Selwyn more than halves output plans for its 8,000t/d Yukon zinc-lead mine

Selwyn to look at 3,500 tonne per day option for the Selwyn zinc-lead project in the Yukon as it also looks to make a deal happen on all or part of its assets.

Selwyn Resources (TSX-V: SWN) may need to rethink its corporate slogan "A Zinc-Lead Giant in the Making" following a massive downsizing of its namesake project in the Yukon.

Selwyn said on Monday the Selwyn project would not fly as an 8,000-tonne-per-day mine given the results of a feasibility review by the joint venture company - between it and Chihong Mining - that owns the project. Selwyn stated that given such factors as zinc and lead prices and market conditions the 8,000-tonne-per-day Selwyn project "will not provide an economic return."

Now in lieu of that scenario Selwyn said it would consider the project at less than half the rate, 3,500 tonnes per day, in ongoing feasibility work.

It is the second time Selwyn has cut the project scope down so drastically. Selwyn initially proposed the project as a 20,000-tonne-per-day open pit project in a 2007 scoping study. But then in 2010 it shifted gears to take a look at an underground operation - the 8,000 tonne per day case - that would tackle higher grade portions of the numerous deposits that make up the Selwyn project.

Now with 8,000-tonnes-per-day scratched off the drawing board, Selwyn said the new 3,500-tonne-per-day permutation "has a good probability of providing a satisfactory economic return."

In the same press release outlining the change to project scope, Selwyn also said it had engaged Cutfield Freeman to advise it "in evaluating its financing and strategic options in relation to the Selwyn Project and the ScoZinc mine (its other chief asset)." Selwyn said it would consider debt, equity and other ways of financing and that it had given Cutfield Freeman the green light to talk to buyers interested in Selwyn.

The project comes with sizeable zinc-lead resources in a series of deposits that also contain notable high-grade pockets. In all indicated resources are 181 million tonnes @ 5.25 percent zinc and 1.83 percent lead about the same again in inferred resources. Within that, however, there are some 16 million tonnes @ 10.25 percent Zn and 4.23 percent Pb, in indicated resources, and 28 million tonnes @ 8.71 percent Zn and 2.74 percent Pb, in inferred resources.

The larger resource may not, however, be as much an attraction anymore. Selwyn made clear its original scoping that covered the larger open pit operation was no longer relevant. "Since the initial PEA (scoping study) was prepared there have been significant movement in exchange rates, metal prices and capital and operating cost assumptions that would make the development plan described in the PEA no longer viable and investors should not rely on the findings of that economic evaluation," Selwyn stated

On news of the change in project scope Selwyn's shareprice was down 17 percent as of presstime to C$0.10 on moderate trading volume.

Yukon juniors with cash to burn

With almost C$300 million set to go into mineral exploration in the Yukon in 2012

Despite a rocky junior market, exploration continues apace in the Yukon, which is set to have near record exploration expenditures this year. Natural Resources Canada recently estimated nearly C$300 million would go into mineral exploration in the Yukon during 2012, just a little bit less than last year's C$307 million.

Who is spending the money? Below is an overview of the exploration plans of some of the most prominent Yukon explorers. No favouritism. The list is in alphabetic order. It shows a slew of junior explorers and miners are cashed up and either already drilling or planning to start drilling soon on sizeable exploration programs:

Atac Resources (TSX-V: ATC)
C$20 million in cash.
Focusing on the Rackla Gold project and recently started a 15,000-metre drilling campaign mostly on the Conrad, Osiris, Isis and Isis East targets.
Recent drilling included high-grade gold intercepts over notable strike length with as much as 44 metres @ 4.41 g/t gold at Osiris late last year.

Ethos Gold (TSX-V: ECC)
C$14 million in cash.
To spend C$7.3 million mostly on the Betty gold project.
To drill 16,000 metres following up on extensive surface anomalies, with as much 7.3 g/t gold over 50 metres in a trench last year.

Golden Predator (TSX: GPD)
C$14 million in cash.
Budgets C$10 million for the Brewery Creek project, with drilling ongoing.
Expanding on and defining the Brewery Creek resource: 20 million @ 0.89 g/t gold, indicated, about half of which is in oxide.

Kaminak Gold (TSX-V: KAM)
C$21 million in cash at the end of December and then in May it raised C$5 million.
It plans 50,000 metres of drilling to move toward a first - and much anticipated - resource on the Coffee gold project.
It is drilling gaps and extensions to several structures hosting high-grade gold, as recently reported in these pages.

Monster Mining (TSX-V: MAN)
C$2.4 million in cash.
To drill 2,000 or so metres on the Caribou Hill target on its Keno-Lightning project near Alexco's Bellekeno silver mine.
Last year it hit high grade silver in the Caribou Hill area with 11 of 14 drillholes showing plus 1,000 g/t silver and silver mineralization over 300-metre strike length so far.

Northern Freegold (TSX-V: NFR)
C$4 million in cash at the end of December and it subsequently raised about C$7 million, mostly in flow-through shares.
This year it plans 25,000 metres of drilling, largely to expand on resources.
For example: it plans on testing extensions to the Revenue deposit beyond long gold/copper intercepts that included 305 metres @ 0.47 g/t gold, 3.68 g/t silver, 0.12 percent copper and 0.02 percent moly.

Northern Tiger (TSX-V: NTR)
C$2 million in cash, end of January.
To do follow-up drilling at the 3Ace project, where it recently hit as much as 2.58 g/t gold over 53 metres.

Ryan Gold (TSX-V:RYG)
C$43 million in cash.
To spend C$10 million or so on drilling at the Ida Oro project (6,000 metres) and the Flume project (1,500 metres)
Ida Oro had numerous long intercepts last year with low-grade gold over broad widths - as much as 137 metres @ 0.56 g/t gold. Ryan Gold said it would drill to the south of last year's collars beneath more gold anomalies.

Victoria Gold (TSX-V: VIT)
C$30 million in cash.
Pushing ahead the advanced-stage Eagle Gold project with some 4.8 million ounces gold in resources.
Now in the permitting stage following a feasibility study in which it outlined a 200,000-ounce per year gold mine that would cost about C$400 million to build.
Sees 2015 production.

Exploration notes for a couple Yukon miners:

Alexco Resource (TSX: AXU)
C$37 million in cash.
To spend C$12 million in 2012 on exploration, with 29,000 metres of drilling, much of it beyond the operating Bellekeno silver mine.
Includes some 4,000 metres at Flame & Moth, which has yielded bonanza-grade silver in recent drilling as covered in these pages.

Capstone Mining (TSX: CS)
C$502 million in cash.
To spend C$5 million testing gaps between deposits at the Minto mine, for which it is considering a super-pit.

Not a gold bull or bear, but a gold agnostic: Eric Coffin

As a contrarian, all the doom and gloom tells Eric Coffin the market is about to pull out of its tailspin and he talks about why the Yukon is an area play he still believes in. Gold Report interview

The Gold Report: Eric, the gold bears recently outnumbered the gold bulls in Bloomberg's weekly Gold Bull/Gold Bear Sentiment Survey for the fourth time in a year. Are you a bull or a bear?

Eric Coffin: I think the gold price is going to end the year higher, so I guess that makes me bullish, but I think of myself as agnostic.

There needs to be a return of calm to Europe for the gold price to move much higher. The currency pair trade between the euro and the dollar is going to be a big determinant to the gold price. There's been more noise about the EU providing stimulus funds to offset all the government budget cuts in Europe. All of those countries have to deal with their debt loads. But it's not realistic to think that they can cut their deficit and 3% off their gross domestic product year after year and realistically get any net growth.

The other side of that equation is that the U.S. has slowed down. That'll help the gold price because a lot of goldbugs are riding on there being another round of quantitative easing. I'm not sure it's going to happen. But as long as Federal Reserve Chairman Ben Bernanke keeps saying it might happen, that's good enough.

TGR: Stagnant gold prices are translating to equities. Canaccord reports that "sector weakness in the gold equities over the last six years has typically ended with 'V'-shaped corrections to the upside." Do you believe that's what will happen this time?

EC: I sure hope so because I'm on the buy side, not the sell side. I'm going to feel pretty dumb if it doesn't happen. We're still in a bull market for gold. In a secular bull market, generally speaking, coming out of a dip tends to be an impressive move.

TGR: Many Yukon junior mining companies are starting their 2012 exploration programs after completing off-season financing on buyers' terms. What types of companies are getting financing?

EC: The only financings I've seen in the past five months are either relatively new deals where investors have a lot of respect for management-which is a roundabout way of saying that investors figure management will figure out a way to make money regardless-or companies that have something pretty definitive with a bunch of drill holes. Companies that didn't take the opportunity to raise money last year are going to have to pull a rabbit out of their hat. The Yukon is an expensive place. There's no getting around it.

Outside of companies with discoveries, nobody's really done large financings and that's going to be tough. About 60% of the companies are going to have a hard time undertaking any significant programs this year. If the market gets better, which I think is going to happen, they still have a shot, but it's at buyers' terms.

I suspect a lot of companies are going to say, "Let's just wait and see if next year is better." You haven't seen many announcements. Quite a few of those companies that were talking last year about doing $4, $6, $8 million exploration programs-many of those programs aren't going to happen.

TGR: Desjardins Capital reports that 26 mergers and acquisitions worth a combined $30 billion (B) took place during 2010 and 2011. There are about 120 more companies operating in the Yukon. Are other junior explorers going to be forced to merge?

EC: I think there will be merger activity at the junior level. There are a lot of companies with decent but not spectacular projects where they haven't done enough work and are not in a position to raise money. A merger is one way out for them.

TGR: Is it still fair to call the Yukon an area play when the shares of most of the juniors operating there have declined considerably, often by more than half? Even good results often don't tangibly move share prices.

EC: It still is an area play. This is a fairly common path even for a successful area play. The easy money has been made or, as is the case here, the market's just lousy and there is a lot of consolidation. The Yukon is getting to that point. The few companies that have done well will have the ability to pick up a lot of projects. In any area play, anywhere from a third to a half of the companies involved are piggybacking on the play to help raise money. Those companies tend to disappear quickly if they don't find something large right away or if the financing environment gets difficult. The bad market has exacerbated things but a large number of drop outs from an area play at this stage is not an unexpected development.

TGR: What are your thoughts on what's happening in Peru?

EC: The political landscape has shifted a lot in Peru. It's made it very difficult for anybody outside of Peru-and maybe even inside Peru-to get a handle on what's a good spot and what isn't. There are a lot of South American countries where mining companies just shouldn't go because they're bound to face a political or indigenous population problem and they won't get permitting. Now no one seems to know what the good areas and the bad areas are. That's going to make it tough for everybody in Peru until this stuff gets clarified.

TGR: Do you have some parting thoughts for us on the market and how it translates to the retail investor?

EC: I'm fairly comfortable that the U.S. is going to do OK over the next couple of years. It's going to have another political fight at the end of the year when tax cuts die. Europe has the capability to pull itself out of its problems. In a large measure, it's political decision-making. I certainly appreciate northern Europeans and Germans that don't really see why they should be footing the bill, but they can afford to foot the bill.

We're not particularly worried about China. It's trying to rebalance its economy. China's in a different boat from Europe or the U.S. in that it's got $3 trillion in reserves and can open the taps anytime it wants. China will increase the growth rate when it feels it's the right time to do it.

The world economy will do OK as well. I know it feels like the end of the world for investors that own a lot of resource stocks as I do. The secular bull market hasn't ended. Ironically, all the political problems in different producing regions are going to extend that secular bull market in metals because it's that much harder to grow production to a point that knocks metal prices down.

I'll just leave you with a contrarian thought: Everybody's so negative right now because this is what bottoms look like. Everybody thinks the world is coming to an end. Everybody thinks it's the worst market they've ever been in. Everybody thinks nothing is ever going to go up. That's what a bottom looks like. It's not fun to go through. There's so much negativity everywhere that it's telling me as a contrarian that there's probably not a lot more pain to go through before things start getting better.

If readers would like to download HRA's new company report on Precipitate Gold Corp., HRA has set up a special free report offer for a limited time. Simply click here and they will send you the report.

Eric Coffin is the editor of the HRA (Hard Rock Analyst) family of publications. Responsible for the "financial analysis" side of HRA, Coffin has a degree in corporate and investment finance. He has extensive experience in merger and acquisitions and small-company financing and promotion. For many years, he tracked the financial performance and funding of all exchange-listed Canadian mining companies and has helped with the formation of several successful exploration ventures. Coffin was one of the first analysts to point out the disastrous effects of gold hedging and gold loan-capital financing in 1997. He also predicted the start of the current secular bull market in commodities based on the movement of the U.S. dollar in 2001 and the acceleration of growth in Asia and India. Coffin can be reached at hra@publishers-mgmt.com or the website www.hraadvisory.com.

Source: The Gold Report