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Alexco Resources: Fully Financed and Near-Term Production

Alexco Resources received its amended water permit, the last remaining hurdle before construction can commence. The company believes it will reach first production before year end and just secured financing for the build-out. The financing was initially set at C$20 but then it was expanded to $26m, which was fully subscribed to an with over-allotment option being exercised, the company raised gross proceeds of C$30m. 

It will take approximately 6-months to complete the required mine development as it already has a mill in place from when it first went into production in the early 2010's but had to shutdown due to the combination of depressed silver prices, an encumbering streaming agreement and higher than projected costs. This time around production will be higher and costs lower as ore won't will come from multiple sources instead of a single narrow vein mine. 

Production of concentrate is expected in late Q4. The company also amended its silver streaming agreement with Wheaton Precious Metals such that the on-going per ounce payment is higher at lower silver prices. Prior to the amendment, Wheaton Precious Metals was entitled to purchase 25% of silver production for $4/oz. + inflation adjustment [it was amended after this but it also hampered the economic by extinguishing the on-going per ounce payment completely once silver hit $25/oz.]. The following formulas will total a given percentage of the spot price as the on-going per ounce payment:

During the first two years of production (8m oz. of total production], Wheaton Precious will retain its 25% silver stream; however, the on-going per ounce payment to Alexco will be adjusted. The maximum and minimum being 90% and 10% of the spot price. If the spot price is $18/oz. = 90 - (($18 - $15) x 10) = 90 - 30 = 60 or 60% of the spot price = $18 x 60% = $10.80/oz.

Following the first 2m oz. of silver delivered to Wheaton Precious, the formula is adjusted as follows: 90 - ((Spot price - 13) x 8). Assuming an $18/oz. spot price = 90 - ((18 - 13) x 8) = 90 - 40 = 50% of the spot price = $18 x 50% = $9/oz. 

 

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