Positive Feasibility For Minco Silver’s Fuwan

VANCOUVER– With a positive feasibility study now in hand for its Fuwan silver deposit in China, Minco Silver (MSV-T, MISVF-O) is trying to raise $20 million to fund initial development work.

The Fuwan deposit, which is 45 km southwest of Guangzhou in southeastern China, hosts silver along with low-grade lead, zinc and gold. The feasibility study considered an underground mining operation producing 3,000 tonnes of ore daily, processed through an onsite mill and conventional flotation circuit.

The operation would employ drift-and-fill mining, with some room-and-pillar mining used in lower-grade areas. All stopes would be backfilled, which would use 45-50% of the operation’s tailings.

The mine would produce 5.5 million oz. silver annually, at an average cash cost of US$5.65 per oz. Over its 9.2-year lifespan, Fuwan would produce 50.4 million oz. silver.

To develop the operation is expected to cost US$73.1 million and take 20 to 24 months. Based on a silver price of US$13.57 per oz., the Fuwan project carries a pretax net present value of $111.5 million, using a 6% discount rate, and would produce a 33.2% pretax internal rate of return. Those returns would repay capital expenditures in 2.3 years.

The study also calculated a reserve estimate for Fuwan, which came in at 9.12 million tonnes grading 198 grams silver per tonne, 0.15 gram gold, 0.2% lead and 0.57% zinc.

The deposit is broadly characterized as a sediment-hosted epithermal deposit and is composed of eight zones of vein and veinlet mineralization within zones of silicification. The predominant sulphide minerals are sphalerite and galena.

In a statement, Minco’s president and CEO, Ken Cai, called the reserve “an excellent starting point for the project,” noting that upgrading inferred resources would increase the reserve base significantly. Resources at Fuwan stand at 14 million indicated tonnes grading 188 grams silver, 0.17 gram gold, 0.2% lead and 0.56% zinc, as well as 10.2 million inferred tonnes averaging 171 grams silver, 0.26 gram gold, 0.26% lead and 0.72% zinc.

The company is also considering tapping into the silver mineralization within the adjacent Changkeng permit, which is held by Minco’s sister company Minco Gold (MMM-T, MGH-X). Changkeng currently hosts indicated resources of 1.4 million oz. silver and 623,100 oz. gold, plus inferred resources totalling 1.2 million oz. silver and 386,800 oz. gold.

A few days before releasing the feasibility study results, Minco Silver announced its intention to raise $20 million in a non-brokered private placement. The company wants to sell 11.8 million units at $1.70 apiece, with each unit comprising a share and half a warrant. Warrants are exercisable at $2.15 for one year. A Chinese fund, known as IDG-Accel China Growth Fund II, has signed on to buy 6 million units in the placement for $10.2 million.

The issuance would represent 54.6% of the company’s current outstanding shares, which means the company requires shareholder approval for the move.

And after a long, confusing legal battle, Minco and its bankrupt partner, Sterling Mining, have regained control of the Sunshine silver mine in Idaho.

Minco and Sterling signed a merger deal in mid-2008, at which time Minco loaned Sterling US$5 million to keep Sterling’s Sunshine mine operational. Minco withdrew from the merger a few months later. When it became clear in February that Sterling would be unable to repay the loan, which was secured against Sterling’s assets, Minco foreclosed on Sterling.

The problem was that Sterling never owned the Sunshine mine. It was leasing the mine from Sunshine Precious Metals (SPMI) and SPMI owner Robert Mori says securing a loan against the mine would have been in violation of the lease.

And just as Minco was foreclosing on Sterling, Sterling had asked Mori to waive a 30-day notice and let the company abandon the lease. Mori did so and immediately reassigned the lease to SNS Silver (SNS-V, SNSFF-O), owner of the neighbouring Crescent mine, so that care-and- maintenance activities could continue.

Next, Sterling filed for Chapter 11 bankruptcy protection. In May, a court ruled that the lease was not terminated prior to bankruptcy and the judge granted Sterling the right to reassume and cure the lease, funded by another loan from Minco. SPMI did not like that decision and asked a higher court to overturn the ruling and put the lease back in the hands of SNS Silver.

In August the court ruled against SPMI and ordered the mine be returned to Sterling. And in early September, the court finalized the amounts due: Sterling owes SPMI US$1.16 million to cure the lease and owes SNS Silver US$147,230 for costs incurred in care and maintenance.

Minco says it is now working closely with Sterling and the two expect to start dewatering the mine shortly.

On news of the Fuwan feasibility study, Minco’s share price gained 5¢ in two days to close at $2. The company has a 52-week trading range of 30¢-$2.45 and 31.3 million shares outstanding.