Alexco picking up Keno Hill mine

Vancouver — Newly listed Alexco Resource (AXR-T) is acquiring the assets of past Yukon silver producer United Keno Hill Mines, including mineral rights on the United Keno Hill project.

Under the purchase agreement, Alexco subsidiary Elsa Reclamation & Development Co. (ERDC) will buy the assets of the mine for $410,000, in addition to staged agreements to take over pre-existing environmental liabilities and assume ongoing care and maintenance of the site.

ERDC will deposit $10 million in trust to fund its share of pre-existing environmental liabilities, and will jointly develop and fund a reclamation plan for the site with the federal government. In assuming ongoing environmental care and maintenance, ERDC will contribute a portion of any asset sale and a 1.5% net smelter royalty (to a maximum of $4 million) from any production to a separate reclamation trust.

Alexco, which has established itself as an environmental remediator and re-evaluator of closed mine sites, intends to launch an extensive exploration program at Keno Hill to determine the prospects of reviving the operation.

The United Keno Hill or Elsa project was an underground silver-lead mine located about 350 km north of Whitehorse in central Yukon. The mine was operated by the Treadwell Yukon Co. from 1921-1941, producing about 48 million oz. silver. In 1945, Frobisher Exploration and Conwest Exploration formed Keno Hill Mining and operated the mine almost continually until 1988. It produced about 163 million oz. silver under Keno Hill Mining before it was closed due to low metal prices. United Keno Hill Mines was 44.8% owned by Falconbridge (FAL.LV-T, FAL-N), which divested its interest in 1990.

Through the 1990s, various efforts were made to rejuvenate the project, including ownership restructuring, engineering studies, drilling, underground rehabilitation and a feasibility study. United Keno Hill Mines was issued a Class A water licence in 1998, however debt issues prompted the Yukon Supreme Court to seize and order the mine assets and property sold in late 1999, pushing the company into bankruptcy protection. Since then, the Yukon government has been managing the environmental monitoring and maintenance of the mine site.

Remaining equipment at Keno Hill includes a 500-tonne-per-day concentrator, a building and machinery.

As of 1996, historic geological reserves (not compliant with National Instrument 43-101) of about 850,000 tonnes grading 1,026 grams silver per tonne, 3.9% lead and 4.8% zinc were reviewed. Additional resources were pegged at 944,000 tonnes grading 940 grams silver, 4.8% lead and 3.9% zinc. Silver-lead-zinc mineralization in the project area is primarily hosted in high-grade vein structures.

Alexco, which launched its initial public offering in early 2006, is owned 19.3% by NovaGold Resources (NG-T, NG-X) and 9.9% by Quest Capital (QC-T, QCC-X).