TGR: How can you be sure that there are additional resources left to discover?

MN: Well, point well taken. In Alexco's case, investors may consider the manner in which it financed the development and construction at Bellekeno. Alexco commenced construction prior to completion of a bankable feasibility study by selling 25% of the silver production at about $3.90 an ounce to Silver Wheaton Corp. (NYSE:SLW;TSX:SLW). The deal allows Alexco to remain full ownership of the remaining 75% of the silver production, plus lead, zinc, and any gold found on the property.

The funding by Silver Wheaton allowed Alexco to forgo completing the expensive and time-consuming feasibility study, which allowed them to accelerate the time to construction with metal prices at record levels. Funding by Silver Wheaton also allowed Alexco to advance to construction without issuing shares and diluting existing shareholders or securing debt financing, which may have required restrictive bank covenants and hedging. The very interesting part of the Silver Wheaton deal is that it would not have been justified on the existing resource at Bellekeno, so it begs the question exactly what is the upside at Keno Hill.

TGR: Well, what is Silver Wheaton expecting?

MN: It is hard to say; this may be the first silver stream purchase by Silver Wheaton on a more or less pre-feasibility level project. As I said, though the diverse ownership interests had been consolidated over the years by the United Keno Hill Mines, the prior owner never completed a comprehensive analysis of the district and never established a resource ahead of a couple years of mine life.

The ore was never mined below a couple hundred meters was well. Although the operation was large and had scale over the oldtimers', United Keno Hill only pursued high grade veins until they were offset by faults and then mining ceased. Not until recently did Alexco consolidate and complete a study of the volumes of historic data.

TGR: So why is the historic data important?

MN: Alexco digitized and assimilated rooms of data that allowed them to identify targets to potentially locate extensions of high grade veins that were lost or dead ended due to faulting. Alexco successfully used this data to potentially locate extensions of the high- grade Lucky Queen and Silver King past-operating mines. These vein continuations may now be visible to Alexco while the previous operator was in the dark.

TGR: What do you mean by high grades?

MN: The Lucky queen produced 11 million ounces at 88 ounces per ton and the Silver King produced 11 million ounces at 53 ounces per ton. But even more interesting than just locating extensions of lost veins on high grade veins, Alexco was successful at stepping out well beyond historic mines and producing significant drill results elsewhere. The Birmingham, for example, is several kilometers away any known mines.

Alexco hopes to locate another Hector Calumet at Keno Hill, which produced over 96 million ounces. As Keno Hill has produced over 200 million ounces of silver and has never been explored beyond following surface expressions of mineralization, as the district is about 10 by 20 miles, there is significant upside, which is what Silver Wheaton is banking on.

TGR: So do you expect Alexco to be profitable in 2010?

MN: It could be close. We would expect Bellekeno to be highly profitable for a mine of its size and expect additional ore to be located to either extend the operating life of the mine or to the acceleration of an expansion or an additional mill on the project. It is still too early to tell, but in addition, Alexco has an environmental business in that is active in North and South America.

TGR: What is this all about?

MN: It was Alexco's environmental expertise in mine remediation and closure that allowed it to be successful in acquiring the Keno Hill Silver District from among a number of bidders. Alexco is the government's sole contractor for the cleanup of historic mining activity, all the while being held harmless for prior mining activities while free to extract precious and base metal resources.

The combination of the contract for cleanup plus the operation at Bellekeno should place Alexco in both an envious operating position and cash-flow generation. We have visited two other environmental sites cleaned up by Alexco, one in South Carolina and one in Colorado, and we are expecting that this year may be the year their environmental business takes off.

TGR: Mike, we appreciate your time.

By arrangement with: www.theaureport.com

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook