Alexco Resource Corp.
Q4 2014 Earnings Call Transcript

Published: 26 Mar 2015

[Operator:]

Greetings. And welcome to the Alexco Resource Corp Fourth Quarter and Year-End 2014 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Vicki Veltkamp. Thank you, Mr. Veltkamp. You may begin.

[Vicki Veltkamp:]

Good morning, everyone. I am Vicki Veltkamp, Vice President for Investor Relations for Alexco Resource Corp and Today is Thursday, March 26, 2015. And I’d like to welcome you to Alexco Resource's fourth quarter and year end 2014 conference call. This conference call is being webcast live, it can be accessed at the company’s website at www.alexcoresource.com. You may sign-up on the Alexco website to receive future news releases and other event updates as they’re issued and you’ll also find Alexco’s news release with the quarterly and year end financial results there. And then for a limited time, a recording of this conference call will be available by telephone and the instructions for that are also in yesterday’s news release. Giving presentations on today’s call will be Clynt Nauman, President and Chief Executive Officer of Alexco Resource; and Mike Clark, Alexco’s Chief Financial Officer; and then joining us for the Q&A portion of the call will be our Executive Vice President and Chief Operating Officer and President of Alexco Environmental Group, Brad Thrall. But before we get started, I need to remind you that some statements made today by the management team 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. And it should also be noted that past performance discussed in this conference call is not indicative of future results. And so now, I’d like to turn the call over to Alexco’s President and Chief Executive Officer, Clynt Nauman.

[Clynt Nauman:]

Thank you, Vicki. Hello again and thank you for joining us today as we review fourth quarter and the past year 2014, which as you know and as we know has been a challenging one for the silver business. In spite of what we posted – in spite of that, we’ve posted some significant accomplishments of Alexco during 2014. It was another year of stellar exploration results. We renegotiated our silver streaming agreement and we continue to slough through the permitting and for development of our Flame & Moth deposit. In this sort of market, with the current silver price and the volatile action recently in share prices for many silver companies, including ours, the first thing I want to emphasize is that we are here for the long haul and we have the means to make it happen. Financially, first, looking at the fourth quarter, you probably saw our adjusted net loss of $1.6 million, with half of that being non-cash items. Given that we are in the exact position with cash that I had expected to be in at the end of the year with $8.6 million of cash on hand plus more than 10 million in restricted cash. And although this is a forward-looking statement I do anticipate seeing a reversion of a portion of our restricted cash to become unrestricted as our environmental company AEG finishes up a major project in the US and gets a portion of bonds release attached to that project. Always as I say that I believe Alexco is in a unique situation and cash burn net of cash provided by AEG is under control. So we have good flexibility and resilience to move forward with our plans. We have cash on hand to manage our administrative costs as well as care and maintenance at Keno Hill, while we move forward with plans for more exploration in 2015 as well as ramping up our engineering studies for the future development of Flame & Moth. Alexco Environmental Group continues to do well and provide cash, more about that later and our net burn for the past year has been almost exactly as we predicted. For the full-year 2014 we saw a $32.7 million loss primarily attributable to non-cash asset write-downs driven by an approximate 30% decrease in the average price of silver from nearly $24 an ounce in 2013 through about $19 an ounce in 2014 to $16.50 average in the fourth quarter of 2014. Based on that, we took a write-down on our silver assets as many other companies have done to reflect those lower silver prices. Michael will review the fourth quarter year end members in a moment for you. The highlights for the year, we’re adding value through exploration and performance of our environmental group. I will get to our exploration program in a moment but first, let me talk about Alexco Environmental Group. AEG again turned in strong revenue performance and margins during 2014 and you can see the specific numbers in the news release. This growing subsidiary added professional personnel and projects during the year. As far as Alexco Corp is concerned, AEG is now repatriating capital originally routed to it in its more formative years and is offsetting a good portion of our cash needs while we work on the silver side of our business. There is a lot of value in this environmental business and this year we will be considering options to both make more capital available to AEG while also ensuring the business continues to grow. So we're excited about the future of AEG. Meanwhile as I mentioned earlier, one of our major AEG projects is in the final stages of completion which should result in release of performance related bonds moving additional cash from restricted to unrestricted on our balance sheet. One other item of importance and a major accomplishment was in last June was the renegotiation of the Silver Wheaton streaming agreement and then later in the year the extension of the implementation of that agreement to the end of 2015. It’s very important for investors to realize that the $20 million necessary to implement this agreement is not an obligation, it's an opportunity for Alexco. And I do not intend to raise capital for that new deal in the current market conditions. I'm Alexco’s major individual shareholder and I do not believe that our current share price in any way fairly reflects the value we have in this company. So I do not want to dilute this to the extent that would be necessary to implement the renegotiated streaming deal at this point in time. Having said that, I still think it’s very important to continue working on the revised agreement. Silver Wheaton’s interests are the same as ours to get Keno Hill back into production. So we will continue to be focused on that. At this point, I am going to turn it over to Mike Clark to review the financial numbers for a moment and then I will return to talk about development progress and our exploration process. Mike?

[Mike Clark:]

Thanks, Clynt. This financial report is for Alexco’s fiscal year ended December 31, 2014. Note that we report in Canadian dollars. So all dollar amounts we talk about today will be in Canadian dollars unless otherwise stated. For the full year we saw an overall consolidated revenue of $15.2 million and a net loss of $32.8 million or $0.50 a share. These results include non-cash impairment charges totaling $29.9 million after tax which pertains to our mining assets. On an adjusted basis, excluding the effect of these impairment charges, we recorded a net loss for the year of $5.4 million or $0.08 per share compared to an adjusted loss of $4.3 million or $0.07 per share in 2013. For the fourth quarter of 2014, Alexco recorded an adjusted net loss of $1.6 million or $0.02 per share including $800,000 in depreciation and other non-cash costs. Given the depressed silver prices and the continued interim suspension of mining operations, we undertook an impairment review of our mining assets. In conducting this review, we looked at Bellekeno, Lucky Queen, Onek and Flame and Moth being our assets that were in production or development and considered part of a cash generating unit. As a result, we recorded an impairment charge against our mining properties and equipment of $22.9 million after tax. The impairment charge is allocated pro rata relative to the carrying amounts including 4.8 million allocated to our mining site and equipment including mill facilities. In addition, we also recorded an impairment totaling $7 million against several exploration properties included under other Keno Hill properties that the company does not have near-term plans to conduct exploration activities. AEG revenues for the year were $14.9 million and a gross profit of $4.9 million for a margin of 32.8% compared to revenues last year of $16.3 million and a gross profit of $8.8 million for a margin of 42.5% ignoring certain one-time gains reported in 2013 and favorable contract negotiations with the government of Canada. The decrease in gross margin from the prior year is a result of capacity constraints at AEG and consequent outsourcing work to external consultants incurring lower margin and also due to one of AEG’s major projects shifting from engineering to earth works [ph] which is typically lower margin work. General and administrative expenses for 2014 totaled $8.5 million including non-cash cost of $1.1 million compared to 2013 cost of $12.1 million which included $2.3 million of non-cash costs. The reductions in G&A reflect the implementation of cost reduction measures as well as the reduction in Bellekeno mine site overhead costs, following the suspension of operations in 2013. Also note that the G&A includes Alexco overheads as well as the overheads related to various offices and employees of AEG. Mine site care and maintenance costs in 2014 were $3.1 million compared to $1.2 million in 2013. The increase in cost is due to care and maintenance in 2013 incurring from September onward when production was suspended whereas 2014 was for the entire year. Also note that the mine site care and maintenance is mainly comprised of depreciation expense which was $2.5 million in 2014 and $643,000 in 2013. Alexco’s cash position at December 31, 2014 was 8.6 million compared to 8.6 million at December 31, 2013 while net working capital was $11.3 million compared to $15.3 million in 2013. The decrease in net working capital is mainly attributed to a reclassification of inventory where $4.3 million of ore in stockpiles has been classified as a non-current asset. In addition, Alexco has restricted cash balance at December 31, 2000 of $10.2 million of which approximately $4.2 million relates to decommissioning obligations at Keno Hill, the remaining balance primarily relates to an AEG project that is nearing completion of work since the company has begun to make applications for the release of a portion of those bonds. I will now turn the call back to Clynt.

[Clynt Nauman:]

Thanks, Mike. If you have any specific questions about the financial results we will take those at the end of the call. It turns out that the only good thing about this dismal silver market is that it’s giving us time to restructure our operations plans during a period when we're glad not to be dipping into our silver resource on the ground in the current silver price environment. We’re busy reevaluating our resource base at Flame and Moth in light of the successful drilling in 2014 and hand-in-hand with that starting more detailed engineering for Flame and Moth development and operations. In addition, the permitting process while long and seemingly arduous is going forward concurrently as we develop our future operating plans. We’re well down the track on the permitting front having received in November of last year a decision document from Yukon government in respect of the environmental assessment process and we’re now making our ways to water licensing process, a process that we’re very comfortable with. We think that we’re heading toward a public hearing related to the water licensing process sometime after the middle of the year and that that would be the final step in the process and once completed, remember that we will then have existing licenses which would be amended and would accommodate mining in any one or all of Flame and Moth, Bellekeno, Onek and Lucky Queen, all those deposits in the eastern Keno Hill Silver District. Although we continue to think the process -- the permitting process is a bit unwieldy and long, we are able to dovetail with their engineering for development and eventual production at Flame and Moth. And finally, another highlight of the year -- the exploration success in the Keno Hill district in 2014. I would say that by all measures 2014 exploration program was a resounding success. The one thing we were able to drill about 80% more meters than we anticipated for the original budgeted cost. This came through a combination of efficiencies and renegotiated drilling contracts and we ended up drilling more than 18,000 meters by season’s end on a budget of just over $5 million. We reported our drilling results earlier and as you know, we had some results which caught our attention as it did yours. The best Alexco has ever drilled at Keno Hill came this year from Bermingham where that hold asset more than 5 kg of silver or about 125 ounces per ton silver over more than 6 meters through with, quite astounding, even from an academic point of view not to mention the location of this area within about a kilometer of the historic Hector-Calumet mine. And as you remember that historic mine produced about 90 million ounces of silver with a head grade of about 34 ounces per ton silver. Clearly the area between this new discovery and the historic Hector Calumet mine will be prime real estate for exploration in 2015. Meanwhile we also did a considerable amount of work of drilling at Flame and Moth in this last season and that work has further underscored our confidence in the Flame and Moth deposit with much of the infield of peripheral drilling revealing higher grades and better thicknesses of mineralization than in previous models. Examples that come from an overly crystal zone which returned results to a maximum true width of 13 meters or up to 13 meters in mineralization and composite silver assays to more than 1400 grams per ton silver or 45, 47 ounces per ton silver, over 5 to 6 meters of true width. The total drilled strike lengths of the Flame and Moth vein system right now is about 1150 meters and in my view there is a further exploration upside at Flame and Moth but that will be best exploited from underground in the future. In the meantime I continue to believe Flame and Moth will be the cornerstone of silver production at Keno Hill into the 2020s. We are currently planning a 2015 exploration program budget, at the present time around $2 million, to follow up successful results returned from the 2014 surface drilling program. Our focus in the coming season will be on Bermingham where the robust silver mineralization I talked about previously appears to be vectoring toward a stratigraphic structural setting similar to that occupied by the Hector Calumet deposit and as we previously discussed. We’re not planning to do much at Flame and Moth this year for a couple of reasons. First, we have plenty of resource there to go ahead with development and production. And second, as I mentioned, additional exploration of Flame and Moth to expand that resource will be better undertaken from underground when we establish drill platforms. I will end on that note and take your questions now if there are any.

[Vicki Veltkamp:]

So operator, would you take this time now to give the instructions for the question-and-answer period?

[Operator:]

[Operator Instructions] Our first question comes from the line of Hieko Ihle with H.C. Wainwright.

[Hieko Ihle:]

Can you walk us through a timeline that would be required to start production at the mine, as I am trying to see is, how quickly could you take advantage of that, immediate and sharp snapback in the price of silver, how long would take –

[Clynt Nauman:]

Thanks for that, Hieko and good morning. There’s two answers to that question. Godspeed, your snapback would be one of my comments and in that vein, I would say that if there were a return of silver prices to the say $25 to $28 region and the Canadian dollar was -- in response to that would be much stronger, then we could move back into production with Bellekeno very rapidly, probably in the region of a couple of months actually. There is a stored inventory at Bellekeno, in the mark [ph] base. There are long haul types that are being drilled off, the mine is pumped down, it's in good shape and the mill has been -- has been probably tended to during the suspension period. The other trend, Hieko, is that is the systematic redevelopment of the district by implementing development activity at Flame and Moth first and then bringing Flame and Moth and Bellekeno online at the same time and that would require anywhere from 8 to 9 months in that kind of range although the point I want to make here is that we are relooking at all of this development work based on the exploration results of 2014. So we will have optimized plan available but it won’t be until later in 2015. So you asked the question is, if Flame and Moth is a lead production, it’s 8 to 9 months of lead time. If the price of silver really snaps back we can move this district back to production in a couple of months.

[Hieko Ihle:]

Can you – sort of building on it, can you sort of walk me through a bigger as to the money that’s spent at the mine site, just trying to start better cash burn for Keno Hill for the full year, excluding any expense from AEG, just Keno Hill as a standalone?

[Clynt Nauman:]

Brad, do you want to take a shot at that?

[Brad Thrall:]

Thanks, Hieko. The main activities of the Keno Hill I guess today as we would speak are care and maintenance crew that maintains the district. As Clynt had mentioned, the Bellekeno mine is continually pumped down, being maintained – all of the surface facilities are being maintained, for water treatment plants and the bulk of that activity falls under our care and maintenance agreement with federal government of Canada in which we paid a fixed price monthly contracts. So there are other activities within the district but for the most part the payment that we received, the $850,000 per year from Canada largely offsets the majority of the obligations at Keno Hill during the suspension of operations. On top of that, there are other holding costs with respect to land and plants and those types of things. So on a net, net basis, Hieko, I would say it’s somewhere I believe in the $25000 to $35,000 a month range that is required above and beyond our obligations with Canada.

[Hieko Ihle:]

Quite a bit less than I would have thought. Walk me through the future of the Alexco Environmental Group. Is there a book-to-bill ratio you guys can give me, any meaningful backlog additions you can talk about?

[Clynt Nauman:]

Yes, Hieko, as you know, that business is continuing to grow 25% year-over-year, did $15 million in revenue last year. It has a significant backlog, it’s mostly related to the contractual arrangement that we have with Canada, and we are currently working through the details of the cost estimates for the final reclamation enclosure of the Keno Hill district but I can’t tell you that we can look out quite comfortably 7 to 8 years with the existing contractual backlog, with about the level of business that we’re doing at the present time and without taking into consideration any other growth in the business. So it’s a good business, great margins and it'll continue to grow and we’re focused on that.

[Hieko Ihle:]

Last one before I stop [indiscernible]. Backlog at this time is still low nine figures?

[Clynt Nauman:]

I didn’t catch that question, Hieko.

[Hieko Ihle:]

Is that backlog for AEG is still low nine figures, 100 some million bucks, right?

[Clynt Nauman:]

Yes, it could very well be in that range and it will be most specific about that as time goes along here.

[Operator:]

Our next question comes from the line of Mike Niehueser with Scarsdale Equities.

[Mike Niehueser:]

To follow up on the earlier question, regarding the timing and the two options you provided. Could you give an idea of a range of capital that would be required for either one of those options?

[Clynt Nauman:]

Moving Bellekeno back into production is a lot less in terms of costs than the 600 meters of underground development that needs to be done at Flame and Moth. So I would have to – I would say that the bigger plan is a $20 million plan, about half of that would be into underground development and infrastructure, the other half would be the spool up of operations, inventory buildup, working capital etc. and the smaller option, you know, not that we're focused on that would certainly be less than $10 million, or maybe closer to 5 million or 6 million. Remember in either case, you have to recondition and recommission the mill as you spool up.

[Mike Niehueser:]

Thank you. Also in that answer you mentioned $25 to $28 silver with the consequent Canadian dollar strengthening, from the US perspective, it's hard to get a pick on the exchange rate. If the exchange rate stayed the same, what kind of silver price, I imagine something lower would be interesting, do you know what that number or range of numbers would be for silver?

[Clynt Nauman:]

Yeah, I mean and I would speculate and this would be blue sky that – a 10% change in the exchange rate can result in almost a doubling of the net present value of the existing project as it’s outlined during our PEA. So exchange rate is that extremely important and certainly if it stays around the $0.80 range then your $28 US number becomes a much lower number, it’s probably around 22, 23, 24 something on that range.

[Mike Niehueser:]

Okay. Also, I was just curious off the top your head, how long it took to get the Keno Hill mill and Bellekeno permitted versus how long it would take to get Flame and Moth permitted, should it last – should that take until after the middle of the year?

[Clynt Nauman:]

Yeah. I am just trying to remember, I think that the Flame and Moth – I mean the Bellekeno original permitting for this project was done in a slightly different way but we made it through that entire process I think in somewhere between 14 and 18 months to put the entire district into production, build the mill and commission the Bellekeno mine. Our anticipation that at Flame and Moth is that that's going to take -- by the time it’s all said and done will be between 20 and 24 months.

[Mike Niehueser:]

And there's -- your are participating in some federal legislation S-6 and that's going to be I think coming up for a vote this year. Could you talk about how important that is for Keno Hill? I know that there's some things that the government can do now within the current arrangements but can you give me some direction on your anticipation for permitting improvement in Yukon?

[Clynt Nauman:]

Well, that’s a complicated question. This is – it’s a bill that that sets out to revise certain of the criteria related to the Yukon socioeconomic and environmental assessment process. There is about more than 70 I think amendments that the have been proposed and there’s four or five of those that are critical for the mining business. And as far as Alexco is concerned, our primary interest in that bill is that if it is adopted, if it’s passed, by the government of Canada, then there is a possibility that we would not have to go back to the beginning of the environmental assessment process every time we wanted to put a new deposit into production, which has been the case up to the present time. So Brad actually is – wears a couple of hats here both as an executive officer of Alexco but also the primary person at the Yukon Chamber Mines and he may be able to provide more -- little more color on that.

[Brad Thrall:]

Sure, I can add just a couple more comments there, Mike. You’re correct that Bill S-6 is in front of the – it has passed the Canadian Senate, it’s at the department now, it’s passed through the second reading. There will be some additional hearings in Whitehorse in the coming weeks, and as Clynt alluded to, there are some important amendments within that bill, primarily timelines and reassessments and those are of particular importance to the industry and certainly Alexco at our operations at Keno Hill. Again mostly I would focus on the reassessments so that as we continue to advance this district, it’s important we're not continuing to reassess activities that are already permitted and underway. So again it does have, I think, it’s a very important piece of legislation for the Yukon mining industry.

[Mike Niehueser:]

And what's the potential for our timing for a new resource estimate that might include an expansion of Flame and Moth through Bermingham?

[Clynt Nauman:]

We are currently in the process, we believe that those analyses will be wound up in April, that would be our present estimate.

[Mike Niehueser:]

Okay, sooner than expected, from what I was thinking. Lastly you mentioned the strategic repositioning for AEG and that can mean a lot of different things. But can I get you to talk about what you see the future of that outfit is with regards to time and scale and direction, because I know that you’ve done a lot of work across the States and in Canada but it’s primarily been in Yukon and Colorado. So it really seems that if you're outsourcing some work now with the team the size it is, it is almost like you got one arm behind your back. Can you give us some idea of what – where you'd like to take that?

[Clynt Nauman:]

Yes, Mike, let me just give a real quick answer to that, and I think we should move on. Yes, the business is at or very close to capacity. We need to add professional help in that business. We’re focused on looking at alternatives in terms of getting some capital into that business which would allow us to do that and also allow us to participate in a more global way in some of the projects that we've undertaken in the United States. So I mean that’s the quick answer, the business needs a little bit of capital that will spur growth. It will result in less of the work being outsourced and will allow that business to continue to grow at its current rate.

[Operator:]

Our next question is from the line of Christos Doulis with PI Financial.

[Christos Doulis:]

Hey guys, congratulations on dealing with this brutal silver price for guys who are in the business of producing silver. Just wanted to touch base with you on the burn rate etc. you talked about cash burn under control. Looking over the financials seems to me, that it looks like your cash cost G&A is around 7.5 million bucks a year, cash component of mine site care and maintenance of 600 grand, so let’s call it, 8 million. And just wanted to make sure if that is a kind of number that you guys contemplate or whether that G&A cash cost is going to go down and if it is the right number, how you plan on meeting that cost, I guess it's the AEG operations and then somewhat of a cash burn. So just wanted you to kind of mold those numbers and kind of advise as to how you’re going to support that over the next little while?

[Clynt Nauman:]

Well, I guess one of the ways to look at that Christos is that our cash at least out our overhead costs say in Vancouver at the head office here are around three or all up around 3.5 million bucks and the rest of that overhead is a combination of – is there’s non-cash issues in here, there is a number of offices of AEG in Whitehorse, Toronto, Denver etc. and so a good part of it is sucked up in the AEG business. But at the end of the day, I think that when you cut through all of the things that are coming and going there, the overall cash burn is around $250,000 to $300,000 a month, consolidated.

[Christos Doulis:]

So in terms of relative to the previous year as I said, I kind of threw some numbers out there, look like 8 million bucks. Are you telling me that going forward you think maybe 4 million bucks a year is what you can have a cash outlay to maintain care and maintenance and pay all your office bills?

[Clynt Nauman:]

Well, maybe I should get back to you, because it’s not a straightforward question but the numbers that you’re talking about are perfectly reasonable for the mining side of the business, the office here in Vancouver and then what's required in the Yukon. So once again I am saying that net burn when all is said and done is probably between $250,000 and $300,000 a month but that does not include exploration, right? So which of course a major portion of that is capitalized but nevertheless cash is cash and the 250,000 to 300,000 is where we sit.

[Christos Doulis:]

Speaking of exploration, did you guys spend all those flow-through funds that you raised in 2014?

[Clynt Nauman:]

We did, yes.

[Christos Doulis:]

Do you anticipate – I mean you talked about a $2 million exploration budget. Do you anticipate financing out of existing resources or do you suspect you’re going to have to top up a little bit?

[Clynt Nauman:]

The nice thing about where we’re sitting is that we have that choice and I’d look at it either way, haven’t made a decision at this point but we can certainly handle within our existing treasury.

[Operator:]

Our next question is from the line of Chen Ming, Glenn Asset Management [ph].

[Unidentified Analyst:]

Actually lot of my question has been answered. I also have a question on the burn rate and going forward. So actually one question I have, recently Luna Gold and Sandstorm has a very significant restructure of their gold stream. So what do you see your chance of going back to Silver Wheaton for a better – significant better to do it than you have, because that was the 17% gold stream that went down a lot to actually make two company a win-win situation?

[Clynt Nauman:]

That’s a good point that and I appreciate the question. I think that obviously I can't speak for Silver Wheaton but I think that you can assume that their interest is the same as ours, they’d like to reestablish that silver stream. I will say that the curve if you like or the adjusted streaming arrangement between Alexco and Silver Wheaton is a good arrangement. It's one where that the Silver Wheaton would pay us within a $1.5 of the spot price of silver, when silver prices are relatively low and they would pay us incrementally less as silver prices increase until you get to $30, when we will be back to the $3.90 an ounce type of arrangement. The issue or the concern then that I have with that arrangement is that it requires a $20 million US payment on the front end in order to implement it, we’re subject to a $20 million payment and that $20 million payment is the one that I was referring to earlier saying that, that's not something that Alexco can or would do in the current environment. So that would be the focus. I am comfortable with the curve. I think it's good but the $20 million on the front end is a difficult hurdle to get over.

[Unidentified Analyst:]

So basically that’s the area you’re renegotiating. Also, I just want to make sure I understood correctly. So if silver picks up in the future, you will need or require about 20 million to get Bellekeno into production, is that correct?

[Clynt Nauman:]

Yes, just to that point of clarification in your question, I mean there's no -- I'm not saying at all that we’re renegotiating the agreement. I'm just pointing out that there is a couple of different parts of the agreement and one is more concerned to me than the other. And yes, your second comment is correct. The current estimate that we have, based on the PEA is in the $20 million range but we are working actively on reanalyzing that based on the results that we achieved in 2014, the exploration results.

[Unidentified Analyst:]

And finally, I am a little bit concerned about the burn rate you are talking about without exploration you’re looking at between 3 million to 4 million a year burn rate and then your cash is 8 million, a little bit from the deposit you said, could be a few million coming available to you – do you have any plan to reduce that burn rate further?

[Clynt Nauman:]

Well we’re always looking for ways to make the business more efficient and yes, I mean we’re always looking for those types of opportunities.

[Operator:]

Our next question comes from the line of John Kratochwil with Canaccord Genuity.

[John Kratochwil:]

I’ve got actually two questions here. First, in the MD&A and in the press release you are talking about Bermingham being the exploration focus for the year. Are there other targets that you’d be looking at or is that basically the bulk of the exploration activity that we should expect this year?

[Clynt Nauman:]

Hi John, yes, that’s a good question. There are oodles of exploration targets. And it’s a matter of trying to prioritize -- I just cannot walk away from 6 meters or better than 5 kilograms of silver. So we’re obviously going to focus some effort there. You are in the right part of the district, it's a great neighborhood, you’ve got a 90 million ounce of deposits sitting right next door. So it’s worthy of some significant effort. That being said, we have a list of other targets in and around the Flame and Moth deposit in what we call a corridor there, there’s two or three other areas where mineralization has popped up, and quite frankly there’s three or four other very high priority targets in the Keno Hill district in addition to a whole whack of places that we need to go back to, where we haven't even drilled yet. So yes, I think that in focusing the effort in 2015, I want to start out at Bermingham, let's see how that pans out and we can go from there.

[John Kratochwil:]

That is fair enough. And then the other question I had, I was just looking through the impairment write-down that you took. You took about 4 million, just shy of 4 million write-down on the mill. Could you explain what drove that and is that equipment that needs to be replaced or is that - could just kind of give an idea of what drove that number?

[Mike Clark:]

Hi John, it’s Mike here. That’s just a pro rata impairment based on the portion of book value that we attributed to this cash generating unit and nothing drove it other than just the method that we have to do the impairment.

[John Kratochwil:]

That’s fair enough. I was just wondering if there was some equipment that needed to be replace, or if that was just kind of a pro rata thing?

[Mike Clark:]

You got it.

[Operator:]

Thank you. Our next question is from the line of Dan Stein with Canaccord [ph].

[Unidentified Analyst:]

There is a several silver mileage that you are willing to continue mining with lawsuits – regular lawsuits and you’ve decided not to mine. Why is that they continue to mine and losing tons of money and you’ve chosen not to, what is the – what gives them the ideology there?

[Clynt Nauman:]

Well, Dan, that’s a great question and I certainly can’t talk on behalf of other companies. So obviously we think that we are doing the right thing. We have a great resource where we prefer not to be preserving it, we prefer that being able to take it out of the ground and make money. There is a variety of other reasons that people may be continuing to mine and lose money but I wouldn’t presume to speak on their behalf. End of Q&A

[Operator:]

Thanks. There are no additional questions at this time. I will turn the floor back to management for closing comments.

[Clynt Nauman:]

Thank you and thanks to all of you for joining today. I guess my final words would be one of encouragement as we make our way through this less than positive cycle in the silver market. I believe Alexco has a staying power necessary to get through this period and we’re constantly moving forward with our plans. We are fortunate that we have an exceptional property at Keno Hill where we continue to add value through exploration and a subsidiary company in AEG that’s providing cash flow and offsetting some of our costs. As always, we appreciate your support and interest in Alexco. And with that, I will turn it back to Vicki to close up the call.

[Vicki Veltkamp:]

And you've been listening to the 2014 Alexco Resource fourth quarter and year end conference call. We encourage investors to visit Alexco's website for further information and that is www.alexcoresource.com. And if you have further questions, call 604-633-4888 or you can e-mail us at [e-mail]. This concludes today's call. Thanks for joining us and have a good day.

[Operator:]

You may now disconnect your lines at this time. Thank you for your participation.