SELWYNresources_DEC10_NA_BROCH_w

Businessexcellence ACHIEVING

O N L I N E

SLEWYN RESOURCES

C O R P O R AT E B R O C H U R E

st

Visionary

Selwyn Resources, undeveloped zinc-lead depos

Selwyn Resources

teps

a Canadian junior exploration company developing the world’s largest sit, is looking to China for the financial support it requires. Gay Sutton talks to Dr. Harlan Meade about stepping beyond normal conventions

T

here are essentially two types of exploration company in the mining sector. There are those that thrive on making new discoveries and then selling them for development by somebody else, and then there are those that plan to build their company into a multiple-asset midtier mining company, searching for new discoveries and following through to develop them.

This second type is very rare. The transition is difficult, and for most the thrill is in the exploration. Selwyn Resources is one of this second, very rare breed.

The company has achieved what many only dream of. It has discovered what could become the world’s largest zinc-lead mine, in eastern Yukon, Canada. And it looks as though the timing is exactly right. Over the past 20 years most Western mining companies have been exiting from zinc mining. But with the recent explosion of construction in developing countries, zinc—essential to galvanized steel manufacture—is becoming more highly sought after, and the lack of supply is causing some concern.

“At the time I acquired the asset, the thinking was that there were three fairly large zones of mineralization in the Howard’s Pass district. The original owner, Placer Dome, had published figures indicating 300 to 400 million metric tons at around 7 percent combined zinc and lead,” explains

Selwyn Resources

Selwyn’s CEO, Harlan Meade. “However, my view as a geologist was that these deposits always have a high-grade core, so where was it and how big was it? My view and that of others was that there could be as much as 2 billion metric tons of mineralization in this deposit, which would dwarf anything we know today.”

Meade acquired the asset in 2005 from Placer Dome and a subsidiary of US Steel. “We then staked the entire mineral belt, all 68 kilometers of it, to get 100 percent ownership, and we began drilling. Within two years we demonstrated that this was one single deposit 38 kilometers long, and there’s nothing else like that in the world.

Today we believe it has a high-grade core that may have a strike length of up to 20 kilometers, but it’s been cut by faults and the pieces shuffled, a little like a pane of glass that’s been shattered and moved around.”

Now called the Selwyn Project, it’s a giant undertaking and will probably stretch into a number of phases. Feasibility studies based on just 10 percent of the resources predict 10 to 15 years of mining. The last few years have been occupied establishing the reserves and evaluating and modeling them to understand how best to approach the first phase of development on what will be a complex project.

So far, $100 million has been spent, 90 percent of it on drilling and infrastructure, the remaining 10 percent on environmental and engineering work. But to take the mine to the next phase significant investment was required. To obtain it, Selwyn took something of a visionary step.

About five years ago Selwyn began approaching the Chinese. “Everyone laughed at us. Most Chinese transactions are outright purchases, and we had no interest in doing that. This was the largest undeveloped zinc-lead deposit in the world today, strategically very important to Canada and very lucrative for our shareholders. Our aim was to retain an equal share in the asset,” Meade says. “We met with dozens of major Chinese mining companies and struggled. Although our exploration had been very successful, our share price was depressed.”

They came up with a formula whereby, as Selwyn had already invested $100 million, a Chinese partner would be asked to match that investment in return for a 50 percent share in the

“We staked the entire mineral belt, all 68 kilometers of it, to get 100 percent that this was one single deposit 38 kilometers long, and there’s nothing else l

Selwyn Resources

project. The assets would then be transferred to a new joint venture company, creating the basis for securing future loans from the Chinese banks.

“We believe that access to the debt and equity market in China, which is developing very rapidly, is going to be very important going forward,” says Meade. “And we are way ahead of most other junior mining companies in Canada in doing this.”

It turns out that this was a wise move. Debt financing from North American and European sources has become almost impossible to acquire in the current tough economic climate. Meade also explains that Western markets usually demand a 55:45 percent debt-to-equity ratio, most of production to be hedged for seven to eight years, and the production of much time-consuming documentation and consultation. By contrast, Chinese banks are likely to accept a 70:30 percent debt-to-equity ratio, little or no hedging of production at all, and much simpler documentation.

Selwyn eventually received three offers from Asian firms and in December 2009 chose Yunnan Chihong Zinc and Germanium Co., Ltd., a Chinese mining company with considerable mining experience.

Chinese regulatory approvals were received in July and the JV transaction was completed in August with the creation of Selwyn Chihong.

A bankable feasibility study is due for completion by early 2011. Meanwhile, drilling will continue, to upgrade resources to reserves. Looking forward, the company is hoping to begin construction of the mine in early 2012, with a completion date some 18 months later, and it will then transition to full production by the first quarter of 2014. “My prediction is that we will have a wonderful zinc market by that time. There are virtually no other good projects in the development pipeline, and many of our large mines will have been depleted by the time this one starts up.”

There are a number of challenges ahead, though, and Selwyn is predictably going for unconventional and ambitious solutions. The mine

is located a considerable distance from rail and ocean transport. “Truck transport is expensive, and nobody knows what diesel will cost 10 years from now, so transport costs are becoming more of an issue.”

The company has reviewed all the options and has chosen to pioneer the construction of a concentrate pipeline to carry the zinc/lead slurry from the mine to the nearest major highway, where it will then be dried and transferred to trucks for transport to the port of Skagway in Alaska, and off to the markets in Asia. The seven-inch pipeline will be buried to a depth of 1.5 meters where it won’t freeze, and its operating costs are likely to be a fraction of those of road transport, helping to ensure the mine is viable in bad times as well as good.

The location also makes access to power a challenge. Rather than install and rely on diesel generators, which are expensive to run and damaging to the environment, the company is proposing to construct a hydroelectric power plant as its base source of power. This plan includes the construction of a dam upstream to balance flow throughout the year, and the use of diesel generators to provide peak power only.

“We believe every problem has a solution,” Meade concludes. “But you have to observe how things are changing and get in front of that change.

If you do, you will find you’re not where the crowd is. And that’s tricky. We’ve stood back and looked at the rapidly evolving global community and figured out where we want to be. We believe there will be very significant changes in the amount of equity capital available for resource development coming out of China and its proxy, Hong Kong.”

What Selwyn Resources has achieved is gaining early access to these important markets. Selwyn clearly recognizes that its management team requires flexibility and the support of its major investors if it is to develop this into the world’s largest zinc mine and transform itself into a midtier mining company.

t ownership, and we began drilling. Within two years we demonstrated like that in the world”

SLEWYN RESOURCES