Selwyn turns the page after eight years at Howard’s Pass

VANCOUVER — It has been quite a ride for Vancouver-based junior Selwyn Resources (SWN-V) since it acquired a 100% stake in the Howard’s Pass zinc-lead project in the eastern Yukon from a Placer Dome joint venture in 2005. The story came to an end on March 5, however, when Selwyn agreed to sell its remaining 50% stake in the project to China’s Chihong Canada Mining for $50 million in cash.

Since acquiring the project, Selwyn has seen more than $131 million spent at Howard’s Pass — which was renamed the Selwyn project — and helped discover nine deposits, bringing the total to 14 drill-defined deposits and zones over a strike length of 37 km.

Selwyn’s latest resource estimate, dated August 2012, reports global resources at Howard’s Pass totalling 186 million indicated tonnes grading 5.2% zinc and 1.79% lead for 21.3 billion contained lb. zinc and 7.3 billion contained lb. lead at 2% zinc cut-off. Additional inferred resources clock in at 238 million tonnes averaging 4.47% zinc and 1.38% lead.

In August 2010 Selwyn sold 50% of its Howard’s Pass assets for $100 million to Chihong — a subsidiary of Yunnan Chihong Zinc and Germanium — with the companies forming a joint venture to take the deposits to production. But as zinc prices trended strongly downward since peaking at roughly US$2 per lb. in late 2006 Selwyn’s shares took a serious beating, and the company has been low on capital since mid-2012.

It was evident that Selwyn was looking for an asset sale to buoy its financials when the company announced a strategic review process in light of its limited capital resources, and the potential commitments it would face to bring the large-scale Howard’s Pass deposit package into production.

In September Selwyn suspended its review process and said it had already approached Chihong about purchasing the rest of Howard’s Pass. At the time the companies couldn’t reach an agreement, and Selwyn shuffled its board of directors while the company rallied to raise funding.

But patience was rewarded for Chihong, which will pay Selwyn $10 million in advance cash through early April, and the remaining $40 million when the transaction closes. With the near-term cash, Selwyn can pay down a fully drawn $10-million secured debt facility it arranged with Waterton Global Value.

“The decision to sell reflects the realization of the large capital requirements that will be needed to advance the Selwyn project to production and the associated risks to shareholders, including, but not limited to, the potential for significant dilution of equity in the [project],” president and CEO Harlan Meade comments. “At a time of reduced industry interest in undeveloped mineral deposits, [we are] satisfied that the timing of this transaction and the purchase price negotiated are in the best interests of the shareholders.”

With its Howard’s Pass project potentially off the books, Selwyn’s sole asset will be the historic ScoZinc zinc-lead mine, 50 km west of Halifax, which the company bought from Acadian Mining for $10 million in early 2011. Selwyn had previously identified ScoZinc as an earlier-stage production asset that could help fuel eventual development at its larger project, but now the old mine represents the company’s only chance at becoming a producer.

Selwyn has invested $8 million since picking up ScoZinc, with a focus on engineering, definition drilling, permitting, mill-and-mine infrastructure refurbishment and surface-rights acquisition. In late November the company published an updated preliminary economic assessment on ScoZinc, outlining a US$31.5-million mine revival that would operate at 2,500 tonnes per day and carry a US$56-million after-tax net present value and a 57.8% internal rate of return at a 8% discount rate — assuming metal prices of US$1.10 per lb. zinc and US$1.20 per lb. lead.

At the beginning of November Selwyn reported it had a working capital deficit of $2.5 million, with $4.7 million in cash. Assuming the company pays back its $10-million debt facility, it will probably require a further raise after selling its Howard’s Pass assets to fully fund development at ScoZinc.

It is likely the company will keep courting debt markets, as it has 394 million shares outstanding and closed at 6¢ per share at press time for a market capitalization of $23.7 million.

After announcing the sales agreement on March 5, Selwyn traded 4.6 million shares, though the company’s stock only advanced 0.5¢ on the day.