Zinc maker Yunnan Chihong Zinc & Germanium Co Ltd (Chihong) will invest US$94 million to set up a joint venture with Canada's Selwyn Resources Ltd (Selwyn) to operate the Selwyn zinc-lead mining project.

Chihong and Selwyn will hold identical stakes of 50 percent each and have equal board representation in the venture, the Chinese company said yesterday in a statement.

The Chinese company plans to raise the US$94 million for the venture from bank loans and cash reserves. The funds would be used for advanced exploration, engineering, and for initial construction activities, including the preparation of a feasibility study.

Selwyn, on its part, would transfer its mineral and other assets associated with the Selwyn project in Northwest Canada to the joint venture, according to a statement issued by the Canadian company on Monday.

Harlan Meade, CEO of Selwyn, said in the statement that the formation of the joint venture is a major step towards advancing the Selwyn project to production.

"Chihong becoming a strategic partner for the Selwyn project opens up the Asian markets for project financing, which is seen as strategically very important in the evolving financial markets for financing resource development," said Meade.

"The Selwyn project has immense potential to become a major zinc-lead mine. The successful development of the project can bring significant growth to both Chihong and Selwyn," said Ying Dong, chairman of Chihong.

The Selwyn project, located in eastern Yukon, Canada, is one of the largest undeveloped resources of zinc and lead in the world. Preliminary explorations conducted by Selwyn have defined 15 mineralized zones with high-grade zinc-lead resources. Feasibility studies have, however, not been carried out at the site.

Analysts said the project would boost Chihong's mineral reserves, but production would not start in the short term.

"It is an undeveloped project in its initial stages, and it is too early to calculate the cost and revenue," said Wang Xiaodan, an analyst with China Merchants Securities.

Closing of the transaction is targeted for May 2010 and is subject to completion of non-technical due diligence and formal documentation, including regulatory approvals.

According to the statement from Chihong, upon completion of the transaction, the joint venture will undertake initial underground development and advanced exploration of the deposits.

Chihong is an integrated lead and zinc producer with total assets of 6 billion yuan. Based in southwestern China's Yunnan province, the company has several operating mines and smelters in China.

Yang Weihua, international cooperation manager of Chihong, said in phone interview yesterday the company is also eyeing other smaller projects abroad, mainly in Canada and Australia.