Selwyn looks to Norway to fund ScoZinc mine restart

Vancouver – Selwyn Resources (SWN-V) is looking to raise US$30 million in a senior bond offering through Norway’s First Securities AS in order to restart operations at the company’s newly acquired ScoZinc zinc-lead mine in Nova Scotia.

The proposed financing comes on the heels of a 24-million-share offering Selwyn had arranged with Zurich-based Suntura Capital in July, only to cancel it a month later “due to market conditions.”

The Canadian capital markets seem to have temporarily dried up for Selwyn, with the company having already raised $12.7 million through a special warrant offering in May that saw its issued and outstanding shares rise to nearly 400 million, and over 450 million if fully diluted. Most of the money, however, went to struggling Eastern Canadian base-metals explorer Acadian Mining (ADA-T), which sold ScoZinc to Selwyn in June for $10 million.

Selwyn is now turning to Europe to provide the additional $20 million in restart capital and $10 million in working capital it believes necessary to resume mining operations at the past-producing ScoZinc mine. Acadian ran the open-pit mine somewhat unprofitably from mid-2007 to early 2009 before heading into creditor protection after the price of zinc fell to 50¢US in late 2008. According to Selwyn, Acadian ran into some initial start-up problems at the mine but eventually managed to reduce cash costs to 51¢US per lb. zinc (after deducting lead byproduct credits) in the third quarter of 2008. It produced around 8,000 tonnes of zinc concentrate and 2,000 tonnes of lead concentrate that quarter.

Selwyn is now hoping to have the mine fully operational again by the second quarter of 2012, should the company secure financing in a timely fashion and receive the necessary permits in the fourth quarter of 2011. Since acquiring ScoZinc, Selwyn has released a new mineral resource estimate for the project, started an exploration program to grow reserves and launched a hiring program to add more mine operating experience to the company’s management team.

On Aug. 30, the company released the results of a new preliminary economic assessment for ScoZinc. The PEA recommends a slightly increased 2,500-tonne-per-day mill processing plan using base-case zinc and lead prices of US$1.10 and US$1.20 per lb., respectively.

With operating cash costs estimated for the first three years around 56¢ per lb. zinc (after deducting lead byproduct credits), the project’s pretax net present value under an 8% discount rate stands at $54.1 million. The project’s pretax internal rate of return is better, however, at 63.9%, while earnings before interest, taxes, depreciation and amortization for the first three years of operation are expected to average $26.2 million per year.

Selwyn says it will use the earnings to press ahead with the company’s main project, the world-class Selwyn zinc-lead project in the Yukon. The project is being advanced under a 50:50 joint venture agreement signed in 2010 with China’s Yunnan Chihong & Germanium, which has already earned its interest by paying $100 million into a jointly held subsidiary. The project is considered to be one of the top five undeveloped zinc and lead resources in the world, though its remoteness, large expected capital costs, and First Nations problems remain barriers to development.

Shareholders reacted positively, if somewhat tepidly, to the Aug. 30 PEA announcement. Shares of the company rose 1.5¢ to 21¢ on 53,300 shares traded, closing near the lower end of Selwyn’s 52-week trading range of 16¢-39¢.