demand side of the mineral sand markets cannot remember a time when pricing pressures were so high, despite some spikes in the past.

Supported by a supply shortage rather than an event-driven deficit, pricing power is now clearly with the producers.

The tightness in supply of high-grade titanium dioxide ore is expected by the industry to last for at least 3 to 5 years.

Gunson is now well placed for its construction ready Coburn zircon mineral sands project to be in production in 2013, subject to the project funding decision.

With zircon prices forecast by Goldman Sachs to reach US$2,000/tonne, Gunson's Coburn project is well placed.

As demand for ceramic tiles and paints in housing in developing economies is forecast to rise, Gunson's valuation of around $40 million should receive a boost once the project finance is finalised.

The improvement in the economics of the project due to the rise in mineral sand commodity prices has seen a substantial increase in interest from parties wishing to participate in funding of the project, with indicative proposals having now been received from several parties.

Significantly, actual and forecast prices have nearly doubled since early 2010 due to the inability of existing producers to meet the extra demand and the very limited “pipeline” of new mine development projects.

Gunson has expanded RFC’s mandate to now encompass offtake-related funding, equity and debt finance, in addition to the option of attracting direct strategic investment in the project.

As supply shortages become increasingly acute debt finance options being canvassed are being designed to not only establish the most appropriate gearing and term parameters for the project but also to maximise the commodity price upside.

Gunson is now well placed for its construction ready Coburn zircon mineral sands project to be in production in 2013, subject to the project funding decision.

once the project finance is finalised there could be potential upside to Gunson's "light" market valuation of around $50 million.

Oliver brings additional new mine developments and existing operations expertise, as Gunson moves towards the development of the company's Coburn Zircon Project.

Gunson received some great news for Coburn earlier in the year, with the 21.2% jump in pre-tax internal rate of return in a Project Definitive Feasibility Study due to using new price forecasts for the price of zircon and titanium minerals.

This figure is based on the Australian and United States dollars at parity, and assumes a drop in the royalty rate to 2.5% from the current 5%.

Gunson considers there is a strong case for the royalty reduction as the new Iluka Resources (ASX: ILU) Eucla Basin mineral sands mine in South Australia is only paying a 1.5% gross royalty for the first five years.

Gunson said the current Western Australian state royalty regime provides no incentive for heavy mineral sand producers to refine their concentrates to final mineral product, as the royalty for both is the same, at 5%.

This is in contrast to the lower 2.5% incentive rate provided to base metal concentrate producers to produce a final metal product.

The project covers 1200 square kilometres of a fossil coastline which has the potential to host a world class heavy mineral sand field.

Gunson said if these results are 'sufficiently attractive', the company will then consider further drilling, which is supported by the TEM conductor defined during surface geophysical surveys in 2008 and 2009.

These surveys identified two promising nickel sulphide targets.

Adding to the potential of the project, a State Government geology publication from the 1990's stated that the area is highly prospective for base metals, using a comparison of the aeromagnetic pattern with the Thompson nickel belt of Manitoba, Canada.

Fowlers Bay comprises a 700 square kilometre exploration licence located about 150 kilometres west of Ceduna, in South Australia.