Meet the Next Silver Superstar

I offered Alexco Resource (AMEX: AXU  ) as one of my top buy recommendations within the precious-metals patch at the beginning of this year. But so far not even a 29% increase in the price of silver year-to-date, and the company's smooth transition from mine developer to low-cost silver producer, have managed to move the needle on this deeply underappreciated stock.

Following a 125% advance in 2010, as construction of Alexco's Bellekeno mine advanced alongside breathtaking high-grade exploration results, a certain degree of sluggishness might have warranted. But Fools, I believe the stock is now a coiled spring that combines a bargain valuation with enormous long-term growth prospects.

In its first two quarters of silver production, Alexco delivered more than 0.9 million ounces of silver alongside prolific byproduct production of lead and zinc. Those byproducts, coupled with a successful ramp-up process to date, permitted Alexco to realize a 25% cost reduction quarter-over-quarter to just $6.30 per ounce. And that was despite some intermittent power outages in June that hampered mill throughput. The company expects to produce between 2.2 mllion and 2.5 million ounces of silver overall during 2011, but this successful inauguration of Bellekeno operations is only one facet of Alexco's exciting growth story.

The Keno Hill silver district in Canada's Yukon, where Alexco holds the commanding land position, is credited with some 217 million ounces of historical silver production during the 20th century. That prompted silver stream holder Silver Wheaton (NYSE: SLW  ) to praise Alexco's "immense exploration potential and future production upside" back in 2008. The company has already pinpointed 9.5 million ounces of easily accessible silver in mine tailings from one former mine site and discovered some extremely high-grade silver discoveries at deposits such as Onek, Lucky Queen, and Silver King.

Another alluring deposit located near Alexco's milling complex -- called Flame & Moth -- has already been traced across a 500-meter strike length and 320-meter "down-dip." Importantly, even as recent drill assays from Flame & Moth come back with hits like a 6-meter interval of 31.5 ounces of silver per ton, the deposit remains open in all directions. Fools may recall, from this discussion of Brigus Gold's (AMEX: BRD  ) 147 Zone discovery, that the phrase "open in all directions" is like music to a resource investor's ears.

And finally, Alexco offers a unique element for investors through the company's environmental-services business. In fact, it was through Alexco's success in landing a long-term mine-site remediation contract the historic mines at Keno Hill that the company acquired rights to explore and mine these properties in the first place.

While the investor's road to silver exposure most commonly leads to world-class deposits in Mexico such as Coeur d'Alene Mines' (NYSE: CDE  ) Palmarejo mine, or the respective Guanajuato operations of Endeavour Silver (NYSE: EXK  ) and Great Panther Silver (AMEX: GPL  ) , Alexco's Keno Hill district is undeniably one of the premier silver districts in the world. Particularly given the stock's lack of momentum thus far during a strong year for silver prices, I consider Alexco Resource a world-class choice for silver investors.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets, and he owns every stock mentioned in this article. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (23)

Comments from our Foolish Readers

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  • Report this Comment On September 15, 2011, at 9:51 PM, kurtdabear wrote:

    I'd put several of my silver stocks--Excellon, Fortuna or International Minerals--up against Alexco on a cost-value basis any day.

    Fortuna, for instance, has a negative per-ounce production cost of over $4/oz, net of by-products, is just putting a new mine into commercial production, and will list on the NYSE/AMEX Monday.

    International Minerals profits handsomely from a major joint silver venture with Hochshield in South America, owns gold royalties, is moving toward production on one of its NV gold properties and is listed on the Swiss Stock Exchange as well as Toronto.

    Excellon, while smaller than Alexco or either of the others, is still a penny stock, is profitable, and has just acquired a Canadian gold company to diversify both metallicly and geographically.

    All three have been very good to me for several years now.

  • Report this Comment On September 15, 2011, at 10:05 PM, skypilot2005 wrote:

    http://www.alexcoresource.com/s/NewsReleases.asp?ReportID=47......

    September 15, 2011 Alexco Resource Corp. (TSX:AXR, NYSE AMEX:AXU) today announced dramatically improved revenue, gross profit, earnings and production for its fiscal year ended June 30, 2011, as result of the first six months of commercial production at its Bellekeno mine in the Keno Hill Silver District, Yukon.

  • Report this Comment On September 16, 2011, at 8:38 AM, Jbay76 wrote:

    Personally,I'm a big fan of Alexco due to their mining prospects in addition to the environmental services they offer. To my knowledge, they are the only ones who have this combo of services. I have some other favorite silver plays like aurcanna and impact silver, but I am happy with AXU.

    Thanks Sinch for writing about silver plays, hopefully there'll be more of those in the near future!

    J

  • Report this Comment On September 16, 2011, at 6:22 PM, skypilot2005 wrote:

    FYI:

    http://finance.yahoo.com/news/Brigus-Gold-Added-to-SPTSX-bw-...

    Brigus Gold Added to S&P/TSX Indices

    Friday September 16, 2011, 8:00 am EDT

    HALIFAX, Nova Scotia--(BUSINESS WIRE)--

    Brigus Gold Corp. (“Brigus” or the “Company”) (NYSE Amex: BRD) (TSX:BRD.to - News) is pleased to announce that at the end of trading today, Standard & Poor's Canadian Index Operations will add Brigus Gold to their list of companies on S&P/TSX SmallCap Index.

    Effective Monday, September 19, Brigus will also be added to the S&P/TSX Global Gold Index and the S&P/TSX Global Mining Index.

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On September 16, 2011, at 11:13 PM, njmiles03 wrote:

    I don't expect to see much appreciation in AXU's stock price until they really blow out the lights in terms of their resource numbers. Several other mines/producers have better resource numbers, and I think those allow investors to reasonably expect long-term production.

    Don't get me wrong -- I'm a shareholder, and I think AXU has silver in spades at their Keno Hill District, but most of it cannot yet be presented as 43-101 numbers. I see AXU growing for years to come, but I also believe the stock price will lag until the resource numbers really grow.

    I also hold Silvermex and Aurcana, for the same strong and extended production growth potential, and am considering Wildcat Silver & South American Silver (both still explorers).

  • Report this Comment On September 19, 2011, at 7:06 PM, ShelleyB12 wrote:

    Hi Chris-

    I first want to thank you - I always enjoy reading your articles and have learned so much about mining stocks.

    Alexco sound great, but there is one factor that you don't mention in your write up that is holding me back. That is the agreement with Silver Wheaton, who for $50 million, will be getting 25% of ALL silver production for the bargain price of $3.90/oz. This includes any future mines opened in the Keno Hill property. This is a GREAT deal for Silver Wheaton, as at current production rates, they will recoup their $50 mil in 3 years or even less and make a ton of money after that. My question is, isn' t this obligation a millstone around Alexco's neck that will take an enormous chunk out of their profits? Does it still make Alexco a great stock to own?

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