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Selwyn Resources zinc-lead JV with state-backed Chinese partner on track

Selwyn Resources (TSX-V: SWN) has extended the exclusivity period under the proposed joint venture with Yunnan Chihong Zinc & Germanium Co (Chihong), as the respective parties finalize their negotiations and seek shareholder approval. The transaction, which sees Chihong invest C$100m into the Canadian project and gain a 50% interest, is still on track to close in May 2010.

The Selwyn project represents one of the largest undeveloped resources of zinc and lead in the world and is Yukon, the company said. According to Selwyn Resources, the project represents both a unique opportunity and a strategic asset that could provide a long term secure supply of zinc and lead to the markets of the Pacific Margin.

Under the terms of the deal, all the assets associated with the Selwyn project will be transferred into a new Canadian joint venture company, with the equity split equally between Selwyn and Chihong. The new company will act as the projects operator. The C$100m deposited by Chihong will be used to fund pre-development programs associated with completion of a bankable feasibility study and permitting at Selwyn.

The JV proposal’s exclusivity period will now extend until 1 April 2010. The Chinese state-backed mining group informed Selwyn that it has received some of the government approvals required for closing, but other approvals still need to be obtained. According to Selwyn, both parties have undertaken substantive negotiations in the finalization of the joint venture.

The joint venture operations are expected to commence in June 2010. In the meantime Selwyn continues to progress the project on its own. The explorer hired Wardrop Engineering to undertake a bankable feasibility study, while other engineering groups are working on engineering studies to support the feasibility study and environmental permitting.

The JV plans to undertake initial underground development and advanced exploration on the NI 43-101 compliant mineral resource of the XY Central deposit. As such Selwyn applied for a Type B Water Licence, which is required to undertake initial underground development, in the fall of 2009 and the license is expected to be approved during April 2010.

The initial work program will be designed to upgrade Inferred Resources to both the Measured and Indicated categories through both surface and underground diamond drilling. The underground development will also provide an exceptional exploration platform for the JV to explore the core of the Synclinal Structure that hosts the high-grade mineralization, because these areas of high mineral potential are too difficult to test from surface.

Additionally, surface diamond drilling will resume on the Don deposit to allow for upgrading to NI 43-101 compliant Inferred resources both the Measured and Indicated resources.

In January, Selwyn released further drill results from its 2009 drilling program in the vicinity of the XY West deposit. Highlights from drilling included drill hole XYC-187, which intersected 6.1 metres grading 6.64% zinc and 2.95% lead. XYC-187 was drilled 210 metres south-west of XYC-179, 225 metres south-east of XYC-174 and 145 metres south-east of the XY discovery hole, XYC-172.

Disclosure: The author holds no positions in the company