Selwyn is poised to close its joint venture with Yunnan Chihong
Selwyn Resources anticipates closing its joint venture with Yunnan
Chihong Zinc and Germanium in August. Under the proposed terms of the
arrangement, Selwyn Resources will transfer title to the property to a new
entity, Selwyn Chihong Mining Ltd (SCML). In return, Yunnan Chihong will
contribute C$100m to SCML. Selwyn and Yunnan Chihong will each own a
50-percent interest in SCML. Further, Selwyn Resources anticipates receiving
approximately C$9m as reimbursement of project expenses since July, 2009.
A full feasibility study is under way at Selwyn
Selwyn has engaged Wardrop to conduct further work and exploration at the
Selwyn project. This programme is expected to lead to a NI 43-101-compliant
feasibility study that should be complete Q2 2011. The move to full feasibility
results in increased confidence for a favourable production decision, and
hence an improved valuation.
Metallurgical testing has improved expectations for metal recoveries
Selwyn engaged G&T Metallurgical Services to conduct further metallurgical
testing, which was completed this spring. Processing of a 6.6-tonne batch
of high-grade material taken from the XY Central zone resulted in increased
recovery rates for both zinc and lead. Based on this work, we have increased
our expected recovery rate for zinc from 83 percent to 85 percent, and for lead
from 65 percent to 69 percent. This in turn results in a significant increase in
our valuation.
Decreased metals prices have a modest negative impact on our valuation
Since our initiation note of March 2010, prices of both zinc and lead have
declined by over 10 percent. Nevertheless, our model anticipates little long run
change in prices from values contained in our initiation note. The Canadian
dollar has strengthened by approximately 5 percent against the U.S. dollar,
which decreases anticipated revenues by a comparable amount. These changes
only partially counter the increase in revenues anticipated from the higher
metal recovery rates.
Our basic mine model remains unchanged
We continue to hypothesise a Selwyn mine will draw upon nearly 50 million
tonnes of mineralisation averaging 9.4 percent zinc and 3.3 percent lead. We
anticipate mining will commence in late 2014 with a milling capacity of 8,000
tonnes per day. We further assume capital spending will commence in late
2011 and will total C$850m. Our anticipated operating costs are C$60 per
tonne initially, escalating for inflation at a nominal rate thereafter.
Our valuation of Selwyn Resources increases to C$0.43 per share
Based on recent developments, our base-case valuation of Selwyn Resources
increases from C$0.34 per share to C$0.43 per share. Our more optimistic
assessment, based on higher confidences of exploration success, increases
to C$0.74 per share. Assuming success at all stages through feasibility and
permitting, our base-case and optimistic assessments increase to C$1.19 and
C$1.93 per share respectively.
