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 from a Placer Dome joint venture in 2005. The story came to an end on Mar. 5, however, when the company 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 — subsequently renamed the Selwyn project — and discovered 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 lbs. contained zinc and 7.3 billion lbs. contained lead at 2% zinc cut-off. Additional inferred resources clock in at 238 million tonnes averaging 4.47% zinc and 1.38% lead.

In Aug. 2010 Selwyn effectively 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 aimed at taking the deposits to production. As zinc prices trended strongly downward since peaking at roughly US$2 per lbs. in late 2006, however, Selwyn’s shares took a serious beating and the company has been low on capital since around mid-2012.

It was evident Selwyn was looking at an asset sale to buoy its financials since April, 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 announced it had suspended its review process and revealed it had already approached Chihong about purchasing the remaining stake in the Howard’s Pass district. At the time the companies were unable to come to an agreement, and Selwyn underwent a shuffle on its board of directors as the company rallied to raise funding.

As it turns out it was simply a matter of time for Chihong, which will pay Selwyn $10 million in advance cash through early April, and the remaining $40 million when the transaction closes. The near-term cash should allow Selwyn to 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],” commented president and CEO Harlan Meade. “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 (PEA) 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 (NPV) and a 57.8% internal rate of return at a 8% discount rate — assuming metal prices at US$1.10 per lbs. zinc and US$1.20 per lb. lead.

At the beginning of November Selwyn reported it had a working capital deficit of approximately $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 following the sale of its Howard’s Pass assets to fully-fund development at ScoZinc.

It is likely the company will continue to court debt markets, as it has 394 million shares outstanding and closed at 6¢ per share at the time of writing. Following the announcement of the sales agreement on Mar. 5 Selwyn traded an enormous 4.6 million shares, though the company’s stock only advanced 0.5¢ on the day to bring its press-time market capitalization to $23.7 million.