Alexco Resource's (AXU) CEO Clynton Nauman on Q4 2015 Results - Earnings Call Transcript

| About: Alexco Resource (AXU)

Alexco Resource Corporation (NYSEMKT:AXU)

Q4 2015 Earnings Conference Call

March 24, 2016 3:00 PM ET

Executives

Michael Clark - Chief Financial Officer and Company Ethics Officer

Clynton Nauman - President and Chief Executive Officer

Analysts

Mike Niehueser - Scarsdale Equities LLC

Bruce Greenspan - Greenspan Investment

Operator

Good day ladies and gentlemen, and welcome to the Alexco Resource Corp. Fourth Quarter and Year-End 2015 Financial Results Conference Call. As a reminder, today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Mike Clark, Chief Financial Officer. Please go ahead, Mr. Clark.

Michael Clark

Good afternoon. Today is Thursday, March 24, 2016, and I’d like to welcome you to Alexco Resource’s December 31, 2015 fourth quarter and year-end conference call. This conference call is being webcast live and can be accessed at the company’s website at www.alexcoresource.com. You may sign-up on the Alexco website to receive future news releases and other event updates as they’re issued. You’ll also find Alexco’s news release with annual financial results there. For a limited time, a recording of this conference call will be available by telephone, and the instructions on accessing that are also in yesterday’s news release.

Giving presentation on today’s call will be Clynt Nauman, President and Chief Executive Officer of Alexco Resource Corp.; and myself, Mike Clark, Alexco’s Chief Financial Officer. We will have an opportunity for a question-and-answer period after our presentation.

Before we get started, I need to remind you that some statements made today by us may contain forward-looking information. Our business involves a number of risks that could cause results to differ from projections and investors are urged to consider those disclosures and discussions pertaining to risks can be found in Alexco’s SEDAR filings. It should also be noted that past performance discussed in this conference call is not indicative of future results.

Now, I would like to turn the call over to Clynt Nauman.

Clynton Nauman

Thank you, Mike, and thank you for joining us today for our review of the 2015 fourth quarter and the past year at Alexco. In spite of another challenging year on the silver business, we have had some significant accomplishments at Alexco, including what I believe might be a potentially game changing exploration result at the Bermingham deposit in the Keno Hill District.

In addition to that we continued to advance this Flame & Moth permitting process at Keno Hill and we were rewarded with the appropriate amendments to our Quartz Mining License permit late in 2015. And we completed a $4 million financing in December and Alexco’s Environmental Group continued to impress with late in the year being awarded the EPA contract for the design, construction, and automation of the Interim Water Treatment Plant at the Silver King mine in Silverton, Colorado.

We released our financial results yesterday outlining a net loss of $1.5 million for the quarter and $5.5 million for the year, which is consistent with our expectation. At the end of the year, we had a little over $8.1 million in unrestricted cash and $12.2 million in working capital. Our unrestricted cash position is expected to improve over the next few months with the anticipated release of approximately $3.5 million to $4 million from the Globeville security bond. This was attached to the completion of the Globeville Smelter cleanup in Denver, Colorado.

I’m sure that many of you are aware of the recent volatility in our share price and the volume of Alexco shares traded on both the TSX and the New York Stock Exchange. I like you and very happy with the appreciation in the share value. But let me at the offset tell you, I do not have a definitive answer, because other than maybe people are finally appreciating our 2015 exploration results, high grade Keno Hill Silver property and our near-term production capabilities due to the fact that our assets and infrastructure are all in place.

In addition, our upcoming drill program at Bermingham will be very interesting, as most understand. And that combined with our ongoing cash generation from AEG, along with our recent up – along with the recent upswing in commodity prices, as we focused interest in the company. I think there’s also a general recognition that we’re more highly leveraged to silver price to most of the place – players in the space.

Regardless of the share activity, our short-term objectives have not changed. We will continue by adding value to our properties through exploration of Bermingham and by optimizing our Flame & Moth development plan and being ready to pull a trigger to return to production when the time is right.

Turning back to accomplishments. In Q4, Alexco completed a $3 million flow-through equity financing on a bought deal basis, and concurrently closed a $1 million non-brokered equity financing for [indiscernible] With the flow-through refinancing proceeds of $3 million, the company has planned a $3 million exploration program to comprise, at least, 8,000 meters of surface diamond drilling to follow up on the successful 2015 and 2014 high grade silver results at the Bermingham deposit I mentioned previously.

In Q3 2015, Alexco announced port results from Bermingham exploration with seven or eight holes, giving us an initial indication of a steeply plunging zone of mineralization ranging from about 1.5 meters to more than 5 meters through thickness, with grades ranging from about 1 kilogram to more than 7 or 8 kilograms per tonne of silver. This zone has been drilled over about a 140 meters down plunge, is 30 to 50 meters wide, and is open both up-dip and down-dip. It is exactly the type of mineralization that the early prospectors of Keno Hill were searching for, and also is the type of mineralization that led to the discovery of the bigger and higher grade silver deposits on Galena Hill at Keno Hill.

The 2016 surface drilling program is expected to run between May and September with results expected to be released more or less as received, but certainly consolidated in the fourth quarter of 2016. The preliminary drill plan is to explore immediately up-dip and down-dip extensions of the newly discovered high grade area, as well as provide infill drilling to a suitable density to allow us to calculate a preliminary resource for this new zone. The company plans to provide an updated mineral resource estimate for the Bermingham deposit in the fourth quarter of 2016.

Switching to cash, despite our exploration success, we have continued to look for ways to continue to reduce costs related to office space, care and maintenance of Keno Hill, and professional fees and consultants in other areas. It’s good to remember the large share of our G&A cost is generated by Alexco Environmental Group sub and AEG has five offices in Canada and the U.S., and this bought in revenues of $14.7 million in 2015. Revenue is slightly less than a comparable year – comparable period a year ago, as a result of the Globeville Smelter Project in Colorado is being substantially complete, and as we transition to new projects.

In respect of Globeville, we’re in the process of submitting the final completion of documents and anticipate the short-term – in the short-term, the release of a significant portion of the restricted cash from the current security balance of about C$4.5 million. Also remember that AEG’s revenue tend to be cyclical, as projects like Globeville come and go. In anticipation of Globeville coming to an end, and as I described in the last quarterly calls, we have increased our business development activity to win more project related work in the U.S.

Those efforts were rewarded in Q3 when AEG was selected by the U.S. EPA, as the interim water treatment contracted to design, construct, automate and operate an Interim Water Treatment Plant at the Gold King Mine near Silverton, Colorado. AEG completed construction and initiation and operation of the Interim Water Treatment Plant in Q4. After construction was completed, we were advised by EPA, they wanted us to continue to operate this plant for an additional 10 months. No doubt, the success and the high profile of this project has underscored AEG’s technical and operating ability, which we anticipate will lead to other environmental project work in the USA and further appeal.

Meanwhile, remember that AEG remains committed to the ongoing environmental care and maintenance program, and reclamation enclosure projects at Keno Hill under its long-term contract with the Government of Canada. The arrangement with Canada allows us to look well under 2020s with this business, and in fact, our work with Canada will underpin future growth of our AEG business.

We do not often go into a lot of detail about the Keno Hill closure project, but it’s worth noting that an important milestone was achieved in 2015, when following several years of planning work, the draft, existing state of the mine reclamation plan was submitted and reviewed by the Indigenous and Aboriginal Affairs Canada INAC and then their Independent Peer Review Panel, the IPRP. This is a big step and moving forward toward active reclamation work at Keno Hill, which is expected to demand sometime in 2018, or 2019.

Also during the third quarter, we continue to pay attention to moving forward with our plan for restarting mining operations at Keno Hill, as work continued on re-engineering and optimizing the mine plan for Flame & Moth and for Lucky Queen. And these incorporate the expanded mineral resource with Flame & Moth that we updated in April 2015.

We’ve completed a more detailed geotechnical review of the future mine plan with the Flame & Moth mine plan with SRK Consulting, the result of which will be – of which there will be an expansion of long haul versus cut and fill or drift and fill mining, which will reduce expected operating costs, as well as mitigate sustaining development costs.

The Flame & Moth and Lucky Queen economic models will be revised using current consensus pricing, excuse me, and updated estimated costing. Once results from this work has compiled, the study will move to develop and optimize multi-mine model, which will be incorporated into an updated PDA, which is expected to be released at the end of the year. Make no mistake, Flame & Moth remains a cornerstone mining asset in the district. And I have every expectation that when the optimization project is complete, we will be looking at a further improved project with a much longer mine life than the five or six years anticipated in a form of smaller resource.

On the environmental permitting front, we received our amended Quartz Mining License for the Flame & Moth deposit in February. And in February, sorry, we see that license late in 2015. And in February 2017, we’ll be anticipating the process with the Yukon Water Board on the Water Use License, which also has an amended application in place.

I think that we can expect the public hearing around that time and the license to be awarded sometime in the second quarter of 2016. This is the last permit needed for the Flame & Moth deposit. And although it’s well beyond our original schedule, we’re pleased with the result and have no adverse impact as a result of slower rival of these licenses and permits.

With respect to Silver Wheaton, Silver Wheaton amended agreement, we’ve had the amended agreement expire on December 31, 2015, which included the optional $20 million payment. That upfront payment was not been a work in this environment. However, Silver Wheaton did ran Alexco the option to reenter into that $18 amended true up agreement up to December 31, 2016.

In the meantime, we continue to have discussions with Silver Wheaton to restructure the agreement in a way that removes any roadblocks for moving Keno Hill back to production. 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 maybe out there. Mike?

Michael Clark

Thank you, Clynt. This financial report is for Alexco’s fiscal year-ended December 31, 2015. Note that we report in Canadian dollars, so all dollar amounts we talk about today will be in Canadian dollars unless stated otherwise.

For the full-year, we saw an overall consolidated revenue of $14.7 million and a net loss of $5.5 million, or a loss of $0.08 a share. These results include non-cash costs totaling $3.5 million, which is mostly depreciation. Ignoring that non-cash impairment charge recorded in 2014, 2015 and 2014 had very similar results, with 2014 recording a net loss on an adjusted basis of $5.4 million, or $0.08 per share. For the fourth quarter of 2015, Alexco recorded a net loss of $1.5 million, or $0.02 per share, including $700,000 depreciation and other non-cash costs.

AEG revenues for the year were $14.7 million and a gross profit was $3.3 million for a margin of 22.2%, compared to revenues last year of $14.9 million and a gross profit of $4.9 million for a margin of 32.7%. The decrease in gross margin from the prior year is mainly due to one of AEG’s major project, the Globeville Smelter Project being completed early in the year.

Furthermore, the nature of specialized engineering design related the Keno Hill Reclamation Plan required AEG to outsource a significant portion of work to third-party contractors during 2015, thus resulting in AEG – reduced AEG margins.

General and administrative expenses for 2015 totaled $8.5 million, including non-cash costs of $1.5 million compared to 2014 costs of $8.5 million, which includes $1.1 million of non-cash costs.

G&A was similar in both periods with the difference mainly relating to the company further reducing the number of employees in 2015, which is slightly offset by the foreign exchange impact on U.S. denominated salaries. Also note that approximately 45% of G&A includes overheads related to various offices and employees of AEG.

Mine site care and maintenance costs in 2015 were $2.3 million compared to $3.1 million in 2014. The decrease in cost is due to a lesser depreciation charge in 2015, which is the direct result of the impairment charge recorded in 2014. Included in mine site and care maintenance is depreciation expense of $1.7 million in 2015 and [Technical Difficulty] million in 2014.

Exploration expenditures incurring – incurred during 2015 totaled $2.7 million compared to $7 million in 2014. In 2015, the majority of these expenditures were related to the 2015 drilling program at Bermingham, the recalculation of mineral resources at Flame & Moth in Bermingham, work on re-engineering and optimizing of the mine plan on the Flame & Moth and Lucky Queen and permitting.

In Q4, Alexco completed a $3 million equity financing on a bought deal basis, for $5.6 million flow-through shares at a price of $0.53 per share and concurrently closed a $1 million non-brokered equity financing of 2 million shares at a price of $0.48 for total gross proceeds of $4 million. The flow-through shares were at a 10% premium to spot price and the hard dollars were done at spot price with no warrants on either shares.

Alexco’s cash position at December 31, 2015 was $8.1 million compared to $8.6 million at December 31, 2014, while networking capital was $12.2 million compared to $10.4 million at December 31, 2014. The increase in cash and cash equivalents in 2015 is mainly attributed to the $4 million equity financing completed in December, offset by the exploration drill program and corporate overheads during the year.

In addition, Alexco has a restricted cash balance at December 31, 2015 of $9 million, of which approximately $4.2 million relates to decommissioning obligations at Keno Hill and $4.5 million of the remaining balance relates to the AEG Globeville Smelter Project, of which approximately $4 million is expected to be released in the next few months.

Now, the operator will provide instructions for the Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question will come from the line of Mike Niehueser with Scarsdale Equities. Please go ahead.

Mike Niehueser

Hey, Clynt, Mike Niehueser here. Question about the Quartz Mining Licence. You said it was amended, but I can’t recall why it needed to be amended?

Clynton Nauman

Yes, good morning, Mike, or good afternoon. Yes, the Quartz Mining Licence that we have in place currently for production from Bellekeno and Lucky Queen as well as the other deposits in the district has simply been modified to accommodate Flame & Moth rather than just go through the process and get a whole new license, what we’ve done is amended the original licenses, which – under which we were producing.

And also I think during the formal presentation part of this call, I think I missed part of the content, the timing of the Water License. The Water License process is well underway, and we would expect the Water License process to be completed in the second quarter of 2016. And like the Quartz Mining Licence process, it will be in a amended license, meaning, that is the – that it is the original Bellekeno or Lucky Queen license that has been amended with the addition of production from Flame & Moth.

Mike Niehueser

Okay. Well, that answers my other questions about the timing for Flame & Moth and whether that’s an amendment as well. Let me complicate this a little bit. I think it was mentioned in the release that the PEA would include results from Bermingham probably in some fashion with the resource estimate. But how does Bermingham complement – complicate your permitting with regards to having to have the Quartz Mining Licence or the Water License amended additionally?

Clynton Nauman

Well, yes, I know, I understand what you’re asking. The – yes, so the Bermingham deposit will take on our permitting track. And as far as anything is happening with – in relation to the existing deposits, which are ready for production once those permits are amended. We’ll be already sitting in a position where they are fully permitted and Bermingham will take on us on track.

And at Bermingham, it will be really a decision of what we are actually – assuming there’s resources there that are going to be economic in terms of mining opportunity. It’s really a matter of what – of how we would feel about that. It’s note – the price, of course, that some of the grades at Bermingham are still high that it may lend itself to a direct shipping type of approach, which would mean that you may not necessarily need to be operating a mill to extract resource and ship it to – for a treatment and refining at some smelters.

So it will depend upon the type of mining and the rate of mining that will be on taking Bermingham, it will have its own permitting track, once we understand and if we understand it, there’s a bona fide resource that is, in fact, potentially minable.

Michael Clark

Yes, that’s – so actually there would be direct shipping or rather than processing at the mill, it just seems to me that from a practical point of view, it would be best to have the flexibility, been able to process it at the mill, but it has to do with the permitting regime in the Yukon.

Clynton Nauman

Yes, and don’t forget that in the Yukon that there are certain changes underway to environmental assessment process, which may enable us to force toward in the process with Bermingham.

Mike Niehueser

So right now that’s the plan and the issues surrounding SB-6 then could only help, not hurt you, is that what you’re saying?

Clynton Nauman

That’s correct.

Mike Niehueser

Okay. As far as the 8,000 meter drill program that you have planned for Bermingham, you’re talking about going down dip and up towards the surface. It seems like that’s a pretty – you’ve got to figure it out pretty well and seems like the chances if you’re hitting something are pretty high, but in the business, it seems like you could very easily miss, which is the nature of the business. But your experience in Keno Hill seems to be – been surprised by finding things that you didn’t know were there. So what are the prospects for being positively surprised and having been able to fashion or even more exciting resource by the end of the year?

Clynton Nauman

Well, Mike, I like to regard our discoveries is being as a result of good geologic work. I mean, the price is good, but good geologic work is better. So, yes, I think we have a pretty good handle on the geological – the structural framework in which the Bermingham deposit occurs. And that that mineralization is so high grade that we will not be – this is not a case, where we’re stepping off 100 or 200 meters looking for something.

We are simply walking out the existing mineralization to wherever that that’s going to lead us. So it will be cautious. And in fact that’s one of the reasons that we have our – having a very measured approach to it. Undoubtedly, we could do a lot more drilling than 80,000 meters, but we believe that that’s the correct amount, given the geological process that has to go into the results as they received into geological observation, as they received. So, yes, I think we have a pretty good idea of what the structural circumstance surrounding that particular deposit.

Mike Niehueser

So really building around the edges up and down in infill seems to be what you’re planning on. Are you – does any of that include any stepping out between Hector-Calumet or farther south to Coral Wigwam?

Clynton Nauman

No, my strategy here is to define or at least identify the resource, and try and get that under our belt first before getting into the longer range projections and opportunities that might be related to this particular discovery. And I’m sure what you’re referring here is that, it’s relatively close to Hector-Calumet, which was the biggest deposit in the district at 90 million ounces. And this mineralization is very similar, if not identical to the higher grade zones that resulted in the discovery of Hector-Calumet.

But my – our approach is to define a resource exactly where working close to where we’re sitting in the present time and make sure that we understand that, make sure that we can get some conceptual geotechnical, would get some with the addition of engineering work, which will also be done in 2016, get some conceptual idea of what the mining framework might look like in an area like Bermingham. And then maybe step out and see what else might be in the immediate [indiscernible].

Mike Niehueser

Just thinking ahead, if you proceed along the permitting path that you have, and if there’s a ore that’s not exactly direct shipping or a quality, but you’d love to put it through your mill with the permitting regime allow you to stockpile that until routine ruckus?

Clynton Nauman

Yes, I think that is the possibility. Obviously we have looked all kinds of different plans as to what might happen at Bermingham. But most likely if we were to drive into that deposit, it’s currently about a 160 meters from the surface. We’re driving into the deposit out of one of the old pits – old mining pits in the district. And that would give us some flexibility in terms of how we handle waste or dealt with any ore that needed to be stockpile. And don’t get me wrong, I’m not saying that, this is going to be a direct shipping – 100% direct shipping type opportunity. Clearly, you would want a mill available for this material once you start mining it.

Mike Niehueser

Well, it seems that direct shipping or something much close to it would be – would make this. How would you rate this discovery in terms of the latest metal cycle as far as the quality of the discovery? Do you think it could be the best, or top of a handful?

Clynton Nauman

No, certainly unique and it is, I think exactly what the old time as we’re looking forward is district. It is very high grade pyrargyrite and native silver-bearing zones that led them to the bigger deposit. So it is unique. We have not discovered anything like this in the district, although the type of mineralization historically is not unknown.

Mike Niehueser

What – you mentioned conditions would be necessary for you to restart the Keno Hill mill with Flame & Moth and Bermingham and or Bellekeno, and Lucky Queen. Can you talk about silver prices exchange rates anything with regarding to permitting that factor into for us to kind of keep an eye onto kind of handicap the chances of moving back into production, or making that kind of decision?

Clynton Nauman

Well, I mean, I think my answer is the same as usual. And that is that the silver price is between US$10 and US$15 in a moderately weak Canadian dollar market. Then I think that, I don’t think that a lot is going to happen. If the price is between $15 and $20, I think it’s a much more of a judgment call, certainly would be influenced by the foreign exchange rates. And meaning that a weaker Canadian dollar is of more benefit to us. And anything greater than $20 is no brain in terms of moving back to production with. We currently anticipated deposit anchored by Flame & Moth.

However, and this is – but this is purely blue sky if Bermingham becomes a player in this future of production scenario then those numbers change significantly. And Bermingham certainly gives us an opportunity to reduce all-in sustaining costs substantially below currently quoted number of around US$14

Mike Niehueser

And with the Globeville Smelter bond would that been released, what was the timing and did you say, it was C$4 million or C$4.5 million, I missed that?

Clynton Nauman

So it depends on the – I think we said probably C$4.5, but I mean the exchange versus Canadian dollar is deprecating, so slightly less than that. That’s a process that’s ongoing between a number of counterparties and stakeholders, and I would expect to see conclusion of that process sometime in the next three months at the most.

Mike Niehueser

And when you begin work hopefully on the Keno Hill as far as the long-term closure plan or a rehabilitation of the district, will those margins – do you think they will be at your historically high margins, or will they be similar to the 22% to 25% range that we’re seeing now?

Clynton Nauman

I think that we’ve, I mean, I think, they will be in the 25% to 30% range. I mean that’s what we always anticipated there. And it will depend somewhat on what exactly the plan is. Once it’s permitted, the closure plan involves a lot of earthwork, if you like, and as well as water treatment facility. So it just depends on the mix of that type of work that’s ultimately permitted.

Mike Niehueser

Okay. And I get asked a lot about Silver Wheaton, what’s going to happen with the old agreement, or the modification going out of the way? Is there anything you can say about whether you are going to have to come to terms with another amendment in order to move back into production, or is that something that they could help with, or is there anything that might be helpful that – to provide some color on what will – how they should – should they put it out of their mind, or should they be hopeful?

Clynton Nauman

The – I think what Silver Wheaton, I mean, their interests are about the same as out. They want to and they are very interested to see smooth back into production. And they knows that and we knows that the original underlying agreement, which provides for the payment of $3.90 for each of the ounces that we delivered to them and we deliver them 25% of our payable ounces. They know as we do. So that formula does not work once prices start to get below $19, $20 when per ounce of silver when the Canadian and U.S. dollars are close to parity.

My whole effort here is to ensure that we get a streaming curve in place, which allows us once we fully trigger and go back into production to stay in production and not be as swing producer. They are totally aligned with that philosophy. And we continued to talk to them, and I think that we have constructed – we have a constructive dialogue underway, and I’m quite confident that we’ll see modification of that in a better arrangement going forward.

Mike Niehueser

Well, thanks, Clynt, for answering my – entertaining my questions there. It looks like this would be a fun year to see developments on all the various fronts. I’ll get back in the queue. Thank you.

Clynton Nauman

Thanks, Mike.

Operator

[Operator Instructions] We’ll now take our next question from Brian Donnelly, private investor. Please go ahead.

Unidentified Analyst

Okay. I’m a new boy on the block here. So forgive me, if my question seems kind of like any of you want. But I would like to take it to the oxidations that you’re getting from that Bermingham deposit are pretty consistent and compatible from – of the mining that’s been done before?

Clynton Nauman

Well, first of all welcome as if you’re present on the block here, glad to have you on Board and….

Unidentified Analyst

Thank you.

Clynton Nauman

…it’s going to be a reasonable experience here. So, yes, and actually that’s an excellent question. And the way that say, I think what you’re asking is, will a metallurgical – will this type of mineralization respond favorably to the metallurgical circuits that we already have built and in place at Keno Hill. And the answer is, I guess, first of all we will have to qualify that by saying that we have not done any metallurgical work with this style of war at this point. However, we know from – we have 100 years of historical records here. We know that this type of material was processed through the historical mill.

Unidentified Analyst

And I’ll tell you something, go ahead.

Clynton Nauman

Yes, but that historical mill has exactly the same configuration as we have in place for the first time. So I’m very confident that the metallurgical response here is going to be, as good as it is elsewhere in the District.

Unidentified Analyst

Okay. And my second question is really a very light suggestion. I’m sure that you have people are looking at this all important question very closely about the silver price. I would think, although I don’t know all the contextual facts, I’m just learning about your company. But 18 a close, consistent close of around a month over US$18.50 might tell us that indeed we’ve begun to move and then obvious direction we want to goes up. But I think that US$18.50 mark is a pretty important mark understanding that that swing mining is a bad idea, but I think if we get a consistent close of four, five, six weeks over the US$18.50 might be what you’re looking for. But like I said I don’t know all the contextual facts of what you have better so just to…

Clynton Nauman

No, I think you’re exactly right and my comment on that is Gods [ph] be today. And I think that there’s some change in the sentiment year, and that’s certainly important for us and our view of moving forward.

Unidentified Analyst

Okay. Well, thank you for taking my questions.

Clynton Nauman

Thank you.

Operator

[Operator Instructions] Your next question will come from the line of Dan Cornett with Private Investor. Please go ahead.

Unidentified Analyst

Hello, Clynt. Dan Cornett here private shareholder.

Clynton Nauman

Hi, Dan, how is it going?

Unidentified Analyst

Good. My question that I have for you is respecting also in the comments that I’ve seen in other analyst reports about the high G&A that Alexco carries. And I certainly understand and appreciate your comment about the G&A that’s related to the AE Group. I was just curious as to how the company is viewing that sort of in relation to the other silver miners out there, because it does show up as a very high number and whether there’s something different that could be reported to show that people understand that.

But I’m more curious on kind of your thoughts on how you are looking at trying to, I guess, increase the value out of the Alexco AEG component and whether there’s some thinking that’s going on behind to look at other options that the company maybe taking to try and recognize that value?

Clynton Nauman

Thanks, Dan, for that. I mean, they are good question, and I appreciate them. On the first question of G&A and overhead, I agree that when we consolidate our financials, it does look like our G&A costs are abnormally high. But – and the reasons for that is because of the consolidation and because of the G&A that we are carrying at AEG, which is supporting five offices around North America.

I can tell you that that we keep a pretty close eye on all of that overhead. And the actual overhead at the mining company, if you like is less than $3 million. And so and that is – that’s a reasonable number in today’s environment giving the assets that that we’re managing. The – and then that leads into your second point, which is a good point, which is exactly at what point do you try and monetize the value or recognize the value to have on the Environmental Group.

That Group is currently doing around $15 million in revenue. I think that we understand how those businesses are valued on an earnings before interest, taxes, amortization, depreciation et cetera type of a basis. They achieve a certain multiple in the market and that multiple in my view is not really optimized until that revenue growth curve reaches something like $25 million, $30 million.

So in order to return value to the Alexco shareholders, I believe that we keep AEG as a wholly-owned sub within the parent company, Alexco Resource Corp. until we have grown those revenues. And then we look at the options that are available to us to optimize that value for the benefit of Alexco shareholders. So that’s my current strategy. I’m not sure that answers your question, but does that sort of help you out?

Unidentified Analyst

Does Clynt. I appreciate that probably the kind of first relocation where you had some sort of numbers that you can kind of go by the look at where you’re thinking is going in relation to that. It’s just that – I see the double-edged sword here that a lot of investors don’t really appreciate that value when you sort of get penalized on it when you’re looking at it as just strictly a mining company. So in the interim trying to make sure that on your financials people understand that this recognition for if you don’t kind of get criticized on the other side of kind of shall we say that media ledger shall we say?

Clynton Nauman

Yes, I totally agree with that Dan and I mean that’s a great observation that I can assure you that might be expert here, but not me that we work continuously to try and figure out how we sort of partition and identify those within our financial. So at this point, we consolidate that’s what we have to do and but be aware that we are continually trying to figure out how to partition these interest. So Mike, do you have anything to add there?

Michael Clark

The only thing I could add is that we did make a number of cuts last year, but you don’t see the impact until the following year. So there’s a number of changes we’ve made a number of people or we’re in multiple had to help reduce cost, and I think you’ll see some more reductions in this year just by some of the steps that we had already implemented last year.

Unidentified Analyst

Great, I appreciate your comments Clynt, kind of good decision and listen what’s going on here and being a long time kind of part of the company and the shareholder and appreciate that and yes we’re looking forward to all the good success and that turn as that may seem to be occurring in the market for precious metal zone, all good hope to see you in the Yukon.

Clynton Nauman

Yes, thanks Dan. I appreciate here and yes, certainly get together shortly. Thanks.

Operator

Your next question will come from the line of Bruce Greenspan with Greenspan Investment. Please go ahead.

Bruce Greenspan

Good afternoon.

Clynton Nauman

Good afternoon.

Bruce Greenspan

Just wondering first of all you might be kind enough to – I didn’t catch it quite totally you had mentioned your current approximate goal in sustaining costs, and I’m wondering if you might repeat that?

Clynton Nauman

Well, we try to keep track of what our goal in sustaining cost are, it does fluctuate somewhat with the exchange rate, as you might appreciate that where – a Canadian operator was selling a product in US dollars and so there’s been at 20% – nearly 30% swing in those numbers over the last 12 month or so. And so we believe that our current goal in sustaining costs would be right around $14 US in the current market.

Bruce Greenspan

All right, thank you. I would also like to ask you, you had mentioned earlier in your presentation before the Q&A that about the closing costs, the remedial costs, the contracts and so forth that you contractual agreements that you have with the Canadian government. And you had mentioned some years 2020 and I believe you also mentioned 2019 and 2018.

Now these are not all that far off this being 2016 and I’m wondering if you could do give us a little bit of color how would that – how would this interact with your various mining operations particularly that you have continuing exploration and you have not just one deposit, but you have quite a few different viable deposits that over a period of time would have considerable potential. How does this interact with your remediation requirements?

Clynton Nauman

That I mean that is an excellent question and there is several – that I mean there’s several ways to view our answer is. The most important thing to keep in mind is that the Keno Hill district and the legacy liabilities associated with it from, which we are indemnified is a very large district. It occupies 200, 250 square kilometers. There are 30 to 40 old mines there. We are currently sort of focused on may be three or four areas at most.

But that arrangement – that agreement is written such that when we buy deposit that we believe are going to be potentially mineable. We actually change the designation from a legacy liability to what we call a production unit. And we identify and outline the production unit, which encompass the areas, the specifically the areas that we’re going to mine and any infrastructure that’s associated with that.

And we Alexco shoulder the liability, but legacy and otherwise in that particular production unit. And so the present time we have production unit set up for Bellekeno, for the mill facility, the Lucky Queen et cetera things like that, which occupy a very small area on which we have the responsibility for the legacy liabilities as well as the disturbance that we quote.

Now outside of that there are huge number of lines tailing waste dumps et cetera throughout this district old on the ground working all of which have to be remediated and reclaimed to an acceptable level as decided and agreed amongst the various stakeholders meaning First Nations ourselves the Yukon government, the Canadian government and ultimately the assessors and regulators.

So that is the process that’s underway at the present time and once everybody agrees as to what needs to be done with each and every liability mine waste dump and tailings area once everybody agrees with what needs to be done with each of those categories then we will launch into the physical work to remediate reclaim and render benign those legacy liabilities.

So that sort of a long-winded way of explaining what happened here. There is a complete distinction between the reclamation activity and the mining activity that we undertake and if in the future we identify areas that that are potentially mineable we simply turn them into production areas and we accept the liability for that unit.

Bruce Greenspan

All right. So as a little follow-up on that once you turn these into production units because that effectively take out or nullify the whatever date might have been in place previously that you would’ve had to have started or finished or whatever remediation and closure on certain areas?

Clynton Nauman

The answer to that is, yes. I mean that then becomes the production area it has an independent reclamation and closure plan that’s associated with all the various authorizations and licenses that are required to mine in that area. So yes that it’s extracted from the larger district closure plan.

Bruce Greenspan

Okay. So would I understand correctly then that the way that structured that this would not interfere with your further exploration or production plans specifically thinking about that if there were not any of these requirements that had been in place for some time now. In other words, is it limiting in anyway that company’s – Alexco’s flexibility to explore when they want to or to going to production when they want to, is it forcing your hand on this, or eliminate you in how you do it, or is it really not a factor?

Clynton Nauman

No, it’s not – it doesn’t limit or fit or us at all. And actually to the contrary, it has a huge benefit for the taxpayers in that. We have and even in the care maintenance, you’re doing at the present time. We have existing resources on the property equipment et cetera., which is going to be available and will be used during the closure process that normally unless we were present in mining in the district normally wouldn’t be there.

So there’s an advantage to both party to the government, to the federal government, and to ourselves in terms of this very large project. And no, it does not better, or reduce, or restrict any of our ability to explore and put deposits in production in the district, and like I say to the contrary, there are more synergies than there are any complex.

Bruce Greenspan

I see, okay, very well. I have a question on an entirely different subject here. They’re starting to be modest amount of merger and acquisition activity in the industry, including up in Canada. And I just wondering has Alexco ever been approached by any companies as far as concerning a combination or that type of thing.

Clynton Nauman

Well, I think that those signs to be perfectly bring both sides of discussions are always being held between various players in the industry, in the normal course of business. And so I don’t think that Alexco is unique one way or other in terms of and those types of discussions. I mean, my focus is on value. There’s always a value proposition and certainly, if there are ideas or opportunities out there, no matter which way they come to us and we’re certainly going to look to them in terms of the opportunity to create value for the shareholders.

Bruce Greenspan

Yes, of course, what I’m personally concerned of, because I have seen this happened actually a number of times and some of them been extraordinarily frustrating is for a company that would be similar to Alexco, but in this case, I would be referring to Alexco, but other companies that have had either great resources as far as a already defined deposit, or have had great exploration success in adding to their resources.

And at the almost opportune time getting very close to the most opportune time on it would be very, very appropriate and very shareholder advantageous for the companies to stay publicly held and not to be taken over by another company. But unfortunately at those exact moments other companies be they larger, or be they more diversified, or just simply be they opportunistic have swooped in and taken out the company whoever that might be, or hopefully not Alexco, but I’m saying potentially Alexco. And all of the time the shareholders have been waiting for this opportunity to see great returns on an investment then all of a sudden that has been taken away from them. And I’m wondering, if Alexco has given any consideration to what they could do to prevent that adverse type of situation from happening?

Clynton Nauman

Well, I think that that’s fundamental to the business, and I’m certainly focused on – we’re certainly focused on how to build value and how that value reflect in the market. I think that because the last month or two, I mean, you’ve seen significant volatility in the Alexco share price. And obviously the buyers view is that, our share price has outperformed a lot of our peers over this short period of time.

So we’re seeing some recognition of the fact that this value is being built in the company. And I don’t know if this is a self-serving comment or not, but and I don’t know who the buyers are that in the market at the present time as we speak. But as of few days ago, I’m the largest shareholder in the company. And I can assure you that that I’m striving to build and to have recognized value, because my interests are absolutely aligned with yours. And so that’s the way that we try to operate the company and to run the company. Definitely, we will continue to see the unlocking of this value as we have in the recent past year.

Other than that we also have a fiduciary responsibility in the event that somebody wanted to look to Alexco to consolidate Alexco with other – with another entity and we have a fiduciary responsibility to treat that and evaluate that appropriately on behalf of the – of all of the shareholders of Alexco. So I’m not – these things happen, I don’t anticipate it, but we continue to look for real value as best we can, given the markets that we’re dealing with.

Bruce Greenspan

Certainly, I understand the fiduciary responsibility and I’m glad to hear that you’re maintaining an excellent size position in the company yourself, always like to be aligned with management. Again, I have – I guess, I have a bit of a concern that it wouldn’t be the first time that it’s happened where a company at the – right at the peak time when it would be appropriate to – for the shareholders to begin really reaping the reward that the company gets taken out. And I would really, really hate to see that in Alexco’s case, because I feel that there is substantial potential there. And the potential obviously is not realized in any company overnight, it’s not [Technical Difficulty] continuous thing, and it’s not a short-term thing.

But the potential is there for over a period of time that is – could be quite significant. And I would just really would like to see whatever the company could do that would be within the fiduciary appropriateness. I’d like to see the company do whatever they could to maximize the chances of staying independent, particularly staying independent on a basis that would be beneficial to the shareholders of Alexco as opposed to the shareholders of some company that might come in there and really try to steal the company from unrest. So just my own thought.

Clynton Nauman

Yes, I hear you and you can be certain that our interests are aligned with yours.

Bruce Greenspan

Okay. Well, thank you very much for answering my questions. I appreciate it.

Operator

That is all the time we will have for questions today. I will now turn the call back over to Mr. Nauman.

Clynton Nauman

Thank you very much. I – in closing today, I would like to just sort of thank you again for joining us. And to just remind you that we remain dedicated to our objectives of conserving cash of executing our 2016 exploration plan, reducing costs, working on our third-party agreements, expanding resources, optimizing our underground development plans, and overcoming any remaining hurdles that may stand in the way of restart of operations at Keno Hill.

Meantime, I still think there were clearly a call on the price of silver. We have a very rich silver property, great exploration potential, and an income-producing environmental subsidiary. And as always, we appreciate your support and interest in Alexco.

And with that, I’ll turn it back to Mike to close out the call.

Michael Clark

Thanks, Clynt. You’ve been listening to the Alexco Resource December 31, 2015 fourth quarter and year-end 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 e-mail us at info@alexcoresource.com. This concludes today’s call. Thank you for joining us and have a good day.

Operator

Ladies and gentlemen, this will conclude today’s call. Thank you for your participation. You may now disconnect your lines.

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