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Mining News: Selwyn teams with Chinese miner Investor will sink C$100 million into new joint operator charged with advancing giant zinc-lead deposit to commercial production Rose Ragsdale For Mining News
Selwyn Resources Ltd., owner of the zinc and lead deposit of the same name in the mountains of eastern Yukon Territory, has entered a binding framework agreement with a large Chinese corporate investor that is ready to pump C$100 million into developing the world-class property.
Selwyn, in a statement Dec. 14, said it will partner with Yunnan Chihong Zinc & Germanium Co. Ltd., an integrated lead and zinc producer with 60-plus years experience in exploration, mining, smelting and downstream processing.
Chihong, which is listed on the Shanghai Stock Exchange, has C$1 billion in assets and market capitalization of about C$4 billion. Together with its subsidiaries, Chihong engages in the mining, processing, and sale of lead, zinc, germanium, and silver products. It also produces sulphuric acid. The company primarily offers electrolytic zinc, electrolytic lead, zinc ingots, hot-galvanized zinc alloys, zinc die casting alloys, high purity germanium, germanium dioxide, and doré silver and distributes its products in China and internationally. Based in Qu Jing, China, Chihong is a subsidiary of Yunnan Metallurgical Group Co., Ltd., a diversified resources company owned primarily by China’s Yunnan Provincial Government.
Selwyn and Chihong agreed to form a joint venture operating company to jointly finance advancement of the Selwyn Project, one of the largest undeveloped resources of zinc and lead in the world, to bankable feasibility, and if warranted, to production.
Under terms of the deal, Selwyn will transfer its mineral and other assets associated with the Selwyn Project to a new Canadian Joint Venture company. A new company will be established that is owned 50-50 by Selwyn and Chihong to act as operator to carry out programs of the JV. The board of operating company will have equal representation from Selwyn and Chihong.
Chihong agreed to deposit C$100 million in cash, irrevocably, into a bank account set up by the JV operating company, which will fund future programs at the Selwyn project. In exchange, Chihong will earn a 50 percent interest in the joint venture.
JV to open Asian markets In current dollars, Selwyn and its predecessors have already spent more than C$100 million on exploration and development of the Selwyn Project.
Drilling has defined 15 mineralized zones over 38 kilometers, or nearly 24 miles, of the known mineralized trend in a large valley that straddles Yukon’s border with Northwest Territories.
An NI 43-101-compliant mineral resource estimate for the project calculated in February includes indicated resources of 154.35 million metric tons grading 5.35 percent zinc and 1.86 percent lead and containing 18.19 billion pounds of zinc and 6.32 billion pounds of lead; and inferred resources of 234.15 million metric tons grading 4.57 percent zinc and 1.42 percent lead containing 23.57 billion pounds of zinc and 7.32 billion pounds of lead. Included in the global mineral resources is high-grade mineralization with an indicated resource of 16.06 million metric tons grading 10.25 percent zinc and 4.23 percent lead, and an inferred resource of 26.70 million metric tons grading 8.71 percent zinc and 2.75 percent lead.
Selwyn said the high-grade mineral resources will be the initial focus of the JV as it proceeds towards the preparation of a bankable feasibility study and carries out permitting activities for the Selwyn Project.
“Chihong becoming a strategic partner for the Selwyn Project opens up the Asian markets for project financing, which is seen as strategically very important in the evolving financial markets for financing resource development,” said Selwyn President and CEO Harlan Meade. He described the JV agreement as a major step in advancing the giant deposit to development.
“The Selwyn Project provides much potential to become a major zinc-lead mine,” Chihong Chairman Ying Dong said in the same statement Dec. 14. “The successful development of the project can bring significant growth to both Chihong and Selwyn. The signing of the framework agreement is an important first step for the cooperation between the two companies. With joint efforts, the two parties will strive for the best outcome for the Selwyn Project,” he added.
Chihong’s C$100 million investment will be used to advance the Selwyn Project through, advanced exploration, engineering, permitting and for initial construction activities, including preparation of an NI 43-101-compliant feasibility study. When the C$100 million investment is exhausted, the joint venture participants will fund continuing expenditures on a 50-50 basis.
The agreement, which has been approved by the boards of both companies, also provides for Chihong to offer technical assistance in preparing a NI 43-101-compliant bankable feasibility study, and in mine development and associated infrastructure planning, mining operations and related matters.
Preference to Chinese lenders Selwyn and Chihong agreed to procure the maximum amount of debt financing commercially available from Chinese banks in placing the Selwyn Project into production.
Selwyn will be reimbursed for its direct costs incurred on the Selwyn Project from July 1 until the deal’s closing, currently anticipated in May 2010. These costs are expected to total about C$4.2 million. After closing, Selwyn expects to have working capital of about C$8.0 million, and will be well-positioned to raise additional funds, the Vancouver, B.C.-based junior said.
The deal is also subject to completion of non-technical due diligence and formal documentation including a JV agreement, formation and organization of the JV company and receipt by Selwyn and Chihong of all necessary regulatory approvals and other customary conditions.
After closing, Selwyn said the JV intends to undertake initial underground development and advanced exploration on the NI 43-101 compliant mineral resources of the XY Central deposit. In addition, it is anticipated that surface diamond drilling will resume on the Don deposit to allow for upgrading NI 43-101-compliant inferred resources to both the measured and indicated categories.
Another Yukon win Jim Kenyon, minister of economic development for the Yukon, told reporters it took a lot of work and patience to develop relationships in China, but it is paying off with $500 million in mining investment from China in the Yukon with more on the way.
“Not bad for a little tiny territory,” Kenyon said. He also noted the Yukon is five sailing days closer to most of Asia than Vancouver and Los Angeles, which give the territory an advantage.
Selwyn CEO’s, Meade, also was instrumental in developing Yukon Zinc Corp’s Wolverine mine project, now under construction. It is owned by China’s Jinduicheng Molybdenum Group and Northwest Nonferrous International Investment Company, a Chinese investment company.
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