Selwyn Resources (TSXV: SWN; US-OTC: SWNLF) has agreed to sell its main asset — the ScoZinc mine, mill and related properties in Nova Scotia — for $17.5 million to a private company named Scotian Zinc Mines.
Scotian Zinc will pay Selwyn $10 million in cash and $7.5 million in the form of a senior-secured debt note. The note will be payable in five annual installments of $1.5 million, along with 8% interest per year, starting Dec. 31, 2015.
Scotian, a B.C. corporation created to facilitate the deal, plans to reopen the mine in the first half of 2015.
After selling its 50% stake in the Selwyn zinc–lead project in the Yukon last year for $50 million to Chihong Canada Mining, the ScoZinc sale will clear Selwyn’s debt and give the company $14 million in cash, but no mineral assets to spend it on.
Selwyn intends to return much of the cash to shareholders, which will amount to $3.60 per share. The company is searching for the most efficient distribution method, with the options including a dividend, return of capital or substantial issuer bid.
Selwyn’s current management and board were installed last year after a contentious proxy battle.
The company’s former long-standing CEO Harlan Meade had advocated investing the Chihong money into restarting ScoZinc, but the new board and management nixed that idea in September. Instead they proposed returning $27.6 million in cash, or 7¢ per share, to shareholders — who heartily endorsed the idea in a December vote.
They also voted to consolidate the company’s shares on a 100-for-1 basis, which took effect in January.
The ScoZinc deal is expected to close by November. It is subject to shareholder approval with two-thirds voted at a meeting in October, plus regulatory approval.
The offer includes Scotian’s right to match any higher bid and a $500,000 break fee paid to Scotian if Selwyn accepts an unsolicited alternative offer.
Selwyn bought ScoZinc for $10 million in 2011, and has spent more than $10 million on permitting, engineering, exploration and refurbishing the mine and mill.
The company has published several preliminary economic assessments on ScoZinc, with the latest one in June 2013.
The most recent study forecast a $32.8-million capital cost to reinstall the past producer as a 2,500-tonne-per-day operation for eight years. The project’s after-tax net present value was estimated at $51.9 million at a 5% discount rate, with a 46.2% internal rate of return.
The study assumed metal prices of US$1 per lb. zinc and US$1.10 per lb. lead.
Selwyn shares rocketed 109%, or $2.09, on the ScoZinc news to close at $4. Post-consolidation, the company has 3.9 million shares outstanding.
Scotian president and CEO Glenn Laing is also the president and CEO of juniors Phoenix Gold Resources (TSXV: PXA) and Ecuador Gold and Copper (TSXV: EGX; US-OTC: EGLDF).