Near-Term Production of Highest Grade Silver in Canada
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Alexco Resource Corp (TSX:AXR,NYSE-American:AXU) is a dual listed silver developer working on advancing the Keno Hill Silver District in Yukon, Canada to production. The wholly-owned Keno Hill district is a 242-square-kilometer land package historically renowned for hosting some of the highest silver grades in the world. To date, approximately only 12 percent of the district has been explored, leaving ample opportunity for Alexco to continue growing their resources while they are in production.
Currently, the property boasts five deposits that Alexco has been exploring and developing: Flame and Moth, Bermingham, Lucky Queen, Onek and Bellekeno. Of these, the Bellekeno deposit was previously in production between 2011 and 2013, at a rate of 2 million ounces of silver per year. As such, the company also has an existing processing mill on the property, which is being upgraded and improved in anticipation of a start of production in late 2018.
In March 2017, Alexco published a preliminary economic assessment (PEA) for a mine plan that covers the operation of four key deposits. The report outlined an overall mineable resource of 1,021,000 tonnes at 843 g/t silver, 3.3 percent lead, 4.6 percent zinc and 0.4 g/t gold. Once the district re-enters production, more than 75 percent of the Company’s income will come from silver production, making Alexco Canada’s only primary silver producer.
Alongside its presence in the Yukon, Alexco has also developed a separate stream of business in the form of its wholly-owned subsidiary, the Alexco Environmental Group (AEG). AEG is an environmental consulting and remediation group, which provides services to resource companies across various stages of production initiatives. The company recently increased its functionalities through the acquisition of Contango Strategies Ltd., a company specializing in biological water treatment systems for mining, oil and gas, and industrial projects.
Alexco is headed by a team of industry specialists that have notable experience in all aspects of the mining life cycle. The team is led by CEO Clynton Nauman and President Brad Thrall, who founded the company in 2006 and have an in-depth knowledge of the region as well as strong local relationships with service providers and First Nations communities. Management is also noticeably invested in the company, holding 7.0 percent of shares.
Management is also noticeably invested in the company, holding 7.0 percent of shares.
- Significant presence in mining-friendly jurisdiction of Yukon
- 2017 PEA for project outlines total mine production of 1,021,000 tonnes at 843 g/t silver, 3.3 percent lead, 4.6 percent zinc and 0.4 gt gold
- After-tax NPV (5 percent) of $79.4 million and after-tax IRR of 75 percent
- Highest-grade silver in Canada
- Once in production, only primary-silver producer in Canada
- Disciplined path to production
- Production expected to begin in late 2018
- Low capital expenditure as the project is a past-producer and already has a mill on the property
- Experienced management team with deep knowledge of the region and strong local relationships
Keno Hill Silver District
One of the highest-grade silver districts in the world, Keno Hill covers 242 square kilometers and is located 330 kilometers north of Whitehorse, Yukon. Wholly owned by Alexco, the area is known for having hosted over 35 mines which produced more than 213 million ounces of silver from over 4.8 million tons between 1913 and 1989. Average grades during this time were of 1,373 g/t silver, 6.7 percent lead and 4.1 percent zinc.
Within the district, the company has focused, to date, on the development of five key deposits, one of which — Bellekeno — was in production between 2011 and 2013. The properties are easily accessed year round, are connected to stable grid power and are supported by a robust labour pool of Yukoners, including the First Nation of Na-Cho Nyak Dun. There is also an existing mill on the property with a current processing capacity of 400 tonnes per day.
Since acquiring the district in 2006, Alexco has conducted annual exploration programs to both determine the size and grade of the existing deposits in addition to exploring new targets. On an annual basis, Alexco spends roughly $2.5 – $3M on surface exploration drilling which has resulted in an average discovery cost of $0.55 per ounce of silver.
While working on bringing the project back to production, the company continues to focus on long-term exploration, looking to maintain its position as the only primary silver producer in Canada.
Using the results gathered from exploration, and following its first three years of production, Alexco released a PEA in March of 2017. This report outlined the details of a mine plan for the company’s four key deposits: Flame and Moth, Bermingham, Lucky Queen and Bellekeno.
Highlights of the PEA include:
- After-tax NPV of $79 million
- After-tax IRR of 75 percent
- Average annual mill throughput of 143,000 tonnes per year
- Nine-year mine life
- Total mine production of 1,021,000 tonnes at 843 g/t silver, 3.31 percent lead and 4.6 percent zinc
- Payable production of 26.8 million ounces of silver, 100.9 million pounds of zinc, 72.3 million pounds of lead and 8,890 ounces of gold
- Initial capital costs of $27 million with less than one year payback
In addition, Alexco also calculated that all-in sustaining costs (AISC) over the life of the mine would be US$13.51 per ounce of silver. This includes direct operating costs, sustaining capital, corporate and administrative costs, and costs associated with surface exploration.
“The results reflected in this PEA are the culmination of three years of work conducted during a period of low silver prices and suspended operations, a period during which we continued systematic exploration and in-fill drilling,” said Alexco CEO Clynton Nauman. “It goes without saying that we intend to continue our exploration efforts in 2018 alongside increased surface and underground activity as we prepare the district for a production decision.”
Flame and Moth
The Flame and Moth deposit emerged as proof that the Keno Hill district still had potential for greenfield discoveries. Easily accessible with underground development, this deposit is the backbone of the Keno Hill district and is expected to produce throughout the 9 years of mine life.
The 2017 PEA reported that Flame and Moth had an indicated resource of 26.8 million ounces at an average 498 g/t silver and an inferred 4.1 million ounces of contained silver at 356 g/t silver. The overall mineable resource for the deposit is 683,000 tonnes with a grade of 666 g/t silver.
The deposit remains open at depth and in all directions, and will be part of the focus of continued exploration initiatives.
The Bermingham deposit is the grade driver of the district. The 2017 PEA expanded the indicated resource from 5.2 million ounces to 17.3 million ounces of contained silver at a silver grade of 628 g/t and the inferred resource from 0.7 million ounces to 5.5 million ounces at a silver grade of 770 g/t. Overall, the mineable resource for Bermingham is 220,000 tonnes at 1,276 g/t silver, the highest grade mineable average of the district.
With the goal of further expanding the resource, Alexco has continued exploration on the Bermingham deposit in the form of a 38-hole drill program. Drill results were released in November 2017 and included intercepts ranging from 5.15 meters of 1,547 g/t silver and 5.01 meters at 2,464 g/t silver. Drilling also identified a new exploration zone with intercepts of up to 4.2 meters grading 2,518 g/t silver.
The company has completed over 62% (as of February 22, 2018) of a 580-meter underground exploration decline, which will allow for the planned 5,000 meter underground infill diamond drill program. This exploration program will target the upper portions of the deposit in order to upgrade inferred and indicated resources and to help refine and optimize the mine plan for the deposit.
The Lucky Queen mine is a past producer, having operated between 1927 and 1932 as one of the highest-grade silver mines in the world. In that time, it produced 11 million ounces of silver.
In the March 2017 PEA, the report outlined a total resource of 4.9 million indicated ounces and 3.9 million inferred ounces of contained silver. The overall mineable resource is 81,000 tonnes at 1,206 g/t silver. Once the district is in production, the company plans to use the Lucky Queen deposit as supplemental feed to the mill on an as-needed basis so as to ensure the best possible economic results from optimal mill feed blending.
The Bellekeno silver mine was previously in production between 2011 and 2013 and, during that time, was the only primary silver mine operating in Canada. With grades of up to 1,000 g/t silver, the mine had an annual production of 2 million ounces of silver and over 20 million pounds of lead and zinc concentrate. Since suspending production in 2013, Alexco has kept the mine in care and maintenance and is now performing upgrades in anticipation of a return to production by the end of 2018.
The 2017 PEA outlined that Bellekeno still has an additional 37,000 tonnes at 747 g/t silver to be produced.
Path to Production
Having received a final amendment of the Water Use License for the Flame and Moth deposit in December 2017, three of the four projects are now fully licensed for mine operations.
Working towards a start of production in late 2018, Alexco is conducting a number of initiatives in order to set the project up for success. This includes the build of the Bermingham exploration decline and its associated drill program, as well as the build of a decline for the Flame and Moth deposit. In the meanwhile, the company is also building out a prefeasibility level study to help improve and better outline the economics for the project. Alexco will also focus on updating and commissioning the mill in preparation for production.
Continued exploration in 2018
As they lead the project towards production, Alexco will continue its exploration initiatives as part of a long-term exploration strategy. The goals of this strategy are to add ounces and replace mined ounces during the years of production; continue exploring deep targets; and test new ranking ‘Bermingham-like’ targets.
Beyond the four primary deposits in the company’s mine plan, Alexco also holds two other properties in close proximity to these: the Onek and Elsa Tailings projects.
The Onek property is a fully permitted property with an indicated resource of over 4.3 million ounces of silver and an inferred resource of 1.1 million ounces of silver. The property saw exploration initiatives between 2009 and 2011, which outlined a zinc-rich deposit. This deposit showed high silver grades nearer to the surface and high percentages of zinc mineralization at depth, with grades ranging from 11.8 percent zinc in the indicated resource to 8.3 percent zinc in the indicated resource. This deposit remains open to the southwest.
The Elsa Tailings project sits just beyond the Keno Hill district, approximately 2.5 kilometers to the west of its perimeter. The property first saw milling operations in 1930 and these continued until 1988, during at which time the mill processed ore from ten neighbouring mines, which resulted in 3.67 million tonnes of tailings on the site. In 2009, 283 holes of sonic drilling were used to determine an estimate of mineral resources. A 2010 resource estimate outlined an indicated mineral resource of 2.49 million tonnes at 119 g/t silver (a total 9.5 million ounces of silver), 0.99 percent lead and 0.70 percent zinc. Additionally, the tailings also include a resource of approximately 9,600 ounces of gold.
Alexco Environmental Group
The Alexco Environmental Group (AEG) is a wholly-owned subsidiary of Alexco and is an environmental consulting and remediation company that provides post-project remediation services as well as environmental and socioeconomic assessments, regulatory and authorization processes, site specific environmental studies, and permitting and compliance activities required as part of the mining process.
In 2016, AEG saw $11.4 million in revenue having partaken in various project remediation initiatives including Globeville, Gold King and Keno Hill.
In June 2018, Alexco announced that AEG had acquired Contango Strategies Ltd., a private company located in Saskatoon, Saskatchewan, for $1.388 million. Adding to AEG’s suite of services, Contango deals in biological water treatment systems for mining, oil and gas, and industrial operations. The company has been operating a year-round environmentally controlled pilot-scale facility allowing for the development, testing and optimization of its technologies. The company also hosts an in-house DNA sequencing facility and microbiology facilities with the capacity of conducting genetic profiling to detect and identify microbes for applications in various types of environmental remediation.
Clynton R. Nauman—Chairman and CEO
Clynton Nauman brings over 35 years of diversified experience in the mineral industry, ranging from exploration and business development to operations and business management in the precious metals, base metals and coal sectors. He is also currently the CEO of Asset Liability Management Group, and was General Manager of Kennecott Minerals from 1993-1998 and the President and CEO of Viceroy Resource Corporation from 1998-2002. He holds a B.Sc. in geology.
Brad A. Thrall—President
Brad Thrall brings over 25 years of experience and accomplishments in mine operations management, environmental management and mine-closure planning and execution. He has held a number of operations management positions with Viceroy Resource Corporation, Barrick Gold and Goldcorp and is also currently the President of Asset Liability Management Group. He holds a B.Sc. in Metallurgical Engineering from South Dakota School of Mines and Technology and an MBA from the University of Colorado.
Michael Clark, CPA, CA—CFO and Company Ethics Officer
Michael Clark is a Canadian qualified Chartered Professional Accountant with over fourteen years of experience, including ten years in senior financial roles within the junior mining sector. Prior to joining Alexco in December 2014, he was with Goldgroup Mining for five years, and held the position of Chief Financial Officer. He also serves on the Board of the Burnaby Hospital Foundation.
Alan McOnie, FAusIMM—VP Exploration
Alan McOnie has over 30 years of experience as a professional geologist in mineral exploration, government and the precious metal industry. He holds a BSc in Geology from the University of Otago, New Zealand and an MSc in Geology from the University of Toronto. Prior to joining Alexco, he worked as a geological and GIS mapping consultant in Australia, New Zealand, and North America, including Alexco’s Keno Hill Project, and has held management and senior management level positions all through his career.
Gordon Wong, CPA, CA—VP Finance
Gordon Wong brings over 18 years of diversified finance and accounting experience, ranging from middle market mergers and acquisitions to audit and financial planning and analysis. He is a Chartered Professional Accountant and prior to joining Alexco in 2010, articled at Deloitte Touche LLP where he also specialized in middle market corporate finance and transaction services. He holds a Bachelor of Commerce degree specializing in Finance from the University of British Columbia.
James Harrington, MSc—SVP and CTO, Alexco Environmental Group
James Harrington has 20 years of experience in environmental cleanup of mining, industrial and government sites. He has led the closure design and implementation for mines in the Western United States and Canada for base and precious metals, coal and uranium. He is currently a consultant overseeing some of the largest groundwater remediation projects in the United States, providing strategic advice, regulatory consultation and technical oversight and review. Prior to joining Alexco, he was Vice President for ARCADIS in the corporate remediation group. He holds an MSc in microbiology and biochemistry.
Richard Zimmer, PEng, MBA—Lead Director
Richard Zimmer was formerly the President and CEO of Far West Mining Ltd. He has over 35 years of Canadian and international mining experience, including 15 years with Teck Cominco Limited, where he was Vice President and Project Manager of Teck-Pogo Inc. and also managed several operations and development projects. Prior to his work with Teck Cominco, he was Senior Staff Engineer with Bow Valley Industries Ltd. and held various positions at Key Lake Mining Corporation, where subsequently he became the Key Lake mine superintendent. He is currently a director for Capstone Mining Corp. and Magellan Minerals Ltd., both publicly traded companies. He is a member of the Canadian Institute of Mining and Metallurgy and the Association of Professional Engineers of British Columbia. He holds a Bachelor of Science (Chemistry and Mathematics) from the University of Manitoba, a Bachelor of Engineering (Mining) from the University of Alberta, and an MBA from the University of Saskatchewan.
Terry Krepiakevich, CPA, CA, ICD.D—Director
Terry Krepiakevich was formerly the Chief Financial Officer of SouthGobi Resources Ltd., a TSX and Hong Kong publicly-listed mining company. Previously, he was Chief Financial Officer for Extreme CCTV Inc., a publicly traded company on the TSX involved in manufacturing high tech surveillance equipment, and Vice-President Finance and Chief Financial Officer of Maynards Industries Ltd., a private firm specializing in retailing, auctioneering, liquidating, and mergers and acquisition services. Prior to his position with Maynards, he was a senior officer in a number of private and public issuers. He is a Canadian qualified Chartered Professional Accountant and was employed with the international accounting firm Peat Marwick Thorne (KPMG), where he worked with a number of companies in mining and related industries.
Elaine Sanders, CPA, CA, CPA (Illinois)—Director
Elaine Sanders is Chief Financial Officer and Corporate Secretary of NovaCopper Inc. and has more than 20 years of experience in audit, finance, and accounting with public and private companies. She has been involved with numerous financings and acquisitions, and has listed companies on both the TSX and NYSE-AMERICAN. She is responsible for all aspects of financial services, financial reporting, and corporate governance at NovaCopper Inc. She holds a Bachelor of Commerce degree from the University of Alberta, is a Canadian qualified Chartered Professional Accountant and a Certified Public Accountant in the United States.
Rick Van Nieuwenhuyse, MSc—Director
Rick Van Nieuwenhuyse is President and CEO of NovaCopper Inc., with over 25 years of world-wide experience in the natural resource sector. Prior to establishing NovaCopper, he was founder, President and CEO of NovaGold Resources Inc., and prior to that was Vice President of Exploration for Placer Dome Inc. He brings years of working experience and knowledge of Alaska and Western Canada to the Company, managing projects from grassroots discovery through to advanced feasibility studies and production. He holds a Candidature degree in Science from the Université de Louvain, Belgium, and an MSc in geology from the University of Arizona.
Michael Winn is President of Terrasearch Inc., a consulting company that provides analysis of mining and energy companies. He has worked in the oil and gas industry since 1983 and the mining industry since 1992, and is also a director of several TSX-listed companies involved in mineral exploration in Canada, Latin America, Europe and Africa. He has completed graduate coursework in accounting and finance and holds a BSc in geology from the University of Southern California.
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