Alexco Resource Corp

Q1 2021 Earnings Conference Call

5/13/2021

spk05: 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.
spk03: 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.
spk09: 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.
spk05: Thank you. We will now begin the question and answer session. To join the question queue, You may press star then 1 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 2. We will pause for a moment as callers join the queue. Our first question comes from Jake Sokalski from Alliance Global Partners. Please go ahead.
spk06: Hey, Clint. Thanks for taking my questions. Hi, Jake. I'm trying to get a handle on throughput rates for the second and third quarter. I guess, are we going to see more of a gradual ramp to the 400 tons per day into the fourth quarter? Any color there would be helpful.
spk09: Yeah, I'm going to let Brad, who's been doing the heavy lifting at site here, so I'm going to let him talk to that. But yeah, in general, the I see your question is that the length of time that the mill is operating will be systematically extended, you know, through these cycles. Brad, why don't you go ahead?
spk02: Yeah. Hi, Jake. Yeah, I mean, it's all about, you know, continuing to open up more ore faces, you know, quarter by quarter here. So the mill has, you know, been operating on a two-week on, two-week off schedule and has been milling, you know, only Belkino ore. Again, we anticipate being into Birmingham ore here in the second quarter, and that will start to open up more faces. And then, again, as you continue to advance development at Birmingham in flame and as these ore faces continue to open up, we will continue to gradually increase our mill throughput. So just like Clint said, it's not necessarily a linear line. I expect there will be some ups and downs, but it will be a a gradual process into the fourth quarter to reach those targets.
spk06: Okay, that's helpful. And then just on exploration, I mean, obviously Birmingham Deep is kind of coming to 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 case? Is that a first half 2022 type event?
spk09: Yeah, I mean, that would be a reasonable assumption. You know, I can say at the present time that, you know, after, you know, going through sort of the learning curve with this directional drill technology that we are, you know, beginning to knock off those intercepts, you know, more quickly. You know, so we're... At this point, we're pretty confident that we're going to complete this program, you know, in August, which we have to take into account, you know, delays at the lab. I mean, nominally, it's still about six weeks, you know, round trip on your assays. And so we would intend to do a new resource, as we've been talking about in the fourth quarter, that we would be hard-pressed, you know, to convert anything to reserve through hanging a mine plan on that new resource. This is assuming, of course, that the exploration is successful. It's hard to hang a mine plan on that, you know, within 2021. But I'd be hopeful, especially with this work that we're currently doing and we're about to publish, that we'd be able to do it in the first quarter of 2022.
spk06: Okay, very good. That's all on my end. Thanks, guys.
spk05: Our next question comes from Mike Niehauser from Scarsdale Equity. Please go ahead.
spk04: Nope. Our next question comes from Mike Niehauser from Scarsdale Equity. Please go ahead. Our next question comes from Chen Lin from Lin Asset Management.
spk05: Please go ahead.
spk08: Actually, I was also having a question about the run-pop. Most has been answered. So just like a general question, what do you see your production level for the next year? Supposedly, you run up to 400 ton by the end of the year successfully. What kind of – can you maybe just tell the investor again what kind of cash flow you're expecting for the next year?
spk09: Let me see. I think the easiest way, Chan, to handle that is we're going to be at the 400 ton per day type of rate today. in the fourth quarter of this year. And that puts us in the ballpark of, you know, 4 million ounces per year at that point. And our oil and sustaining costs, you know, are going to be, you know, in the $11, $12, $13 type range. So, I mean, you can sort of do the arithmetic from there. Um, you know, we're kind of, I'm, I'm, I'd be loathe to, to put a number out there in the next year, meaning from, you know, May to May, because we just don't know what that ramp up, uh, you know, is not going to be a linear process. So we just don't know what that number is going to be. But by the fourth quarter, we'll be operating, you know, in that 4 million ounce per year type range with cash flows that are consistent, um, with our previous, uh, uh, publications. Um, and you know, that the, uh, the oil and sustaining costs are going to be, you know, pretty attractive simply because there will be a lot of oil sources online from two mines. So I think that's the safest answer that I can give.
spk08: Okay, great. Just you mentioned your drilling is going well, so... You still plan to release your drill results, which is the high-grade you find underneath your existing infrastructure? Those are in Q4, or you have some more update on the timeframe?
spk09: Yeah, we'll have to see how it goes. We certainly won't be reducing it, putting out results in a hole-by-hole basis. We could very well put them out in batches, Um, and, um, you know, I'd given the, uh, the lab turnaround, um, and the rate at which those, uh, intersections are going to be coming to us. Hopefully, um, I wouldn't anticipate doing anything, uh, before it would be July, August. I would think it would probably at least July given the, uh, given the turnaround, the time it takes to drill a hole. So, That would be my best guess at the present time.
spk08: Okay, great. Thank you.
spk05: Our next question comes from Mike Niehauser from Scarsdale Equity. Please go ahead.
spk07: Hi, Clint. Hi, Clint. Thanks for taking my call. When you talk about 40 to 45 holes as a goal, are those 40 to 45 collared at the surface, or is that with the directional drilling deeper where you could maybe get several drill results from a single collared hole?
spk09: Yeah, that's exactly what this directional drilling is all about. So you're talking... Excuse me. We're talking, you know, more than 45 holes, I think, at the present time. But those would be drilled from pilot holes or mother holes is what we call them, of which there's only going to be six or seven or maybe a few more. And anywhere from, you know, four or five, six holes would be drilled from each of those mother holes, you know, as daughter holes. through the mineralization or the target zones at various elevations. So you know that this is a linear, sort of a horizontal type of expression of mineralization. It's high grade and relatively thick over a distance of 500 meters or so. So these fences that we're drilling could be as much as 50 or 70 meters apart. But the holes up and down on the vertical plane are only going to be 20, 30 meters apart, which is consistent with what we have used in the past for measured and indicated resources. So I don't know if that sort of paints a picture for you, but it's a series of fences. The fences are relatively far apart compared to the vertical intercepts that are going to be obtained from each of the mother holes if they're drilled. And we do have four drills up there working on it. So, I mean, we're hitting it pretty hard. You know, we are, you know, pretty anxious to understand, you know, if this Birmingham ore deposit is going to be a lot bigger than we had originally anticipated, we'd rather know about it sooner than later.
spk07: So we're really looking at 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. Now, 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 sense.
spk09: Yeah, so if you take that, I mean, the easiest way to view that is if you take each of those intersections, Mike, that we have, you know, that we were posted in, we printed in 2020, you can sort of imagine that we are drilling up-dip and down-dip from each of those intersections. We are pretty confident that there's going to be, you know, a horizontal or elevation-type control on this mineralization, we don't know what that is. So starting out, we're drilling, you know, 50, 60, 70 meters up-depth from each of those prior intersections and the same down-depth. And then we would move to the next fences. The point I'm trying to make is that there's a bigger distance between the fences than there is in the vertical intersections or vertical targets. primarily because we know that there's a horizontal continuity to this mineralization. So we're just trying to define, you know, the thickness and tenor of it up and down dip from prior intersections.
spk07: Well, it sounds like you're fairly confident that you'll be able to infill between these holes. And the real question is, how much higher does it go and how much lower? Am I putting words in your mouth or is that right?
spk09: Yeah, no, that's exactly right. And yeah, the fence, some of the fences, in fact, the initial fences are, you know, between the holes, if you like, you know, they're a hundred meter right now, there's a hundred meters between, you know, those, those intersections. So yeah, we plunk a fence, you know, halfway starting out, um, and drill up dip and down dip. And you're going to see variations. I mean, that's just a, that's just a fact of the matter at Keno Hill. Um, you know, but, uh, we'll just have to see how this, uh, You know how this works out. I can tell you that the geology, you know, is behaving, if I can say that, you know, pretty well. I mean, our guys are able to nail these targets within a few meters of expectation. So, I mean, the architecture that we have, you know, defined or interpolated from prior work seems to be, you know, holding up pretty well.
spk07: That's an excellent explanation. The other question I had is that as you got to the, I think it was the south, closer to where the terminus of the decline that has been designed for the Birmingham mine plan, toward that end of this zone in close proximity is an area that has both higher grades of lead and which is important, and coincidentally are in line with higher grades of silver. Is this the area that you're starting to drill in with this directional drilling?
spk09: Are you starting at the fat end and moving to the... Yeah, we do have a couple of drills operating at that end of it, but remember we've got four drills up there, so... The, you know, so we are spread out, you know, over that entire, you know, 500 meters plus or minus the present time. But, yeah, certainly a couple of the early fences, you know, are in that particular area that's going to be closest to that. closest to the currently designed decline at Birmingham.
spk07: It just appears to me that that would be the most interesting part from grade and proximity and the type of ore that you really would be desiring to have a lot of.
spk09: Yeah, well, yeah, and it's closest to projected infrastructure, right? So, yeah, it makes sense to start there. But, you know, that being said, we also need to know you know, the overall metrics related to this zone because I think as we've said before, you know, it could influence our thinking as to how this district develops in the future.
spk07: Well, that's interesting. I'll have to figure out what that means exactly, but it's all good. When you said that you had drilled 2,400 meters and that you've been drilled to provide five intercepts, what I'm hearing you say is that those intercepts look distinctly different from the wall and the foot wall and the hanging wall, but actually looks like the material that you would be most interested as the carrying grade. So those are... What I'm hearing is that you're actually seeing and feeling that you're having some success hitting what the target is.
spk09: Well, we're targeting a certain area. We're reaching that target, and we have to wait until we're sampling rocks. In fact, just a minutiae of information is that we're going to be whole ore or whole core sampling in this campaign. So we're using a slightly smaller diameter drill rod, and rather than split the core, we're going to be on a very controlled protocol basis sampling whole ore, which is going to further improve the efficiency of the program as a whole. I'm not going to predict how this whole thing is going to eventuate. We'll just have to wait and see. But at the present time, things are going pretty well, pretty much as we expected.
spk07: Yeah, well, that's appropriate for you. I just wanted to understand what you were telling us in the release. Just one last question. The way I kind of see this rolling out is that you have all this ore that's been broken in Belkino. and that's providing an opportunity to use that ore to put through the mill, to commission the mill. And as that runs out, then you get into the native Flamin' Moth and Birmingham ore, which is really the main show. So once you get into that ore, that's really when we're going to start seeing a reflection of future continuation of operations. And this is just a long-winded way to say that it doesn't look like the early recoveries of the Birmingham ore were what you would want to see from all within the PEA or compared to prior operations a number of years ago. And I'm curious if the ore that was broken and in Belkino oxidized and so it doesn't float as well. Is that a good question or does that make sense?
spk00: Yes.
spk09: That is a good question, and Brad is well-positioned to answer that.
spk02: Yeah, Mike, I guess my comment on metallurgy, it's been a little bit variable, and I would say one of the reasons for that is operating on a two-week on, two-week off schedule in a mill is not ideal with starts. and stops. We are operating right now and seeing recoveries well in excess of 90% for silver and lead. So the recoveries might have been down a bit from historical Belkino. But no, we haven't seen any issues of oxidation of ore. This is all fresh, for the most part, all fresh longhole stopes that have been extracted here.
spk07: OK. Well, good. Really an exciting time for the company, probably the best of all time, actually. And I really hope that you can batch some of those early drill results on the area of the Northeast Deep that's closest to the infrastructure because I just have a sense that that's going to be remarkable. And I hate to see those late in the third quarter or early fourth if they're available. But that's just my opinion. Thanks for taking my call, and I appreciate it. Thanks, Mike.
spk05: Our next question comes from Mike Kozak from Kantar Fitzgerald. Please go ahead.
spk01: Hi, Clint and team. Thanks for hosting the call and congratulations on selling concentrates again at Keno Hill. It must feel pretty good, especially when the revenue comes in. Just one question for me. Given that you're in mid-ramp-up mode here, I'm trying to get a feeling for how much capital you have left to spend with the underground development at Birmingham and Flamin' Moth and maybe some of the mill upgrades that might be left. Like I think if I recall the initial capital number for restart, the whole restart and ramp up to 400 tons a day, I think was in the range of 23 million 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 to get to 400 ton a day in Q4?
spk09: Yeah, so that's a, you know, that's a, it's a straightforward question, Mike, but you know that it's sort of a complicated, the arithmetic is somewhat complicated because, you know, you are producing revenue, so you do have, you know, it's cash offsets. You're right that the original number was, you know, 23, 24 million, you know, of that 18, 19 or so was property, plant, and equipment. The great majority of that money has been spent except for, I think there's probably still a million, something like that, you know, outstanding. So it's all about the working capital. And the working capital is going to be directly proportional to the rate at which we're advancing underground offset by the revenues that are coming back from mill, from ore that's milled. I know you're looking for a number of, you know, at the highest level, you know, I guess that the capital that nominally, you know, would be interpreted as going on the balance sheet, you know, to get to 400 tons per day, that number is, you know, probably in the $10 million range, 8, 10, something like that. If In fact, we continue, you know, at the rates that we currently expect and are achieving. So, I mean, that is a, you know, that I mentioned that with all the, you know, appropriate qualifiers in terms of, you know, in terms of safe harbor language.
spk01: Got it. Okay. And that number... That's including your revenues from the pre-commercial concentrate sales? Your best estimate is what they will be, or it excludes that?
spk09: Yeah, no, that would be, you know, that's sort of a net number.
spk01: Okay, got it. Okay. All right, that's it for me. Thanks, everyone, for hosting the call.
spk05: This concludes the question and answer session. I would like to turn the conference back over to Clint Nauman for any closing remarks.
spk09: Thank you, operator. Our next update will be at our AGM on the June 10th at 1.30 Pacific time. In the context of the COVID-19 pandemic, and in order to preserve everyone's well-being, we ask the shareholders to vote in advance of the meeting and to join the proceedings via webcast or conference call. You can find all of the meeting materials, including 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.
spk05: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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