PERTH (miningweekly.com) - Korean steel major Posco has walked away from a A$28-million deal with ASX-listed Gunson Resources after the parties failed to reach an agreement on commercial and financing conditions for the Coburn zircon project, in Western Australia.
In August last year, Posco and Gunson agreed that the Korean giant could earn a 40% interest in the Coburn project by making an initial investment of A$7-million, and contributing the first A$21-million of Gunson’s share of mine development expenditure.
By December, the parties had progressed to the point where the proposed joint venture (JV) agreement had been substantially agreed and would be executed subject only to normal internal approvals and commercial conditions being satisfied by the end of February this year.
An optimisation study, which was part of Posco’s commercial conditions, also delivered encouraging results and resulted into an improved cost structure for the Coburn project.
However, an updated zircon and titanium mineral price forecast offset most of this cost structure improvement and resulted in Posco’s returns being below their required level, after allowing for the A$28-million earn-in payment.
Gunson said on Thursday that it was unable to successfully engage with Posco as to whether an acceptable return could still be achieved by them with a reduction to the earn-in payment.
In addition, the deterioration in the mineral sands market and the uncertainty about the timing of improved conditions, had also increased Gunson’s challenges in raising its share of the funding for the project development.
“This is a disappointing outcome after nearly 18 months of due diligence, engineering and optimisation studies, which have resulted in making the project considerably more robust, but reflects the significant deterioration in the zircon market over the past six months,” Gunson told shareholders.
Gunson said on Thursday that it had now launched as strategic review of the company that would look at maximizing the value of the Coburn project, which would review the future structure of the company, and which would review other projects held by the company.
A report on recommendations was expected by the end of April.