Alexco Resource (AXU) Q1 2021 Earnings Call Transcript

Alexco Resource (AXU)
Q1 2021 Earnings Call
May 13, 2021, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Alexco 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. [Operator instructions] I would now like to turn the conference over to Kettina Cordero, director of investor relations. Please go ahead.

Kettina Cordero -- Director of Investor Relations

Good morning. Today's is Thursday, March 13, 2021 and I welcome you to the Alexco Resource 2021 first-quarter results conference call. This call is being webcast live and can be accessed through the events and webcasts 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, Clynton 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 risk that can be found in our most recent regulatory filings available on our website. I will now leave you with Clint Nauman.

Clint Nauman -- Chairman and Chief Executive Officer

Thank you, Kettina, 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 Bellekeno and underground development pace picking up at Bermingham and Flame & 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 tonnes 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.mKeno Hill is very busy these days. With having restarted shipping concentrates in January, we now have the initial pre-commercial production and sales staffs to report as well as our usual operations, exploration and financial updates. The following are the highlights of the first three months of 2021. On the production front, we mined about 4,400 tonnes of ore from Bellekeno at head grade of 985 grams per tonne 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 tonnes of lead silver concentrate and 105 tonnes of zinc silver concentrate. At the district mill, we processed 3,850 tonnes of ore, averaging about 112 tonnes per day over the 34 days that the mill was operating.

The mill has been operating on a modified schedule to match Bellekeno 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 Bermingham, construction of 166-meter ventilation and secondary escape rays is now within four meters of surface and breakthrough to serve as is scheduled in the next few days. In late April, we added the support of a mining contractor at Bermingham to increase their underground resources and improve on the development advanced rates.

At Flame & Moth, underground development resumed in the first quarter and we're anticipating reaching initial ore production in the third quarter of this year. We expected underground development rates will continue to improve throughout this quarter and until we reach commercial production of 400 tonnes per day expected in the fourth quarter. Our focus remains on improving underground cycle times and training new underground mining crews and 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 Bermingham Northeast Deep surface exploration program in March with four drilling rigs utilizing a directional drilling technology.

The end of April, we've drilled about 2,400 meters, providing about five intercepts the target zone and preliminary indications are that the drilling is going very well and that this new directional method of drilling are 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 Bermingham 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 Bermingham Northeast Deep area. On the financial and corporate front where the quarter ended March 31, 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 Predator's Brewery Creek project for $4.5 million, and a gain on [inaudible] precious metals embedded derivative, asset in the amount of $3 million plus the 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 mining rates incurred during ramp up activities as we move toward 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 gross proceeds of $11.7 million, which is funding the 25,000 meters 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 Hill's 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 Bermingham to include the Bermingham Northeast Deep mineralization in the fourth quarter should demonstrate significant upside and value creation at Keno Hill, and could change the outlook for the district.

Finally we want to thank again our workforce who continues to work through our rigorous COVID operating protocols and also thank the Yukon government and health officials. Through 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 25. 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 reimposition of more restrictive measures would have a significant negative effect on our results. I look forward to keeping you updated on our process as we get closer to commercial production and I thank our shareholders for their continued support and confidence in our team. So with that, I'd like to ask the operator to open the call for questions.

Questions & Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Jake Sekelsky from Alliance Global Partners. Please go ahead.

Jake Sekelsky -- Alliance Global Partners -- Analyst

Hey, Clint and team. Thanks for taking my questions.

Clint Nauman -- Chairman and Chief Executive Officer

Hi Jake.

Jake Sekelsky -- Alliance Global Partners -- Analyst

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 tonnes per day into the fourth quarter? Any color there would be helpful.

Clint Nauman -- Chairman and Chief Executive Officer

Yes. I know that Brad is doing the heavy lifting at site here. So, I'm going to let him talk to that, but yes, the main general, the answer to your questions is that the length of time that the mill is operating will be systematically extended through these cycles. Brad, why don't you go ahead?

Brad Thrall -- President

Yes. Hi, Jake. It's all about continuing to open up more faces, quarter by quarter here. So, the mill has been operating on a two week on two week off schedule and has been milling only Bellekeno ore.

Again, we, we anticipate being in the Bermingham, 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 Bermingham, in Flame and as these ore faces to 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. Expect there will be some ups and downs, but it will be a gradual process into the fourth quarter to reach those targets.

Jake Sekelsky -- Alliance Global Partners -- Analyst

OK, that's helpful. And then just on exploration, obviously, Bermingham 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 you think we can see something in the market if that's the case? Is that the first half 2022 type event?

Clint Nauman -- Chairman and Chief Executive Officer

Yes, that would be a reasonable assumption. I can say at the present time that after going through sort of the learning curve with this directional drill technology that we are beginning to knock off those intercepts more quickly, we're at this point pretty confident that we're going to complete this program in August, which we have to take into account delays at the lab. Nominally, it's still about six weeks round trip on your essays. 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 to convert anything to reserve through hanging a mine plan on that new resource.

This is assuming, of course, that the exploration is successful. Not to hang a mine plant on that 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.

Jake Sekelsky -- Alliance Global Partners -- Analyst

OK, very good. That's all on end. Thanks, guys.

Operator

Our next question comes from Mike Niehueser from Scarsdale Equities. Please go ahead.

Clint Nauman -- Chairman and Chief Executive Officer

Hello?

Operator

Our next question comes from Mike Niehueser from Scarsdale Equities. Please go ahead. Our next question comes from Chen Lin from Lin Asset Management. Please go ahead.

Chen Lin -- Lin Asset Management -- Analyst

Actually, I was also having question about the ramp up. Most has been answered. So it's just like a general question. What do you see your production level for the next year? Supposedly you run ramp to, 400 tonnes by the end of the year successfully.

So, can you maybe just how you master? Again, what kind of cash flow you're expecting for the next year?

Clint Nauman -- Chairman and Chief Executive Officer

Let's see. I think the easiest way, Chen, to handle that is we're going to be at the 400 tonne per day type of rate in the fourth quarter this year and that puts us in the ballpark of 4 million ounces per year at that point and our all-in sustaining costs are going to be in the $11, $12, $13 type range. So, you can do the arithmetic from there. I'd be loath to put a number out there in the next year, meaning from, May to May because we just don't know what that ramp up 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 will be operating in that four million ounce per year type range with cash flows that are consistent with our previous publications. And the all-in sustaining costs are going to be pretty attractive simply because there will be a lot of ore sources online from two mines. So, I think that's the safest answer that I can give.

Chen Lin -- Lin Asset Management -- Analyst

OK, great. You mentioned that your drilling is going well. So, are you still to planning to release your drill results, which is the high grade you found underneath your existing infrastructure? Those in Q4 or you have some more update on the time frame?

Clint Nauman -- Chairman and Chief Executive Officer

Yes, we'll have to see how it goes. We reduced it and we've been putting out results in a hole-by-hole basis. We could very well put them out in batches. And given the lab turn around and the rate at which those intersections are going to be coming to us, hopefully, I wouldn't anticipate doing anything before why that would be July or August, I would think.

It would probably be at least July, given the turnaround and time it takes to drill a hole. So, that would be my best guess at the present time.

Chen Lin -- Lin Asset Management -- Analyst

OK, great. Thank you.

Operator

Our next question comes from Mike Niehueser from Scarsdale Equities. Please, go ahead.

Mike Niehueser -- Scarsdale Equities -- Analyst

Hi, Clint.

Clint Nauman -- Chairman and Chief Executive Officer

Hi, Mike.

Mike Niehueser -- Scarsdale Equities -- Analyst

Thanks for taking my call. When you talk about 40 to 45 holes as a goal, are those 40 to 45 colored at the surface? Or is that with the directional drilling deeper where you could maybe get several drill results from a single colored hole?

Clint Nauman -- Chairman and Chief Executive Officer

Yes, that's exactly what this directional drilling is all about. So, we're talking more than 45 holes, I think, at the present time, but those will be drilled from pilot holes, or 'mother holes' as what we call them, which there's only going to be six or seven or maybe a few more and anywhere from four or five, six holes would be drilled from each of those mother holes, as daughter holes. Through the mineralization or the target zones at various elevation. 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, we're hitting it pretty hard. We are pretty anxious to understand.

This Bermingham ore deposit is going to be a lot bigger than we had originally anticipated, we'd rather know about it sooner than later.

Mike Niehueser -- Scarsdale Equities -- Analyst

So, we're really looking at 40 to 50 actual directional holes deep that are crossing the targeted mineralized zone. So those are really 40 to 50 shots on goal, so to speak. 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.

Clint Nauman -- Chairman and Chief Executive Officer

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 that from each of those intersections, we are pretty confident that there's going to be a horizontal or elevation type control on this mineralization, we don't know what that is. So starting out with drilling, you know, 50, 60, 70 meters up dip from each of those prior intersections and the same down depth. And then we would move to the next fences. What I've tried to make is that there's a bigger distance between the fences, and there isn't 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 the thickness and tenor of it up and down depth from prior intersections.

Mike Niehueser -- Scarsdale Equities -- Analyst

Oh, it sounds like you're fairly confident and 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? Is that right?

Clint Nauman -- Chairman and Chief Executive Officer

No, this is accurate and some of the fences. In fact, the initial fences are between the holes, if you like there are 100 meter. Right now, there's 100 meters between those intersections. So yes, we plant a fence halfway starting out, and drill up, dip and down dip, and you're going to see variations.

I mean, that's just a fact of the matter at Kino Hill. But we'll just have to see how this works. And I can tell you that the geology is behaving, if I can say that pretty well. I mean, I guys are able to nail these targets within a few meters of expectation.

So, I mean, the architecture that we have defined or interpolated from prior work seems to be holding up pretty well.

Mike Niehueser -- Scarsdale Equities -- Analyst

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, 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? Are you starting at the fat end and moving to that?

Clint Nauman -- Chairman and Chief Executive Officer

Yes, we do have a couple of drills operating at that end of it. But remember, we've got four drills up there. So we are spread out over that entire 500 meters plus or minus the present time, but certainly a couple of the early fences are in that particular that's going to be closest to the currently design decline at Birmingham.

Mike Niehueser -- Scarsdale Equities -- Analyst

Yes, just but I mean, it just appears to me that that would be the most interesting part from grade and proximity and the type of war that you really would be desiring to have a lot of.

Clint Nauman -- Chairman and Chief Executive Officer

Yes. And it's as close as to projected infrastructure. Right. So yes, it makes sense to start there but that being said, we also need to know overall metrics related to this because I think, as we've said before, it could influence thinking as to how this district develops in the future.

Mike Niehueser -- Scarsdale Equities -- Analyst

Well, that's interesting off to figure out what that means exactly. But it's so good. When you said that you had drilled 2400 meters, and that you drill 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, it looks like the material that you would be most interested as the carrying grade.

So those are, it looks, what I'm hearing is that you're actually seeing and feeling that you're having some success hitting what the target is.

Clint Nauman -- Chairman and Chief Executive Officer

Well, we're targeting a certain area, we're reaching that target. And we'd have to wait until and we're sampling rocks. And in fact, I mean, just some minutiae information is that we're going to be 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.

So I'm not going to predict what the initial 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.

Mike Niehueser -- Scarsdale Equities -- Analyst

Yes, well, that's appropriate; 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 Belle Kino. And that's providing an opportunity to use that or to put through the mill to commission the mill. But as that runs out, then you get into the native, flaming loss and Birmingham or 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 PA or compared to prior operations, a number of years ago, and I'm curious if the ore that was broken, and in Belle Kino oxidized and so it doesn't float as well, is that a good question or does that make sense?

Clint Nauman -- Chairman and Chief Executive Officer

That is a good question. And Brad, well positioned to answer that.

Brad Thrall -- President

Yes. Mike, I guess my comment on metallurgy. You know, 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. You know, 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 [inaudible]. But no, we haven't seen any issues of oxidation of all this is all fresh, for the most part, all fresh long hole stokes that have been extracted here.

Mike Niehueser -- Scarsdale Equities -- Analyst

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 see those like 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.

Brad Thrall -- President

Thanks, Mike.

Operator

Our next question comes from Mike Kozak from Cantor Fitzgerald. Please go ahead.

Mike Kozak -- Cantor Fitzgerald -- Analyst

Yes. Hi, Clynton team. Thanks for hosting the call. And congratulations on selling concentrates again, at Keno Hill, must feel pretty good, especially when the revenue comes in.

Just one question for me, given that you're in like call it 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 flaming 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 410 a day in Q4?

Clint Nauman -- Chairman and Chief Executive Officer

Yes, it's a straightforward question, Mike. But you know it's sort of a complicated because the arithmetic is somewhat complicated because you are producing revenue. So you do have cash offsets, you're right, that original number was $23 million, $24 million of that's $18 million, $19 million 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 $1 million something like that outstanding. So it's all about the working capital.

And 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 with some ore that's melt. I know, you're looking for a number at the highest level, I guess that the capital that nominally would be interpreted as going on the balance sheet. To get to 400 tons per day, that number is probably in that $10 million range, $8 million to $10 million something like that, if in fact, we continue at the rates that we can't be expecting and are achieving. So, I mean, that is, I mentioned that with all the appropriate qualifiers in terms of Safe Harbor language.

Mike Kozak -- Cantor Fitzgerald -- Analyst

Got it, OK. And that number, that's including your revenues from the pre commercial concentrate sales, your best estimate is what they will be, or excludes that?

Clint Nauman -- Chairman and Chief Executive Officer

Yes, that would be, that's sort of a net number.

Mike Kozak -- Cantor Fitzgerald -- Analyst

OK, got it. All right. That's it for me. Thanks, everyone for hosting the call.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Clynton Nauman for any closing remarks.

Clint Nauman -- Chairman and Chief Executive Officer

Thank you, operator. Our next update will be at our AGM on June 10, at 01:30 Pacific Time. In the context of the COVID-19 pandemic, and in order to preserve everyone's well-being we asked the shareholders to vote in advance of the meeting and to join the proceedings by a 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.

Operator

[Operator signoff]

Duration: 34 minutes

Call participants:

Kettina Cordero -- Director of Investor Relations

Clint Nauman -- Chairman and Chief Executive Officer

Jake Sekelsky -- Alliance Global Partners -- Analyst

Brad Thrall -- President

Chen Lin -- Lin Asset Management -- Analyst

Mike Niehueser -- Scarsdale Equities -- Analyst

Mike Kozak -- Cantor Fitzgerald -- Analyst

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