Alexco: Interesting Emerging Silver Producer

I had the opportunity to attend the corporate presentation by Mr. Clynton Nauman, President and CEO of Alexco Resource (AXU) [TSX: AXR]. Alexco Resource was incorporated in 2004 and is headquartered in Vancouver. They engage in the exploration and development of mineral properties in the Yukon Territory, Canada. The company's primary project is their 100% ownership of Keno Hill Silver District, an area of 20 miles by 10 miles, which consists of 35 mines with historic production of 217M ounces of silver at average grades of approximately 40 ounces per ton, one of the world's highest grade silver districts.

The company has recently released an economic assessment on one of the past producing mines, the Bellekeno project, with average annual production of 3.3M ounce silver, 30M lbs lead, 25M lbs zinc, at cash costs of ($0.33) per oz of silver net of byproduct credits. This mine project has 5 year mine life, and a payback period of less than 2 years. By using 8% discount rate, the NPV is around $100M with current commodity prices, about the same size of the market cap of Alexco. And we are only talking about one mine! Even if we use a more conservative set of commodity prices of silver at $12.25, gold at $700, lead at $0.5, zinc at $0.75, the NPV is still at $87M with a payback period of 1.6 years, and revenue of over $70M per year starting 2010. With fully diluted shares of only 41M right now, the net cashflow is likely to be over $1 per share at that time.