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spk04: Thank you for standing by. This is the conference operator. Welcome to the Alexco Resource Corporation year-end 2020 conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Katina Cordero, Director of Investor Relations. Please go ahead.
spk02: Good morning. Today is Friday, March 12, 2021, and I welcome you to the Alexco Resource 2020 Full Year Results Conference call. This call is being webcast live and can be accessed through the events and webcast section of our website at alexcoresource.com. An audio archive of the call will be available later today. Our website also contains our most recent news releases and our financial statements for the year ended December 31, 2020. All amounts mentioned today are in Canadian dollars, unless otherwise indicated. Today, our chairman and CEO, Clint Nauman, will discuss our most recent results. He will be joined by our president, Brad Trout, 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 involves 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 CDAR and EDGAR. I will now leave you with Clint Nauman.
spk06: Thank you Katina and thank you everybody for attending today. After several years of detailed work and lots of successful exploration, last year we completed the Keno Hill Silver District permitting process and began moving the district back into mining operations. 2020 was pivotal for the company and certainly a challenging year to move a mine into production. For sure, More than one person has commented to me that making a decision to move to production in the middle of a pandemic might have been a dubious decision. We certainly misread the severity of the second wave in Q4 as borders locked down and isolation requirements were reinstituted. But thanks to the professional and determined attributes of our workforce and response and support from YG, from the Yukon government, we have been successfully navigating the restrictions posed by the COVID-19 pandemic. Our progress has slowed. There are certainly added costs, but we are most definitely moving forward towards establishing ourselves as the only primary Canadian silver miner. I should start by summarizing our achievements in 2020 before discussing our outlook for 2021 and our expectation for Keno Hills' longer-term future. On the operations front, in February we sold our environmental business, AEG, to the AEG management for a total consideration of $13.4 million. This allowed us to focus all of our resources to our mining business. In June, following the receipt of the draft water license, we announced our decision to move Keno Hill to production by restarting mining operations at the Belkino mine and advancing the Flame of Moth and Birmingham 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 Balkino. All of our production at Balkino is long haul in ore blocks which had previously been overcut and undercut. Oil from Balkino was stockpiled and used for the initial mill commissioning in Q4 2020. And just anecdotally, thus far, silver grades have certainly exceeded the mine's ore block model grades. And we expect the volcano's underground mining operations will extend into Q2 2021, longer than initially anticipated. Underground development at Birmingham and Flaming Moss started in Q3 2020. Production at Birmingham is scheduled to start in Q2 2021, following completion of the new primary ventilation rays 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 affected our hiring program, and that, along with slower commissioning of new underground equipment, led us to a decision to temporarily suspend underground work at Flavor Moth and focus all of our efforts, at least temporarily, at Birmingham, along with continuing oil production from Belkino, of course. In the district mill, modifications completed in Q4 2020 included the installation of cyclones, a new filter press, and modifications to the final feeder. We undertook the initial commissioning runs at the mill in November and processed about 300 tons of volcano ore, producing our first concentrate. Staying with the mill, construction of a new building around the crusher was completed in Q1 2021. the installation of a new ventilation system in the crushing facility is scheduled for completion in q2 2021. the mill continues to operate on a two and two basis as other mechanical adjustments and circuit modifications mainly focused on metallurgical performance are ongoing and continue during this mill commissioning stage through the end of february 2021 We have produced a total of more than 2,400 tons of ore from Balcino with silverhead grades and recoveries of 956 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 measures and kept our workforce and our community safe. However, as I previously mentioned, the effects of these measures on workforce schedules, recruitment, onboarding, and training, especially our new underground equipment, has been slowed by both the COVID-related restrictions and the variable ground conditions, primarily attributable to interbedded quartzite and schist, in which the operators are steadily gaining experience. We expect that as COVID-19 restrictions ease over the coming months, we'll see further operational improvements. On the exploration front, our 2020 surface exploration program confirmed the presence of high-grade silver mineralization first discovered in 2018 below the existing Birmingham deposits. Last year's drilling focused on a structurally controlled subhorizontal mineralized zone, which has traced over 500 meters of long strike and a series of wide step outs, with results generally in the 5 to 18 meter true thickness range in terms of the mineralization, which generally contained between 1,500 and more than 3,000 grams per ton silver. In total, we completed 7,600 meters focused along the structurally controlled subhorizontal zone, And this year, beginning as we speak here, we're anticipating about 25,000 meters of directionally controlled drilling to infill the work done in 2020. Finally, in 2020, ERDC advanced the Reclamation Project to offset historic liabilities in the district. And in July of 2020, the ESSA Environmental and Socio-Economic Assessment Board issued a final decision document on the final evaluation report and ERDC has now entered into the Water Boards, Yukon Water Boards licensing process to obtain the final water license to authorize the activities necessary to begin the closure of 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 and corporate front, and just to quickly run through some of the metrics in our filings yesterday, for the year ended December 31st, 2020, we reported an operating loss of $22.3 million, much of which is due to increased mine-related expense at Volcano and upgrades elsewhere in preparation for the commissioning and startup activity. We finished 2020 with cash and cash equivalents of $23.7 million and net working capital of $15.4 million. We also ended 2020 with $2.9 million in restricted cash and deposits related to our assurity bond. Finally, during 2020, we completed two equity financings for a total of $38.6 million, which, of course, are largely being directed to startup activities. More recently, and subsequent to the year end 2020, we sold our NSR Royalty and Golden Predators Brewery Creek project for $4.5 million in cash. And on January 28, 2021, we issued 2.7 million shares and completed an equity financing, the total gross proceeds of $11.7 million, the majority of which will fund our large exploration program this year. In 2021, we're focused on ramping up to design throughput of 400 tons per day through the mill. Thus far, we have been operating the mill on a modified schedule to match ore delivery from Valchino and to optimize mill electrical performance of our improved flow sheet, including the modified grinding, classifying, and filter circuits. With ore mill feed transitioning to Birmingham sourced ore in Q2 2021, or production at flame and moth beginning in Q3 2021, and provided that we're not required to further expand our current COVID-19 protocols, we achieve to expect nameplate capacity of 400 tons per day through the mill in Q3 of this year. I would say quite confidently that our primary risk in this commissioning and scale-up process is still the COVID risk. meaning that further border and or site restrictions resulting from any resurgence of 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 that we expect to release in Q2 2021. This report will incorporate a modified mine plan based on our operational experience to date as well as meaningfully improved silver prices since we published our last mine plan in early 2020. Finally, and just to reiterate, we are mobilizing our exploration team as we speak, planning to begin immediately to drill off the Birmingham Northeast deep mineralization. We'll be utilizing 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 expiration results will be available. The restart of operations at Keno Hill has coincided with strong silver prices and puts us in 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 and 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, and I thank our shareholders for their continued support and confidence in our team. Finally, I want to reiterate that we owe a debt of thanks to our employees who have soldiered on through pretty rigorous COVID-related operating protocols, and also to the UConn 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 to open the call for questions.
spk04: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. 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 Jake Sikelski from Alliance Global Partners. Please go ahead.
spk08: Hey, guys. Thanks for taking my questions. We saw grades. well above plan in the initial material that went through the mill. Was this a one-off, or should we expect to see elevated grades from Bell Aquino through Q2?
spk06: Well, yeah. Good morning, Jake, and thanks for the question. Yeah, we're carrying a block model at Bell Aquino. It just happens that there's two primary stopes 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 is overachieved as block model grades. And, you know, that's not, that would not be unexpected in a deposit that, you know, the style of Balkina we're working pretty centrally located in a deposit. The second stove, you know, you will have to wait until we, you know, until we get it through the mill to see what the, what the grades might be. But yeah, I mean, Balcina is going to overachieve, you know, both in terms of relative to the block model in terms of grade and probably tons. We'll see.
spk08: Okay, that's helpful. And then just on exploration, obviously it's a big focus this year with the 25,000 meter program in the Birmingham resource update that you mentioned later this year. How should we be thinking about that updated resource relative to the existing mine plan? I mean, do you think we could see an updated mine plan sometime next year after that resource is out?
spk06: Yeah, that's a decision that we're going to have to discuss at Alexco, obviously. I think we'd rather sort of wait and take this step by step. Let's get this drilling done and the resource, assuming that the drilling is successful, get any resource put together in that deeper area. And then we'll decide, you know, whether or not we should, you know, modify our mine plan, which is already being modified, as I mentioned, at Birmingham to see whether or not we can accommodate, you know, any additional resources, should there be any at depth. So, Yeah, it's a good question. We have not made that decision yet. But I would expect that if the drilling is successful, I mean, we'll be pretty keen to try and figure out, you know, what value will be added by incorporation of that additional mineralization.
spk08: Okay, that makes sense. That's all on my end. Thanks again.
spk04: The next question comes from Joseph Rieger from Ross Capital Partners. Please go ahead.
spk07: Hey, Clint and team. Thanks for taking the questions. I guess first thing, given the impacts of COVID and a little bit of delays there, what should we think about as far as staging of production over the remainder of the year? Is there kind of a range you can give us of what tons per day might look like on a quarterly basis?
spk06: I mean, Brad might want to chime in here, but I mean, generally, Joe, we're thinking that, you know, we're going through this, you know, commissioning process. We definitely need to onboard more plant-related or mill-related people. And, you know, to spool that mill up to a more consistent operating basis. I mean, right now it's operating on a two and two 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 tons through the mill in Q4 and Q3, sorry, of, of this year. So, I mean, Brad, do you have anything you'd want to add to that?
spk01: No, I think, again, in general, there's, you know, we have a, you know, we have a reasonably sized inventory of ore at Belkino. And then as Birmingham, you know, we're projected to hit our first ore horizon at Birmingham in Q2. And then, you know, you start to combine those together and then flame them off 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 our our schedules and mine plans as we go along here. So, yeah, I think that's the best we can say for the moment.
spk07: 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?
spk06: I'm going to ask Mike Clark to chime in on that because I think we are early adopting, the plan is to early adopt the commercial production, whatever they call it, language. Mike, can you? Yeah.
spk03: Thanks, Clint. Hi, Joe. Yeah, we are planning to early adopt, which means we'll start recognizing revenues immediately. and cost of sales. And so starting in January, 2021, all the revenues from Bella Kino will be, uh, 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 PNL immediately without these. So we won't be offsetting the middle properties for revenues. Does that answer your question? Okay.
spk07: Yeah. That makes our lives easier too. Um, all right. And then, uh, last thing, um, remaining capital spend between now and reaching that 400 tons per day, what's it kind of look like?
spk06: Brad, do you want to take a shot at that?
spk01: Yeah. Well, there's a couple different buckets of capital, Joe. I mean, we've got our PP&E capital just to finish up a few of these capital projects, the second grinding mill, a couple of concentrate regrind mills. So I would put that in a bucket of PP&E capital, and that's a relatively modest number, $1.5 million to $2 million to finish up those projects. But then you obviously have the working capital to continue to, as we continue to ramp up and reach a steady state and positive revenue, that's a period as well. So I don't want to put a number on that one yet. Again, similar to your previous question, I think we're kind of continuing to undergo our kind of our updated, I guess, mine plans. But again, the PP&E capital is relatively low, but it's the working capital until we get to that positive, you know, to that point where it's cash flow positive, which, you know, is, you know, into that Q3 range with all three mines running.
spk07: Okay. That's fair enough. All right, I'll turn it over. Thanks, guys.
spk04: Once again, if you have a question, please press star, then 1. The next question comes from Mike Niehuser from Scarsdale Equities. Please go ahead.
spk09: Hi, Clint. You know, I agree with the earlier comment about the grades at Belkino. I think that was higher than any grades that you published when it was in operation earlier. Just a couple housekeeping questions to start. Can you say what the approximate cash balance is today for the company?
spk06: Mike, can you answer that?
spk03: Yeah, no, we're a little over $30 million.
spk09: Great. Also, there's a lot of the release talked about COVID. Can you comment on any... uh cases or how it might compare around the mayo area or keno hill with the rest of yukon or canada is it just an abundance of caution that these things are happening or is there something specific with uh with yukon yeah um yeah thanks mike um you know brad is uh you know is is well versed to answer that question
spk01: Yeah, hi, Mike. Yeah, I mean, I think in general, the Yukon, I mean, where the Yukon sits today, there does continue to be a, the borders are closed. So anybody that comes into the Yukon, even if you're a Yukon resident, you do have to quarantine for 14 days. To date, there's been 75 cases of COVID in the Yukon. There's no currently no active cases. You know, there hasn't been a reported case at any of the three mines, as you know, between Alexco. There's two other operating mines in the Yukon. There hasn't been a reported case at all three of those. And the Yukon's doing pretty well on their vaccination rates. You know, I believe they, you know, are leading Canada in terms of the percent 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, I would characterize the approach by the government and health officials as being very cautious, conservative, and I don't believe we'll see much movement in the Yukon, certainly until some significant changes across Canada in order to kind of open up travel again.
spk09: Well, it sounds like everybody's being extra careful, and that's good. Brad, this is probably for you. Clint mentioned in the press release the word variable ground conditions, and I was just wondering if that was something new at Birmingham or Flamin' Moth compared to what's happened at Belkino or maybe the historic Hector Calumet.
spk01: No. I mean, I think, as you know, Keno Hill is, I guess, somewhat known for its It's variable ground. In the development period we're in right now, we go in and out of a quartzite unit into more of a schisty, less competent unit and back into quartzite. During that same time period, we've got new miners that we're bringing on and training. It's a process of becoming more experienced with that type of ground. It's very similar to what we what we experienced at Belkino, but you know, that was, you know, eight to 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. And, you know, we continue to, to continue to manage and improve on it.
spk09: Well, it sounds like you're being careful and deliberate. As far as exploration go, what's the budget for, for that 24,000, 25,000 meters at Birmingham, northeast deep. And is it all going to be infill there, or is there going to be some expansion deeper or stepping out?
spk06: Yeah, I mean, we'll probably spend, you know, somewhere between eight and nine million bucks, Mike. And it is going to be primarily infill drilling, and it'll be more focused on the vertical extent of mineralization versus the horizontal extent, which we focused on in 2020. That being said, we will certainly drill more holes to the southwest of where we currently understand the mineralization to be. To the northeast, probably not so much. We know where the northeast termination or offset of that mineralization is. And it would, in fact, you know, not reappear until we're into hectocalumet proper, quote unquote. So, yeah, so some extension drilling to the southwest, lots of vertical, you know, trying to understand the vertical extent of the mineralization and infilling, you know, between those white space holes that we drilled last year.
spk09: Well, I'm glad you mentioned the vertical because when I look at the cross section in the most recent release, it seems to, reading between the lines, you're kind of looking at a hundred meter block there of this new panel that's being discovered. And then when you look at the other geometry of the veins and how they come together, that it kind of pinches out. But I don't know if My mind says that's not necessarily so because you're above the Hector Calumet, which was historically quite thick. But as you get to the bottom of the terminus of the scheduled mine plant at Birmingham, you're getting to that area that really has the best silver grades and the highest lead grades. And I'm just wondering if you're going to be targeting under that area because I'm wondering if that's a chute or a feeder or something like that.
spk06: Yeah. The, um, you know, like I say, I mean, what you're talking about is to the Southwest of where we drill. Um, we feel that, you know, there's a certain structural intersection that we've identified as Joe just have identified, excuse me, at, uh, at Birmingham. And we are following that projection of that structural intersection along to the Northeast. And, um, that structural intersection persists all the way up through the Birmingham deposit itself and is the locus for mineralization. Now, that does not mean to say that between that structural intersection and where the existing deposit occurs, there is not more mineralization, for sure. It's just that we know that there are targeting mechanisms such that the meteor parts
spk09: of the deposit that traditionally around that structural intersection and that's what we're focused on well it just seems that um that uh that you're not near where you can determine that you're closed off at depth and that it's just a matter of drilling and it's getting progressively more expensive but um i just have this sense that you're going to execute a well you know uh step up of operations but that the exploration here this year could be another pivot for you and that uh the ending of the year is going to be quite interesting when you look back on the last couple years so those are just my questions thank you very much yeah yeah thanks mike i mean certainly it's going to be a very it's going to be a very interesting year and it goes back to jake's question earlier which was okay so you assume that there's mineralization
spk06: in this new area, what are you going to do in terms of the mine plan and future development? And those are the things that we at Alexco have to figure out. And I once again go back to the step-by-step progression, which is let's drill it first, figure out what we are looking at, and then go to the next step.
spk09: Well, at the bottom of that terminus where you get those really high grades that were discovered, it seems like you can just drift straight over and just pick up that whole panel, but I can't help but think you're going to spiral deeper right there at the terminus as well.
spk06: Yeah, we'll see.
spk09: Thank you.
spk04: The next question comes from Lee Curry from Curry Partners. Please go ahead.
spk05: Good afternoon, Clint. I just wanted to get a little few more details on the exact impact of the COVID lockdown restrictions. You mentioned that the workers are subject to a 14-day quarantine. Do the workers, mining personnel that are there on site at the mine, can they leave? Are they leaving and going vacation and not coming back? Are new ones coming in? And can working in the mine include being quarantined? In other words, how hamstrung are you?
spk06: Yeah, that's a good question, Lee, and Brad will answer that.
spk01: Yeah, hi, Lee. I'll just give you maybe 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 employees from outside the Yukon right to the mine site, and they can work, but they must quarantine at the end of their day. You know, at the end of a typical 12-hour day, all employees need to go back to their room. They can't leave their room. Meals are brought to them. They can't use the recreation facilities. We have to keep all of our UConn employees separated from non-UConn employees, and that means separate charters to site, separate buses, separate vehicle transportation. We have a full-time nurse on site, so we do daily checks every morning. You know, we have part of our camp that's been isolated off for an isolation unit in case there is a, you know, anybody even gets a sniffle, we pull them out of the main population. You know, so that's, you know, it's, you know, it's pretty rigorous and it's, you know, it's certainly hard on employees to have to, you know, kind of live, I guess, if you will, under those types of conditions. And when this was first, you know, when the Yukon government in early November first re-implemented or re-instituted these travel restrictions. We probably lost a couple rotations that we had to stand down, if you will, our employees. We just needed time to respond and put new plans together. So hopefully that gives you kind of an overview of how we're trying to manage this.
spk05: Yes, thank you very much.
spk04: This concludes the question and answer session. I would like to turn the conference back over to Clint Nelman for any closing remarks.
spk06: Yeah, thank you, Operator. As I said, we're on our way to commercial production in the second half of this year, and I look forward to reporting on the start of mining operations at Birmingham, Claymore Moth, and the mill ramp-up to full capacity. I'll be updating you as we go along. Until then, thank you and stay safe.
spk04: 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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