Selwyn finds sugar daddy in China

Wednesday August 25, 2010

By John Thompson

Selwyn Resources is ramping up its exploration work along the Northwest Territories border, following the completion last week of a deal that will see a state-owned Chinese company pay $100 million for an equal stake in the play.

The Vancouver-based junior boasts of sitting on what it believes to be one of the largest unexploited deposits of lead and zinc on the planet. It will spend the next two years proving up its resources and preparing a feasibility study, which will be used to persuade Chinese banks to lend money to build a mine.

If the company’s plans proceed as hoped, an underground mine could open by early 2014. It would employ between 250 to 300 workers and would have a life of at least 10 years, said president Harlan Meade.

But the mine could be open for far longer, depending on the outcome of exploration. If Meade’s dreams are fulfilled, the 38-kilometre-long ore deposit could be big enough to keep mining for 50 years.

As with any junior exploration company, these ambitions depend on much that remains to be seen. Drillwork needs to firm-up the size of the deposit, which is near the Howard’s Pass area, 220 kilometres northwest of Watson Lake. And Selwyn has yet to begin the lengthy trek through Yukon’s environmental review regime.

But money shouldn’t be a problem, now that Selwyn is partnered with Chihong Zinc and Germanium, which operates several lead-zinc mines in China’s southwestern Yunnan province.

As Meade notes, that company and Chinese banks all ultimately report to the same boss: the Chinese state, which has an insatiable hunger for commodity metals that’s led it to gobble up foreign properties.

Selwyn Resources remains a publicly traded Canadian company, but it’s sold half its stake in its property to Chinese partners. That makes this deal distinct from the wholesale Chinese takeover of Yukon Zinc Corporation in the summer of 2008. That company is currently building the Wolverine mine, which is set to open soon.

By no coincidence, Meade was the president of Yukon Zinc prior to the company’s takeover.

Selwyn has three potential plans to transport lead-zinc concentrate to market. The least preferable would be to haul it by truck to port.

Trucking ore is expensive and eats into the tight margins of the commodity metal business. Meade notes that building roads through the wilderness isn’t popular with Yukon’s First Nations people, either.

So he’d prefer to see a pipeline built. The cost, he said, is comparable to that of a road.

And he suggests that a properly built pipeline, seven-inches in diameter and buried underground, would pose less of an environmental risk than a trucking route that’s operated through slippery winter conditions that may court a rollover.

The pipeline would carry a slurry of ore and water 180 kilometres from the minesite, near the Howard’s Pass area, to the Robert Campbell Highway.

Another option is rail. With the White Pass and Yukon Route Railway talking about reopening their former line, “that could make a difference,” said Meade.

Selwyn’s partnership will be sure to provoke more grumbling over Canada selling its resources to foreigners. But Meade says his company had little choice in the matter.

Domestic banks balked at lending his company the money it needed. Major producers weren’t interested in offering an attractive buy-out. And today’s turbulent markets are no easy place for a junior mining company to raise big bucks in a hurry.

The new reality, said Meade, is that junior mining companies will increasingly have to look overseas for financing, either through joint partnerships or outright buyouts.

“What Canadians should be concerned about is that what remains has strong Canadian content,” he said. “Our transaction wasn’t a direct sale. It’s co-management. I think it’s an excellent example of how we should be doing business.

“The parties are both willing because we need each other. And I think this is a much better business model than selling our resources and seeing what happens.”

Contact John Thompson at

(JavaScript must be enabled to view this email address).