Gunson Resources (ASX: GUN) is now in the construction phase at its Coburn Zircon Project and is reducing costs in the process as a result of better than expected ground conditions and a review of capital and operating costs.
The company reached a milestone in the development of the project with the start of construction earlier this month.
Construction of a paved two lane road into the minesite from the North West Coastal Highway is the principal long lead item required before the main phase of construction work can begin.
Clearing of a 20 metre wide corridor for the road westward from the North West Coastal Highway began at the start of the month, advancing to the Coburn station homestead some 25 kilometres west of the Highway late last week.
A narrower corridor through vegetated sand dunes to the west of the Coburn homestead was also cleared, along with part of the site of the proposed mineral separation plant.
Importantly, this work was done at a total cost well under the estimated budget due to better than expected ground conditions.
FEED Study extended
Gunson has extended the Front End Engineering Design (OTC:FEED) Study of Coburn to include a value engineering phase focusing on providing more current and accurate capital cost figures, as well as a more definitive construction schedule.
A preliminary evaluation by Gunson and engineering contractor Sedgman Metals Engineering has identified several areas with potential for cost savings from supplier proposals received during the 2012 FEED study.
These areas are now being prioritised for further analysis as part of the review.
Meanwhile, a gas transmission FEED study by DBP Services has advanced to its second and largest phase.
This study will provide design, construction and capital cost information for the proposed 110 kilometre long lateral pipeline from the main Dampier to Bunbury gas pipeline, westwards to the proposed location of the Coburn power station.
Gunson has recently had discussions with South Korean steel producer POSCO regarding its investment in Coburn.
Demonstrating the strength of the project, POSCO has reiterated its strong interest in Coburn as a landmark new potential investment and agreed with Gunson the basis of establishing joint marketing and offtake arrangements.
The next big milestone for Gunson and the Coburn project will be the finalisation of the POSCO deal, which is anticipated in August.
Gunson has also held discussions with other potential strategic partners, as well as with debt and equity financiers.
Next development steps
Geotechnical sampling of proposed "borrow pits" for suitable road fill material close to the road route, along with the road route itself and the sites of the mineral separation plant and wet concentrator plant, are to follow in June.
This will occur prior to the finalisation of the road construction contract.
Strong mineral sands pricing
Supply shortages and rising demand for zircon and titanium dioxide raw materials have improved the financial attractiveness of the Coburn project.
Coburn is one of only a few significant advanced mineral sands projects in the world.
Updated price forecasts by TZ Minerals International indicate that the outlook for mineral sand commodity prices remains strong.
TZMI now predicts the period over which prices are likely to remain high will be longer than previously forecast.
Iluka Resources (ASX: ILU) has noted that zircon prices are holding at US$2,400 per tonne and, more importantly, its major customer inventories are low, with bulk order interest resuming.
Interestingly, it takes a long time to get an exploration prospect from discovery to commercial production, the lowest quoted average being 10 years.
This means a construction-ready project, like Coburn, is positioned well ahead of other projects in the pipeline.
This leaves Gunson well positioned to take advantage of future increased zircon demand as the company approaches production in 2013.
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 POSCO on the financing front and an offtake agreement secured with the world's largest pigment producer, DuPont, the current valuation of Gunson Resources could look exceedingly light.
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