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2019 Prefeasibility Study

Mining Plus Canada Consulting Ltd. (Mining Plus) was retained by Alexco Resource Corp. (“Alexco”) to prepare a
Preliminary Feasibility Study (“PFS” or the “Study”) and Independent Technical Report (the “Technical Report”) on the Keno Hill Silver Project (the “Project”), located in the Yukon Territory, Canada. The purpose of this report is to disclose the results of the PFS. This Technical Report conforms to National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”).

Alexco is a public company with its headquarters in Vancouver, B.C. Alexco, through wholly owned subsidiaries, owns the mineral rights for the Keno Hill Silver District (“KHSD” or the “District”) following its successful bid for the assets of United Keno Hill Mines Ltd in 2006. Alexco acquired the properties with all pre-existing liabilities subject to indemnification from the Federal Government of Canada.

The Project contemplates the conventional mining and milling of silver-lead-zinc ore from four deposits in the District. There is an existing mill, which will process a high-grade silver-lead-zinc ore. Over the eight-year mine life contemplated in this PFS, the mines will produce 1.18 million (“M”) tonnes of ore at an average 805 grams per tonne (“g/t”) silver (“Ag”), 2.98% lead (“Pb”), 4.13% zinc (“Zn”) and 0.34 g/t gold (“Au”). Following commissioning, the mill will produce two concentrates; a high-grade lead-silver concentrate averaging 15,890 g/t Ag, 54% Pb, and 3.7 g/t Au, and a zinc-silver concentrate averaging 649 g/t Ag and 53% Zn. The annualized silver product in concentrate is 4.0 M ounces (“oz”).

Alexco has been actively developing the Keno Hill Silver District since 2006. Alexco built a new mill complex in 2010 which operated for three years, processing ore from the Bellekeno Mine. Since suspending mining operations in 2013, Alexco has maintained the District on a care and maintenance status and focused on additional exploration leading to increases in the estimated Mineral Resources for the Bermingham and Flame & Moth deposits. In 2018, Alexco completed over 1,000 meters (“m”) of underground development work including an advanced exploration decline at the Bermingham deposit and a new portal and ramp at the Flame & Moth deposit.

The mine plan for Keno Hill comprises mining from four deposits (also referred to as “mines”); Bermingham, Flame & Moth, Bellekeno, and Lucky Queen. Most of the ore will come from Bermingham and Flame & Moth (over 90%). Two mines will be operating at any given time, except for the initial three-month ramp up period of ore from Bellekeno only.

The mine plan is based on conventional mining methods. A combination of mechanized overhand cut and fill, and longhole stoping with cemented rock fill have been selected as the appropriate mining methods for all four deposits. The deposits require the use of mining methods that can adequately support the vein and that are flexible and selective while minimizing the direct mining costs. The backfill is planned to be a mixture of waste rock fill and tailings from a dry stack tailings facility (“DSTF”) with cement added as required.

The estimated Mineral Reserves calculated for this Project are 1.18 M tonnes grading 805 g/t Ag, 2.98% Pb, 4.13% Zn and 0.34 g/t gold for an overall silver equivalent (“AgEq”) grade of 1,136 g/t AgEq as of March 28, 2019 (see Reserves and Resources Table).

The District mill will be recommissioned at the currently permitted average throughput of 400 tonnes per day (“tpd”) (146,000 tonne per year (“tpy”)) with a planned increase in throughput in Year 3, for an overall life-of-mine (“LOM”) average throughput of 430 tpd. The mill is a conventional flotation mill producing two concentrates. Tailings are thickened, filtered, and placed in a conventional DSTF, which will be progressively reclaimed.

The Bellekeno, Flame & Moth and Lucky Queen mines have all permits and authorizations in place to commence full scale mine production. Although licences are also in place for Onek, there are currently no plans for production from this deposit. The Bermingham deposit requires a final licence amendment, currently expected in the fourth quarter of 2019, to commence ore production. The mill and tailings facilities are fully permitted.

The Project risks are substantially minimized by a combination of Alexco’s previous operations at Keno Hill, recently completed underground development and drilling, the existing and well maintained infrastructure both onsite and offsite (including grid power), and the safe jurisdiction of the Yukon.

The initial capital cost is $23.2 M. This initial capital (pre-production prior to achieving positive cash flow) comprises $17.9 M of mine development and PP&E and $5.3 M of net working capital for the initial construction and ramp up period of five months. The LOM sustaining capital is estimated at $76.5 M, primarily for ongoing mine development.

The direct operating costs for the Project are estimated at a total of $362 M or $312 per tonne of ore. These comprise $226 M direct mine costs, $70 M of direct mill costs, and $67 M for site general and administrative (“G&A”) costs (excluding corporate). However corporate costs are included in the calculation of all-in sustaining costs (“AISC”).

Revenue derives from selling four metals (silver as main product and lead, zinc and gold as by-products), reporting to two concentrates; a lead-silver concentrate and a zinc-silver concentrate. The Project will produce a total of 58,200 tonnes of lead-silver concentrate and 67,800 tonnes of zinc-silver concentrate over the eight-year mine life. Over the LOM, the payable metals produced in these concentrates total 27.2 M oz Ag, 65.4 M pounds (“lbs”) Pb, 67.2 M lbs Zn and 4,707 oz Au.

Metal pricing was based on information from external sources. The LOM net revenue (“Net Smelter Return”) is $652 M and the total cash flow is at $174 M. These are based on metal pricing assumptions as follows:

  • Silver ranging from US$15.75/oz in 2019 to the long-term price of US$18.25/oz;
  • Zinc: US$1.25/lb in 2019 and 2020, and US$1.22/lb thereafter;
  • Lead: US$0.96/lb in 2019, and US$1.00/lb thereafter; and
  • Gold: US$1,275/oz in 2019, US$1,315/oz in 2020 and US$1,325/oz thereafter.

The project economics show this to be a robust project with low capital and high returns with a pre-tax net present value at a 5% discount rate (“NPV5”) of $136.2 M and after-tax NPV5 of $101.2 M. The pre-tax internal rate of return (“IRR”) is 84% and after-tax IRR is 74%. Considering the Project on a stand-alone basis, the undiscounted after-tax cash flow totals $129.3 million over the mine life. Simple payback occurs approximately two years from start of production, approximately 26 months after the end of the initial capital period).

The brownfields nature of the Project means a relatively rapid timeline to full production of six months total. The preproduction period is expected to require up to three months, during which the mill modifications and construction of the additional surface infrastructure (expansion of camp, offices, etc.) will be completed. Once the permitting process is completed, underground development will continue, and the mill will be re-commissioned. The ramp up to full production in the mill is expected to take three months.

Exploration will continue at Keno Hill to expand the current resources and in the short term is particularly focused on the Bermingham deposit. Alexco plans approximately 7,500 m of surface diamond drilling at Bermingham and other areas in Galena Hill in 2019; this is not included in the Project costs summarized in the Technical Report.

It is recognized that there remains considerable estimated Mineral Resources in the indicated category after extraction of the Mineral Reserves considered herein.

Pre-Feasibility Study for Expanded Silver Production at Keno Hill Silver District - February 13, 2020

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