Thank you for standing by. This is the conference operator. Welcome to the Alexco Resource Corp Second Quarter 2021 Conference Call. [Operator instructions] I would now like to turn the conference over to Rajni Bala, Investor Relations and Communications Lead. Please go ahead.

Thank you very much. Good morning, ladies and gentlemen. Today is Thursday, August 12, 2021. My name is Rajni Bala. And I welcome you to the Alexco Resource 2021 second quarter results conference call. This call is being webcast live and can be accessed through the events and webcasts section of our website at alexcoresource.com. An audio archive of the call will be available later today. Our website also contains our most recent news releases and our financial statements for the quarter ended June 30, 2021. All amounts mentioned today are in Canadian dollars unless otherwise indicated. Today, our Chairman and CEO, Clynton 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 laws. Please be reminded that some statements made today may constitute forward-looking information within the meaning of applicable securities laws. Similarly, 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 risk that can be found in our most recent regulatory filings available on our website and on SEDAR and on EDGAR. I will now leave you with our Chairman and CEO, Clynton Nauman.

Thank you, Rajni and thank you to everybody who is attending this morning, certainly, good to talk to you. Little bit of a change this quarter my presentation is going to be relatively brief and I’m not going to reiterate financial results you have them available from our filings yesterday. So rather I’m going to give you a few high-level remarks from site operations and then expand in response to any questions that that you might have. I think that should be a pretty productive way to execute this discussion. So, a ramp up of operations at Keno Hill continued during the second quarter and we’ve been making good progress. I would say that our workforce is settling in, the COVID restrictions, although still rigorous not viewed as, as threatening at the workforce level, which is important. And so, operations are hitting more of a routine type of a profile. On the revenue side, we continue to mine ore from our Belle Kino mine. In the last quarter, we mined 6,460 odd tons. The head grade was just over 700 grams per ton in the second quarter. And the year-to-date head grade is a little bit north of 770 grams per ton silver with pretty strong base mental credit. So, this mine continues to overachieve its block model estimates, but we are at the present time moving into the last hope that we would intend to mine there. And then sure we’ll be looking to transition and redeploy resources we have in that mine, the Bellekeno mine to either Flame & Moth or to Bermingham. The one thing that I would say about the Bellekeno experience is that we have done a significant amount of long-hauling. For those that are familiar with our technical reports, you’ll know that both the…

[Operator Instructions] The first question comes from Jake Sekelsky from Alliance Global Partners. Please go ahead.

Hey, guys. Thanks for taking my questions.

Hi, Jake.

Just looking at the ramp up, kind of heading into the second half of the year, I’m trying to get a sense of the pace we should be modeling for Q3 and Q4. Is there any color that you guys are able to give on how we should kind of be thinking about that curve up to 400 tons a day in the second half?

I mean, let me take a shot at that. Jake, it’s an evolving issue obviously as we ramp up here. We are fully confident that we all have an opportunity to be able to push that mill up into the higher numbers in the fourth quarter of 2021. And certainly by the second – by the first quarter of 2022 you’re going to – you’d be modeling sustained 400 ton per day, four plus million ounce per year, sort of a run rate. That’s I mean, hypothetically, I guess if I was sort of working on a model, that’s what I’d be thinking.

Okay. Yes. And I understand it’s a moving target, but that was what I was hoping for. So thanks for that. And then just on recoveries, I mean, obviously we saw a significant increase quarter-over-quarter with both silver and zinc. Do you expect these trends higher in the second half as throughput ramps up and your transition to mining Birmingham and Flame & Moth?

Yes, Brad, the expert here. So I will say anecdotally before Brad answers though, that that mill, Jake is operating as good or better than we’ve ever seen it operate. But I will turn it over to Brad, because you’re correct. The character of the ore that’s going to be coming from Flame & Moth in Birmingham is slightly different. Brad?

Yes. Thanks for that question, Jake. Yes, I mean, certainly our recoveries in Q2 improved over Q1 again about 93% on the silver side, but I think even more, more important to just in the last month or two, June, July, we were just over 94% on silver. So I wouldn’t say that it will continue to increase. I think we’ve kind of we’ve reached a point of I think excellent response, but again, we are transitioning from Bellekeno to Birmingham, which is a different ore and that will require the regrind mills for the concentrate. So yes – so I think, the recoveries that you’re seeing right now in that 93 kind of 94% or that would be I think our expectation going forward.

Got it. Okay. That’s helpful. That’s all on my end. Thanks again, guys.

Thanks, Jake.

The next question comes from Joseph Reagor from ROTH Capital Partners. Please go ahead.

Good morning guys. Thanks for taking the questions. Kind of just following on a little bit of what Jake was asking on the operating rate ramp up, you guys gave your operating rate in Q2 as 176 tons per day, but that’s for operating day. So I guess looking at Q3 and Q4, should we be assuming a certain percentage of days that the mill will be down as we’re looking at those numbers you gave it or where those numbers based on an expectation of the mill being fully available the rest of the year?

Well, once again, I’ll let Brad take that, but I mean, that’s a high level issue is that mill is operating Joe in response to the ore, that’s being extracted from Bellekeno. And pretty much as we expected. I mean, it’s – there’s runs of a couple of weeks, we are working on, optimization, deep bottle-necking type work, so it’s worked out pretty well. And for the last half of the year, though, you’re going to see all being delivered from Bellekeno initially, and then and then Birmingham. So there’s going to be a supply of all there that is going to enable us to operate that mill at a higher throughput albeit, it may not be as sustained higher throughput. But I don’t know, Brad, do you want to elaborate on that?

Yes, I mean, I think the mill in general, Joe, has been operating on a 2-week on, 2-week off schedule. And that’s mostly dictated by crews and crew rotations. We want to make sure that all four of our operating crews have operating time when ore is available. But certainly that 176 ton per day, I mean, that is not any indication of mechanical throughput capacity. I mean, we could operate, let’s say for a week at even higher throughput. But I mean, so we’re trying to find the right balance of sustained operations for a couple of weeks at a time but again being cognizant of the feed source coming from Bellekeno. So we’ll likely continue this 2-week on 2-week off rotation at the mill into Q4. But as we get closer to the end of the year, that’s when we would be looking to increase the run time that’s at the mill.

Okay. Fair enough. And ten on the capital spending front, the first half of the year, you guys spent right around $25 million based on the cash flow statements which we expect as far as capital spending in the second half of the year.

Well, I mean, it’s – there’s two pieces to the capital, the way that we look at it, Joe. The first is the PP&E and to a large extent that is already invested. So it’s all about, working capital. And that is based on the fixed costs, the underlying fixed costs that the operation that they’re going to continue at about the same level that we have at the present time, offset, of course, by revenues that are – got returning from the ore is being milled. So the underlying costs, I don’t anticipate are going to change significantly. But it’s the revenue side of the equation is going to be the important piece. Brad, do you want to elaborate on that?

Yes, no, I think that’s a fair comment. The vast majority of our PP&E, the mill and all of these site-wide infrastructure projects, they are essentially complete. And we are now in kind of a normal, I guess, operating burn rate, if you will. That’s pretty consistent now month in and month out. And now the focus is increasing the revenue to start to narrow that that gap.

Okay, fair enough. I’ll turn it over. Thanks guys.

Thanks, Joe.

The next question comes from Nicolas Dion from Cormark Securities. Please go ahead.

Hi, guys. Most of my questions have been answered. So sorry to be repetitive. But just to be clear, it sounds like the mill is performing quite well. So it’s really holding the ramp up back is the underground development rates and the main issue there is recruitment and retention of labor. I guess the ground conditions you’ve encountered have underground so far been more or less as expected. Is that all fair to say?

Yes, that’s pretty reasonable.

Okay, great.

Yes, that’s a fair statement.

Okay, thanks.

The next question comes from Mike Niehuser from R.F. Lafferty. Please go ahead.

Good morning. Thanks for the extra detail on the underground development at Flame & Moth and Birmingham, it’s kind of sounds like that you’re going to be able to seamlessly transition right into Birmingham and Flame & Moth, or do you anticipate that there might be a break there where the mill might be idle for more than a couple of weeks

Not the way that we see it, Mike. We’ve got plenty of ores to continue to come from Birmingham, from Bellekeno, sorry, Birmingham is very close to being in ore. So you’re going to see a continuous supply of ore to the mill. It is true though that the multiple working headings that are in the plan will be – Birmingham at the deeper level that I mentioned, and also at Flame & Moth, the block of ore that were cross cutting to the present time. Those blocks of ore can be expected to be on-stream in the first quarter of 2022. How soon we get to them in the – if we get to them sooner in the fourth quarter, that’s great. But I’ll plan show a steady supply of ore to the mill, pretty much in line with what we’ve been seeing until we get those big blocks of war underway and more headings available at both Bermingham and Flame & Moth. So, I’m not exactly sure if that answers your question, we’re certainly not looking at any sort of stand down or step back at the mill. We anticipate a continuous supply and increasing supply of ore to that mill.

Brad that does answer it. It really does sound like you’re really managing your people in the days of COVID pretty well. One more follow-up about the zinc recoveries they really were only was quite a jump from the first quarter and much better than the prior operation back in earlier in the last decade, is that pretty much from re-grinding the concentrate? And do you think that you’re going to be able to maintain those zinc recoveries going forward?

Ye, Brad you can go ahead.

Yes, I want to take shot at that. Yes, thanks, Mike. It’s not because of regrind, it’s essentially two changes. I mean, one is PH control. I mean, in a lead zinc flotation circuit, PH control is absolutely critical. So, I think we have that dialed in pretty well right now. And we’ve also made some adjustments, a few adjustments on some of our reagents on the zinc side. So, plus 75% close to 80% recovery on zinc with in excess of 50% con grade. So that is as good as we’ve seen at Keno Hill. And we would expect, I think, that to continue going forward certainly at Birmingham and especially when the reground mills are operating in Birmingham.

Thank you. And one more thing to following up on that when answering the question earlier, passing it off from Clynt to you, I wasn’t sure about the answer with the new type of ore bodies, Flame & Moth and Birmingham are a little bit different than Bellekeno. Do you foresee pretty much continuation recoveries, again, seamlessly into those ore bodies, are you expecting a few challenges you’ll need to work through and optimize?

Yes, there may be certainly some learning curves. I mean, again, the reason that we are installing concentrate regrind mill is all due to the Birmingham deposit, which again, Birmingham and Flame & Moth as, you know, have lower base metals than Bellekeno. And so those regrind mills are necessary to increase the concentrate grades to meet specs on the concentrate. So yes, I mean, it wouldn’t be unusual to have some learning curve as you get into some of these new ores, but the regrind mills are ready to go. And again, we’re 30 days or less away from starting the mill that Birmingham ore.

Well, thank you. The directional drilling seems to be a real coo not just from the number of downhole hits you might have, but also understanding true widths there by coming in at different angles. But just from the numbers of meters drilled, it’s kind of hard to get an estimate how many opportunities you’ve had to pierce the target panel. And I’m guessing it’s somewhere with 11,500 meters, you’re probably around 25 to 30 hits on target. There is that close?

Yes, your arithmetic is pretty good Mike. Last I looked at was 33. So, I’ll just elaborate on that just a little bit. Yes, the direction of drilling exercise has been important technically, it is not as easy as just shooting holes in the ground, from the surface, it’s slow getting around the bams if you like, or the dog legs, but we are totally focused on the end result here, which is a controlled intersection at measured distances in our down depth and along strike. And from that perspective, it’s certainly meeting its expectation. I would say that it is more expensive than we had anticipated, but that does not mean that we would end up running anything over budget, rather we are going to collapse our entire effort this year into that Birmingham deep zone and expand. We will be drilling 20,000 meters in there in what was originally planned to be a 25,000-meter program with 5,000 meters in reserve or other work in the district that now has been collapsed into the Birmingham deep program. And we have increased the number of intercepts, or I guess, potential intercepts, or intercepts of the target zone simply because of the information that we’re seeing as we go through this process. So, we’re increasing the drilling, it’s a little slower, it’s a little more expensive, but at the end of the day, we’ll end up with a product exactly as we expected in terms of, in terms of geometry of penetrations of the target zone.

So with collapsing in the non-Birmingham deep targets, what would be the gross number of meters or targets for the solely, the Birmingham deep alone now?

I think we’re at like 56 or 58, something in that range. It’s about another three quarters of a million bucks reporting into that effort.

How many so 58?

Yes, something in that range. Yes.

Okay.

So originally…

Yes, go ahead. You kind of broke up there for a second.

No, I just said, we are originally talking Mike, if you remember several quarters ago 45, 50 holes, something in that range, we’ve increased that to, the 55, 58 type range.

Okay. Thank you. And the recent increase in reserves, that’s actually the mine plan now. That’s not going to be refigured later in the year at the end of this drill program, is that correct?

Yes, exactly. It’s a little complicated. I know. Yes, so we did that primarily because as far as production level at Birmingham 1120 was not in the reserves and the original mine plan. But with the increase in the silver price, there’s clearly margin in there. So, it’s currently in the mine plan. So that was the reason we re-did that technical report. So, you can expect another technical report or a recalculation of the resources and reserves in the fourth quarter of this year. And that’ll primarily be driven by this deep drilling at Birmingham. But you can be reasonably sure that if the results from that drilling are encouraging, there’s high possibility that we’d look at even further report in Q1 2022 as we see whether or not the mineralization is deeper. Mineralization can withstand the economics of a normal underground mining plan.

Well, I look forward to the first quarter of next year. Just, one last more of a comment than anything, but Brad mentioned burn going forward, and I was staring at your cash flow statement for the second quarter, and you actually had a positive operating cash flow, which is interesting for a project that is still in the throws of commissioning and optimization. And so, congratulations on that. That’s kind of a rare sight. Can’t say that that’s going to be the same next quarter. But with no huge adjustments in there, other than a reduction of inventories, congratulations on a good quarter. And I look forward to the exploration results. Thank you.

Thanks, Mike.

The next question comes from Ken Lynn from Lynn Asset Management. Please go ahead.

Hi, thank you for taking my questions. Actually, most of my question has been answered. I just want to touch up a couple of points. I been hearing that’s next year zinc smelting charge is already been set and the company reporting much better term next year versus this year. Do you see similar trend? And can you quantify that? Thank you.

Yes, Ken, I – just Brand I’m not sure I have an answer to that the zinc TCRCs at this point. Are you familiar with that Chen?

Well, we’re currently under an off-take agreement Chen, as you know and those terms are set through the end of the year. And then there would be I guess, adjustments on an annual basis based on benchmark kind of guidelines. So I guess that’s all I can say right now in terms of our smelter, our treatment charges, they are set, but they do have an annual kind of adjustment built into the contract.

Okay. Okay, great. Thank you. Just also right now you haven’t declared commercial production yet, right. You capitalized the expenses right now in accounting and what’s like kind of a cash, if – I want to just touch a little bit on Mike’s last question, what kind of cash burn without the exploration and then COVID, remediation going on, what kind of cash burn you have in the past quarter? And what do you see your projections by the end of year, when you start ramping up the production where the cash level will be close to the end of the year? Thank you.

Yes, I’m going to let Mike take the first part of that in terms of the accounting treatment of the expenditures at Keno Hill. And then I can elaborate on that second portion.

Yes, thanks, Clynt. Yes, so we early adopted on expensing all of our operating costs at the mine. So, the amounts that you see capitalized are more of the longer term capital expenditures that you see hitting the balance sheet. Otherwise, all of our operating expenditures are going through the P&L right now, which is what you see for Bellekeno.

Okay, great. Thank you.

Okay. And then on the other side of it Ken, in terms of the burn, it’s a pretty straightforward arithmetic, obviously it’s driven by revenue and primarily because your underlying costs, as, you know, large number of those underlying costs are fixed. The burn you can calculate, I think, from current financials that our fixed costs and underlying costs at site are running about $2 million to $3 million more than the revenue that we’ve been producing over the last quarter or so. But be aware that the throughput and concentrate side, the revenue side of the equation continues to scale up as we go into the – as we go into the end of the year. So, I’m not sure if that answers your question, but that’s what we’re anticipating.

Okay, great. Thanks. Yes. Great, you did, the financing actually was much higher, almost double the current stock price. And you have a very strong balance sheet right now can stand the volatility of the metal. So that’s a good move. And just curious you are going finish up the Bellekeno, right. And then you redeploy to Birmingham, Flame & Moth. So, what kind of great narration do you see and what do you see if recovery, do you expect a similar recovery from the mill if not better?

Yes, I mean, as I said, we talked about the recoveries previously, Brad was talking about that. Let me just see that the output from Bellekeno has averaged, I think, at the mine head around 770 grams. At the first, the initial or at Birmingham and Flame & Moth has a slightly lower head grade than that. But as you get into these deeper levels the head grades will escalate quite rapidly. So, we haven’t actually, and just sort of thinking through your question here, the 770 year-to-date silver grades are likely to decline slightly in the initial feed from the combined Birmingham and Flame & Moth operations, and then they’ll climb very rapidly into the – when these other production levels come on stream.

Okay, great. Thank you. Thank you for the question and to answer my question. Clark I’m looking forward to your new report with more production and more profit.

Yes. Thanks, Ken.

The next question comes from Martin O’Malley, Private Investor. Please go ahead. Martin O’Malley: Clynt, a couple of times you’ve indicated that you saw that the Birmingham exploration would be transformational in terms of how people viewed Keno Hill. Do you still feel that way?

Absolutely. No question. I don’t know any other way to answer it. Well, we’ve been lucky enough to stumble into a total what a geologist would call sort of an ore deposit profile. We have stumbled into a deposit, which is unique at Keno Hill, we see the top of it. And we certainly haven’t seen the bottom of it. And we’re drilling holes down there, 500, 600 meters. And we’re right next door to the biggest deposit in the district historically. So yes, it’s a very important discovery for a lot of reasons. And I still feel quite optimistic, I’m the blue-sky guy, don’t forget. But I feel really quite – my interest is highly peaked by what might be the outcome of my work here. Martin O’Malley: Thank you. You answered my question.

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

Thank you, operator. I look forward to keeping you updated on our progress as we get closer to 400 ton per day target here. And I want to thank the shareholders for their continued support and confidence in our team. And with that I wish you a safe and confident travels as we move into the future here. Thank you.

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