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| KENO HILL In June 2005, Alexco was selected as the preferred purchaser of the assets of Keno Hill by PricewaterhouseCoopers Inc., the court-appointed interim receiver and receiver-manager of Keno Hill. In February 2006, following lengthy negotiations with both the Federal and Territory Governments, the Supreme Court of the Yukon Territory approved Alexco's purchase of Keno Hill's assets through Alexco's wholly-owned subsidiary, Elsa Reclamation & Development Company Ltd. ("ERDC"). Interim closing of the Keno Hill transaction was completed on April 18, 2006, and an agreement governing management and future reclamation of the Keno Hill district was signed. Under the Keno Hill Subsidiary Agreement, ERDC is indemnified against all historical liability, has property access for exploration and future development and is not required to post security against pre-existing liabilities. ERDC will also be reimbursed for its future environmental reclamation activities - estimated at more than C$50 million - while itself contributing C$10 million to cleanup of the Keno Hill district. ERDC has also assumed responsibility for ongoing environmental care and maintenance of the site under contract to the Yukon Territory Government, and is actively conducting a baseline environmental assessment and site characterization program. To finalize the Keno Hill acquisition, ERDC has applied for a water license that should be granted in late 2007 or early 2008. Upon receipt of the license, ERDC will have free and clear title to surface and subsurface claims, leases, free-hold land, buildings and equipment at Keno Hill. In anticipation of receiving the water license, Alexco initiated a district-wide exploration program in 2006. The program focused initially on a comprehensive database compilation of all existing relevant historic data, followed by an extensive field program of geology, geochemistry, geophysics and drilling. 2006 Achievements and 2007 Objectives Alexco has made excellent progress at the Keno Hill project in 2006, constructing a trailer camp and upgrading existing buildings to accommodate both offices and core processing facilities. In addition to scanning and digitizing vast amounts of historical data, important new baseline data have also been captured, including updated aerial photography and an extensive airborne geophysical survey including aeromagnetics and electromagnetics. A regional district compilation map at 10:000 scale is currently being assembled with layered geological, geophysical and historical drill data, and should be complete late in the year. Drilling in 2006 focused on several targeted areas, including the Bellekeno, Lucky Queen, Ruby, Shamrock, Silver King and Husky areas. Between 11,000 and 12,000 meters will have been completed by the end of the season and should provide a reasonable assessment of the geologic variability and ore controls inherent in the district, as well as additional verification of the historical silver resource reported by United Keno Hill Mines. A National Instrument 43-101 compliant resource estimation based on the drilling results will be initiated late in 2006 to update the Keno Hill resources. The 2007 Keno Hill program will concentrate on continued district exploration and resource definition. As currently envisioned, the program will further define and expand Inferred Resources at the Bellekeno, Silver King and Husky Southwest deposits using surface diamond drilling. Once the water license is received, Alexco anticipates further resource delineation and conversion of Inferred Resources to Measured and Indicated Resources through underground drilling. Alexco plans to have three or four rigs drilling at Keno Hill for at least eight months in 2007, drilling a minimum of 30,000 meters of both surface and deep drill holes. Site History Keno Hill, historically one of the world's highest-grade silver districts, is Alexco's flagship property. Located in the Yukon Territory, 330 kilometers north of Whitehorse and close to the villages of Mayo and Keno City, Keno Hill lies within the traditional territory of the Nacho Nyak Dun First Nation. Comprising more than 35 individual mines, from 1913 to 1989 the district produced well over 200 million ounces of silver with significant by-product lead and zinc, making it the second-largest silver producer in Canada. The district was consolidated by United Keno Hill Mines Limited and UKH Minerals Limited (collectively "Keno Hill"), companies that operated from 1946 to 1989. Metals prices fell following the silver price manipulations of the mid 1980s and Keno Hill was forced into bankruptcy, closing the mines in 1989. Forced into government receivership and burdened by environmental liabilities, the property sat abandoned, though significant resources remained at grades far in excess of most of the world's primary silver producers. Exploration Potential Historically exploited high-grade silver veins in the district cover an area approximately 23 kilometers long and up to 10 kilometers wide. Mineralization is temporally related to mid-Cretaceous-aged tombstone intrusions that are associated with significant precious metals deposits across the Yukon Territory and Alaska, including deposits such as Fort Knox, Pogo and Brewery Creek. The Keno Hill veins, which vary in width from one meter to as much as 10 meters, are characterized by massive galena and sphalerite, abundant silver and lead sulfosalts and, in some instances, native silver. Since November 2005, NovaGold geologists, who are providing exploration services to Alexco, have been scanning and digitizing thousands of historic mine-related documents to create a comprehensive database. Geologists are currently building a series of 3-D models from the data, reflecting the geology, mineralization, structure, grade and configuration of prior mining activity for each of the major deposits in the district. The scanning and digital capture of the historical data is roughly 75% complete and will be consolidated into a district-wide exploration model. The effort has already generated a number of initial targets in the Silver King, Bellekeno, Husky and Husky Southwest, Lucky Queen, Shamrock and Ruby mine areas. The data consolidation has also shown that a number of previously unexploited veins and anomalies represent exceptional exploration targets. Systematic evaluation and drill testing of these targets began in 2006, and a district-wide airborne geophysical survey was completed in late August. The Company's 2006 drilling program was designed primarily to validate the resources and data from the historical mines and develop a better understanding of the local geology and ore controls. Keno Hill's accessible terrain and climate allow for a longer drilling season than most northern exploration projects, and 2006 drilling will continue to the end of November. Results to date have been very positive, largely confirming the presence of resources as suggested in historical data, and identifying significant new opportunities on the property. Assay results from the 2006 program have been slow as the result of a backup of samples at commercial labs, but will be published as available with a comprehensive review. On a geological basis, drilling in 2006 has shown a distinct difference between zinc-rich deposits in the Bellekeno area, characterized by moderate-grade silver and economic concentrations of zinc and lead, and bonanza silver grades with low base metal signatures in the Silver King and Husky areas. Impact Benefits Agreement with the Nacho Nyak Dun First Nation Alexco and the NND are working together to develop the framework of an Impact Benefits Agreement that will shape the future working partnership. The agreement will outline the social and environmental responsibilities of Alexco as they relate to the NND, and will ensure participation of the NND in all aspects of care and maintenance, reclamation, exploration and redevelopment of the Keno Hill property. The agreement will provide for jobs, business and contracting opportunities for NND members. Scholarships and direct employment-related training will ensure a pool of qualified employees among the NND First Nation. NND members will also sit on the Project Review Committee to allow Alexco and the NND to form a united group, ensuring environmental permitting, risk assessments, community consultation and development of the Keno Hill property proceeds in a manner mutually beneficial to both parties. Alexco has made significant progress recruiting employees from the nearby communities to assist with exploration, reclamation and care and maintenance tasks, hiring over 20 employees from the communities of Mayo, Keno City and Stewart Crossing in 2006. Coming Soon... Technical Reports
BREWERY CREEK MINE In addition to Alexco's flagship Keno Hill property, the Company maintains a strong portfolio of variable stage projects throughout the Yukon Territory, the most advanced of which is the Brewery Creek property. Located in northwestern Yukon, near Dawson City, the property was operated as an open-pit heap-leach mine by Viceroy Resource Corporation until 2002, when the mine was closed due to low gold prices. Alexco's senior management team completed reclamation of the mine in 2005, twice winning the DIAND Robert E. Leckie Award for outstanding reclamation. Long-term monitoring of the site is ongoing. Exploration & Development Potential The Brewery Creek mine produced approximately 280,000 ounces of gold from 9.5 million tonnes of ore in a run-of-mine oxide heap-leach operation. The site, comprising seven small open pits, has been reclaimed and exploration on the property has been rejuvenated in an effort to identify the sulfide facies or feeder zones to the oxide gold deposits. Reinterpretation of the district conducted by a subsidiary of NovaGold during the summer of 2004 recognized significant similarities to NovaGold's world-class Donlin Creek deposit in Alaska. As at Donlin Creek, mineralization at Brewery Creek is related to a series of high-level porphyritic dikes and sills that intrude fine-grained sedimentary rocks, including carbonaceous shales, siltstones and sandstones. Mineralization seen as disseminated arsenopyrite and stibnite and alteration characterized by illite and clay is characteristic of both deposits. At Brewery Creek, widespread mineralization occurs over 15 kilometers of strike length in a series of small, shallow, oxide gold deposits discovered and exploited by Viceroy. Exploration by Viceroy focused almost exclusively on identification of shallow oxidized deposits consistent with a heap-leach mining operation, and most of the exploration drilling was limited to depths of 50 meters or less. Viceroy did not test the potential for higher-grade sulfide resources deeper in the system. In 2006, Alexco conducted an initial test of the Bohemian zone, a sulfide resource outlined by Viceroy during its tenure on the property. Drill assays from the program returned some excellent results, including 9.01 grams/tonne ("g/t") gold over 13.7 meters in drill hole BC06-126, and 8.5 g/t gold over 15.9 meters in drill hole BC06-127. These results confirm the presence of significant gold mineralization in a style and geologic setting analogous to Donlin Creek. Through September 2006, Alexco invested approximately C$700,000 at Brewery Creek for the 2006 work program. NovaGold maintains a back-in and joint venture option on the property, which can be exercised after Alexco has spent a minimum of C$750,000. NovaGold's option requires an additional C$1.75 million in expenditures and a C$500,000 cash payment to Alexco to earn a 70% interest in any future sulfide facies gold resource and a 30% interest in any future oxide facies gold resource. MCQUESTEN PROPERTY Alexco and its subsidiaries also own a 70% interest in the McQuesten property (30% owned by Eagle Plains Resources Ltd.), located in the Yukon Territory just a few kilometers northwest of the Keno Hill Mining District. The McQuesten claims are in part contiguous with and partially surrounded by Alexco's Keno Hill claims. The property benefits from excellent infrastructure, with access via the all-weather Yukon Silver Trail Highway near the town of Mayo. In 2003, NovaGold completed a 3,000-meter diamond drill program on the McQuesten property, drilling 17 core holes targeting widespread gold-bearing skarn-style mineralization developed along a 1.4-kilometer zone. Mineralized intervals were encountered in many of the drill holes and are broadly continuous along strike. Gold grades are related to widespread skarn development and the proximity to a series of thin felsic dikes encountered in the drilling and earlier trenching. Mineralization is characterized by arsenopyrite, chalcopyrite, scheelite and trace visible gold. Highlights from 2003 drilling include MQ03-09, which intercepted 7.7 meters grading 5.81 g/t gold and 7.8 meters grading 3.68 g/t gold, and MQ03-17, which intercepted 9.0 meters grading 1.03 g/t gold and 10.8 meters grading 1.94 g/t gold. Keno Hill's proximity will enhance economics for further exploration of the McQuesten property. Work at McQuesten will be integrated with the Keno Hill program, including geology, airborne geophysics, drilling and geochemistry. | | |
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