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Annual Message to Shareholders

May 12, 2016

As we look back to 2015, we are proud of the many successes that our team at Alexco was able to accomplish, in spite of what was yet another challenging year in the silver industry. Some of the more notable achievements include:
  • We were rewarded with a significant silver discovery in the vicinity of the historical Bermingham mine in the Keno Hill Silver District, based on our strategy to continue to add value through exploration at all stages of the market cycle
  • The continued advancement of the Flame & Moth deposit through the permitting process, successfully securing appropriate amendments to our Quartz Mining Licence authorization
  • In December we completed a $4 million financing to ensure that our plans for ongoing exploration at Bermingham were funded for 2016.
  • The Alexco Environmental Group ("AEG") continued to impress, late in 2015 being awarded a US Environmental Protection Agency ("EPA") contract for the design, construction and automation of an emergency interim water treatment plant treating water from the Gold King mine near Silverton, Colorado.
  • AEG turned in strong revenue performance and margins in 2015, with revenues of $14.7 million and gross profit of $3.3 million. Gross margins are in excess of 22%.
  • While operations remained suspended at Keno Hill in 2015, we focused on preservation of our balance sheet which ended the year with more than $8.0 million of free cash.
  • We continued to add value to our resource base, and have made great strides in optimizing our plans to resume production at the Flame & Moth, Bellekeno and Lucky Queen deposits (more below).
  • Finally, we have always believed that Alexco is highly leveraged to the price of silver and the recent relatively rapid appreciation of our market capitalization during a period of modest silver price improvement would seem to underscore that assumption.
On the financial side, and as expected given the challenging market conditions, for the full year 2015 we showed a $5.5 million loss, however this included non-cash costs of $3.5 million.

With these achievements behind us, we are keenly focused on continuing to grow Alexco. With the current upward trend in silver prices in the initial four months of 2016, and the material response of the silver mining sector to the apparent improving conditions, I am "cautiously optimistic" that we have seen the bottom of the silver markets in 2015 and will continue to see improving strength in our sector in 2016. Accordingly, we are continuing to maintain our plant, equipment and infrastructure to ensure that its condition is satisfactory in the face of potentially improving market conditions.

With the recently announced financing of approximately $13 million and current cash on hand, our total cash position going into the 2016 summer will be in excess of $25 million including approximately $8.5 million of restricted cash of which $4.3 million is attached to performance bonds which will be retired in the near future. Given all this, we believe Alexco is in a unique situation, whereby we operate in one of the safest jurisdictions in the world and we own silver mining facilities which can be moved to production relatively quickly at modest capital cost. We have the additional benefits of an existing robust silver resource inventory as well as an unrivalled 2015 exploration discovery at Bermingham that has the potential to materially impact future development plans of the Keno Hill Silver District.

The Bermingham silver discovery in 2014/15 is a story unto itself, but essentially resulted from the dogged determination of our geology team to understand why the bigger and higher grade silver deposits in the Keno Hill Silver District seem to occur in some places and not others. With completion of detailed drilling and the definition of approximately 27 million indicated ounces of silver at the previously discovered Flame & Moth deposit in 2014, our geologists turned their attention in 2015 to the Bermingham prospect where they were confident that discovery of additional silver resources were a high probability. The results were nothing short of spectacular with the announcement of the discovery of a steeply plunging zone of mineralization ranging from about 0.4 meters to more than 6 meters thick with grades ranging from 1 to 2kg to more than 10kg per tonne of silver. As of today this zone has been drilled over about 140 meters down plunge, is 30 to 40 meters in strike length and is open both up dip and down dip. Bermingham mineralization is characterized by silver sulfosalts including pyrargyrite (ruby silver) and local native silver in a carbonate dominated rock; in many respects this type of mineralization was the target of early prospectors at Keno Hill, and is certainly typical of mineralization now known to be associated with the larger and higher grade deposits in the district.

With the Bermingham discovery in hand, and flow through proceeds of $3 million from the December 2015 financing, we will continue follow up evaluation and surface exploration of the Bermingham area. A minimum of 8,000 meters of diamond drilling is planned in 25 to 30 holes to test both shallow and deeper extensions of the mineralized zone, as well as infill the previously outlined high grade area in anticipation of calculating an initial mineral resource for the Bermingham deposit before the end of 2016. The 2016 surface drilling program is expected to run between May and September with results released more or less as received but certainly consolidated early in the fourth quarter of 2016.

Notwithstanding the excitement surrounding the Bermingham discovery, it is wise to keep in mind that it is -- a discovery - far yet from a defined resource. In the interim, and importantly, we have continued with our work to re-engineer and optimize the mine plan for Flame and Moth, incorporating the expanded mineral resource that we updated in April 2015. We have completed a detailed geotechnical review of the future Flame & Moth mine plan the result of which will be an expansion of long hole versus cut and fill (or drift and fill) mining which should reduce expected operating costs as well as mitigate sustaining development costs. The Flame and Moth and Lucky Queen deposits' economic models are in the process of being revised using current consensus pricing and updated estimated capital and operating costs. Once results from this work is compiled, the study will move to develop an optimized multi mine model which will be incorporated into an updated Preliminary Economic Assessment ("PEA"), which is expected to be released in the fourth quarter, 2016. Make no mistake, Flame & Moth remains a cornerstone mining asset in the District and I have every expectation that when the optimization project is complete we will be looking at a further improved project with a longer mine life than the 5 or 6 years anticipated with the former smaller resource.

In 2016 we are continuing the ongoing discussions with Silver Wheaton to restructure the existing silver streaming agreement. I can assure shareholders is that Silver Wheaton's interests are the same as ours -- to get Keno Hill back into production -- and both parties continue to focus on that.

As mentioned, AEG again turned in strong revenue performance and margins in 2015, with revenues of $14.7 million and gross profit of $3.3 million. Gross margins are in excess of 22%. The revenue is slightly less than a year ago which is mainly as a result of the Globeville Smelter Project in Colorado being substantially completed and Alexco transitioning to new projects. It's worth noting that AEG's revenue will tend to be cyclical as projects like Globeville come and go. In anticipation of Globeville coming to an end we have increased our business development activity to win more project related work in the US. Those efforts were rewarded in the third quarter of 2015 when AEG was selected by the US EPA as the interim water treatment contractor to design, construct, automate and operate an Interim Water Treatment Plant at the Gold King Mine near Silverton, Colorado. AEG completed construction and initiated operation of the interim water treatment plant in Q4, 2015. We will continue to operate the water treatment plant at least until September 2016 while also undertaking US EPA requested capital improvements and optimization work. No doubt, the success of this high profile project has underscored AEG's technical and operating ability and we anticipate our success in this project will lead to other environmental project work in the USA. We look forward to continued growth in AEG and are positioning the business for increasing operating activity such as design, construction and operation of water treatment plants as typified by our Globe and Gold King projects. AEG is also making significant progress in the development of the Existing State of Mine Reclamation and Closure Plan for the historic Keno Hill District liabilities as a contractor to Indigenous and Northern Affairs Canada. Once this plan is permitted, implementation of the plan represents a 30 year project with AEG as the prime contractor.

In closing, let me emphasize my increasing confidence in the silver markets, but in doing so assure you that our Board of Directors and Management continue to carefully manage cash outlay while we manage our growth. That said, in 2016 we will take a measured approach to expanded activities at Keno Hill, making sure our plant and equipment is in satisfactory condition and the Company is positioned to move forward should market conditions continue to strengthen. Finally for those who been long-term shareholders, during these challenging markets, we appreciate your continued support. We also have many new shareholders and appreciate your confidence in our Company. To all of our shareholders, new and long-term, we know that we would not be where we are without you.

Thank you,

Clynton R. Nauman
President & Chief Executive Officer
Alexco Resource Corp.