Mining Plus Canada Consulting Ltd. (Mining Plus) was retained by Alexco to prepare a PFS and Independent Technical Report on the Keno Hill Silver 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.
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 Mt of ore at an average 805 g/t silver, 2.98% lead, 4.13% zinc and 0.34 g/t gold. Following commissioning, the mill will produce two concentrates; a high-grade lead-silver concentrate averaging 15,890 g/t silver, 54% lead, and 3.7 g/t gold, and a zinc-silver concentrate averaging 649 g/t silver and 53% zinc. The average annualized silver product in concentrate is 4.0 Moz.
Alexco has been actively developing Keno Hill 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 maintained the District on care and maintenance 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 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 with cement added as required.
The estimated Mineral Reserves calculated for this Project are 1.18 Mt grading 805 g/t silver, 2.98% lead, 4.13% zind and 0.34 g/t gold for an overall 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 tpd (146,000 tonne per year) with a planned increase in throughput in Year three, for an overall 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 Bermingham mines have all permits and authorizations in place to commence full scale mine production. The Onek and Lucky Queen mines are included in Keno Hill’s Quartz Mining License. There are currently no plans for production from the Onek deposit. The Project is de-risked and Alexco is advancing to production in Q4 2020.
The initial capital cost estimate 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 of direct mine costs, $70 M of direct mill costs, and $67 M for site general and administrative costs (excluding corporate). However corporate costs are included in the calculation of 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 t of lead-silver concentrate and 67,800 t of zinc-silver concentrate over the eight-year mine life. Over the LOM, the payable metals produced in these concentrates total 27.2 Moz silver, 65.4 Mlb lead, 67.2 Mlb zinc and 4,707 oz gold.
Metal pricing was based on information from external sources. The LOM net revenue NSR 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 NPV5 of $136.2 M and after-tax NPV5 of $101.2 M. The pre-tax 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 M 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. 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 focused on the Bermingham deposit. In 2020, Alexco plans to complete approximately 5140 m of surface diamond drilling at Bermingham; 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.