Vancouver Oct 26, 2015 (Thomson StreetEvents) -- Edited Transcript of Alexco Resource Corp earnings conference call or presentation Wednesday, August 12, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Vicki Veltkamp Alexco Resource Corp. - VP of IR * Clynt Nauman Alexco Resource Corp. - President and CEO * Mike Clark Alexco Resource Corp. - CFO and Company Ethics Officer ================================================================================ Conference Call Participants ================================================================================ * Mike Niehueser Scarsdale Equities LLC - Analyst * Chris Potter Northern Border Investments - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings and welcome to the Alexco Resource Corp. second-quarter 2015 financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vicki Veltkamp, Vice President of Investor Relations. Thank you. You may begin. -------------------------------------------------------------------------------- Vicki Veltkamp, Alexco Resource Corp. - VP of IR [2] -------------------------------------------------------------------------------- Good morning, everyone. Today is Wednesday, August 12, 2015, and I'd like to welcome you to Alexco Resource's second-quarter 2015 conference call. This conference call is being webcast live right now. It can be accessed at the Company's website; that's www.alexcoresource.com. You may also sign up on the Alexco website to receive future news releases and other event updates as they're issued. And you'll find Alexco's news release with the quarter financial results there, as well. For a limited time, a recording of this conference call will also be available by telephone. The instructions for that are in yesterday's news release. Giving presentations on today's call will be Clynt Nauman, our President and Chief Executive Officer; and Mike Clark, Alexco's Chief Financial Officer. And then we'll have an opportunity for a question-and-answer period after their presentations. But before we get started, I need to remind you that some statements made today by the management team may contain forward-looking information. Other business involves a number of risks that could cause results to differ from projections. And investors are urged to consider these disclosures and discussions pertaining to risks that can be found in Alexco's SEDAR filings. And it should also be noted that past performance discussed in this conference call is not indicative of future results. And so, with that, I'd like to turn the call over to Alexco's President and Chief Executive Officer, Clynt Nauman. Clynt? -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [3] -------------------------------------------------------------------------------- Thank you, Vicki, and welcome, everybody, to the Alexco quarterly call. We released our financial results yesterday, outlining a net loss of CAD1.9 million, of which more than CAD650,000 consisted of non-cash items such as depreciation and share-based compensation. During the first quarter of this year, the consolidated loss for the Company was about CAD0.5 million. And the primary reason for the increase in loss during the second quarter is due to AEG earning less profits, and the Company realizing a smaller foreign exchange gain in the second quarter. More importantly, we are holding our own in terms of cash position, despite this difficult market. At the end of the second quarter, we had about CAD7.5 million in unrestricted cash, which is slightly more than we had at the end of the first quarter. Be aware that we're focusing on additional ways to conserve cash so that we continue to have as much flexibility as possible during this silver market downturn. It probably goes without saying that Alexco's high-grade Keno Hill silver property, that with our assets and infrastructure, our exploration results, our environmental subsidiary, and other assets, we have much more value -- or our value is much higher than the market, of course, is recognizing at the present time. But once the market turns around, I believe that we will have some of the best leverage to silver of anybody in our snack bracket. So our aim is to continue adding value to our properties through exploration and by optimizing the Flame and Moth development plan, and being ready to pull the trigger to return to production when the time is right. That is the best way I can think of to reward shareholders for the long term. Simply stated, it's my view that Alexco has a call on silver, but with a profitable and growing, wholly-owned subsidiary environmental business. In the interest of cash preservation, we did further rationalize our planned exploration program this year, mainly because I think we're able to achieve the goals we set for the program by drilling fewer, more strategically located drill holes. Our primary goal was to follow up on the very promising high-grade drill holes from Bermingham that we reported last year. You might remember that last November we reported that we drilled our best hole ever at Keno Hill, which returned about 165 ounces per tonne of silver, over a true width of 6.4 meters at Bermingham. So, although our original budget for 2015 for exploration was in the range of CAD2 million, I cut that back a little to CAD1.6 million, and about 3,000 meters of drilling. And we concentrated on understanding the geology and upside related to this very high-grade discovery, which was an outlier, actually, in 2014. As of June 30, we drilled a total of 1,355 meters, with about 1,000 of that drilled at Bermingham. We drilled a few meters over at Bellekeno North East, just to complete some work over there. And as of today, the surface drilling at Keno Hill is essentially complete. And so once we receive those assays back, the exploration team will begin compiling the aggregate of information from Bermingham for 2014 and 2015 for release and discussion. And I think that's probably going to be the fourth quarter this year, to be a safe commitment. Maybe it will be before, but I think it's going to be the fourth quarter. So the exploration program was certainly highlighted in the second quarter, not only because of the drilling program, but because of the new resource estimate we put out in April. If you take a look at the April 30 news release, you will remember that we increased our indicated silver resource by 17% at Flame and Moth to about 27 million ounces of silver. And then you can add inferred resources of another 4 million ounces to that. There's also a 37% increase in resource at Bermingham in that same news release, to over 5 million indicated ounces. That, of course, will be recalculated based on the success or otherwise of the current drill program. For the whole district, we now have about 55 million ounces of indicated silver resource, plus another 12 million in the inferred category, and an addition 5 million or so ounces in the historical category of the resource. This is a very respectable and, I think, growing number. In other areas of cash preservation, starting in a few months we will also be cutting back on office expenses, as our office lease comes to an end, and we move to a space better configured for a smaller group for the time being. We're also looking at a number of rather areas, including care and maintenance at Keno Hill, professional fees, consultants, G&A, et cetera, to continue to decline in 2016. It's good to remember that a large share of our G&A costs are generated by our income- and cash producing Alexco Environmental Group subsidiary. That company has five offices now in Canada and the US, and brought in revenues of CAD2.6 million in the second quarter. The revenue is less than the comparable period a year ago, as a result of the Globeville Smelter Project in Colorado transitioning to more of a monitoring project rather than an active remediation project. Our AEG team did some great work at Globeville. And this month, the owners of the Globeville property are having a high-profile groundbreaking ceremony, including many dignitaries from Denver and the state of Colorado, to celebrate the completion of the cleanup and mark the fact that this valuable real estate is fully restored and ready for commercial development. AEG's revenues will tend to be cyclical as projects like Globeville come and go. And, in fact, AEG experienced lower profits than it might have in the first six months, because some work originally scheduled in Canada was delayed into the second half of this year. So business development is an ongoing focus for our growing team at AEG. We've also hired additional professional staff at AEG in order to keep more work in-house, as opposed to contracting out to third parties, which hurts our gross margin. We have developed a strong client base within the mining industry in the last several years. And AEG has also been able to establish new lines of business related to industrial site soil remediation, water treatment, and historical mine pool treatment. All of these activities take advantage of the technical application of patented technologies which Alexco owns. [Meanwhile], remember that AEG remains committed to the ongoing environmental care and maintenance program, and reclamation and closure projects at Keno Hill under its long-term contract with Canada. That arrangement with Canada allows us to look well into the 2020s with this business, and will underpin future growth in the business. Also during the second quarter, we paid attention to moving forward with our plans of restarting mining operations at Keno Hill, as work continued on our reengineering and optimizing of the mine plan for Flame and Moth, which will incorporate the current mineral resource that we updated in April. We are now doing more detailed geotechnical review of the mine plan with SRK Consulting. This is pretty gritty work, to be sure, but it's work which may significantly improve stoping and sustaining development costs. We're still anticipating completion of that effort in the third quarter of 2015. The Flame and Moth economic model will then be updated using current consensus pricing and updated estimated costing. Once that's completed, the new, optimized, multiple-mine economic model will be developed incorporating Flame and Moth, Lucky Queen, and the Bellekeno deposits. On the environmental permitting front, we are continuing the process with the Yukon Water Board on the water use license for Flame and Moth. This would be an amended license for that particular deposit. And I think that we can expect a public hearing to be set for the fourth quarter of 2015, pretty much along the lines that we had anticipated; a little bit behind, for sure, but we're not unhappy with the progress, especially since this is going along at this point in the cycle. At this point, I'm going to turn it over to Mike Clark to review the financial numbers, and then we'll take any questions that may be out there. Mike? -------------------------------------------------------------------------------- Mike Clark, Alexco Resource Corp. - CFO and Company Ethics Officer [4] -------------------------------------------------------------------------------- Thanks, Clynt. This financial report is for Alexco's second quarter, ended June 30, 2015. Note that we report in Canadian dollars, unless otherwise stated. For the second quarter of 2015 we saw revenue of CAD2.6 million and a net loss of CAD1.86 million, or a loss of CAD0.03 per share. Included in this loss is approximately CAD650,000 of depreciation and other non-cash costs. AEG revenues for the second quarter were CAD2.6 million, with a gross profit of CAD579,000 for a margin of 22%, compared to AEG revenues in the second quarter of 2014 of just over CAD3 million and a gross profit of CAD812,000 for a margin of 26.5%. The decrease in gross margin from the prior period is as a result of AEG outsourcing a significant amount of specialty work to external consultants, which incurs lower margins. We also had a ramp-up of business development efforts at AEG for project-related work; and also one of AEG's major projects, the Globeville Smelter Project, completing active remediation and phasing to monitoring status, which incurs lower revenues and profits. General and administrative expenses for the second quarter of 2015 totaled just over CAD1.9 million compared to the Q2 2014 costs of CAD2.3 million. G&A expenses decreased for the 2015 period compared to the 2014 period, mainly due to a reduction in salaries, consultants, professional fees, investor relation activities, and share-based compensation expense. Also note that approximately 45% of G&A includes overheads related to the various offices and employees of AEG. Mine site care and maintenance costs at Keno Hill in the second quarter of 2015 were CAD575,000 compared to CAD752,000 in the same 2014 period. Note that the mine site care and maintenance is mainly comprised of depreciation expense, which was CAD428,000 in the 2015 period and a CAD549,000 in the 2014 period. Exploration expenditures incurred during the second quarter of 2015 totaled CAD756,000. The nature of the majority of these expenditures were related to the 2015 drilling program at Bermingham and Bellekeno North East, and also work on reengineering and optimizing the mine plan for Flame and Moth, which is incorporating the current mineral resource announced April 30, 2015. Alexco's cash position at June 30, 2015, was CAD7.5 million compared to CAD7.2 million at March 31, 2015, while net working capital was CAD9.6 million compared to CAD10.9 million at March 31, 2015. The increase in cash and cash equivalents in the second quarter of 2015 is mainly attributed to the collection of certain accounts receivable in the second quarter, offset by overhead costs and some lower profits and AEG. In addition, Alexco has restricted cash on the balance sheet at June 30 of CAD9.1 million; which, as Clynt mentioned, there is approximately CAD4 million related to the Globeville Smelter Project that we will be submitting documents shortly for the release of a portion of those funds. Now I'll pass the call back over to Vicki. -------------------------------------------------------------------------------- Vicki Veltkamp, Alexco Resource Corp. - VP of IR [5] -------------------------------------------------------------------------------- Thanks, Mike, for that. All right, operator, now we're ready for you to give the instructions for the question-and-answer period. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Mike Niehueser, Scarsdale Equities. -------------------------------------------------------------------------------- Mike Niehueser, Scarsdale Equities LLC - Analyst [2] -------------------------------------------------------------------------------- Can you give any guidance for AEG for the balance of 2015 and 2016? Do you sense that it's going to remain stable? Or is there going to be a dip, following completion of Globe? Or what are your thoughts? -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [3] -------------------------------------------------------------------------------- I think that it's only a matter of time before we generate, instead of working on other projects in the US, which are going to replace the Globe Project. So the dip is going to be exacerbated by the fact that you've got Globeville winding down. Plus there's a very big project in the north of Canada that we're involved in, that was delayed from a permitting perspective, which is just getting cranked up at the present time. So I see it as temporary, and recovery to sort of a stable net income run rate as a baseline that we were able to achieve in 2014. So that would be my perspective. -------------------------------------------------------------------------------- Mike Niehueser, Scarsdale Equities LLC - Analyst [4] -------------------------------------------------------------------------------- You mentioned, in the release, automation of some of your facilities, or your operations up at Keno Hill. Do you get to keep the benefit of that automation, or do you have to pass those margins along to your client? -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [5] -------------------------------------------------------------------------------- No. That's to our account. And the way that most of these arrangements are set up, especially with the government of Canada, is that any of these innovations or efficiencies that we bring to this project, then we get to receive the benefit. So it is kind of interesting that we are running water treatment plants in several areas, both in the United States and in Canada. Although it's a little scary: most of those plants can actually be controlled by professional people from their cell phones. They can see, online, what's going on at any of these plants at any time. So it's a huge step forward, reduction in labor and increase in margins in that part of the business. -------------------------------------------------------------------------------- Mike Niehueser, Scarsdale Equities LLC - Analyst [6] -------------------------------------------------------------------------------- Well, it is kind of scary. I was wondering if that incident in Colorado at that gold mine, if that hurt or helped your environmental business? Because I know you have a concentration of people in Colorado. -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [7] -------------------------------------------------------------------------------- Yes, and there's a lot of sensitivity around that particular disaster, or that release. I will say that for that particular mine, and in that particular area, our people had actually talked to some of the regulatory folks about that issue some time ago. And indicating that the Alexco technology has the ability to be able to render benign some of those metal contaminants that were released from that particular mine. And so, at the end of the day, I think that, although it's a high-profile and tragic circumstance, that Alexco has the technology and has the experience and the proven execution of being able to resolve those problems before they get to be the huge issue that it is now. -------------------------------------------------------------------------------- Mike Niehueser, Scarsdale Equities LLC - Analyst [8] -------------------------------------------------------------------------------- Well, certainly with your high-profile success, it's not bad timing there. Is there anything happening in Keno Hill with your agreement there that's going to be a catalyst for either firming up additional business, or might see more work come out of Keno Hill as far as reclamation goes? -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [9] -------------------------------------------------------------------------------- Well, the Keno Hill closure project is moving along on a predetermined path towards licensing. There's been lots of consultation, stakeholder meetings, et cetera. And the actual cleanup will be a combination of in situ remediation, which of course is our specialty, and active water treatment plants. So, I do think this is going to be a trophy project for us. It's going along extremely well. And I anticipate that it will proceed as per our expectation, and move into the licensing and environmental assessment process here in the short term. -------------------------------------------------------------------------------- Mike Niehueser, Scarsdale Equities LLC - Analyst [10] -------------------------------------------------------------------------------- And when does the CAD3.3 million become unrestricted, related to the Globe Smelter? -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [11] -------------------------------------------------------------------------------- That's a -- we have to submit certain documentation to the authorities in Colorado, and we will be doing that in the next one to two months. I can't guarantee the performance on the other side, but certainly that documentation will be complete and submitted in the short term. -------------------------------------------------------------------------------- Mike Niehueser, Scarsdale Equities LLC - Analyst [12] -------------------------------------------------------------------------------- And lastly, before I get back in the in the queue, with the drilling that you did up near Bermingham, there's a little bit of distance between that and Hector-Calumet. I'm just wondering what the purpose of -- the goal of this year's drill program was; whether it was to infill, to prove up more ounces, or whether it was to test some of those potential targets in between Hector-Calumet and Bermingham. Thank you. -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [13] -------------------------------------------------------------------------------- Yes. And I would say, Mike, that the work that we did at Bermingham was mostly focused -- and has been mostly focused around the area where we had that extremely high-grade, thick intercept last year. And that is stepping out towards Hector-Calumet. But we very carefully manage that program so as to understand the importance of -- and extent of the mineralization that was intersected in 2014. So to answer your question, it is towards Hector-Calumet. It's not a large set. But the holes were drilled in a pattern, and in an area such that if there's any continuity to mineralization, we should be able to recognize it. -------------------------------------------------------------------------------- Mike Niehueser, Scarsdale Equities LLC - Analyst [14] -------------------------------------------------------------------------------- Thank you. I'll get back in the queue. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Chris Potter, Northern Border Investments. -------------------------------------------------------------------------------- Chris Potter, Northern Border Investments - Analyst [16] -------------------------------------------------------------------------------- Kind of a follow-up on Mike's line of questioning: I'm just curious how you think about the environmental business on the longer-term basis -- three, five, seven years out. How much potential work there is out there, and whether or not we can think about this as a stable-to-growing business over a longer time period? -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [17] -------------------------------------------------------------------------------- Yes, that's exactly the point, Chris. And it is a stable business. There's CAD100 million of contractual backlog in that business. It maintains significant margins. We're operating that business right now at capacity, which is one of the reasons for the gross margins have -- although they are still robust, have contracted somewhat, primarily because 30% -- 20%, 30% of the work that comes in the door has gone down the road to third-party consultants or subs. And we don't get the benefit of that. So we are actively, as we speak, bulking up the professional ranks of that company. And I see it as a growing business, going forward. No question. And I think that we have the capacity and the intelligence in that business to continue to grow, as it has in the past. I think it's a fairly -- it's not as sexy business, as we all know, but it makes money. There's lots of work out there. It has become well-branded because of our success, primarily in the US. And as Keno Hill moves along and more people show up internationally to look at what we're doing there, I think it's going to be a very, very interesting business. And I would not overlook the strategic part of that, whereby, at the end of the day, remember Keno Hill was an opportunity that came as a result of our environmental expertise. And I'm sure that there's going to be others out there. So I'm quite bullish about it, and I intend to continue to try and make it grow along the path it's been growing in the past. -------------------------------------------------------------------------------- Chris Potter, Northern Border Investments - Analyst [18] -------------------------------------------------------------------------------- Great. That's very helpful. Thanks, Clynt. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Thank you. We have no further questions over the phone line at this time. I would like to turn the floor back over to management for closing remarks. -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [20] -------------------------------------------------------------------------------- Okay, well thank you, everybody, for joining us today. We remain dedicated to our objectives of conserving cash, reducing costs, working on third-party agreements, expanding our resources, optimizing our underground development plans, and overcoming any remaining hurdles which may stand in the way of the restart of operations at Keno Hill. Meantime, we are clearly a call on the price of silver, with a rich silver property, great exploration potential, and an income-producing environmental subsidiary. As always, we appreciate your support and interest in Alexco. And, with that, I will turn it back to Vicki to close out the call. -------------------------------------------------------------------------------- Vicki Veltkamp, Alexco Resource Corp. - VP of IR [21] -------------------------------------------------------------------------------- And you've been listening to the Alexco Resource second-quarter 2015 conference call. We encourage investors to visit Alexco's website for further information at www.alexcoresource.com. If you have further questions, please call 604-633-4888, or email us at info@alexcoresource.com. This concludes today's call. Thank you for joining us, and be sure to have a good day. Thanks. -------------------------------------------------------------------------------- Clynt Nauman, Alexco Resource Corp. - President and CEO [22] -------------------------------------------------------------------------------- Thank you.
|