Alexco rises on Silver Wheaton payment

Vancouver – Alexco Resource (AXR-T) received its first US$15-million payment from Silver Wheaton (SLW-T) and on the news got a nice share price lift from investors who know that, in markets like these, cash is king.

Alexco is developing the Bellekeno silver property near Keno, in the Yukon, and in early October signed a silver purchase agreement with Silver Wheaton. Through the agreement Silver Wheaton will purchase 25% of the life-of-mine silver produced by Alexco at its Keno Hill silver district. In return, Alexco is getting US$50 million in upfront deposit payments from Silver Wheaton, plus the lesser of US$3.50 and the prevailing market price of silver for each ounce of silver delivered.

Alexco has now received the first US$15-million payment; the remaining US$35 million will be paid on a monthly drawdown basis. The money will fund development at Bellekeno, which will commence once Alexco makes a positive development decision, as well as further exploration. In fact Alexco plans to use the initial payment to fund its planned 10,000-metre underground definition and exploration drill program, as well as its mine planning and engineering activities. The company is doing its all to be able to make a positive development decision in the second quarter of 2009.

News of the Silver Wheaton payment lifted Alexco’s share price 15¢ to close at 95¢. The company has a 52-week trading range of 52¢ to $5.81 and has 35.8 million shares outstanding, 41.5 million fully diluted.

Since signing the agreement Alexco has made considerable progress at Bellekeno. A 650-metre underground decline is now complete; it broke into the historic Bellekeno mine workings in early December. Along the historic primary haulage level of the old mine Alexco has rehabilitated old tunnels and drift new ones, totaling some 800 metres.

In blasting the decline Alexco intersected zinc-dominated vein mineralization from the hangingwall of the main mineralized zone, which is known as the 48 vein. The company expects to gain access to the lead-dominated 99 and Southwest silver zones in January or February as more historic workings are dewatered. The company received the permit it needed to complete the dewatering in early October.

The Bellekeno deposit has an inferred resource of 537,000 tonnes grading 1,016 grams silver per tonne, 13.5% lead, and 10.7% zinc. A preliminary economic assessment for Bellekeno, completed in the middle of the year, projected average annual production of 3.3 million oz. silver, 30.1 million lbs. lead, and 24.5 million lbs. zinc over an initial 5-year mine life. The project’s net present value was pegged at US$87 million, using an 8% discount rate, and its internal rate of return (IRR) came in at 55.5%. The high IRR means payback is achieved in just 1.6 years.

Capital costs to bring Bellekeno into production are expect to total $61.2 million, including initial working capital and a 25% contingency as well as some $10 million of development work that is already being carried out. The study was based on inferred resources and did not estimate reserves.

Alexco owns the entire Keno Hill district, which produced more than 217 million oz.  silver from more than 30 mines between 1921 and 1988. Ore from Keno Hill during that time averaged 40.5 oz. silver per ton, 5.6% lead, and 3.1% zinc. The Keno Hill mine alone produced 40,000 tons of ore grading 42.7 oz. silver per ton, 9.9% lead, and 2.2% zinc.