Developments at Gunson’s Coburn Zircon Project look promising enough to survive the challenging capital markets
Though named after its copper project at Mount Gunson in South Australia, Perth-based mineral explorer Gunson Resources is focused on sealing deals to progress its Coburn Zircon Project in Western Australia.
The company recently named South Korean steel producer POSCO as its potential strategic partner with final POSCO board approvals expected in August this year. David Harley, managing director at Gunson, said that recent meetings with POSCO’s management team to agree on formalising a joint venture agreement showed great promise.
Harley is a geologist with over 30 years of experience in the mining industry, mostly in senior exploration management positions with Australian diversified mining and fertiliser company, WMC Resources. He has also served as president of the Association of Mining and Exploration Companies, AMEC, among other appointments.
“Despite a three month delay on making its investment decision for Coburn, POSCO considers it to be a ‘landmark’ project and has completed its due diligence, agreeing with us that this is a good project to pursue. They are looking to diversify beyond steel given the tough steel market, a major cause of the 3 month delay,” Harley says.
POSCO is no stranger to Australia. In May this year, the steelmaker announced an agreement on the Roy Hill iron ore project to secure iron ore supply of 7 million tonnes per year (Mt/y) for 30 years beginning in 2014 from the Pilbara region of Western Australia. As part of funding this deal, the Korean company formed a consortium with several other players, including China Steel, to acquire 30 per cent of Roy Hill shares of which POSCO’s stake is 12.5 per cent.
In Gunson’s case, POSCO is looking to acquire a 40 per cent stake in Coburn within a joint venture (JV) structure, possibly bringing in other Korean partners to share part of its 40 per centstake. Until board approval in August, documentation outlining the JV agreement is ongoing.
In addition advanced discussions are in progress with several potential zircon offtake partners, with the objective of reaching an agreement on terms that will suit potential debt financiers.
The Coburn Zircon Project covers 1,200 km2 of a fossil coastline and has the potential to be a world class heavy mineral sand field. Drilling along the Amy Zone deposit has shown promising results, while some two-thirds of the zone has government environmental approval for mining the JORC-compliant ore reserves of 308 million tonnes (Mt), which averages 1.2 per cent heavy minerals. Production is expected in early 2014.
Zircon comprises 23 per cent of the heavy mineral suite, high titanium ilmenite with 62 per cent titanium dioxide comprises 48 per cent, rutile 7 per cent and leucoxene 5 per cent.
The reserves are sufficient to support a mine life of 17.5 years at a mining rate of 17.5Mt/y. The northern third of Amy Zone has not yet been approved for mining but contains a non-JORC potentially mineable resource of 106 million tonnes averaging 1.3 per cent heavy minerals. It would sustain the operation for another six years. Total revenue over the full 23.5-year period is estimated at A$2.2 billion with an operation cash surplus of $37 million per year.
Aside from the agreement progressing with POSCO, Gunson has struck a sales contract with DuPont for its proposed 60 per cent JV share of Coburn ilmenite production.
“This is a very important agreement as DuPont is the world’s lowest cost producer of some of the best quality pigment for paint and they have announced a US$500 million expansion,” Harley notes.
Considerable interest has also been shown in the higher titanium dioxide mineral product HiTi 90, which comprises a mixture of rutile and leucoxene. This product is suitable for use in the welding rod and pigment industries and demand currently exceeds available supply.
“Many of our markets are outside of China, Europe for example, and the major US pigment producers have a supply squeeze. In addition, there are several marketing groups keen to get the rights to sell our zircon and China only produces five per cent of its needs. So we have a combination of Chinese end users and global marketing groups chasing an offtake deal,” Harley says.
Another success for Gunson in the first quarter was securing the Hamelin pastoral lease, allowing it to consolidate the northern half of the project’s ore body.
The Hamelin property is just over twice the size of the Coburn lease purchased in 2005.
Ownership of the Hamelin lease, which can be renewed for another 49 years in the second half of 2015, will give the company greater operational flexibility, in particular by shifting the location of the mine village to the Hamelin homestead and closer to crucial road infrastructure.
“The strategy behind buying the Hamelin pastoral lease is that we now own the pastoral properties covering the whole deposit. Hamelin homestead is an ideal place for a village for mine workers, because it is only four kilometres from the sea, it has an existing tourist facility for about 70 people and it is just one kilometre off a paved road which goes into the seaside town, Denham, less than an hour’s drive away. It means that workers won’t feel like they are out in the bush in the middle of nowhere,” he says.
Gunson has started clearing the mine access road and shortlisting contractors towards construction. In May, engineering firm Sedgman Metals Engineering, is expected to complete a Front End Engineering and Design (FEED) study, aimed at providing more current and accurate capital cost figures, as well as a more definitive construction schedule.
“In 2010, there were only three mineral sand development projects of any size in the world that were in the starting gate with completed definitive feasibility studies and two of those, in Africa, have been financed. Coburn is the third development project, during the current supply shortage in the market leading to strong prices and it is just a matter of time until the financing falls into place,” Harley says.
But the company’s namesake project, Mount Gunson, has a few signals to watch out for too. Gunson’s farm-in partner, Noranda Pacific, part of the Xstrata Copper business unit, took over as operator earlier this year. Results from a geophysical programme are expected soon and favourable targets could see drilling start in July.
Noranda has the right to sole fund exploration to A$10 million by mid-June 2013 in order to increase its equity in the project to 75 per cent from the current 51 per cent. To date, Noranda has spent just under $6 million.
“South Australia is by far the best copper province by a matter of some orders of magnitude. Olympic Dam, which is 100km to the north, is a world class copper-uranium mine, being the world’s biggest uranium deposit and the world’s fourth largest copper deposit. Noranda is looking for a similar giant deposit, as are others who have recently moved into the district such as Rio Tinto and Antofagasta. , It runs second or third for gold, that is what Xstrata is looking for,” Harley says. “You never know, Noranda might drill through 200 metres of 3 per cent copper and our undervalued stock will shoot through the roof.”