Selwyn Resources Ltd. (CVE:SWN) has the potential to develop one of the largest new lead/zinc mines. The Selwyn Project is the company’s flagship property, but that is not all they have. Selwyn also owns approximately 23.3% of the issued capital of Savant Explorations (with a value of approx. 1 million CAD). Another deposit they have yet to develop is the Vinata Project, which is located in between two other very large lead/zinc/silver properties (Santa Eulalia and Naica CRD deposits) in the Central Mineral Belt of Mexico, which produced 104 million ounces of silver in 2008. These deposits are well known for their high silver volumes, but each deposit can vary from small high grade deposit of less than 1 million tonnes to district size deposits with more than 50 million tonnes of ore. With further exploration Selwyn will be able to tell which end of the spectrum their Vinata property lies in.
Now let us get back to the topic at hand, the Selwyn deposit has an indicated resource of 18.2 billion lbs of zinc and 6.3 billion lbs of lead, but that doesn’t include the inferred resource of 23.43 Blbs of zinc and 7.3 Blbs of lead (with 2% zinc grade cut-off). The deposit includes seven mineralized zones that confirm the deposit as one continuous mineralized deposit with a length of at least 38 kilometers. Clearly, with such a high Inferred mineral resource extra exploration is necessary to find the limits of this deposit. Selwyn’s mineral resource put it in a category of giant zinc deposits and this has not just drawn my attention, the Chinese have also noticed. At the end of last year, Selwyn sold half the property to Yunnan Chihong Zinc and Germanium Co. Ltd. for 100 million CAD. Yunnan Chihong got a great deal and Selwyn gained a partner with deep pockets. Now Selwyn can start bringing the project into the developing stages and have a partner that will pick up half the tap.
Here is a look at what the Selwyn project’s worth: The Selwyn Project was analyzed assuming a production of 20,000 tpd (low tonnage due to limited electrical supply), with metal prices of $US 1.10 per lb. for zinc at and $US 0.50 per lb. for lead. This gave a pre-tax IRR of 32.1% a pre-tax NPV of $836 million CAD and with a payback period of 2.7 years at a discount rate of 8%. Mine life is approximately 13 years based on the currently established indicated and inferred resource. Lets take a look at zinc and lead prices:
From the graphs we can see that they might have overestimated on their zinc price and underestimated on their lead price. With current metal prices the value of the project should see an increase of 7%. This would give the project an NPV of 900 million CAD (50% owned by Selwyn). Considering they sold a half interest in the project for 100 million CAD and Selwyn’s share of the project should be worth 100 million CAD. With about 70 million CAD in debt Selwyn (CVE:SWN) should have a value of 130 million CAD, or about three times the current share price ($0.185, with a Market Cap of 45 million CAD)! When this project gets underway the company should have an increase in value of ten times!*Full Disclosure: I do not own shares in CVE:SWN, but I will be buying some in the next few months.
Disclosure: Long CVE:SWN