Alexco Resource Corp.
Q4 2020 Earnings Call Transcript

Published: 12 Mar 2021

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Alexco Resource Corp. Year-end 2020 Conference Call. . I would now like to turn the conference over to Kettina Cordero, Director of Investor Relations. Please go ahead.

[Kettina Cordero:]

Good morning. Today is Friday, March 12, 2021, and I welcome you to the Alexco Resource 2020 Full Year Results Conference Call. This call is being webcast live and can be accessed through the Events and Webcast section of our website at alexcoresource.com. An audio archive of the call will be available later today. Our website also contains our most recent news releases and our financial statements for the year ended December 31, 2020. All amounts mentioned today are in Canadian dollars, unless otherwise indicated.

[Clynton Nauman:]

Thank you, Kettina, and thank you, everybody, for attending today. After several years of detailed work and lots of successful exploration, last year, we completed the Keno Hill silver district permitting process and began moving the district back into mining operations. 2020 was pivotal for the company and certainly a challenging year to move a mine into production. For sure, more than one person has commented to me that making a decision to move to production in the middle of a pandemic might have been a dubious decision. We certainly misread the severity of the second wave in Q4 as borders locked down and isolation requirements were reinstituted. But thanks to the professional and determined attributes of our workforce and response and support from YG, from the Yukon government, we have been successfully navigating the restrictions posed by the COVID-19 pandemic. Our progress is slowed. There are certainly added costs, but we are most definitely moving forward towards establishing ourselves as the only primary Canadian silver miner. I should start by summarizing our achievements in 2020 before discussing our outlook for 2021 and our expectation for Keno Hill's longer-term future. On the operations front, in February, we sold our environmental business, AEG, to the AEG management for a total consideration of $13.4 million. This allowed us to focus all of our resources to our mining business. In June, following the receipt of the draft water license, we announced our decision to move Keno Hill to production by restarting mining operations at the Bellekeno mine and advancing the Flame & Moth and Bermingham deposits into development and ultimately operation. By August, we were hard on the recruiting trail and scaling up our surface facilities. And in October, we started drilling and blasting underground ore at Bellekeno. All of our production at Bellekeno is long hole in all blocks which had previously been overcut and undercut. Ore from Bellekeno was stockpiled and used for the initial mill commissioning in Q4 2020.

[Operator:]

. The first question comes from Jake Sekelsky from Alliance Global Partners.

[Jacob Sekelsky:]

We saw grades well above plan in the initial material that went through the mill. Was this a one-off or should we expect to see elevated grades from Bellekeno through Q2?

[Clynton Nauman:]

Yes. Good morning Jake, and thanks for the question. Yes, we're carrying a certain block -- we carry a block model at Bellekeno. It just happens that there's 2 primary stopes that are being mined there over the course of the next couple of months -- will be completed in the next couple of months. Certainly, the first one has overachieved its block model grades, and that would not be unexpected in a deposit the style of Bellekeno. We're working pretty centrally located in the deposit. The second stope, you will have to wait until we get it through the mill to see what the grades might be. But yes, I mean, Bellekeno is going to overachieve both in terms of -- relative to the block model in terms of grade and probably tonnes. We'll see.

[Jacob Sekelsky:]

Okay. That's helpful. And then just on exploration. Obviously, it's a big focus this year with the 25,000-meter program in the Bermingham resource update that you mentioned later this year. How should we be thinking about that updated resource relative to the existing mine plan? I mean do you think we could see an updated mine plan sometime next year after that resource is out?

[Clynton Nauman:]

Yes. That's a decision that we're going to have to discuss at Alexco, obviously. I'd rather -- I think we'd rather sort of wait and take this step by step. Let's get this drilling done and the resource, assuming that the drilling is successful, get any resource put together in that deeper area. And then we'll decide whether or not we should modify mine plan, which is already being modified, as I mentioned, at Bermingham to see whether or not we can accommodate any additional resources should there be any . So yes, it's a good question. We have not made that decision yet. But I would expect that if the drilling is successful, I mean, we'll be pretty keen to try and figure out what value would be added by incorporation of that additional mineralization.

[Operator:]

The next question comes from Joseph Reagor from ROTH Capital Partners.

[Joseph Reagor:]

I guess first thing, given the impacts of COVID and a little bit of delays there, what should we think about as far as staging of production over the remainder of the year? Is there kind of a range you can give us of what tonnes per day might look like on a quarterly basis?

[Clynton Nauman:]

I mean Brad might want to chime in here but, I mean, generally, Joe, we're thinking that we're going through this commissioning process, we definitely need to onboard more plant-related or mill-related people and to spool that mill up to a more consistent operating basis. I mean right now it's operating on a 2 and 2 basis. So we -- I mean we would -- I think we'd be reluctant to put specific tonnes and grade in the commissioning process other than our target, which is to achieve 400 tonnes through the mill in Q4 -- in Q3, sorry, of this year. I mean, Brad, do you have anything you want to add to that?

[Bradley Thrall:]

No. I think you did -- again, in general, there's -- we have a reasonably sized inventory of ore at Bellekeno. And then as Bermingham -- we're projected to hit our first ore horizon at Bermingham in Q2. And then you start to combine those together and then Flame & Moth a little bit later on. So yes, it's a gradual ramp-up period. We're continuing to kind of update our schedules and mine plans as we go along here. So I think that's the best we can see it for the moment.

[Joseph Reagor:]

Okay. Fair enough. On the note of the ramp-up, is there a certain tonnes-per-day average you need to get to in order to start treating the production as revenue instead of an offset to CapEx?

[Clynton Nauman:]

I'm going to ask Mike Clark to chime in on that because I think we are early adopting -- the plan is to early adopt the commercial production, whatever you call it, language. Mike, can you?

[Michael Clark:]

Yes. Thanks, Clynt. Joe, yes, we are planning to early adopt, which means we'll start recognizing revenues immediately and cost of sales. And so starting in January 2021, all the revenues from Bellekeno we'll be recognizing. And then as Bermingham starts up in Q2, followed by Flame in Q3, you're going to start seeing all that revenue hit the P&L immediately with these -- so we won't be offsetting the mineral properties for revenues. Does that answer your question?

[Joseph Reagor:]

Okay. Yes, that makes it a lot easier, too. All right. And then last thing, remaining capital spend between now and reaching that 400 tonnes per day, what's it kind of look like?

[Clynton Nauman:]

I don't know, Brad, do you want to take a shot at that?

[Bradley Thrall:]

Yes, well, there's a couple of different buckets of capital, Joe. I mean we've got our PP&E capital just to finish up most of -- a few of these capital projects, the second grinding mill, a couple of concentrate regrind mills. So I would put that in a bucket of PP&E capital. And that's a relatively modest number, $1.5 million to $2 million, to finish up those projects. But then you obviously have the working capital to continue to -- as we continue to ramp up and reach kind of steady state and positive revenue, I mean, that's a period as well. So I don't want to put a number on that one yet. Again, similar to your previous question, I think we're kind of continuing to undergo our -- kind of our updated, I guess, mine plans. But again, the PP&E capital is relatively low, but it's the working capital until we get to that positive -- to that point where it's cash flow positive, which is into that Q3 range with all 3 mines running.

[Operator:]

. The next question comes from Mike Niehueser from Scarsdale Equities.

[Mike Niehueser:]

Clynt, I agree with the earlier comment about the grades at Bellekeno. I think that was higher than any grades that you published when it was an operation earlier. Just a couple of housekeeping questions to start. Can you say what the approximate cash balance is today for the company?

[Clynton Nauman:]

Mike, can you answer that?

[Michael Clark:]

Yes. No, we're a little over $30 million.

[Mike Niehueser:]

Great. Also, there's a lot of the release talked about COVID. Can you comment on in any cases or how it might compare around the Mayo area or Keno Hill with the rest of Yukon or Canada? Is it just an abundance caution that these things are happening? Or is there something specific with Yukon?

[Clynton Nauman:]

Yes. Yes. Thanks, Mike. Brad is well-versed to answer that question.

[Bradley Thrall:]

Yes. Hi, Mike. Yes, I mean I think in general, the Yukon -- I mean where the Yukon sits today, there does continue to be a -- the borders are closed. So anybody that comes into the Yukon, even if you're a Yukon resident, you do have to quarantine for 14 days. To date, there's been 75 cases of COVID in the Yukon. There's no -- currently no active cases. There hasn't been a reported case at any of the three mines, as you know, between Alexco, those 2 other operating mines in the Yukon. There hasn't been a reported case at all 3 of those. And the Yukon is doing pretty well on their vaccination rates. I believe they are leading Canada in terms of the percent of the population. So yes, all in all, I mean, it's -- there haven't been significant outbreaks. But having said that, yes, I would characterize the approach by the government and health officials as being very cautious, conservative. And I don't believe we'll see much movement in the Yukon, certainly until some significant changes across Canada in order to kind of open up travel again.

[Mike Niehueser:]

Well, it sounds like everybody is being extra careful, and that's good. Brad, this is probably for you. Clynt mentioned in the press release the word variable ground conditions. And I was just wondering if that was something new at Bermingham or Flame & Moth compared to what's happened at Bellekeno or maybe the historic .

[Bradley Thrall:]

No. I mean I think -- I mean, as you know, I mean, Keno Hill is, I guess, somewhat known for its variable ground. In the development period we're in right now, we go in and out of a quartzite unit into more of a schistiless component unit and back into quartzite. And we -- during that same time period, we've got new miners that we're bringing on and training. And so it's a process of becoming more experienced with that type of ground. It's very similar to what we experienced at Bellekeno, but that was 8 to 10 years ago now. So it is somewhat of a kind of a new learning curve, if you will, between -- across the board on operators and equipment and those types of things. So nothing to be -- that's a surprise to us, and we continue to manage and improve on it.

[Mike Niehueser:]

Well, it sounds like you're being careful and deliberate. As far as exploration go, what's the budget for that 24,000, 25,000 meters at Bermingham Northeast Deep? And is it all going to be infill there? Or is there going to be some expansion deeper or stepping out?

[Clynton Nauman:]

Yes. I mean we'll probably spend somewhere between $8 million and $9 million, Mike. And it is going to be primarily infill drilling. And it will be more focused on the vertical extent of mineralization versus the horizontal extent, which we focused on in 2020. That being said, we will certainly drill more holes to the Southwest, where we currently understand the mineralization to be. To the Northeast, probably not so much. We know where the Northeast termination or offset of that mineralization is. And it would, in fact, not reappear until we're into "Hector-Calumet proper." So yes. So some extension drilling to the Southwest, lots of vertical -- trying to understand the vertical extent of the mineralization and infilling between those white space holes that we drilled last year.

[Mike Niehueser:]

Well, I'm glad you mentioned the vertical because when I look at the cross-section in the most recent release, it seems to -- reading between the lines, you're kind of looking at 100-meter block there of this new panel that's being discovered. And then when you look at the other geometry of the veins and how they come together, that it kind of pinches out. But I don't know if -- my mind says that's not necessarily so because you're above the Hector-Calumet, which was historically quite thick. But as the -- get to the bottom of the terminus of the scheduled mine plant at Bermingham, you're getting to that area that really has the best silver grades and the highest lead grades. And I'm just wondering if you're going to be targeting under that area because wondering if that's a shoot or a feeder or something like that.

[Clynton Nauman:]

Yes. Like I say, I mean, what you're talking about is to the southwest of where we drilled. We feel that there's a certain structural intersection that we have identified -- that the geologists have identified at Bermingham. And we are following that -- the projection of that structural intersection along to the Northeast. And that structure and dissection persists all the way up through the Bellekeno, the Bermingham deposit itself and is the locus for mineralization. Now that does not mean to say that between that structural intersection and where the existing deposit occurs, there is not more mineralization, for sure. It's just that we know that there are targeted mechanisms as such that the meatier parts of the deposit are traditionally around that structural intersection, and that's what we're focused on.

[Mike Niehueser:]

Well, it just seems that you're not near where you can determine that you're closed off at depth and that it's just a matter of drilling and it's getting progressively more expensive. But I just have the sense that you're going to execute a well -- a step-up of operations, but the exploration here this year could be another pivot for you. And that the ending of the year is going to be quite interesting when you look back on the last couple of years. So those are just my questions and comments.

[Clynton Nauman:]

Yes. Thanks, Mike. I mean, certainly, it's going to be a very interesting year. And it goes back to Jake's question earlier, which was -- okay, so you're assuming that there's mineralization in this new area. What are you going to do in terms of the mine plan and future development? And those are the things that we at Alexco have to figure out. And I once again go back to the step-by-step progression, which is let's drill it first, figure out what we are looking at and then go the next step.

[Mike Niehueser:]

Well, at the bottom of that terminus where you get those really high grades that were discovered, it seems like you can just drift straight over and just pick up that whole panel, but I can't help but think you're going to spiral deeper right there at the terminus as well.

[Clynton Nauman:]

Yes. We'll see. It's unknown at this point, for sure.

[Operator:]

The next question comes from Lee Curry from Curry Partners .

[Unidentified Analyst:]

I just wanted to get a little few more details on the exact impact of the COVID lockdown restrictions. You mentioned that the workers are subject to a 14-day quarantine. Did the workers, mining personnel that are there on site, can they leave? Are they leaving and going vacation and not coming back? Are new ones coming in? And does being -- can working in the mine include being quarantined? In other words, how hamstrung are you?

[Clynton Nauman:]

Yes. That's a good question, Lee, and Brad will answer that.

[Bradley Thrall:]

Yes. Lee, I'll just give you maybe kind of a high level, I mean, summary of all of the protocols and how we currently have to operate. So we are able to bring in employees from outside the Yukon right to the mine site. And they can work, but they must quarantine at the end of their day. So at the end of a typical 12-hour day, all employees need to go back to the room. They can't leave their room. Meals are brought to them. They can't use the recreation facilities. We have to keep all of our Yukon employees separated from non-Yukon employees. And that means separate charters to site, separate buses, separate vehicle transportation. We have a full-time nurse on site. So we do daily checks every morning. We have part of our camp that's been isolated off for an isolation unit in case there is -- anybody even gets a sniffle, we pull them out of the main population. So that's -- it's pretty rigorous, and it's certainly hard on employees to have to kind of live, I guess, if you will, under those types of conditions. And when this was first -- when the Yukon government in early November first reimplemented or reinstituted these travel restrictions, we probably lost a couple of rotations that we had to stand down, if you will, our employees. We just needed time to respond and put new plans together. So hopefully, that gives you kind of an overview of how we're trying to manage this.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Clynton Nauman for any closing remarks.

[Clynton Nauman:]

Yes. Thank you, operator. As I said, we're on our way to commercial production in the second half of this year, and I look forward to reporting on the start of mining operations at Bermingham, Flame & Moth and the mill ramp-up to full capacity. We'll be updating you as we go along. Until then, thank you, and stay safe.

[Operator:]

This concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.