Alexco Resource Corporation (AXU)

Q2 2012 Earnings Call

August 8, 2012 11:00 am ET


Vicki Veltkamp – Investor Relations

Clynton Nauman – President and Chief Executive Officer, Director

David Whittle – Chief Financial Officer, Senior Vice President and Corporate Secretary

Bradley Thrall – Chief Operating Officer and Executive Vice President


Lila Murphy – Federated Investors Inc.

Jeff Wright – Global Hunter Securities LLC

Christos Doulis – Stonecap Securities

Mike Niehueser – Beacon Rock Research



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Greetings, and welcome to the Alexco Resource Second Quarter 2012 Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Vicki Veltkamp with Alexco Resource. Thank you Ms. Veltkamp, you may begin.

Vicki Veltkamp

Good morning. Today is Wednesday August 08, 2012, and I’d like to welcome you to Alexco Resource’s second quarter conference call. This is for the period ended June 30, 2012. This conference call is being webcast live and can be accessed at the company’s website at

. You may sign-up on the Alexco website to receive further news releases and other event updates as they’re issued. And you’ll also find Alexco’s news release with the quarterly production and financial results there. For a limited time, a recording of this conference call will be available by telephone and the instructions on accessing that are also in yesterday’s news release.

Giving presentation on today’s call will be Clynt Nauman, President and Chief Executive Officer of Alexco Resource; and David Whittle, Alexco’s Chief Financial Officer; and we also have with us Brad Thrall, Alexco’s Chief Operating Officer, who will participate in the question-and-answer session.

Before we get started, I do need to remind you that some statements made today by the management team may contain forward-looking information. Our business involves a number of risks that could cause results to differ from projections and investors are urged to consider those disclosures and discussions pertaining to risks that can be found in Alexco’s SEDAR filings. It should also be noted that past performance discussed in this conference call is not indicative of future results.

So now I’d like to turn the call over to Alexco’s President and Chief Executive Officer, Clynt Nauman. Clynt?

Clynton Nauman

Thank you, Vicki, and thanks to everybody for joining us today this morning or this afternoon. First of all, let me start by saying that the second quarter of 2012 full operations at the Bellekeno mine is not one that we intend to repeat and we will be talking about that. The write-offs, I’d like to offer you some longer term encouragements and that we have a plan in place that by the end of the year, we should be able to catch up on our earlier expectations stepping up primarily in the fourth quarter. Also we’ve invested a significant amount of cash during the quarter and I will address that as well.

Back to the most recent quarter, the second quarter, as you know, our cash costs were $15.53 per ounce of silver net of by-product credits. This was a full 41% increase compared to the first quarter of this year and even higher than the same period a year ago with cost of $6.30 per ounce in just the commercial operations at Bellekeno.

So let’s look at the reasons for the unit cost increases. A good portion of the approximately $9 per ounce increase compared to the second quarter of last year is due to the lower prices for lead and zinc. That decrease in prices has accounted for – and the base metal prices accounted for about $4 per ounce increase in the cash cost for the second quarter of this year.

Then about $3.50 of increase in the per ounce cash cost of silver compared to the second quarter of last year, is because the remaining areas that had approximately 15% lower ore grades. And as you see in the releases, the ore grades were about 704 grams in this second quarter versus 822 previously. And these lower ore grades had a number of what I would term newly identified knock-on effects in the mill and we’ll talk about that.

The remaining $1.50 an ounce difference is primarily due to increased transportation costs. The mill actually operated quite well during the second quarter given the adjustments to accommodate the lower grades. We processed 17% more tons during the second quarter compared to a year ago, and availabilities remained at 90% or higher even that we experienced some delays from mechanical issues or failures on some floatation cell agitators. The mill also experienced a two-day shutdown because of a major wildfire in the area, and just anecdotally, we’re very proud of how our people handled that temporary evacuation process, both our employees and also supporting local residents in Keno City.

These adjustments in the mill to scale up and scale down in terms of throughput certainly negatively impacted the recovery rates for the quarter. However, the main issue was a period of about a month when head grades were often below 600 grants per ton, the lower head grade having a correlation to lower recovery, which we’re addressing.

In addition, as I mentioned before we did have these account wise potential delays in the lead circle, which impacted lead recovery. We’ve addressed those issues with increased replacements in the space and we don’t anticipate that this will be an issue going forward. Clearly, we need to overcome all of these issues to improve mill throughput to design capacity and we are continuing to put in place the plan and the structure to achieve that.

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