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Selwyn Resources (SWN.V) - core valuation increased

Full Report by Objective Capital , Feb 21, 2008 download full report
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Key Points:

  • Selwyn contains a substantial underground resource
    The company’s drilling programme continued to probe high-grade mineralisation at depth across the XY, Don East, Don and HC West deposits. As a result, Selwyn’s revised resource statement now includes an inferred and indicated resource totaling 39.2 million tonnes, averaging 9.43 percent zinc and 3.39 percent lead. Previously, Selwyn projected a high-grade resource of 9.2 million tonnes, averaging 9.98 percent zinc and 4.20 percent lead, all in the XY deposit area.

  • Open pittable resources continue to expand
    Continued drilling expanded the total resource beyond the high-grade zones. The project now hosts an indicated and inferred resource totalling 385.9 million tonnes, averaging 4.86 percent zinc and 1.60 percent lead. This represents a thirty-percent increase in the amount of contained zinc and a 25‑percent increase in the amount of contained lead.

  • The potential mine plan is coming into better focus
    Selwyn now has sufficient high-grade ore to support a significant underground component to the proposed mine. The company now envisages a 25,000- tonne-per-day processing capability, with the mill fed concurrently from one or more open pits and an underground operation. Based on the current resource, Selwyn could sustain underground mining at rates varying from 5,000 to 8,000 tonnes per day, with the remainder sourced from the open pits.

  • Capital cost estimates move lower, operating costs increase
    With the addition of a significant high-grade underground component to the hypothetical mine plan, we now expect the scale of the combined mine will be smaller than we previously hypothesised, without significant impact on revenues. As a result, we expect capital costs will be approximately C$950m, less than our earlier estimate of C$1,050m. Operating costs however will increase significantly due to the underground component, to C$42.50 per tonne in the first year, from our earlier projection of C$25 per tonne. We model production to commence at the start of 2013.

  • Exploration and development activities continue at a modest pace
    Selwyn continues background work to develop Selwyn, including environmental studies, engineering and metallurgical tasks and preliminary inquiries regarding potential partnerships. The pace is slower than we previously envisaged because of the decision to delay the search for a strategic partner in favour of the 2007 drill programme. We are therefore delaying our expected start of production by nine months from our most recent valuation.

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