Tuesday 5 March 2013

Selwyn Resources sells JV stake in Yukon project for $50 mln


Selwyn Resources (CVE:SWN) has agreed to sell its remaining 50 per cent joint venture interest in its zinc and lead project in the Yukon Territory to Chihong Canada Mining for $50 million, helping it to secure cash to sustain operations.
The joint venture between the two parties for the Selwyn project was established in June 2010, and was operated by Selwyn Chihong Mining. 
Chihong Canada is a subsidiary of Yunnan Chihong Zinc & Germanium - one of China's largest zinc and lead mining and smelting companies. 
"The decision to sell Selwyn’s 50% joint venture interest in the Selwyn Project reflects the realization of the large capital requirements that will be needed to advance the Selwyn Project to production and the associated risks to Selwyn shareholders, including but not limited to, the potential for significant dilution of shareholders’ equity in the Selwyn Project," said Selwyn president and CEO, Dr. Harlan Meade, in a statement late Monday. 
"At a time of reduced industry interest in undeveloped mineral deposits, Selwyn is satisfied that the timing of this transaction and the purchase price negotiated are in the best interests of the shareholders.”
Share of Selwyn rose 2.5 cents to trade at 8 cents in early deals in Toronto. 
After the sale is wrapped up, the joint venture agreement will be terminated, and Selwyn will have no further stake in the project. The deal still needs the approval of Selywn shareholders, and the board of parent company Yunnan Chihong, as well as Chinese governmental approvals. 
Selwyn said that shareholders representing 41% of the company have already entered into lock up agreements with Chihong Canada in support of the deal, which is expected to close in early June. 
Chihong Canada has provided a cash deposit of $5 million, with a second $5 million deposit to be paid in early April, and the remainder to be shelled out at closing of the transaction. 
The junior Canadian explorer, which also holds the ScoZinc zinc-lead project in Nova Scotia, plans to use the new funds from the Yukon property sale toward restarting the ScoZinc mine. 
The company says the mine is an important near-term strategic objective in advancing Selwyn to becoming a producing company, and that the sale of the Yukon project is a "reasonable best alternative" for acheiving this goal and addressing obligations to creditors. 
Last April, Selwyn inked a $10 million debt facility with Waterton Global Value, drawing down the full amount. It made a second $1.5 million payment in early January, and says it has been taking steps to preserve a level of cash flow sufficient to maintain current operations, with the deal announced today set to provide the needed assistance. 
Absent the transaction, the company would not have enough funds to sustain operations, including commitments under its joint venture agreement with Chihong Canada.  
Under the terms of the deal, Selwyn has agreed to pay a break fee of $2.5 million to Chihong Canada should the company accept a superior proposal. 
Last November, Selwyn confirmed a budget to complete a feasibility study of the Yukon project, based on a revised 3,500 tonne per day mining and milling plan. The company expects the work for the study to be completed by early April, with the final report anticipated in May. 
Selwyn also revealed late last year the results of an update to its preliminary economic assessment report for the restart its ScoZinc zinc-lead project in Nova Scotia, which the company says significantly derisks the asset by showing potential for a seven-plus year mine life. 
The company had said that if debt financing for the project could be secured by this quarter, pre-stripping was expected to begin in the second quarter, with full operation set to start in the fourth quarter of this year.

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