ANNUAL FINANCIAL REPORT
DECEMBER 31, 2015
ALEXCO RESOURCE CORP.
Building a Sustainable Future In Silver
This Management’s Discussion and Analysis (“MD&A”) of Alexco Resource Corp. (“Alexco” or the
“Corporation”) is dated March 23, 2016 and provides an analysis of Alexco’s consolidated financial results
for the year ended December 31, 2015 compared to those of the previous year.
The following information should be read in conjunction with the Corporation’s December 31, 2015
consolidated financial statements with accompanying notes, which have been prepared in accordance
with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board. All dollar figures are expressed in Canadian dollars unless otherwise stated. These
documents and additional information on the Corporation, including Alexco’s Annual Information Form
(“AIF”), are available on the Corporation’s website at www.alexcoresource.com and on the SEDAR
website at www.sedar.com.
Except where specifically indicated otherwise, the disclosure in this MD&A of scientific and technical
information regarding exploration projects on Alexco’s mineral properties has been reviewed and
approved by Alan McOnie, FAusIMM, Vice President, Exploration, while that regarding mine development
and operations has been reviewed and approved by Scott Smith, P.Eng., former Bellekeno Mine
Manager, both of whom are Qualified Persons as defined by National Instrument 43-101 – Standards of
Disclosure for Mineral Projects (“NI 43-101”).
2015 HIGHLIGHTS AND OVERALL PERFORMANCE
Overall, Alexco reported a net loss of $5,509,000 for the year ended December 31, 2015, for a
basic and diluted loss of $0.08 per share, on total revenues of $14,662,000. The loss before
recovery of taxes for 2015 was $6,616,000, including non-cash costs of $2,246,000 for
depreciation and amortization, $645,000 for share-based compensation and write-off of
receivables totalling $643,000. For the year ended December 31, 2014, Alexco reported a net
loss of $32,772,000, for a basic and diluted loss of $0.50 per share, on total revenues of
$15,286,000. The 2014 loss before recovery of taxes was $35,608,000 including non-cash costs
of $2,949,000 for depreciation and amortization, and $1,038,000 for share-based compensation.
The difference between the net loss in 2015 and 2014 is mainly due to the 2014 impairment
charges to mining assets totaling $29,931,000. General and administrative expenses and site
based costs have decreased by $771,000 from 2015 compared to 2014 as the company has
focused on further utilizing efficiencies with existing resources and reducing costs.
The Corporation’s cash and cash equivalents at December 31, 2015 totaled $8,163,000
compared to $8,639,000 at December 31, 2014, while net working capital totaled $12,216,000
compared to $10,434,000 for the comparable year. During the third quarter of 2015 $4,090,000 of
restricted cash relating to the Globeville security was reclassified from non-current to current
assets. The cash position had a decrease of $476,000 compared to December 31, 2014 primarily
due to expenditures attributed to the previously disclosed 2015 exploration drill program at the
Bermingham prospect in the Keno Hill Silver District, working capital requirements for the Gold
King Mine Interim Water Treatment Plant Project in Colorado, care and maintenance costs at
Keno Hill and general and administration expenditures including the foreign exchange impact
related to US denominated administrative costs.
Alexco Environmental Group (“AEG”), recognized revenues of $14,662,000 in 2015 for a gross
profit of $3,251,000 and a gross margin of 22.2% compared to revenues of $14,925,000 in 2014
for a gross profit of $4,888,000 and a gross margin of 32.8%. The decrease in gross margin from
the prior period is mainly due to one of AEG’s major projects, Globeville Smelter Project,
completing active remediation and phasing to monitoring status with lower revenue and profits.
Furthermore, the nature of specialized engineering design related to the Keno Hill Reclamation
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Plan required AEG to outsource a significant portion of work to third party contractors during
2015.
On December 8, 2015 the Company closed a $3 million equity financing, on a bought deal basis,
for 5,662,500 flow-through shares at a price of $0.53 per share and concurrently closed a non-
brokered equity financing of 2 million shares at a price of $0.48 for total gross proceeds of $4
million.
Alexco completed a surface exploration drill program of 2,595 meters focused on extension and
expansion of the previously identified Bermingham resource at Keno Hill. Significant true width
intercepts from the program included 4.98 meters grading 7,462 grams per tonne (“g/t”) (239.9
ounces per tonne (“oz/t”)) silver, 4.76 meters grading 2,357 g/t (75.8 oz/t) silver, 2.35 meters of
3,774 g/t (121.3 oz/t) silver and ranging down to 1.81 meters grading 794 g/t (25.5 oz/t) silver
were returned from drill holes in the 2015 program.
AEG completed the design, construction and commissioning of a 900 gallon per minute Interim
Water Treatment Plant (“IWTP”) for the US Environmental Protection Agency at the Gold King
Mine near Silverton, Colorado. AEG is currently operating the plant.
SELECTED ANNUAL INFORMATION
(expressed in thousands of dollars, except
per share amounts)
Revenue from mining operations
Gross profit (loss) from mining operations
Revenue from environmental services
Gross profit from environmental services
Revenue from all operations
Gross profit from all operations
Net income (loss)
Adjusted net income (loss)1
Earnings (loss) per share –
Basic
Diluted
Total assets
Total long-term liabilities
Dividends declared
As at and for the year ended December 31
2015
-
-
14,662
3,251
14,662
3,251
(5,509)
(5,509)
($0.08)
($0.08)
102,542
24,496
Nil
2014
361
361
14,925
4,888
15,286
5,249
(32,772)
(5,363)
($0.50)
($0.50)
105,195
24,363
Nil
2013
43,114
(29)
16,319
8,849
59,433
8,820
(50,450)
(4,313)
($0.81)
($0.81)
131,213
26,114
Nil
1 Adjusted net loss excludes amounts recorded with respect to impairment charges, and is a non-IFRS measure with no standardized meaning
prescribed under IFRS. See page “Non-IFRS Measures – Adjusted Loss” on page 16.
OVERVIEW OF THE BUSINESS
Alexco owns substantially all of the historic Keno Hill Silver District (“KHSD”), located in Canada's Yukon
Territory. The Bellekeno silver mine, one of the world's highest-grade silver mines with a production grade
averaging 779 g/t, commenced commercial production at the beginning of 2011 and was Canada's only
operating primary silver mine from 2011 to 2013, producing a total of 5.6 million ounces of silver during
that time. In September 2013 Alexco suspended Bellekeno mining operations in light of a sharply reduced
silver price environment. Since the suspension Alexco has focused on evaluating the Flame & Moth
deposit, renegotiating third party contracts and reviewing other opportunities to reduce future All-In
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Sustaining Costs, with the aim of repositioning the District for long-term, sustainable operations. Alexco is
developing a plan to return to operations incorporating production from the Bellekeno, Flame & Moth and
Lucky Queen silver deposits.
Employing a unique business model, Alexco also owns and operates an environmental consulting
business, AEG, which provides a variety of mine and industrial related environmental services, including
management of the regulatory and environmental permitting process, remediation technologies and
reclamation and mine closure services. AEG provides these services to both government and industry
clients through its wholly owned subsidiaries, Alexco Environmental Group Inc. (formerly Access Mining
Consultants Ltd.), Alexco Environmental Group (US) Inc. (“AEG US”) (formerly Alexco Resource U.S.
Corp.) and Elsa Reclamation & Development Company Ltd. (“ERDC”). Alexco also owns certain patent
rights allowed and pending related to mine reclamation and closure processes including the in situ
immobilization of metals in groundwater, soils, waste stacks and pit lakes.
Alexco is a public company which is listed on the Toronto Stock Exchange (under the symbol AXR) and
the NYSE MKT Equities Exchange (under the symbol AXU).
OUTLOOK AND STRATEGY
Keno Hill Silver District
Alexco’s current primary focus is on further building high grade resources in the KHSD as well as further
refining plans to optimize operations and the future underlying fixed cost structure of the Keno Hill District
mining operations with the goal of re-starting mining operations, commodity prices and markets
considered. Ore throughput, grade and the influence of the Silver Wheaton silver stream have a material
impact on unit costs at Keno Hill. Bringing the Flame & Moth deposit into production is a key aspect of
restarting operations at Keno Hill, and the permitting process for development of the Flame & Moth
deposit is progressing through the final phases of the Water Use Licence processes. Similarly, the recent
discovery of very high grade mineralization at Bermingham may further influence the ultimate plan for
redevelopment of the KHSD.
Alexco’s various Keno Hill mineral properties comprise mineral rights spanning approximately 244 square
kilometers, which contain numerous occurrences of mineral deposits and prospects including more than
35 historical silver mines. The KHSD’s historical mines produced from approximately 1913 through 1989,
with the Yukon Government's published Minfile database reporting that District production from 1941
totaled more than 214 million ounces of silver with average grades of 44 oz/t silver, 6.7% lead and 4.1%
zinc. All of Alexco’s mining, development and exploration activities have been conducted on its KHSD
properties. The KHSD is located in the Yukon Territory approximately 330 kilometers north of Whitehorse
in the vicinity of the villages of Mayo and Keno City and lies within the traditional territory of the First
Nation of Na-Cho Nyak Dun (“FNNND”). Alexco is party to a Comprehensive Cooperation and Benefits
Agreement with the FNNND, setting out common understandings, obligations and opportunities arising
from all of Alexco’s activities within the Keno Hill District including exploration, care and maintenance,
District closure activities and mine production.
The Corporation’s Bellekeno underground mine commenced commercial production in January 2011.
Bellekeno mining and milling operations were suspended in early September 2013 as a consequence of
the reduced silver price environment and operating cost pressures, and the last concentrate shipments
were delivered to the smelter in October 2013 with final assay determinations and final settlements of
concentrate sales completed as of April 2014.
In December 2014, Alexco completed the KHSD Preliminary Economic Assessment (“PEA”). Alexco’s
KHSD property encompasses the Bellekeno, Flame & Moth, Lucky Queen, Onek and Bermingham
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deposits and comprises 725 surveyed quartz mining leases and 869 unsurveyed quartz mining claims,
the majority of which were UKHM Mineral Rights. Prior to their amalgamation within KHSD, each of the
deposits were a separate property and had been subject to numerous technical reports, all filed on the
SEDAR website at www.sedar.com and all NI 43-101 compliant. All of these past technical reports have
now been superseded by the current PEA. For details of the PEA, please refer to Alexco’s MD&A for the
year ended December 31, 2014.
Alexco Environmental Group
Alexco remains committed to the on-going environmental care and maintenance program and
reclamation and closure projects at Keno Hill under its contract through ERDC with the Government of
Canada (“Canada”) and in accordance with the Amended and Restated Subsidiary Agreement (“ARSA”),
and continues to service its private sector client base in the Yukon, Colorado and elsewhere. AEG
intends to continue expanding its environmental services activities, throughout Canada and the United
States. AEG has developed a strong client base within the mining industry in the last several years, and
has also been able to establish new lines of business related to industrial site soil remediation, water
treatment and historical mine pool remediation as well as emergency water treatment services.
Keno Hill – Amended and Restated Subsidiary Agreement
As part of Alexco’s acquisition in 2006 of the UKHM mineral rights in the Keno Hill District, ERDC is party
to the ARSA with Canada. Under the ARSA, ERDC is retained by Canada as a paid contractor
responsible on a continuing basis for the environmental care and maintenance and ultimate closure
reclamation of the former UKHM mineral properties. The ARSA provides that ERDC share the
responsibility for the development of the ultimate closure plan with Canada. Upon regulatory approval, the
closure plan will be implemented by ERDC. During the period required to develop the plan and until the
closure plan is executed, ERDC is also responsible for carrying out the environmental care and
maintenance at various sites within the UKHM mineral rights, for a fixed annual fee established on a per-
site basis totaling $850,000, adjustable for material changes in scope. ERDC receives agreed-to
commercial contractor rates when retained by Canada to provide environmental services in the Keno Hill
District outside the scope of care and maintenance and closure and reclamation planning under the
ARSA.
ERDC currently holds a Type B Water Use Licence under the Yukon Waters Act to undertake care and
maintenance activities, which licence term continues until January 29, 2018. The Existing State of Mine
(“ESM”) Reclamation Plan at Keno Hill will ultimately undergo assessment by the Yukon Environmental
and Socio-economic Assessment Board (YESAB). Subsequent to completion of the YESAB assessment
process, a Water Use Licence renewal will be required from the Yukon Water Board to licence aspects of
the plan that affect use of water and placement of waste. After licencing, funding approval from AANDC
for the project will be subject to review and acceptance of the project by the Treasury Board of Canada.
The ESM Reclamation Plan is subject to amendment that may result from requirements during the
assessment, licencing, and funding approval processes.
Globeville Smelter Project
At the Globeville Smelter Project located in Denver Colorado, AEG designed, built and operated a
replacement water treatment plant (the “Site”) to enable demolition of the existing smelter. AEG provided
financial assurance mechanisms
the property cleanup and redevelopment, conducted all
environmental remediation for soil and legacy groundwater, including 500,000 cubic yards of hazardous
waste soil, stabilized arsenic-trioxide containing smelter flues and other principal threat materials, and
implemented in-situ groundwater technology (patented by Alexco) that successfully immobilized arsenic,
cadmium, selenium and zinc to protect Segment 15 of the South Platte River from non-point source
seepage to the river from the Site.
for
In June 2015 AEG received a finding of No Further Active Remediation (“NFAR”) required at the Site from
the State of Colorado Department of Public Health and Environment, and announced on the Federal
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Register in December 2014 a final deletion of the Site from the National Priorities List by the United
States Environmental Protection Agency (“EPA”). From that point onwards, the only remaining tasks to
complete are the monitoring of five wells for 36 months (June 2018), and preparation of the Completion
Report for the State of Colorado to document the remediation work that was done. Once the monitoring
period is completed (Demonstration of Remedial Functionality period) then the Site will receive a final
finding of No Further Action (“NFA”) from the State of Colorado.
AEG drafted a Completion Report in 2016-Q1 which outlines all work completed at the site and estimates
the financial cost of monitoring, and the estimated cost to implement any adaptive management plans to
address excursions if any, in the environmental stability of the site over the next 10 calendar quarters.
Pursuant to the adaptive management steps that were approved in the NFAR Petition that was approved
by the State in June 2015, AEG has identified excess security in the escrow account. AEG plans to
submit a final Completion Report in 2016-Q2 that will support the release of a portion of the restricted
cash to reduce the amount held in escrow, from the current security balance of $4.54 million (US$3.30
million) to a lesser amount. Management classified $4.09 million as a current asset, as it anticipates the
release of these funds in the next several months.
Economic Climate
Silver, lead and zinc are the primary metals found in the Bellekeno resource in particular and within the
Keno Hill District historically. With respect to the economic climate during 2015, prices were largely range-
bound. Silver traded from a high of US$18.23 on January 23, 2015 to a low of $13.71 on December 14,
2015, while lead traded between US$0.98 to US$0.72 and zinc traded between US$1.09 to US$0.67 per
pound. As at the date of this MD&A, prices are approximately US$15.25 per ounce silver, US$0.80 per
pound for lead and US$0.84 per pound for zinc and the Canadian-US exchange rate is approximately
US$0.76 per CAD. Consensus investment analyst forecasts over the next two years for silver average
approximately US$15.50 per ounce, for lead average approximately US$0.83 per pound, and for zinc
US$0.85 per pound, with the Canadian-US exchange rate forecast at US$0.75 per CAD (see “Risk
Factors” in the MD&A for the for the year ended December 31, 2015, including but not limited to “Potential
Profitability Of Mineral Properties Depends Upon Other Factors Beyond the Control of the Corporation”
and “General Economic Conditions May Adversely Affect the Corporation’s Growth and Profitability”
thereunder).
RESULTS OF OPERATIONS
Alexco Environmental Group (AEG)
AEG Highlights during 2015:
AEG recognized revenues of $14,662,000 in the year ended December 31, 2015 for a gross profit
of $3,251,000 and a gross margin of 22.2% compared to revenues of $14,925,000 for a gross
profit of $4,888,000 and a gross margin of 32.8% in the year ended of 2014. The decrease in
gross margin from the prior year is mainly due to one of AEG’s major projects, Globeville Smelter
Project, completing active remediation and phasing to monitoring status with lower revenue and
profits. Furthermore, the nature of specialized engineering design related to the Keno Hill
Reclamation Plan required AEG to outsource a significant portion of work to third party
contractors during 2015.
AEG achieved a significant milestone in June 2015 when AEG, working for Globeville I, LLC,
received from the State of Colorado Department of Public Health and Environment, a finding of
No Further Active Remediation required at the Denver Colorado Globeville Smelter Project, and
announced on the Federal Register in December 2014 a final deletion of the Site from the
National Priorities List (NPL or Superfund) by the United States EPA. AEG currently has a
balance of US$3.30 million posted as security on the Globeville Project, and will be formally
- 6 -
requesting release of a substantial portion of the security, once the Completion Report is
accepted, which is expected to occur in 2016-Q2.
AEG, through an Alexco subsidiary, ERDC, is working closely with Canada on the ESM
Reclamation Plan at Keno Hill. The ESM Reclamation Plan specifically addresses legacy
environmental liabilities at the KHSD. Following several years of planning work, the draft ESM
Reclamation Plan was submitted in 2015-Q1 and was reviewed by Indigenous and Aboriginal
Affairs Canada (“INAC”) and their independent Peer Review Panel (“IPRP”) for the remainder of
2015. ERDC will continue in the planning phase towards the submission of a completed plan for
environmental assessment under the Yukon Environmental and Socio-economic Assessment Act
(“YESAA”) and other authorizations required to start active reclamation work, which is expected
to commence in 2019.
In September 2015 AEG was selected by the EPA as the interim water treatment contractor to
design, construct and automate an Interim Water Treatment Plant (“IWTP”) at the Gold King Mine
near Silverton, Colorado. The project commenced on October 1, 2015 and on October 20, 2015
the Company announced that it completed the construction and initiated operation of a 900 gpm
(with peak flows to 1,200 gpm) interim water treatment facility. AEG’s water treatment plant
design was selected due to AEG’s proven capability to address water treatment residuals
(sludge) during cold weather operations with an automated plant-wide control system, enabling
24-hour operation at low cost and high reliability. AEG completed the design and construction of
the treatment system within a required three week period, and is currently operating the IWTP
and continuing to optimize and further winterize the IWTP in anticipation of continuing harsh
conditions and enhanced freshet conditions expected at 10,500 feet in the San Juan Mountains of
southern Colorado.
With the Globeville Smelter Project clean-up coming to an end, AEG has increased its business
development and recruiting efforts for bringing on more project related work. In addition, AEG has
added specific professional positions to begin to reduce reliance on third party contractors.
Keno Hill Silver District
2016 Exploration Program
The Company has planned an exploration program of 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. The
exploration program is budgeted to cost $3 million and is fully funded by way of the $3 million of flow
through funds that were raised in December 2015. The surface drilling program is expected to run
between June and September 2016 with results expected to be released as received but no later than the
fourth quarter of 2016.
The Bermingham mineralized system remains open over 600 meters to the northeast where potential
linkage to the Hector-Calumet mine remains to be resolved, and also to the southwest where there
remains a kilometer of prospective ground between the Bermingham prospect and the historic Coral
Wigwam prospect. The preliminary drill plan is for a minimum of sixteen holes to explore the immediate
up and down dip extensions of the newly discovered high grade shoot and for a number of holes to
provide infill drilling that would provide suitable drill density to allow resource estimation for the zone. In
addition, appropriate geotechnical, hydrological and metallurgical data will be collected to better
understand the attributes of this very high grade zone.
2015 Exploration Program
Alexco completed a surface exploration drill program of 2,595 meters focused on extension and
expansion of the previously identified Bermingham resource. Significant true width intercepts included
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4.98 meters grading 7,462 g/t (239.9 oz/t) silver, 4.76 meters grading 2,357 g/t (75.8 oz/t) silver, 2.35
meters of 3,774 g/t (121.3 oz/t) silver and ranging down to 1.81 meters grading 794 g/t (25.5 oz/t) silver
were returned from drill holes in the 2015 program (see news release dated September 17, 2015 entitled
“Alexco Drills 5 meters (True Width) of 7,462 grams per tonne Silver (240 ounces per tonne) at
Bermingham, Along with Other Significant Silver Intercepts”).
Together with the high grade discovery intercept from the 2014 drill program (6.39 meters grading 5,667
g/t (182.2 oz/t)) silver, the 2015 drilling has identified a high grade silver and gold bearing zone over at
least 140 meters down-plunge across a strike length of approximately 40 meters. The zone averages 3.7
meters true thickness, is locally more than 5.5 meters thick and remains open both up dip and down dip.
This high grade zone lies approximately 50 meters to the northeast of the existing Arctic Zone Resource
in a position controlled by flexure in the vein-fault structure that is stratigraphically above the inferred
unique stratigraphic and structural setting occupied by the adjacent Hector-Calumet mine (see news
release dated November 5, 2014, entitled “Alexco Drills Best Hole Ever: Intersects 5,667 Grams Per
Tonne Silver Over 6.39 Meters (true width) at Bermingham; Mineralization Extended and Remains
Open”). Further exploration, specifically to follow the high grade mineralization both down plunge toward
more highly silicified stratigraphy, as well as up dip at least 200 meters into untested areas, is warranted.
In terms of mineralogy, the high grade mineralized zone is characterized by the presence of the silver
bearing mineral pyrargyrite in association with argentiferous galena, tetrahedrite freibergite and wire silver
in a dominantly sideritic gangue.
Overall, the Bermingham mineralized system remains open in all directions, especially to the northeast
where potential linkage to the Hector-Calumet mine remains to be resolved, but also to the southwest
where there remains a kilometer of untested ground between the Bermingham prospect and the historical
Coral Wigwam prospect.
Bermingham Vein Drill Composite Assay Interval Highlights:
o K-15-0580 : intercepted 4.98 meters true width from 305.46 meters with a composite assay value
of 7,462 g/t (239.9 oz/t) silver, including 3.65 meters true width from 306.89 meters with a
composite assay of 10,186 g/t (327.5 oz/t) silver.
o K-15-0582 : intercepted 4.76 meters true width from 303.16 meters with a composite assay value
of 2,357 g/t (75.8 oz/t) silver, that included 4.17 meters true width from 303.16 meters with a
composite assay value of 2,686 g/t (86.4 oz/t) silver.
o K-15-0583 : intercepted 2.35 meters true width from 346.25 meters with a composite assay value
of 3,774 g/t (121.3 oz/t) silver, that included 1.46 meters true width from 346.25 meters with a
composite assay value of 6,049 g/t (194.5 oz/t) silver.
o K-15-0576 : intercepted 2.60 meters true width from 243.42 meters with a composite assay value
of 1,129 g/t (36.3 oz/t) silver, that included 1.99 meters true width from 243.42 meters with a
composite assay value of 1,471 g/t (47.3 oz/t) silver.
o K-15-0577 : intercepted 1.81 meters true width from 272.00 meters with a composite assay value
of 794 g/t (25.5 oz/t) silver, that included a 0.79 meter true width from 273.41 meters with a
composite assay value of 1,827 g/t (58.7 oz/t) silver.
Mineral Resource Estimate
On April 30, 2015 Alexco announced an updated mineral resource estimates for the Flame & Moth and
Bermingham deposits. With an effective date of April 28, 2015 the Flame & Moth mineral resource is
estimated at 1,638,000 tonnes indicated grading 506 g/t silver, 1.89% lead and 5.40% zinc and 0.43 g/t
- 8 -
gold plus another 348,000 tonnes inferred grading 366 g/t silver, 0.47% lead, 4.37% zinc and 0.26 g/t
gold. With an effective date of April 28, 2015 the Bermingham mineral resource was estimated at 377,000
tonnes indicated grading 430 g/t per tonne silver, 1.59% lead and 1.74% zinc plus another 52,000 tonnes
inferred grading 477 g/t silver, 1.22% lead and 1.88% zinc. The drill results from the 2015 surface
exploration drill program are not included in this mineral resource update.
The Company plans to provide an updated mineral resource estimate for the Bermingham deposit in the
fourth quarter of 2016.
Engineering Update
During 2015 Alexco continued to work on re-engineering and optimizing the mine plan for Flame and
Moth and Lucky Queen, incorporating the expanded mineral resource from April 30, 2015. Mine plans will
be updated and optimized based on geotechnical information and the Flame and Moth and Lucky Queen
economic model will be revised using current consensus pricing and updated estimated costing. Once
results from this work are compiled, the study will move to develop an optimized multi mine model which
should be complete early in the second quarter of 2016.
Incorporating the re-engineering and optimizing of the mine plan along with an updated mineral resource
estimate on Bermingham, the Company plans to provide an updated PEA in the fourth quarter of 2016.
Permitting Update
On February 17, 2016 the Company was granted the amended Quartz Mining License (“QML”) for the
Flame & Moth deposit. The QML allows development of the Flame and Moth deposit. The only remaining
permit required to commence mining operations at the Flame & Moth deposit is the Water Use Licence
(“WUL”) which is granted through the Yukon Water Board. This process is well underway and the
Company expects a Water Licence amendment hearing to occur in the second quarter of 2016.
As part of the QML amendment application, the Company filed an updated Reclamation and Closure Plan
for its current operations and the future development of the Flame & Moth deposit. This review is required
every two years. As a result, the QML requires that Alexco increase its posted financial security from $4.2
million to $6.3 million. The $4.2 million currently posted is included in the Corporation’s non-current
restricted cash and deposits. The Yukon Mine Site Reclamation and Closure Policy Financial Guidelines
provide several forms of acceptable security, which includes pledging assets, bank letters of credit, surety
bonds and insurance.
Mine Site Care and Maintenance
Mine site care and maintenance costs related to the Bellekeno underground mine during for the year
ended December 31, 2015 totaled $2,351,000 compared to $3,130,000 for 2014. The decrease in costs
is due to a lesser depreciation charge in 2015 which is a direct result of the impairment charge recorded
in 2014. Included in mine site care and maintenance costs is depreciation expense of $1,746,000 in 2015
and $2,486,000 in 2014.
Corporate
General, Administrative and Corporate
General and administrative expenses on a consolidated basis (includes Alexco and AEG) during the year
ended December 31, 2015 totaled $8,474,000 compared to $8,466,000 for 2014. General and
administrative expenses were similar in both periods with the difference mainly relating the company
further lowering corporate salaries in 2015. This decrease in general and administrative expenses was
offset, as the Company evaluated certain trade receivables and certain receivables related to an
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employee tax equalization program and wrote-off a total of $643,000 in 2015. As well, the foreign
exchange impact on US salaries in 2015 offset the cost reductions made by the company in the year.
FOURTH QUARTER
For the quarter ended December 31, 2015 Alexco reported a net loss of $1,502,000 on total revenues of
$4,128,000 compared to a net loss of $29,025,000 on total revenues of $3,778,000 for the same period in
2014. The difference between the 2015 period and 2014 period is mainly due to the impairment charge of
mining assets totaling $29,931,000 that the company recorded in 2014. The Gold King Mine Interim
Water Treatment Plant Project, an AEG project in Colorado increased the fourth quarter revenue in 2015.
AEG recognized revenues of $4,128,000 in the fourth quarter of 2015 for a gross profit of $611,000 and a
gross margin of 14.8% compared to revenues of $4,139,000 in the fourth quarter of 2014 for a gross profit
of $1,260,000 and a gross margin of 30.4%. The decrease in gross margin compared to the prior period
is mainly due to one of AEG’s major projects, Globeville Smelter Project, completing active remediation
and phasing to monitoring status with lower revenue and profits.
Mine site care and maintenance costs in the fourth quarter of 2015 totaled $599,000 compared to
$831,000 in the fourth quarter of 2014. The decrease in costs is due to a lesser depreciation charge in the
second quarter of 2015 which is a direct result of the impairment charge recorded on property, plant and
equipment in the fourth quarter 2014. Included in mine site care and maintenance costs is depreciation
expense of $431,000 in the 2015 period and $625,000 in the 2014 period.
General and administrative expenses in the fourth quarter of 2015 totaled $1,911,000 compared to
$1,993,000 in the same period of 2014. General and administrative expenses decreased in the fourth
quarter of 2015 compared to the fourth quarter of 2014, mainly due to reduction in general and
administrative salaries and share-based compensation.
SUMMARY OF QUARTERLY RESULTS
Key financial information for the most recent eight quarters is summarized as follows, reported in
thousands of Canadian dollars except for per share amounts:
Period
Revenue
2014-Q1
2014-Q2
2014-Q3
2014-Q4
2014 Total
2015-Q1
2015-Q2
2015-Q3
2015-Q4
2015 Total YTD
3,327
3,169
4,651
4,139
15,286
4,516
2,610
3,408
4,128
14,662
Gross
Profit
1,237
917
1,835
1,260
5,249
1,192
579
869
611
3,251
Net Loss
Basic Loss
per Share
Diluted
Loss per
Share
Expenditures on
Mineral
Properties
(1,419)
(1,661)
(667)
(29,025)
(32,772)
(492)
(1,866)
(1,649)
(1,502)
(5,509)
$(0.02)
$(0.03)
$(0.01)
$(0.44)
$(0.50)
$(0.01)
$(0.03)
$(0.02)
$(0.02)
$(0.08)
$(0.02)
$(0.03)
$(0.01)
$(0.44)
$(0.50)
$(0.01)
$(0.03)
$(0.02)
$(0.02)
$(0.08)
546
2,434
2,670
1,378
7,028
303
756
865
787
2,711
Note: Sum of all the quarters may not add up to the yearly totals due to rounding
The net loss of 2014-Q4 reflects the impact of impairment charges recorded in respect of the Keno Hill
district mining assets and exploration and evaluation assets. The net losses of 2015 reflect the general
and administrative expenses partially offset by AEG profits.
The expenditures on mineral properties incurred in 2014 reflect a drill program primarily at the
Bermingham and Flame and Moth deposits. The 2015-Q4 mineral property expenditures reflect the
- 10 -
ongoing costs of modeling, data logging and resource estimation work for Bermingham and the Flame
and Moth deposits. The 2015 mineral property expenditures reflect the 2015 drill program at Bermingham
and the re-engineering work being done on the Flame and Moth deposit.
Liquidity, Cash Flows and Capital Resources
Liquidity
At December 31, 2015, the Corporation had cash and cash equivalents of $8,163,000, and net working
capital of $12,216,000 compared to cash and cash equivalents of $8,639,000 and net working capital of
$10,434,000 at December 31, 2014. The Corporation faces no known liquidity issues in any of its financial
assets.
With its cash resources and net working capital on hand at December 31, 2015, and assuming no re-start
of mining operations, Alexco anticipates it will have sufficient capital resources to carry out all of its
currently anticipated exploration and development programs, and service
the working capital
requirements of its mine site care and maintenance, exploration activities, environmental services
business and corporate offices and administration, for at least the next 12 month period. As noted
elsewhere in this MD&A, re-start of mining operations is dependent on a number of factors, including
sustained improvements in silver markets and the effectiveness of cost structure reduction measures, and
the uncertainties around the achievement of these factors are significant. Furthermore, a re-start of
mining operations is likely to require additional capital investment, significantly in excess of the capital
resources currently on hand. In addition, Alexco has the right, which expires December 31, 2016, to
trigger the June 16, 2014 silver streaming agreement, which would have significant positive implications
to Alexco, can only be triggered, by a payment of US$20 million. Discussions to further address the Silver
Wheaton silver streaming agreement are ongoing. Because of these factors, combined with its long term
objectives for the exploration and development of its mineral properties, the Corporation is likely to
require future additional funding.
Historically, Alexco’s main sources of funding have been from mining operations, AEG and equity
issuances, though all sources of finance reasonably available to it will be considered, including but not
limited to issuance of new capital, issuance of new debt and the sale of assets in whole or in part,
including mineral property interests. There can be no assurance of a re-start of mining operations or
continued access to finance in the future, and an inability to generate or secure such funding may require
the Corporation to substantially curtail and defer its planned exploration and development activities.
Cash Flows
Three Months Ended
December 31
2014
2015
Year Ended
December 31,
2014
2015
Cash flow used in operating activities
Cash flow used in investing activities
Cash flow provided by financing activities
$ (825)
(576)
3,615
$ 543
(2,408)
(50)
$ (2,706)
(1,385)
3,615
$ (723)
(6,427)
7,179
$ 2,214
$ (1,915)
$ (476)
$ 29
Cash used in operating activities was $825,000 for the fourth quarter of 2015 versus cash inflow of
$543,000 for the fourth quarter of 2014. The majority of cash consumed on operating activities during
fourth quarter of 2015 were expended on environmental services, site based operations and general and
administrative costs. The increase in cash consumed in this quarter related to lower profits in AEG. Cash
outflow from investing activities was $576,000 for the fourth quarter of 2015 versus an outflow of
- 11 -
$2,408,000 for the fourth quarter of 2014. The main difference for the decrease in cash outflow in the
fourth quarter of 2015 was due to the decrease of expenditures on exploration drill programs. Cash inflow
from financing activities was $3,615,000 during the fourth quarter of 2015 which was the result of an
equity financing deal and in the fourth quarter of 2014 there was a cash outflow of $50,000 which was the
result of an issuance cost from the equity financing deal completed earlier in that year.
Cash used in operating activities was $2,706,000 for year ended December 31, 2015 versus $723,000 for
2014, reflecting the impact of decreased profitability in AEG, site based operations and office overheads.
Cash outflow in investing activities was $1,385,000 for the year ended December 31, 2015 versus an
outflow of $6,427,000 for the same period of 2014. The main difference between periods is due to Alexco
receiving US$500,000 from the release of restricted funds associated with security at the Globeville
Smelter Project which were redeployed to cover ongoing operations work at that project. In 2014, the
company had a larger drill program and incurred more expenditures related to the drill program than in
2015. Cash inflow from financing activities during 2015 was $3,615,000 and in 2014 there was a cash
inflow of $7,179,000 which were both the result of an equity financing deal.
Capital Resources
On October 2, 2008 (with subsequent amendments on October 20, 2008, December 10, 2008,
December 22, 2009, March 31, 2010, January 15, 2013, March 11, 2014 and June 16, 2014), the
Corporation entered into a silver streaming interest agreement (the "Silver Streaming Agreement") with
Silver Wheaton under which Silver Wheaton will receive 25% of the life of mine silver produced by the
Corporation from its Keno Hill Silver District properties. The Silver Streaming Agreement anticipated that
the initial silver deliveries would come from the Bellekeno property. Under the Silver Streaming
Agreement, the Corporation received up-front deposit payments from Silver Wheaton totaling US$50
million, and received further payments of the lesser of US $3.90 (increasing by 1% per annum after the
third year of full production) and the prevailing market price for each ounce of payable silver delivered, if
as and when delivered. After the initial 40 year term of the streaming interest, the Corporation is required
to refund the balance of any advance payments received and not yet reduced through silver deliveries.
The Corporation would also be required to refund the balance of advance payments received and not yet
reduced if Silver Wheaton exercised its right to terminate the streaming interest in an event of default by
the Corporation. As of September 2013, Bellekeno mining operations were suspended in light of a sharply
reduced silver price environment.
On June 16, 2014, Alexco entered into an agreement with Silver Wheaton to amend the original Silver
Streaming Agreement such that, upon payment of US$20 million to Silver Wheaton on or before
December 31, 2014 (the “Deadline”), the fixed US$3.90 per ounce silver streaming production payment
will be replaced with a variable production payment based on the spot price of silver. The variable
production payment was defined by a pricing curve with an apex at US$19.45 spot silver price where
Silver Wheaton would make a production payment to Alexco of US$18.00 per ounce of silver delivered;
that payment decreasing by US$0.91 per ounce for each US$1.00 increase or decrease in silver price,
returning to a fixed US$3.90 per ounce for spot silver prices of US$35.00 per ounce and higher. Upon
payment of the US$20 million to Silver Wheaton, the pricing amendment would be effective for a 10 year
term from the time mining production re-commences in the district, with an option for Alexco to extend the
amendment for another 5 or 10 years for an additional US$10 million or US$20 million, respectively.
The Deadline was initially extended until December 31, 2015 and Silver Wheaton subsequently confirmed
that Alexco has the right, by written notice delivered at any time up to December 31, 2016, to extend the
Deadline to December 31, 2016. If the Deadline is extended by Alexco and the US$20 million payment is
made to Silver Wheaton on or before the Deadline, the deposit owing under the original silver purchase
agreement will be reduced from US$50 million to US$30 million and the deposit will be considered fully
repaid.
Effective on signing the June 16, 2014 amending agreement, the date for completion of the 400 tonne per
- 12 -
day mine and mill completion test date was extended to December 31, 2017. If the Deadline is extended
by Alexco and the US$20 million payment is made to Silver Wheaton on or before the Deadline, the
amendments provide that the deadline for this completion test would be further extended to 24 months
following the recommencement date. In addition, pursuant to the June 16, 2014 amending agreement,
the Silver Wheaton area of interest was expanded to include additional Alexco currently owned and future
acquired properties within one kilometer of existing Alexco holdings in the Keno Hill District.
If Alexco decides to extend the June 16, 2014 amending agreement, it is not obligated to make the
US$20 million payment to Silver Wheaton. However, in order for certain of the amendments to take effect
(including the amendment to the fixed price), the Corporation would need to make this payment. The
Corporation would require additional financing to make this payment and there is no assurance that
additional financing can be obtained by December 31, 2016 (or such later date as the parties may agree).
If the Corporation is unable to, or chooses not to, make this US$20 million payment, the fixed price
payment terms of the original silver purchase agreement remain in effect and, to satisfy the completion
test under the Silver Purchase Agreement, the Corporation will need to recommence operations on the
KHSD Property and operate the mine and mill at 400 tonnes per day on or before December 31, 2017. If
the completion test is not satisfied by December 31, 2017, the Corporation would be required to pay a
capacity related refund to Silver Wheaton in the maximum amount of US$9.75 million.
Effective December 8, 2015, the Corporation completed a bought deal financing and issued 5,662,500
flow-through common shares on a private placement basis at a price of $0.53 per share for aggregate
gross proceeds of $3,001,125. Of the gross proceeds, $2,627,000 has been attributed to issued common
shares, and the remaining $311,000 has been attributed to the sale of tax benefits. The underwriter to the
financing received a cash fee of 6.5% of gross proceeds plus 368,063 compensation warrants, each
warrant exercisable for one common share of the Corporation at an exercise price of $0.53 per share at
any time until December 8, 2017. Net proceeds from the issuance were $2,713,000, after issuance costs
comprised of the agent’s commission of $195,000, and other issuance costs of $93,000. Concurrently,
the Corporation issued 2,000,000 common shares on a private placement basis at a price of $0.48 per
share for aggregate gross proceeds of $960,000. Net proceeds from the issuance were $902,000, after
issuance costs comprised of the agent’s commission of $57,600.
In August 2014, the Corporation completed a bought deal financing pursuant to a short form prospectus,
issuing 7,015,000 units at a price of $1.15 per unit for gross proceeds of $8,067,000. Each unit was
comprised of one common share and one half of one common share purchase warrant, each full warrant
entitling the holder to acquire one additional common share at a price of $1.40 for a period of two years
after the closing date. The net cash proceeds from this financing were $7,229,000, and were for further
exploration and development activities on the KHSD property, particularly the Flame & Moth deposit, and
for general working capital purposes.
The following table summarizes the current contractual obligations of the Corporation and associated payment
requirements over the next five years and thereafter:
Contractual Obligations
(expressed in thousands of dollars)
Payments Due by Period
Total
Less than
1 year
1 – 3 years
3 – 5 years
After 5 years
Operating leases
Purchase obligations
Decommissioning and rehabilitation
provision (undiscounted basis)
$ 825
426
$ 317
226
$ 476
200
710
$ 32
Nil
$ Nil
Nil
6,177
37
131
5,299
Total
$ 7,428
$ 580
$ 1,386
$ 163
$ 5,299
- 13 -
Share Data
As at the date of this MD&A, the Corporation has 77,346,022 common shares issued and outstanding,
including shares held by the Corporation’s restricted share unit plan trustee. In addition, there are
outstanding incentive share options for a further 5,939,497 common shares, restricted share units that
can be settled by way of shares issued from treasury for a further 490,906 common shares, and purchase
warrants for a further 4,331,538.
Use of Financial Instruments
All of Alexco’s cash and cash equivalents at December 31, 2015 were held in the form of demand
deposits. Alexco’s restricted cash and deposits were held in the form of term deposits and demand
deposits. Alexco’s other financial instruments were its trade and other accounts receivable, its accounts
payable and accrued liabilities, and its long-term investments in common shares of Till Capital Ltd.
(formerly Americas Bullion Royalty Corp.) (“TIL”).
At December 31, 2015, a total of $4,173,000 of Alexco’s restricted cash and deposits represent security
provided to regulatory bodies under safekeeping agreements in accordance with its various operating
permits. This security is in respect of mine-site reclamation at certain of Alexco’s mineral properties, and
is releasable back to Alexco as and when reclamation activities are completed. A further $4,543,000
(US$3,283,000) represents security provided in the first quarter of 2012 to support certain cost
performance commitments under an AEG remediation contract. The balance of Alexco’s restricted cash
and deposits represent security provided in respect of certain long-term operating lease commitments.
Though a portion of term deposits held at December 31, 2015 are included in long term restricted cash,
as individual financial instruments they carried initial maturity periods of one year or less. They have been
classified as investments held to maturity and accordingly are carried at amortized cost using the effective
interest method. All term deposits held are high grade, low risk investments, generally yielding between
1% and 2% per annum, and their carrying amounts approximate their fair values given their short terms
and low yields.
The carrying amounts of Alexco’s trade and other accounts receivable and accounts payable and accrued
liabilities are estimated to reasonably approximate their fair values, while the carrying amount of the long-
term investments in common shares of TIL are marked to fair value at each balance sheet date. The fair
values of all of Alexco’s financial instruments measured at December 31, 2015, other than the common
shares of TIL included in long-term investments, constitute Level 2 measurements within the fair value
hierarchy defined under IFRS. The fair value of the common shares of TIL constitute Level 1
measurements.
Substantially all of Alexco’s cash, demand deposits and term deposits are held with major financial
institutions in Canada. With respect to these instruments, management believes the exposure to credit
risk is insignificant due to the nature of the institutions with which they are held, and that the exposure to
liquidity and interest rate risk is similarly insignificant given the low-risk-premium yields and the demand or
short-maturity-period character of the deposits.
Alexco’s accounts and other receivables at December 31, 2015 total $2,488,000, comprised primarily of
AEG trade receivables and goods and services tax refunds receivable from government. Alexco’s
maximum credit risk exposure in respect of its receivables is represented by their carrying amount.
Management actively monitors exposure to credit risk under its receivables, particularly AEG trade
receivables, and considers the risk of loss to be significantly mitigated due to the financial strength of
AEG’s major customers which include government organizations as well as substantial corporate entities.
As at December 31, 2015, AEG trade receivables are recorded net of a recoverability provision of
$575,000.
- 14 -
Substantially all of Alexco’s property, plant and equipment and mineral properties are located in Canada;
all of its mining operations and mineral exploration occur in Canada; and a significant majority of AEG’s
revenues are earned in Canada. However, a portion of AEG’s revenues are in US dollars, and
receivables arising therefrom are accordingly denominated in US dollars. Also, while a significant majority
of the Corporation’s operating costs are denominated in Canadian dollars, it does have some exposure to
costs, and therefore accounts payable and accrued liabilities, denominated in US dollars.
The Corporation has not employed any hedging activities in respect of the prices for its payable metals or
for its exposure to fluctuations in the value of the US dollar.
Off-Balance Sheet Arrangements
Alexco has no off-balance sheet arrangements.
Related Party Transactions
The Corporation’s related parties include its subsidiaries and key management personnel.
(a)
Key Management Personnel Compensation
Three Months Ended Dec 31
2014
2015
Year Ended Dec 31
2014
2015
Salaries and other short-term benefits
Share-based compensation
$ 452
99
$ 458
122
$ 1,831 $ 1,919
830
543
$ 551
$ 580
$ 2,374
$ 2,749
Key management includes the Corporation’s Board of Directors and members of senior management.
Critical Accounting Estimates
The preparation of financial statements in conformity with IFRS requires management to make estimates
and assumptions that affect the reported amounts and the valuation of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenditures during the period reported. Management uses its best estimates
for these purposes, based on assumptions that it believes reflect the most probable set of economic
conditions and planned courses of action. Notes 3 and 5 of Alexco’s 2015 annual consolidated financial
statements describes all of the significant accounting policies as well as significant judgment and
estimates.
Changes In and Initial Adoption of Accounting Standards and Policies
The Company has not applied the following revised or new IFRS that have been issued but were not yet
effective at December 31, 2015. These accounting standards are not expected to have a significant effect
on the Company’s accounting policies or financial statements:
•
•
IFRS 7, Financial Instruments Disclosures (effective January 1, 2018) requires new
disclosures resulting from the amendments to IFRS 9.
IFRS 9, Financial Instruments (effective January 1, 2018) introduces new requirements for
the classification and measurement of financial assets and liabilities.
- 15 -
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers ("IFRS 15") which
supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes,
IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers,
and SIC 31 Revenue Barter Transactions involving Advertising Services. IFRS 15 establishes a single
fivestep model framework for determining the nature, amount, timing and uncertainty of revenue and cash
flows arising from a contract with a customer. The standard is effective for annual periods beginning on or
after January 1, 2017, with early adoption permitted. The Company is currently evaluating the impact the
standard is expected to have on its consolidated financial statements.
In January 2016, the IASB issued IFRS 16 – Leases ("IFRS 16") which replaces IAS 17 – Leases and its
associated interpretative guidance. IFRS 16 applies a control model to the identification of leases,
distinguishing between a lease and a service contract on the basis of whether the customer controls the
asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces
significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting
model that is similar to current finance lease accounting, with limited exceptions for short-term leases or
leases of low value assets. Lessor accounting remains similar to current accounting practice. The
standard is effective for annual periods beginning on or after January 1, 2019, with early application
permitted for entities that apply IFRS 15. The Company is currently evaluating the impact the final
standard is expected to have on its consolidated financial statements.
Non-IFRS Measures
Adjusted Loss
Adjusted loss excludes amounts recorded with respect to impairment charges, and within this MD&A is
provided before tax, net of tax and on a per-share basis. These measures are used by management to
facilitate comparability between periods, and are believed to be relevant to external users for the same
reason. They are intended to provide additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with IFRS.
- 16 -
These adjusted loss measures are reconciled to financial statement loss measures for the years ending
December 31, 2015, 2014 and 2013 as follows (dollar amounts in thousands, and denominated in
Canadian dollars), with adjusted loss per share calculated using the same weighted average number of
shares outstanding as used for the financial statement measure:
Loss before taxes
Subtract:
Write-down of mineral properties
Write-down of property, plant and equipment
Write-down of long-term investments
2015
2014
2013
$ (6,616)
$ (35,608)
$ (62,079)
-
-
-
25,103
4,828
-
51,840
3,501
1,785
(4,953)
Adjusted loss before taxes
(6,616)
(5,677)
Net recovery of income taxes, excluding deferred tax effect
of above-noted write-downs
-
314
640
Adjusted net loss
$ (6,616)
$ (5,363)
$ (4,313)
Adjusted loss per share (basic and diluted)
$(0.08)
$(0.08)
$(0.07)
Internal Control Over Financial Reporting
Disclosure Controls and Procedures
Alexco’s management, with the participation of its Chief Executive Officer and Chief Financial Officer,
have evaluated the effectiveness of the Corporation’s disclosure controls and procedures. Based upon
the results of that evaluation, the Alexco’s Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this MD&A, Alexco’s disclosure controls and
procedures were effective to provide reasonable assurance that the information required to be disclosed
by Alexco in reports it files under applicable securities legislation is recorded, processed, summarized
and reported within the appropriate time periods and forms specified in those rules and include controls
and procedures designed to ensure that information required to be disclosed by Alexco in reports it files
under applicable securities legislation is accumulated and communicated to Alexco’s management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Internal Control Over Financial Reporting
The management of Alexco is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is a process designed by, or under the
supervision of, the Chief Executive Officer and the Chief Financial Officer and effected by the Board of
Directors, management and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
the accounting principles under which the Alexco’s financial statements are prepared. It includes those
policies and procedures that:
(i)
(ii)
pertain to the maintenance of records that accurately and fairly reflect, in reasonable
detail, the transactions related to and dispositions of Alexco’s assets;
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
- 17 -
principles, and that Alexco receipts and expenditures are made only in accordance with
authorizations of management and Alexco’s directors; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Alexco assets that could have a material effect on
Alexco’s financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial
reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Alexco’s internal control over financial reporting as at
December 31, 2015, based on the criteria set forth in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management has concluded that Alexco’s internal control over financial reporting was
effective as at December 31, 2015.
There has been no change in Alexco’s internal control over financial reporting during Alexco’s fiscal year
ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect,
Alexco’s internal control over financial reporting.
Risk Factors
The following are major risk factors management has identified which relate to Alexco’s business
activities. Such risk factors could materially affect Alexco's future financial results, and could cause events
to differ materially from those described in forward-looking statements relating to Alexco. Though the
following are major risk factors identified by management, they do not comprise a definitive list of all risk
factors related to Alexco's business and operations. Other specific risk factors are discussed elsewhere
in this MD&A and in Alexco’s Annual Information Form for the year ended December 31, 2015.
Negative Cash Flow From Operating Activities
The Corporation has not yet consistently achieved positive operating cash flow, and there are no
assurances that the Corporation will not experience negative cash flow from operations in the future. The
Corporation has incurred net losses in the past and may incur losses in the future and will continue to
incur losses until and unless it can derive sufficient revenues from its mineral projects. Such future losses
could have an adverse effect on the market price of the Corporation's common shares, which could cause
investors to lose part or all of their investment.
Forward-Looking Statements May Prove Inaccurate
Readers are cautioned not to place undue reliance on forward-looking statements. By their nature,
forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties,
of both a general and specific nature, that could cause actual results to differ materially from those
suggested by the forward-looking statements. See "Preliminary Notes – Cautionary Statement Regarding
Forward-Looking Statements".
Dilution
The Corporation expects to require additional funds to finance its growth and development strategy. If the
Corporation elects to raise additional funds by issuing additional equity securities, such financing may
substantially dilute the interests of the Corporation's shareholders. The Corporation may also issue
- 18 -
additional securities in the future pursuant to existing and new agreements in respect of its projects or
other acquisitions and pursuant to existing securities of the Corporation.
Exploration, Evaluation and Development
Mineral exploration, evaluation and development involves a high degree of risk and few properties which
are explored are ultimately developed into producing mines. With respect to Alexco’s properties, should
any ore reserves exist, substantial expenditures will be required to confirm ore reserves which are
sufficient to commercially mine, and to obtain the required environmental approvals and permitting
required to commence commercial operations. Should any mineral resource be defined on such
properties there can be no assurance that the mineral resource on such properties can be commercially
mined or that the metallurgical processing will produce economically viable and saleable products. The
decision as to whether a property contains a commercial mineral deposit and should be brought into
production will depend upon the results of exploration programs and/or technical studies, and the
recommendations of duly qualified engineers and/or geologists, all of which involves significant expense.
This decision will involve consideration and evaluation of several significant factors including, but not
limited to: (1) costs of bringing a property into production, including exploration and development work,
preparation of appropriate technical studies and construction of production facilities; (2) availability and
costs of financing; (3) ongoing costs of production; (4) market prices for the minerals to be produced; (5)
environmental compliance regulations and restraints (including potential environmental liabilities
associated with historical exploration activities); and (6) political climate and/or governmental regulation
and control.
The ability of Alexco to sell, and profit from the sale of any eventual production from any of the Alexco’s
properties will be subject to the prevailing conditions in the marketplace at the time of sale. Many of
these factors are beyond the control of Alexco and therefore represent a market risk which could impact
the long term viability of Alexco and its operations.
Figures for the Alexco’s Resources are Estimates Based on Interpretation and Assumptions and May
Yield Less Mineral Production Under Actual Conditions than is Currently Estimated
In making determinations about whether to advance any of its projects to development, Alexco must rely
upon estimated calculations as to the mineral resources and grades of mineralization on its properties.
Until ore is actually mined and processed, mineral resources and grades of mineralization must be
considered as estimates only. Mineral resource estimates are imprecise and depend upon geological
interpretation and statistical inferences drawn from drilling and sampling which may prove to be
unreliable. Alexco cannot be certain that:
reserve, resource or other mineralization estimates will be accurate; or
mineralization can be mined or processed profitably.
Any material changes in mineral resource estimates and grades of mineralization will affect the economic
viability of placing a property into production and a property’s return on capital. Alexco's resource
estimates have been determined and valued based on assumed future prices, cut-off grades and
operating costs that may prove to be inaccurate. Extended declines in market prices for silver, gold, lead,
zinc and other commodities may render portions of Alexco’s mineralization uneconomic and result in
reduced reported mineral resources.
Amendments to Silver Purchase Agreement with Silver Wheaton
Certain of the June 16, 2014 amendments to the Silver Purchase Agreement with Silver Wheaton,
including the variable production payment based on the spot price of silver, are subject to the Corporation
making a US$20 million payment to Silver Wheaton (see “”Three Year History and Significant
Acquisitions”). The Corporation will need to raise additional capital to finance this payment. There is no
- 19 -
guarantee that the Corporation will be able to raise such additional capital. In the event that the
Corporation is unable to raise such additional capital or is otherwise unable to, or elects not to, make
such payment, such amendments will not take effect. If the US$20 million payment is not made, the
variable production payment based on the spot price of silver will not be implemented and, to satisfy the
completion test under the Silver Purchase Agreement, the Corporation will need to recommence
operations on the KHSD Property and operate the mine and mill at 400 tonnes per day on or before
December 31, 2017. Both of these outcomes could materially adversely affect the Corporation. If the
completion test is not satisfied by December 31, 2017, the Corporation would be required to pay a
capacity related refund to Silver Wheaton in the maximum amount of US$9.75 million. The Corporation
would need to raise additional capital to finance the capacity related refund and there is no guarantee that
the Corporation will be able to raise such additional capital. In the event that the Corporation cannot raise
such additional capital, the Corporation will default under the terms of the Silver Purchase Agreement.
Keno Hill Silver District
While Alexco has conducted exploration activities in the KHSD, further review of historical records and
additional exploration and geological testing will be required to determine whether any of the mineral
deposits it contains are economically recoverable. There is no assurance that such exploration and
testing will result in favourable results. The history of the Keno Hill District has been one of fluctuating
fortunes, with new technologies and concepts reviving the District numerous times from probable closure
until 1989, when it did ultimately close down for a variety of economic and technical reasons. Many or all
of these economic and technical issues will need to be addressed prior to the commencement of any
future production on the Keno Hill properties.
Mining Operations
Decisions by Alexco to proceed with the construction and development of mines, including Bellekeno, are
based on development plans which include estimates for metal production and capital and operating
costs. Until completely mined and processed, no assurance can be given that such estimates will be
achieved. Failure to achieve such production and capital and operating cost estimates or material
increases in costs could have an adverse impact on the Corporation’s future cash flows, profitability,
results of operations and financial condition. Alexco’s actual production and capital and operating costs
may vary from estimates for a variety of reasons, including: actual resources mined varying from
estimates of grade, tonnage, dilution and metallurgical and other characteristics; short-term operating
factors, such as the need for sequential development of resource bodies and the processing of new or
different resource grades; revisions to mine plans; risks and hazards associated with mining; natural
phenomena, such as inclement weather conditions, water availability, floods , fire, rock falls and
earthquakes, equipment failure and failure of retaining dams around tailings disposal areas which may
result in, among other adverse effects, environmental pollution and consequent liability; and unexpected
labour shortages or strikes. Costs of production may also be affected by a variety of factors, including
changing waste ratios, metallurgical recoveries, labour costs, commodity costs, general inflationary
pressures and currency rates. In addition, the risks arising from these factors are further increased while
any such mine is progressing through the ramp-up phase of its operations and has not yet established a
consistent production track record.
Furthermore, mining operations at the Bellekeno mine project were suspended as of early September
2013 as a result of sharp and significant declines in precious metals prices during the second quarter of
2013. Re-start of mining operations is dependent on a number of factors, including sustained
improvements in silver markets and the effectiveness of cost structure reduction measures, and the
uncertainties around the achievement of these factors are significant.
Employee Recruitment and Retention
- 20 -
Recruitment and retention of skilled and experienced employees is a challenge facing the mining sector
as a whole. During the late 1990s and early 2000s, with unprecedented growth in the technology sector
and an extended cyclical downturn in the mining sector, the number of new workers entering the mining
sector was depressed and significant number of existing workers departed, leading to a so-called
“generational gap” within the industry. Since the mid- 2000s, this factor was exacerbated by competitive
pressures as the mining sector experienced an extended cyclical upturn. Additional exacerbating factors
specific to Alexco include competitive pressures in labour force demand from the oil sands sector in
northern Alberta and the mining and oil & gas sectors in British Columbia, and the fact that Alexco’s Keno
Hill District is a fly-in/fly-out operation. Alexco has experienced employee recruitment and retention
challenges, particularly with respect to mill operators in 2011 and through the first three quarters of 2012.
There can be no assurance that such challenges won’t continue or resurface, not only with respect to the
mill but in other District operational areas as well including mining and exploration. Furthermore, any re-
start of mining operations will necessitate the re-hiring of mine and mill personnel.
Permitting and Environmental Risks and Other Regulatory Requirements
The current or future operations of Alexco, including development activities, commencement of
production on its properties and activities associated with Alexco's mine reclamation and remediation
business, require permits or licenses from various federal, territorial and other governmental authorities,
and such operations are and will be governed by laws, regulations and agreements governing
prospecting, development, mining, production, taxes, labour standards, occupational health, waste
disposal, toxic substances, land use, environmental protection, mine safety and other matters.
Companies engaged in the development and operation of mines and related facilities and in mine
reclamation and remediation activities generally experience increased costs and delays as a result of the
need to comply with the applicable laws, regulations and permits. There can be no assurance that all
permits and permit modifications which Alexco may require for the conduct of its operations will be
obtainable on reasonable terms or that such laws and regulations would not have an adverse effect on
any project which Alexco might undertake, including but not limited to the Bellekeno mine project.
Any failure by the Corporation to comply with applicable laws, regulations and permitting requirements
may result in enforcement actions including orders issued by regulatory or judicial authorities causing
operations to cease or be curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment or remedial actions against the Corporation. The Corporation may be
required to compensate those suffering loss or damage by reason of the Corporation’s mining operations
or mine reclamation and remediation activities and may have civil or criminal fines or penalties imposed
upon it for violation of applicable laws or regulations.
Amendments to current laws, regulations and permits governing operations and activities of mining
companies and mine reclamation and remediation activities could have a material adverse impact on the
Corporation. As well, policy changes and political pressures within and on federal, territorial and First
Nation governments having jurisdiction over or dealings with Alexco could change the implementation
and interpretation of such laws, regulations and permits, also having a material adverse impact on
Alexco. Such impacts could result in one or more of increases in capital expenditures or production costs,
reductions in levels of production at producing properties or abandonment or delays in the development
of new mining properties.
Environmental Services
A material decline in the level of activity or reduction in industry willingness to spend capital on mine
reclamation, remediation or environmental services could adversely affect demand
for AEG's
environmental services. Likewise, a material change in mining product commodity prices, the ability of
mining companies to raise capital or changes in domestic or international political, regulatory and
economic conditions could adversely affect demand for AEG's services.
- 21 -
Two of AEG’s customers accounted for 32.3% and 17.4%, respectively, of environmental services
revenues in the 2015 fiscal year. The loss of, or a significant reduction in the volume of business
conducted with, either of these customers could have a significant detrimental effect on AEG
environmental services business and the Corporation.
The patents which Alexco owns or has access to or other proprietary technology may not prevent AEG's
competitors from developing substantially similar technology, which may reduce AEG's competitive
advantage. Similarly, the loss of access to any of such patents or other proprietary technology or claims
from third parties that such patents or other proprietary technology infringe upon proprietary rights which
they may claim or hold would be detrimental to AEG's reclamation and remediation business and a
material adverse impact on the Corporation.
AEG may not be able to keep pace with continual and rapid technological developments that characterize
the market for AEG's environmental services, and AEG’s failure to do so may result in a loss of its market
share. Similarly, changes in existing regulations relating to mine reclamation and remediation activities
could require AEG to change the way it conducts its business.
AEG is dependent on the professional skill sets of its employees, some of whom would be difficult to
replace. The loss of any such employees could significantly affect AEG’s ability to service existing clients,
its profitability and its ability to grow its business.
Potential Profitability of Mineral Properties Depends Upon Factors Beyond the Control of Alexco
The potential profitability of mineral properties is dependent upon many factors beyond Alexco’s control.
For instance, world prices of and markets for gold, silver, lead and zinc are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging and/or controls and respond to changes in domestic,
international, political, social and economic environments. Another factor is that rates of recovery may
vary from the rate experienced in tests and a reduction in the recovery rate will adversely affect
profitability and, possibly, the economic viability of a property. Profitability also depends on the costs of
operations, including costs of labour, materials, equipment, electricity, environmental compliance or other
production inputs. Such costs will fluctuate in ways Alexco cannot predict and are beyond Alexco’s
control, and such fluctuations will impact on profitability and may eliminate profitability altogether.
Additionally, due to worldwide economic uncertainty, the availability and cost of funds for development
and other costs have become increasingly difficult, if not impossible, to project. These changes and
events may materially affect the financial performance of Alexco.
First Nation Rights and Title
The nature and extent of First Nation rights and title remains the subject of active debate, claims and
litigation in Canada, including in the Yukon and including with respect to intergovernmental relations
between First Nation authorities and federal, provincial and territorial authorities. There can be no
guarantee that such claims will not cause permitting delays, unexpected interruptions or additional costs
for Alexco’s projects.
Title to Mineral Properties
The acquisition of title to mineral properties is a complicated and uncertain process. The properties may
be subject to prior unregistered agreements of transfer or land claims, and title may be affected by
undetected defects. Although the Corporation has made efforts to ensure that legal title to its properties
is properly recorded in the name of the Corporation, there can be no assurance that such title will
ultimately be secured. As a result, the Corporation be constrained in its ability to operate its mineral
properties or unable to enforce its rights with respect to its mineral properties. An impairment to or defect
in the Corporation’s title to its mineral properties would adversely affect the Corporation’ business and
financial condition.
- 22 -
Capitalization and Commercial Viability
Alexco will require additional funds to further explore, develop and mine its properties. Alexco has limited
financial resources, and there is no assurance that additional funding will be available to Alexco to carry
out the completion of all proposed activities, for additional exploration or for the substantial capital that is
typically required in order to place a property into commercial production. Although Alexco has been
successful in the past in obtaining financing through the sale of equity securities, there can be no
assurance that Alexco will be able to obtain adequate financing in the future or that the terms of such
financing will be favourable. Failure to obtain such additional financing could result in the delay or
indefinite postponement of further exploration and development of its properties.
General Economic Conditions May Adversely Affect Alexco’s Growth and Profitability
The unprecedented events in global financial markets since 2008 have had a profound impact on the
global economy and led to increased levels of volatility. Many industries, including the mining industry,
are impacted by these market conditions. Some of the impacts of the current financial market turmoil
include contraction in credit markets resulting in a widening of credit risk, devaluations and high volatility
in global equity, commodity, foreign currency exchange and precious metal markets, and a lack of market
liquidity. If the current turmoil and volatility levels continue they may adversely affect Alexco's growth and
profitability. Specifically:
•
•
•
•
a global credit/liquidity or foreign currency exchange crisis could impact the cost and
availability of financing and Alexco’s overall liquidity;
the volatility of silver and other commodity prices would impact Alexco’s revenues, profits,
losses and cash flow;
volatile energy prices, commodity and consumables prices and currency exchange rates
would impact Alexco’s operating costs; and
the devaluation and volatility of global stock markets could impact the valuation of Alexco’s
equity and other securities.
These factors could have a material adverse effect on Alexco’s financial condition and results of
operations.
Operating Hazards and Risks
In the course of exploration, development and production of mineral properties, certain risks, particularly
including but not limited to unexpected or unusual geological operating conditions including rock bursts,
cave-ins, fires, flooding and earthquakes, may occur. It is not always possible to fully insure against such
risks and the Corporation may decide not to insure against such risks as a result of high premiums or
other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and
result in increasing costs and a decline in the value of the securities of the Corporation.
Adverse weather conditions could also disrupt the Corporation’s environmental services business and/or
reduce demand for the Corporation’s services.
Competition
Significant and increasing competition exists for mining opportunities internationally. There are a number
of large established mining companies with substantial capabilities and far greater financial and technical
resources than the Corporation. The Corporation may be unable to acquire additional attractive mining
- 23 -
properties on terms it considers acceptable and there can be no assurance that the Corporation’s
exploration and acquisition programs will yield any reserves or result in any commercial mining operation.
Certain of the Corporation’s Directors and Officers are Involved with Other Natural Resource Companies,
Which May Create Conflicts of Interest from Time to Time
Some of the Corporation’s directors and officers are directors or officers of other natural resource or
mining-related companies. These associations may give rise to conflicts of interest from time to time. As
a result of these conflicts of interest, the Corporation may miss the opportunity to participate in certain
transactions.
The Corporation May Fail to Maintain Adequate Internal Control Over Financial Reporting Pursuant to the
Requirements of the Sarbanes-Oxley Act.
Section 404 of the Sarbanes-Oxley Act (“SOX”) requires an annual assessment by management of the
effectiveness of the Corporation’s internal control over financial reporting. The Corporation may fail to
maintain the adequacy of its internal control over financial reporting as such standards are modified,
supplemented or amended from time to time, and the Corporation may not be able to ensure that it can
conclude, on an ongoing basis, that it has effective internal control over financial reporting in accordance
with Section 404 of SOX. The Corporation’s failure to satisfy the requirements of Section 404 of SOX on
an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial
statements, which in turn could harm the Corporation’s business and negatively impact the trading price
or the market value of its securities. In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm the Corporation’s operating
results or cause it to fail to meet its reporting obligations. Future acquisitions of companies, if any, may
provide the Corporation with challenges in implementing the required processes, procedures and controls
in its acquired operations. No evaluation can provide complete assurance that the Corporation’s internal
control over financial reporting will detect or uncover all failures of persons within the Corporation to
disclose material information otherwise required to be reported. The effectiveness of the Corporation’s
processes, procedures and controls could also be limited by simple errors or faulty judgments. Although
the Corporation intends to expend substantial time and incur substantial costs, as necessary, to ensure
ongoing compliance, there is no certainty that it will be successful in complying with Section 404 of SOX.
- 24 -
Summary of Resources
The following table sets forth the estimated resources for the Corporation’s mineral properties:
Category1,2,11
Property
Tonnes
Ag (g/t)
Au
(g/t)
Indicated
Inferred
Bellekeno Deposit3&4
Lucky Queen Deposit3&5
Flame & Moth Deposit3&6
Onek3&7
Bermingham3&8
Total Indicated – Sub-Surface
Elsa Tailings9
Total Indicated – All Deposits
Bellekeno Deposit3&4
Lucky Queen Deposit3&5
Flame & Moth Deposit3&6
Onek3&7
Bermingham3&8
Total Inferred
Historical
Resources
Silver King10
- Proven, probable and indicated
- Inferred
262,000
124,000
1,638,000
654,000
377,000
3,055,000
2,490,000
5,545,000
243,000
150,000
348,000
234,000
52,000
1,027,000
99,000
22,500
585
1,227
506
200
430
467
119
311
428
571
366
134
477
363
1,354
1,456
n/a
0.2
0.4
0.6
0.1
n/a
0.1
n/a
n/a
0.2
0.3
0.4
0.1
n/a
n/a
n/a
Pb
(%)
3.5%
2.6%
1.9%
1.3%
1.6%
1.9%
1.0%
1.5%
4.1%
1.4%
0.5%
1.2%
1.2%
1.7%
1.6%
0.1%
Zn
(%)
5.3%
1.7%
5.4%
12.3%
1.7%
6.3%
0.7%
3.8%
5.1%
0.9%
4.4%
8.9%
1.9%
4.9%
0.1%
n/a
Contained Ag
(oz)
4,927,000
4,892,000
26,650,000
4,205,000
5,212,000
45,886,000
9,527,000
55,413,000
3,344,000
2,754,000
4,095,000
1,008,000
797,000
11,998,000
4,310,000
1,057,000
Notes:
1. All mineral resources are classified following the CIM Definition Standards for Mineral Resources and Mineral
Reserves (May 2014), in accordance with the CIM Estimation of Mineral Resources and Mineral Reserves Best
Practice Guidelines and the guidelines of NI 43-101.
2. Mineral resources are not mineral reserves and do not have demonstrated economic viability. All numbers
have been rounded to reflect the relative accuracy of the estimates.
3. The Keno Hill Silver District is comprised of five deposits: Bellekeno, Lucky Queen and Flame & Moth, Onek
and Bermingham, of which Bellekeno, Lucky Queen and Flame & Moth are incorporated into the current mine
plan outlined in the technical report filed on SEDAR dated December 10, 2014 entitled “Updated Preliminary
Economic Assessment for the Keno Hill Silver District Project – Phase 2, Yukon, Canada”. The mineral
resource estimates for the project are supported by (a) disclosure in the news release dated December 23,
2014 entitled “Alexco Updates Positive Preliminary Economic Assessment for Expanded Silver Production from
Keno Hill Silver District, Yukon”; and (b) a technical report filed on SEDAR dated December 10, 2014 entitled
“Updated Preliminary Economic Assessment for the Keno Hill Silver District Project – Phase 2, Yukon,
Canada”. The mineral resource estimates for the Flame & Moth and Bermingham deposits are further
supported by disclosure in the news release dated April 30, 2015 entitled “Alexco Announces Indicated Silver
Resource Estimate Increases of 17% at Flame & Moth and 26% at Bermingham, Resulting in a 10% Increase
Overall for Keno Hill Silver District”.
4. The resource estimates for the Bellekeno deposit are based on a geologic resource estimate having an
effective date of September 30, 2012. The Bellekeno indicated mineral resources are as at September 30,
2013, and reflect the geologic resource less estimated subsequent depletion from mine production.
5. The resource estimates for the Lucky Queen deposit have an effective date of July 27, 2011.
6. The resource estimates for the Flame & Moth deposit have an effective date of April 28, 2015.
7. The resource estimates for Onek have an effective date of October 15, 2014.
8. The resource estimates for Bermingham have an effective date of April 28, 2015.
9. The resource estimate for the Elsa Tailings has an effective date of April 22, 2010, and is supported by the
technical report dated June 16, 2010 entitled “Mineral Resource Estimation, Elsa Tailings Project, Yukon,
Canada”.
10. Historical resources for Silver King are supported by disclosure in the news release dated December 23, 2014
entitled “Alexco Updates Positive Preliminary Economic Assessment for Expanded Silver Production from Keno
Hill Silver District, Yukon”.
11. The disclosure regarding the summary of estimated resources for Alexco’s mineral properties within the Keno
Hill District has been reviewed and approved by Scott Smith, P.Eng., former Bellekeno Mine Manager and a
Qualified Person as defined by NI 43-101.
- 25 -
Cautionary Statement Regarding Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of applicable
Canadian securities laws (together, “forward-looking statements”) concerning the Corporation's business
plans, including but not limited to anticipated results and developments in the Corporation’s operations in
future periods, planned exploration and development of its mineral properties, plans related to its
business and other matters that may occur in the future, made as of the date of this MD&A.
Forward-looking statements may include, but are not limited to, statements with respect to future
remediation and reclamation activities, future mineral exploration, the estimation of mineral reserves and
mineral resources, the realization of mineral reserve and mineral resource estimates, future mine
construction and development activities, future mine operation and production, the timing of activities, the
amount of estimated revenues and expenses, the success of exploration activities, permitting time lines,
requirements for additional capital and sources and uses of funds. Any statements that express or involve
discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions
or future events or performance (often, but not always, using words or phrases such as “expects”,
“anticipates”, “plans”, “estimates”, “intends”, “strategy”, “goals”, “objectives” or stating that certain actions,
events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative
of any of these terms and similar expressions) are not statements of historical fact and may be “forward-
looking statements”.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other
factors which could cause actual events or results to differ from those expressed or implied by the
forward-looking statements. Such factors include, but are not limited to, risks related to actual results and
timing of exploration and development activities; actual results and timing of mining activities; actual
results and timing of environmental services operations; actual results and timing of remediation and
reclamation activities; conclusions of economic evaluations; changes in project parameters as plans
continue to be refined; future prices of silver, gold, lead, zinc and other commodities; possible variations
in mineable resources, grade or recovery rates; failure of plant, equipment or processes to operate as
anticipated; accidents, labour disputes and other risks of the mining industry; First Nation rights and title;
continued capitalization and commercial viability; global economic conditions; competition; and delays in
obtaining governmental approvals or financing or in the completion of development activities.
Furthermore, forward-looking statements are statements about the future and are inherently uncertain,
and actual achievements of the Corporation or other future events or conditions may differ materially from
those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors,
including but not limited to those referred to in this MD&A under the heading “Risk Factors” and
elsewhere.
Forward-looking statements are based on certain assumptions that management believes are reasonable
at the time they are made. In making the forward-looking statements included in this AIF, the Corporation
has applied several material assumptions, including, but not limited to, the assumption that: (1) additional
financing needed to fund certain contingent payment obligations to Silver Wheaton and, the US$20
million payment to Silver Wheaton referred to above will be available on reasonable terms; (2) additional
financing needed for the capacity related refund under the silver purchase agreement with Silver
Wheaton will be available on reasonable terms; (3) additional financing needed for further exploration and
development work on the Corporation's properties will be available on reasonable terms; (4) the proposed
development of its mineral projects will be viable operationally and economically and proceed as planned;
(5) market fundamentals will result in sustained silver, gold, lead and zinc demand and prices, and such
prices will not be materially lower than those estimated by management in preparing the annual financial
statements for the year ended December 31, 2015; (6) market fundamentals will result in sustained silver,
gold, lead and zinc demand and prices, and such prices will be materially consistent with or more
favourable than those anticipated in the Preliminary Economic Assessment (“PEA”) (as defined under
"Description of the Business – KHSD Property"); (7) the actual nature, size and grade of its mineral
- 26 -
resources are materially consistent with the resource estimates reported in the supporting technical
reports; (8) labor and other industry services will be available to the Corporation at prices consistent with
internal estimates; (9) the continuances of existing and, in certain circumstances, proposed tax and
royalty regimes; and (10) that other parties will continue to meet and satisfy their contractual obligations
to the Corporation. Statements concerning mineral reserve and resource estimates may also be deemed
to constitute forward-looking information to the extent that they involve estimates of the mineralization that
will be encountered if the property is developed. Other material factors and assumptions are discussed
throughout this MD&A and, in particular, under both “Critical Accounting Estimates” and “Risk Factors”.
The Corporation's forward-looking statements are based on the beliefs, expectations and opinions of
management on the date the statements are made and should not be relied on as representing the
Corporation's views on any subsequent date. While the Corporation anticipates that subsequent events
may cause its views to change, the Corporation specifically disclaims any intention or any obligation to
update forward-looking statements if circumstances or management's beliefs, expectations or opinions
should change, except as required by applicable law. For the reasons set forth above, investors should
not place undue reliance on forward-looking statements.
Cautionary Note to U.S. Investors – Information Concerning Preparation of Resource Estimates
This MD&A has been prepared in accordance with the requirements of the securities laws in effect in
Canada, which differ from the requirements of United States securities laws. The terms “mineral reserve”,
“proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in
accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) –
CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as
amended. These definitions differ from the definitions in the United States Securities and Exchange
Commission’s (“SEC”) Industry Guide 7 under the United States Securities Act of 1933, as amended.
Under SEC Industry Guide 7 standards, mineralization cannot be classified as a “reserve” unless the
determination has been made that the mineralization could be economically and legally extracted at the
time the reserve determination is made. As applied under SEC Industry Guide 7, a “final” or “bankable”
feasibility study is required to report reserves, the three-year historical average price is used in any
reserve or cash flow analysis to designate reserves, and all necessary permits and government
authorizations must be filed with the appropriate governmental authority.
In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and
“inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these
terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in
reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or
any part of a mineral deposit in these categories will ever be converted into reserves. “Inferred mineral
resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their
economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource
will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors
are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically
or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under
Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does
not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without
reference to unit measures.
Accordingly, information concerning mineral deposits contained in this MD&A may not be comparable to
similar information made public by U.S. companies subject to the reporting and disclosure requirements
under the United States federal securities laws and the rules and regulations thereunder.
- 27 -
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Alexco Resource Corp. is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of,
the Chief Executive Officer and the Chief Financial Officer and effected by the Board of Directors, management and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. It includes
those policies and procedures that:
(i)
(ii)
(iii)
pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, the transactions
related to and dispositions of Alexco’s assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that Alexco receipts and
expenditures are made only in accordance with authorizations of management and Alexco’s directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of Alexco assets that could have a material effect on Alexco’s financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Alexco’s internal control over financial reporting as at December 31,
2015, based on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded
that Alexco’s internal control over financial reporting was effective as at December 31, 2015.
“Clynton R. Nauman”
(signed)
Clynton R. Nauman
President and Chief Executive Officer
March 23, 2016
“Michael Clark”
(signed)
Michael Clark
Chief Financial Officer
March 22, 2016
Independent Auditor’s Report
To the Shareholders of Alexco Resource Corp.
We have audited the accompanying consolidated financial statements of Alexco Resource Corp., which
comprise the consolidated balance sheets as at December 31, 2015 and December 31, 2014 and the
consolidated statements of loss and comprehensive loss, cash flows and shareholders’ equity for each of
the three years in the period ended December 31, 2015, and the related notes, which comprise a summary
of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. Canadian generally accepted auditing standards
also require that we comply with ethical requirements.
An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. We were not engaged to perform an audit of the company’s
internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting principles and policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 700, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Alexco Resource Corp. as at December 31, 2015 and December 31, 2014 and its financial
performance and its cash flows for each of the three years in the period ended December 31, 2015 in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
signed “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
2
ALEXCO RESOURCE CORP.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31
(expressed in thousands of Canadian dollars)
ASSETS
Current Assets
Cash and cash equivalents
Accounts and other receivables
Restricted cash and deposits
Inventories
Prepaid expenses and other current assets
Non-Current Assets
Restricted cash and deposits
Inventories
Long-term investments
Property, plant and equipment
Mineral properties
Intangible assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities
Environmental services contract loss provision
Deferred revenue
Flow-through share premium pending renunciation
Non-Current Liabilities
Environmental services contract loss provision
Deferred revenue
Silver streaming interest
Decommissioning and rehabilitation provision
Deferred income tax liabilities
Total Liabilities
Shareholders' Equity
Total Liabilities and Shareholders' Equity
COMMITMENTS
APPROVED ON BEHALF OF
THE BOARD OF DIRECTORS
Note
2015
2014
$
8,163
2,488
$
8,639
3,951
4,089
82
407
15,229
4,871
5,165
386
16,092
60,483
316
1,063
73
503
14,229
9,152
5,167
597
17,935
57,772
343
$
102,542
$
105,195
$
2,143
116
$
2,398
59
447
307
3,013
211
272
18,118
5,111
784
1,338
-
3,795
204
479
18,118
4,151
1,411
27,509
28,158
75,033
77,037
$
102,542
$
105,195
6
7
9
8
9
8
10
11
13
14
17
14
15
16
22
29
“Terry Krepiakevich”
(signed)
______________________________
Director
“Michael Winn”
(signed)
______________________________
Director
The accompanying notes are an integral part of these consolidated financial statements
ALEXCO RESOURCE CORP.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31
(expressed in thousands of Canadian dollars, except per share
and share amounts)
Revenues
Mining operations
Environmental services
Total revenues
Cost of Sales
Mining operations
Environmental services
Total cost of sales
Gross Profit (Loss)
Mining operations
Environmental services
Total gross profit
General and administrative expenses
Mine site care and maintenance
Foreign exchange gain
Operating Loss
Other Income (Expenses)
Investment income
Other income
Finance costs
Derivative loss
Write-down of mineral properties
Write-down of property, plant and equipment
Loss on impaired long-term investments
Loss Before Taxes
Income Tax Provision (Recovery)
Current
Deferred
Net Loss
Other Comprehensive Income (Loss)
Items that may be reclassified subsequently to net income (loss)
Cumulative translation adjustments, net of tax $456, $251, $nil
Gain (loss) on long-term investments
Recycle loss on impaired long-term investments to statement of loss
Note
2015
2014
2013
-
$
14,662
$
361
14,925
$
43,114
16,319
14,662
15,286
59,433
19
20
21
12
12
22
22
-
11,411
11,411
-
3,251
3,251
8,474
2,351
(1,054)
9,771
(6,520)
101
14
(56)
-
-
-
(155)
-
10,037
10,037
361
4,888
5,249
8,466
3,130
(660)
10,936
(5,687)
66
-
(42)
(14)
(25,103)
(4,828)
-
43,143
7,470
50,613
(29)
8,849
8,820
12,471
1,210
(182)
13,499
(4,679)
246
-
(47)
(98)
(51,840)
(3,501)
(2,160)
(6,616)
(35,608)
(62,079)
(24)
18
231
(1,083)
(5,509)
(472)
(211)
155
(2,854)
(32,772)
(11,860)
(50,450)
(24)
72
-
(311)
(2,062)
2,160
Total Comprehensive Loss
$
(6,037)
$
(32,724)
$
(50,663)
Loss Per Share
Basic
Diluted
23
23
$
(0.08)
$
(0.50)
$
(0.81)
$
(0.08)
$
(0.50)
$
(0.81)
The accompanying notes are an integral part of these consolidated financial statements
ALEXCO RESOURCE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(expressed in thousands of Canadian dollars)
Cash Flows from Operating Activities
Net (loss) income
Items not affecting cash from operations:
Deferred revenue
Depletion of mineral properties
Environmental services contract loss provision (note 14)
Silver streaming interest amount recognized
Depreciation of property, plant and equipment
Amortization of intangible assets
Share-based compensation expense
Finance costs, foreign exchange and other
Write-down of inventory
Write-down of mineral properties
Write-down of property, plant and equipment
Loss on impaired long-term investments
Write-off of receivables
Deferred income tax recovery
Release of restricted cash on Globeville security
Changes in non-cash working capital balances related to operations
Decrease in accounts and other receivables
(Increase) decrease in inventories
(Increase) decrease in prepaid expenses and other current assets
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in income taxes payable
Cash Flows from Investing Activities
Expenditures on mining operations properties
Expenditures on exploration and evaluation properties
Purchase of property, plant and equipment
Decrease (increase) in restricted cash and deposits
Cash Flows from Financing Activities
Proceeds from issuance of shares
Issuance costs
Proceeds from exercise of shares options
Purchase of RSU settlement shares
Increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
SUPPLEMENTAL CASH FLOW INFORMATION (see note 26)
2015
2014
2013
$
(5,509)
$
(32,772)
$
(50,450)
(1,098)
-
64
-
2,168
78
645
(1,142)
-
-
-
155
643
(1,083)
1,685
821
(8)
97
(199)
(23)
411
-
150
(72)
2,906
43
1,038
(598)
-
25,103
4,828
-
-
(2,854)
-
978
20
(67)
161
2
(570)
15,585
(1,653)
(9,892)
2,915
137
2,419
(173)
886
51,840
3,501
2,160
-
(11,854)
-
4,868
908
105
(7,195)
(130)
(2,706)
(723)
3,407
(264)
(1,769)
(44)
692
(699)
(5,652)
(136)
60
(9,639)
(10,429)
(2,041)
(530)
(1,385)
(6,427)
(22,639)
3,962
(347)
-
-
3,615
(476)
8,639
8,163
8,068
(889)
-
-
7,179
29
8,610
8,639
7,035
(552)
140
(1,869)
4,754
(14,478)
23,088
8,610
The accompanying notes are an integral part of these consolidated financial statements
ALEXCO RESOURCE CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(expressed in thousands of Canadian dollars)
Com m on Shares
N um be r o f
S ha re s
A m o unt Wa rra nt s
S ha re
O pt io ns
a nd R S U' s
C o nt ribut e d
S urplus
A c c um ula t e d
D e f ic it
A c c um ula t e d
O t he r
C o m pre he ns iv e
Inc o m e ( Lo s s )
T o t a l
Balance ‐ December 31, 2014
6 9 ,3 3 5 ,5 6 6
$
16 4 ,7 0 8
$
1,3 4 2
$
8 ,5 19
$
10 ,8 2 9
$
( 10 8 ,17 7 )
$
( 18 4 )
$
7 7 ,0 3 7
Net loss
Other comprehensive loss
Equity offering, net of
issuance costs (note 17)
compensation expense
recognized
Share options forfeited or
expired
Release of RSU settlement
shares
-
-
-
-
-
-
7,662,500
3,257
63
-
-
-
-
227,957
620
-
-
-
-
-
-
713
-
-
-
-
(1,234)
1,234
(620)
-
(5,509)
-
-
-
-
-
-
(528)
(5,509)
(528)
-
-
-
-
3,320
713
-
-
Balance ‐ December 31, 2015
7 7 ,2 2 6 ,0 2 3
$
16 8 ,5 8 5
$
1,4 0 5
$
7 ,3 7 8
$
12 ,0 6 3
$
( 113 ,6 8 6 )
$
( 7 12 )
$
7 5 ,0 3 3
Balance ‐ December 31, 2013
6 2 ,17 2 ,2 3 3
$
15 7 ,9 8 3
$
-
$
11,0 9 2
$
7 ,7 4 1
$
( 7 5 ,4 0 5 )
$
( 2 3 2 )
$
10 1,17 9
Net loss
Other comprehensive loss
Equity offering, net of
issuance costs (note 17)
compensation expense
recognized
Share options forfeited or
expired
Release of RSU settlement
shares
-
-
-
-
-
-
7,015,000
6,102
1,342
-
-
-
-
148,333
623
-
-
-
-
-
-
1,138
-
-
-
-
(3,088)
3,088
(623)
-
(32,772)
-
-
-
-
-
-
-
-
-
-
(32,772)
48
48
7,444
1,138
-
-
Balance ‐ December 31, 2014
6 9 ,3 3 5 ,5 6 6
$
16 4 ,7 0 8
$
1,3 4 2
$
8 ,5 19
$
10 ,8 2 9
$
( 10 8 ,17 7 )
$
( 18 4 )
$
7 7 ,0 3 7
Balance ‐ December 31, 2012
6 0 ,4 2 8 ,8 9 8
$
15 5 ,0 4 2
$
-
$
11,113
$
5 ,3 6 4
$
( 2 4 ,9 5 5 )
$
( 19 )
$
14 6 ,5 4 5
Net loss
Other comprehensive loss
Equity offering, net of
issuance costs (note 17)
compensation expense
recognized
Exercise of share options
expired
Release of RSU settlement
shares
Purchase of RSU
settlement shares
-
-
-
-
2,100,000
4,442
-
45,000
-
43,335
-
204
-
164
(445,000)
(1,869)
-
-
-
-
-
-
-
-
-
-
-
2,585
(65)
(2,377)
(164)
-
-
-
-
-
-
2,377
-
-
(50,450)
-
-
-
-
-
-
-
-
(213)
(50,450)
(213)
-
-
-
-
-
-
4,442
2,585
139
-
-
(1,869)
Balance ‐ December 31, 2013
6 2 ,17 2 ,2 3 3
$
15 7 ,9 8 3
$
-
$
11,0 9 2
$
7 ,7 4 1
$
( 7 5 ,4 0 5 )
$
( 2 3 2 )
$
10 1,17 9
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
1.
Description of Business and Nature of Operations
Alexco Resource Corp. (“Alexco” or the “Corporation”) was incorporated under the Business Corporations
Act (Yukon) on December 3, 2004 and commenced operations on March 15, 2005. Effective December 28,
2007, it was continued under the Business Corporations Act (British Columbia). The Corporation operates
two principal businesses: a mining business, comprised of mineral exploration and mine development and
operation in Canada, located in the Yukon Territory; and through its Alexco Environmental Group (“AEG”),
an environmental services business, providing consulting, remediation solutions and project management
services in respect of environmental permitting and compliance and site remediation, in Canada and the
United States.
The Corporation is in the process of exploring and developing its mineral properties. The recoverability of
the amounts shown for mineral properties is dependent upon the existence of economically recoverable
reserves, successful permitting, the ability of the Corporation to obtain necessary financing to complete
exploration and development, and upon future profitable production or proceeds from disposition of each
mineral property. Furthermore, the acquisition of title to mineral properties is a complicated and uncertain
process, and while the Corporation has taken steps in accordance with common industry practice to verify
its title to the mineral properties in which it has an interest, there can be no assurance that such title will
ultimately be secured. The carrying amounts of mineral properties are based on costs incurred to date,
adjusted for depletion and impairments, and do not necessarily represent present or future values.
In September 2013, Bellekeno mining operations were suspended in light of a sharply reduced silver price
environment and have remained on care maintenance since then.
Alexco is a public company which is listed on the Toronto Stock Exchange (under the symbol AXR) and the
NYSE MKT Equities Exchange (under the symbol AXU). The Corporation’s corporate head office is located
at Suite 1225, Two Bentall Centre, 555 Burrard Street, Box 216, Vancouver, BC, Canada, V7X 1M9.
2.
Basis of Preparation and Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, and were
approved for issue by the Board of Directors on March 22, 2016.
These consolidated financial statements have been prepared on a going concern basis under the historical
cost method, except for derivative financial instruments, share-based compensation and certain financial
assets which have been measured at fair value. All figures are expressed in Canadian dollars unless
otherwise indicated.
3.
Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of these financial statements are summarized
below.
(a)
Basis of Consolidation
The Corporation’s consolidated financial statements include the accounts of the Corporation and its
subsidiaries. Subsidiaries are entities controlled by the Corporation, where control is achieved by
the Corporation being exposed to, or having rights to, variable returns from its involvement with the
entity and having the ability to affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date on which control is obtained by Alexco, and are de-
consolidated from the date that control ceases.
The following subsidiaries have been consolidated for all dates presented within these financial
statements, and are wholly owned: Alexco Keno Hill Mining Corp. (formerly Alexco Resource
Canada Corp., formerly 650399 B.C. Ltd.), Elsa Reclamation & Development Corporation Ltd.
(“ERDC”), Alexco Exploration Canada Corp., Alexco Environmental Group Inc. (formerly Access
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Mining Consultants Ltd.), Alexco Environmental Group (U.S.) Inc. (formerly Alexco Resource U.S.
Corp.) (“AEG US”), and Alexco Financial Guaranty Corp. (“AFGC”).
All significant inter-company transactions, balances, income and expenses are eliminated on
consolidation.
(b)
Cash and Cash Equivalents
Cash and cash equivalents are unrestricted as to use and consist of cash on hand, demand
deposits and short term interest-bearing investments with maturities of 90 days or less from the
original date of acquisition and which can readily be liquidated to known amounts of cash.
Redeemable interest bearing investments with maturities of up to one year are considered cash
equivalents if they can readily be liquidated at any point in time to known amounts of cash and they
are redeemable thereafter until maturity for invested value plus accrued interest.
(c)
Inventories
Inventories include ore in stockpiles, concentrate and materials and supplies. Ore in stockpiles and
concentrate are recorded at the lower of weighted average cost and net realizable value. Cost
comprises all mining and processing costs incurred, including labor, consumables, production-
related overheads, depreciation of production-related property, plant and equipment and depletion
of related mineral properties. Net realizable value is estimated at the selling price in the ordinary
course of business less applicable variable selling expenses. Materials and supplies are valued at
the lower of cost and replacement cost, costs based on landed cost of purchase, net of a provision
for obsolescence where applicable.
When inventories have been written down to net realizable value, a new assessment of net
realizable value is made in each subsequent period. When circumstances that caused the write-
down no longer exist or when there is clear evidence of an increase in net realizable value, the
amount of the write down is reversed.
(d)
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and
impairment write-downs. The cost capitalized is determined by the fair value of consideration given
to acquire the asset at the time of acquisition or construction, the direct cost of bringing the asset to
the condition necessary for operation, and the estimated future cost of decommissioning and
removing the asset. Repairs and maintenance expenditures are charged to operations, while major
improvements and replacements which extend the useful life of an asset are capitalized.
Depreciation of property, plant and equipment is calculated using the following methods:
Heavy machinery and equipment
Land and buildings
Leasehold improvements & Other
Roads, Camp and other site infrastructure
Ore-processing mill components
5 years straight-line
20 years straight-line
Over the term of lease, and 2 – 5 years straight-line
5 -10 years straight-line
Variously between 5 and 30 years straight-line
Gains and losses on disposals are determined by comparing the proceeds with the carrying
amount and are recognized within other gains or losses in earnings.
(e)
Mineral Properties
Exploration and Evaluation Properties
The Corporation capitalizes exploration and evaluation expenses at cost for expenditures incurred
after it has obtained legal rights to explore a specific area and before technical feasibility and
commercial viability of extracting mineral resources are demonstrable.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
All direct and indirect costs relating to the exploration of specific properties with the objective of
locating, defining and delineating the resource potential of the mineral interests on specific
properties are capitalized as exploration and evaluation assets, net of any directly attributable
recoveries recognized, such as exploration or investment tax credits.
At each reporting date, exploration and evaluation assets are evaluated and classified as mining
operations assets upon completion of technical feasibility and determination of commercial viability.
Grassroots exploration expenditures incurred prior to the Corporation acquiring or obtaining the
right to acquire a mineral property are expensed.
Mining Operations Properties
Mining operations properties are recorded at cost on a property-by-property basis. The recorded
cost of mining operations properties is based on acquisition costs incurred to date, including
capitalized exploration and evaluation costs and capitalized development costs, less depletion,
recoveries and write-offs. Capitalized development costs include costs incurred to establish access
to mineable resources where such costs are expected to provide a long-term economic benefit, as
well as operating costs incurred, net of the proceeds from any sales generated, prior to the time the
property achieves commercial production.
Depletion of mining operations properties is calculated on the units-of-production basis using
estimated mine plan resources, such resources being those defined in the mine plan on which the
applicable mining activity is based. The mine plan resources for such purpose are generally as
described in an economic analysis supported by a technical report compliant with Canadian
National Instrument 43-101 Standards of Disclosure for Mineral Projects.
(f)
Intangible Assets
Customer relationships, rights to provide services and database assets acquired through business
combinations, and acquired patents, are recorded at fair value at acquisition date. All of the
Corporation’s intangible assets have finite useful lives, and are amortized using the straight-line
method over their expected useful lives.
(g)
Impairment of Non-Current Non-Financial Assets
The carrying amounts of non-current non-financial assets are reviewed and evaluated for
impairment when events or changes in circumstances indicate that the carrying amounts of the
related asset may not be recoverable. Non-current non-financial assets include property, plant,
equipment, mineral properties and finite-life intangible assets. If the recoverable amount is less
than the carrying amount of the asset, an impairment loss is recognized and the asset is written
down to recoverable value.
The recoverable amount is the higher of an asset’s “fair value less cost of disposal” and “value-in-
use”. Where the asset does not generate cash flows that are independent from other assets, the
recoverable amount of the cash-generating unit to which the asset belongs is determined, with a
cash‐generating unit being the smallest identifiable group of assets and liabilities that generate
cash inflows independent from other assets. Exploration and evaluation assets are each separately
assessed for impairment, and are not allocated by the Corporation to a cash generating unit
(“CGU”) for impairment assessment purposes. “Fair value less cost of disposal” is determined as
the amount that would be obtained from the sale of the asset or cash-generating unit in an arm’s
length transaction between knowledgeable and willing parties. In assessing “value-in-use”, the
future cash flows expected to arise from the continuing use of the asset or cash-generating unit in
its present form are estimated using assumptions that an independent market participant would
consider appropriate, and are then discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and risks specific to the asset
or unit.
Where conditions that gave rise to a recognized impairment loss are subsequently reversed, the
amount of such reversal is recognized into earnings immediately, though is limited such that the
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
revised carrying amount of the asset or cash-generating unit does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the asset or cash
generating unit.
(h)
Silver Streaming Interest
Advance payments received under the silver streaming interest acquired by Silver Wheaton Corp.
(“Silver Wheaton”) have been deferred and are being recognized on a units-of-production-sold
basis, as a component of the cost of sales for that production. The amount recognized each period
represents the proportion of silver ounces deliverable under the streaming interest on account of
silver production sold that period, to the total ounces of silver which at the time are estimated as
remaining to be delivered under the streaming interest. Also recognized within cost of sales each
period is the actual or estimated market price of the silver ounces delivered or deliverable under the
streaming interest on account of silver production sold that period, less the related per-ounce cash
amount received or to be received from Silver Wheaton on such delivery.
(i)
Provisions
General
Provisions are recorded when a present legal or constructive obligation exists as a result of past
events, where it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate of the amount of the obligation can be
made.
The expense relating to any provision is presented in profit or loss net of any reimbursement.
Provisions are discounted using a current risk-free pre-tax rate that reflects where appropriate the
risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as a finance cost.
Decommissioning and Rehabilitation Provision
The Corporation recognizes a decommissioning and rehabilitation provision for statutory,
contractual, constructive or legal obligations to undertake reclamation and closure activities
associated with property, plant, equipment and mineral properties, generally at the time that an
environmental or other site disturbance occurs or a constructive obligation for reclamation and
closure activities is determined. When the extent of disturbance increases over the life of an
operation, the provision is increased accordingly. Provisions are measured at the present value of
the expected future expenditures required to settle the obligation, using a risk-free pre-tax discount
rate reflecting the time value of money and risks specific to the liability. The liability is increased for
the passage of time, and adjusted for changes to the current market-based risk-free discount rate
as well as changes in the estimated amount or timing of the expected future expenditures. The
associated restoration costs are capitalized as part of the carrying amount of the related asset and
then depreciated accordingly.
(j)
Revenue Recognition
All revenue is measured at the fair value of the consideration received or receivable when the
amount of revenue can be measured reliably and it is probable that the economic benefits
associated with the transaction will flow to the Corporation, and is subject to the provision that
ultimate collection be reasonably assured at the time of recognition.
Revenue arising from sale of concentrate under the Corporation’s off-take agreements is
recognized when the significant risks and rewards of ownership have passed, generally at the time
of delivery to the smelter and when title and insurance risk has passed to the customer. Revenue
from the sale of concentrate is recorded net of charges for smelter treatment and refining. The
exposure to changes in metal prices between initial revenue recognition and final settlement, which
could occur up to a number of months subsequent to initial recognition, represents an embedded
derivative. This embedded derivative is recorded in accounts receivable and marked-to-market
each period until final settlement occurs, with changes in fair value classified as an adjustment to
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
revenue. All amounts received in respect of payable metals within concentrate are accounted for on
a co-product basis and are included in revenue.
Revenue from environmental services is recognized with reference to the stage of completion,
based on an output appropriate to the particular service contract, such as performance of agreed
service deliverables, or provision of billable hours under straight hourly bill contracts. Payments
received prior to recognition of the related revenue are recorded as deferred revenue.
(k)
Share-Based Compensation and Payments
The cost of incentive share options and other equity-settled share-based compensation and
payment arrangements is recorded based on the estimated fair value at the grant date and charged
to earnings over the vesting period. With respect to incentive share options, grant-date fair value is
measured using the Black-Scholes option pricing model. With respect to restricted share units,
grant-date fair value is determined by reference to the share price of the Corporation at the date of
grant. Where share-based compensation awards are subject to vesting, each vesting tranche is
considered a separate award with its own vesting period and grant-date fair value. Share-based
compensation expense is recognized over the tranche’s vesting period by a charge to earnings,
based on the number of awards expected to vest. The number of awards expected to vest is
reviewed at least annually, with any impact being recognized immediately.
(l)
Flow-Through Shares
The proceeds from the offering of flow-through shares are allocated between the shares and the
sale of tax benefits when the shares are offered. The allocation is made based on the difference
between the market value of the shares and the amount the investors pay for the flow‐through
shares. A liability is recognized for the premium paid by the investors and is then recognized in the
results of operations in the period the eligible exploration expenditures are incurred.
(m)
Warrants
When the Corporation issues units that are comprised of a combination of shares and warrants, the
value is assigned to shares and warrants based on their relative fair values. The fair value of the
shares is determined by the closing price on the date of the transaction and the fair value of the
warrants is determined based on a Black-Scholes option pricing model.
(n)
Current and Deferred Income Taxes
Income tax expense comprises current and deferred income taxes. Current and deferred income
taxes are recognized in profit or loss except to the extent that they relate to a business combination
or to items recognized directly in equity or in other comprehensive income.
Current income taxes are the expected taxes payable or receivable on the taxable income or loss
for the period, using tax rates enacted or substantively enacted at the reporting date, and any
adjustment to taxes payable in respect of previous periods.
Deferred income taxes are recognized using the liability method, on temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for tax purposes. However, deferred income taxes are not recognized if they arise from initial
recognition of an asset or liability in a transaction other than a business combination that, at the
time of the transaction, affects neither accounting nor taxable profit nor loss. Deferred income taxes
are determined using tax rates and laws that have been enacted or substantively enacted at the
reporting date and are expected to apply when the related deferred income tax asset is realized or
the deferred income tax liability is settled.
Deferred income tax assets and liabilities are presented as non-current in the financial statements.
Deferred income tax assets and liabilities are offset if there is a legally enforceable right of offset,
and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities but they intend to settle current tax liabilities and assets on a net basis or their
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
tax assets and liabilities will be realized simultaneously. Deferred income tax assets are recognized
to the extent that it is probable that future taxable profits will be available against which the assets
can be utilized.
(o)
Translation of Foreign Currencies
The financial statements of each entity in the group are measured using the currency of the primary
economic environment in which each entity operates (the “functional currency”). The consolidated
financial statements are presented in Canadian dollars.
The functional currency of all entities in the Corporation group other than AEG US is the Canadian
dollar, while the functional currency of AEG US is the United States dollar. The financial statements
of AEG US are translated into the Canadian dollar presentation currency using the current rate
method as follows:
Assets and liabilities – at the closing rate at the date of the statement of financial position.
Income and expenses – at the average rate of the period (as this is considered a reasonable
approximation to actual rates).
All resulting changes are recognized in other comprehensive income as cumulative translation
adjustments.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither
planned nor likely in the foreseeable future, foreign exchange gains and losses arising from the
item are considered to form part of the net investment in a foreign operation and are recognized in
other comprehensive income.
When an entity disposes of its entire interest in a foreign operation, or loses control, joint control, or
significant influence over a foreign operation, the foreign currency gains or losses accumulated in
other comprehensive income related to the foreign operation are recognized in profit or loss. If an
entity disposes of part of an interest in a foreign operation which remains a subsidiary, a
proportionate amount of foreign currency gains or losses accumulated in other comprehensive
income related to the subsidiary is reallocated between controlling and non-controlling interests.
(p)
Earnings or Loss Per Share
Basic earnings per share is calculated by dividing the net income (loss) for the period by the
weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is calculated using the treasury share method whereby all “in the
money” options, warrants and equivalents are assumed to have been exercised at the beginning of
the period and the proceeds from the exercise are assumed to have been used to purchase
common shares at the average market price during the period.
(q)
Financial Instruments
Financial assets and financial liabilities, including derivative instruments, are initially recognized at
fair value on the balance sheet when the Corporation becomes a party to their contractual
instrument’s
in subsequent periods depends on
provisions. Measurement
classification.
financial
the
Loans and Receivables
Cash and cash equivalents and accounts and other receivables (other than embedded derivatives)
are measured at amortized cost. Where necessary, accounts and other receivables are recorded
net of allowances for uncollectible amounts.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Financial Assets at Fair Value Through Profit or Loss
Derivative instruments, including embedded derivatives included within accounts receivable arising
from sales of concentrates, are classified as fair value through profit or loss and accordingly are
measured at fair value. Unrealized gains and losses on embedded derivatives arising from the sale
of concentrates are recognized as adjustments to revenue. Unrealized gains and losses on other
derivatives, if any, are recorded as part of other gains or losses in earnings.
Held-to-Maturity Investments
Investments, including term deposits not included in cash equivalents, with fixed or determinable
payments and fixed maturity and which the Corporation has the intention and ability to hold to
maturity are classified as held to maturity and thus are measured at amortized cost using the
effective interest method.
Available-for-Sale Financial Assets
Investments are designated as available-for-sale and measured at fair value, with unrealized gains
and losses recognized in other comprehensive income. If a decline in fair value is significant or
prolonged, it is deemed to be other-than-temporary and the loss is recognized in earnings.
Available-for-sale investments are recorded as non-current assets unless management intends to
dispose of them within twelve months of the balance sheet date.
Financial Liabilities
Financial liabilities include accounts payable and accrued liabilities, and are measured at amortized
cost using the effective interest method. Financial liabilities are classified as current liabilities if
payment is due within twelve months. Otherwise, they are presented as non-current liabilities.
Impairment and Uncollectibility of Financial Assets
At each reporting date, the Corporation assesses whether there is objective evidence of impairment
of any financial asset measured at other than fair value, or available for sale financial assets where
a decline in fair value has been recognized in other comprehensive income. If such evidence
exists, the Corporation recognizes an impairment loss.
Impairment losses on financial assets carried at amortized cost or a debt instrument carried as
available-for-sale are reversed in subsequent periods if the amount of the loss decreases and the
decrease can be related objectively to an event occurring after the impairment was recognized.
Impairments relating to investments in available-for-sale equity instruments are not reversed
through profit or loss.
(r)
Fair Value Measurement
Where fair value is used to measure assets and liabilities in preparing these financial statements, it
is estimated at the price at which an orderly transaction to sell the asset or to transfer the liability
would take place between market participants at the measurement date under current market
conditions. Fair values are determined from inputs that are classified within the fair value hierarchy
defined under IFRS as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly
Level 3 – Inputs for the asset or liability that are unobservable
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
4.
New and Revised Accounting Standards Adopted
The Company has not applied the following revised or new IFRS that have been issued but were not yet
effective at December 31, 2015. These accounting standards are not expected to have a significant effect on
the Company’s accounting policies or financial statements:
•
•
IFRS 7, Financial Instruments Disclosures (effective January 1, 2018) requires new disclosures
resulting from the amendments to IFRS 9.
IFRS 9, Financial Instruments (effective January 1, 2018) introduces new requirements for the
classification and measurement of financial assets and liabilities.
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers ("IFRS 15") which
supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes,
IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers,
and SIC 31 Revenue Barter Transactions involving Advertising Services. IFRS 15 establishes a single
fivestep model framework for determining the nature, amount, timing and uncertainty of revenue and cash
flows arising from a contract with a customer. The standard is effective for annual periods beginning on or
after January 1, 2017, with early adoption permitted. The Company is currently evaluating the impact the
standard is expected to have on its consolidated financial statements.
In January 2016, the IASB issued IFRS 16 – Leases ("IFRS 16") which replaces IAS 17 – Leases and its
associated interpretative guidance. IFRS 16 applies a control model to the identification of leases,
distinguishing between a lease and a service contract on the basis of whether the customer controls the
asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces
significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model
that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of
low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective
for annual periods beginning on or after January 1, 2019, with early application permitted for entities that
apply IFRS 15. The Company is currently evaluating the impact the final standard is expected to have on its
consolidated financial statements.
5.
Critical Judgements and Major Sources of Estimation Uncertainty
The preparation of the consolidated financial statements requires management to select accounting policies
and make estimates and judgments that may have a significant impact on the consolidated financial
statements. Estimates are continuously evaluated and are based on management’s experience and
expectations of future events that are believed to be reasonable under the circumstances. The estimates
management makes in this regard include those regarding future commodity prices and foreign currency
exchange rates, which are an important component of several estimates and assumptions management
must make in preparing the financial statements, including but not limited to estimations and assumptions
regarding the evaluation of the carrying amount of mineral properties and other assets, the estimation of
decommissioning and rehabilitation provisions, the estimation of revenues and the value of the embedded
derivative related to sales of concentrate, and the estimation of the net realizable value of inventories.
Management bases its estimates of future commodity prices and foreign currency exchange rates primarily
on consensus investment analyst forecasts, which are tracked and updated as published on generally a
quarterly basis. Actual outcomes can differ from these estimates.
The most significant judgments and estimates made by management in preparing the Corporation’s financial
statements are described as follows:
Mineral Resources
The determination of the Corporation’s estimated mineral resources by appropriately qualified
persons requires significant judgements regarding the interpretation of complex geological and
engineering data including the size, depth, shape and nature of the deposit and anticipated plans
for mining, as well as estimates of future commodity prices, foreign exchange rates, capital
requirements and production costs. These mineral resource estimates are used in many
determinations required to prepare the Corporation’s financial statements, including evaluating the
recoverability of the carrying amount of its non-current non-financial assets; determining rates of
depreciation, depletion and amortization; determining the recognition in income each period of the
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
amount of advance payments received under the silver streaming interest; and estimating amounts
of deferred income taxes.
Impairment of Non-Current Non-Financial Assets
The Corporation reviews and evaluates the carrying value of each of its non-current non-financial
assets for impairment when events or changes in circumstances indicate that the carrying amounts
of the related asset may not be recoverable. The identification of such events or changes and the
performance of the assessment requires significant judgment. Furthermore, management’s
estimates of many of the factors relevant to completing this assessment, including commodity
prices, foreign currency exchange rates, mineral resources, and operating, capital and reclamation
costs, are subject to risks and estimation uncertainties that may further affect the determination of
the recoverability of the carrying amounts of its non-current non-financial assets.
In the preparation of the Corporation’s December 31, 2014 consolidated financial statements,
certain indicators of potential impairment were identified, and a review of the carrying amounts of
non-current non-financial assets was carried out as a result. See note 13 for details on the
significant judgements, estimates and assumptions applied in carrying out this review.
Decommissioning and Rehabilitation Provision
Management’s determination of the Corporation’s decommissioning and rehabilitation provision is
based on the reclamation and closure activities it anticipates as being required, the additional
contingent mitigation measures it identifies as potentially being required and its assessment of the
likelihood of such contingent measures being required, and its estimate of the probable costs and
timing of such activities and measures. Significant judgements must be made when determining
such reclamation and closure activities and measures required and potentially required.
6.
Cash and Cash Equivalents
Cash at bank and on hand
Short-term bank deposits
7.
Accounts and Other Receivables
Trade receivables
Interest and other
Less: allowance for doubtful accounts
December 31
2015
December 31
2014
$ 5,350
2,813
$ 2,526
6,113
$ 8,163
$ 8,639
December 31
2015
December 31
2014
$ 2,888
175
(575)
$ 2,922
1,508
(479)
$ 2,488
$ 3,951
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
8.
Inventories
Ore in stockpiles and mining supplies
Materials and supplies
December 31
2015
December 31
2014
$ 5,165
82
$ 5,167
73
$ 5,247
$ 5,240
As of December 31, 2015, the Company held ore in stockpiles and mining supplies of $5,165,000 (2014 -
$5,167,000). Due to the expected timing of production recommencing, this amount is classified as a non-
current asset. During the year ended December 31, 2015, the cost of inventories recognized as an expense
and included in mining cost of sales was $nil (2014 - $nil; 2013 – $44,714,000), and also included in mining
cost of sales were write-downs of lead concentrate inventory totaling $nil (2014 - $nil; 2013 – $886,000))
(see note 19).
9.
Restricted Cash and Deposits
Security for remediation services agreement
Security for decommissioning obligations
Other
Restricted cash and deposits
Less: Current portion
December 31
2015
December 31
2014
$ 4,543
4,189
228
$ 5,800
4,186
229
8,960
4,089
10,215
1,063
$ 4,871
$ 9,152
Security for remediation services agreement of $4,543,000 (US$3,283,000) as at December 31, 2015 (2014
- US$5,000,000; 2013 – US$5,000,000) represents security that has been posted by AEG US in support of a
cost performance commitment provided under an environmental consulting and remediation services
agreement with a third party customer. The current portion of $4,089,000 is the estimated security that will
be released as per the service agreement within the next twelve months.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
10.
Property, Plant and Equipment
Cost
December 31, 2013
Additions
Write-downs
Decommission
change in estimate
Disposals
December 31, 2014
Additions
Write-downs
Decommission
change in estimate
Disposals
Land and
Buildings
Camp,
Roads, and
Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
Total
$ 1,364
-
-
-
1,364
-
-
-
-
$ 5,667
-
(463)
-
$ 23,632
119
(3,927)
145
$ 7,276
14
(438)
-
$ 1,294
11
-
-
$ 39,233
144
(4,828)
145
-
5,204
9
-
-
-
-
19,969
-
-
433
-
(78)
6,774
25
-
-
(92)
-
(78)
1,305
17
-
-
-
34,616
51
-
433
(92)
December 31, 2015
$ 1,364
$ 5,213
$ 20,402
$ 6,707
$ 1,322
$ 35,008
Accumulated
Depreciation
Land and
Buildings
Camp, Roads,
and Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
Total
December 31, 2013
Depreciation
Disposal
$ 95
60
-
$ 2,916
597
-
$ 5,154
1,554
-
$ 4,158
1,033
(43)
$ 1,100
57
-
$ 13,423
3,301
(43)
December 31, 2014
Depreciation
Disposal
155
60
-
3,513
433
-
6,708
1,080
-
5,148
697
(86)
1,157
51
-
16,681
2,321
(86)
December 31, 2015
$ 215
$ 3,946
$ 7,788
$ 5,759
$ 1,208
$ 18,916
Net book Value
Land and
Buildings
Camp, Roads,
and Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
Total
December 31, 2013
$ 1,269
$ 2,751
$ 18,478
$ 3,118
$ 194
$ 25,810
December 31, 2014
$ 1,209
$ 1,691
$ 13,261
$ 1,626
$ 148
$ 17,935
December 31, 2015
$ 1,149
$ 1,267
$ 12,614
$ 948
$ 114
$ 16,092
During the year ended December 31, 2015, the Corporation recorded total depreciation of property, plant
and equipment of $2,321,000 (2014 – $3,301,000; 2013 - $3,455,000), of which $2,168,000 (2014 –
$2,906,000; 2013 - $2,915,000) has been charged to income with $nil (2014 – $nil; 2013 - $1,997,000)
recorded to mining cost of sales, $279,000 (2014 – $307,000; 2013 - $156,000) recorded in environmental
services cost of sales and $1,889,000 (2014 – $2,599,000; 2013 - $762,000) reflected under general
expenses and mine site care and maintenance.
Of the balance, $153,000 (2014 – $395,000; 2013 - $448,000) was related to property, plant and equipment
used in exploration activities and has been capitalized to mineral properties, and the difference reflects the
changes in depreciation capitalized within opening and ending ore and concentrate inventories for the
period.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
On December 31, 2014, the Corporation recorded an impairment charge to property, plant and equipment
totaling $4,828,000 (2013 - $3,501,000; 2012 - $nil) (see note 13).
11.
Mineral Properties
Mineral Properties
Keno Hill District Properties –
Bellekeno
Lucky Queen
Onek
McQuesten
Silver King
Flame & Moth
Bermingham
Elsa Tailings
Other Keno Hill Properties
Other
Total
Mineral Properties
Keno Hill District Properties –
Bellekeno
Lucky Queen
Onek
McQuesten
Silver King
Flame & Moth
Bermingham
Elsa Tailings
Other Keno Hill Properties
Other
Total
December 31, 2015
Cost
Accumulated depletion and write-downs
Net book value
December 31, 2014
Cost
Accumulated depletion and write-downs
Net book value
December 31, 2013
Cost
Accumulated depletion and write-downs
Net book value
December 31,
2014
Expenditures
Incurred
Written
Down
December 31
2015
$ 8,149
1,924
255
3,690
7,154
20,467
9,717
884
5,342
190
$ 684
34
34
104
-
445
1,342
-
68
-
$ -
-
-
-
-
-
-
-
-
-
$ 8,833
1,958
289
3,794
7,154
20,912
11,059
884
5,410
190
$ 57,772
$ 2,711
$ -
$ 60,483
December 31,
2013
Expenditures
Incurred
Written
Down
December 31
2014
$ 17,715
9,084
807
3,670
6,986
15,002
9,157
884
12,352
190
$ 278
90
447
20
168
5,465
560
-
-
-
$ (9,844)
(7,250)
(999)
-
-
-
-
-
(7,010)
-
$ 8,149
1,924
255
3,690
7,154
20,467
9,717
884
5,342
190
$ 75,847
$ 7,028
$ (25,103)
$ 57,772
Mining
Operations
Properties
Exploration and
Evaluation
Properties
$ 130,007
118,927
$ 11,080
$ 129,255
118,927
$ 10,328
$ 128,440
100,834
$ 27,606
$ 56,413
7,010
$ 49,403
$ 54,454
7,010
$ 47,444
$ 48,241
-
$ 48,241
Total
$ 186,420
125,937
$ 60,483
$ 183,709
125,937
$ 57,772
$ 176,681
100,834
$ 75,847
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
(a)
Keno Hill District Properties
The Corporation’s mineral interest holdings in the Keno Hill District, located in Canada’s Yukon
Territory, are comprised of a number of properties.
The majority of the Corporation’s mineral rights within the Keno Hill District were purchased from
the interim receiver of United Keno Hill Mines Limited and UKH Minerals Limited (collectively,
“UKHM”) in 2006 and are held by ERDC. As a condition of that purchase, a separate agreement
was entered into between Alexco, ERDC, the Government of Canada and the Government of
Yukon (the “Subsidiary Agreement”), under which the Government of Canada indemnified ERDC
and Alexco from and against all liabilities arising directly or indirectly from the pre-existing condition
of the former UKHM mineral rights. The Subsidiary Agreement also provided that ERDC may bring
any mine into production on the former UKHM mineral rights by designating a production unit from
the mineral rights relevant to that purpose and then assuming responsibility for all costs of the
production unit’s water related care and maintenance and water related components of closure
reclamation.
In addition, the Subsidiary Agreement detailed the basis under which ERDC was retained by the
Government of Canada as a paid contractor responsible on a continuing basis for the
environmental care and maintenance and ultimate closure reclamation of the former UKHM mineral
rights. It provided that ERDC share the responsibility for the development of the ultimate closure
reclamation plan with the Government of Canada, for which it would receive fees of 65% of agreed
commercial contractor rates, and this plan development is currently ongoing. Upon acceptance and
regulatory approval, the closure reclamation plan will be implemented by ERDC at full agreed
contractor rates. During the period required to develop the plan and until the closure plan is
executed, ERDC is also responsible for carrying out the environmental care and maintenance at
various sites within the UKHM mineral rights, for a fixed annual fee adjusted each year for certain
operating and inflationary factors and determined on a site-by-site basis. Under the Subsidiary
Agreement, the portion of the annual fee amount so determined which was billable by ERDC in
respect of each site reduced by 15% each year until all site-specific care and maintenance
activities were replaced by closure reclamation activities; provided however that should a closure
reclamation plan be prepared but not accepted and approved, the portion of annual fees billable by
ERDC would revert to 85% until the Subsidiary Agreement was either amended or terminated.
ERDC receives agreed commercial contractor rates when retained by government to provide
environmental services in the Keno Hill District outside the scope of care and maintenance and
closure reclamation planning under the Subsidiary Agreement.
In July 2013, the Corporation executed an amended and restated Subsidiary Agreement, the
ARSA, with the Government of Canada. Recognizing that developing the closure reclamation plan
is more complicated than originally anticipated, the ARSA provides for the Government of Canada
to contribute a higher proportion of closure plan development costs than provided for under the
Subsidiary Agreement, retroactive to 2009. As a result, included in revenues for AEG for the year
ended December 31, 2013 is $1,983,000 in retroactive fees. Going forward, ERDC will receive 95%
of agreed commercial contractor rates for ongoing development of the closure reclamation plan.
Furthermore, with respect to care and maintenance activity during the closure reclamation planning
phase, the original reducing fee scale is replaced by a fixed fee of $850,000 per year, representing
approximately 50% of estimated fully-billable care and maintenance fees. As a result, included in
AEG 2013 cost of sales is an $850,000 reduction in the Corporation’s environmental services
contract loss provision.
Other Subsidiary Agreement terms unchanged by the ARSA include that ERDC is required to pay
into a separate reclamation trust a 1.5% net smelter return royalty, to an aggregate maximum of
$4 million for all production units, from any future production from the former UKHM mineral rights,
commencing once earnings from mining before interest, taxes and depreciation exceed actual
exploration costs, to a maximum of $6.2 million, plus actual development and construction capital.
That commencement threshold was achieved during the year ended December 31, 2013, and as at
December 31, 2015 a total of $37,000 in such royalties had been paid. Additionally, a portion of
any future proceeds from sales of the acquired UKHM assets must also be paid into the separate
reclamation trust. Also substantially unchanged by the ARSA are the indemnification of pre-existing
conditions and the right to bring any mine into production on the former UKHM mineral rights. The
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
rights of the Government of Canada under the Subsidiary Agreement and the ARSA are supported
by a general security agreement over all of the assets of ERDC.
The ARSA can be terminated at ERDC’s election should a closure reclamation plan be prepared
but not accepted and approved, and at the Governments’ election should ERDC be declared in
default under the ARSA.
(b)
Mining Operations
The Corporation’s mining operations reflected production from one mine, Bellekeno, a primary
silver mine with lead, zinc and gold by-products. During the second quarter of 2013, both the Lucky
Queen and Onek properties were reclassified from exploration and evaluation assets to mining
operations assets as a result of the receipt of remaining operating permits, though neither property
has as yet been placed into production.
From September 2013, Bellekeno mining operations have been suspended in light of a sharply
reduced silver price environment.
Keno Hill Royalty Encumbrances
As noted above, under the Subsidiary Agreement and unchanged by the ARSA, the former UKHM
mineral rights are subject to a 1.5% net smelter return royalty, to an aggregate maximum of $4
million for all production units. Certain of the Corporation’s non-UKHM mineral rights located within
or proximal to the McQuesten property are subject to a net smelter return royalty ranging from 0.5%
to 2%. Certain other of the non-UKHM mineral rights located within the McQuesten property are
subject to a separate net smelter return royalty of 2% under which the Corporation makes an
annual advance royalty payment of $20,000 per year. A limited number of the Corporation’s non-
UKHM mineral rights located throughout the remainder of the Keno Hill District are subject to net
smelter return royalties ranging from 1% to 1.5%.
12.
Impairment
The carrying amounts of non-current non-financial assets are reviewed and evaluated for impairment when
events or changes in circumstances indicate that the carrying amounts of the related asset may not be
recoverable. Non-current non-financial assets include property, plant, equipment, mineral properties and
finite-life intangible assets. If the recoverable amount is less than the carrying amount of the asset, an
impairment loss is recognized and the asset is written down to recoverable value. During the year ended
December 31, 2015, the carrying amounts of the Corporation’s net assets were assessed on key
assumptions and no further impairment was identified. During the years ended December 31, 2014 and
2013, the carrying amount of the Corporation’s net assets exceeded its market capitalization, which was
considered an indicator of potential impairment of the carrying amount of its non-current non-financial
assets. In addition, metal prices have been volatile and silver has experienced a significant decline through
these periods. In 2014 silver prices decreased from a high of $22.05 per ounce to a low of $15.97 per
ounce. As a result, at both December 31, 2014 and June 30, 2013, the Corporation carried out a review of
the carrying amounts of the non-current non-financial assets in its mining operations segment, which
segment has been determined to be a CGU for this purpose. For the purpose of the impairment tests, the
Flame & Moth exploration property was combined with the mining operations assets as this is an integral
part if the current mine plan.
In carrying out these reviews, the Corporation was required to make significant judgements, including with
respect to the allocation of assets to the mining operations CGU, as well as the selection and application of
appropriate valuation methods. The Corporation was also required to make significant estimates and
assumptions, including with respect to mine plan tonnages and grades, capital and operating costs, future
commodity prices, foreign currency exchange rates, discount rates and net asset value multiples. By their
nature, such estimates and assumptions are subject to significant uncertainty.
Recoverable amounts were determined based on estimated fair value less cost of disposal (“FVLCD”).
FVLCD for the mining operations CGU was determined based on the net present value of life-of-mine after-
tax future cash flows expected to be generated within that unit. Factors were also applied for the expected
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
benefit of potential operating cost optimizations. This estimate of FVLCD is categorized as Level 3 in the fair
value hierarchy (see note 3(q)). The projected cash flows are based on the following key assumptions:
Total estimated production is over a 5.75 year mine life using all mineral resources that existed at
December 31, 2014;
Consensus metal prices and consensus foreign exchange rates;
US$20,000,000 payment is made to Silver Wheaton under the June 16, 2014 amended silver
streaming agreement (see note 17);
Average silver grades of 754g/t;
Operating costs estimated at $255 per tonne milled;
Total development and sustaining costs estimated at approximately $73 million over life of mine;
and
Discount rate of 8%
Consensus metal and foreign exchange rate estimates for December 31, 2014 are summarized as follows:
2016
2017
2018
2019
Long-term
Silver prices (US$/oz)
$ 16.75
$ 17.50
$ 18.00
$ 19.50
$ 20.00
Gold prices (US$/oz)
$ 1,225
$ 1,250
$ 1,250
$ 1,290
$ 1,300
Lead prices (US$/oz)
$ 1.00
$ 1.04
$ 1.05
$ 0.94
$ 0.94
Zinc prices (US$/oz)
$ 1.08
$ 1.15
$ 1.18
$ 1.00
$ 1.00
Foreign exchange rates (USD/CAD)
$ 0.85
$ 0.85
$ 0.85
$ 0.85
$ 0.85
Based on the results of its review, the Corporation recognized an impairment loss at December 31, 2014
totaling $22,921,000 (June 30, 2013 - $55,341,000), attributed as follows:
Reporting Segment
Impairment Loss
December 31, 20141
Impairment Loss
June 30, 2013
Mineral properties:
Bellekeno
Lucky Queen
Onek
Total
Property, plant and equipment:
Ore processing mill
Heavy machinery and equipment
Camp, roads and other site
Total
Mining operations
Mining operations
Mining operations
Mining operations
Mining operations
Mining operations
$ 9,844
7,250
999
18,093
3,927
438
463
4,828
$ 20,182
9,145
22,513
51,840
2,628
483
390
3,501
Total impairment loss
$ 22,921
$ 55,341
1)
Impairment loss was prorated over the mining assets based on book value
The non-current non-financial assets in the mining operations segment were written down to their
recoverable amount. Consequently, any significant negative change in the key assumptions made in
determining the recoverable amount could result in an additional impairment loss.
For December 31, 2014, sensitivities were carried out on the key assumptions used in the discounted cash
flow model. Prior to the impairment charge, the carrying value of the CGU at December 31, 2014 was
approximately $60,500,000. The change to the pre-tax impairment charge as a result of movements in the
underlying key assumptions would be:
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Average metal price
Average cost per tonne
Foreign exchange rates
5% Change
10% Change
$ 15,005
$ 7,136
$ 31,362
$ 14,272
$ 11,798
$ 22,523
1% Change
2% Change
Discount rate applied
$ 3,495
$ 6,758
In addition, management conducted a review of its Exploration and evaluation assets, which are each
separately assessed for impairment, and are not allocated by the Corporation to a CGU for impairment
assessment purposes except the Flame & Moth mineral property. As at December 31, 2014, and pursuant
to IFRS 6 Exploration For and Evaluation of Mineral Resources, indicators were identified which suggested
the carrying amounts of certain exploration and evaluation assets may exceed their recoverable amount.
Included in Other Keno Hill Properties were a number of exploration properties that the Corporation did not
have any near-term plans to conduct exploration activities. As a result exploration and evaluation properties
were impaired by $7,010,000. As at December 31, 2013 no impairment indicators were identified.
13.
Accounts payable and accrued liabilities
Trade payables
Accrued liabilities and other
14.
Environmental Services Contract Loss Provision
Balance – beginning of year
Increase (reduction) due to changes in loss estimation
Increase (reduction) due to current period loss realization
Balance – end of year
Less: current portion
December 31
2015
December 31
2014
$ 923
1,220
$ 1,287
1,111
$ 2,143
$ 2,398
December 31
2015
December 31
2014
$ 263
$ 112
122
(58)
327
(116)
35
116
263
(59)
$ 211
$ 204
As described in note 11, ERDC is responsible for carrying out environmental care and maintenance at
various sites within the former UKHM mineral rights until acceptance and regulatory approval are obtained
for the closure reclamation plan, for a fixed annual fee adjusted each year for certain operating and
inflationary factors and determined on a site-by-site basis. Under the original Subsidiary Agreement, the
portion of the site-by-site adjusted annual fee determination basis which was billable by ERDC reduced by
15% each year until all site-specific care and maintenance activities were replaced by closure reclamation
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
activities. As a result, an environmental services contract loss provision was previously recognized to reflect
aggregate future losses estimated to be realized with respect to such care and maintenance activities.
During the continual review of this contract loss provision estimate and based on ongoing discussions with
Government regarding the process and timing that will be required to obtain acceptance and regulatory
approval of the closure reclamation plan, management estimated the date by which the care and
maintenance phase will end to be July 2018.
All changes in the contract loss provision are recorded within AEG cost of sales for the period in which they
occur.
15.
Silver Streaming Interest
Balance – beginning of year
December 31
2015
December 31
2014
$ 18,118
$ 18,190
Amount recognized in mine site care and maintenance
-
(72)
Balance – end of year
$ 18,118
$ 18,118
On October 2, 2008 (with subsequent amendments on October 20, 2008, December 10, 2008,
December 22, 2009, March 31, 2010, January 15, 2013, March 11, 2014 and June 16, 2014), the
Corporation entered into a silver streaming interest agreement (the "Silver Streaming Agreement") with
Silver Wheaton under which Silver Wheaton will receive 25% of the life of mine silver produced by the
Corporation from its Keno Hill Silver District properties. The Silver Streaming Agreement anticipated that the
initial silver deliveries would come from the Bellekeno property. Under the Silver Streaming Agreement, the
Corporation received up-front deposit payments from Silver Wheaton totaling US$50 million, and received
further payments of the lesser of US $3.90 (increasing by 1% per annum after the third year of full
production) and the prevailing market price for each ounce of payable silver delivered, if as and when
delivered. After the initial 40 year term of the streaming interest, the Corporation is required to refund the
balance of any advance payments received and not yet reduced through silver deliveries. The Corporation
would also be required to refund the balance of advance payments received and not yet reduced if Silver
Wheaton exercised its right to terminate the streaming interest in an event of default by the Corporation. As
of September 2013, Bellekeno mining operations were suspended in light of a sharply reduced silver price
environment.
On June 16, 2014, Alexco entered into an agreement with Silver Wheaton to amend the original Silver
Streaming Agreement such that, upon payment of US$20 million to Silver Wheaton on or before December
31, 2014 (the “Deadline”), the fixed US$3.90 per ounce silver streaming production payment will be replaced
with a variable production payment based on the spot price of silver. The variable production payment was
defined by a pricing curve with an apex at US$19.45 spot silver price where Silver Wheaton would make a
production payment to Alexco of US$18.00 per ounce of silver delivered; that payment decreasing by
US$0.91 per ounce for each US$1.00 increase or decrease in silver price, returning to a fixed US$3.90 per
ounce for spot silver prices of US$35.00 per ounce and higher. Upon payment of the US$20 million to Silver
Wheaton, the pricing amendment would be effective for a 10 year term from the time mining production re-
commences in the district, with an option for Alexco to extend the amendment for another 5 or 10 years for
an additional US$10 million or US$20 million, respectively. In addition, the Silver Wheaton area of interest
was expanded to include additional currently owned and future acquired properties of the Corporation within
one kilometer of the Corporation’s existing holdings in the Keno Hill District.
The Deadline was initially extended until December 31, 2015 and Silver Wheaton subsequently confirmed
that Alexco has the right, by written notice delivered at any time up to December 31, 2016, to extend the
Deadline to December 31, 2016. If the Deadline is extended by Alexco and the US$20 million payment is
made to Silver Wheaton on or before the Deadline, the original amount advanced will be deemed reduced
from US$50 million to US$30 million and the then-current balance of the advance will be reduced to nil.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Effective on signing the June 16, 2014 amending agreement, the date for completion of the 400 tonne per
day mine and mill completion test date was extended to December 31, 2017. If the Deadline is extended by
Alexco and the US$20 million payment is made to Silver Wheaton on or before the Deadline, the
amendments provide that the deadline for this completion test would be further extended to 24 months
following the recommencement date. In addition, pursuant to the June 16, 2014 amending agreement, the
Silver Wheaton area of interest was expanded to include additional Alexco currently owned and future
acquired properties within one kilometer of existing Alexco holdings in the Keno Hill District.
The Corporation is not obligated to make the US$20 million payment to Silver Wheaton under the June 16,
2014 amending agreement. However, in order for certain of the amendments to take effect (including the
amendment to the fixed price), the Corporation will need to make this payment. The Corporation will require
additional financing to make this payment and there is no assurance that additional financing can be
obtained by December 31, 2016 (or such later date as the parties may agree). If the Corporation is unable
to, or chooses not to, make this US$20 million payment, the fixed price payment terms of the original silver
purchase agreement will remain in effect and, to satisfy the completion test under the Silver Purchase
Agreement, the Corporation will need to recommence operations on the KHSD Property and operate the
mine and mill at 400 tonnes per day on or before December 31, 2017. If the completion test is not satisfied
by December 31, 2017, the Corporation would be required to pay a capacity related refund to Silver
Wheaton in the maximum amount of US$9.75 million.
16.
Decommissioning and Rehabilitation Provision
Balance – beginning of year
Increase due to re-estimation
Accretion expense, included in finance costs
December 31
2015
December 31
2014
$ 4,151
$ 3,803
904
56
306
42
Balance – end of year
$ 5,111
$ 4,151
The Corporation’s decommissioning and rehabilitation provision consists of costs expected to be required in
respect of future reclamation and closure activities at the end of the life of the Bellekeno, Flame & Moth,
Lucky Queen and Onek mines. These activities include water treatment, land rehabilitation, ongoing care
and maintenance and other reclamation and closure related requirements. The Company filed an updated
Reclamation and Closure Plan for its current operations and the future development of the Flame & Moth
deposit. As a result, the Quartz Mining License (“QML”) requires that Alexco increase its posted security
from $4.2 million to $6.3 million. The $4.2 million currently posted is included in the Corporation’s non-
current restricted cash and deposits. The Yukon Mine Site Reclamation and Closure Policy Financial
Guidelines provide several forms of acceptable security, which includes pledging assets, bank letters of
credit, surety bonds and insurance.
The total undiscounted amount of the estimated cash flows required to settle the decommissioning and
rehabilitation provision is estimated to be $6,178,000 (2014 – $4,780,000), which expenditures are expected
to be incurred substantially over the course of the next 19 years. In determining the carrying value of the
decommissioning and rehabilitation provision as at December 31, 2015, the Corporation has used a risk-free
discount rate of 1.87% (2014 – 2.11%) and an inflation rate of 2.0% (2014 – 2.0%).
17.
Shareholders’ Equity
The following share transaction took place in the year ended December 31, 2015:
a) Effective December 8, 2015, the Corporation completed a bought deal financing and issued
5,662,500 flow-through common shares on a private placement basis at a price of $0.53 per share
for aggregate gross proceeds of $3,001,125. Of the gross proceeds, $2,627,000 has been
attributed to issued common shares, and the remaining $311,000 has been attributed to the sale of
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
tax benefits. The underwriter to the financing received a cash fee of 6.5% of gross proceeds plus
368,063 compensation warrants, each warrant exercisable for one common share of the
Corporation at an exercise price of $0.53 per share at any time until December 8, 2017. The fair
values of the compensation warrants were estimated using the Black-Scholes option pricing model,
assuming a risk-free interest rate of 0.52% per annum, an expected life equal to the term of the
warrants, an expected volatility of 73% and no expected dividends. Net proceeds from the
issuance were $2,713,000, after issuance costs comprised of the agent’s commission of $195,000,
and other issuance costs of $93,000.
b) Effective December 8, 2015, the Corporation issued 2,000,000 common shares on a private
placement basis at a price of $0.48 per share for aggregate gross proceeds of $960,000. Net
proceeds from the issuance were $902,000, after issuance costs comprised of the agent’s
commission of $57,600.
c) 94,624 shares were issued from treasury on the vesting of restricted share units.
The following share transaction took place in the year ended December 31, 2014:
a)
In August 2014, the Corporation issued a total of 7,015,000 units at a price of $1.15 per unit in a
bought deal financing pursuant to a short form prospectus. Each unit was comprised of one
common share and one half of one common share purchase warrant, with each full warrant
entitling the holder to acquire an additional common share at a price of $1.40 per share at any time
until August 21, 2016. The underwriter to the financing received a cash fee of 6.5% of the gross
proceeds plus 455,975 compensation warrants, each warrant exercisable for one common share of
the Corporation at an exercise price of $1.35 per share at any time until August 21, 2016. The net
proceeds of the financing were $7,007,000 after the underwriter’s fees, including the fair value of
the compensation warrants, and other issuance costs of $364,000. The fair values of the unit
warrants and the compensation warrants were estimated using the Black-Scholes option pricing
model, assuming a risk-free interest rate of 1.1% per annum, an expected life equal to the term of
the warrants, an expected volatility of 75% and no expected dividends. A deferred income tax
benefit of $266,000 was recorded on the transaction.
The following share transaction took place in the year ended December 31, 2013:
a) Effective April 23, 2013, the Corporation issued 2,100,000 flow-through common shares on a
private placement basis at a price of $3.35 per share for aggregate gross proceeds of $7,035,000.
Of the gross proceeds, $4,830,000 has been attributed to issued common shares, and the
remaining $2,205,000 has been attributed to the sale of tax benefits. Net proceeds from the
issuance were $6,649,000, after issuance costs comprised of the agent’s commission of $472,000
and other issuance costs of $80,000, less the deferred income tax benefit of such costs of
$166,000.
18.
Share-Based Compensation
Incentive Stock Options
At the Corporation’s annual general meeting held June 10, 2014, the shareholders approved the
amendment of the stock option plan from a fixed to a rolling plan, under which the aggregate number of
common shares issuable on exercise of stock options cannot exceed 9% of the number of common shares
issued and outstanding. Generally, stock options granted have a maximum term of five years, vesting one
third upon granting, one third after one year and one third after two years and exercise price determined by
the directors. The exercise price may not be less than the closing quoted price of the Corporation’s common
shares traded through the facilities of the exchange on which the Company’s common shares are listed. As
at December 31, 2015, a total of 4,444,497 stock options were outstanding under the plan, and a total of
2,516,645 options remained available for granting.
The changes in incentive share options outstanding are summarized as follows:
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Balance – December 31, 2014
Stock options granted
Share based compensation expense
Options forfeited or expired
Balance – December 31, 2015
Balance – December 31, 2013
Stock options granted
Share based compensation expense
Options forfeited or expired
Balance – December 31, 2014
Balance – December 31, 2012
Stock options granted
Share based compensation expense
Options exercised
Options forfeited or expired
Balance – December 31, 2013
Weighted
average
exercise
price
Number of
shares issued
or issuable on
exercise
Amount
$4.36
$0.60
-
$4.52
$3.20
$5.16
$1.88
-
$5.54
$4.36
$5.07
$4.16
-
$3.08
$4.30
$5.16
3,619,830
$ 7,712
1,341,000
-
(516,333)
-
428
(1,234)
4,444,497
$ 6,906
4,035,663
$ 10,096
752,000
-
(1,167,833)
-
704
(3,088)
3,619,830
$ 7,712
4,634,995
$ 11,061
641,500
-
(45,000)
(1,195,832)
-
1,477
(65)
(2,377)
4,035,663
$ 10,096
During the year ended December 31, 2015, the fair value of options at the date of grant was estimated using
the Black-Scholes option pricing model, assuming a risk-free interest rate of 0.58% (2014 – 1.4%; 2013 –
1.4%) per annum, an expected life of options of 4 years (2014 – 4 years; 2013 – 4 years), an expected
volatility of 67% based on historical volatility (2014 – 65%; 2013 – 70%), an expected forfeiture rate of 3%
(2014 – 4%; 2013 – 4%) and no expected dividends (2014 – nil; 2013 - nil).
Incentive share options outstanding and exercisable at December 31, 2015 are summarized as follows:
Options Outstanding
Options Exercisable
Exercise Price
$0.60
$0.60
$1.65
$1.94
$3.45
$4.16
$6.92
$7.10
$8.13
Number of
Shares
Issuable on
Exercise
35,000
1,331,000
292,500
605,500
677,997
396,000
507,000
596,000
3,500
4,444,497
Average
Remaining
Life (Years)
Average
Exercise
Price
Number of
Shares
Issuable on
Exercise
3.96
4.12
0.14
3.12
1.22
2.06
1.07
2.04
2.36
2.47
$ 0.60
$ 0.60
$ 1.65
$ 1.94
$ 3.45
$ 4.16
$ 6.92
$ 7.10
$ 8.13
-
443,667
292,500
403,667
677,997
396,000
507,000
596,000
3,500
$ 3.20
3,320,331
$ 4.00
Average
Exercise
Price
$ 0.60
$ 0.60
$ 1.65
$ 1.94
$ 3.45
$ 4.16
$ 6.92
$ 7.10
$ 8.13
The weighted average share price at the date of exercise for options exercised during the year ended
December 31, 2013 was $4.22.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
During the year ended December 31, 2015, the Corporation recorded total share-based compensation
expense of $428,000 (2014 – $704,000; 2013 - $1,473,000) related to incentive share options, of which
$68,000 (2014 – $100,000; 2013 - $213,000) is recorded to mineral properties, $360,000 (2014 – $604,000;
2013 - $1,311,000) has been charged to income, and the balance reflects the changes in share-based
compensation expense capitalized within opening and ending ore and concentrate inventories for the period.
Subsequent to December 31, 2015, a further 1,787,500 incentive stock options have been granted with an
exercise price of $0.84, under the Corporation’s incentive stock option plan, another 292,500 have expired
unexercised and 130,000 have been forfeited.
Restricted Share Units (“RSUs”)
On December 14, 2012, the Corporation initiated a long-term incentive plan which provides for the issuance
of RSUs in such amounts as approved by the Corporation’s Board of Directors. The RSU plan is considered
an equity-settled share-based compensation arrangement, and is administered by a trustee. Each RSU
entitles the participant to receive one common share of the Corporation subject to vesting criteria, with RSU
grants vesting one third per year over a three year period. These RSUs are settled in common shares of the
Corporation purchased by the plan trustee through the open market at the time of granting, using funds
provided by the Corporation. The Corporation is required under IFRS to consolidate the plan trust, and the
outstanding number of common shares reflected in these financial statements is reduced by the number of
shares held by the plan trustee for future settlements.
At the Corporation’s annual general meeting held June 10, 2014, the shareholders approved the
amendment of the RSU plan whereby RSUs granted subsequent to the date of amendment can be settled in
common shares of the Corporation issued from treasury, with the maximum grantable number of such RSUs
fixed at 650,000. RSUs granted prior to the date of amendment can be settled only with common shares
held by the plan trust and purchased through the open market at the time of granting, and not with shares
issued from treasury, and do not reduce the 650,000 RSU fixed limit.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
The changes in RSUs outstanding are summarized as follows:
Number of
shares issued
or issuable
on vesting
Amount
Balance – December 31, 2014
507,192
$ 807
RSUs granted
RSUs forfeited
Share-based compensation expense recognized
RSUs vested
135,000
(53,332)
-
(227,957)
-
-
285
(620)
Balance – December 31, 2015
360,903
$ 472
Balance – December 31, 2013
401,665
$ 996
RSUs granted
RSUs forfeited
Share-based compensation expense recognized
RSUs vested
283,860
(30,000)
-
(148,333)
-
-
434
(623)
Balance – December 31, 2014
507,192
$ 807
Balance – December 31, 2012
RSUs granted
Share-based compensation expense recognized
RSUs vested
Balance – December 31, 2013
130,000
$ 52
315,000
-
(43,335)
-
1,108
(164)
401,665
$ 996
A total of 135,000 RSUs were granted in 2015, with total grant-date fair value determined to be $81,000.
Included in general and administrative expenses for the year ended December 31, 2015 is share-based
compensation expense of $285,000 (2014 – $434,000; 2013 - $1,108,000) related to RSU awards. As at
December 31, 2015, the plan trust held 29,997 common shares of the Corporation for future settlement of
granted RSUs.
As of December 31, 2015, a total of 335,531 RSUs were granted under the amended RSU plan and a total
of 314,469 RSUs remained available for granting.
Subsequent to December 31, 2015, a total of 295,000 RSUs have been granted under the amended RSU
plan, with one third vesting one year after the date of granting, one third vesting two years after the date of
granting, and the remaining third vesting three years after the date of granting. A total of 19,469 RSUs
remain available for granting under the amended RSU plan.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
19.
Cost of Sales
The Corporation recorded cost of sales for the years ended December 31, 2015, 2014 and 2013 as follows:
2015
2014
2013
Mining operations –
Inventoried costs –
Direct production costs
Depreciation, depletion and share-based compensation
Inventory write-down
Subsidiary Agreement royalty cost
Silver streaming interest –
Market price of deliverable silver, net of amount
receivable on delivery
Silver streaming interest amount recognized
$ -
-
-
-
-
-
-
$ -
-
-
-
$ 26,879
17,835
886
109
-
-
-
7,326
(9,892)
43,143
7,314
156
7,470
Environmental services –
Direct service costs
Depreciation
11,132
279
11,411
9,730
307
10,037
$ 11,411
$ 10,037
$ 50,613
20.
General and Administrative Expenses
The Corporation recorded general and administrative expenses for the years ended December 31, 2015,
2014 and 2013 as follows:
General and administrative expenses
Depreciation
Amortization of intangible assets
Business development and investor relations
Office, operating and non-operating overheads
Professional
Regulatory
Salaries and contractors
Share-based compensation
Write-off of receivables
Travel
2015
2014
2013
$ 143
77
535
1,747
679
146
3,627
622
643
255
$ 113
43
570
1,624
685
185
4,029
986
-
231
$ 119
114
628
2,140
1,085
193
5,316
2,060
366
450
$ 8,474
$ 8,466
$ 12,471
21.
Mine Site Care and Maintenance
The Corporation recorded mine site care and maintenance expenses for the years ended December 31,
2015, 2014 and 2013 as follows:
Mine site care and maintenance
Depreciation
Office, operating and non-operating overheads
Other expenses
2015
2014
2013
$ 1,746
404
201
$ 2,486
530
114
$ 643
260
307
$ 2,351
$ 3,130
$ 1,210
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
22.
Income Tax Expense
The major components of income tax expense for the years ended December 31, 2015, 2014 and 2013 are
as follows:
(a)
The provision for income taxes consists of:
Current
Income tax
Yukon mineral tax
US income tax
2015
2014
2013
$ -
-
(24)
$ -
-
18
$ -
220
11
Total current tax provision
(24)
18
231
Deferred
Income tax
Yukon mineral tax
Total deferred tax recovery
(1,083)
-
(1,083)
(2,614)
(240)
(10,830)
(1,030)
(2,854)
(11,860)
Total income tax recovery
$ (1,107)
$ (2,836)
$ (11,629)
(b)
The income tax provision differs from the amount that would result from applying the Canadian
federal and provincial tax rate to income before taxes. These differences result from the following
items:
Accounting loss before taxes
Federal and provincial income tax rate of 26.00%
(2014 – 26%)
Non-deductible permanent differences
Differences in foreign exchange rates
Effect of difference in tax rates
Change in deferred tax asset not recognized
Yukon mineral tax
Change in estimate
Other
2015
2014
2013
$ (6,616)
(1,720)
$ (35,608)
(9,258)
$ (62,079)
(15,960)
48
(75)
(230)
561
-
83
226
613
16
(6)
(1,419)
8,035
(243)
36
3
6,422
464
(90)
(2,544)
7,411
(804)
(105)
(1)
4,331
Recovery of income taxes
$ (1,107)
$ (2,836)
$ (11,629)
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
(c)
The movement in deferred tax assets and liabilities during the year by type of temporary difference,
without taking into consideration the offsetting balances within the same tax jurisdiction, is as
follows:
Deferred tax liabilities
Mineral
Property
Interest
Inventory
Property,
Plant and
Equipment
Yukon
Mining
Tax
Other
Total
December 31, 2013
Credited (charged) to the
income statement
Charged (credited) to OCI
December 31, 2014
Credited (charged) to the
income statement
$ (10,517)
$ (126)
$ (1,940) $ (244)
$ (263) $ (13,090)
(1,598)
-
-
-
(381)
-
244
-
(111)
36
(1,846)
36
$ (12,115)
$ (126)
$ (2,321)
$ -
$ (338) $ (14,900)
7,403
-
956
-
(881)
7,478
December 31, 2015
$ (4,712)
$ (126)
$ (1,365)
$ -
$ (1,219)
$ (7,422)
Deferred tax assets
Mineral
Property
Interest
Loss
Carry
Forward
Property,
Plant and
Equipment
Decommissioning
and rehabilitation
provision
Other
Total
December 31, 2013
Credited (charged) to the
income statement
Charged directly to equity
December 31, 2014
Credited (charged) to the
income statement
$ 3,621
$ 4,849
$ 451
$ 1,157
$ 1,265
$ 11,343
2,721
-
451
-
(13)
-
80
-
(331)
266
2,908
266
$ 5,221
$ 5,852
$ 432
$ 1,221
$ 763
$ 13,489
(4,629)
(3,095)
(116)
312
677
(6,851)
December 31, 2015
$ 592
$ 2,757
$ 316
$ 1,533
$ 1,440
$ 6,638
Net deferred tax liabilities
December 31, 2014
Credited (charged) to the income statement
Charged (credited) to OCI
December 31, 2015
$ (1,411)
1,083
(456)
$ (784)
(d)
At December 31, 2015, the Corporation has unrecognized tax attributes, noted below, that are
available to offset future taxable income. However, these tax attributes relate to capital items in
nature which can only be offset capital gain or relate to subsidiaries that have a history of losses;
therefore may not be used to offset taxable income.
Unused non-capital losses
Mineral property interest
Other
$ 33,049
26,454
3,174
$ 62,677
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
As at December 31, 2015, the Corporation has available non-capital losses for income tax
purposes in Canada and the US which are available to be carried forward to reduce taxable income
in future years and for which no deferred income tax asset has been recognized, and which expire
as follows:
2028
2029
2030
2031
2032
2033
2034
2035
Canada
1,792
4,338
3,397
421
316
1,896
10,079
6,136
US
-
372
1,014
2,217
72
-
-
999
Total
1,792
4,710
4,411
2,638
388
1,896
10,079
7,135
$ 28,375
$ 4,674
$ 33,049
23.
Loss Per Share
The following table sets forth the computation of basic and diluted loss per share for the years ended
December 31, 2015, 2014 and 2013:
Numerator
Net loss for the year
Denominator
2015
2014
2013
$ (5,509)
$ (32,772)
$ (50,450)
For basic – weighted average number of shares
70,092,259
65,100,203
61,968,376
outstanding
Effect of dilutive securities – incentive share options
For diluted – adjusted weighted average number of
shares outstanding
-
70,092,259
-
65,100,203
-
61,968,376
Loss Per Share
Basic
Diluted
$(0.08)
$(0.08)
$(0.50)
$(0.50)
$(0.81)
$(0.81)
Incentive stock options to acquire 4,444,497 shares (2014 – 3,585,000) were outstanding at December 31,
2015 but were not included in the computation of diluted earnings per share for the year then ended
because to do so would have been anti-dilutive given the Corporation recorded a net loss in that year.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
24.
Financial Instruments
Financial Assets and Liabilities
Information regarding the carrying amounts of the Corporation’s financial assets and liabilities is summarized
as follows:
Fair Value
Hierarchy
Classification
2015
2014
Available for sale –
Long-term investment in common shares
Level 1
$ 386
$ 597
$ 386
$ 597
The carrying amounts of all of the Corporation’s financial assets and liabilities reasonably approximate their
fair values.
Financial Instrument Risk Exposure
The Corporation’s activities expose it to a variety of financial risks: market risk (including price risk, currency
risk and interest rate risk), credit risk and liquidity risk. Risk management is carried out by management
under policies approved by the Board of Directors. Management identifies and evaluates the financial risks
in co-operation with the Corporation’s operating units. The Corporation’s overall risk management program
seeks to minimize potential adverse effects on the Corporation’s financial performance, in the context of its
general capital management objectives as further described in note 25.
Currency Risk
Substantially all of the Corporation’s property, plant and equipment and mineral properties are located in
Canada; all of its mining operations occur in Canada; and a significant majority of its environmental services
revenues are earned in Canada. However, when commercial production commenced at the Bellekeno
mine, the Corporation’s exposure to US dollar currency risk significantly increased as sales of concentrate
were effected in US dollars. In addition, a portion of its environmental services revenues, and receivables
arising therefrom, are also denominated in US dollars. As well, while a significant majority of the
Corporation’s operating costs are denominated in Canadian dollars, it does have some exposure to costs,
as some accounts payable and accrued liabilities are denominated in US dollars. The Corporation is
exposed to currency risk at the balance sheet date through the following financial assets and liabilities,
which are denominated in US dollars:
Cash and demand deposits
Accounts and other receivable
Accounts payable and accrued liabilities
Net exposure
December 31
2015
December 31
2014
$ 4,560
589
(477)
$ 6,340
1,354
(421)
$ 4,672
$ 7,273
Based on the above net exposure at December 31, 2015, a 10% depreciation or appreciation of the US
dollar against the Canadian dollar would result in an approximately $467,000 decrease or increase
respectively in both net and comprehensive loss (2014 – $727,000). The Corporation has not employed any
currency hedging programs during the current period.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Credit Risk
Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial
instrument fails to meet its obligations. The Corporation’s maximum exposure to credit risk at the balance
sheet date under its financial instruments is summarized as follows:
Trade receivables, net of provision –
Currently due
Past due by 90 days or less, not impaired
Past due by greater than 90 days, not impaired
Cash
Demand deposits
Term deposits
December 31
2015
December 31
2014
$ 992
872
5
1,869
5,350
2,813
8,960
$ 1,171
1,224
48
2,443
2,526
6,113
10,215
$ 18,992
$ 21,297
Substantially all of the Corporation’s cash, demand deposits and term deposits are held with major financial
institutions in Canada, and management believes the exposure to credit risk with respect to such institutions
is not significant. Those financial assets that potentially subject the Corporation to credit risk are primarily
receivables. Management actively monitors the Corporation’s exposure to credit risk under its financial
instruments, particularly with respect to receivables. The Corporation considers the risk of material loss to be
significantly mitigated due to the financial strength of the parties from whom the receivables are due,
including with respect to trade accounts receivable as the Corporation’s major customers include
government organizations as well as substantial corporate entities. As at December 31, 2015, trade
receivables are recorded net of a recoverability provision of $575,000 (2014 – $479,000).
Liquidity Risk
Liquidity risk is the risk that the Corporation will not be able to meet its obligations associated with financial
liabilities. The Corporation has a planning and budgeting process in place by which it anticipates and
determines the funds required to support its normal operating requirements as well as the growth and
development of its mining projects. The Corporation coordinates this planning and budgeting process with its
financing activities through the capital management process described in note 25. The Corporation’s
financial liabilities are comprised of its accounts payable and accrued liabilities, the contractual maturities of
which at the balance sheet date are summarized as follows:
Accounts payable and accrued liabilities with contractual maturities –
Within 90 days or less
In later than 90 days, not later than one year
December 31
2015
December 31
2014
$ 2,143
-
$ 2,375
-
$ 2,143
$ 2,375
25.
Management of Capital
The capital managed by the Corporation includes the components of shareholders’ equity as described in
the consolidated statements of shareholders’ equity. The Corporation is not subject to externally imposed
capital requirements.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
The Corporation’s objectives of capital management are to create long-term value and economic returns for
its shareholders. It does this by seeking to maximize the availability of finance to fund the growth and
development of its mining projects, and to support the working capital required to maintain its ability to
continue as a going concern. The Corporation manages its capital structure and makes adjustments to it in
the light of changes in economic conditions and the risk characteristics of its assets, seeking to limit
shareholder dilution and optimize its cost of capital while maintaining an acceptable level of risk. To maintain
or adjust its capital structure, the Corporation considers all sources of finance reasonably available to it,
including but not limited to issuance of new capital, issuance of new debt and the sale of assets in whole or
in part, including mineral property interests. The Corporation’s overall strategy with respect to management
of capital at December 31, 2015 remains fundamentally unchanged from the year ended December 31,
2014.
26.
Supplemental Cash Flow Information
Supplemental cash flow information with respect to the years ended December 31, 2015 and 2014 is
summarized as follows:
Operating Cash Flows Arising From Interest and Taxes
Interest received
2015
2014
$ 103
$ 111
Non-Cash Investing and Financing Transactions
Capitalization of share-based compensation to mineral properties
Capitalization of depreciation to mineral properties
Capitalization of re-estimation of decommissioning and rehabilitation provision
Increase (decrease) in non-cash working capital related to:
Exploration and evaluation properties
Property, plant and equipment
$ 68
$ 153
$ 904
$ 100
$ 395
$ 115
$ 17
$ -
$ (2)
$ 8
27.
Segmented Information
The Corporation had two operating segments during the years ended December 31, 2015, 2014 and 2013,
being environmental services carried out through AEG, providing consulting and project management
services in respect of environmental permitting and compliance and site remediation and reclamation; and
mining operations, including the operating Bellekeno mine, producing silver, lead and zinc in the form of
concentrates (suspended in September 2013), as well includes exploration and evaluation activities. The
Corporation’s executive head office and general corporate administration are included within ‘Corporate and
other’ to reconcile the reportable segments to the consolidated financial statements. Reportable segments
are identified based on differences in products, services and business activities. Inter-segment transactions
are recorded at amounts that reflect normal third-party terms and conditions, with inter-segment profits
eliminated from the cost base of the segment incurring the charge. During the second quarter of 2013, both
the Lucky Queen and Onek property assets were transferred from the exploration segment to the mining
operations segment, as a result of the receipt of remaining operating permits. Revenue from non-Canadian
customers of both operating segments was derived primarily from the United States.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
As at and for the year ended
December 31, 2015
Environmental
Services
Mining Corporate and
Other
Total
Segment revenues –
External customers –
Canadian
Non-Canadian
Intersegment
Total segment revenues
Intersegment revenues eliminated
on consolidation
Total revenues as reported
Cost of sales
Depreciation and amortization
Share-based compensation
Other G&A expenses
Other mine site care and
maintenance
Foreign exchange (gain) loss
Investment income
Finance costs
Other income
Loss on impaired long
term investments
$ 8,611
6,051
4,797
19,459
$ -
-
-
-
$ -
-
-
-
$ 8,611
6,051
4,797
19,459
(4,797)
14,662
11,411
124
161
3,454
-
(382)
-
-
-
-
-
-
-
-
-
42
2,351
10
-
56
-
-
-
-
-
97
462
4,135
-
(683)
(101)
-
(14)
155
(4,797)
14,662
11,411
221
623
7,631
2,351
(1,055)
(101)
56
(14)
155
Segment income (loss) before taxes
$ (106)
$ (2,459)
$ (4,051)
$ (6,616)
Total assets
$ 9,467
$ 85,968
$ 7,107
$ 102,542
As at and for the year ended
December 31, 2014
Environmental
Services
Mining Corporate and
Other
Total
Segment revenues –
External customers –
Canadian
Non-Canadian
Intersegment
Total segment revenues
Intersegment revenues eliminated
on consolidation
Total revenues as reported
Cost of sales
Depreciation and amortization
Share-based compensation
Other G&A expenses
Other mine site care and
maintenance
Foreign exchange (gain) loss
Investment income
Finance costs
Derivative loss
Write-down of mineral
properties
Write-down of
property, plant and
equipment
$ 9,182
5,743
3,595
18,520
$ -
361
-
361
$ -
-
-
-
$ 9,182
6,104
3,595
18,881
(3,595)
14,925
10,037
68
244
3,168
-
(323)
(1)
-
-
-
-
-
361
-
-
-
86
3,130
436
-
42
-
25,103
4,828
-
-
-
89
742
4,069
-
(773)
(65)
-
14
-
-
(3,595)
15,286
10,037
157
986
7,323
3,130
(660)
(66)
42
14
25,103
4,828
Segment income (loss) before taxes
$ 1,732
$ (33,264)
$ (4,076)
$ (35,608)
Total assets
$ 11,609
$ 85,115
$ 8,471
$ 105,195
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
As at and for the year ended
December 31, 2013
Environmental
Services
Mining
Corporate and
Other
Total
Segment revenues –
External customers –
Canadian
Non-Canadian
Intersegment
Total segment revenues
Intersegment revenues eliminated
on consolidation
Total revenues as reported
Cost of sales
Depreciation and amortization
Share-based compensation
Other G&A expenses
Foreign exchange (gain) loss
Investment income
Finance costs
Derivative loss
Write-down of mineral properties
Write-down of property, plant and
equipment
Loss on impaired long term
investments
$ 10,516
5,803
2,734
19,053
$ -
43,114
-
43,114
$ -
-
-
-
$ 10,516
48,917
2,734
62,167
(2,734)
16,319
7,470
141
393
3,187
3
(5)
-
-
-
-
-
-
43,114
43,143
-
464
2,550
(254)
1
47
-
51,840
3,501
-
-
-
-
735
1,203
5,008
69
(242)
-
98
-
-
2,160
(2,734)
59,433
50,613
876
2,060
10,745
(182)
(246)
47
98
51,840
3,501
2,160
Segment income (loss) before taxes
$ 5,130
$ (58,178)
$ (9,031)
$ (62,079)
Total assets
$ 12,940
$ 109,911
$ 8,362
$ 131,213
For the 12 month periods ended December 31, 2015, 2014 and 2013, revenue from mining operations was
derived as follows from payable metals contained in concentrate:
Silver
Lead
Zinc
Gold
2015
$ -
-
-
-
-
2014
2013
$ 243
(18)
(3)
162
384
$ 34,668
10,926
2,822
525
48,941
Smelter treatment and refining charges
-
(23)
(5,827)
Reported mining operations revenue
$ -
$ 361
$ 43,114
28.
Related Party Transactions
The Corporation’s related parties include its subsidiaries and key management personnel.
(a)
Key Management Personnel Compensation
Salaries and other short-term benefits
Share-based compensation
$ 1,831
543
$ 1,919
830
$ 2,150
1,923
$ 2,374
$ 2,749
$ 4,073
2015
2014
2013
Key management includes the Corporation’s Board of Directors and members of senior
management.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
29.
Commitments
As at December 31, 2015, the Corporation’s contractual obligations are as follows:
(a)
The Corporation has entered into various operating lease contracts for office space, motor vehicles
and office equipment. The future minimum payments under these leases as are as follows:
2016
2017
2018
Thereafter
317
266
185
57
$ 825
(b)
(c)
The Corporation’s other contractual obligations,
expenditures, totaled approximately $426,000.
including with respect
to capital asset
As a consequence of its commitment to renounce deductible exploration expenditures to the
purchasers of flow-through shares (see note 19), the Corporation is required to incur further
renounceable exploration expenditures totaling $2,952,000 by December 31, 2016.
Senior Management
Board of Directors
Clynton Nauman, BSc (Hons)
President & Chief Executive Officer
Brad Thrall, BSc, MBA
Executive Vice President & Chief Operating Officer
Michael Clark, CPA, CA
Chief Financial Officer &
Company Ethics Officer
Alan McOnie, MSc (Geology), FAusIMM
Vice President, Exploration
James Harrington, MSc
Sr. Vice President and Chief Technical Officer, Alexco
Environmental Group
Linda Broughton, B.Eng., M.A.Sc.
Vice President, Projects Alexco Environmental Group
Michael Winn, Chairman of the Board
Terry Krepiakevich, CPA, CA, ICD.D.
Clynton Nauman, B,Sc. (Hons)
Rick Van Nieuwenhuyse, MSc
Richard Zimmer, P.Eng., MBA
Auditors
PricewaterhouseCoopers LLP
Vancouver, British Columbia
Legal Counsel
Fasken Martineau DuMoulin LLP
Vancouver, British Columbia
Registrar and Transfer Agent
Computershare Investor Services Inc.
Vancouver, British Columbia
CORPORATE HEADQUARTERS
Suite 1225, Two Bentall Centre
555 Burrard Street, Box 216
Vancouver, BC V7X 1M9
Canada
Tel: 604.633.4888
Fax: 604.633.4887
Email: info@alexcoresource.com
Website: www.alexcoresource.com
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