Alexco Resource Corp. (NYSE:AXU ) Q1 2022 Earnings Conference Call May 13, 2022 1:00 PM ET

Paul Jones - SVP, Corporate Development

Clynton Nauman - Chairman & CEO

Joseph Reagor - ROTH Capital Partners

Lawrence Scharf - Raymond James

Thank you for standing by. This is your conference operator. Welcome to the Alexco Resource Corp. First Quarter 2022 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator instructions]

I would now like to turn the conference over to Paul Jones, Senior Vice President, Corporate Development. Please go ahead.

Good morning, ladies and gentlemen. Today is Friday, May 13, 2022. My name is Paul Jones and I welcome you to the Alexco Resource 2022 first quarter results conference call. This call is being webcast and a recording can be accessed through the Events and Webcasts section of our website at alexcoresource.com later today. Our website also contains our most recent news releases and our financial statements for the quarter ended March 31, 2022. All amounts referenced today are in Canadian dollars unless otherwise indicated. Today, our Chairman and CEO, Clynt Nauman will discuss our most recent results and he will be joined by our President, Brad Thrall and our CFO, Mike Clark during the question-and-answer period.

Please be reminded that some statements made today may constitute forward-looking information within the meaning of applicable securities regulations. Past performance discussed today is not indicative of future results and our business involves several risks that could cause results to differ from projections. Investors are encouraged to review the disclosures pertaining to risks that can be found in our most recent regulatory filings available on our website and on SEDAR and EDGAR.

I will now leave you with Clynt Nauman.

Thank you, Paul. Good morning, good afternoon, and thank you to all those joining our call today. Given the volatile and changing -- challenging environment, I want to thank all our shareholders for their continuing support and for helping shape Alexco’s vision of becoming Canada's only primary silver producer. It's only been about eight weeks since our last conference call, so I'm going to take this opportunity to be very brief today, but I'm going to be happy to answer questions after this brief discussion.

As we have noted in late March, reduced workforce availability coupled with supply chain interruptions led to a reduction in underground equipment operating hours in the early parts of the year. This was particularly so in January and February as COVID-related workforce issues gateway to delayed delivery of critical parts and components for underground equipment, primarily Scooptram.

Even though we began to see improvement and workforce availability in March, supply line delays continued as did availability of underground mechanics, but we did see operating improvements in March with about 70% of the Q1 silver production being produced in March by 56,000 ounces and these improvements continued through April where there's another 15% to 20% step up in silver production. In particular, we saw a better advance rates in the ramp at Birmingham and in additional production level coming on stream the 815 level at Flame & Moth.

We've been encouraged by these improvements. They are admittedly shorter where we need to be. So we do need to ensure that this trend continues in order for us to be successful over the longer term. Notably, our focus currently is for the near future and for the near future will be on improving underground equipment availability, which will have a direct impact on accelerating our access to additional underground ore phases. More equipment availability means more underground development and that drives access to additional ore phases, which is key for ramping up throughput to the mill.

We had previously anticipated providing formal guidance for the balance of 2022 as part of this release. But we are deferring that until we have a more confidence in our projections. In the meantime, we're evaluating a number of production and operating scenarios, which will drive our overall assumptions for underground development rates. With more clarity and confidence on how best to advance our development, we will then be in a better position to guide, when we will achieve our targeted 400 ton per day mill throughput.

Although, nearly all of our attention is focused on improving our underground productivities, we are launching a relatively small exploration program later in May leveraging off our success at Birmingham. Now that we have a solid understanding of the structural geology architecture in which the larger and higher grade deposits to occur at Keno Hill. We see many areas which require additional attention and testing not only along strike in both directions from our discovery at Birmingham, but also in a number of other areas in this very large district.

Finally, I want to thank our shareholders for their patience and support of Alexco, as we deliver Keno Hill back to full production.

And with that, very brief statement, I'd like to ask the operator to open the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Joseph Reagor with ROTH Capital Partners. Please go ahead.

Hey, Clynt and team. Thanks for taking my questions.

Hey. So obviously, I've asked about this a little bit before on prior calls, but just want to follow up on again, what can you guys do to kind of accelerate the underground development. I guess last time you guys said you were looking at, but hadn’t made any decisions yet on potentially bringing in a contractor something to do additional development work, with the capital raise you completed. Are you in a position now or you financially could to do that?

Yeah, Joe. It’s Brad here. I think I can take that. As Clynt mentioned, I mean if there is a direct linkage between our equipment availability and our advance rates and just to give you, I guess, put it into context, our scoops the underground loaders have had an availability in the 35% range over the last couple of months, where they really need to be in the 65% to 70% range. So certainly, the supply chain and the shortage of underground mechanics has an impact on that and to address that, we are currently in the process of leasing additional equipment. Underground loaders, specifically, they have not arrived at site yet. So they are on their way. So that will help increase our availability by having more units.

And then in terms of the contractor, we have used a contractor previously last year to try to supplement our advance rates. And quite honestly, I think the contractors are facing many of the very similar challenges that we do in terms of recruitment of mechanics and miners and specifically the phase miners. Those are the miners that can really do all of the tasks underground. So again the focus is recruitment on mechanics and bringing in additional equipment to supplement our availability.

Okay. Fair enough. And then recovery rates in the mill seem to be kind of a touch below plan, not tragically but just slightly. Any ideas about we'll -- filling the mill, solve that problem, is it still a matter of ramping up and getting everything fine-tuned to different ore bodies. Just any additional color you can give there, as far as expectations going forward?

Yeah. I mean, I guess the two points to make on mill recovery, certainly, silver recovery is directly related to head grade in the mill. So as our head grade continues to increase, the recoveries increase. So I think if you, it's just a trend that you can plot and see that directly. The other piece is more consistent run time. So as we have additional ore that feeds the mill. We can operate the mill longer rather than starting and stopping in shorter duration, so mills like to be fair to constant feed and so both of those things together, I think are contributing to the current recovery. I will say, certainly our zinc recovery over the last couple of months, has been better than it has ever been even back into the original Bellekeno days. So again, that's a direct reflection of increased zinc levels that we see from Flame & Moth.

Okay. Thanks. I'll turn it over.

The next question comes from Chen Lin with Lin Asset Management (ph). Please go ahead.

Hi. Thank you for taking my questions. I notice that the Victoria, the rights for Banyan. So with that additional 6 million, what is your like, (ph) working capital going forward and do you see that sufficient to reach your cash flow positive? Thank you.

Yeah. Thanks. Chen. So, yeah with monetization of the Banyan position, our current cash is right around 23 million. And so, as I mentioned in my call, we are looking at various operating scenarios moving forward and certainly, if we continue to see the type of improvement that we have here over the last couple of months, there's going to be a lot less pressure, but we obviously -- we're continuing to look at all options so it's a difficult one to forecast -- to confidently forecast Chen, because we need to get more run time under our belt to see continuation of these improvements, to be able to nail when we see that that point of cash self-sufficiency.

Okay. Great. Thank you. How about the COVID situation. Is there a completely lifted in [indiscernible]?

It's much reduced than it was earlier in the first quarter for sure. The first quarter quite frankly was -- it was a struggle and that was initiated with the COVID cases that we had, some of which were held over from December, but also a bunch of new ones in January.

The next question is from Lawrence Scharf with Raymond James. Please go ahead.

Hi, Clynt, Brad. Follow up on the earlier solution of the leasing equipment is on the way. The second part of that was getting underground mechanics, how tide is that market? What’s your likelihood of attracting anyone and what's the price of doing so in the market today? How much we have to pay to entice people to come in?

Yeah. Well, in terms of mechanics again just to put it in the context, we probably are on average 65% to 70% filled up, if you will, of mechanics more we really need to be. So in order to supplement that we are using a number of contractors and multiple contractors, some of them specialized in the equipment that we [Technical Difficulty] such as the [indiscernible]. But yes, it's very tight out there in terms of, particularly on the underground mechanic side. So it's not all about wages. It's certainly camp conditions and those types of things and it's a pretty mobile industry that we're in. So still -- it's really trying to continue to recruit, retain and then we're supplementing with contractors where they can help fill those gaps.

So if you're successful with bringing in a couple of contractors and the equipment will, it's on the way, so let's say it's coming in this quarter. How soon is the ramp up to where you want to be, if both of those things are successful?

Hey, Larry. This is Clynt. I mean it's sort of the same answer. We need to see continuation of the improvement that we've seen here in the last couple of months. And I am little off lows to (ph) speculate at this point until we get a little more time under our belt to be able to forecast exactly when that's going to be. I mean, as I mentioned, we are looking at various cases upside and downside. And I can certainly assure you that in the middle and upside cases, then we're going to reach that point.

Okay. Thanks very much guys. Appreciate it. Good luck.

The next question is from Martin O'Malley with O'Malley (ph) Investments. Please go ahead.

Yeah. In our last call, we talked about the first quarter head grades and how those were affected by the fact that we had some, I guess, a little more waste rock in our field, we should. (ph) What is the head grades looking like now. We're about halfway through the second quarter?

Yeah. Just, we have released all the numbers, but I mean certainly our April head grade is, I would say 25% to 30% higher than Q1 and we're starting to see that same trend in May now as well. Just to give you a flavor, I mean April head grades coming from the Flame & Moth mine, we’re in excess of 700 grams per ton of silver and over 650 grams ton from the Birmingham mine. So we're certainly seeing that trend. We've learned a lot at Birmingham in terms of our long-hole drilling and blasting techniques and at Flame & Moth, it's really about, we're now, I guess would be more in the heart of that 815 level rather than on the perimeter. On the outer edges of the 835 that we were in the first quarter.

In the call last, I guess eight weeks ago, with -- you all talked about the, you're just now getting into a couple of very good stopes and I can't recall which those are, but I assume that that's continued in these grades you the sound great for April. That's a big improvement.

Yeah, I mean again specifically Flame & Moth, the first quarter, we were primarily in what we call the 835 level. So that was higher in elevation and you're on the perimeter, you're on the, just on the very edges of that stope, but now that we are lower in the next level down. We are seeing more consistent higher grades from Flame & Moth.

This concludes the question-and-answer session. I would like to turn the conference back over to Clynt Nauman for any closing remarks.

Thank you, operator. And again, I just want to thank our shareholders for their patience and support of Alexco as we bring Keno Hill back into full production. Thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.