Q4 2020 Alexco Resource Corp Earnings Call

Should you need assistance during the conference call you may signal, an operator by pressing star in there.

I would now like to turn the conference over to Katina Cordero.

Our director of Investor Relations. Please go ahead.

Good morning, because they it's Friday March 12, 2021, and I welcome you to the electrical rates on 2020 full year results conference call.

All of it is being webcast live and can be accessed from the events on webcast section of our website on electrical refers dotcom.

Come on.

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.

Today, our chairman and CEO.

When he is nauman will discuss our most recent results he will be joined by our President brought trial and our CFO, Mike Clark during the question and answer period.

Please be reminded that some statements made today may constitute forward looking information within the meaning of applicable securities laws.

Past performance discussed.

Today is not indicative of future results and our business involve several risks that could cause results to differ from projections.

Investors are encouraged to review the disclosures pertaining to risks that can be found in our most recent regulatory filings available on our website and on SEDAR and Edgar I will now leave you with Clint Nauman.

Thank you Katina.

Everybody for attending today.

After several years of detailed work on lots of success, where exploration last year, we completed the Keno Hill silver.

Strict permitting process and began moving the district back into mining operations.

To.

2020 was pivotal for the company and certainly a challenging year to move on mine into production.

For sure.

One person has commented to me that making a decision to move to production in the middle of a pandemic might've been a dubious decision.

We certainly have misread the severity of the second wave and Keith.

Q4 is borders locked down and isolation requirements were reinstituted.

But thanks to the professional and determined on.

Attributes of our workforce in response and support from why Jeep or do you go on government. We have been successfully navigating the restrictions imposed by the COVID-19 pandemic.

Like our progress has slowed.

There are certainly added costs.

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 hills longer term future.

On the operations from 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 drop.

Off water license, we announced our decision to move Keno Hill to production by restarting mining operations at the Belgian on mine and advancing the flame and moth in Bermingham deposits into development and ultimately operation.

By August we were hot on the recruiting trail and scaling up our surface facilities and in October.

We started drilling and blasting underground ore at Bell keynote.

All of our production at Bell Kino as long haul and all blocks, which had previously been overcome and undercut.

All from Bell Cana was stockpiled and used for the initial mill commissioning in Q4 of 2020.

And just anecdotally, that's why silver grades.

Certainly exceeded the minds or block the ore or book model grades.

And we expect about peanuts underground mining operations will extend into Q2 2021 longer than initially anticipated.

Underground development at Bermingham, and flame and moth started in Q3 2020.

AIDS of Succinic Bermingham is scheduled to start in Q2 'twenty 'twenty. One following completion of the new primary ventilation raise which is about 40% complete as we speak.

In Q4, we were faced with the additional COVID-19 restrictions and as I previously mentioned this effect.

But hiring program and and that along with slower commissioning of new underground equipment led us to a decision to temporarily suspend underground work at flame and moth and focus all of our efforts at least temporarily at Birmingham, along with continuing oil production from Belkin are of course.

In the district.

They're on modifications completed in Q4 2020 included the installation of cyclones that day.

Filter press on modifications to the final free in a theater.

We undertook the initial commissioning runs at the mill in November and processed about 300 tons on dock, you know or producing our first concentrate.

Staying with the mill.

Construction of a new building around the crusher was completed in Q1, 2021 and the installation of a new ventilation system on the crushing facility is scheduled for completion in Q2 2021.

The mill continues to operate on a two and three basis.

Other mechanical adjustments in circuit modification.

Strict millions mainly focused on metallurgical performance are ongoing and continued during this mill commissioning stage.

Through the end of February 2021 we have produced a total of more than 24 million 2400 tonnes of ore from volcano with silver head grades and recoveries of nine.

Vacation 56 grams per ton silver and 92% respectively. Both of these are above plan.

The first lead silver concentrate and zinc concentrate shipments were dispatched in January 2021.

Since the beginning of the COVID-19 pandemic, we have maintained strict health and safety and social distancing.

900, distancing measures and kept our workforce and our communities safe.

However, as I previously mentioned.

Each of these measures on workforce schedules recruitment on boarding and training, especially on new underground equipment has been slowed by both the COVID-19 related restrictions.

During variable gout ground conditions, primarily attributable to innovative courtside chest, and which the operators are steadily gaining experience.

We expect that as COVID-19 restrictions ease over the coming months, we will see further operational improvements.

On the exploration from.

Two.

And twenties surface exploration program confirm the presence of high grade silver mineralization first discovered in 2018 below the existing Bermingham deposit.

Last year's drilling focused on a structurally controlled sub horizontal mineralized zone, which is strange type of 500 meters along strike and on.

A series of Whitestone.

2000 mouse with results generally in the five to 18 meter true thickness range in terms of the mineralized zones mineralization.

Generally contain between 1500 and more than 3000 grams per tonne silver.

In total we completed 7600 meters focused law on the structurally controlled sub horizontal zone.

I'd stand on this year, beginning as we speak here.

We're anticipating about 25000 meters of Directionally control drilling to infill the work done in 2020.

Finally in 2020 E. R. D C advance the reclamation project to offset historic liabilities on the district.

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On 2020, but yes, or environmental and socio economic assessment border Sesotho issued a final decision document on the final evaluation report and E. R. D. C has now entered into the water boards.

On waterborne licensing process to obtain the final water license to authorize the activities necessary to.

July on a closure on the district's historic liabilities.

After licensing the reclamation plan will be finalized for submission to the Crown Indigenous relations and Northern Affairs, Canada for approval prior to execution of the final reclamation plan.

On the financial on corporate front and just to quickly.

To begin on through some of the metrics in our filings yesterday.

On a year ended December 31, 2020, we reported an operating loss of $23 3 million much of which is due to increased mine related expense at bell keno and upgrades elsewhere in preparation for the commissioning and start up activity.

We fit.

Quickly <unk> thousand 20, with cash and cash equivalents of $23 7 million and net working capital of $15 4 million.

We also enter 2020 with $2 9 million of restricted cash on deposits related to a surety bond.

Finding doing you finally during 2020, we completed two equity financings.

Finished vehicle per total of $38 $6 million.

Which of course were largely directed at the startup, which is which are largely being directed to startup activity.

More recently and subsequent to year end 2020, we sold our MSR royalty in Golden Predator as Brewery Creek project $4 5 million in cash.

And on January 28, 2021, we issued three 7 million shares and completed an equity financing for total gross proceeds of $11 7 million the majority of which will find our large exploration program. This year.

In 2020, one we're focused on ramping up to design throughput.

100 tonnes per day through the mill.

Thus far we have been operating the mill on a modified schedule to match order delivery from volcano and to optimize metallurgical performance of our improved flow sheet income.

The modified grinding classifying and filter circuits.

With me or mill feed transitioning too.

Forehand sourced ore in Q2 2021.

Oil production at flame and moth beginning in Q3, 2021 and provided that were not required to further expand our current COVID-19 protocols protocols.

We achieved or expect nameplate capacity of four.

Burnt tons per day through the mill in Q3 of this year.

I would say quite comfortable confidently that our primary whereas in this commissioning and scale up process is still the COVID-19 risk.

Meaning that further border and on site restrictions, resulting from any resurgence of the virus.

400, and the virus will be increasingly difficult for us to handle.

At the same time, we're working on an updated technical report for an updated mineral resource and reserve estimate we expect to release in Q2 2021.

This report will incorporate a modified mine plan based on our operations.

It's like standard is.

To date as well as meaningfully improved silver prices since we published on lost mine plan in early 2020.

Finally on just to reiterate we're mobilizing our exploration team as we speak planning to begin immediately to drill off the Birmingham northeast deep mineralization.

We'll be.

Operations in four drill rigs with directional drilling technology to focus on infill drilling and extension of mineralization with the intention to upgrade the Birmingham mineral resource estimate towards year end.

When exploration when exploration results will be available.

The restart of operations at Keno Hill has coincided with strong.

Realized prices and puts us on a good position to take advantage of the opportunities existing in our historic silver rich district and to generate value for our shareholders.

We intend to do this by maximizing all of our existing resources, maintaining a laser like focus on commissioning and scale up activities to achieve design throughput.

So on a 4 million ounce per year silver run rate.

While also executing perhaps the most important exploration program, we have ever conducted.

I look forward to keeping you updated on our progress as we get closer to commercial production.

Thank god shareholders for their continued support and confidence in our team.

Natalie I want to reiterate that we owe a debt of things to our employees, who have soldiering on through a pretty rigorous COVID-19 related operating protocols and also to the Yukon government and health officials, who have worked hand in hand with us to ensure that we can continue to operate through this challenging period.

And with that I'd like to ask the operator.

Finally from Nicole requested.

We will now begin the question and answer session.

To join the question queue you May Press Star then one on your telephone keypad.

There are totally acknowledging your request.

If youre using a speakerphone please pick up your handset before pressing any key.

To withdraw your question. Please press Star then two.

We will pause for a moment as callers join the queue.

The first question comes from cake Sikorsky from Alliance Global Partners. Please go ahead.

Hey, guys. Thanks for taking my questions.

We saw her grade well above plan on municipal material that one went through the mill was this a one off or should we expect to see elevated grades from volcano through Q2.

Well yeah.

Morning, Jake and thanks for the question.

And yeah, we're trying certain blocking you know we carry a block model at Bell keen on it just happens that a you know there's true prime restarts that are being mined there.

Over the course of the next couple of months will be completed next couple of months certainly the first one has already achieved its block model grades.

And.

You know that's not that would not be unexpected and it's positive that the you know the style of the Bell Cana were working a pretty centrally.

Located on the deposit second start you know you will have to wait until we.

Until we get it through the mill to see what the what the grades might be but yeah.

I mean back in is going to overachieve, you know both in terms of the relative to the block model.

In terms of grade and and property times, we'll see.

Okay. That's that's helpful. And then just on exploration obviously, it's a big focus this year with the 25000.

Meter.

And in the Bermingham resource update that you mentioned later this year, how should we be thinking about you know 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 resources out.

Yeah, that's not.

Decision that you know, we're gonna have to discuss at all Exco obviously.

You know I'd, rather I think we'd rather sort of wait and take this step by step let's get this drilling done.

The resource.

Debt to drilling success will get any resource.

Put together in that deeper area.

Program and then we'll decide you know whether or not we should.

Modify our mine plan, which is already paying modified as I mentioned.

At at Bermingham true and.

See whether or not we can accommodate you know any additional resources should there be any at depth.

Area, Yeah, it's a good question.

We have not made that decision yet but.

But.

I would expect that if the drilling is successful I mean, we'll be pretty keen to try and figure out you know what value would be added by incorporation of that additional mineralization.

Okay that makes sense, that's all on my end. Thanks again.

The next question comes from Joseph Reagor with Roth Capital Partners. Please go ahead.

Hey, Clint and team thanks for taking the questions.

I guess.

First thing.

You know given you know the impacts of Covid in a little bit of delays there, but you know what should we think about as far as a staging of production over the remainder of the year or is there kind of a range you can give us of what you know tons per day might look like on a quarterly basis.

Uh huh.

It's yeah they are.

I mean, Brad might want to chime in here, but I mean generally Joe we were thinking that you know we're going through this you know commissioning process, we definitely need to on board.

More plant related on mill related people.

And you know to spool wet mill up to a more.

On a consistent operating basis from it right now it's operating on a two and three basis.

So we I mean, we would.

I mean, we would.

I think we'd be reluctant to.

To put specific you know tons and grade in the commissioning process other than our target, which is to achieve 400 tonnes through the mill in Q4 from Q3, sorry of Oh.

Of this year.

I mean, Brad do you have anything you want to add to that.

No I think.

Again in general there's a you know we have a you know we have a reasonably sized inventory of or at the Bell Quito.

And then as Birmingham.

We're projected to hit our first or horizon at Bermingham and in Q2, and then you know you start to combine those together and then flame and moth a little bit later on so yeah. It's a.

You know, it's a gradual ramp up period, you know, we're continuing to kind of update or our schedules and mine plans and as we go along here. So yeah I think that's the best the best we can say from the moment.

Okay fair enough.

On the note of the ramp up.

Is there a certain tons per day average you need to get to in order to start treating the production as you know revenue instead of an offset to capex.

Yeah.

Yeah.

I'm going to ask my clock.

To chime in on that because.

I think we are early adopting the plan is to early adopt the commercial production.

Whatever they call it language, what Mike can you yeah, yeah. Thanks Clint.

Hi, Joe Yeah. We are we are planning to early adopt which means we'll start recognizing.

Rising revenues immediately and cost of sales and so starting in January 2021 all the revenues from Belo keynote will be we'll be recognizing and then as Birmingham starts up in Q2, followed by flame in Q3, you're going to start seeing all that revenue hit the P&L immediately without these so we won't be offsetting the mineral properties for revenues.

Does that answer your question Okay.

Yeah, no it makes our lives easier too.

Alright, and then last thing remaining capital spend between now and reaching that 400 tons per day are what's the kind of look like.

Brad do you want to take.

Take a shot at that.

Yeah that Oh, well, there's a couple of different buckets of capital and Joel I mean, we've got you know we've got our P. P. Any capital just to finish up you know most of you know a few of these capital projects.

Second grinding mill, a couple of concentrate re grind mills.

You know so I would put.

That in a in a bucket of of the P. P E capital and.

It's a relatively modest number of millions of half to $2 million to finish up those projects. But then you know you obviously have the working capital to continue to.

As we continue to ramp up and reach kind of a steady state.

And positive revenue.

I mean, that's a period as well so I don't want to put on a number on that one yet again similar to your previous question I think we're kind of continuing to undergo our cause.

Our updated.

Mine plans, but again that the PP&E capitals relatively relatively low hum, but its the.

Working capital until we get to that positive.

To that point, where it's cash flow positive, which are you know as you know into that Q3 range with all all three mines running.

Okay.

That's fair enough all right I'll turn it over thanks guys.

Yeah.

Again, if you have a question. Please press Star then one.

The next question comes from Mike <unk> Who's a from Scarsdale equities. Please go ahead.

Yeah, Hi, clamped, you know I agree with your earlier comment about the grades at Bell Keno I think that was higher than any grades that are.

You published when it was on operation earlier, just a couple of housekeeping questions to start.

Can you say, what the approximate cash balances today for the company.

Mike can you I'm sure that yeah, no we're a little over.

30 million.

Great also theres a lot of the the release talked about Covid can you comment on any.

<unk> cases, or how it might compare around the Mayo area or Keno Hill with the rest of Yukon L or Canada.

Because it just an abundance.

And as a caution that these things are happening or is there something specific with the with Yukon.

Yeah, Yeah, Thanks, Mike Brad.

And as you know is is.

Well versed to answer that question.

Yeah, Hi, Mike Yeah, I mean, I think in general the Yukon.

I mean, where whether you call on sits today there does continue to be a.

A.

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 Theres been 75 cases of Covid in the Yukon.

Theres.

There is no currently no active cases.

You know there hasn't been reported case at any of the three mines as you know between Lex Goh. There's two other operating mines in the Yukon there hasn't been reported case at all three of those.

Yeah on the Yukon is doing pretty well on their vaccination rates you know what.

They.

You know, our leading Canada in terms of.

The percentage of their population so yeah all in all I mean, it's you know it's you know it's.

There haven't been significant outbreaks, but having said that you.

Yeah, I would characterize the approach by by the government.

And health officials as being very.

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.

Well it sounds like everybody's being extra careful on that that's.

Good Brad this is probably for you Clint mentioned in the press release that the word variable ground conditions and I was just wondering if that was something new at.

Bermingham and flame and moth compared to what's been happened at Bell Keno or maybe the historic Hector Calumet.

No I mean, I think I mean, as you know I mean at Keno Hill and its.

I guess somewhat known for its.

It's a variable ground you know in.

And the development period, we're in right now when we go in and out of Court site unit into a into more of a shift E. On.

Less competent unit in.

Back in the court site and you know we you know during that same time period. We've got you know you know new you know new miners that we 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 what we experienced at Bell Keno, but you know that was you know eight to 10.

10 years ago now so it is somewhat of a kind of a new learning curve. If you will between you know you know across the board on on on operators and equipment and those types of things so.

Nothing you know nothing to be that's a surprise to us.

Continue to to continue to manage and improve on it.

Well it sounds like you'd be on careful and deliberate as far as exploration go what's the budget for that 'twenty four 'twenty 5000 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.

Okay.

Okay.

Yeah.

I mean, we'll probably spend somewhere between eight 9 million Bucks.

Mike.

And it is gonna be primarily infill drilling and it'll be more focused on the vertical extent.

Mineralization vs. The horizontal extent, which we.

We are focused on in 2020 that being said.

We will send me drill.

Holds true the south west.

Where are we currently understand the mineralization to be to the northeast probably not so much we know where the north.

These termination or offset of that mineralization is and it would in fact, you know not reappear until we're into.

Hector Calumet proper quote unquote.

Yeah, sorry, some some extension drawing to the southwest lots of vertical I'm trying.

Trying to understand the vertical extended the mineralization and in filling them.

Between those white space holes that we drilled last year.

Well I'm glad you mentioned the vertical because when I look at the cross section in our most recent release it.

It seems to you know reading between the lines, you're you're kind of looking at 100 meter.

<unk> block there of this new panel that's being discovered and then when you look at the other the other.

Other geometry of the veins and how they come together that it kind of pinches out, but I don't know on my mind says that's not necessarily so because you're above the Hector Calumet, which was historically quite sick, but.

But as the get to the bottom of the determinants of the scheduled mine plan at Bermingham.

Youre getting to that area. That's really has the best from silver grades in the highest lead grades and I'm just wondering if you're gonna be targeting under that area. Because wondering if that's a shoot or a theater or something like that.

Yeah.

Yeah like I say I mean, what are you talking about as to the southwest of where we drill them, we feel that and are there.

As I sat in structural intersection that we have identified the geologists have identified.

Excuse me at.

Birmingham and we.

We are following that the projection of that structural intersection on.

Long true the northeast and that structure on the sanction process all the way up through the volcano that bermingham deposit itself.

And it is the low cost from 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.

They are targeting mechanisms such that the meteor parts.

The deposit is traditionally around that structural intersection on natural gas.

Focused on.

Well it just seems that.

That.

That you're not near where you can determine that your closed off at depth and debt. 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.

And all of a step up of operations, but that the exploration here. This year it could be another pivot for Ya and debt are 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 question.

Thank you very much.

Yeah.

Yeah. Thanks, Mike I mean, certainly it's gonna be a very it's it can be a very interesting here and it goes back to Jack's question earlier, which was okay. So you assume that there is mineralization in this new area. What are you going to do in terms of the mine plan on future development and those are the things that we and our analytics go after it.

We are out and I once again go back to the step by step progression, which is let's drill at first figure out what we are looking at and then go to the next step.

Well at the bottom of that terminal, where that you'll get those really high grades that are discovered it seems like you've been just drift straight over and just pick up that hole.

Favorable, but I can't help but think youre going to spiral deeper right there at the terminal as well.

Yeah.

It's.

And at this point for sure.

Thank you.

The next question.

Pam bakery from carrier partners. Please go ahead.

Good afternoon, Clint just wanted to get a little a few more details on the exact impact of Covid lockdown restrictions.

You mentioned that the workers are subject to a 14 day quarantine.

Do the.

Workers.

Combining personnel that are their own side, it's a man can they leave or are they leaving and go in vacation and not coming back on new ones coming in and does being can working in the mine include being quarantine in other words, how hamstrung are you.

Yeah.

<unk> My question, Lee and Brad Brad will answer that.

Yeah, Hi, Lee.

Just give me maybe it's kind of a high level summary of all of the protocols and how we currently have to operate so.

We are able to bring in you know employees from outside the Yukon right to the mine site.

That's a good 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 the room.

Meals are brought to them.

Use the recreation facilities.

We have to keep all of our Yukon employees separated from.

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 every morning.

You know we have part of our accounts thats been isolated off for an isolation unit in case there.

And anybody even gets a sniffle, we pulled them out of the main population.

You know so that's you know it's.

It's pretty rigorous and it's you know, it's certainly hard on unemployed to have to.

On a live I guess, if you know if you will under those those types of conditions and and when this was first.

First you know when the Yukon government in early November 1st re implemented a reinstituted. These these travel restrictions, we probably lost a couple of rotations that we had to stand down if you will our employees we just.

We just needed time to respond and put new plans together. So so hopefully that gives.

You kind of on an overview of how we're trying to manage this.

Yes, thank you very much.

This concludes the question and answer session.

I would like to turn the conference back over to Clint Nauman for any closing remarks.

Yeah.

Yeah. Thank you operator as I said, we're on our way to commercial production in the second half of this year.

Look forward to reporting on the start of mining operations at Bermingham flame and 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.

This concludes today's conference call.

You may now disconnect your lines. Thank you for participating and have a pleasant day.

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