Alexco Resource Corp

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 one 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.

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 Strauss, 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.

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 in 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 Balcino. All of our production at Balcino is long-haul in ore blocks which had previously been overcut and undercut. Ore from Balcino 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 that 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, and production at Birmingham is scheduled to start in Q2 2021, following completion of the new primary ventilation ray's 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. and 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 volcano 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, 2020's 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 31, 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 for 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 main plate 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.