Selwyn reports positive economic data from ScoZinc, full operations targeted for Q2 2012

Selwyn Resources (CVE:SWN) announced Tuesday the results of its preliminary economic assessment (PEA) on its newly acquired ScoZinc zinc-lead project in Nova Scotia, indicating a likely restart of the seven-plus year mine by the second quarter of next year.
Investors cheered the news, with shares of the mineral explorer rising nearly 7.7% on Tuesday, to $0.21 as of 10:40am EDT.
The company, which purchased the past-producing ScoZinc mine as part of its acquisition of ScoZinc Limited in June, is confident of its plan to restart production of the mine, as CEO Dr. Harlan Meade told Proactiveinvestors that the project is actually better than it appears in the latest economic report, with several opportunities for improvements soon expected.

According to the PEA, the project, under a 2,500 tonnes per day processing plan using standard flotation methods, is forecast to produce an average just shy of 30,000 pounds of zinc metal concentrate and 13,500 tonnes of lead over the first three years.

Already, this is 30% to 40% higher than what Acadian Mining, the former owner of the ScoZinc mine, was producing - a result of higher head grades, and a 25% increase in throughput through mill improvements, Meade said.
The projected feed grades for the first three years average 3.81% zinc and 1.69% lead, while metallurgical performance, based on historical data, is forecast at 86% recovery for zinc and 88% recovery for lead.
At a discount rate of 8%, the pre-tax net present value of ScoZinc was set at C$54.1 million, or $63.9 million, at a discount rate of 5%. The project was also estimated to have a whopping near 64% internal rate of return, pre-tax.

Earnings before interest, taxes, depreciation and amortization (EBITDA) over the first three years of production came out to around C$26.2  million per year. The base case scenario for the report was calculated using zinc and lead prices of US$1.10, and US$1.20 per pound, respectively, Selwyn said.

"Ongoing and planned drilling activities, along with the continued evaluation of opportunities to reduce operating costs, are expected to provide additional operating improvements and to increase profitability of the ScoZinc mine," asserted Meade.

Indeed, currently, the report estimated direct cash cost of production, after deducting credits for lead, at C$0.56 per pound for the first three years. Unit operating costs were projected at $51.77 per tonne milled over the same period, or at $49.16 per tonne over the seven year life of the mine.

But with ongoing drilling activities to develop pits for production, and expand potentially mineable resources, additional data is expected to be brought into a new and improved mining plan, as opposed to the historical one, thereby reducing operating costs, and/or increasing revenue.  Selwyn said that drilling is also expected to defer lower grade mineralization to later in the project's life.

Mine and mill restart capital expenditures were estimated at C$30 million, including 15% contigency and two months of working capital. Project processing rates can also likely be improved upon, said Selwyn, with $7 million in refurbishment work planned for the mill at the site. 

The latest economic report, completed by Allnorth Consultants, accounts for production from three conventional open pits - Main Northeast and Getty - with the first three years of output hailing from the first Main pit, and the other two to be mined from sequentially, each a year later.

When the mine last produced, shipments were sent to Europe and Asia, but Selwyn said that it is possibly considering shipping to smelters in North America using trucks, potentially lowering transportation costs and generating savings. The final concentrate shipment plan will be determined at a time closer to the re-start of production, Selwyn said.

This is important, as the cashflow from ScoZinc is planned to be used for the development of the company's Selwyn zinc-lead project in the Yukon, which is under a 50/50 joint venture with Chihong Mining Canada, a subsidiary of Yunnan Chihong Zinc and Germanium Co.

Meade said that the strategy to acquire ScoZinc was to raise additional funds for Selwyn without having to issue more shares.

Currently, there is $4 million set aside for exploration costs at ScoZinc this year, with $1 million for a current program, and $3 million allocated for planned drilling program in the Northeast zone, due to start in the fall of this year.

ScoZinc, which has access to low-cost power and ample water supply, has its own storage and concentrate loading facility, with a capacity of 8,500 tonnes, or 1.5 times the expected shipment size.

The mine is located approximately 50 kilometres northeast of Halifax, within a lease that consists of 615 hectares of mineral rights, as well as five exploration licences for a total of 1,473 hectares.  All necessary approvals for the restart operations are expected in the fourth quarter, the company said.

At a base case 1.5% zinc equivalent cut-off value, the Main zone of the project is estimated to have measured and indicated resources of 2.89 million tonnes, grading 4.2% zinc and 1.9% lead, plus an inferred resource of 1.57 million tonnes, grading 3.3% zinc and 1.3% lead.

Meanwhile, the Northeast Zone is estimated to have an indicated mineral resource of 1.58 million tonnes grading 4.21% zinc and 2.22% lead, plus an inferred resource of 1.88 million tonnes grading 2.7% zinc and 1.86% lead, at a 2% zinc equivalent cutoff value.

The PEA was completed using this latest resource estimate, as well as historical operating data.