Selwyn Wrestles With Daunting Potential of Howard’s Pass

SITE VISIT

Whitehorse, Yukon — Everything about Sel- wyn Resources’ (SWN-V, SWNLF-O) Howard’s Pass project is big: the lead and zinc resource, the potential mineralization between each deposit, and the vast emptiness that surrounds the isolated site in the east-central Yukon.

And big means challenging. Recently cashed up with a $10.7- million financing, the junior explorer is run-ning at a breakneck pace to get a handle on what stands to become one of Canada’s biggest lead-zinc deposits.

At Howard’s Pass, stratiform and stratabound zinc and lead sulphides occur within Silurian-aged shales. Stratigraphy is the best guide to finding metals because mineralization occurs within a specific unit called the Active Member, usually some 30 metres wide. In the centre, the Active Member runs roughly 5% zinc and 2% lead, but along the base and often also along the top, grades runs much higher.

It’s an atypical sedimentary exhalative (SEDEX) deposit, in part because it’s from the early Silurian. Moreover, SEDEX deposits generally max out around 60 million tonnes and contain appreciable silver and pyrite along with zinc and lead.

The rocks at Howard’s Pass don’t hold any silver or pyrite. As for scale, the most recent estimate for Howard’s Pass pegs indicated resources at 86.6 million tonnes grading 4.93% zinc and 1.73% lead, as well as 215.5 million tonnes of inferred resources grading 4.71% zinc and 1.48% lead. But that estimate assumes three separate, medium-sized deposits contained in sub-basins, a model Placer developed when it spent $20 million on the project during the 1970s.

Since spring 2005, Selwyn has been drilling in between the known deposits and still hitting the Active Member. Not only do the drills find mineralization, they pull almost identical core all along the valley, suggesting that Howard’s Pass is one continuous deposit truncated by faults roughly every 2 km.

“Do I believe there’s a lot more here? Hell yes!” says Selwyn’s vice-president exploration, Jason Dunning. “The ore follows for over forty kilometres and I’d challenge any geologist to tell the difference between core from one end and the other. It’s the biggest SEDEX system I’ve ever seen.”

So while 31.8 billion lbs. zinc and 10.3 billion lbs. lead would be a large deposit on its own, the potential mineralization at Howard’s Pass dwarfs the resource estimate.

Selwyn holds 305 sq. km of claims over 66 km, and to date, has traced the mineralized Active Member along a strike length of 37.5 km. Using the three-dimensional model developed by Placer and now updated daily with new drill results, Selwyn estimates Howard’s Pass holds an additional 230 million tonnes of potential mineral resources.

Even that estimate likely hits on the low side — Dunning says when the company calculated the potential tonnage of the project, “we were scared to tell people just how big this is.”

Potential tonnage is determined by a model, so how good is the model?

“In the Don Valley, there was an eleven-kilometre stretch that had no holes,” Dunning says. “We trusted in the model and started taking big stepouts. When you can step out 1.4 kilometres and still hit the Active Member — still hit economic lead and zinc — you have huge potential.”

That discovery was the HC zone, which had gone undetected by induced-polarization (IP), magnetic, and gravity surveys because of the overburden of graphitic shale and mudstone.

Selwyn is trying hard to convince others of the potential of Howard’s Pass. Up to eight drills have been turning this summer, with two goals: upgrading inferred resources to indicated, and proving that mineralization is continuous between the 10 deposits. Selwyn president and CEO Harlan Meade is happy with progress on both fronts.

“What we’ve done is really expanded the whole scope of the project,” Meade says. “And with the next set of results, out in September, people’s question marks about whether this is really a long, continuous, high-grade core will be answered.”

Shifting focus

Finding bulk tonnage in Howard’s Pass is not the challenge. The challenge is focusing on the best zones and drilling enough core to take the project forward. That begs the question: which are the best zones?

When Placer worked the project 25 years ago, the company focused on the three zones with a historical resource: XY, Anniv, and OP. The majority of the tonnage was in the XY deposit, at the southeast end of the property, where Placer’s program defined an underground mining reserve of 8.1 million tonnes grading 10.6% zinc and 5.5% lead.

Selwyn initally focused on the three defined deposits and assumed XY was the best target. Certainly drill results from 2006 supported a focus on XY. Hole 150 returned 6.8 metres of 12% zinc and 5.3% lead, extending the high-grade zone 75 metres downdip. Hole 116 intersected 29.3 metres of 8.4% zinc and 4.3% lead, including the signature high-grade horizon along the base that returned 8.6 metres of 17.5% zinc and 11.7% lead.

But the 2005 and 2006 drill programs also identified seven new zones along the northwest trend running through the property, three of which include high-grade mineralization.

Drilling at HC West is consistently finding the Active Member with a high-grade base layer. Hole 47 hit 24.7 metres of 4.6% zinc and 1.08% lead, with the bottom 6.2 metres grading 8.62% zinc and 2.18% lead. And hole 37 returned 20.8 metres of 4.84% zinc and 1.37% lead, with the lower 5.4 metres running 9.97% zinc and 3.25% lead.

At Anniv Central, drilling above 200 metres depth has shown good potential for open-pit mining while deeper drilling is showing that the deposit continues below with significant high-grade potential over a strike length of at least 850 metres. Hole 143 intersected 23.4 metres of 4.49% zinc and 1.62% lead from 305 metres depth, including a 2-metre base intercept grading 6.45% zinc and 4.66% lead. Similarly, hole 181 hit 20.2 metres grading 4.38% zinc and 1.05% lead, with the bottom 2 metres running 12.36% combined zinc and lead.

But the real surprise is drill results from Don Valley. At depths suitable for open-pit mining, drill cores are consistently returning 25- to 35-metre intersections of around 5% zinc and 2% lead. And deeper drills to test underground high-grade potential at the Don zone have returned the strongest grades on the property. Hole 74 hit 40 metres of 10.2% zinc and 3.9% lead (starting 242 metres down-hole), including 7.4 metres along the bottom of 29.2% zinc and 12.6% lead. And hole 78 recently returned 7% zinc and 1.79% lead over 27.8 metres, including a 1.2-metre top layer grading 15.2% zinc and 6.1% lead and an 11.6-metre base layer grading 10.3% zinc and 2.3% lead.

“Everyone always thought XY was the best focus and the natural location to set up infrastructure, but now we’re finding that there’s as much or more potential in the Don Valley as there is at XY,” says Dunning. “So the question is: where do you start? At XY or at Don?”

Meade says the decision has not yet been made, but the centre of gravity seems to be shifting towards Don. Looking at long-term efficiencies, developing infrastructure at the centrally located Don makes more sense than at XY, which sits at the southeastern end of the project and would therefore mean increased trucking expenses as mining moves northwest in the years ahead.

Mining plans

While Selwyn may not know where the mill will sit, the company has already made plans for what it will involve. Since there are sharp cutoffs between the barren shale and the mineralized sulphides, plans call for a dense media separation (DMS) plant to reject barren rock. DMS testing has indicated 50% to 60% of waste rock can be stripped, significantly reducing the load on the concentrator.

The planned mill will take in 20,000 tonnes per day through a primary crusher. The DMS plant will reject some 8,800 tonnes to the waste pile, leaving the concentrator to process 11,200 tonnes dail
y. Metallurgical studies have shown recoveries of 83% for zinc and 70% for lead. Low recoveries are typical of fine-grained SEDEX deposits.

On the plus side, Howard’s Pass ore is very low in pyrite, which make separation of zinc and lead sulphide during flotation easier. The abundance of carbonate in the host shale strata enhances structural integrity, making underground operations easier. Together, the lack of pyrite and presence of carbonate means the tailings are acid-consuming. There are plants growing right through the tailings piles left when Placer drove adits into the hillside near XY 25 years ago.

Mining and milling the ore is the easy part. Getting the concentrate out to a road or rail line is another question. At present, the project is fly-in access only. Even getting between the three camps on the property requires a helicopter, though a low-grade road that could in future be converted to a rail line is almost complete.

Selwyn has been trying to licence an old access road from the nearby Cantung mine in the Northwest Territories to use for bringing in supplies. The N.W.T. government recognizes that the Mackenzie Valley Land and Water Board grandfathered the road, but the permitting process has been slow.

Regardless, concentrates would not head out through the N.W.T. but head west, to Pacific ports. Transportation is the one of the last big questions around a Howard’s Pass mine. In its preliminary assessment, Selwyn assumed it would construct a 150-km-long access road from the Robert Campbell Highway through the rugged terrain of the Pelly River and Don Creek valleys. Concentrates would be hauled by truck to the loading facility located at Stewart, in northwestern British Columbia.

In March, the Yukon government provided $97,200 towards a comprehensive, $216,000 study on possibilities for concentrate handling, shipping, and port facilities for the project. That report is due out shortly.

Howard’s Pass is also far removed from a power grid. Assessments have all assumed diesel generation, an expensive proposition for a mine expected to run for 25 years based on half of the current indicated and inferred resources.

Initial capital costs to develop the site are estimated at roughly $685 million, with life-of-mine operating costs of $21 per tonne milled. Selwyn management hopes to complete definition drilling by the end of 2009, and have all permits and a bankable feasibility study in hand by early 2011. Project construction would last through 2012, aiming for commercial production in early 2013.

Financing the giant

Selwyn, then Pacifica Resources, optioned Howard’s Pass from Placer in May 2005 for $10 million plus $3.5 million in spending on exploration over two years. Barrick Gold (ABX-T, ABX-N) and United States Steel (X-N), through its Canadian subsidiary Cygnus Mines, hold a 1% net smelter return on production from the old, smaller part of the property. The two companies would also share a payment of up to $10 million out of a 20% net profit interest.

That first summer, Selwyn spent the necessary $3.5 million; in 2006, the company upped that amount significantly, to $20 million. The 2007 program is budgeted at $25 million, the largest exploration budget in the Yukon.

Having closed a $10.7-million unit financing in mid-August, Selwyn holds enough cash to fund the rest of this year’s exploration program. For the time being, Howard’s Pass can remain in Selwyn’s hands alone. But Meade acknowledges a partner is an inevitable necessity.

“Our view has been for some time that, though we had tremendous success last year, we had really only begun to scratch the surface of this project’s potential, so it was too early to sell,” Meade says. “When we’re closer to full potential, then we’ll need a partner to assist in advancing to full feasibility and construction.”

The company has engaged a group from New York to help it find a strategic partner, and several groups have signalled interest, though nothing has been finalized.

The years ahead

Even with the years of work ahead to define the current potential resources at Howard’s Pass, further opportunities exist. In 2006, Selwyn staked another 16 km to the northwest, called the Abbey claims, which Dunning refers to as an opportunity for another day.

And in the broader picture, all of the Howard’s Pass discoveries, except for XY, sit on the northeast limb of a synclinal structure, the southwest limb of which has hardly been touched.

“Once we’ve figured out this side, then we can start looking into the entire other side of this huge structure,” Dunning says. “This project is effectively job security for an exploration team.”