Gunson's Outlook

Gunson Resources has been negotiating with major Korean steel producer, POSCO, for a strategic minority investment in its construction-ready Coburn mineral sands project. In April 2012, POSCO requested an extension until mid-August 2012 to complete its internal review process and obtain board approval for the investment. Gunson has demonstrated confidence in this timing target by commissioning a value engineering review, focused on reducing project costs and shortening the construction schedule.

Joint Venture Negotiations Ongoing
POSCO has reiterated its strong interest in Coburn as a landmark new potential investment and has agreed the basis of establishing joint marketing and off-take arrangements. Discussions are ongoing to complete the agreement to ascribe a large minority joint venture interest whereby the JV partner will contribute its share of the project development costs plus an additional earn-in payment.

Value Engineering Review
Gunson is taking advantage of the POSCO delay by commissioning a review from the engineering contractor which will prioritise opportunities to reduce capital and operating costs and streamline the construction schedule. Important lead items already underway include completion of the access road corridor and an advanced study for an agreement to develop a link up to the state gas pipeline network. This should be incorporated in an updated definitive feasibility study (DFS).

Valuation: Market Reaction Shows 60% NPV Discount
Our NPV estimate for the Coburn project alone shows the current share price reflecting a 60% NPV discount, which indicates that the market expects the POSCO agreement to fail. At a 10% discount rate the NPV is A$177m (A$0.80/sh) and we value the remainder of the company’s assets at A$14m. A timely positive result of the negotiations in August 2012 is essential to restore market credibility and establish one of the few new producers in the mineral sands industry. Product markets are strong and discussions on project funding with other strategic partners and with debt and equity advisers are well advanced.

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