Selwyn Resources Ltd.
(TSX V: SWN)
Dr. Harlan Meade, President and CEO
Selwyn Resources Ltd. is a publicly traded, Canadian base metals exploration and development company. The Company’s core project is the World class Selwyn Project, located in eastern Yukon. Since 2005, Selwyn has spent more than $60 million advancing the project to pre-feasibility stage. These expenditures have clearly defined Selwyn Project as one of the largest undeveloped zinc and lead deposits in the World.
Selwyn completed its search for a strategic partner in December 2009 and invited Yunnan Chihong Zinc and Germanium Co. to join with it in the development of the Selwyn Project, as the world’s next major zinc-lead mine. Selwyn and Yunnan Chihong will each own a 50% interest in a new private partnership company, to which Yunnan Chihong has advanced CAD$100M to fund ongoing projects.
WSR: Good day from Wall Street. This is Juan Costello, senior analyst with The Wall Street Reporter. And joining us today is Dr. Harlan Meade, President and CEO for Selwyn Resources. The company trades on TSX Venture, and their ticker symbol is SWN, and they are Canadian-based metals exploration and development company. Thanks for joining us today, Dr. Meade.
Harlan Meade: My pleasure.
WSR: Starting out, talk about the $100 million joint venture transaction.
Harlan Meade: Yesterday, we news released that we had closed the $100 million transaction with Yunnan Chihong Zinc & Germanium Company, a Chinese mining and smelting company. This was good news. It provides $100 million for advancing the project to bankable feasibility and through engineering and permitting. The agreement also gives us access to the Chinese banks for the senior project debt financing. In the process of doing this, we picked up a very experienced partner, fully integrated in zinc and lead mining and smelting. It also gives us assured access to the smelters of Asia for the sale of our concentrates. And, the co-management structure is somewhat unique. We look at it very positively because it provides a melding of the strengths of the two groups in exploration, development, and project financing.
WSR: Good, and also you had the recent five million credit facility. Can you go over that a little bit?
Harlan Meade: Because we weren’t exactly certain when all the closing would occur, we commenced the exploration and development programs back in May, June. And, we did that basically to maintain our timelines as we were waiting for the financial close under the Chihong transaction. So, we arranged a $5 million bridge debt financing facility with Resource Capital Funds based in Denver, and we drew down $2 million of that. With the closing of the transaction and the recovery of approximately $11 million of prior expenditures from the $100 million of joint venture funding, we’ll simply repay the debt facility and we’ll end up with working capital of about $10 million, although most of the work on the project will be funded by the joint venture. So, that puts us in a very strong financial position.
WSR: Bring us up to speed on the Selwyn project.
Harlan Meade: Selwyn, I think as most people know, has a very large mineral resource that can provide the Asian smelters with long-term secured supply of zinc and lead that they require. The project is initially going to be developed as two underground mines producing large tonnages of high-grade ore, and as planned it would be about the fourth or fifth largest zinc-lead mine in the world; that’s phase I. Most of these big projects go through multiple development phases, and I don’t know think Selwyn Project is going to be any different. The good news for our shareholders is that we’ve approved in principal $85 million worth of programs over the next 18 months, which should be more than adequate to move the project right through the bankable feasibility study and get the permits and then to go out and secure the project financing. So, we’re going to be very busy, spending that $85 million, and out of that will come a lot of information that will help investors revalue this project.
WSR: The Howard’s Pass, that’s now 100% owned?
Harlan Meade: The asset, we owned it 100%, and now what we’ve effectively done is sold half of the asset to the Chinese company for $100 million. At the time, the market cap of the company was only $35 million, $40 million. So, this was a huge premium over the Street value of the company, and so they are now spending $100 million earning a half interest. Selwyn Chihong does not own any shares of Selwyn, rather their interest is a direct interest in the project. We own half, and they own half.
WSR: Talk to us a little bit more about some of the trends right now in your sector as far as iron ore and how well positioned the company is to capitalize on them?
Harlan Meade: Zinc and lead markets have been oversupplied now for about 30 years. But as we say every dog has its day, and certainly all the forecasts of the analysts are now calling for chronic supply problems in zinc and lead, probably starting anywhere from six to 12 months out. And, that chronic supply problem stems from the fact that there has been very little investment in zinc and lead globally. But more importantly, there is going to be a whole parade of shutdowns of major zinc-lead mines around the world largely due to the depletion of ore. And so there is some very bullish forecast for the requirements for new mine production. The one I like is Credit Suisse’s, where they’re saying that we’re going to need about 40% to 50% new mine supply by 2015. That’s a horrendous number to try and meet. And quite frankly, if we’re going to achieve that goal, then those projects should already be in the development pipeline. Yet, when you look at the development pipeline in zinc and lead, there are virtually no projects. Our goal is very simple, with the $100 million of financing to move this project to the next stage, access to the Chinese banks, a very sophisticated joint venture partner, I think we’ve clearly positioned this project as the premier zinc lead development project in the world, not just because of its size, but because we know we have the financial ability to move it forward and take advantage of this coming shortfall of zinc and lead mine supply; which of course, translates into probably some rather interesting zinc and lead prices going forward.
WSR: Can you talk to us a little bit about your background and experience Dr. Meade, and little bit about the strength of the management team for some of the members of our investor audience that are new to the Selwyn story?
Harlan Meade: I’m a geologist by formal training but also with significant business training through various schools. My background is 30 years in exploration and development, some of that for large mining companies, but in the last ten years, entirely in the junior sector. Selwyn Project is one that got going about five years ago. Prior to that, I was President and CEO of Yukon Zinc Corporation where we took a discovery that we had made right through the bankable feasibility study, almost project financed it but unfortunately that company got taken over in a hostile takeover bid and was acquired by the Chinese. With that, our management team, the same management team that took that project from discovery to development, basically moved over to Selwyn and took on this giant project that had been orphaned or dormant for about 20 years. So, now we’ve got our hands full with a giant.
WSR: In terms of some of the goals and milestones, what is Selwyn hoping to accomplish here over the course of next year?
Harlan Meade: Basically, over the next year, we upgrade all the mineral resources to the measured and indicated categories so that we can have a nice robust bankable feasibility study, complete that bankable feasibility study, enter the permitting process and make good progress in the permitting process, and then basically by the middle of next year be in a position to start negotiations with Chinese banks to secure the senior project debt financing. The beauty of that is that right now the typical project banks are not debt financing base metal projects globally, and we all know what the cause of that is. But, the reality is, if you’re going to advance one of these projects where do you go, either the equity markets, which are not quite therefore as yet, the private debt markets, which are expensive, but really the obvious one is the Chinese banks. And with a Chinese partner, we have access to those Chinese banks. We’re excited about it because the Chinese banks generally don’t require hedging of the metals. So, that’s of course an ideal situation for an investor because it gives them full leverage of an unhedged market for its product.
WSR: As you continue to make progress right now, do you believe that Selwyn’s story, your message, and your upside potential are completely understood and appreciated by the financial community, and what do you think that investors are missing from your story?
Harlan Meade: I think very simply most people felt this project was too big for us. They didn’t feel that we would ever be able to finance it without massive dilution to shareholders’ equity and that the project being its size and complexity would be unmanageable by ourselves. All of that of course is now history. When we did announce the transaction with the Chinese, there was a fairly large contingent of people who probably said, well it will never close. So, we literally have had to sit there and progress without much market attention, pending proof that one that we had closed it and that the $100 million was actually sitting in a bank in Canada and not on the take, hoping that it’s going to come at the appropriate time from China. So, the market is just not paying attention to that. We think that Selwyn is an exceptional zinc-lead investment, partly because of the coming marketplace, but partly because of the sheer size of this project, we can provide the best leverage to zinc and lead of any project you could find anywhere in the world. It’s fully financed with $100 million to go right through to a production decision and project financing. It’s going to get revalued upwards as we meet our various milestones and reduce the risk. Certainly the access to the Chinese banks for project financing is invaluable. There are very few junior companies who can say that they have access to Chinese banks. And given, where the project financing markets are going, and how they are developing, that’s absolutely critical. Having a very well financed, very experienced joint venture partner is simply a plus in all of this.
WSR: So, once again, joining us today is Dr. Harlan Meade, President and CEO of Selwyn Resources, which trades on the TSX Venture. Ticker symbol is SWN, currently trading at $0.22 a share; the market cap is north of $67 million. We were just discussing the company’s close of the $100 million joint venture transaction, which resulted in a 50-50 joint venture with Chihong Zinc and Germanium as well as some of the trends in the lead- zinc sector. So, before we conclude Dr. Meade, just to recap, some of your key points, why do you believe that investors should consider Selwyn Resources, SWN, as a good long-term investment opportunity?
Harlan Meade: I think very simply just size is important. I mean, this project clearly is the largest development project in the zinc-lead sector, at a time when we need multiple large deposits. The fact that we’ll be able to advance this project right through bankable feasibility without issuing another share and then have access to the Chinese banks is a pretty compelling position for Selwyn and its shareholders.
WSR: We certainly look forward to continue to track your company’s growth as well as report on your upcoming progress. And, I like to thank you for taking the time to join us today and to update our investors on Selwyn. It’s always good to have you on, Dr. Meade.
Harlan Meade: Okay. My pleasure, Juan.