Selkirk Metals to get hitched with Imperial Metals

The wedding invitations are in the mail and it looks like shareholders will be the first to join the party.

Imperial Metals (III-T), with cash flow from two producing mines and a handful of promising exploration projects in British Columbia wants to embellish its portfolio. Selkirk Metals (SLK-T), with development and advanced stage exploration properties in the same province needs cash to advance them to the next level.

“We have two good resource-based properties but both need a significant amount of investment at this stage,” Gordon Keevil, Selkirk Metals’ president, said in an interview. “The amount of dilution necessary to raise five or ten million dollars would be excessive and not self-serving. So this allows our shareholders to participate in a larger company with no debt, strong management and a tremendous local reputation. It’s a logical fit.”

Under the terms of the agreement, each shareholder of Selkirk will receive either 12¢ cash for each Selkirk share they hold or one share of Imperial for every 30 shares of Selkirk. The plan of arrangement also dictates that Imperial will not be required to issue more than 2.2 million shares. At that point, Imperial shares would be allocated on a pro-rata basis with the balance being paid in cash.

For its part Imperial Metals lusts after Selkirk’s properties — all of which it inherited from Falconbridge when that company exited British Columbia in 1989 after run-ins with the then NDP government. “The Selkirk guys have a big portfolio of properties along the coast,” Brian Kynoch, Imperial’s president, said in an interview. “They have a lot of properties — probably more than us.”

Kynoch, who has served on Selkirk’s board and acted as an advisor throughout the junior’s history, says Selkirk’s Catface copper property on the west coast of Vancouver Island, west of Port Alberni, brims with potential. Exploration by Falconbridge between 1960 and 1963 and in several subsequent periods identified three zones of the porphyry copper deposit.

Currently the focus is on the Cliff zone, which contains a historical resource of 169.2 million tonnes grading 0.43% copper with byproduct credits in gold, silver, molybdenum and perhaps rhenium. Keevil says the company should have a National Instrument 43-101 resource estimate out in the next couple of weeks. Last year Selkirk signed a landmark memorandum of understanding with the Ahousaht First Nation allowing for additional exploration of the deposit.

Selkirk’s other major asset is Ruddock Creek in the Scrip Range of the Monashee Mountains in southeastern British Columbia, about 100 km northwest of Revelstoke and about a seven-hour drive from Vancouver. The site is 30 km from hydro, rail, road and local communities.

Exploration on the Ruddock Creek property dates from the discovery of massive sulphide mineralization and subsequent staking in 1960 by Falconbridge. Today, using a base case cut-off grade of 4% combined lead and zinc, Ruddock Creek’s E zone (based on 770 composites from 108 drill holes) contains an indicated resource of 2.34 million tonnes averaging 7.79% zinc and 1.61% lead and an inferred resource of 1.49 million tonnes grading 6.5% zinc and 1.26% lead.

Imperial’s key properties are the Mount Polley open pit copper/gold producing mine in central British Columbia, the Huckleberry open pit copper/molybdenum producing mine in northern British Columbia, the development stage Red Chris property in northwestern British Columbia, and the development stage Sterling gold property in southwestern Nevada.

Last year Imperial’s Mount Polley mine set a production record of 60.3 million pounds of copper and 47,000 ounces of gold – the highest numbers since reopening the mine in 2005. It also churned out 522,000 oz. silver. Production this year is expected to be about 42 million pounds of copper, 53,000 ounces of gold and 231,000 oz. silver.

Copper production is forecast to fall because the lower grade, more highly oxidized Springer pit will become the major source of mill feed, the company stated in its annual report. As of Jan. 1, Mount Polley had proven and probable reserves of 46.2 million tonnes grading 0.34% copper, 0.29 gram gold per tonne and 0.95 gram silver per tonne.

The Huckleberry mine, 100 km by road northeast of Williams Lake and 123 km southwest of Houston, B.C., produced 37.2 million pounds of copper, down from 55 million pounds in 2007, with all production from the mine’s Main Zone Extension pit. Copper production is expected to increase this year to about 40 million pounds of copper as mining moves into the deeper, higher grade portions of the Main Zone Extension pit.

Imperial owns a 50% interest in the mine, with the remainder held by a consortium of Japanese trading companies including Mitsubishi Materials and Marubeni Corp. Huckleberry’s proven and probable reserves as of Dec. 31 last year were 8.37 million tonnes grading 0.362% copper and 0.005% molybdenum. In June Imperial the mine plan was extended to include the Saddle zone resource, which will extend milling operations from 2010 to the end of 2011.

On the exploration front, work at Mount Polley was focused on the Pond and Boundary zones. Exploration in the Pond zone last year led to the design of a small open pit containing proven and probable reserves of 1.37 million tonnes grading 0.476% copper, 0.27 gram gold per tonne and 6.898 grams silver per tonne. Drilling at the Boundary zone intersected high-grade copper and gold at depth, with intercepts including hole ND08-56, which cut 4.29% copper and 1.42 grams gold per tonne over 13.7 metres.

Imperial has also completed a 17-km access road into its Red Chris copper/gold property in September last year, giving all-weather access to the site, extending the working season and lowering exploration costs. Red Chris is about 80 km south of Dease Lake and 18 km southeast of Iskut.

The planned pit at Red Chris would be about 1.8 km long and up to 1,000 metres wide with two main zones; the East and the Main. A 2005 feasibility study using US$1.10 per lb. copper and US$400 per oz. gold pegged total mineable reserves at 276 million tonnes grading 0.349% copper and 0.266 gram gold per tonne over a mine life of about 25 years. But development of the project depends on building a power line to service northwestern British Columbia.

Imperial is also doing underground development drilling to delineate and expand the 144 zone of its Sterling gold property, 185 km northwest of Las Vegas in Nevada. The Sterling mine operated as both an underground and an open pit mine between 1980 and 2000 and produced a total of 194,996 troy ounces of gold with an average grade of 7.44 grams gold per tonne.

As for the merger, Keevil said it was a “pragmatic” decision.

The news sent Selkirk’s shares up 1.5¢ or 13.6% per share to 12.5¢ per share with 1.1 million shares changing hands. The junior has a 52-week trading range of 3.5¢-30.5¢ per share and 87 million shares outstanding.

Imperial Metals finished down 3¢ or 0.73% to $4.07 per share. The company has traded between 93¢ and $8.14 per share over the last year and has 32.1 million shares outstanding.