Q1 2021 Alexco Resource Corp Earnings Call
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I would now like to turn the conference over to Katina Cordero Director of Investor Relations. Please go ahead.
Good morning, today's Thursday March 13, 2021, and I welcome you to the Alex for resource 2021 first quarter with the results conference call.
This call is being webcast live and can be accessed through the events of the webcast section of our website at electrical resource Dot Com, an audio archive of the call will be of available later today.
Our website also contains our most recent news releases and our financial statements for the quarter and the March 31 2021.
All amounts mentioned today are in Canadian dollars unless otherwise indicated.
They are chairman and CEO of Clinton Nauman will discuss our most recent results and he will be joined by our precedent brought for all 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 the applicable securities laws.
The loss 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.
Yes.
I will now leave you with claims now on money.
Okay.
Thank you Katina.
Thank you everybody for joining us today.
A ramp up of operations at Keno Hill continued during the first quarter and we made good progress with the district Grill upgrades essentially complete mining ongoing at Bell Qunar and underground development pace picking up at Bermingham and flame and moth we continue navigating the intricacies of operating on debt.
Over the 19 protocols and the availability of underground crews and supply line delays.
These protocols are still slowing us down for a while our objective is to reach design capacity 400 tons per day as soon as possible absolutely priority is the wellbeing of our workforce in and in our communities.
And we're extremely satisfied that we have been successfully keeping everyone safe.
Keno Hill was very busy these days with the having reached out of shipping concentrates in January we now have the initial pre commercial production on sales staffs. The report as well as our usual operations exploration on financial updates.
The following of the highlights of the first three months of 2021.
On the production front, we mined about 4400 tons of all for Bocchino head grade of 985 grams per tonne. So.
Silver, which exceeds grades predicted by the block the block model.
This trend continues today and ore extraction has been extended into the second quarter.
Silver recoveries are on plan and averaged 83% with 97 per cent of silver reporting to the led concentrate during the ramp up price.
We produced 539 tons of lead silver concentrate and 105 tonnes of zinc silver concentrate.
At the district, Mel we processed 3800 50 tonnes of ore averaging about 112 tons per day over the for 34 days at the mill was operating.
The mill has been operating on a modified schedule to match Valkyrie or delivery and mill modifications, which are now essentially complete.
We're now focused on fine tuning to continue to improve the middle of the metallurgical performance in the mill.
The bermingham construction of 166 meters of ventilation on secondary escape raised and now within four meters of surface and breakthrough to surface of the scheduled it for the next few days.
In late April we added the support of a mining contractor at Bermingham to increase their underground resources and improve on the development of advanced rates.
At flame <unk> moth underground development of resumed during the first quarter and we're anticipating reaching initial oil production in the third quarter of this year.
We expect that underground development rates will continue on to improve throughout this quarter and until we reached commercial production of 400 tons per day expected in the fourth quarter.
Our focus remains on improving underground cycle times in training, new underground mining crews and the operation of new equipment adjusting the ground conditions, while at the same time, maintaining industry, leading safety standards.
On the exploration from.
We started the Birmingham to all of these deep surface exploration program in March with for drilling rigs utilizing of directional drilling technology.
The end of April with Joe at about 2400 meters, providing about five of the steps the target zone and preliminary indications are that the drilling is going very well and the this new directional method of drilling on new for us directional method of drilling will drastically improve drilling efficiencies of Keno Hill from a timing and cost perspective.
Our objective of 2021 is to complete a minimum of 25000 meters and update the existing Birmingham mineral resource estimate in the fourth quarter.
And just to be clear a different type of program.
Will comprise more than 45 or 50 holes into this Birmingham Dorothy steep area.
On the financial and corporate from for the quarter ended March 31st.
We reported total revenues of $3 8 million comprising two points of million from concentrate sales and $1 1 million from reclamation management services.
We reported net income of $4 2 million, which is mainly driven by the sale of an N as a royalty on Golden credit as Brewery Creek project for $4 5 million.
And again on waiting for precious metals embedded derivative asset and the amount of 3 million plus a small contribution from concentrate sales.
We reported a gross loss of $1 1 billion of an operating loss of $3 1 billion, primarily due to higher mining costs related to the salt mine rights.
During ramp up activities as we move towards reaching nameplate capacity of the mill.
We finished the first quarter with cash and cash equivalents of $24 7 million and net working capital of $19 4 million.
We also ended the quarter with $3 million in restricted cash and deposits related to our surety bonds.
Finally in January we completed the flow through equity financing for gross proceeds of $11.7 million, which is finding the 25000 meter surface drill program and a portion of the underground development.
While we've been working on Keno Hills wrap up of also had been working on an updated mineral resource and mineral reserve and P. F S, which we're currently finalizing and we expect to file later this month.
You'll remember that when we prepared the Keno Hills current PFS from 2019, we use significantly different and the lower price deck and an important portion of the existing mineral resource has since become highly attractive in this different pricing environment.
This combined with the expected mineral resource update of the Birmingham to include the Birmingham northeast deep mineralization of the first quarter and the fourth quarter should demonstrate significant upside of value creation at Keno Hill and could change the outlook for the district.
Finally, I want to thank again that work for US. It continues to work through a rigorous COVID-19 operating pro cut protocols and also Oh and also bank the Yukon government and health officials.
Through the support of the Yukon government health officials to date.
Approximately 70 per se and about workforce has been vaccinated.
While the strict health protocols remain in place the Yukon government recently announced that mandatory isolation will no longer be required for fully vaccinated individuals as of May 25th.
We expect the this will allow us to modify some protocols and the improved working conditions of the site, which should have a positive effect on productivity.
It is important to note however that COVID-19, and its effect on recruitment remains one of the foremost risk to our business and the possible reimposition of more restrictive measures would have a significant negative effect on our results.
I look forward to keeping you updated on our progress as we get closer to the commercial production and I think of shareholders for their continued support support and confidence in our team with the.
I'd like to ask the operator to open the call for questions.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
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Our first question comes from Jake's Lukowski from Alliance Global Partners. Please go ahead.
A quick clean thanks for taking my questions.
Hi, Jake.
Trying to get a handle on throughput rates for for the second and third quarter. I guess are we gonna see more of a gradual ramp to the 400 tons per day into the fourth quarter or any color there would be helpful.
Yeah on going on at the Brad This ERP doing the heavy lifting of Ed side here, So I'm going to let him talk to that but yeah. The mean general the so the question is that the length of time that the mill is operating will be systematically extended.
Through these cycles the Brad debt once you go ahead.
Yeah, Yeah, Hi, Jake Yes, I mean, it's all about you know continuing to open up more of ore faces.
You know the quarter by quarter here. So the mill has.
Been operating on the two week on two week off schedule and has been milling you know only bell keto or again, we we anticipate being in the Birmingham or here.
In the second quarter and that'll start to open up more faces and then again as you continue to advance development at Bermingham and flame and as these ore faces to continue to to open up we will continue to gradually increase our mill throughput. So just like Clint said, it's a you know it's not necessarily of the linear.
Line.
I expect there'll be some ups and downs, but it'll be on a gradual.
Process into the fourth quarter to reach those targets.
Okay. That's that's helpful.
And then just on exploration I mean, obviously, Birmingham deepest kind of coming to the the forefront right. Now do you think the resource update later this year is going to trigger a mine plan update and how quickly do you think we can see something in the market. If that's the cases out of first half of 'twenty 'twenty two type of that.
Yeah, I mean that would be a that would be a reasonable assumption.
Yeah, I can say at the present time debt you know after.
You know going through sort of the learning curve for this directional drill technology that we are now beginning to knock off those intercepts are you know more quickly you know I said, where we're where.
We're at this point, we're pretty confident that we're going to complete this program you know in in August.
<unk>, which we have to take into account the delays at the lab I mean dominantly, it's still about six weeks you know round trip on your on your assays.
And so we would intend to do a new resource as we've been talking about in the fourth quarter debt.
But we would be hard pressed.
You know to convert.
Anything to reserve through hanging of mine plan on that new resource. This is assuming of course of the exploration of successful not to hang of mine plan on that you know within it in 2020, one, but that'd be helpful.
Let's see with this work that we're currently doing and we're about to the Scott you know to Oh, the publish that we'd be able to do it in the first quarter of 'twenty 'twenty two.
Okay very good that's that's all on my thanks for that.
Our next question comes from Mike Me Hauser from.
<unk> equity. Please go ahead.
Nope.
Yeah.
Our next question comes from Mike Me Hauser from Scarsdale Equities. Please go ahead.
Our next question comes from Chen Lin from Lynn.
Please go ahead.
The question actually I was also having the question about the ramp up most of that.
The answer so I'm just I got a general question, what do you see your of production level for the next year are supposedly you run up to 400.
Tom.
By the end of the year of successfully so what kind of can you maybe just calumet for again, what kind of cash flow you're expecting for the next year.
Yeah.
Let me see I think the easiest way of chance to handle that is.
You know is it.
B at the you know.
For 100 ton per day type of rates.
In the fourth quarter of this year and that puts us in the ballpark.
Some of you know of 4 million ounces per year.
At that point and our all in sustaining costs.
You know of Gonna be you know in the <unk>.
11, 12, 13 dollar type range.
So I mean, you can sort of do the arithmetic from there.
You know what kind of I'm I'm I'm I'd be loath to put a number out there in the next year of meeting from you know.
My age of May because we just started on what that ramp up.
It is not gonna be of linear process or where you stand on what that number is gonna be EBIT by the fourth quarter will be operating in that 4 million ounce per year type range with cash flows that are consistent.
With the previous.
The publications and you know that they are the the all in sustaining costs are gonna be a you know pretty.
Active simply because there'll be a lot of all sources online from true from two mines. So I think that's the that's the that's the that's the safest answer that I can give.
Okay, Great I just said.
And of your drilling is going well so.
Just do you still plan to release the drill results, which is of the high grade you find the underneath your existing infrastructure. Those are in the two for or when do you or you have some of them.
The more update on the timeframe.
Yeah, we will have to see how it how it goes.
We we certainly wont be.
Adjusted it might be not putting out results in the whole buy whole basis, we could very well.
I mean put them out in batches.
And you know I had given the.
For the lab turnaround and the rate at which those are intersections are going to be coming to us hopefully I wouldn't anticipate doing anything.
The before.
With the July August day would think of it probably at least July given the given the turnaround the time it takes to drill the hole so.
That would be my that would be my best guess at the at the present time.
Okay, great. Thank you.
Our next question comes from Mike.
From Scarsdale equities.
Go ahead of high claim.
Thanks for taking my call. When you talk about 40 to 45 holes are as the gall are those 40 to 45 odd colored at the surface or is that with the directional drilling deeper where you could maybe get several you know several of drill.
Results from a single collared hole.
Yeah, that's the yeah, that's exactly what this directional drilling.
It's all about excuse me.
So [noise].
Okay.
Yeah.
Excuse me we're talking.
Now of more than 45 holes I think at the present time, but that was the be drilled from pilot holes or by the holes as what we call them of which says that any kind of be six of seven <unk>.
And or or maybe a few more in any of them anywhere from you know.
Four of five six holes will be drilled from each of those mother of halls. The you know as daughter holes through the mineralization of the target zones at various elevation. So you're now or that you know this is a linear sort of of horizontal type of expression of minerals.
Asia, and it's high grade and relatively thick over at the you know over a distance of.
500 meters of sorry, so the.
These advances.
That we're drilling could be as much as a 50 or 70 meters of part, but the hold up and down.
On the vertical plane on.
Our army gonna be 2030 meters, apart, which we've just consistent with the.
You know what we have used in the past for measured and indicated resources.
I don't know if that sort of paints the picture for you, but it's a series of fences defenses are relatively far apart compared to the vertical into SAP. So they're gonna be obtained from each of them all of the hole if they're drilled them.
And we do have for drills up there working on it so I mean, we're hitting it pretty hard on.
You know we are as you know pretty anxious to do I understand you know of this bermingham or deposit is gonna be a lot bigger of them than we had originally anticipated we'd rather know about it sooner than later.
So we're really looking at 40 to 40 40 to 50 actual directional holes deep that are crossing the mineralized the targeted mineralized zone. So those are really 40 to 50 shots on goal so to speak.
Yeah, Yeah, yeah, when you're doing exactly when you look at the when you look at the drilling that you've already done over the 500 meters. You know you've got really great results. Like every 100 meters with you targeting this are you looking above or below or in between or could you say you're going all over.
If that makes it the.
You take that I mean, the easiest way to to view that is if you take each of those intersections.
Mike that we have you know that.
We were posted in the what we printed in the in 'twenty 'twenty. You can you can sort of imagine that we are drilling up dip and down debt from each of those intersections. We are pretty confident that theres kind of be you know a horizontal or elevation tight control on this mineralization, we don't know what.
That is so starting out with drilling and get out of 50, 60 70 meters up debt from each of those prior intersections and the same down debt.
And then we would move to the next fences point I'm trying to make is if there's a big of distance between the fences and there is in the vertical.
The intersections of the vertical targets.
Primarily because we know there's the horizontal continuity to this mineralization. So we're just trying to define you know the thickness of tenor of it up and down debt from prior intersections.
Well it sounds like you're fairly confident you'll be able to infill between these holes and the real question is how much higher does it go on how much lower am I, putting words in your mouth or is that right. Yeah, no that's exactly right and get the fan some of the fences in fact, the initial tranches of you know between the holes if you like.
The 100 meter right now there's 100 meters between you know there's there's intersections. So yeah. We plunk of fans you know half way, starting out and drill up dip and down debt and you're going to see variations I mean, that's just the that's just the fact of the matter at Keno Hill.
On the you know, but well just have to see how this.
You know how this works out I can tell you that the the geology.
You know it is behaving I mean, if I can say that you know pretty well I mean, our guys. There are able to nail these targets within a few meters of expectation. So I mean, the that at the the architecture that.
Debt, we have defined or interpolated from prior work seems to be holding up pretty well.
But that's the that's an excellent that's an excellent explanation. The other the other question I had is the as you got to the I think of as the south closer to where the terminus of the decline.
The has been designed for the Bermingham mine plan toward that end of this as one and close proximity is an area that has both higher grades of led which is important and coincidentally or are in line with higher grades of silver is this the area that you're start.
On the drill N with this directional drilling.
The the fat and in moving to that.
Yeah. You know we are we do have we do have a couple of Joe's operating at that end of it but remember we've got for drills up there. So.
They are you know so we are spread out over that entire you know 500 meters plus or minus the present time, but yes, certainly a couple of the early fences.
Or in that are in that particular area, that's going to be closer to the.
You know of course is to the the current redesign decline that debt at.
At Bermingham.
I mean, it just appears to me that that would be the most interesting part from grade in proximity and the type of ore that you really would be desiring to hell of a lot of.
Yeah, well, yeah, and its and its kind of its price is too you know.
The projected infrastructure right. So yeah. It makes sense the stop there but.
But you know that being said, we also need to know you know the overall metrics related to this on because I think as we've said before you know it it could influence our thinking as to how this district develops.
And in the future.
Well, that's interesting off the figure out what that means exactly but it's all good.
When you when you said that you had drilled 2400 meters and the you've been provide the drill to provide five intercepts.
What I'm hearing you say is that those intercepts look distinctly different from the wall and the football and the hanging wall, but actually it looks like the material that you would be most interested as the carrying grade. So those are at.
Look what I'm hearing is that you're actually seeing and feeling the grabs the success hitting what the target is.
Well, where.
We're targeting you know of a certain area, we're reaching that target the like.
And we'd have to wait until we're at and we're sampling rocks and in fact, I mean just the.
You know some.
The minutia of information is that you know.
Where we're gonna be hole or a whole core sampling in this campaign. So we're using a slightly smaller diameter.
On the drill rod and and and rather than split the core we're gonna be sort of on a on a very controlled protocol basis sampling hole or which is going to further improve the efficiency.
Of the of the program as a whole so I'm not going to predict.
Predict what you know how the thing on this whole thing is going to you know its gonna.
Eventuate, we'll just have to wait and see but at the present time, you know things are going pretty well pretty much as we expected.
Yeah, well, that's the that's appropriate for debt I'm just wanted to understand what you were telling us in the release I guess, one last question the way I the way I kind of see that are rolling out is that you had all of this ore that's been broken and bell Keno and that's providing a.
An opportunity to use that or to put through the mill to condition, the Mel but I I and the and then as that runs out then you get into the the date of flame and moth and Bermingham or which is really the main show. So once you get into that or that's really when we're going to start seeing a reflection of.
The future.
You know continuation of operations and this is just the long winded way to say that it doesn't look like the the early recoveries of the Bermingham or were what you would want to see from all of you know within the P. A R compared the prior operations of number of years ago on I'm curious.
If the ore that was broken and then bell keno oxidized and so it doesn't float as well.
Is that does that a good question or does that make sense.
The debt is a good question and the and bread.
Well positioned to answer that.
Yeah, Mike.
Yes, my comment on metallurgy, you know at the.
It's been a little bit variable in the you.
You know what.
I would say one of the you know one of the reasons for that is operating on a two week on two week off schedule and the mill is not is not ideal with with starts and stops you know.
Our operating right now and seeing the recoveries you know well in excess of 90 per cent for silver and lead so.
You know so the recoveries you know my might've been the down a bit from historical built Kindle, but no. We haven't seen any issues of of oxidation of of or this is all fresh for the most part all fresh long hole stopes that have been.
Extracted here.
Okay well good.
Really a really an exciting time for the company probably the best of all time actually and I really hope that you can batch of some of those early drill results on the you know on the area of the north the northern steep that's closest to the infrastructure because Oh I just have a sense of that that's gonna be remarkable on I hate.
The C. Those like late in the the third quarter or early force if they're available, but that's just my opinion. Thanks for taking my call and I appreciate it.
Thanks, Mike.
Our next question comes from Mike Kozak from Cantor Fitzgerald. Please go ahead.
Yeah, Hi, Clinton team, thanks for hosting the call and and congratulations on on selling concentrates again at Keno Hill, and it must feel pretty good, especially when the revenue comes in.
Just one question for me given that you're in like call. It in mid mid ramp up mode here I'm trying to get a feeling for how much capital you have left to spend with with the underground development at Bermingham and flame and moth and maybe some of the mill upgrades that might be left them like I think if I recall the initial capital number for restart the whole restart and ramp.
Two to 400 tons of day I think was in the range of 23 million of that included working cap, but presumably you've spent a lot of that already so what's your best estimate as to how much you have left to spend.
That's the 400 ton a day of in Q4.
Yeah. So that's the that's a.
It's a it's a straightforward question, Mike and but you know that it's a it's sort of a complicated it because of the arithmetic is somewhat complicated because you.
You know you are producing revenue. So you do have you know its cash offsets youre right that the original number was you know 'twenty three 'twenty 4 million you know the of that stay in 18, 19, or so was property plant and equipment and the.
Great majority of that money has been spanned the except for I think there's probably still a million something like that.
Outstanding So it's all about the working capital.
And and and the working capital is gonna be directly proportional to the rate at which we're advancing underground offset by the revenues that.
That are coming back from low but from all of that smelled.
I know youre looking for a number of.
You know at the highest level of.
You know the the I guess that the the the the capital that that not only are you know I would be interpreted as going on the balance sheet.
You know to get to 400 tons per day that number is.
I will be in the $10 million range 810, something something like that if in.
In fact, we continue you know at that at the rates that we currently expect an and and are achieving so I mean debt is a you know.
That.
Like I mentioned I mentioned that with all the.
Appropriate qualifiers in terms of.
And in terms of safe Safe Harbor language.
Got it okay and that number that's including you're the revenues from the pre commercial concentrate sales for your best estimates of what they will be or excludes that.
Yeah, no that would be you know that's sort of that's sort of on net number okay got it okay. Alright, that's it for me. Thanks, Thanks, everyone for hosting the call.
This concludes the question and answer session I would like to turn the conference back over to Clint Nauman for any closing remarks.
Thank you operator, our next update will be at our AGM on the June 10th at 130, <unk> Pacific time.
In the context of the COVID-19 pandemic and in order to preserve everyone's wellbeing, we ask the shareholders to vote in advance of the meeting and the joined the proceedings by webcast or conference call.
You can find all of the meeting materials, including the instructions to join the call in the investors section of our website.
Until then I. Thank you for your continued support and wish you good health. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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