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Alexco Resource Corporation (NYSEMKT:AXU)

Q3 2012 Earnings Call

November 6, 2012 11:00 AM ET

Executives

Vicki Veltkamp – IR

Clynt Nauman – President and CEO

David Whittle – CFO and Company Ethics Officer

Brad Thrall – EVP and COO

Analysts

Christos Doulis – Stonecap Securities

Jeff Wright – Global Hunter Securities LLC

Mike Niehueser – Beacon Rock Research

Graeme Jenning – Cormark Security

Graeme Jennings – Cormark Securities

Operator

Greetings and welcome to the Alexco Resource Third Quarter 2012 Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Vicki Veltkamp of Alexco Resource Corporation. Thank you, Ms. Veltkamp, you may begin.

Vicki Veltkamp

Good morning everyone. Today is Tuesday, November 6, 2012 and I’d like to welcome you to Alexco Resource’s third quarter conference call for the period ended September 30th, 2012.

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 quarterly production and financial results there.

And for a limited time, a recording of this conference call will be available by telephone and the instructions on accessing that are also on yesterday’s news release.

Giving presentation on today’s call will be Clynt Nauman, President and Chief Executive Officer of Alexco Resource and David Whittle Alexco’s Chief Financial Officer and we also have with us Brad Thrall, Alexco’s Chief Operating Officer, who will participate in the question-and-answer session.

Before we get started, I need to remind you that some statements made today by the management team may contain forward-looking information. Our business involved 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 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.

So with that, I’d like to turn the call over to Alexco’s President and Chief Executive Officer, Clynt Nauman.

Clynt Nauman

Thank you, Vicki. As you know we released our third quarter results yesterday and we’re reasonably happy with the progress we’ve made on a number fronts in the past quarter. But like you I’m looking for sustainability in our improved performance that we’ve been able to achieve here in this last quarter. I’m also hoping that our results here don’t get too lost in all the noise over the US elections today. And so I do appreciate your attention to this webcast this morning.

I first may spent a fair amount of time up at our site in the Keno Hill Silver District during the third quarter with not only a major focus on the operations at the mill, but also on improving the coordination between our underground mine and the mill. And doing that, as we concentrated on increasing our mill throughput which, as we discussed last quarter, is the knob [ph] of the issue.

And I think our people are being successful. We have increased the average throughput for the quarter, in the third quarter from 244 tons per day in the second quarter to 270 tons per day on average in the third quarter. And within that, I can also report that we had several 350 ton plus days in September when the mill throughput was 301 tons per day.

So how do we do that? Well we implemented a few mechanical changes or minor modifications to the mill, but also a lot of it came from more focused supervision, continued operative training, some personnel changes and some other issues and resolutions that were mostly workforce related.

In addition, we also had a better managed inventory of mine fee as well as bulk inventory for the long-hole stopes that we pulled – that we pulled in the second and third quarter. All this led to a 12% increase in silver production and a 33% decrease in our cash cost per ounce of silver net of by-product credits to $10.48 per ounce during the quarter.

So that’s all great news. However, at this point, I want to step back and remind you of the bigger vision that we have here at Keno Hill and why as an investor you likely decided to join us.

Elsewhere and also who run this [ph] company for the longer term off the back of our little Bellekeno mine, great as it maybe. The smaller volume, higher grade nature of Bellekeno can lead to big swings in cash cost, fluctuations in ore grade and earnings from quarter to quarter.

Be then at earnings in quarter to quarter, the fluctuations will be based on changes in the latency, by-product prices, increases or decreases in ore grades depending upon the temperature of the mine we’re in, mining methods we used during the quarter and finally the timing of ore shipments and payments.

Similarly, we never envisioned Bellekeno supporting a 400 ton per day operation which is the main play of the mill and is the ultimate objective of the current push we have for increased throughput. We also never expected to Bellekeno on its own to totally support the exploration side of our business which is a much, much larger piece of Alexco on a percentage basis than most operating companies especially single-mine operating companies.

But our exploration program is the way to unearth the long-term value in this district and we have been heavily – we have been investing heavily in exploration as you know. So when you look at it like that, Bellekeno is doing pretty darn good job of supporting our operating base as well as supporting the effort that we’re making two additional new mines on the stream as well as additional ounces on our books.

We fair long in the development of Onek and Lucky Queen and we are – we’re continuing to make new discoveries like Flame & Moth and Bermingham. The really big play off in the district while we’re talking about blue sky issues here will when we hopefully discover the next time to build an [ph] ounce deposit. We know the potential is there and we know we’re on the right track.

In the meantime, we already have the resources that we can put in production in the near future and we can begin producing on these new mines. And as we began producing from these new mines, my expectation is that we’ll continue to grow our income, lower our cash cost of production and even as we do this, as we implement our bigger vision for the district.

I’ll have our CFO, David Whittle give you more detail on the financial results in the moment. But first, just a couple of additional overarching comments. We’re happy to have closed out the remaining interest on the Brewery Creek property which resulted in a free tax gain in the last quarter of $6.3 million.

Our working capital balance is about $3.5 million down from the end of the second quarter and that’s a reflection of expenditure during the period of unusually active mine development and the fact that the bulk of the exploration seasons sounds [ph] as falls into the third quarter, as well as the rehabilitation and development activity at Onek and Lucky Queen.

And we’re glad to report solid performance for the Alexco Environmental Group. It’s been a big remediation project going on with [inaudible] smelting in Denver. They’re working on remediating with the soils and groundwater there and that’s generating new revenue to supplement other projects we’ve already been working on.

I’ll talk more about our exploration program which continues to be highly successful as well as some additional details on our operations for Thursday which going to speak more specifically to the financial metrics for the past quarter.

David Whittle

Thanks, Clynt. This financial report is for the third quarter of Alexco’s 2012 fiscal year. As we go through this presentation, bear in mind that we report in Canadian dollars, for all dollar amounts we talk about will be in Canadian dollars unless stated otherwise. And any time we talk tons, we’re talking metric tons.

For the three months ended September 30th, we brought in overall consolidated revenue of CAD$20.1 million and we’re going to report a net earnings for the quarter of CAD$5.3 million or CAD$0.09 per share. Last year of the same period, we have revenues of CAD$22.3 million and net income of CAD$3.1 million or CAD$0.05 per share.

Our total revenues this quarter from Bellekeno mining operations were CAD$17.3 million compared to CAD$20.8 million last year. The decrease was driven in part by sales volumes being slightly lower by about 5% and in part by lower lead and zinc prices close over with 2% higher. And, otherwise, by higher smelter treatment and refining charges with this year are roughly 20% increase over last year and our revenues, of course, being net [ph] of those smelter treatment and refining charges.

Growth profit at Bellekeno was CAD$4.0 million in this quarter compared to CAD$6.7 billion in the third quarter of calendar 2011. Some of that decreases due to the lower sales volumes this quarter compared to last year. But the rest is due primarily an increase to non-cash replacement charges reflecting the impact of ongoing capitalization of underground development as Bellekeno continues through its second year of mine life.

Cash cost and production for the quarter with CAD$10.48 per ounces silver, slightly improved from a CAD$10.83 third quarter of 2011 and significantly improved from CAD$15.53 third quarter in the immediately preceding quarter. Meaningful per ounce gains in mining and milling cost were achieved this quarter for over both the immediately preceding quarter and the third quarter of 2011.

These gains reflect the economy of scale benefits of this quarter’s increase mill throughput as well as the unit classic benefits from long-hole stoping and this has been the first quarter where we have extracted significant tonnage through long-holing with over [inaudible] this quarter’s ore production coming through that mining method.

The impact of these gains compared to last year’s cash cost was largely offset by lower-based metal credits, increase transportation charges and higher smelter treatment and refining charges. However, the impact of those gains is quite noticeable compared to last quarter’s cash cost which were further out by a stronger based metal credit due to the higher lead and zinc prices.

Silver metal production in this quarter was 514,879 ounces, a solid improvement over the last quarter’s 458,472 ounces and had reflecting the increase to mill throughput of 270 tons per day from last quarter’s 244 tons per day. Our sales volumes by payable metal lagged this production increase, however, at 437,890 ounces. This was due to the timing impact of the roughly three weeks required to transport concentrate from the mill to the smelter our point of sale.

Production in July and August remained hampered as we worked on addressing those issues that held back our production in the second quarter. But production dramatically improved heading into September as the efforts to improve mill throughput paid off. That over-waiting of metal production into the month September combined with the effect of the three-week concentrate transport cycle means most of the production increase we’ve seen this quarter will show off at our sales volumes for next quarter, for fourth quarter of 2012.

The Alexco Environmental Group or AEG has continued to be a strong performer this year. Revenue of this quarter with CAD$2.8 million compared to CAD$1.4 million in the comparative quarter last year. While on growth profit which is over CAD$1 million compared to CAD$275,000 loss in the comparative quarter.

About 45% of AEG business is connected with remediation work that we’re doing at Keno Hill under our long-term agreement with Federal Government of Canada. Most of the work we’ve been doing there last year and still currently is in connection with planning the long-term remediation measures. Under the arrangement, we are doing that planning at roughly breakeven rates, so once the planning is completed and actual remediation begins, we will be doing that work at normal profitable rates. And in spite of this, AEG’s still recorded an overall gross margin of 36% for the quarter reflecting the overall strike of this business flow.

The other story I’ll note [ph] as Clynt’s already mentioned, with the completion this quarter of the sale of our remaining interest in the Brewery Creek gold exploration property, the Golden Predator Corp. On closing, we received CAD$3.2 million in cash plus 7.5 million in common shares of Golden Predator, warrants to acquire another 3.75 million shares over the next two years with the strike price of CAD$1.15. And as [ph] smelter returns royalty on gold production from Brewery between 2% and 2.75%. As a result of this transaction, we recorded a pre-tax gain of CAD$6.3 million.

Alexco’s net working capital of September 30th, total of CAD$29.4 million compared to CAD$32.2 million of June 30th, a decrease in net working capital primarily reflects net cash inflows from operations offset by seasonally high expenditure levels on Keno Hills District exploration activity for this quarter plus rehabilitation and access development activity at the historical Lucky Queen and Onek mine sites, as well as Bellekeno mine development.

I’ll turn the call back to Clynt now.

Clynt Nauman

Thanks, David. If you have any questions on the financial results, we’ll do those at the end of our call here. I was just going to mention briefly some notes on operations, development and exploration.

Firstly, operations, we saw the Bellekeno mine produce over 23,000 tons of ore in the third quarter with a mill throughput exceeding that 5,000 tons. [inaudible] in the fourth quarter now is consistently exceeding capacity of the Bellekeno mine. And for the first time since we started production in commercial production in January of last year, we expect to see the mill outpace the mine in this quarter.

So until we get additional fee from Onek and Lucky Queen early next year, we’ll be using the additional time in the mill to catch up on any remain deferred mill maintenance, additional crew training and preparing for the increase fee that’s going to be arriving in the first quarter of next year.

In the mill, over the last quarter, we replaced the time [ph] crashers, the new cyclones are in and the undergoing commissioning cycle, they’re operating well. The [inaudible] agitators and filters are all on stream and we’ve continued to reduce our employed turn over the mill and across the rest of the operation.

We did this and off with compensation adjustments initially but through process of discovering and addressing what the quality of life issues, poor and rich quality of life issues are important in a fly-in and fly-out camps, I just asked [ph], more focused on camp improvements and employee benefits along with performance incentives.

I mentioned earlier that our cash cost per ounce were down significantly from the second quarter at about CAD$5 an ounce [inaudible]. The majority of that amount, 350 of it is due to reduce cost in the mine mostly provided in the long-hole stoping method we deployed for about 30% of the mine output during the quarter. Close to a dollar of the lower cash cost per ounce were due to an increase in the prices of bright [ph] product metals made in zinc and the rest is a reduction in cash cost per ounce – the rest is the reduction in cash cost per ounce was spread during slightly lower milling and concentrate transportation cost during the quarter.

Denver development projects, we continue to make progress on these projects. We now expect us to begin mining in our new mines, Onek and Lucky Queen by the end of the first quarter, at the very latest, by the end of the first quarter of 2013 permitting us to moving along our expected timeline and a court mining license is expected to be secured for this operation this month.

And, Lucky Queen, I would say, there were about 90% of the way there in terms of accessing initial parts of the deposit. In fact, we sit right under the ore deposit as we speak. And at Onek, I would anticipate us having development fair enough along by the end of the year that will be at ore at that point. They were moving along well on those two fronts.

Terms of exploration, I would have to say the exploration in 2012 at Keno Hill was a resounding success. Certainly, in my view, one of the most successful years we’ve had. Point of that drilling about 25,000 meters from surface and nearly half of that was at Flame and Moth.

You may know that earlier in the year, we increased our combined indicated resources for the district more than 52% to more than 42 million ounces giving us a title of about 60 million ounces of identified silver resource in the district. I’m still hoping to do another calculation of our resource at Flame and Moth within the next six months, hopefully sooner than that and expect to add additional resources.

So I’m pretty excited about the outlook of this new discovery at Flame & Moth.

Bermingham similarly, the Bermingham deposit is looking a little more complicated structurally than Flame & Moth. We’re mostly working on our resources, our recalculation of Bellekeno and which is complete. And once we have a mine plan built around the new resource, we’ll be able to discuss that with you and I would hope that we’re going to add incremental mine life at Bellekeno.

If you remember this mine started out a couple of years ago with three to – with a three to four year mine life and after the next recalculation, I expect that it will stay at about that same level with our business status in the forward-looking statement.

We also drilled McQuesten, the west demand [ph] of our property, a gold property late in the season primarily trying to get a better handle on gold mineralization in the district generally and we’ll deliver results from that work when it’s available.

Beyond that, we still have results pending from actually three holes at Flame & Moth out of the total of 56 or so we drilled there. And we will have all of the results from that work in Bermingham and at Husky and as I mentioned McQuesten still outstanding.

At this point, we have demobilized two of the four rigs from site, service rigs from site. The remaining two are winterized and will remain on site as we contemplate our exploration plans for 2013.

So with that, I’ll turn it back to Vicki.

Vicki Veltkamp

And I’ll turn it to the operator for the instructions on the question-and-answer period.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Christos Doulis of Stonecap Securities. Please proceed with your question.

Christos Doulis – Stonecap Securities

Hi, guys and congratulations on the cash progress on the quarter, it certainly beat my expectations thinking how great it was in the quarter. So congratulations on that.

Just a few quick questions here on Lucky Queen and Onek, you have $10.2 million event in the quarter on line development, can you give us any idea how much is remaining to get those two operations into a pretty good status?

Clynt Nauman

Well Lucky Queen is a question of degrees. We can actually start mining there in the short term. So we’re essentially at least 80% of all of the capital that needs to be invested at Lucky Queen, about 80% of that is spent.

And at Onek, we probably have something in the range of about $3 million I think in that range to properly set us to – set us up to mine at [inaudible].

Christos Doulis – Stonecap Securities

Okay. Could you give me a number you think on that Lucky Queen? You say 80% of the capital spent, is that we’re, in my rough invested $1 million left at Lucky Queen?

Clynt Nauman

Yes, it’s likely even more than that. The interesting thing about Lucky Queen is that we’re not sitting in the – we’re sitting right underneath the deposit as we had it outlined. We just started to drill it actually as we speak.

And you would know if there’s an additional infrastructure to go in there. It will go in as capital development while we’re producing not before we’re producing from the deposit.

Christos Doulis – Stonecap Securities

Okay. And just a next quick question, G&A notes was a little higher this quarter. It came in I think around four in change [ph]. Is that a number you expect to see ongoing in terms of quarterly G&A?

Clynt Nauman

No. I mean there were some one offs in there. I guess the most significant one was the fact that we did have to make some workforce adjustments and there was severance cost attached to that. So that would be the biggest one off in that number.

David Whittle

Okay, Christos, this is Dave. Well just ongoing basis about $3 million a quarter of cash cost of G&A excluding the stock base comp for example, it would be a rough ongoing average I would expect.

Christos Doulis – Stonecap Securities

Perfect. And then this was touched on briefly when you guys came out with the production number. Grade of Bellekeno was a little light in the quarter. Can you give any sort of guidance and I heard that’s attributed to sequencing? Do we expect that to come back up in Q4 and Q1?

Clynt Nauman

Yes. Bellekeno, we expected those grades are going to improve in Q4.

Christos Doulis – Stonecap Securities

And then you think that they’re also be higher in Q1 or–?

Clynt Nauman

Yes. I think, I mean, I think we’ll go back to producing in that 700s and 800 band that we were – we’re traditionally been in.

Christos Doulis – Stonecap Securities

Okay. Finally guys, just one last question and I think you’ve touched on this. I saw that payable silver has a ratio of produced. It went from 92% in third quarter ‘11 to 85% in third quarter ‘12.

You guys have indicated that this is an issue with delivery times and concentrate time from my understanding here and I just want to confirm that you guys are going to get back to kind of ultimately a level of around 92% payable versus produce in con?

David Whittle

Yes, 92% would be a normal ratio of payable to produce and this one is stricter because we had a change in production rate, so our September month was a big month relative to the July month at the start. That skewed the waiting.

So with the three-week concentrate delivery time, you got a little of a lag effect there. So there’s nothing more than a short-term temporary lag effect on production versus delivery.

Christos Doulis – Stonecap Securities

Perfect. Thanks very much, gentlemen.

Operator

Our next question comes from Jeff Wright of Global Hunter Securities. Please proceed with your question.

Jeff Wright – Global Hunter Securities LLC

Hey, good morning, thanks for taking my questions. The first question, a couple of them are already covered, but can you guys elaborate more on the permitting process with Lucky Queen and Onek. Will those permits perhaps separately or you think they would both come at the same time? And what bottlenecks would push those permits back if any?

Brad Thrall

Hi, Jeff, it’s Brad Thrall here. I’ll take that. The Lucky Queen and Onek mines are both being permitted together as one single permit application if you will. So those are essentially viewed as a single project.

Again, in the Yukon, there are two separate permits that are required. One is a court’s mining license and one is a water license. We’re well on track in the – with the fair degree of high confidence that the QML will be received sometime near the end of November.

So there’s – we don’t see any bottlenecks or issues at Lucky Queen or Onek when it comes to mine production which would be accessing the ore, mining the ore and stock piling ore.

So that’s well on track and in the next permit which we would expect sometime in the – in the first quarter of 2013 would be the water license which ultimately requires the use of water for active milling operation. So that’s the – that’s the status. And again, we certainly expect the QML in the short term here.

Jeff Wright – Global Hunter Securities LLC

Okay. So would it be feasible to begin mining and stockpiling and not processing until some point in the first quarter?

Brad Thrall

Yes. That’s a – I think that’s a reasonable assumption right now, but certainly by the end of this year, we’re going to be in position to be at ore. It was going [inaudible], we’re essentially at the ore at Lucky Queen and we’re going to be at the ore by the end of year at Onek.

So we’ll be in a position to start producing ore and then we’ll have to determine what the – what the potential lag time might be for milling.

Jeff Wright – Global Hunter Securities LLC

Okay. I think I’m good on Bellekeno, the other questions were asked. Okay, thanks.

David Whittle

Thanks, Jeff.

Operator

(Operator Instructions) Our next question comes from the line of Mike Niehueser of Beacon Rock Research. Please proceed with your question.

Mike Niehueser – Beacon Rock Research

Hi, guys. It looks like the environmental business is contributing more. Do you think that is what we’re going to expect for consistency going forward?

Clynt Nauman

Yes, Mike. I think that that’s – I think that’s reasonable. Certainly the big change at Alexco environmental is the addition of the globe smelter job in Denver. And although we don’t have total control over the rate in which that job progresses, certainly when it’s in – when it’s working the way it did in the last quarter, it turns in solid revenues and solid margins.

Mike Niehueser – Beacon Rock Research

So it’s something that it’s possible that we could see that repeat with that particular project then?

Clynt Nauman

Yes exactly. And certainly the business is becoming better now in the United States. And there are other opportunities there that are emerging.

Mike Niehueser – Beacon Rock Research

And it looks like there’s the mention of the three weeks in variance in revenues with the timing issues due to transportation, is that something that you could expect at the end of quarter that there’ll be almost potential rounding error of three weeks? And if so about how much does that relate to in terms of revenues?

David Whittle

No. Mike, you’d only expect to see that impact if there was a change in production rate. If the rate of production was the same at the start of the quarter as it is at the end of the quarter, then there’ll be no discernible impact from that three-week lag.

It’s only when you’ve got a difference, if you’ve got a whole bunch more or a whole bunch less at the beginning of the quarter as to the end.

Mike Niehueser – Beacon Rock Research

So as things slowed out or ramped up, we could expect that to be a non-issue.

Clynt Nauman

Exactly. Our estimated cycle is always three weeks. It doesn’t change as – we track every single day and it’s pretty steady three-week [inaudible] from the slightest method.

Mike Niehueser – Beacon Rock Research

And also, it sounds like the Bellekeno mill or the Keno Hill mill is well in hand now, it seems like a dominating factor or the human elements managing it and taking control of the various links there, but – and, of course you’ve done some mechanical things, but – and congratulations on that, by the way. It looks like the zinc recoveries are still up. Can you comment on zinc as a priority and whether there’s potential to bring that back up?

David Whittle

Zinc is not always been and obviously the first priority in the zinc and the zinc concentrated is less than 5% of our revenue but it really doesn’t suggest that we don’t pay attention to it. We do anticipate when the Onek mine comes on line, the zinc [inaudible] will – are higher to Onek. So we’ve certainly anticipate an improvement in zinc recovery with higher zinc grades. There are few mechanical changes that we got on line to improve zinc recovery. So, you’re right, Mike, it’s – zinc recovery has remained stable and we haven’t forgotten about it and we do continue to focus on it.

Mike Niehueser – Beacon Rock Research

And you saw this an opportunity for improvement. One interesting, too, is about the mill outpacing the mine now and with grades dropping overall, it sounds to me like you’re working through lower-grade stockpiles and sort of pinning the mind out so to speak. Is that a rough characterization?

Clynt Nauman

Yes. That’s a pretty fair assessment. I mean, I would make the point that most mining operations especially underground operations generally operate the other way around. The mine is chasing the mill. That has not been the case here. We’ve always carried inventory and I’m just waving the flag saying, the mill is now operating at a rate and improving to the point that it’s going to clearly outpace the mine and the mine is, like you say, going to be cleaned out and it will become more of a direct link in terms of the volumes between the mine and the mill.

Mike Niehueser – Beacon Rock Research

One kind of exciting thing about what you’ve done is with the management going forward, it seems like you’ve got capacity to get prepared for Lucky Queen and Onek to come on. And one last question, Clynt, did you say that there’s – the mill was going to be operating ahead of design capacity? You used capacity and I wasn’t sure how you use [inaudible] just gets –

Clynt Nauman

No. We still focus on the same thing. The point here is to bring this mill up the curve to design capacity which is 400 tons per day.

Mike Niehueser – Beacon Rock Research

Okay. Thank you very much.

Operator

Our next question comes from Graeme Jennings of Cormark Security. Please proceed with your question.

Graeme Jenning – Cormark Security

Hi, guys. Good cash cost in the quarter. Good improvement. There’s a few questions here that might be for the trading [ph] ground [inaudible] have done. But on the CapEx [inaudible] asking, the capacity here is for senior cash flows out of your mineral properties [inaudible] 5 million, in the last curve on 10 million. Assuming going forward and I’ll go into the 2013, how you see [inaudible].

Clynt Nauman

Let me take a side of that and the answer is not straightforward primarily because we haven’t finished up around budgets for 2013 yet. And frankly, as we’re working our ways to always new resource calculations and trying to wrap mine plans around new resources, we’re not exactly going to know what the answers are there. But I guess the important things are firstly, the only capital development that will be meaningful capital development that will be deployed next year will be at each of the three mines but only in terms of sustaining and preparing for future productions we might need from each of those minds.

Now, traditionally, at Bellekeno, we carry $0.5 million, $3 million, something like that in capital development within the mine itself. In other two mines, will probably be a lower number than that. And the other part of the equation is this year, we spent $10 million odd on surface exploration, [inaudible] $2 million underground. Next year, my anticipation is that our surface exploration program will be somewhat smaller, not because we don’t have lots of targets and lots of opportunities we’ll be making, a lot of discoveries in putting ounces on the books to about $0.60 an ounce primarily because we’ve been so successful, we have so much information and our exploration proves actually pretty small.

We’re going to need some time to sort of recalibrate and adjust here and that’s what we intend to do in 2013. So we’re going to spend – we’re going to eliminate exploration. I am saying, we’re giving serious considerations rolling, in fact, from 25,000 plus meters we did this year to something much less than that.

Graeme Jenning – Cormark Security

Okay. Great. And on long-hole stopes, I mean, you said they contributed a lot better than you direction this last quarter and I know you’ve been sort of guided up the [inaudible] variable contribution but a very [inaudible]. Do you think it could be look forward in sales [inaudible] is this long-hole stopes be contributing a fair amount and what was it like going forward into 2013 or was it really a variable quarter-by-quarter, hard to see that looking at it.

Clynt Nauman

Well, I mean, I can’t say that – I mean, we’ve come a long way this year and we continue to set the mine out for more for long-holing actually because it has been successful. And so I think that the 30% number is probably – there’s probably a reasonable number if we look out three to six months. Beyond that, we need to say that the new plans that are being wrapped around the new resources that we have there to give you a longer-term, too, with that.

Graeme Jennings – Cormark Securities

Great. And then your throughputs are looking very – you’d say Bellekeno, exactly [inaudible] around the 270 tons per day you will get an hour [ph].

Clynt Nauman

Yes. I think I mean, granted that we have around the mine a higher capacity in that, but we also – we can run that mine for 450 tons per day, but the following – for a month. But the following months we’re in a [inaudible] cycle.

So on average it’s 250, 270 something like that. And as I’ve always said, that’s basically all that mine was designed to do.

Graeme Jennings – Cormark Securities

Right. So we can look at the result level is going into at the beginning of Q1 when we can – hopefully when we get lucky, we can bring it online [ph].

Clynt Nauman

Exactly.

Graeme Jennings – Cormark Securities

And then when those come online, you either can fill to quickly ramp up to that 400 tons per day or is that – what do you–?

Clynt Nauman

I don’t have any – I don’t have any concerns at all on the mining site and that’s the reason we’re focused so much on that mill throughput it everything here. We have to get that mill, continue to bring it up to curve and get up in that 350, 400 ton per day range. It’s just going to be plenty of feed for those three months.

Graeme Jennings – Cormark Securities

Great. And finally just last question here on, you mentioned that you’re looking at a [inaudible] resource within the next [inaudible] in this year it’s more [inaudible].

Clynt Nauman

Yes. I’ve always say I’d like to get it done by the end of the year, but I always qualify that by saying, I just don’t know whether or not we can get there.

I’m hoping that early the next – early next quarter is what we need. I mean that resource is going to be important for us and as you know. And so it’s certainly a priority once we get the Bellekeno recalculation cleaned up and out the door.

Graeme Jennings – Cormark Securities

Yes, great. Thanks all.

David Whittle

Thanks, Graeme.

Operator

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Clynt Nauman

Thank you very much. Well the third quarter this year was a deck of improvement as we have discussed over the second quarter and I’m pretty happy about that.

Our cash costs are down, our throughputs up. So I know we’re doing some of the right things to reach a sustainable level. We need time now to build the mass of the company and enough time to create a routine that allows us to smooth all this variability that we’ve seen over the last couple of quarters.

And that means putting more mines online. That’s what we’ve been talking about here just in the last few minutes, but ultimately my view is this amount of quarter-to-quarter district, ore company, our view is a longer term and bigger one, one where we’ll have incremental steps along the way to build into a more than one mine company.

And until then I expect we’ll see variability quarter to quarter but the larger vision remains the same is to unlock the value of this very prolific high grade silver district and deliver that value to our shareholders.

Thanks for your time and interest today. We appreciate your support. And with that I’ll turn it back to Vicki to close out the call.

Vicki Veltkamp

And you’ve been listening to the November 6, 2012 Alexco Resource conference call. We encourage investors to visit Alexco’s website for further information at www.exlecoresource.com. And if you have further questions please call 604-633-4888 or email us at infor@alexcoresource.com. This concludes today’s call. Thank you for joining us. Have a good day.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.

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