Operating Canada’s only primary silver mine, Alexco Resource (AXR-T, AXU-X), is optimizing its Bellekeno silver-lead-zinc mine, 450 km north of Whitehorse in the Yukon.
But what really excites the company is the high-grade growth potential on its wholly owned, 230-sq.-km land package in the prolific Keno Hill silver district.
The rich mining history surrounding Keno Hill is evident driving into Alexco’s camp on an all-season roadway. Old bunk houses dot the land en route to Alexco’s new administrative complex, and nearby Keno City retains the hard-rock foundation typical of towns that grew roots during mining booms.
Alexco acquired Keno Hill via an environmental remediation contract with the federal government before pumping US$60 million into reactivating operations.
"The Bellekeno mine has been fast-tracked," Keno Hill’s vice-president and general manager Tim Hall declares as we drive by the mill. "We’ve put it into production in three years from reclamation to full permitting and milling. It was all delivered on time and on budget, and we received an award for our efforts. It’s been a pretty fast ride."
Alexco operates a conventional flotation plant that runs at 250 tonnes per day and is aiming to produce 2.2 million oz. silver this year — net of lead and zinc credits. The company mechanized much of the mining process at Bellekeno, and trucks its ore 4.5 km east from the mine portal for processing.
Alexco produced just over 1 million oz. silver during the first half of 2012 at cash costs of US$12.99 per oz., though it has not been immune to operational hiccups during Bellekeno’s ramp-up.
"Let me start by saying that the second quarter of [full operations] at the Bellekeno mine is not one that we intend to repeat," president and CEO Clynton Nauman commented during Alexco’s second-quarter conference call. "I’d like to offer some longer-term encouragements. We have a plan in place that by the end of the year, we should be able to catch up on our earlier expectations, stepping up primarily in the fourth quarter."
Cash costs at Bellekeno jumped from US$6.30 per oz. silver a year ago to US$15.53 per oz. silver during the second quarter. Many of the difficulties stemmed from processing lower ore grades, which dropped roughly 15% to 704 grams silver per tonne. Alexco has also grappled with high labour turnover, and lower realized prices on its zinc and lead credits.
Nauman explained that roughly 30% of Alexco’s mill feed during the second quarter came from outside Bellekeno’s existing resource, which totals 270,000 indicated tonnes at 934 grams silver, 0.5 gram gold, 8.3% lead and 6.7% zinc.
A group of tour attendees gather underground in calf-deep water at Bellekeno’s 750-metre area, which is located in the Southwest zone and hosts some of the company’s highest-grade mineralization. Hall points out the overcut, explaining how Alexco has turned to long-hole mining in Keno Hill’s historically difficult ground conditions.
Standing in what is referred to as "banker’s corner" — the vein mineralization is luminescent, and shimmers under head lamps — it’s clear why Alexco is forecasting an average grade jump to the 800- to 900-gram silver range later this year.
"We continue to explore downplunge to the south of Bellekeno," Hall says, pointing out exploration drifts and noting the company is drilling 5,000 metres underground in 2012. "We have a number of surface exploration pits out there, and quite a robust underground drill program. Much of it is concentrated in what we call the ‘Thunder zone.’ A lot of the previous reserve limitations were a result of drifting along-vein. Our outlook has changed a bit, though we’re still drifting along-vein in some areas."
The company is aiming to complete a resource recalculation at Bellekeno over the next 12 months, but a bigger goal involves bringing two additional mines into production and bumping mill throughput to nameplate capacity of 400 tonnes per day.
Within the Keno Hill project area, Alexco has been rehabilitating underground infrastructure at its Lucky Queen asset since April 2011. The company is aiming to start up silver production at the former producing mine by the end of the year. Lucky Queen carries 124,000 indicated tonnes grading 1,227 grams silver, 0.2 gram gold, 2.6% lead and 1.7% zinc, for 4.9 million contained oz. silver equivalent. Alexco had nearly completed the rehabilitation of the historic drift in early August.
"Essentially we’ve duplicated the historic resource at Lucky Queen," Hall points out over lunch. "Right now we have a budget of fifty tonnes per day, but it’s contingent on our permitting and licensing. It’s a flat vein that’s been faulted multiple times, so there are lots of offsets on the structure. Ground conditions can be challenging, but we just need to get in there and get a feel for it and do some test stoping to get our heads around the orebody."
Alexco’s second near-term asset at Keno Hill is its Onek silver mine, which is close to the mill. Exploration at the historic Onek site led to the discovery of a zoned mineralized body, with high silver grades in the upper portion of the body and zinc-indium mineralization at depth.
The company has installed a portable bench on surface for its decline, and is awaiting permits needed to drive a short drift to access the silver-rich portion of the deposit. Onek holds 585,000 indicated tonnes grading 194 grams silver, 0.7 gram gold, 1.2% lead and 13.7% zinc, for 3.6 million contained oz. silver equivalent.
According to Hall another upside to Keno Hill would be the addition of further zinc credits to the mill feed. As it stands Alexco is mining a lead-dominant silver system, with the lead concentrate accounting for 85% of revenues. Hall says there is plenty of room in the zinc circuit to accommodate higher capacity.
"We continue to work closely with the regulatory agencies to achieve the necessary permits to put both of these mines into production," Nauman says. "But as some of you know from the public record, permitting for mining activity has been slow, which in turn delays our permit modification for processing material from these new deposits."
And that is just the beginning for Alexco, which sits on a land package that has hosted 35 historic mining operations.
Hall classifies the company’s strategy as "head-frame exploration," where Alexco focuses on past-producing areas and a rich database of historic data that includes 15,000 metres of reverse-circulation drilling, and an additional 7,000 metres of diamond drilling.
"The difficulty of exploring at Keno Hill is that we’re looking at small orebodies," vice-president exploration Alan McOnie explains during a presentation at Alexco’s site office. "They are narrow veins that don’t have large strike extent. They are essentially infilling old fault zones. So they aren’t of uniform strike length or depth. They are very small structural targets, and a lot of our drilling has to be extremely focused."
Alexco made an important discovery earlier this year in the form of its Flame and Moth zones at a site that hosted a historic open-pit resource when Alexco acquired the Keno Hill package. The company has since drilled 18,000 metres at the targets.
Drilling is focused on the upper portions of the vein system, and Alexco is optimistic it can increase the resource base by year-end. Flame and Moth house 759,000 indicated tonnes grading 453 grams silver, 0.4 gram gold, 1.7% lead and 7% zinc.
On Oct. 9, Alexco released preliminary results from a 23-hole drill program at Flame and Moth. The company extended silver mineralization for 100 metres updip at the target, and identified two mineralized structures up to 10 metres apart, with each averaging 3 metres in true width.
Alexco’s results were highlighted by 4.3 metres carrying 1,705 grams silver from 253 metres in hole 12-0430; 7.4 metres averaging 880 grams silver from 141 metres in hole 12-0405; and 7.6 metres of 460 grams silver from 107 metres in hole 12-0400.
McOnie says the company has also used the historic data and updated mapping to create a new stratigraphic sequence for the area, which he says "has allowed us to interpret and identify the old fault structures that were subsequently mineralized."
Alexco has avoided dilution with 60 million shares outstanding and a $238-million market capitalization, closing at $3.94 per share at press time. The company boasts a strong cash position with US$32 million in net working capital to end June, and forecasts it can achieve production at Lucky Queen and Onek for US$16 million.
Alexco is exploring earlier-stage targets that could extend Keno Hill’s operating life, as well as a US$35-million remediation program at the historic Elsa tailings site that would see the company access 2.5 million indicated tonnes grading 119 grams silver, 0.1 gram gold, 1% lead and 0.7% zinc.
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