Selkirk And Imperial Getting Hitched

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

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

“We have two good resource-based properties in Ruddock Creek and Catface but as advanced projects, they both need a significant investment at this stage,” Gordon Keevil, Selkirk Metals’ president said in an interview. “The amount of dilution necessary to raise five to ten million dollars, which is the minimum that is required to continue work on these projects, would be excessive and not self-serving. The proposed merger 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, Selkirk shareholders can exchange one share for 12¢ cash, or receive one share of Imperial for every 30 Selkirk shares. 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, which were originally discovered by Falconbridge in the early 1960s, and which Selkirk acquired when it took over Doublestar Resources in 2007.

“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 adviser 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 by-product credits in gold, silver, molybdenum and perhaps rhenium. Keevil says the company should have a National Instrument 43-101-compliant resource estimate out in early August. Last year, Selkirk signed a landmark agreement 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 B. C., 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 cutoff 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 mine in central B. C., the Huckleberry open-pit copper-molybdenum mine in northern B. C., the development-stage Red Chris copper-gold project in northwestern B. C., 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 lbs. copper and 47,000 oz. 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 lbs. copper, 53,000 oz. 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 said 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.

The Huckleberry mine, 100 km by road northeast of Williams Lake and 123 km southwest of Houston, produced 37.2 million lbs. copper, down from 55 million lbs. 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 lbs. 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, 2008, were 8.37 million tonnes grading 0.362% copper and 0.005% molybdenum. In June, the mine plan was expanded 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 and 6.9 grams silver. 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 over 13.7 metres.

But it’s the Red Chris property that has everyone most excited. “Red Chris in our minds is the best deposit in northwest B. C. and is permitted,” Keevil says. “There is also real potential for a much larger deposit below the current mine plan. This represents great upside for Imperial that we can be part of.”

Imperial completed a 17-km access road into the 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 km wide with two main zones: East and Main. A 2005 feasibility study using US$1.10-per-lb. copper and US$400- per-oz. gold pegged total minable reserves at 276 million tonnes grading 0.349% copper and 0.266 gram gold over a mine life of about 25 years. But development of the project depends on building a power line to service northwestern B. C.

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 open-pit mine between 1980 and 2000 and produced nearly 195,000 troy oz. gold with an average grade of 7.44 grams gold per tonne.

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

“Imperial is poised to do very well with their projects,” he says. “Obviously, we’d rather have been offered a higher price, but in this market — and even as the market rebounds — there is probably a better chance that Selkirk shareholders will do better with Imperial, which is poised to grow with its existing project, and because typically junior explorers are the last to get funded when the general market rebounds. This is a way to make sure that capital can be made available on a short-term basis for Ruddock, Catface and Selkirk’s other projects and move forward. We think it is a great deal for Selkirk.”

News of the pending merger sent Selkirk’s shares up 1.5¢ or 13.6% to 12.5¢ apiece on trading volume of 1.1 million shares. The junior has a 52-week trading range of 3.5-30.5¢ and 87 million shares outstanding.

Imperial Metals finished the day down 3¢ or 0.73% at $4.07. The company has traded b
etween 93¢ and $8.14 over the last year and has 32.1 million shares outstanding.