Selwyn’s Growing Zinc Resource

In an update to investors on its current feasibility work, Yukon zinc miner Selwyn Resources (TSXV:SWN) released more information on its plan to create a small, high-grade zinc and lead project at the Yukon/Northwest Territories border.

The project is managed by Selwyn Chihong Mining, a joint venture between Vancouver-based Selwyn Resources and Chihong Canada Mining, a subsidiary of China’s Yunnan Chihong Zinc and Germanium Company. Selwyn recently released more detailed costing and development plans for the project’s recently-expanded resource estimate.

Building on its indicated mineral figure of 185.57 million tonnes at 5.2 percent zinc grading, which would produce a metal content of 21.26 billion pounds of zinc, Selwyn targeted specific deposits in laying out its expectations for the underground mine, which is set to produce 3,500 tonnes per day (T/d) beginning mid-2015.

Work at the project will start at its higher-grade XY Central and Don deposits, which have mill feed grades of between 10 and 12 percent combined zinc and lead content. The company will then expand to other deposits once commercial production begins.

Targeting the smaller, higher-concentration deposits will allow the company to “provide an operating basis for possible future expansion to extract a greater portion of the remaining mineral resources located at the Selwyn Project,” Selwyn’s press release states.

A feasibility study provided by Tetra Tech Wardrop provides initial cost estimates of various components of the project, including combined mining and milling costs of around C$90/tonne milled and total transport and handling and ocean freight costs of approximately $28/tonne of mill feed, or $190/tonne of wet concentrate.

The project’s remote location and minimal extant supporting infrastructure mean that building out the capacity to bring the project to life will likely be the company’s largest challenge. Efforts to secure port access through Skagway, Alaska and Stewart, British Columbia have been outlined, as has the potential of using liquefied natural gas (LNG) in place of diesel fuel should a Fort Nelson, BC LNG facility become a reality, the company said.

Selwyn was able to avoid funding the project through public equity markets after it signed a framework agreement with Yunnan Chihong Zinc and Germanium in December 2009 for a $100 million investment in exploration and development in exchange for a 50 percent joint venture stake.

Bloated zinc markets take toll

Oversupply and bloated LME refined zinc stockpiles have also made their mark on Selwyn’s development to date.

Earlier this year, Selwyn revised the project’s planned operations to 3,500 T/d from its earlier plan for 8,000 T/d, citing metal prices, capital and operating cost assumptions and significant movements in the initial exchange rate.

Though zinc mine production growth has stagnated in 2012, ongoing underinvestment in new mines is expected to create a supply shortage as early as 2014.

While a detailed financial analysis and ongoing detailed mine production planning were excluded from Selwyn’s recent update, the project appears to compare favorably — from an indicated and inferred resource standpoint — with similar zinc projects in development in Canada’s north.

Hudbay Minerals’ (TSX:HBM) projected 4,500 T/d production rate at its developing Lalor project near Snow Lake in Northern Manitoba is comparable to Selwyn’s, but Hudbay houses a smaller probable reserve of 12.591 million tonnes of 7.92 percent zinc. Hudbay is capable of expediting its production rate thanks to existing infrastructure from its Snow Lake property, which is slated to wind down later this year.

Canadian Zinc’s (TSX:CZN) Prairie Creek property also hosts a smaller measured and indicated resources of 5.84 million tonnes grading 10.71 percent zinc, but exploration around the property (not far from Selwyn’s property) remains in its early days.

Continued exploration work is also expected to boost Canada Zinc Metals’ (TSXV:CZX) multi-metal Akie project in North-central British Columbia, which currently houses an indicated resource of 12.7 Mt of 8.38 percent zinc and an inferred resource of 16.3 Mt of 7.38 percent zinc.

Many, if not all, of these projects are likely to receive considerable attention from investors and larger operators should projected zinc market shortfalls materialize as projected.

Securities Disclosure: I, James Wellstead hold no investment interest in any company mentioned in this article.