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Vol. 12, No. 8 Week of February 25, 2007
Providing coverage of Alaska and Northwest Canada's mineral industry

MINING NEWS: Unique operator cleans up old messes

Alexco Resource tackles potentially lucrative exploration, environmental remediation at abandoned mine sites in Yukon Territory

Rose Ragsdale

For Mining News

Ever since prospectors rushed to the Yukon seeking gold more than a century ago, miners have been guilty of extracting the mineral riches in the North and doing a vanishing act when the veins petered out or prices fell. These miners often left behind environmental messes that occasionally became regulatory nightmares.

Now that modern-day prospectors are again venturing to the far North, many of them are seeking out old mining claims.

But before new exploration can occur, the old mine sites often must be cleaned up.

That’s where a growing number of remediation and reclamation specialists come in. Some are in-house departments of large companies, while others are independent consultants. These environmental specialists return old mine sites to their natural state prior to mining activity, or remediate them as much as possible. The work often also clears the way for new exploration.

It’s rare that one small company attempts to do both, remediate and explore the old mines.

One such operation is Alexco Resource Corp., a Vancouver, B.C.-based junior mining company with its eye on exploiting riches to be earned in the Yukon at both ends of today’s mining spectrum.

Why the Yukon?

“Why not the Yukon,” is a better question, considering its huge size and under-explored nature, said Clynton R. Nauman, president and CEO of Alexco.

“All the productive terrains in Alaska and British Columbia traverse the Yukon. … The rule of thumb is the best place to look for an ore body is in the shadow of an existing mine,” Nauman said in a telephone interview Feb. 19.

Nauman formerly served as general manager of the Greens Creek Mine Project near Juneau for several years and as president of Viceroy Resources Corp., the company that operated the Brewery Creek mine until it closed when gold prices tanked in 2002. He credits his years at Greens Creek with giving him an appreciation of the importance of environmental sensitivity in developing mine projects.

Nauman, a geologist by training, came up with the idea of combining the functions of a junior mining company and an environmental remediation services firm into one operating entity.

“As a standalone business model, I am not aware of any other like it,” he said.

NovaGold is key investor, contractor

In 2003 Nauman joined some friends and formed a small company called ALM Group ULC. ALM then joined NovaGold Resources Inc. and Quest Capital Corp. to form Alexco in 2005. Alexco completed an initial public offering in January 2006, with full-board listing on the Toronto Stock Exchange thanks to the advanced nature of the mine properties in its portfolio.

In addition, the company owns two subsidiaries, Elsa Reclamation & Development Co. Ltd. and Yukon-based Access Mining Consultants Ltd., which provide mine-related environmental, reclamation and mine closure services.

From the beginning, Alexco has focused on identifying and enhancing value at the company’s primary exploration properties, leveraging its exposure to silver at the United Keno Hill Mines (“Keno Hill”) property in Yukon Territory and developing and improving the profitability of its environmental services business.

Alexco conducts its exploration programs with the help of 19 percent investor-owner NovaGold, which provides exploration services to the company on a contractual basis.

Alexco also enjoys other strategic advantages. These include gold-related exploration opportunities in the Yukon Territory, including the Brewery Creek and Harlan properties; and an experienced and successful management team and board of directors.

For example, one director, Rick Van Nieuwenhuyse, is president and CEO of NovaGold.

Expanding the company and increasing shareholder value is Alexco’s primary objective for 2007. Nauman said the company hopes to attract more investors; generate C$1 million in remediation revenues, build its remediation business, focusing on properties with exploration potential; increase staffing levels to allow the company to take on new clients and projects; and operate with no debt.

“Given the successes of 2006, I am confident we will achieve our 2007 goals, and more,” Nauman said.

Keno Hill holds considerable promise

Currently, Alexco is focused on silver-rich Keno Hill.

The company’s expertise in managing risk and unlocking value is nowhere more evident than in this abandoned mining complex, according to Nauman.

The large property is an orphaned and abandoned site comprising more than 30 historic silver-lead-zinc producing mines. It is a liability on the Canadian government’s books because of considerable mine remediation and reclamation work needed on the properties.

But Alexco sees Keno Hill as an unprecedented exploration opportunity as well as lucrative work for its environmental services operation.

Alexco completed negotiations in April 2006 with federal and Yukon officials to purchase Keno Hill, assumed responsibility for environmental care and maintenance of the district through its environmental services branch and initiated a systematic exploration program to unlock additional value in the silver district. Historically exploited high-grade silver veins in the Keno Hill Mining District cover an area of about 140 square miles. Mineralization is temporally related to mid-Cretaceous-aged tombstone intrusions that are associated with significant precious metals deposits across the Yukon Territory and Alaska, including deposits such as Fort Knox, Pogo and Brewery Creek.

Records indicate that about 4.9 million tonnes of ore containing more than 40 ounces per tonne of silver together with 5.6 percent lead and 3.1 percent zinc were mined in the district between the early 1920s and 1989, producing more than 215 million ounces of silver.

Metals prices fell following the silver price manipulations of the mid-1980s and Keno Hill was forced into bankruptcy, closing the mines in 1989.

In June 2005, Alexco was selected as the preferred purchaser of the assets of Keno Hill by PricewaterhouseCoopers Inc., the court-appointed interim receiver and receiver-manager of Keno Hill, due mainly to its more thorough offer.

Lucrative remediation ahead

Under terms of the agreement, Elsa Reclamation & Development is indemnified against all historical liability, is not required to post security against pre-existing liabilities and has property access for exploration and future development.

In its assessment of Keno Hill’s value, PricewaterhouseCoopers set the estimated environmental clean-up cost at C$65 million, greater than the assets of the property’s known ore resources of some $50 million.

Elsa Reclamation & Development will contribute C$10 million to the cleanup effort and expects to be reimbursed more than C$50 million for future environmental reclamation activities.

Elsa Reclamation & Development also assumed responsibility for ongoing environmental care and maintenance of the site under the contract and is actively conducting a baseline environmental assessment and site characterization program.

To finalize the Keno Hill acquisition, Elsa Reclamation & Development has applied for a water license that it expects to be granted later this year or in early 2008. Upon receipt of the license, ERDC will have free and clear title to surface and subsurface claims, leases, free-hold land, buildings and equipment at Keno Hill.

Nauman said Elsa Reclamation & Development and Access Mining Consultants got off to a profitable start in 2006, posting initial revenues of C$500,000 and margins of 38 percent for their first full year of operation under the Alexco banner.

As for human resources, Alexco is working with the Nacho Nyak Dun First Nation to ensure the participation of its members in all aspects of care and maintenance, reclamation, exploration and redevelopment at Keno Hill. The mine complex is within NND’s traditional territory. NND members should benefit at Keno Hill from jobs creation, business and contracting opportunities, scholarships and direct employment-related training.

Alexco recruited more than 20 workers from the nearby communities of Mayo, Keno City and Stewart Crossing last year.

In anticipation of receiving the water license, Alexco initiated a district-wide exploration program in 2006. Systematic tests of selected silver targets in the district helped the company identify potentially important resources based on historical data and understand the style and variation in mineralization across the district.

Production decision in 2007?

Alexco aims to identify and outline a “single mine” at Keno Hill this year with a silver resource of more than 20 million ounces that will provide a short-term production opportunity, Nauman said.

In addition, the company will continue the district-wide evaluation of silver mineralization it began in 2006.

Alexco plans to have three or four rigs drilling at Keno Hill for at least eight months in 2007, drilling a minimum of 30,000 meters of both surface and deep drill holes.

Though Alexco originally estimated it would take three years of exploration before the company would be ready to decide whether to put Keno Hill back into production, Nauman said Feb. 19 that Alexco might be able to make that call this year.

“We’ve had a lot of help and encouragement, and I think in the third quarter we will be in a much better position to make the decision,” he explained.

Brewery Creek tops other properties

The most advanced of Alexco’s other properties is the Brewery Creek gold project. Located in northwest Yukon, near Dawson City, the property was operated as an open-pit heap-leach mine by Viceroy Resource until 2002, producing about 280,000 ounces of gold from 9.5 million tonnes of ore when the mine was closed due to low gold prices. Alexco’s senior management team completed reclamation of the mine in 2005, and twice won the coveted DIAND Robert E. Leckie Award for outstanding reclamation. Long-term monitoring of the site is ongoing.

At Brewery Creek, widespread mineralization occurs over 9 miles of strike length in a series of small, shallow, oxide gold deposits discovered and exploited by Viceroy.

In 2006, Alexco conducted an initial test of the Bohemian zone, a sulfide resource outlined by Viceroy during its tenure on the property. Drill assays from the program returned promising results that confirm the presence of significant gold mineralization in a style and geologic setting analogous to Donlin Creek, the company said. Through September 2006, Alexco invested about C$700,000 at Brewery Creek for the 2006 work program.

NovaGold maintains a back-in and joint venture option on the property.

Alexco and its subsidiaries own a 70 percent interest in the McQuesten gold property a few miles northwest of the Keno Hill Mining District and at least a majority interest in several early stage Yukon properties, including Harlan, in the Mayo Mining District; Sprogge north of Watson Lake along Yukon Highway 10; and Klondike, about 18 miles from Brewery Creek east of Dawson City.

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