Chinese investors are finding a lot to like in Canada, especially two base metals projects in the eastern part of Yukon Territory.
Jinduicheng Molybdenum Group and Northwest Nonferrous International Investment Co., two private Chinese companies, purchased a 100 percent interest in Yukon Zinc Corp. in 2008, acquiring the Wolverine Project and other mineral assets in the Finlayson District of southern Yukon Territory.
Two years later, Yukon Zinc is ready to start up an underground mining operation at Wolverine that is expected to begin production of copper, lead and zinc concentrates this summer.
Selwyn Resources Ltd., meanwhile, reported an end to its search for a strategic partner in December when Yunnan Chihong Zinc and Germanium Co. agreed to enter a rare 50-50 joint venture to develop the massive Selwyn Project as the world’s next major zinc-lead mine and C$100 million in the partnership to fund the Selwyn venture to bankable feasibility.
Selwyn President and CEO Harlan Meade said a major turning point for the mega-zinc-lead project he is developing in the Howard’s Pass area of eastern Yukon came when Yunnan Chihong decided to invest C$100 million in the project.
“It’s one of the first major investments by the Chinese in Canada,” said Meade, who also was instrumental in the sale of Yukon Zinc Corp. to its new Chinese owners.
In a recent interview with Canada’s Business Television, Meade said China had been a major exporter of zinc for quite a while, but the country changed its strategy two years ago.
“China has begun importing zinc,” he said. “And some companies are moving upstream to ensure that they have long-term supply for their smelters. China already represents almost 40 percent of the smelting production in the world. They are going to have to compete with everyone else to get zinc, and the simple thing is to own the mine resources.”
The strategy is paying off. Zinc and lead have been major performers in the markets for the past 18 months, but there are few projects in the development pipeline after many, many years of demand for the mineral being underestimated, Meade said.
“I expect a bull market in base metals, and it’s just getting started,” he added.
Jason Dunning, vice president of exploration at Selwyn Resources, said the gap between expected demand and supply for zinc and lead is so huge that the Selwyn Project is one of the few projects that can truly meet world demand.
“Only two zinc mines are being built in the world, one is Yukon Zinc’s Wolverine and one is in Mexico,” he said. “A couple (of projects) are just entering the development pipeline, and none is currently in bankable feasibility studies.”
Wolverine headed to productionLocated 180 kilometers, or 112 miles, southeast of Ross River, the Wolverine Project covers 107-square-kilometers, or 26,440 acres, with a zinc-rich volcanic massive sulphide deposit estimated to contain measured and indicated resources totaling 4.46 million metric tons, grading 12.14 percent zinc, 354.8 grams per metric ton silver, 1.16 percent copper, 1.69 g/t gold and 1.58 percent lead.
Yukon Zinc estimates that it will spend about C$207 million in capital costs to develop a mine at Wolverine with at least 9 1/2 years of production.
The company is currently in the final lap of its race to commission an underground mine for the project. Already, a Quartz Mining License and a Type “A” Water License have been issued for Wolverine. This involved comprehensive consultation with the area’s First Nations. The water license allows development of tailings structures and other water-related infrastructure.
In May, the company submitted its mill operating plan to Government of Yukon officials and received word that its reclamation and closure and financial security plans have been approved.
Yukon Zinc based its operating plan on an annual design mill feed treatment rate of 620,500 metric tons or 1,700 metric tons per day. The company envisions an initial average daily milling rate of 1,400 t/d with production increasing to 1,700 t/d by December.
Concentrates produced at Wolverine will be trucked via a newly built 26-kilometer, or 16-mile, access road to the Robert Campbell Highway and then south through Watson Lake, B.C., to the Stewart Bulk Terminal in Stewart, BC. There, the concentrates will be loaded onto ocean freighters and shipped to smelters in Asia.
Zinc-lead project on fast trackSelwyn Resources is preparing to take the Selwyn Project to the next stage of development with the help of Chihong’s C$100 million investment. The Chinese company recently informed the Vancouver, B.C.-based junior that it expects to receive all required regulatory approvals to close the transaction by August. Selwyn, meanwhile, has raised additional funds to cover operating expenses for which Chihong has agreed to reimburse the junior.
The Selwyn Project is situated in the Howard’s Pass District on Yukon’s mountainous border with Northwest Territories. Since 2005, Selwyn Resources, formerly Pacifica Resources Ltd., has spent more than C$60 million to advance the project to the pre-feasibility stage. The expenditures defined the Selwyn Project as one of the largest undeveloped zinc and lead deposits in the world. It has seen partial delineation of 13 zones of mineralization over a strike length of at least 38 kilometers, or about 24 miles. A new mineral resource for Selwyn includes 154.35 Mt grading 5.35 percent zinc and 1.86 percent lead in indicated resources, and 234.15 Mt grading 4.54 percent zinc and 1.41 percent lead of inferred resources.
In addition to the indicated and inferred resources, the Selwyn property has another 245-255 Mt of mineral potential with an estimated grade of 4-5 percent zinc, and 1-2 percent lead.
New JV operator for SelwynMeade said having Chihong as a partner has opened up new opportunities for Selwyn.
“People said this project was too big for us,” he said.
Dire predictions included Selwyn having to dilute its shareholders’ equity considerably to keep the project alive. “All that changed with Chihong’s investment,” he said.
A new company will be established, owned equally by Selwyn and Chihong, to act as operator and carry out the programs of the new joint venture. It will be managed by a board of directors with equal representation from both Selwyn and Chihong.
Meanwhile, recent metallurgical tests reinforced earlier indications of positive metal recovery and concentrate quality potential for the project, Selwyn told investors June 14. In particular, the high-grade nature of the Selwyn zinc concentrates and their low iron content are attractive to zinc smelters.
Based on the test results, 85 percent of the zinc at Selwyn is recoverable to a 55 percent zinc concentrate with low iron content under operating conditions; and 69 percent of the lead to a concentrate grading 60 percent. No secondary metals or minor elements of the zinc or lead concentrates are expected to attract smelter penalties, with the possible exception of a modest silica penalty in the zinc concentrates. The concentrates also contain measurable quantities of potentially valuable minor metals such as gallium, germanium and cadmium, but the grades are expected to be variable and no smelter payment is anticipated at this point in time, the junior said.
In early June, Selwyn Resources said it reopened its camp on the property and expected to start geotechnical and exploration drilling shortly. The geotechnical drilling will confirm conditions for preferred tailings facility sites and is part of extensive additional engineering work required to complete a project report for submission to the Yukon Environmental and Socioeconomic Assessment Board.
Exploration drilling will start this year with infill drilling of the XY Central Deposit to upgrade inferred mineral resources to the indicated category for use in a bankable feasibility study being prepared by Wardrop Engineering. Later in the program, additional infill and exploratory drilling will be undertaken on the Don Deposit and its extensions. The drilling aims to confirm a mineral resource adequate to support the mining of 5,000 metric tons per day from XY Central deposit and 3,000 t/d from the Don deposit as a base case for the feasibility study.
The Yukon Water Board is currently reviewing Selwyn’s application for a Type B Water License, which is required to undertake initial underground development and test mining in the XY Central deposit.
Fast track to developmentOver the next 18 months, Meade said the new Selwyn JV will complete the detailed drilling and predevelopment work needed for a bankable feasibility study and move well into the permitting process.
“This sets up the partners to be able to go to Chinese banks and secure debt financing and come up with equity portion needed to complete development of the project,” Meade said. “The indications are for a strong market when the time comes to get additional equity financing in 18 months. That’s the key for financing a big project like this – timing.”
A mine at Selwyn is estimated to require $800 million – $1 billion in capital and take 2 years to build.
“Basically, we’re on a timeline of completing construction and commissioning the mill in late 2013 and 2014,” Meade said recently. “We’re feeling confident in the outlook. We set the foundation, got the relationships and got the money. Now we will just do what everybody said wasn’t possible – fulfill our dream of not only finding but actually building and owning a piece of one of the world’s largest zinc deposits.”