Alexco Rises On Silver Wheaton Payment

VANCOUVER — On news that it received its first US$15-million payment from Silver Wheaton (SLW-T, SLW-N) in December, Alexco Resource (AXR-T, AXU-X) got a nice share price lift from investors who know that, in markets like these, cash is king.

Alexco is developing the Bellekeno silver property near Keno, in the Yukon, and in early October signed a silver purchase agreement with Silver Wheaton. Under the deal, Silver Wheaton will purchase 25% of the life-of-mine silver produced by Alexco at its Keno Hill silver district. In return, Alexco is getting US$50 million in upfront deposit payments, plus the lesser of US$3.50 per oz. or the prevailing market price for each ounce of silver delivered.

The remaining US$35 million due to Alexco will be paid out in monthly installments. The money will fund development at Bellekeno, which will start once Alexco makes a positive development decision, as well as further exploration. Alexco plans to use the initial payment to fund its planned 10,000-metre underground definition and exploration drill program, as well as its mine planning and engineering activities. The company is aiming to make a positive development decision next quarter.

News in December of the Silver Wheaton payment lifted Alexco’s share price 15¢ to 95¢, and the stock traded at $1.48 at presstime. The company has a 52-week trading range of 52¢-$5.81 and 35.8 million shares outstanding, or 41.5 million fully diluted.

Since signing the agreement, Alexco has made considerable progress at Bellekeno. A 650- metre underground decline is now complete; it broke into the historic Bellekeno mine workings in early December. Along the historic primary haulage level of the old mine, Alexco has rehabilitated old tunnels and is drifting new ones, totalling nearly 800 metres.

In blasting the decline, Alexco intersected zinc-dominated vein mineralization from the hanging-wall of the main mineralized zone, which is known as the 48 vein. The company expects to gain access to the lead-dominated 99 and Southwest silver zones in January or February as more historic workings are dewatered. The company received the permit it needed to complete the dewatering in early October.

The Bellekeno deposit has an inferred resource of 537,000 tonnes grading 1,016 grams silver per tonne, 13.5% lead and 10.7% zinc. A preliminary economic assessment for Bellekeno, completed in the middle of the year, projected average annual production of 3.3 million oz. silver, 30.1 million lbs. lead, and 24.5 million lbs. zinc over an initial five-year mine life. The project’s net present value was pegged at US$87 million, using an 8% discount rate, and its internal rate of return (IRR) came in at 55.5%. The high IRR means payback is achieved in just 1.6 years.

Capital costs to bring Bellekeno into production are expected to total $61.2 million, including initial working capital and a 25% contingency, as well as some $10 million of development work that is already being carried out. The study was based on inferred resources and did not estimate reserves.

Alexco owns the entire Keno Hill district, which produced more than 217 million oz. silver from more than 30 mines between 1921 and 1988. Ore from Keno Hill during that time averaged 40.5 oz. silver per ton, 5.6% lead and 3.1% zinc. The Keno Hill mine alone produced 40,000 tons of ore grading 42.7 oz. silver per ton, 9.9% lead and 2.2% zinc.