ANNUAL FINANCIAL REPORT
DECEMBER 31, 2016
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 29, 2017 and provides an analysis of Alexco’s consolidated financial results
for the year ended December 31, 2016 compared to those of the previous year.
The following information should be read in conjunction with the Corporation’s December 31, 2016
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 are available on the Corporation’s website at
www.alexcoresource.com and on the SEDAR website at www.sedar.com and Edgar at www.sec.gov.
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”).
2016 HIGHLIGHTS AND OVERALL PERFORMANCE
Overall, Alexco reported a net loss of $4,359,000 for the year ended December 31, 2016, for a
basic and diluted loss of $0.05 per share, on total revenues of $11,361,000. The loss before
recovery of taxes for 2016 was $3,967,000, including non-cash costs of $2,076,000 for
depreciation and amortization and $1,095,000 for share-based compensation. For the year ended
December 31, 2015, Alexco reported a net loss of $5,509,000, for a basic and diluted loss of
$0.08 per share, on total revenues of $14,662,000. The 2015 loss before recovery of taxes 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. The difference
between the net loss in 2016 and 2015 was mainly attributed to reduced general and
administrative and mine site care and maintenance costs in 2016, which was partially offset by
the lower gross profit compared to the prior year. Furthermore, the Corporation had a $2,742,000
gain on investments compared to a loss of $155,000 in the prior year, while the Corporation
experienced a foreign exchange loss of $137,000 in 2016 compared to a gain of $1,054,000 in
2015.
The Corporation’s cash and cash equivalents at December 31, 2016 totaled $20,382,000
compared to $8,163,000 at December 31, 2015, while net working capital totaled $23,443,000
compared to $12,602,000 for the comparable year. In addition, the Corporation’s restricted cash
and deposits at December 31, 2016 totalled $6,948,000 compared to $8,960,000 at December
31, 2015.
The Corporation completed its 2016 Bermingham diamond drill program with 50 holes for a total
of 17,371 meters (“m”). Drill results extended the previously defined Arctic Zone of silver
mineralization and outlined a new zone of high grade mineralization beginning approximately
160m from surface and extending down plunge approximately 270m.
On May 17, 2016, the Corporation closed a non-brokered private placement of units of the
Corporation ("Units") at a price of $1.20 per Unit pursuant to which the Corporation issued
10,839,972 Units for aggregate gross proceeds of $13,007,966. Each unit consisted of one
common share and one-half of one non-transferable warrant, each whole such warrant entitling
the holder to purchase one additional common share of the Corporation at a price of $1.75 per
share for a period of 24 months following the date of issuance.
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4,364,575 warrants were exercised for proceeds of $6,208,000.
The Corporation disposed of investments in marketable securities for proceeds of $1,788,000 and
a pre-tax realized gain of $1,530,000. Furthermore, warrants held as an investment had a pre-tax
fair value measurement adjustment increase of $1,212,000.
Alexco Environmental Group (“AEG”), recognized revenues of $11,361,000 in 2016 for a gross
profit of $2,866,000 and a gross margin of 25.2% compared to revenues of $14,662,000 in 2015
for a gross profit of $3,251,000 and a gross margin of 22.2%. The increase in gross margin from
the prior year was primarily due to AEG reducing third party work on both external projects and
for the Keno Hill Reclamation Plan. . The reduction in revenue was primarily due to the Keno Hill
Reclamation Plan being developed in 2015 and then entering the review stage of the process in
2016, which involved less billable work to be performed by AEG. Furthermore detailed
engineering work was deferred to 2017. A further cause for the decrease in revenues is a result
of the Globeville project in Colorado being completed in 2015.
A performance bond was released to Alexco in the amount of $3,873,000 (US$2,885,000) related
to the AEG’s Globeville Smelter Project in Denver Colorado.
HIGHLIGHTS SUBSEQUENT TO YEAREND
The Corporation announced an updated mineral resource estimate for the Bermingham deposit,
expanding the indicated mineral resources from 5.2 million ounces to 17.3 million ounces while
inferred mineral resources increased from approximately 0.7 million ounces to 5.5 million ounces
of contained silver.
Alexco announced the release of an independent technical report dated March 29, 2017 with an
effective date of January 3, 2017 entitled "Preliminary Economic Assessment of the Keno Hill
Silver District Project, Yukon, Canada" (the “PEA”) and announced an amended silver purchase
agreement (the “Amended SPA”) with Silver Wheaton Corp. (“Silver Wheaton”) (see news
release dated March 29, 2017 entitled “Alexco and Silver Wheaton Amend Silver Purchase
Agreement and Alexco Announces Positive Preliminary Economic Assessment for Expanded
Silver Production at Keno Hill”).
The Corporation disposed of investments in marketable securities for proceeds of $2,002,000 and
a pre-tax realized gain of $1,779,000.
Alexco entered into a non-binding Letter Agreement with Banyan Gold Corp. (“Banyan”) to option
up to 100% of Alexco’s McQuesten property located in the KHSD. In three stages, Banyan may
earn up to 100% of the McQuesten property, by incurring a minimum of $2,600,000 in exploration
expenditures, issue 1,600,000 shares, pay a total of $2,600,000 in cash or shares and grant
Alexco a 6% Net smelter return (“NSR”) royalty with buybacks totalling $7,000,000 to reduce to a
1% NSR royalty on gold and 3% NSR royalty on silver.
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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)
Earnings (loss) per share –
Basic
Diluted
Total assets
Total long-term liabilities
Dividends declared
OVERVIEW OF THE BUSINESS
As at and for the year ended December 31
2016
-
-
11,361
2,866
11,361
2,866
(4,359)
($0.05)
($0.05)
117,632
24,839
Nil
2015
-
-
14,662
3,251
14,662
3,251
(5,509)
($0.08)
($0.08)
102,542
24,496
Nil
2014
361
361
14,925
4,888
15,286
5,249
(32,772)
($0.50)
($0.50)
105,195
24,363
Nil
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, exploration at the Bermingham deposit, renegotiating third party contracts and reviewing other
opportunities to reduce future All-In Sustaining Costs, with the aim of repositioning the KHSD for long-
term, sustainable operations. Alexco is developing a plan to return to operations incorporating production
from the Bellekeno, Flame & Moth, Bermingham and Lucky Queen silver deposits.
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 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 LLC (under the symbol AXU).
OUTLOOK AND STRATEGY
Keno Hill Silver District
Alexco’s current primary focus is on further building high grade silver resources in the KHSD as well as
further refining plans to optimize operations and the future underlying fixed cost structure of the Keno Hill
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District mining operations with the goal of re-starting mining operations, commodity prices and markets
considered. Ore throughput rates, grade, prices and the influence of the Silver Wheaton silver stream
have a material impact on unit costs and profitability at Keno Hill. Bringing Flame & Moth deposit and
Bermingham deposit into production is a key aspect of restarting operations at Keno Hill. The permitting
process for development of the Flame & Moth deposit is progressing through the final phases of the
Water Use Licence process while the Corporation has commenced environmental assessment and the
permitting process for advanced exploration and underground drilling at the Bermingham deposit.
Alexco’s 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 (“CCBA”) 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.
On May 4, 2016, the Corporation and FNNND entered into an Amended and Restated CCBA relating to
exploration, mine development, mining, and environmental activities of Alexco and its subsidiaries in the
KHSD. The revised agreement includes enhanced language in respect of project implementation, the
cooperative environmental engagement process, business opportunities and wealth sharing.
Alexco Environmental Group
Alexco owns and operates AEG which carries out a variety of fee for service and turnkey project activities
related to environmental management and assessment, project permitting, remediation, water treatment
and project closure mandates in North America and elsewhere. AEG 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”). 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.
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 final Existing State of
Mine (“ESM”) Reclamation Plan at Keno Hill will undergo assessment by the Yukon Environmental and
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Socio-economic Assessment Board (YESAB), likely starting in the second quarter of 2017. 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 Indigenous and Northern affairs Canada 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.
Economic Climate
Silver, lead and zinc are the primary metals found within the Keno Hill District historically. With respect to
the economic climate during 2016, prices were steadily increasing. Silver traded from a high of US$20.71
on August 2, 2016 to a low of $13.58 on January 28, 2016, while lead traded between US$1.08 to
US$0.73 and zinc traded between US$1.27 to US$0.68 per pound. As at the date of this MD&A, prices
are approximately US$17.75 per ounce silver, US$1.07 per pound for lead and US$1.27 per pound for
zinc and the Canadian-US exchange rate is approximately US$0.75 per CAD. Consensus investment
analyst forecasts over the next two years for silver average approximately US$18.13 per ounce, for lead
average approximately US$1.01 per pound, and for zinc US$1.25 per pound, with the Canadian-US
exchange rate forecast at US$0.76 per CAD (see “Risk Factors” in the MD&A for the for the year ended
December 31, 2016, 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).
RECENT DEVELOPMENTS
2017 Preliminary Economic Assessment
On March 29 2017, Alexco announced an updated PEA for the KHSD, entitled “Preliminary Economic
Assessment of the Keno Hill Silver District Project, Yukon, Canada” (see press release dated March 29,
2017 entitled, “Alexco and Silver Wheaton Amend Silver Purchase Agreement and Alexco Announces
Positive Preliminary Economic Assessment for Expanded Silver Production at Keno Hill”). Alexco’s 100%
owned KHSD property encompasses the Bellekeno, Flame & Moth, Lucky Queen, Onek and
Bermingham deposits and comprises 703 quartz mining leases and 866 quartz mining claims and two
Crown Grants.
The KHSD PEA contemplates the sequential development and production from four (4) mines over a nine
(9) year period, beginning with an advanced underground exploration program at Bermingham consisting
of a 600m decline development and infill drilling program on the upper portions of the high-grade Bear
vein and West-Dipper vein, followed by an eight (8) month construction period to develop the 965m
Flame & Moth decline, to be followed by an eight (8) year period of silver production anchored by the
Flame & Moth and Bermingham deposits. It provides for an average annualized payable silver production
of 3.5 million ounces, 9.4 million pounds of lead, 10.8 million pounds of zinc and 680 ounces of gold from
an annualized average of 143,000 tonnes per year of consolidated mine and mill production. The pre-tax
and after-tax internal rate of return is 89% and 75%, respectively, and the pre-tax and after-tax net
present value at a 5% discount rate is $104,300,00 and $79,400,000, respectively, with less than a one
(1) year payback period. Initial capital requirements before positive cash flow is achieved, is expected to
be approximately $27,000,000. The advanced underground exploration program at Bermingham,
consisting of driving the initial 600m decline and a 5,000m infill program on the upper portion of the Bear
including mining equipment
vein and West-dipper vein, comprises approximately $8,700,000
rebuilds. The estimated capital cost for the 965m Flame and Moth decline and associated underground
mining equipment, vent raise, definition drilling and property, plant and equipment capital is approximately
$12,000,000. The balance of the initial capital is planned for further initial development at Bermingham in
advance of production, installation of the second ball mill and other minor mill upgrades, additional
surface facilities and underground equipment for the Bellekeno mine.
- 6 -
The consolidated mine production under the KHSD PEA of 1,021,053 tonnes is primarily derived from
indicated mineral resources, though approximately 2% is derived from inferred mineral resources.
Readers are cautioned that mineral resources are not mineral reserves and do not have demonstrated
economic viability. Furthermore, the PEA is preliminary in nature; it includes inferred mineral resources
that are considered too speculative geologically to have the economic considerations applied to them that
would enable them to be categorized as mineral reserves; and there is no certainty that the PEA will be
realized.
Under the KHSD PEA, Flame & Moth mineral resources are estimated with an effective date of January 3,
2017 at 1,679,000 tonnes indicated grading 498 g/t silver, 1.85% lead, 5.33% zinc and 0.4 g/t gold plus
another 365,200 tonnes inferred grading 356 g/t silver, 0.47% lead, 4.25% zinc and 0.3 g/t gold. The
Bellekeno mineral resources are based on a geologic resource estimate having an effective date of
September 30, 2012, with the indicated resources as at September 30, 2013 and reflecting the geologic
resource less estimated subsequent depletion from mine production (Scott Smith is the qualified person
responsible for the subsequent depletion of the May 31, 2012 indicated resources for production through
September 30, 2013). The Bellekeno mineral resource estimate comprises 262,000 tonnes indicated
grading 585 g/t silver, 3.5% lead and 5.3% zinc plus another 243,000 tonnes inferred grading 428 g/t
silver, 4.1% lead and 5.1% zinc. The Lucky Queen mineral resources are estimated with an effective date
of January 3, 2017 at 132,300 tonnes indicated grading 1,167 g/t silver, 2.43% lead and 1.63% zinc plus
another 257,900 tonnes inferred grading 473 g/t silver, 1.04% lead and 0.80% zinc. The Onek mineral
resources are estimated with an effective date of January 3, 2017 at 700,200 tonnes indicated grading
191 g/t silver, 1.24% lead and 11.85% zinc plus another 285,100 tonnes inferred grading 118 g/t silver,
1.15% lead and 8.26% zinc. The Bermingham mineral resources are estimated with an effective date of
January 3, 2017 at 858,000 tonnes indicated grading 628 g/t per tonne silver, 2.40% lead and 1.65% zinc
plus another 220,000 tonnes inferred grading 770 g/t silver, 2.13% lead and 2.21% zinc.
The PEA reflects one of a number of Keno Hill production strategies being considered by Alexco. Work
continues to optimize various aspects of this project, taking into account new pricing and costing bases in
combination with emerging exploration results. As with most relatively smaller, higher grade deposits,
consolidated mine economics are sensitive to commodity price, foreign exchange, the tenor and grade of
ore delivered to the mill, and the efficiency with which the mill operates. Equally important, the Company
plans to continue its successful exploration strategy to expand resource inventory in the District as a
whole.
The PEA has been prepared in compliance with National Instrument 43-101 – Standards of Disclosure for
Mineral Projects (“NI 43-101”), and was compiled by Roscoe Postle Associates Inc. (“RPA”) with
contributions from a team of Qualified Persons as defined by NI 43-101. 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 with NI 43-101. The PEA is available under Alexco's profile on SEDAR at
www.sedar.com.
Amended Silver Purchase Agreement with Silver Wheaton
On March 29, 2017 the Corporation and certain of its subsidiaries and Silver Wheaton entered into an
amendment agreement to the Silver Purchase Agreement (the “Amended SPA”) pursuant to which,
among other things, the following amendments were made to the Silver Purchase Agreement:
Silver Wheaton will continue to receive 25% of the life of mine payable silver from the KHSD. The
production payment (originally US$3.90 per ounce) will be based on monthly silver head grade
and monthly silver price:
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The actual monthly production payment will fall within a defined grade and pricing range
governed by upper and lower numeric criteria (ceiling grade/price and floor grade/price) pursuant
to the following formula:
(Ceiling Grade – Deemed
Shipment Head Grade)
(Ceiling Grade – Floor
Grade)
X
(Ceiling Price – Deemed
Shipment Silver Price)
(Ceiling Price – Floor Price)
X
Market
Price
Floor Grade
Floor Price
Ceiling Grade
Ceiling Price
Deemed Shipment Head Grade
Deemed Shipment Silver Price
Market Price
=
=
=
=
=
=
=
600 g/t Ag
US$13/oz Ag
1,400 g/t Ag
US$25/oz Ag
Calculated monthly mill silver head grade
Average monthly silver price
Spot silver price prior to day of sale
The date for completion of the 400 tonne per day mine and mill completion test date was
extended to December 31, 2019;
The Silver Wheaton area of interest remains one (1) km around existing Alexco holdings in the
KHSD.
In consideration of the foregoing amendments, the Corporation has agreed, subject to TSX and NYSE-
MKT approval, to issue 3,000,000 shares to Silver Wheaton with a fair value of US$4,934,948.
RESULTS OF OPERATIONS
Alexco Environmental Group (AEG)
AEG Highlights during 2016:
AEG recognized revenues of $11,361,000 in the year ended December 31, 2016 for a gross profit
of $2,866,000 and a gross margin of 25.2% compared to revenues of $14,662,000 for a gross
profit of $3,251,000 and a gross margin of 22.2% in the year ended of 2015. The increase in
gross margin from the prior year was primarily due to AEG reducing third party work on both
external projects and for the Keno Hill Reclamation Plan. The reduction in revenue was primarily
due to the bulk of the Keno Hill Reclamation Plan being developed in 2015 and then entering the
review stage of the process in 2016, which involved less billable work to be performed by AEG.
Furthermore, in the US a decrease in revenues resulted from the substantial completion of the
Globeville project in Colorado in 2015. .
AEG is successfully operating two major water treatment facilities in the US, the Gold King and
Schwartzwalder plants, as well as four smaller water treatment facilities at Keno Hill in Canada.t
the Gold King Project in southern Colorado, the US Environmental Protection Agency authorized
an expansion of the plant to approximately double the treatment capacity of the IWTP.
Construction related to this and upgrades were completed in 2016. AEG has been awarded an
extension to operate Gold King the IWTP to the end of 2017.
On the Globeville Smelter Project, a Completion Report, which documents the work completed at
the site and the monitoring results, was submitted to the State of Colorado in July 2016. The
- 8 -
Completion Report triggered the release of $3,800,000 (US$2,900,000) to AEG with the
remaining $522,000 (US$398,000) to be held as a performance bond for a period up to 2 years.
Keno Hill Silver District
2017 Exploration Program
The Corporation has planned a surface exploration program of approximately 12,000m surface diamond
drilling budgeted to cost $3,200,000 primarily to further explore potentially mineralized structural targets in
the immediate vicinity of the Bermingham deposit. The bulk of the surface exploration will be conducted in
the summer with results expected to be released no later than the fourth quarter of 2017.
The Corporation is also planning an underground exploration program at the Bermingham prospect.
Subject to permitting, an exploration decline will be driven 600m with approximately 5,000m of infill and
confirmation drilling for a total estimated cost of $8.7 million, including underground equipment rebuilds
and purchase. The timeline and costs incorporate management’s estimates for the necessary permits
required to carry out the development of the Bermingham exploration decline; permitting uncertainty and
delays may cause timelines and costs to increase.
2016 Exploration Program - Bermingham
The Corporation completed an exploration program totalling 50 holes for 17,371m of surface diamond
drilling to follow up on prior identification of high grade silver results at the Bermingham prospect. A total
of $3,400,000 was invested in an expanded exploration program, the majority funded by way of a $3
million flow-through financing in December 2015. The Corporation expended an additional $300,000 to
gather geotechnical and hydrogeological information, as well as undertake a preliminary metallurgical
program to test the Bermingham mineralization. Interim drill results on 18 holes were released on
September 13, 2016 (see September 13, 2016 press release entitled "Alexco Confirms, Expands High
Grade Silver Zone at Bermingham Deposit; Drilling Continues”) with the final results of the final 32 of 50
drill holes released on December 8, 2016 (see December 8, 2016 press release entitled "Alexco expands
Bermingham Silver Deposit, Initial Tests Confirm Excellent Metallurgical Performance”).
Together with the high grade intercepts from 2014 and 2015, the 2016 drilling extended the high grade
silver-bearing Bear Zone over at least 270m of plunge length and a plunge width of approximately 40m.
The zone averages approximately 4.0m true width, is locally more than 7.0m thick, and remains open to
depth and northeasterly along strike of the productive structure(s). Potential linkage to the Hector-
Calumet mine remains to be resolved.
Mineral Resource Estimate – Bermingham Deposit
On January 3, 2017 Alexco announced updated mineral resource estimates for the Bermingham deposit.
The mineral resource is estimated at 858,000 tonnes indicated grading 628 g/t silver, 2.40% lead and
1.65% zinc and 0.13 g/t gold plus another 220,000 tonnes inferred grading 770 g/t silver, 2.13% lead,
2.21% zinc and 0.15 g/t gold. The technical support for this resource has been incorporated into the
March 27, 2017 PEA.
Keno Hill Development Update
In October 2016 the Corporation completed installation of the underground portal and infrastructure at the
Flame & Moth deposit and drove the first 20 meters of the production ramp. This will allow resumption of
development activities to begin at full scale in the future. This ramp will ultimately be driven to the upper
production levels of the Flame & Moth silver deposit.
- 9 -
The Corporation also completed a mill maintenance program in 2016. A mechanical assessment and
maintenance of equipment was part of the routine process of maintaining the crushing and milling
equipment assets in a condition where resumption of processing operations could be completed.
Permitting Update
On February 17, 2016 the Corporation was granted the amended Quartz Mining Licence (“QML”) for the
Flame & Moth deposit. The QML allows development of the Flame and Moth deposit. The only remaining
permit required to commence mining and milling 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
Corporation expects a Water Licence amendment hearing to occur in the second quarter of 2017.
The Corporation plans to drive an underground exploration decline 600 meters at the Bermingham
deposit, which will require an amendment to its Class IV permit. This is expected to be received by the
end of the second quarter of 2017 although delays can occur in the Yukon permitting process as a result
of changing laws, regulations and policies in the environmental assessment process.
As part of the QML amendment for the Flame & Moth application, the Corporation 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 required that Alexco increase its
posted financial security from $4,189,000 to $6,328,000. On July 26, 2016 the Corporation posted the
additional $2.1 million in cash for security. The $6,328,000 posted is included in the Corporation’s non-
current restricted cash and deposits.
Mine Site Care and Maintenance
Mine site care and maintenance costs for 2016 totaled $1,954,000 compared to $2,351,000 in 2015. The
decrease in costs is mainly due to lower depreciation charges in 2016. Included in mine site care and
maintenance costs is depreciation expense of $1,602,000 for 2016 compared to $1,746,000 for 2015.
General and Administrative Expenses
Corporate:
Corporate general and administrative expenses for 2016 totaled $4,475,000 compared to $4,630,000 for
2015. The decrease in 2016 relates to one-time charges in 2015 related to severance costs and a write-
off of receivables for $540,000, partially offset with an increase from share-based compensation.
Environmental Services:
AEG general and administrative expenses reflect overall utilization of the AEG workforce as well as
business development and administrative activity.
Environmental Services general and administrative expenses for 2016 totaled $3,039,000 compared to
$3,844,000 for 2015. The decrease in general and administrative expenses in 2016 compared to 2015 is
a result of higher personnel utilization to billable projects, as well as continued reduction of office
expenses. Furthermore, during the 2015 period, the Corporation evaluated certain trade receivables, and
recorded a one-time write-off for $103,000.
FOURTH QUARTER
For the quarter ended December 31, 2016 Alexco reported a net loss of $1,761,000 on total revenues of
$2,939,000 compared to a net loss of $1,502,000 on total revenues of $4,128,000 for the same period in
- 10 -
2015. The difference between the 2016 period and 2015 period is due to a decrease in revaluation of
investments and a deferred tax adjustment related to the flow through financing.
AEG recognized revenues of $2,939,000 in the fourth quarter of 2016 for a gross profit of $881,000 and a
gross margin of 30.0% compared to 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%. The increase in gross margin compared to the prior period is
attributed to AEG utilizing internal personnel for environmental services on the Keno Hill Reclamation
Plan. In late 2016, AEG completed the expansion of the IWTP at the Gold King Project and continued
operations. In 2015, the Globeville Smelter Project experienced unanticipated costs associated with
concluding the project resulting in lower margins.
Mine site care and maintenance costs in fourth quarter of 2016 totaled $480,000 compared to $599,000
for the same period in 2015. The decrease in costs is mainly due to a lower depreciation charge in the
2016 period. Included in mine site care and maintenance costs is depreciation expense of $380,000 in
fourth quarter of 2016 compared to $431,000 in same period of 2015.
Corporate general and administrative expenses in the fourth quarter of 2016 totaled $1,264,000
compared to $935,000 in the fourth quarter of 2015. The increase in the 2016 period relates to an
increase in share-based compensation to employees and management.
Environmental Services general and administrative expenses in the fourth quarter of 2016 totaled
$668,000 compared to $976,000 in the fourth quarter of 2015. The decrease in general and
administrative expenses compared to the same period of 2015 is a result of higher personnel utilization to
billable projects, as well as continued reduction of office expenses.
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
Gross
Profit
Net Income
(Loss)
Basic Income
(Loss) per
Share
Diluted
Income
(Loss) per
Share
Expenditures on
Mineral
Properties
2015-Q1
2015-Q2
2015-Q3
2015-Q4
2015 Total
2016-Q1
2016-Q2
2016-Q3
2016-Q4
2016 Total YTD
4,516
2,610
3,408
4,128
14,662
2,348
2,831
3,243
2,939
11,361
1,192
579
869
611
3,251
565
710
710
881
2,866
(492)
(1,866)
(1,649)
(1,502)
(5,509)
(2,110)
152
(640)
(1,761)
(4,359)
$(0.01)
$(0.03)
$(0.02)
$(0.02)
$(0.08)
$(0.03)
$0.00
$(0.01)
$(0.02)
$(0.05)
$(0.01)
$(0.03)
$(0.02)
$(0.02)
$(0.08)
$(0.03)
$0.00
$(0.01)
$(0.02)
$(0.05)
Note: Sum of all the quarters may not add up to the yearly totals due to rounding
303
756
865
787
2,711
255
1,084
3,040
987
5,366
The net losses for 2015 and the first quarter of 2016 reflect site based expenditures along with general
and administrative expenses partially offset by AEG profits. The net income in the second quarter of 2016
reflects the fair value adjustment gain from the Corporation’s available-for-sale and held-for-trading
investments. The net losses for the third and fourth quarters of 2016 reflect the continued expenditures to
site based and general and administrative expenses. These expenses were partially offset with AEG
profits. In the fourth quarter of 2016, there was a fair value adjustment loss from the Corporation’s
available-for-sale and held-for-trading investments.
- 11 -
The mineral property expenditures in 2015 reflect the drill program at the Bermingham deposit and the re-
engineering work being done on the Flame and Moth deposit. The 2016 mineral property expenditures
reflect the work on the 2016 drill program at Bermingham and continued re-engineering work being done
on the Flame and Moth deposit. Furthermore, the mineral property expenditures in 2015 and 2016
reflected the ongoing costs of modeling, data logging and resource estimation work for Bermingham and
the Flame and Moth deposits.
Liquidity, Cash Flows and Capital Resources
Liquidity
At December 31, 2016 the Corporation had cash and cash equivalents of $20,382,000, and net working
capital of $23,443,000 compared to cash and cash equivalents of $8,163,000 and net working capital of
$12,602,000 at December 31, 2015. The Corporation faces no known liquidity issues in any of its financial
assets. In addition, the Corporation’s restricted cash and deposits at December 31, 2016 totalled
$6,948,000 compared to $4,871,000 at December 31, 2015.
With its cash resources and net working capital on hand at December 31, 2016, and assuming no re-start
of full scale 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 improvement in the silver market and the efficiencies identified by on-going engineering studies
related to future mine plan options. A re-start of underground production operations will require additional
capital investment, in excess of the capital resources currently on hand. 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. All sources of finance reasonably available will be considered to fund future requirements,
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
Cash flow used in operating activities
Cash flow (used in)/from from investing
activities
Cash flow provided by financing activities
Three Months Ended
December 31
2015
2016
Year Ended
December 31
2015
2016
$ (1,156)
(1,942)
$ (905)
(496)
$ (4,608)
(1,684)
$ (4,391)
300
465
3,615
18,511
3,615
$ (2,633)
$ (2,214)
$ 12,219
$ (476)
Cash outflow in operating activities was $1,156,000 for the fourth quarter of 2016 versus cash outflow of
$905,000 for the fourth quarter of 2015. The majority of cash outflow from operating activities during the
2016 period were expended on environmental services, site based operations and general and
- 12 -
administrative costs. The decrease in cash consumed in fourth quarter of 2015 when compared to 2016
mainly relates to cash inflows on the Gold King Mine project in the fourth quarter of 2015 related to the
expenditures of the IWTP that occurred earlier in previous quarters. Cash outflow from investing activities
was $1,942,000 for the fourth quarter of 2016 versus a cash outflow of $1,684,000 for the fourth quarter
of 2015. The increase in cash outflow during the fourth quarter of 2016 related primarily to the 2016
surface exploration drill program at the Bermingham property and portal development at the Flame and
Moth property. Cash inflow from financing activities was $465,000 for the fourth quarter of 2016 versus
$3,615,000 for the fourth quarter of 2015. The 2016 fourth quarter cash inflow relates to warrant and
stock option exercises while the 2015 fourth quarter cash inflow relates to an equity financing completed
during the quarter.
Cash used in operating activities was $4,608,000 for the 2016 versus $4,391,000 for 2015. The majority
of cash consumed in operating activities during 2016 and 2015 were expended on environmental
services, site based operations and general and administrative costs. Cash outflow from investing
activities was $1,684,000 for 2016 versus an inflow of $300,000 for 2015. The cash outflow for 2016
related primarily to expenditures on the 2016 surface exploration drill program at the Bermingham
property and portal development at the Flame and Moth property, offset by proceeds from the sale of
investments in marketable securities and the release of restricted funds while the cash inflow during 2015
relates to release of restricted funds, which were partially offset by the 2015 surface drill program. Cash
inflow from financing activities was $18,511,000 for 2016 compared to $3,615,000 for 2015. The cash
inflow for 2016 relates to a non-brokered equity financing, along with warrant and stock option exercises
while the 2015 inflow relates to an equity financing.
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 SPA 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 SPA
anticipated that the initial silver deliveries would come from the Bellekeno property. Under the SSPA, the
Corporation received up-front deposit payments from Silver Wheaton totaling US$50,000,000, 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
reduced silver price environment.
On March 29, 2017 the Corporation and Silver Wheaton agreed to amend the SPA, originally dated
October 2, 2008, such that Silver Wheaton will continue to receive 25% of the life of mine payable silver
from the Keno Hill Silver District with the production payment (originally US$3.90 per ounce) to be based
on monthly silver head grade and monthly silver price. The actual monthly production payment from Silver
Wheaton will fall within a defined grade and pricing range governed by an upper ceiling grade of $1,400
grams per tonne (“g/t”) and a price of US$25 per ounce of silver and a floor grade of 600 g/t and a price of
US$13 per ounce of silver with the production payment being calculated as a percentage of the average
silver spot price. Additional terms of the amendment include the date for completion of the 400 tonne per
day mine and mill completion test date has been extended to December 31, 2019. If the completion test is
not satisfied by December 31, 2019, the Corporation will be required to pay a capacity related refund to
Silver Wheaton in the maximum amount of US$8,788,000, which can be further reduced mill throughput
exceeding 322 tonnes per day prior to December 31, 2019.
- 13 -
In consideration of the foregoing amendments, the Corporation has agreed, subject to TSX and NYSE-
MKT approval, to issue 3,000,000 shares to Silver Wheaton with an approximate fair value of
US$4,934,948.
On May 17, 2016, the Corporation completed a non-brokered private placement financing and issued
10,839,972 Units for aggregate gross proceeds of $13,008,000. Each Unit consisted of one common
share and one-half of one non-transferable common share purchase warrant, each Warrant entitling the
holder to purchase one additional common share at a price of $1.75. In connection with the financing, the
Corporation paid a cash commission equal to 5% of the gross proceeds from the sale. Sprott Private
Wealth LP and certain of its affiliates also received an aggregate of 225,300 warrants. Each warrant is
exercisable for one common share at a price of $1.49. Of the gross proceeds, $10,654,000 has been
attributed to issued common shares and the remaining $2,354,000 has been attributed to issued
warrants. The warrants include an acceleration clause whereby if on or after September 18, 2016 the
closing price of the Alexco shares is higher than $2.50 for a period of ten consecutive trading days (with
the last day of such period being the Acceleration Trigger Date), the expiry date of the warrants may be
accelerated to be ten days after the Acceleration Trigger Date.
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. As of December 31, 2016 the
Corporation had spent all of the $3,001,125 of the flow-through funds raised.
On July 29, 2016 the Corporation filed a short form base shelf prospectus with the securities commissions
in each of the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba and Ontario and a
corresponding amendment to its registration statement on Form F-10 (Registration Statement) with the
United States Securities and Exchange Commission (SEC) under the U.S./Canada Multijurisdictional
Disclosure System, which would allow the Corporation to make offerings of common shares, warrants,
subscription receipts and/or units up to an aggregate total of $50,000,000 during the 25-month period
following July 29, 2016.
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)
$ 811
276
$ 315
96
$ 464
120
$ 32
60
$ Nil
Nil
6,056
36
698
302
5,020
Total
$ 7,143
$ 447
$ 1,282
$ 394
$ 5,020
- 14 -
During the year ended December 31, 2016 4,364,575 warrants were exercised for proceeds of
$6,208,000. A further 422,068 warrants were exercised subsequent to year end for proceeds of
$389,000. The warrants outstanding as of the date of this MD&A are summarized as follows:
Expiry Date
December 8, 2017
May 17, 2018
May 17, 2018
Exercise Price
$0.53
$1.75
$1.49
Balance at March 29, 2017
36,810
4,872,820
60,900
$1.74
4,970,530
Share Data
As at the date of this MD&A, the Corporation has 93,676,935 common shares issued and outstanding. In
addition, there are outstanding incentive share options for a further 7,237,496 common shares, restricted
share units that can be settled by way of shares issued from treasury for a further 466,277 common
shares, and purchase warrants for a further 4,970,530.
Use of Financial Instruments
All of Alexco’s cash and cash equivalents at December 31, 2016 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 investment in marketable securities.
At December 31, 2016, a total of $6,948,000 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 $534,000
(US$398,000) represents security provided 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 the term deposits held at
December 31, 2016 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
investments in marketable securities are marked to fair value at each balance sheet date. The fair values
of all of Alexco’s financial instruments measured at December 31, 2016, other than the marketable
securities that are included in investments, constitute Level 2 measurements within the fair value
hierarchy defined under IFRS. The fair value of the investments in marketable securities constitute as
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.
- 15 -
Alexco’s accounts and other receivables at December 31, 2016 total $2,938,000, 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, 2016, AEG trade receivables are recorded net of a recoverability provision of $nil.
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
2015
2016
Year Ended Dec 31
2015
2016
Salaries and other short-term benefits
Share-based compensation
$ 456
227
$ 452
99
$ 1,765
1,079
$ 1,831
543
$ 683
$ 551
$ 2,844
$ 2,374
Key management includes the Corporation’s Board of Directors and members of senior management.
On June 28, 2016, Elaine Sanders joined the Board of Directors of the Corporation and now sits on the
Audit Committee and Nominating and Corporate Governance Committee.
Critical Accounting Estimates and Judgments
Our significant accounting policies as well as significant judgment and estimates are presented in Notes 3
and 5 of Alexco’s December 31, 2016 annual consolidated financial statements. 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. Actual outcomes could differ from these estimates. The
consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of
such estimates are pervasive throughout the consolidated financial statements, and may require
accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized
- 16 -
in the period in which an estimate is revised and future periods if the revision affects both current and
future periods.
Significant judgments about the future and other sources of estimation uncertainty at the financial position
reporting date, including those that could result in a material adjustment to the carrying amounts of assets
and liabilities, in the event that actual results differ from assumptions made include, but are not limited to,
the following:
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
the
Corporation’s financial statements, including evaluating the recoverability of the carrying
amount of its non-current non-financial assets and estimating amounts of future taxable
income in determining whether to record a deferred tax asset.
in many determinations required
to prepare
Impairment and Impairment Reversals 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 and impairment reversals when events or changes in
circumstances indicate that the carrying amounts of the related asset may not be
recoverable or previous impairment losses may become 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.
Management has assessed indicators of impairment and impairment reversals on the
Corporation’s non-current non-financial assets and has concluded that no impairment or
impairment reversal indicators exists as of December 31, 2016.
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.
Changes In and Initial Adoption of Accounting Standards and Policies
The Corporation has not applied the following revised or new IFRS that have been issued but were not
yet effective at December 31, 2016. These accounting standards are not expected to have a significant
effect on the Corporation’s accounting policies or financial statements:
- 17 -
IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of
financial assets and financial liabilities. It replaces the guidance in IAS 39, Financial
Instruments: Recognition and Measurement that relate to the classification and measurement
of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and
establishes three primary measurement categories for financial assets: amortized cost, fair
value through other comprehensive income and fair value through profit or loss. The basis of
classification depends on the entity’s business model for managing its financial instruments
and the contractual cash flow characteristics of the instrument. For financial liabilities, the
standard retains most of the IAS 39 requirements. The main change for liabilities is that, in
cases where the fair value option is taken for financial liabilities, the part of a fair value
change due to an entity’s own credit risk is recorded in other comprehensive income (loss)
rather than in net earnings. IFRS 9 is effective for annual periods beginning on or after
January 1, 2018, with early adoption permitted. The Corporation is currently evaluating the
impact the standard is expected to have on its consolidated financial statements.
IFRS 15, Revenue from Contracts with Customers deals with revenue recognition and
establishes principles for reporting useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s
contracts with customers. Revenue is recognized when a customer obtains control of a good
or service and thus has the ability to direct the use and obtain the benefits from the good or
service. The standard replaces IAS 18, Revenue and IAS 11, Construction contracts and
related interpretations. The standard is effective for annual periods beginning on or after
January 1, 2018, with early adoption permitted. The Corporation 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 Corporation is currently evaluating the impact the final
standard is expected to have on its consolidated financial statements.
There are no other IFRS’s or International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations that are not yet effective that are expected to have a material impact
on the Corporation.
Internal Control Over Disclosure Controls and Procedures and 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
- 18 -
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)
(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, 2016, 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, 2016.
The effectiveness of Alexco’s internal control over financial reporting as at December 31, 2016 has been
audited by PricewaterhouseCoopers LLP, Alexco’s independent auditors.
There has been no change in Alexco’s internal control over financial reporting during Alexco’s fiscal year
ended December 31, 2016 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, 2016.
- 19 -
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
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.
- 20 -
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
The March 29, 2017 Amended SPA with Silver Wheaton, requires that to satisfy the completion test under
the Amended SPA, 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, 2019. If the completion test is
not satisfied by December 31, 2019, the outcome could materially adversely affect the Corporation as it
would be required to pay a capacity related refund to Silver Wheaton in the maximum amount of
US$8,788,000, which can be further reduced by mill throughput exceeding 322 tonnes per day prior to
December 31, 2019. 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 Amended SPA.
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
- 21 -
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
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. In 2011 and 2012 Alexco
experienced employee recruitment and retention challenges, particularly with respect to mill operators.
There can be no assurance that Alexco won’t experience such challenges. 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.
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.
- 22 -
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.
Three of AEG’s customers accounted for 28.3%, 26.8% and 15.4%, respectively, of environmental
services revenues in the 2016 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.
- 23 -
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. These risks may have increased after the Supreme Court of Canada decision of
June 26, 2014 in Tsilhqot'in Nation v. British Columbia.
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.
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.
- 24 -
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
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.
- 25 -
Summary of Resources
The following table sets forth the estimated resources for the Corporation’s mineral properties:
Category1,2,8
Property
Tonnes
Indicated
Inferred
Bellekeno Deposit3&4
Lucky Queen Deposit3&5
Flame & Moth Deposit3&5
Onek3&5
Bermingham3&5
Total Indicated – Sub-Surface
Elsa Tailings6
Total Indicated – All Deposits
Bellekeno Deposit3&4
Lucky Queen Deposit3&5
Flame & Moth Deposit3&5
Onek3&5
Bermingham3&5
Total Inferred
Historical
Resources
Silver King7
- Proven, probable and indicated
- Inferred
262,000
132,300
1,679,000
700,200
858,000
3,631,500
2,490,000
6,121,500
243,000
257,900
365,200
285,100
220,000
1,371,000
99,000
22,500
Ag
(g/t)
585
1,167
498
191
628
500
119
345
428
473
356
118
770
408
1,354
1,456
Au
(g/t)
n/a
0.2
0.4
0.6
0.1
0.3
0.1
0.3
n/a
0.1
0.3
0.4
0.2
0.2
n/a
n/a
Pb
(%)
3.5%
2.4%
1.9%
1.2%
2.4%
2.0%
1.0%
1.6%
4.1%
1.0%
0.5%
1.2%
2.1%
1.6%
1.6%
0.1%
Zn
(%)
5.3%
1.6%
5.3%
11.9%
1.7%
5.6%
0.7%
3.6%
5.1%
0.8%
4.3%
8.3%
2.2%
4.3%
0.1%
n/a
Contained Ag
(oz)
4,927,000
4,964,000
26,883,000
4,300,000
17,324,000
58,398,000
9,527,000
67,925,000
3,344,000
3,922,000
4,180,000
1,082,000
5,446,000
17,974,000
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, Flame & Moth and Bermingham are incorporated into the
current mine plan outlined in the technical report filed on SEDAR dated March 29, 2017 entitled “Preliminary
Economic Assessment of the Keno Hill Silver District Project, Yukon, Canada”. The mineral resource estimates
for the project are supported by disclosure in the news release dated March 29, 2017 entitled “Alexco and Silver
Wheaton Amend Silver Purchase Agreement and Alexco Announces Positive Preliminary Economic
Assessment for Expanded Silver Production at Keno Hill”.
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, Flame & Moth, Onek and Bermingham deposits have an effective
date of January 3, 2017.
6. 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”.
7. Historical resources for Silver King are supported by disclosure in the news release dated March 29, 2017
entitled “Alexco and Silver Wheaton Amend Silver Purchase Agreement and Alexco Announces Positive
Preliminary Economic Assessment for Expanded Silver Production at Keno Hill”.
8. 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.
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
- 26 -
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 for the capacity related refund under the silver purchase agreement with Silver
Wheaton will be available on reasonable terms; (2) additional financing needed for further exploration and
development work on the Corporation's properties will be available on reasonable terms; (3) the proposed
development of its mineral projects will be viable operationally and economically and proceed as planned;
(4) 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, 2016; (5) 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 PEA (as defined under "Description of the Business – KHSD
Property"); (6) the actual nature, size and grade of its mineral resources are materially consistent with the
resource estimates reported in the supporting technical reports; (7) labor and other industry services will
be available to the Corporation at prices consistent with internal estimates; (8) the continuances of
existing and, in certain circumstances, proposed tax and royalty regimes; and (9) 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”.
- 27 -
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.
- 28 -
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 Canadian generally accepted accounting principles. 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 acquisitions and dispositions of Alexco’s assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with Canadian generally accepted accounting 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,
2016, 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, 2016.
“Clynton R. Nauman”
(signed)
Clynton R. Nauman
President and Chief Executive Officer
March 29, 2017
“Michael Clark”
(signed)
Michael Clark
Chief Financial Officer
March 29, 2017
Independent Auditor’s Report
To the Shareholders of Alexco Resource Corp.
We have completed an integrated audit of Alexco Resource Corp.’s (the “Company”) 2016 consolidated
financial statements and its internal control over financial reporting as at December 31, 2016. Our
opinions, based on our audits, are presented below.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Alexco Resource Corp., which
comprise the consolidated balance sheets as at December 31, 2016 and December 31, 2015 and the
consolidated statements of loss and comprehensive loss, cash flows and shareholders’ equity for the years
then ended, 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 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 as at December 31, 2016 and December 31, 2015 and for the years then
ended 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. In making those risk assessments, the auditor considers
internal control relevant to the company’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances. 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 on the consolidated financial statements.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“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, 2016 and December 31, 2015 and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
Report on internal control over financial reporting
We have also audited Alexco Resource Corp.’s internal control over financial reporting as at December 31,
2016, based on criteria established in Internal Control - Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management’s responsibility for internal control over financial reporting
Management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Controls over Financial Reporting.
Auditor’s responsibility
Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We conducted our audit of internal control over financial reporting in accordance
with 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 effective
internal control over financial reporting was maintained in all material respects.
An audit of internal control over financial reporting includes obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control, based on the assessed risk, and performing
such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our audit opinion on the Company’s internal
control over financial reporting.
Definition of internal control over financial reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal
control over financial reporting includes those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Opinion
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as at December 31, 2016, based on criteria established in Internal Control - Integrated
Framework (2013) issued by COSO.
(signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
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
Investments
Inventories
Prepaid expenses and other
Non-Current Assets
Restricted cash and deposits
Inventories
Property, plant and equipment
Mineral properties
Intangible assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities
Income taxes payable
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
SUBSEQUENT EVENTS
APPROVED ON BEHALF OF
THE BOARD OF DIRECTORS
Note
2016
2015
$
20,382
2,938
$
8,163
2,488
-
1,691
151
401
25,563
6,948
5,110
13,967
65,849
195
4,089
386
82
407
15,615
4,871
5,165
16,092
60,483
316
$
117,632
$
102,542
$
1,830
2
$
2,143
-
121
167
-
2,120
156
170
18,118
4,955
1,440
116
447
307
3,013
211
272
18,118
5,111
784
26,959
27,509
90,673
75,033
$
117,632
$
102,542
6
7
8
9
10
8
10
11
12
13
19
14
15
19
25
26
“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)
Note
2016
2015
Revenues
Environmental Services Revenue
Cost of Sales
Environmental Services Costs
Total gross profit
General and administrative expenses
Mine site care and maintenance
Operating Loss
Other Income (Expenses)
Other income
Gain (loss) on investments
Foreign exchange (loss) gain
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 ($39), $456
Gain (loss) on available-for-sale investments, net of tax
Recycle of (gain) loss on available-for-sale to income, net of tax
Other Comprehensive Income (Loss)
17
18
19
19
11,361
14,662
8,495
2,866
7,514
1,954
9,468
11,411
3,251
8,474
2,351
10,825
(6,602)
(7,574)
30
2,742
(137)
59
(155)
1,054
(3,967)
(6,616)
2
390
(4,359)
24
1,530
(1,306)
248
(24)
(1,083)
(5,509)
(472)
(211)
155
(528)
Total Comprehensive Loss
$
(4,111)
$
(6,037)
Basic and diluted loss per common share
$
(0.05)
$
(0.08)
Weighted average number of common shares outstanding
86,475,882
70,092,259
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
Items not affecting cash from operations:
Deferred revenue
Environmental services contract loss provision
Depreciation of property, plant and equipment
Amortization of intangible assets
Share-based compensation expense
Finance costs, foreign exchange and other
Realized gain on disposition of investments
Unrealized (gain) loss on investments
Write-off of receivables
Deferred income tax provision (recovery)
Changes in non-cash working capital balances related to operations
(Increase) decrease in accounts and other receivables
(Increase) decrease in inventories
Decrease in prepaid expenses and other current assets
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
Proceeds from disposal of available for-sale-investments
Release of security from remediation services agreement
(Increase) decrease in restricted cash for decommissioning obligations
Cash Flows from Financing Activities
Proceeds from issuance of shares
Issuance costs
Proceeds from exercise of warrants
Proceeds from exercise of stock options
Increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
2016
2015
$
(4,359)
$
(5,509)
(382)
(49)
1,964
112
1,095
72
(1,530)
(1,212)
-
390
(450)
(15)
6
(252)
2
(1,098)
64
2,168
78
645
(1,142)
-
155
643
(1,083)
821
(8)
97
(199)
(23)
(4,608)
(4,391)
(264)
(5,017)
(63)
1,778
3,873
(1,991)
(264)
(1,769)
(44)
-
1,685
692
(1,684)
300
13,008
(936)
6,208
231
18,511
12,219
8,163
20,382
3,962
(347)
-
-
3,615
(476)
8,639
8,163
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, 2016 AND 2015
(expressed in thousands of Canadian dollars)
Common Shares
Number of
Shares
Amount W arrants
Share
Options
and RSU's
Contributed
Surplus
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
T otal
Balance ‐ December 31, 2015
77,226,026
$
168,585
$
1,405
$
7,378
$
12,063
$
(113,686)
$
(712)
$
75,033
Net loss
Other comprehensive income
Share-based compensation
expense recognized
Equity offering, net of issuance
costs
Exercise of share options
Exercise of warrants
-
-
-
10,839,972
316,669
4,364,575
Share options forfeited or expired
-
Release of RSU settlement shares
202,952
-
-
-
9,765
341
7,796
-
465
-
-
-
2,317
-
(1,588)
-
-
-
-
1,231
-
(111)
-
(817)
(465)
-
-
-
-
-
-
817
-
(4,359)
-
-
-
-
-
-
-
-
248
-
-
-
-
-
-
(4,359)
248
1,231
12,082
230
6,208
-
-
Balance ‐ December 31, 2016
92,950,194
$
186,952
$
2,134
$
7,216
$
12,880
$
(118,045)
$
(464)
$
90,673
Balance ‐ December 31, 2014
69,335,569
$
164,708
$
1,342
$
8,519
$
10,829
$
(108,177)
$
(184)
$
77,037
Net loss
Other comprehensive loss
Equity offering, net of issuance
costs (note 17)
Share-based compensation
expense recognized
Share options forfeited or expired
-
-
-
-
-
-
7,662,500
3,257
63
-
-
-
-
-
-
-
-
-
-
713
-
-
-
-
(1,234)
1,234
(620)
-
(5,509)
-
-
-
-
-
-
(528)
-
-
-
-
(5,509)
(528)
3,320
713
-
-
Release of RSU settlement shares
227,957
620
Balance ‐ December 31, 2015
77,226,026
$
168,585
$
1,405
$
7,378
$
12,063
$
(113,686)
$
(712)
$
75,033
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(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 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 29, 2017.
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, 2016 AND 2015
(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, 2016 AND 2015
(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, 2016 AND 2015
(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, 2016 AND 2015
(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, 2016 AND 2015
(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, 2016 AND 2015
(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, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
4.
New and Revised Accounting Standards Adopted
A number of new standards and amendments to standards and interpretations that have been issued but
are not yet effective. None of these are expected to have a significant effect on the consolidated financial
statements except the following:
IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial
assets and financial liabilities. It replaces the guidance in IAS 39, Financial Instruments: Recognition and
Measurement that relate to the classification and measurement of financial instruments. IFRS 9 retains but
simplifies the mixed measurement model and establishes three primary measurement categories for
financial assets: amortized cost, fair value through other comprehensive income and fair value through profit
or loss. The basis of classification depends on the entity’s business model for managing its financial
instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the
standard retains most of the IAS 39 requirements. The main change for liabilities is that, in cases where the
fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit
risk is recorded in other comprehensive income (loss) rather than in net earnings. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018, with early adoption permitted. The Corporation is
currently evaluating the impact the standard is expected to have on its consolidated financial statements.
IFRS 15, Revenue from Contracts with Customers deals with revenue recognition and establishes principles
for reporting useful information to users of financial statements about the nature, amount, timing and
uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is
recognized when a customer obtains control of a good or service and thus has the ability to direct the use
and obtain the benefits from the good or service. The standard replaces IAS 18, Revenue and IAS 11,
Construction contracts and related interpretations. The standard is effective for annual periods beginning on
or after January 1, 2018, with early adoption permitted. The Corporation 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 Corporation is currently evaluating the impact the final standard is expected to have on
its consolidated financial statements.
There are no other IFRS’s or International Financial Reporting Interpretations Committee (“IFRIC”)
interpretations that are not yet effective that are expected to have a material impact on the Corporation.
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.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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 and estimating amounts
of future taxable income in determining whether to record a deferred tax asset.
Impairment and Impairment Reversals 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 and impairment reversals when events or changes in circumstances indicate
that the carrying amounts of the related asset may not be recoverable or previous impairment
losses may become 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.
Management has assessed indicators of impairment and impairment reversals on the Corporation’s
non-current non-financial assets and has concluded that no impairment or impairment reversal
indicators exists as of December 31, 2016.
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
December 31
2016
December 31
2015
$ 6,484
13,898
$ 5,350
2,813
$ 20,382
$ 8,163
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
7.
Accounts and Other Receivables
Trade receivables
Interest and other
Less: allowance for doubtful accounts
8.
Restricted Cash and Deposits
Security for remediation services agreement
Security for decommissioning obligations
Other
Restricted cash and deposits
Less: Current portion
December 31
2016
December 31
2015
$ 2,760
179
(1)
$ 2,888
175
(575)
$
2,938
$
2,488
December 31
2016
December 31
2015
$ 534
6,328
86
$ 4,543
4,189
228
6,948
-
8,960
4,089
$ 6,948
$ 4,871
Security for remediation services agreement of $534,000 (US$398,000) as at December 31, 2016 (2015 -
$4,543,000; US$3,283,000) 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. During the third quarter of 2016, $3,873,000 (US$2,885,000) was released from
the security, with the remaining balance to be held as a performance bond for a period up to 2 years.
Security for decommissioning obligations of $6,328,000 as at December 31, 2016 (2015 - $4,189,000)
represents security for costs that are 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 deposits. During the
third quarter of 2016, the security was increased from $4,200,000 to $6,300,000.
9.
Investments
Common shares held
Warrants held
December 31
2016
December 31
2015
$ 365
1,326
$ 386
-
$ 1,691
$ 386
As of December 31, 2016, the Corporation held 473,500 common shares of Golden Predator Mining Corp.
and 1,875,000 warrants exercisable for a price of $0.15 per share and 250,000 warrants exercisable for a
price of $0.21 per share.
During the year ended December 31, 2016, the Corporation realized a pre-tax gain on common shares held
of $1,530,000 (2015 – $nil) and a fair value measurement adjustment gain for the warrants, pre-tax of
$1,212,000 (2015 – $nil) to income. In addition, the Corporation has recorded a fair value adjustment gain
(loss) for the common shares, net of tax of $224,000 (2015 – ($211,000)) to other comprehensive income.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
10.
Inventories
Ore in stockpiles and mining supplies
Materials and supplies
December 31
2016
December 31
2015
$ 5,110
151
$ 5,165
82
$ 5,261
$ 5,247
As of December 31, 2016, the Corporation held ore in stockpiles and mining supplies of $5,110,000 (2015 -
$5,165,000). Due to the expected timing of production recommencing, the $151,000 related to materials and
supplies was classified as a non-current asset.
11.
Property, Plant and Equipment
Cost
December 31, 2014
Additions
Decommission
change in estimate
Disposals
December 31, 2015
Additions
Decommission
change in estimate
Disposals
Land and
Buildings
Camp,
Roads, and
Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
1,364
-
-
-
5,204
9
-
-
19,969
-
433
-
6,774
25
-
(92)
1,305
17
-
-
Total
34,616
51
433
(92)
$ 1,364
-
-
$ 5,213
-
-
$ 20,402
-
(106)
$ 6,707
-
-
$ 1,322
72
-
$ 35,008
72
(106)
-
-
-
(55)
-
(55)
December 31, 2016
$ 1,364
$ 5,213
$ 20,296
$ 6,652
$ 1,394
$ 34,919
Accumulated
Depreciation
Land and
Buildings
Camp, Roads,
and Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
December 31, 2014
Depreciation
Disposal
155
60
-
3,513
433
-
6,708
1,080
-
5,148
697
(86)
1,157
51
-
Total
16,681
2,321
(86)
December 31, 2015
Depreciation
Disposal
$ 215
60
-
$ 3,946
410
-
$ 7,788
1,040
-
$ 5,759
542
(47)
$ 1,208
31
-
$ 18,916
2,083
(47)
December 31, 2016
$ 275
$ 4,356
$ 8,828
$ 6,254
$ 1,239
$ 20,952
Net book Value
Land and
Buildings
Camp, Roads,
and Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
Total
December 31, 2015
$ 1,149
$ 1,267
$ 12,614
$ 948
$ 114
$ 16,092
December 31, 2016
$ 1,089
$ 857
$ 11,468
$ 398
$ 155
$ 13,967
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
During the year ended December 31, 2016, the Corporation recorded total depreciation of property, plant
and equipment of $2,083,000 (2015 – $2,321,000), of which $1,964,000 (2015 – $2,168,000) has been
charged to income with $246,000 (2015 – $279,000) recorded in environmental services cost of sales and
$1,718,000 (2015 – $1,889,000) reflected under general expenses and mine site care and maintenance.
Of the balance, $119,000 (2015 – $153,000) was related to property, plant and equipment used in
exploration activities and has been capitalized to mineral properties.
12.
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
Expenditures
Incurred
December 31
2016
$ 8,833
1,958
289
3,794
7,154
20,912
11,059
884
5,410
190
$ (29)
155
32
20
-
1,054
4,134
-
-
-
$ 8,804
2,113
321
3,814
7,154
21,966
15,193
884
5,410
190
$ 60,483
$ 5,366
$ 65,849
December 31
2014
Expenditures
Incurred
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
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Mining
Operations
Properties
Exploration and
Evaluation
Properties
$ 130,165
(118,927)
$ 11,238
$ 130,007
(118,927)
$ 11,080
$ 61,621
(7,010)
$ 54,611
$ 56,413
(7,010)
$ 49,403
Total
$ 191,786
(125,937)
$ 65,849
$ 186,420
(125,937)
$ 60,483
December 31, 2016
Cost
Accumulated depletion and write-downs
Net book value
December 31, 2015
Cost
Accumulated depletion and write-downs
Net book value
(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
environmental 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.
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, 2016 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
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 low silver
price environment.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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%.
13.
Accounts payable and accrued liabilities
Trade payables
Accrued liabilities and other
14.
Silver Streaming Interest
December 31
2016
December 31
2015
$ 814
1,016
$ 923
1,220
$ 1,830
$ 2,143
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 purchase agreement (the "SPA") with Silver Wheaton Corp. (“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 SPA anticipated that the initial silver deliveries
would come from the Bellekeno property. Under the SPA, the Corporation received up-front deposit
payments from Silver Wheaton totaling US$50,000,000, 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
SPA, 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 SPA in an
event of default by the Corporation. As of September 2013, Bellekeno mining operations were suspended in
light of a low silver price environment.
On March 29, 2017 the Corporation and Silver Wheaton amended the SPA (the “Amended SPA”), originally
dated October 2, 2008, such that Silver Wheaton will continue to receive 25% of the life of mine payable
silver from the Keno Hill Silver District with the production payment (originally US$3.90 per ounce) to be
based on monthly silver head grade and monthly silver price. The actual monthly production payment from
Silver Wheaton will fall within a defined grade and pricing range governed by an upper ceiling grade of
$1,400 grams per tonne (“g/t”) and a price of US$25 per ounce of silver and a floor grade of 600 g/t and a
price of US$13 per ounce of silver with the production payment being calculated as a percentage of the
average silver spot price. Additional terms of the amendment include the date for completion of the 400
tonne per day mine and mill completion test date has been extended to December 31, 2019. If the
completion test is not satisfied by December 31, 2019, the Corporation will be required to pay a capacity
related refund to Silver Wheaton in the maximum amount of US$8,788,000, which can be further reduced
mill throughput exceeding 322 tonnes per day prior to December 31, 2019.
In consideration of the foregoing amendments, the Corporation has agreed, subject to TSX and NYSE-MKT
approval, to issue 3,000,000 shares to Silver Wheaton with a fair value of US$4,934,948.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
15.
Decommissioning and Rehabilitation Provision
Balance – beginning of year
(Decrease) increase due to re-estimation
Accretion expense, included in finance costs
Balance – end of year
December 31
2016
December 31
2015
$ 5,111
$ 4,151
(220)
64
904
56
$ 4,955
$ 5,111
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 Corporation filed an updated
Reclamation and Closure Plan in the prior year for its current operations and the future development of the
Flame & Moth deposit. As a result, the Quartz Mining License required that Alexco increase its posted
security from $4.2 million to $6.3 million. On July 26, 2016 the Corporation posted the additional $2.1 million
in cash for security and are currently working with the Yukon Government to substitute a portion of the cash
posted in exchange for a pledge of assets. The $6.3 million currently posted is included in the Corporation’s
non-current restricted cash and deposits.
The total undiscounted amount of the estimated cash flows required to settle the decommissioning and
rehabilitation provision is estimated to be $6,056,000 (2015 – $6,178,000), which expenditures are expected
to be incurred substantially over the course of the next 18 years. In determining the carrying value of the
decommissioning and rehabilitation provision as at December 31, 2016, the Corporation has used a risk-free
discount rate of 2.10% (2015 – 1.87%) and an inflation rate of 2.0% (2015 – 2.0%) resulting in a discounted
amount of $4,955,000 (2015 – $5,111,000).
16.
Capital and Reserves
Shareholders’ Equity
The following share transactions took place in the year ended December 31, 2016:
1. On May 17, 2016, the Corporation closed a non-brokered private placement of units of the
Corporation ("Units") at a price of $1.20 per Unit pursuant to which the Corporation issued
10,839,972 Units for aggregate gross proceeds of $13,007,966. Each unit consisted of one
common share and one-half of one non-transferable warrant, each whole such warrant entitling the
holder to purchase one additional common share of the Corporation at a price of $1.75 per share
for a period of 24 months following the date of issuance. Share issuance costs were $1,132,000
including non-cash items of $196,000 related to the valuation of broker warrants.
2. 316,669 stock options were exercised for proceeds of $231,000.
3. 4,364,575 warrants were exercised for proceeds of $6,208,000.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
4. 202,952 common shares were issued from treasury on the vesting of restricted share units
(“RSUs”).
On July 29, 2016 the Corporation filed a short form base shelf prospectus with the securities commissions in
each of the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba and Ontario and a
corresponding amendment to its registration statement on Form F-10 (Registration Statement) with the
United States Securities and Exchange Commission (SEC) under the U.S./Canada Multijurisdictional
Disclosure System, which would allow the Corporation to make offerings of common shares, warrants,
subscription receipts and/or units up to an aggregate total of $50,000,000 during the 25-month period
following July 29, 2016.
The changes in warrants outstanding are summarized as follows:
Expiry Date
August 21, 2016
August 21, 2016
December 8, 2017
May 17, 2018
May 17, 2018
Exercise
Price
$1.40
$1.35
$0.53
$1.75
$1.49
$1.68
Balance at
December 31,
2015
3,507,500
455,975
368,062
-
-
Issued Exercised
Expired
-
-
-
5,419,986
225,300
3,287,850
455,975
44,700
411,650
164,400
219,650
-
-
-
-
Balance at
December 31,
2016
-
-
323,362
5,008,336
60,900
4,331,537
5,645,286
4,364,575
219,650
5,392,598
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
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 $58,000.
c) 94,624 shares were issued from treasury on the vesting of restricted share units.
Equity Incentive Plan
At the Corporations annual general meeting held June 9, 2016, the shareholders approved a new equity
incentive plan (the “New Plan”), under which the aggregate number of common shares issuable on the
exercise of stock options or issuance of RSUs cannot exceed 10% of the number of common shares issued
and outstanding. As at December 31, 2016, a total of 6,175,995 stock options and 452,951 RSUs were
outstanding under the New Plan and a total of 2,666,073 remain available for future grants.
Incentive Stock Options
Stock options under the “New Plan” have a maximum term of five years, vesting 25% upon granting and
25% each six months thereafter. The exercise price may not be less than the immediately preceding five day
volume weighted average price of the Corporation’s common shares traded through the facilities of the
exchange on which the Corporation’s common shares are listed.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
The changes in incentive share options outstanding are summarized as follows:
Balance – December 31, 2015
Stock options granted
Share based compensation expense
Options exercised
Options forfeited or expired
Balance – December 31, 2016
Balance – December 31, 2014
Stock options granted
Share based compensation expense
Options forfeited or expired
Balance – December 31, 2015
Weighted
average
exercise
price
Number of
shares issued
or issuable on
exercise
Amount
$3.20
$1.11
-
$0.72
$3.01
$2.48
$4.36
$0.60
-
$4.52
$3.20
4,444,497
$ 6,906
2,537,500
-
(316,669)
(489,333)
-
1,018
(111)
(817)
6,175,995
$ 6,996
3,619,830
$ 7,712
1,341,000
-
(516,333)
-
428
(1,234)
4,444,497
$ 6,906
During the year ended December 31, 2016, 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 0.53% (2015 – 0.58% per
annum, an expected life of options of 4 years (2015 – 4 years), an expected volatility of 70% based on
historical volatility (2015 – 67%), an expected forfeiture rate of 4% (2015 – 3%) and no expected dividends
(2015 – nil).
Incentive share options outstanding and exercisable at December 31, 2016 are summarized as follows:
Options Outstanding
Options Exercisable
Number of
Shares
Issuable on
Exercise
Average
Remaining
Life (Years)
Exercise Price
$0.60
$0.60
$0.84
$1.73
$1.78
$1.94
$3.45
$4.16
$6.92
$7.10
$8.13
35,000
1,133,499
1,667,499
600,000
150,000
584,500
635,997
354,000
451,000
561,000
3,500
6,175,995
2.96
3.12
4.12
4.44
4.49
2.12
0.22
1.06
0.07
1.03
1.35
2.62
Average
Exercise
Price
$ 0.60
$ 0.60
$ 0.84
$ 1.73
$ 1.78
$ 1.94
$ 3.45
$ 4.16
$ 6.92
$ 7.10
$ 8.13
Number of
Shares
Issuable on
Exercise
23,333
755,666
555,833
300,000
75,000
584,500
635,997
354,000
451,000
561,000
3,500
Average
Exercise
Price
$ 0.60
$ 0.60
$ 0.84
$ 1.73
$ 1.78
$ 1.94
$ 3.45
$ 4.16
$ 6.92
$ 7.10
$ 8.13
$ 2.48
4,299,829
$ 3.14
The weighted average share price at the date of exercise for options exercised during the year ended
December 31, 2016 was $1.59 (2015 - n/a).
During the year ended December 31, 2016, the Corporation recorded total share-based compensation
expense of $1,018,000 (2015 – $428,000) related to incentive share options, of which $136,000 (2015 –
$68,000) is recorded to mineral properties, $882,000 (2015 – $360,000) has been charged to income.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Subsequent to December 31, 2016, a further 1,603,500 incentive stock options have been granted with an
exercise price of $2.32, under the Corporation’s New Plan, another 82,999 have been exercised, another
451,000 have expired unexercised and 8,000 have been forfeited.
Restricted Share Units
RSUs vest one-third upon granting and one third on each of the first and second anniversary dates of the
grant date. As at December 31, 2016, a total of 452,951 RSUs were outstanding.
The changes in RSUs outstanding are summarized as follows:
Balance – December 31, 2015
RSUs granted
Share-based compensation expense recognized
RSUs vested
Balance – December 31, 2016
Number of
shares issued
or issuable
on vesting
Amount
360,904
$ 471
295,000
-
(202,952)
-
213
(464)
452,951
$ 220
Balance – December 31, 2014
507,193
$ 806
RSUs granted
RSUs forfeited
Share-based compensation expense recognized
RSUs vested
135,000
(53,332)
-
(227,957)
-
-
285
(620)
Balance – December 31, 2015
360,904
$ 471
During the year ended December 31, 2016 the Corporation granted a total of 295,000 RSUs (2015 –
135,000), with total grant-date fair value determined to be $268,000 (2015 - $81,000). Included in general
and administrative expenses for the year ended December 31, 2016 is share-based compensation expense
of $213,000 (2015 – $285,000) related to RSU awards.
The weighted average share price at the date of vesting for RSUs during the year ended December 31,
2016 was $1.04 (2015 - $0.65).
Subsequent to December 31, 2016, a total of 235,000 RSUs have been granted under the New Plan, with
one third vesting immediately and one third vesting on each of the first and second anniversary dates of the
grant date.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
17.
General and Administrative Expenses by Nature of Expense
The Corporation recorded general and administrative expenses for the years ended December 31, 2016 and
2015 as follows:
Corporate
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
Environmental Services
General and administrative expenses
Depreciation
Amortization of intangible assets
Business development and investor relations
Office, operating and non-operating overheads
Professional
Salaries and contractors
Share-based compensation
Write-off of receivables
Travel
2016
2015
$ 84
13
419
603
647
159
1,416
914
-
220
$ 83
13
424
857
589
146
1,388
461
543
126
$ 4,475
$ 4,630
2016
2015
$ 32
98
75
748
39
1,837
161
-
49
$ 60
64
111
890
90
2,239
161
100
129
$ 3,039
$ 3,844
Total General and Administrative Expenses
$ 7,514
$ 8,474
18.
Mine Site Care and Maintenance
The Corporation recorded mine site care and maintenance expenses for the years ended December 31,
2016 and2015 as follows:
Mine site care and maintenance
Depreciation
Office, operating and non-operating overheads
Other expenses
2016
2015
$ 1,602
274
78
$ 1,746
404
201
$ 1,954
$ 2,351
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
19.
Income Tax Expense
The major components of income tax expense for the years ended December 31, 2016and 2015 are as
follows:
(a)
The provision for income taxes consists of:
Current
US income tax
Total current tax provision/(recovery)
Deferred
Income tax
Total deferred tax provision/(recovery)
2016
2015
2
2
390
390
(24)
(24)
(1,083)
(1,083)
Total income tax provision/(recovery)
$ 392
$ (1,107)
(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% (2015 –
26%)
Non-deductible permanent differences
Differences in foreign exchange rates
Effect of difference in tax rates
Change in deferred tax asset not recognized
Flow-through share renunciation
Change in estimate
Other
2016
2015
$ (3,967)
(1,031)
$ (6,616)
(1,720)
(53)
(95)
(131)
1,424
594
(396)
80
1,423
48
(75)
(230)
561
-
83
226
613
Income tax provision (recovery)
$ 392
$ (1,107)
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(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
Other
Total
December 31, 2014
Credited (charged) to the
income statement
December 31, 2015
Charged to the income
statement
Charged to OCI
$ (12,115)
$ (126)
$ (2,321)
$ (338) $ (14,900)
7,403
-
956
(881)
7,478
$ (4,712)
$ (126)
$ (1,365)
$ (1,219)
$ (7,422)
(1,425)
-
-
-
(140)
-
(50)
119
(1,615)
119
December 31, 2016
$ (6,137)
$ (126)
$ (1,505)
$ (1,150)
$ (8,918)
Deferred tax assets
Mineral
Property
Interest
Loss
Carry
Forward
Property,
Plant and
Equipment
Decommissioning
and rehabilitation
provision
Other
Total
December 31, 2014
Credited (charged) to the
income statement
December 31, 2015
Credited (charged) to the
income statement
Credited to OCI
$ 5,221
$ 5,852
$ 432
$ 1,221
$ 763
$ 13,489
(4,629)
(3,095)
(116)
312
677
(6,851)
$ 592
$ 2,757
$ 316
$ 1,533
$ 1,440
$ 6,638
178
-
1,524
-
(173)
-
(48)
-
(561)
(80)
920
(80)
December 31, 2016
$ 770
$ 4,281
$ 143
$ 1,485
$ 799
$ 7,478
Net deferred tax liabilities
December 31, 2015
Charged to the income statement
Charged to OCI
December 31, 2016
$ (784)
(695)
39
$ (1,440)
(d)
At December 31, 2016, the Corporation has unrecognized tax attributes, noted below, that are
available to offset future taxable income. The Company is not recognizing the deferred tax asset
on these temporary differences because they relate to entities within the group that have a history
of losses and there is not yet adequately convincing evidence that these entities will generate
sufficient future taxable income to enable offset.
Tax loss carry forwards
Mineral property interest
Other
$ 38,285
25,499
3,839
$ 67,623
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
As at December 31, 2016, 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
2036
Canada
-
3,693
3,397
421
281
2,329
9,520
6,750
5,565
US
360
984
1,185
966
70
-
-
1,874
890
Total
360
4,677
4,582
1,387
351
2,329
9,520
8,624
6,455
$ 31,956
$ 6,329
$ 38,285
20.
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 through profit or loss
Warrants held-for-trading
Available-for-sale
Investment in marketable securities
Fair Value
Hierarchy
Classification
December 31
2016
December 31
2015
Level 2
$ 1,326
$ -
Level 1
$ 365
$ 1,691
$ 386
$ 386
During the year ended December 31, 2016, the fair value of warrants were estimated using the Black-
Scholes option pricing model, assuming a risk-free interest rate of 0.73% (2015 – nil) per annum, an
expected life of options of 1.19 years (2015 – nil), an expected volatility of 86.73% (2015 – nil) based on
historical volatility and no expected dividends (2015 – nil).
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 21.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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, if commercial production recommences at the Keno Hill Silver
District, the Corporation’s exposure to US dollar currency risk significantly increases as sales of concentrate
and the settlement of the Silver Wheaton streaming payments will be 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
2016
December 31
2015
$ 3,023
972
(391)
$ 4,560
589
(477)
$ 3,604
$ 4,672
Based on the above net exposure at December 31, 2016, a 10% depreciation or appreciation of the US
dollar against the Canadian dollar would result in an approximately $360,000 decrease or increase
respectively in both net and comprehensive loss (2015 – $467,000). The Corporation has not employed any
currency hedging programs during the current period.
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
2016
December 31
2015
$ 857
1,315
32
2,204
6,484
13,898
6,948
$ 992
872
5
1,869
5,350
2,813
8,960
$ 29,534
$ 18,992
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, 2016, trade
receivables are recorded net of a recoverability provision of $1,000 (2015 – $575,000).
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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 21. 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
2016
December 31
2015
$ 1,830
-
$ 2,143
-
$ 1,830
$ 2,143
21.
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.
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, 2016 remains fundamentally unchanged from the year ended December 31,
2015.
22.
Supplemental Cash Flow Information
Supplemental cash flow information with respect to the years ended December 31, 2016 and 2015 is
summarized as follows:
2016
2015
Operating Cash Flows Arising From Interest and Taxes
Interest received
$ 63
$ 103
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:
Mining operations properties
$ 136
$ 119
$ (220)
$ 68
$ 153
$ 904
$ 54
$ 17
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
23.
Segmented Information
The Corporation had two operating segments during the years ended December 31, 2016 and 2015, 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 care and maintenance of 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. An
operating segment is a component of an entity that engages in business activities, operating results are
reviewed with respect to resource allocation and for which discrete financial information is available. 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. Revenue from non-
Canadian customers of both operating segments was derived primarily from the United States.
As at and for the year ended
December 31, 2016
Environmental
Services
Mining Corporate and
Other
Total
Segment revenues
External customers
Canadian
Non-Canadian
Total revenues as reported
Cost of sales
Depreciation and amortization
Share-based compensation
Other G&A expenses
Mine site care and maintenance
Foreign exchange loss (gain)
Gain on investments
Other (income) loss
$ 6,754
4,607
11,361
$ -
-
-
$ -
-
-
$ 6,754
4,607
11,361
8,495
130
161
2,748
-
(2)
-
(1)
-
-
-
-
1,954
-
-
46
-
97
914
3,464
-
139
(2,742)
(75)
8,495
227
1,075
6,212
1,954
137
(2,742)
(30)
Segment loss before taxes
$ (170)
$ (2,000)
$ (1,797)
$ (3,967)(i)
Total assets
Total liabilities
$ 5,413
$ 1,455
$ 91,738
$ 24,735
$ 20,481
$ 769
$ 117,632
$ 26,959
As at and for the year ended
December 31, 2015
Environmental
Services
Mining Corporate and
Other
Total
Segment revenues
External customers
Canadian
Non-Canadian
Total revenues as reported
Cost of sales
Depreciation and amortization
Share-based compensation
Other G&A expenses
Mine site care and maintenance
Foreign exchange (gain) loss
Other income
$ 8,611
6,051
14,662
$ -
-
-
$ -
-
-
$ 8,611
6,051
14,662
11,411
124
161
3,454
-
(382)
-
-
-
-
42
2,351
10
56
-
97
462
4,135
-
(683)
40
11,411
221
623
7,631
2,351
(1,055)
96
Segment loss before taxes
$ (106)
$ (2,459)
$ (4,051)
$ (6,616)(i)
Total assets
Total liabilities
$ 9,467
$ 2,153
(i) Represents consolidation loss before taxes.
$ 85,968
$ 24,332
$ 7,107
$ 1,024
$ 102,542
$ 27,509
For the year ended December 31, 2016, revenue from three customers of the Corporation’s Environmental Services
segment represents approximately $8,010,000 of the Corporation’s consolidated revenue.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
24.
Related Party Transactions
The Corporation’s related parties include its subsidiaries and key management personnel. Key management
personnel compensation for the years ended December 31, 2016 and 2015 was as follows:
(a)
Key Management Personnel Compensation
Salaries and other short-term benefits
Share-based compensation
2016
2015
$ 1,765
1,079
$ 1,831
543
$ 2,844
$ 2,374
Key management includes the Corporation’s Board of Directors and members of senior
management.
25.
Commitments
As at December 31, 2016, 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:
2017
2018
Thereafter
315
230
266
$ 811
(b)
The Corporation’s other contractual obligations,
expenditures, totaled approximately $276,000.
including with respect
to capital asset
26.
Subsequent Events
a) On March 29, 2017 the Corporation and Silver Wheaton amended the Silver Purchase Agreement,
originally dated October 2, 2008, such that the fixed $3.90 per ounce silver streaming production
payment is replaced with a variable production payment based on the spot price of silver and silver
grade milled. In consideration the Corporation agreed to issue, subject to TSX and NYSE-MKT
approval, three million common shares to Silver Wheaton.
In addition, the Corporation has agreed to pay an advisory fee, a portion of which the Corporation
will, subject to TSX and NYSE-MKT approval, pay through the issuance of 250,000 common
shares of Alexco.
b) The Corporation disposed of investments in marketable securities for proceeds of $2,002,000 for a
pre-tax gain of $1,779,000.
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
Elaine Sanders, CPA, CA, CPA (Illinois)
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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