Alexco Resource Corp.
Q2 2018 Earnings Call Transcript

Published: 14 Aug 2018

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Alexco Resource Corp 2018 Second Quarter Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Lisa May, Director of Investor Relations. Please go ahead.

[Lisa May:]

Thank you. Good morning. Today is Tuesday, August 14, 2018, and I would like to welcome you to Alexco Resource Corp's quarter ended June 30, 2018 first quarter conference call. This conference call is being webcast live and can be accessed at the company's Web site at alexcoresource.com. You may sign up on the Alexco Web site to receive future news releases and other event updates as they are issued. You will also find Alexco's news release with quarterly financial results there. This conference call will be recorded and archived on the company's Web site under Events and Webcasts. Giving presentations on today's call will be Clynt Nauman, Chairman and Chief Executive Officer; Brad Thrall, President; and Mike Clark, Chief Financial Officer. We will have a question-and-answer period after our presentations. Before we get started, I need to remind you that some statements made today may contain forward-looking information. Our business involves a number of risks that could cause results to differ from projections, and investors are urged to consider those disclosures and discussions pertaining to risks that can be found in Alexco's SEDAR filings. It should also be noted that past performance discussed in this conference call is not indicative of future results. I'd now like to turn the call over to Clynt Nauman.

[Clynt Nauman:]

Thanks, Lisa, and I want to thank all of you for joining us today for a review of our 2018 second quarter results, and in addition, to look at the remainder of 2018. So, after a successful start to the year in all respects, we continue to move forward with the focus of putting Keno Hill Silver District back into production, and thereby completing our transition from explorer developer to developer producer. Our execution strategy remains consistent, disciplined to ensure our risks, both internal and external, are managed and measured, executing each step in a safe and effective manner, and continuing to emphasize prudent by intelligent exploration strategies. It is by using this approach that we believe we are moving the company steadily up the value curve even in the recent difficult market we find ourselves in. Talking about value, I'm sure that most of you are as frustrated as we are to see our share price drop from CAD1.95 to CAD1.41 over the last month. And we would attribute this steep decline, of about 27%, to the declining price of sliver exacerbated by the fact that Alexco is highly leveraged to the silver price, of course. Ironically, I can assure you that nothing has changed in our business. In fact, it is strengthening in most areas. From a broader perspective, we continue to believe Alexco is exceptionally well-positioned and has a unique opportunity. Our operations are located in one of the safest and fastest growing jurisdictions in the world. We have relatively new existing mining infrastructure, including a 400 ton per day conventional floatation mill, and we have the ability to move to production in a relatively short timeframe at a relatively low cost. Add to that a robust project with best-in-class production sliver grades, and I think you can understand there our enthusiasm and confidence in the longer-term future of our company. On the call today, I'll briefly highlight the results from Q2, 2018, and then give some guidance on our plans for the next 12 months. Brad will discuss the operations development and progress of our underground work, and Mike Clark will follow and walk us through a summary of the financials. We released our financial results on Monday, outlaying a net loss of CAD1.9 million for the quarter ended June 30, 2018. Net loss included CAD440,000 of net non-cash items. Operating highlights during Q2 included the following. Firstly, we entered the quarter with cash and cash equivalents of CAD22.4 million, and working capital of CAD21 million. This is more than enough cash to get us to a production decision. AEG, our environmental business, recognized revenues of CAD3.5 million in the second quarter or a gross profit of CAD1.4 million, and a gross margin of 39%. We had a number of items that were material in the quarter, and chronologically they are as follows. In April, we replaced CAD6.3 million of cash placed as security for Keno Hill with a surety bond. Net result was freeing up CAD4 million of unrestricted cash. Karen McMaster joined our Board, in April, and we are very pleased to have her experience and knowledge on our team. With over 25 years of experience working in a mining sector focusing on environmental sustainability First Nations and community relations, Karen will be a great asset for our company. Also in April, AEG entered into a master services agreement with Colorado Legacy Land, become the operator -- we'll be responsible operator for the Schwartzwalder Mine and the former Cañon City Uranium Mill reclamation and cleanup projects. As previously mentioned, this would amount to more than CAD20 million of work for AEG over a period of years. In early May, the Bermingham deep mine was completed which allowed us to immediately begin our 500 meter underground drill program of infill and exploration drilling in the upper reaches of the Bermingham deposit. And simultaneously we transitioned our mining team and mining equipment to the Flame & Moth deposit and commenced ramp development of the recently re-optimized 550 deep line. Also in May, a 15,000 meter service exploration program was initiated to look at shallow silver targets in the vicinity of Bermingham aside our deeper exploration program probing for Hector-Calumet style deposits. And in June, we completed a flow-through financing that raised CAD9 million that's allocated to the underground service drill programs, along with the underground development at Flame & Moth. And finally, in June, AEG announced the acquisition of Contango Strategies, which has proven to have an immediate impact with access to new projects and new clients. Since the end of the quarter there have been other important milestones achieved. Last week, we announced the drill results for the first 14 holes for the ongoing drill programs at Bermingham. We're very pleased with these results, including one hole about to 12 meters rating more than a kilogram per ton silver. This is also representative of previous results from the high-grade Bermingham deposit, and we expect the market will view them as confirmation of the potential being unlocked at Bermingham. Now let's put all that in time to actuality to the work we completed in the previous quarters, and the scope of work planned for the remainder of 2018. The prefeasibility study is expected to be published near the end of Q3 or early Q4. It will provide a detailed mine plan with updated reserves and resources at the Bermingham deposit, including results from the 2017 service exploration program and the ongoing 5000 meter underground drill program, and also surface drill holes which are currently underway. We will also identify engineering improvements from both underground and surface, and it will re-estimate remaining capital and operating costs as the project closes in on the production decision. At this point, I'm going to turn it over to Brad to continue with a discussion of the advanced exploration deep mine at Bermingham and other operations for the next 12 months. Brad?

[Brad Thrall:]

Thanks, Clynt, and good morning everyone. As Clynt just summarized, this past quarter has been very active at Keno Hill with a number of activities underway, including commencing our surface exploration program which Clynt will further discussion, completing the Bermingham exploration decline, along with commencing the underground exploration drilling program at Bermingham, and then finally advancing the decline at the Flame & Moth deposit. We currently have approximately 60 employees and contractors working at Keno Hill, and with all of this activity our safety record continues to be excellent as we are now over five-and-a-half years without a loss time accident at Keno Hill. As I discussed during our last quarterly conference call, in May, we had just completed the Bermingham exploration decline with approximately 590 meters of overall development, and we were preparing to commence a 5,000 meter underground exploration program. We have now completed over 4,000 meters of that underground drilling program at Bermingham since mid-May, and we are on schedule to complete that program in the next couple of weeks. We announced the first set of assays from the Bermingham underground drilling program last week, and Clynt has alluded to those results. Our mine development program crew and team were redeployed in mid-May to the Flame & Moth Mine, where we commenced advancing the Flame & Moth decline towards the first ore horizon. As you recall, we had previously collared the Flame & Moth portal and completed approximately 20 meters of initial development last year. We are pleased with the progress to date at Flame & Moth, and we have now completed 301 meters of decline development at Flame & Moth which includes the primary ramp, sumps, and remark base. We have just over 290 of development remaining in order to reach the first ore level access. Once that point is reached, we would then be in a position to begin the first ore level access ramp, which is approximately 75 meters in length, which would then put us in a position to begin ore development. On the Bermingham permitting front, we achieved our first milestone with the issuance of a positive decision document by the Yukon government as the decision body in late July of this year. With the SA process now complete, we have begun the process of renewing our type A water license to include processing ore from the Bermingham deposit as well as extending the term of the water license for all of our deposits out to the year 2037. Our indication is that a public hearing for this water license renewal should be scheduled near the end of Q4 2018. And finally, we are making steady progress in the prefeasibility study for the Keno Hill Mine plan. Additional metallurgical testing is underway, including lock cycle test with blended composite of the deposits in the mine plant. Detail mine engineering planting is advancing using both our in-house engineers as well as third-party consultants. We are on-track as Clynt said to complete the pre-feasibility study by late September or early October, and this will include a new resource statement for Keno Hill as well as optimized mine plan and updated economics. So with that, I think I'll turn it back over to Clynt.

[Clynt Nauman:]

Thanks Brad. As you have heard, we continue to advance our project in a judicious manner. With that said, the market is proving challenging for developers and with lackluster interest at best. We remain optimistic that market will improve. But as we move to closer to production decision, we remain diligent in understanding the impact with combined impacts of silver price, currency exchange, smelter demand, and other external factors. With the conclusion of our environmental assessment and recent receipt of the decision document, we have actually reached the penultimate permitting milestone for production at Keno Hill from all our deposits. As you know, the environmental assessments with the underpinning of the authorizations necessary for future production are processing award from the Bermingham deposit. While we continue to increasing timelines for environmental assessment and authorization processes in the Yukon, we believe that our previous guidance of Q1 2019 for the issuance of the required amendments to Alexco's water license -- water use license is still appropriate. Surface exploration continues to add significant value for our shareholders. Our cost of discovery remains very low as we continue to explore in our own backyard at Keno Hill. Fourteen holes including three surface exploration holes were published last week with great results. Our drilling program continues to pace with approximately 10,000 meters remaining in the surface exploration program. The third drill was added in early August to increase our capacity. This year our planned 15,000 meter surface drill program will result in a new resource reserve estimate for Bermingham and identified new areas likely to harvest apparent higher level silver rich deposits which will be typified by the Bermingham discovery. We are also initiating a new program targeting apparent deeper level silver and base metal rich deposits. That would be typical of a Calumet style deposit. And these are typically much larger deposits and base metal rich. AEG has had a successful quarter at all fronts. The acquisition of Contango has added a vast technology and research facilities increasing our capacity in the area of biological water treatment and beyond. Essentially, our capacity with the addition of a skilled Contango team has increased substantially in addition to expanding our existing client database. We have already added new clients in contracts and that will have a direct impact on revenues in the next quarter. Financially as we said before, Alexco remains in a strong position. We have CAD22 million in cash as of June 30. And we have a number of financing alternatives available to us including the CAD15 million U.S. broad credit facility, uptick in working capital loan, and possibilities to add equipment leases. We will continue to evaluate these and other opportunities as we move forward with the execution of our plants. At this point, I am going to turn it over to Mike Clark to review the financials. And then, we will take any questions that may be out there. Mike?

[Mike Clark:]

Thanks, Clynt. This financial report is for Alexco's quarter ended June 30, 2018. Note that we are reporting Canadian dollars. So, all dollar amounts will be in Canadian dollars unless stated otherwise. For the second quarter of 2018, we recorded a net loss of CAD1.9 million or a loss of CAD0.02 per share. The loss before taxes for the quarter included a net non-cash component of CAD440,000 comprising CAD424,000 for depreciation and amortization cost, CAD632,000 for share-based compensation expense and CAD73,000 for mark-to-market adjustments on investments warrants. This was offset by a CAD689,000 gain on a derivative asset related to the weak midstream. This compares to a 2017 Q2 net loss of CAD2.7 million or a loss of CAD0.03 per share. The decrease in net loss in the 2018 period was mainly attributed to the CAD689,000 gain on the derivative asset recorded in Q2. AEG revenues for the quarter were CAD3.5 million and the gross profit was CAD1.4 million, achieving a margin of 39% compared to revenues in the second quarter of 2017 of CAD2.5 million, and a gross profit of CAD913,000, achieving a margin of 36%. The increase in gross profit during the 2018 period was mainly due to larger U.S. contracts in the 2018 period that utilized a higher portion of internal labor. In addition, AEG experienced project deficiencies across the business. Mine site care and maintenance costs in the second quarter of 2018 totaled CAD952,000 compared to CAD488,000 for the same period in 2017. The increase in cost is mainly as a result of the increased maintenance and refurbishment activities occurring in the mill during the 2018 period. Included in mine site care and maintenance cost for the 2018 and 2017 second quarters is depreciation expense of CAD350,000 and CAD394,000 respectively. Corporate general and administrative expenses in the second quarter of 2018 were CAD1.8 million compared to CAD2 million for the second quarter of 2017. The decrease in the 2018 period is primarily as a result of the 2017 period, including a one-time advisory fee associated with the restructuring of the Wheaton agreement, and this was offset by the 2018 non-cash spot credit facility fee totaling CAD283,000 in the quarter, which is a Black-Scholes value relating to the warrants issued. The main components included in corporate G&A are share-based compensation expense, salaries expense, professional fees, office overheads, and investor relations. Environmental Services' general and administrative expenses in the second quarter of 2018 totaled CAD1.1 million compared to CAD746,000 in the second quarter of 2017. The increase is AEG general and administrative expenses is attributable to an increase in additional staff and support functions required for the increased project activity. During the second quarter of 2018, the company incurred CAD4.8 million on minimal property expenditures, which includes CAD1.9 million on the development of Flame & Moth, CAD2.1 million at Bermingham on the completion of the exploration decline in underground drilling, and about CAD715,000 on the surface drilling programs. During the second quarter of 2018 there were several sources of funding which include the following, the [indiscernible] flow-through financing utilizing our shelf prospectus which raised gross proceeds of CAD9 million at a blended price of CAD1.92 per share, the exercise of warrants at an exercise price of CAD1.75 for proceeds of CAD2 million. As Clynt previously mentioned, we replaced CAD6.3 million of cash placed as security at Keno Hill with a surety bond that required 37.5% cash collateral resulting in us freeing up CAD4 million of cash. And lastly, security posted in cash for the Globeville Smelter Project in Denver, Colorado in the amount of $513,000 was also returned to the company. I'll also remind you that in Q1 of 2018 we established a credit facility with Sprott Private Resource Lending for up to $15 million. As of today, no amounts have been drawn on the credit facility. And this facility has a drawdown availability period until February 23, 2019, which can be extended by a further six months by issuing 171,480 shares of Alexco. And at June 30, 2018, Alexco had cash and cash equivalents of CAD22.4 million and net working capital of CAD21 million, and this compares to cash and cash equivalents of CAD17.9 million and net working capital of CAD18.4 million at December 31, 2017. In addition, Alexco's restricted cash and deposits were CAD2.6 million at June 30, 2018, compared to CAD7.1 million at December 31, 2017. Lisa?

[Lisa May:]

Thanks, Mike. Operator, would you provide instructions for the Q&A session, please?

[Operator:]

Certainly. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jake Sekelsky with ROTH Capital Partners. Please go ahead.

[Jake Sekelsky:]

Good morning, guys. Thanks for taking my question. On the permitting front at Bermingham, can you maybe just walk us through the remainder of the process now that the decision document has been received, is there anything further required from you guys other than the water amendment and renewal that you've already submitted? I guess what I'm really wondering is if there's anything the government could come back with over the next quarter or two?

[Clynt Nauman:]

I think Brad can answer that.

[Brad Thrall:]

Sure. Thanks, Jake. There's two separate authorizations that remain which are required for really all quartz mining projects in the Yukon. One is we've talked about the water use license, so that is underway. We have filed our application with the water board, immediately after we received the decision document, so that's a process that's underway to actually renew the license. And again, that will require a public hearing that we would expect some time at the end of the year. And then after that public hearing there's usually a two to three month period in order to receive the license. The other authorization that is required is an amendment to our quartz mining license, and again, that process is currently underway as well. So you've got the quartz mining license and the water use license, both of which will need to be amended and renewed prior to processing of ore at Bermingham. But again, remind you that all the other deposits, of course, are fully authorized.

[Jake Sekelsky:]

Got it, okay. And staying at Bermingham, I know you guys have talked about the slowing of cost of that depth. How deep do you guys expect to go here? And have you decided how many meters are expected there?

[Clynt Nauman:]

Jake, that's a good question. We're trying to sort of strategically approach Bermingham in terms of the deeper portions of that deposit. We have drilled it currently down to about 250 meters, maybe 300 meters from the surface. So the majority of what we call deeper drilling would be below that, maybe between 300 and maybe 500 meters. And that will require probably quite a number of holes. But in 2018, we're currently thinking maybe two, three, four holes, something like that in that area. It's quite a jigsaw puzzle to put together, obviously. And we're just going to take our time. I understand the geology and the mineralization as we go, and hopefully see what the more base metal-rich portions of that deposit look like. I would also expect we would probably come back in 2019 and probably drill additional holes. So that's the way we're going to approach this.

[Operator:]

[Operator Instructions] Our next question comes from Mike Niehueser with Scarsdale Equities. Please go ahead.

[Mike Niehueser:]

Hey, Clynt. So the holes that you released in the -- that were surface holes that were released in the most recent press release, were those -- would you consider those the deeper holes underneath the resource or were those part of an infill, how would you categorize those because I'm curious if you're going to be releasing more holes underneath the deposit or whether they're going to be kind of the step-outs looking for the near-surface targets?

[Clynt Nauman:]

Yes, so thanks, Mike, and good morning. So the majority of the holes that we were talking about in that prior release were holes from underground, so they're peripheral and infill. And the upper portion in the -- the very upper portions of the deposit, remember this deposit comes within 150 meters of the surface, so it's really mainly the top, well I don't know, 50 meters or so of that deposit or 60 meters or something that we were looking at in the Bear Vein. But because of the importance of Bermingham and the fact that we still had a number of areas that we didn't think that we could convert from inferred to indicated, we also elected to put an additional drill at Bermingham on the surface. And so for a while, we had two drills running underground and one drilling on the surface. And quite frankly, the one drill on the surface will probably continue to drill holes through the rest of the season, and we may even add another drill at Bermingham. So the surface holes, which was your question, were holes that were peripheral to the existing resource, were in the inferred category, were not necessarily in the mine plan or the potential minable tons, but were information we needed to see whether or not we have an opportunity to expand the Bermingham potentially minable tons to increase the mine life of Bermingham and potentially offset or delay the move to Lucky Queen in year five, six, something like that. That answered the question for you?

[Mike Niehueser:]

Yes, I think so. So the holes removed from the surface that were aborted were basically to increase and expand the existing deposit that you have there now. The deeper holes that Jake referred to or peripherally are yet to come. So we still have things to look forward to for the balance of the year, and that this was just the [indiscernible] work of being able to build the deposit.

[Clynt Nauman:]

Yes, roger, plus we were sitting on material information which we thought that we needed to -- or that we had material information that needed to be released. And yes, the deeper holes will be later in the season. And, of course, don't forget that we will re-estimate the resource and reserve at Bermingham as we go through the PFS process.

[Mike Niehueser:]

So you are happy with those surface drill holes, they seem to be -- some of them seem kind of narrow, but they had huge grades. Did you start to see Hector-Calumet-style mineralization or is it still pretty much just a continuation of the existing Bear and Bermingham deposits?

[Clynt Nauman:]

Yes, so the sliver to base metal ratios is still very high. So these are typical of the upper portions of these types of deposit, very rich sliver grades rather below base metals. So it's totally consistent with what we had seen before and very much contributes to the confidence that we have in the robust nature and predictability of the Bermingham deposit.

[Mike Niehueser:]

Okay, with the Bermingham decline done and about halfway through or more of the Flame & Moth, it seems like that's the major expense in terms of brining Keno Hill back into production. About what's the remaining cost for the Flame & Moth decline?

[Clynt Nauman:]

I'll let -- Brad has his fingers on that one.

[Brad Thrall:]

Yes, Mike. I mean, right now I guess our monthly burn rate, if you will, at the Flame & Moth is about CAD600,000 per month. Our average advance rate right now is just over three meters per day. So if you were to extend that right through the end of the year you're looking at about, let's say, CAD2.4 million-CAD2.5 million remaining at Flame & Moth, which would basically complete the decline, install that first level access and be basically touching the ore and ready for stope development. So again, it's a matter of -- month-by-month you're burning about CAD600,000 a month.

[Mike Niehueser:]

So what other costs do you have left? I know you've been working on the mill while the sun shines, and adding more grinding. Aren't you pretty much there or what else is left to spend money on to bring it back into production?

[Brad Thrall:]

Yes, we have been, I guess, pecking away at the mill. There are still a few larger projects in the mill that we'll likely wait until we make our formal production decision since they are not time-dependant. We do have a second ball mill that we purchased; we'll install that once we make a production decision. There's some other -- there are a number of smaller capital project across the district in terms of camp improvement, some other things within the mill. There's still bent raises and escape raises to surface, so there are a few more projects that would have to be completed. So I don't have certainly a single number right now that I'm able to put out there in terms of what the final cost will be to reach production. That'll be coming out in the prefeasibility study. But you're right, by the end of the year Flame & Moth will be at the ore, but there still will be some additional projects required.

[Mike Niehueser:]

Okay. And it seems like the schedule, when you read the press release from a permitting, from the declines with the drilling, everything seems to be at or ahead of the schedule. And I guess I should ask, is there anything that's slowing behind, but I'm more tempted to ask, are you kind of low-balling your progress because it just seems like everything is really moving fast.

[Clynt Nauman:]

Well, it's no question, Mike, that we are busy and getting a lot of things done. I would say that the water license; excuse me, let me just get a drink of water here. The water license is delayed a month or two beyond what we had originally intended, and we are expected, and we have been trying to figure out what the sequence of events going to be when we complete that Flame & Moth decline. And we still do not have that water license, so it's just going to be a difference of a couple, three months maybe in this process as to how we proceed at that point, whether if we are going to put it in production, we do so leading off with Flame & Moth, what we do at Bellekeno, remember, this resource is reserved sitting over there, already drilled off and ready to go. So we are going through that process, and trying to figure out what the strategy is. Once we finish the underground development, and move towards the production mode, so I mean I don't know if that answers the question. A lot of this would be carefully evaluated in the PFS, and by that time, certainly we will have an answer -- we will have a definitive answer to that question.

[Mike Niehueser:]

Yes, so water license is still a critical path item. If everything comes together as expected at these current market prices with base metals and silver, do you see naked and affirmative mining decision and exchange rates?

[Clynt Nauman:]

Well, I mean that's a moving target also. So I'm not going to give you a definitive answer at all.

[Mike Niehueser:]

Okay. Let me change the subject then, Clynt.

[Clynt Nauman:]

Let me give you one example, Mike, we have -- we obviously keep our finger on all of these issues, and I can tell you that we did a pretty indebt analysis a couple of months ago looking at current circumstances versus the circumstances in 2012, 2013. And looking at our actual results in the market at that time, at that point, we were dealing with CAD20 plus, so we are CAD21, CAD22. And I can tell you that the economics and profitability at this project with the grades that are included in the PEA and using the PEA as the underpinning for this analysis. They're using the 400 ton per day mine rate versus 250 tons in 2012, 2013, or thereabouts, and using the current and using the current foreign exchange, the smelter, the new smelter fees that are available at present time, and especially considering the restructuring of the Wheaton Stream that this project was actually equivalent or more profitable than the CAD16 Silver market than it was in the CAD22 Silver market, so -- in 2012, 2015. So I mean they are interesting, and I have actually showed other major silver companies make the same comments. I think that, yes so it's a moving target, and we try to track it as closely as we can.

[Mike Niehueser:]

Excellent, thanks for answering the question. I didn't expect it. Thank you. I was going to leave with this question but with the addition of Karen McMaster and the Contango folks and your -- the uranium mining mill in Cañon City, it just seems like the last half of this year of 2018 is going to be a significant upbeat from the first-half even though you had a good second quarter for AEG, it just seems like that company, that part end of the company, the business is really is being transformed and you didn't mentioned anything about the permitting of the long-term cleanup of the Keno Hill Silver District, which I think is probably more of a 2019 event, can you give some indication of the ramp of revenues, timing expectations, margins that's my last question, and thanks for taking all of them.

[Clynt Nauman:]

Yes, thanks, Mike. I mean I'll answer the AEG portion. Maybe Brad can chime in on the rest of it. But, yes, we are seeing a significant scale up at AEG. We are bulking up the workforce. Our top line numbers are increasing significantly. And we would expect to see that continue through the rest of the year. In addition to that, there are other large projects which have arrived on our doorstep which we are trying to cap. We look at before embarking on additional work with the environmental company. So it's going to be a very, very good year for that company. And, it actually sets the stage for what that company might be and how we are going to realize the value in that company that we have been talking about for some time now. And I'll let Brad continue with the rest of it.

[Brad Thrall:]

Yes, maybe just a quick comment. Mike, you had asked about the Keno closure plan. The final engineer plan has been approved by the government of Canada. And we are literally just a week or two away from entering the ESSA process there. It's probably taking a little bit longer than we had anticipated. But it's very important that we obviously have full support of first nations both governments, community. I mean there's number of stakeholders obviously involved. So we will be entering that process. The ESSA, the environmental assessment here in the next couple of weeks. And you are right; I think it will be much closer again in 2019 by the time we get the completed environmental assessments. We have to amend our Class B water license. I mean it doesn't need to go to treasury board for approval, so that's the status of the Keno Hill closure plan.

[Mike Niehueser:]

So work is lot not likely to start until the end of 2019 in the best of outcome?

[Brad Thrall:]

Yes, there may be some interim work that we can get started, Mike. But I wouldn't anticipate the heavy lifting starting next year quite yet.

[Mike Niehueser:]

Okay. Thanks for taking all my questions. I appreciate it.

[Operator:]

[Operator Instructions] Our next question comes from Bruce Greenspan with Greenspan Investments. Please go ahead.

[Bruce Greenspan:]

Good morning, gentlemen. My question has been answered in portion. I am very pleased about that. I would like to pursue it little bit further. I am not sure if you care to tackle it. I'll leave that decision to you. Somewhere in the ballpark of perhaps 18 to 24 months ago, you gave us a broad kind of a moving target price wise to give us an idea where you might possibly consider bringing the things back into production. And if I recall correctly, you used the levels of under CAD15 per ounce silver that you would not go into production in all likelihood. And CAD15 to CAD22 per ounce silver that it would be a judgment call decision you would have to make at a particular time. And then, over CAD20 per ounce that it would be a likely decision in favor of production. And I am wondering within those -- within a broad range if you might be willing to comment on that little further though as I alluded you did get into this bit previously. Thank you.

[Clynt Nauman:]

Thanks Bruce. I do remember making those comments sometime ago. And actual fact, I still think that they in a broad sense I still think they are somewhat accurate. But the offset is that you are seeing huge swings in foreign exchange. We have all been reading the newspapers about the U.S. dollar. We have seen major changes at the smelters in terms of what they can -- what they charge for processing our concentrate. I mean the change at the smelter can have a CAD2.5 maybe more per ounce swing in our all-in sustaining cost. And we have finalized that we use the Wheaton Stream, so which has a large impact on that decision. So I think generally I think we that we are sort of in the same categories. We have been, I guess, pleasantly surprised at how well this project stands up and -- when Canadian dollar is trading around the CAD0.75-CAD0.76 mark and with the increase in base metal prices and the decline in smelter fees. So those things all play into this analysis. And we'll just have to see where we sit towards the end of the year. I would certainly like to see a change of sentiment in the market. It's very bearish at the present time. I don't know just how long it's going to last. I am totally convinced though that we are at the end of the day in an inflationary silver pricing environment. And that over the long term we are doing right thing in having this thing read to go towards the end of this year.

[Bruce Greenspan:]

All right, I appreciate that. I would just like to compliment you gentlemen on the exploration results that you have had so far. And look forward to learning at appropriate times the results from the ongoing exploration work. I guess that completes what I had to ask. Thank you very much.

[Clynt Nauman:]

Thank you.

[Operator:]

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

[Clynt Nauman:]

Well, thank you all for joining us today. We remain dedicated to moving the Keno Hill Silver District back to production and continue execute our plan to achieve that goal. While we have completed the first underground development decline and we are over 40% complete on the second. There remains a great deal to do. We still have 292 meters of deep line to advance. We have less than 1000 meters of our extensive underground drilling program and 10,000 meters of exploration -- surface exploration to complete in addition to winding up the prefeasibility study. Our current cash position and funding alternatives give us plenty of runway to meet our objectives in a disciplined and deliberate manner. And markets with market conditions considered, clear project decision points remain as we near completion of development of Flame & Moth deep line with a prefeasibility study in hand with the final decision deep line final decision point to proceed to production which are targeting near the end of 2018. As always we appreciate your support and interest in Alexco. And with that, I will turn it back to Lisa to close the call.

[Lisa May:]

Thanks Clynt. You've been listening to the Alexco Resource June 30, 2018 second quarter conference call. We encourage investors to visit Alexco's website for further information at alexcoresource.com. If you have further questions, please call my direct line at 778-945-6577 or email me directly at [e-mail]. This concludes today's call. Thank you for joining us. Have a great day.

[Operator:]

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