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KENO HILL
Historically one of the world's highest-grade silver districts, Keno Hill is Alexco's flagship property. The Keno Hill Silver District is located in Yukon, Canada, approximately 330 kilometers north of Whitehorse, and lies within the traditional territory of the First Nation of Na-Cho Nyak Dun ("FNNND"). The district comprises approximately 23,350 hectares (233.5 square kilometers) of mining leases, quartz claims and crown grants and has numerous mineral occurrences, deposits and prospects, including 35 mines with a history of production.
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.
The Yukon Government's published Minfile database states that between 1913 and 1989, the Keno Hill Silver District produced more than 217 million ounces of silver (5.37 million tons) with average grades of 40.52 oz/ton silver, 5.62% lead and 3.14% zinc, making it the second-largest historical silver producer in Canada. Metals prices fell and environmental standards increased in the 1980s and United Keno Hill Mines Limited terminated production from the remaining active mines in 1989. Forced into government receivership and burdened by environmental liabilities, the majority of the district sat abandoned for nearly 20 years, though significant resources remained at grades far in excess of most of the world's primary silver producers. The historical producing grades would rank Keno Hill in the top 3% of today's global silver producers, with remaining resources estimated to exceed 1 million tons (not NI 43-101 compliant) with grades averaging 31.5 oz/ton silver, 3% lead and 2.2% zinc.
In June 2005, Alexco was selected as the preferred purchaser of the assets of United Keno Hill Mines Limited and UKH Minerals Limited (collectively "UKHM"). In December 2007, following receipt of necessary permits and approvals, the Yukon Government approved final close of the purchase agreement, giving Alexco 100% ownership of the UKHM assets through its wholly-owned subsidiary, Elsa Reclamation & Development Company Ltd.
EXPLORATION SUCCESS IN 2007/2008
Since starting work in the Keno Hill Silver District in June 2006, Alexco has drilled 181 holes totaling approximately 44,800 meters, has flown 2,016 line kilometers of airborne geophysics and has compiled approximately 35,000 historical documents into a 300 gigabyte digital database/library of geologic information.
Alexco completed a significant exploration program in 2007/2008 focused on defining NI 43-101 resources at Bellekeno and Onek, expanding mineralization at Lucky Queen and testing additional exploration targets throughout the district. Nearly 33,600 meters were drilled in 139 holes in the Keno Hill district in 2007/2008, primarily in the Bellekeno, Onek, Lucky Queen, Silver King and Husky/Husky SW zones.
Lucky Queen
Step-out drilling in the area of the historic Lucky Queen mine has intersected exceptionally high-grade silver mineralization approximately 170 meters southwest of similar grade intercepts encountered by Alexco in 2006, establishing continuity of the mineralized vein structure southwestward and below historically mined areas. Alexco drilled 19 holes at Lucky Queen in 2007/2008 totaling approximately 4,430 meters with grades up to 35,618 g/t silver (1,039 oz/ton) over thin intervals in this native-silver-bearing historic mine area.
The Lucky Queen mine, in production from 1927 to 1932, was the highest grade silver producer in the Keno Hill district, producing approximately 11 million ounces of silver from 123,500 tons of ore at an average recovered production grade of 88.7 oz/ton silver. There has been no systematic contemporary exploration of the area. Alexco intends to continue exploration of the area in 2009 with the objective of expanding the known mineralized zones to a point where a resource calculation decision can be made.
Onek
With reported past production totaling 93,000 tons averaging 13.77 oz/ton silver, 5.54% lead and 3.43% zinc, the Onek property is a potential additional zinc-silver resource that could complement a production decision at Bellekeno. Drilling in 2008 expanded the zone of high-grade zinc-silver-lead mineralization approximately 135 meters below the deepest underground workings of the historic Onek mine and confirmed the presence of a mineralized structure over a strike length of approximately 400 meters. Mineralization remains open both along strike and down dip. Alexco has engaged SRK to complete an NI 43-101 compliant resource estimate for the Onek deposit, targeted for completion in the fourth quarter of 2008.
Other Keno Hill Deposits
While the primary focus for 2009 will be advancing the Bellekeno deposit toward production, Alexco will continue exploration at several untested historical mine areas, including Keno 700, Hector Calumet and other targets that have been delineated from ground and airborne geophysics, detailed geologic mapping and the reduction of historical data. Diamond drilling by Alexco over the past 16 months has tested the Bellekeno, Onek and Husky SW areas in some detail, whereas six other historical deposit areas have been subject to between one and three drill holes.
More than 20 of the 35 past-producing mines in the district remain to be evaluated through data compilation, review and diamond drilling as warranted. Similarly, less than 5% of the potentially productive terrain in the district has been tested to date. Alexco's geologists will spend the 2008 winter season finalizing 3D technical models of all relevant historical ore deposits in the district, using the recently completed scanned and digitized historical database. This work will inevitably lead to a number of new targets in the district, including blind and covered targets that will be prioritized for future exploration.
FIRST NATIONS PARTNERSHIP
In May 2008, Alexco and the First Nation of Na-Cho Nyak Dun entered into a Cooperation Agreement relating to the activities of Alexco and its subsidiaries in the Keno Hill Silver District. The Agreement outlines FNNND's support in principle for current activities in the district, providing project certainty for the development of the Keno Hill Silver District, and establishes the framework for wide-ranging collaboration as Alexco continues its exploration and environmental activities in the area and advances the Bellekeno deposit toward production.
The Cooperation Agreement also establishes the foundation on which future comprehensive cooperation and benefits agreements will be reached between Alexco and FNNND as new district projects advance and key milestones are achieved. The Cooperation Agreement and future agreements will crystallize the social and environmental responsibilities of Alexco and FNNND, clearly identifying obligations and assigning responsibilities for straightforward implementation. The agreements will ensure the participation of FNNND in all aspects of care and maintenance, reclamation, exploration and redevelopment of the Keno Hill property. The agreements will provide for jobs, business and contracting opportunities for FNNND members, and scholarships and direct employment-related training will ensure a pool of qualified employees for the project. Alexco has made significant progress recruiting employees from the nearby communities to assist with exploration, reclamation and care and maintenance tasks, with approximately 60% of Keno Hill employees joining Alexco from the communities of Mayo, Keno City and Stewart Crossing during the 2008 season. As contemplated in the preliminary economic assessment, the new Bellekeno mine would employ more than 100 people in a variety of capacities.
Alexco is committed, in both its current operations and planning for future operations, to the remediation and maintenance of the environmental quality in FNNND traditional territory and the inclusion of and provision for FNNND interests. Through open communication, Alexco and FNNND will continue to foster a relationship based on mutual understanding, support and respect.
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