Silver Wheaton adds Alexco’s Bellekeno to its stable

Alexco Resource (AXR-T, AXU-X) has inked a deal with Silver Wheaton (SLW-T, SLW-N) to sell silver from its Bellekeno project in the Yukon.

Under the deal, Silver Wheaton will buy 25% of Alexco’s silver production from the junior’s Bellekeno property in the Keno Hill silver district of Canada’s Yukon.

In exchange, Alexco gets an up-front deposit payment from Silver Wheaton of US$50 million, plus a further payment of the lesser of US$3.90 (increasing by 1% per annum after the third year of full production) and the prevailing market price for each ounce of silver delivered.

Of the upfront payment, US$15 million will be made in two tranches within the next 30 to 90 days as certain conditions are completed. The US$15 million will finance underground development, definition drilling and exploration of the Bellekeno resource as well as other work required to refine and complete engineering studies.

The remaining US$35 million will be paid on a monthly draw-down basis to build out the Bellekeno mine infrastructure and processing facility, commencing once Alexco has made a positive development decision and subject to certain other conditions including Alexco having sufficient committed funds available to complete construction and achieve production within specified time frames.

The deal gives Alexco the capital it needs to develop the Bellekeno deposit and continue exploration in the district, without diluting shareholder equity, Alexco’s management says.

“To have completed this agreement with Silver Wheaton in a time of unprecedented turbulence in the financial markets is especially important to the continued growth and development of Alexco,” Clynton R. Nauman, Alexco’s president and chief executive officer,said in a prepared statement.

The silver stream sold to Silver Wheaton is less than 15% of the potential revenue stream from the Bellekeno deposit, Alexco maintains.

The Bellekeno deposit has a total inferred resource of 537,400 tonnes grading 1,016 grams silver per tonne, 13.5% lead, 10.7% zinc, and 0.4 gram gold per tonne, for a total silver-equivalent of 2.21 million oz.

In July, Alexco published a preliminary economic assessment on the Bellekeno deposit, which estimated the total capital required to achieve production, including initial working capital and a 25% contingency, to be C$61.2 million, including C$10 million of underground development.

The study’s base case pre-tax assessment indicated a net present value of US$87 million at 8%, an internal rate of return of 55.5% and a pay-back period of 1.6 years, based on metal prices of US$11.69 per oz. silver, US$1.24 per lb. zinc and US$0.81 per lb. lead.

The assessment anticipates a project with average annual mine production of 3.3 million oz. silver, 30.1 million lbs. lead, and 24.5 million lbs. zinc over an initial five year mine life.Historically the Keno Hill district ranks as the second-largest silver producer in Canada.

According to Alexco, citing the Yukon Government’s Minfile database, between 1921 and 1988, the Keno Hill district produced more than 217 million oz. silver with average grades of 40.5 oz. per ton silver, 5.6% lead and 3.1% zinc. The historical grades rank Keno Hill in the top 3% by grade of today’s global silver producers, Alexco asserts.

Alexco’s business strategy as an emerging silver producer is to “unlock value and manage risk at mature, closed or abandoned mine sites.” In addition, Alexco has an environmental services business.

The company and its subsidiaries, Access Mining Consultants and Alexco Resource US Corp., provide mine-related environmental consulting services, reclamation and mine closure services, and environmental remediation technologies to both government and industry clients.

In Toronto, Alexco is trading at $1.84 per share. It has a 52-week trading window of $1.49-6.16 per share with 35.83 million shares outstanding.

Silver Wheaton is trading at $8.10 per share with a 52-week trading range of $7.64-$19.30 per share. The company has 229.45 million shares outstanding.