Alexco Resource Corp

Thank you for standing by. This is the conference operator. Welcome to the Alexa Resource Corporation Q1 2021 conference call. As a reminder, all participants are in a 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 0. I would now like to turn the conference over to Catino Cardero, Director of Investor Relations. Please go ahead.

Good morning. Today is Thursday, March 13, 2021, and I welcome you to the Alexco Resource 2021 First Quarter Results Conference Call. This call has been 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 quarter ended March 31, 2021. All amounts mentioned today are in Canadian dollars unless otherwise indicated. Today, our Chairman and CEO, Clint Nauman, will discuss our most recent results, and he will be joined by our President, Brad Thrall, 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. I will now leave you with Clint Nauman.

Thank you, Katina. And thank you, everybody, for joining us today. Our ramp-up of operations at Keno Hill continued during the first quarter, and we made good progress. With the district mill upgrades essentially complete, mining ongoing at Belkino, and underground development pace picking up at Birmingham and Flamin' Moth, we continue navigating the intricacies of operating under COVID-19 protocols and the availability of underground crews and supply line delays. These protocols are still slowing us down, but while our objective is to reach design capacity, 400 tons per day, as soon as possible, our absolute priority is the well-being of our workforce and in our communities. And we're extremely satisfied that we have been successfully keeping everyone safe. Keno Hill is very busy these days. With having restarted shipping concentrates in January, we now have the initial pre-commercial production and sales stats to report, as well as our usual operations, expiration, and financial updates. The following are the highlights of the first three months of 2021. On the production front, we mined about 4,400 tons of ore from Balkino at a head grade of 985 grams per ton of silver. which exceeds grades predicted by 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% of silver reporting to the lead concentrate during the ramp-up phase. We produced 539 tons of lead silver concentrate and 105 tons of zinc silver concentrate. At the district mill, we processed 3,850 tons of ore, averaging about 112 tons per day over the 34 days that the mill was operating. The mill has been operating on a modified schedule to match volcano ore delivery and mill modifications, which are now essentially complete. We're now focused on fine-tuning to continue to improve the metallurgical performance in the mill. At Birmingham, construction of 166-meter ventilation and secondary escape rays is now within four meters of surface and breakthrough to surface is scheduled in the next few days. In late April, we added the support of a mining contractor at Birmingham to increase our underground resources and improve on the development advance rates. At Flame and Moth, underground development 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 to improve throughout this quarter and until we reach commercial production of 400 tons per day expected in the fourth quarter. Our focus remains on improving underground cycle times and training new underground mining crews in the operation of new equipment, adjusting to ground conditions while at the same time maintaining industry-leading safety standards. On the exploration front, We started the Birmingham Northeast Deep Surface Exploration Program in March with four drill rigs utilizing a directional drilling technology. The end of April, we've drilled about 2,400 meters, providing about five intercepts to the target zone. And preliminary indications are that the drilling is going very well and that this new directional method of drilling, or new for us, directional method of drilling will drastically improve drilling efficiencies at Keno Hill from a timing and cost perspective. Our objective in 2021 is to complete a minimum of 25,000 meters and update the existing Birmingham Mineral Resource Estimate in the fourth quarter. And just to be clear, this entire program will comprise more than 45 or 50 holes into this Birmingham Northeast Deep Area. On the financial and corporate fronts, where the quarter ended March 31st, We reported total revenues of $3.8 million, comprising $2.7 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 NSR royalty on Golden Predators Brewery Creek project for $4.5 million, and a gain on Wheaton Precious Metals embedded derivative asset in the amount of $3 million, plus a small contribution from concentrate sales. We reported a gross loss of $1.1 million and an operating loss of $3.1 million, primarily due to higher mining costs related to the soil mine rates, incurred during ramp-up activities as we moved 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 a flow-through equity financing for growth proceeds of $11.7 million, which is funding the 25,000-meter surface drill program and a portion of the underground development. While we've been working on Keno Hills ramp-up, we've also been working on an updated mineral reserve and PFS, which we're currently finalizing and we expect to file later this month. You'll remember that when we repaired the Keno Hills current PFS in 2019, we used 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 in the fourth quarter, should demonstrate significant upside in value creation at Keno Hill and could change the outlook for the district. Finally, I want to thank again our workforce who continues to work throughout rigorous COVID operating protocols and also thank the Yukon government and health officials. Through the support of the Yukon government health officials to date, approximately 70% of our workforce has been vaccinated. While 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 that this will allow us to modify some protocols and improve working conditions at 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 risks to our business and the possible re-imposition 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 commercial production, and I thank our shareholders for their continued support and confidence in our team. With that, I'd like to ask the operator to open the call for questions.