ANNUAL FINANCIAL REPORT
DECEMBER 31, 2017
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 14, 2018 and provides an analysis of Alexco’s consolidated financial results
for the year ended December 31, 2017 compared to those of the previous year.
The following information should be read in conjunction with the Corporation’s December 31, 2017
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
the Edgar website at
the SEDAR website at www.sedar.com and
www.alexcoresource.com,
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., Mine Manager, both of whom
are Qualified Persons as defined by National Instrument 43-101 – Standards of Disclosure for Mineral
Projects (“NI 43-101”).
2017 HIGHLIGHTS AND OVERALL PERFORMANCE
Overall, Alexco reported a net loss of $7,648,000 for the year ended December 31, 2017, for a
basic and diluted loss of $0.08 per share compared to a net loss of $4,359,000 in 2016 or $0.05
per share basic and diluted. The loss before taxes for 2017 was $6,176,000 including non-cash
costs of $1,634,000 for depreciation and amortization, $2,359,000 for share-based compensation
expense and $500,000 for a restructuring cost paid in common shares that related to amending
the silver purchase agreement (“Amended SPA”) with Wheaton Precious Metals Corp.
(“Wheaton”). This compares to a loss before taxes in 2016 of $3,967,000, including non-cash
costs of $2,076,000 for depreciation and amortization and $1,095,000 for share-based
compensation. The increase in the net loss in 2017 compared to 2016 was mainly attributed to
increased non-cash share-based compensation expense in 2017, earning fewer gains on
investments in 2017 compared to 2016 and recognizing $1,353,000 in 2017 for costs related to
restructuring the Amended SPA with Wheaton and restructuring the Alexco Environmental Group
(“AEG”).
The Corporation’s cash and cash equivalents at December 31, 2017 totaled $17,906,000
compared to $20,382,000 at December 31, 2016, while net working capital totaled $18,414,000
compared to $23,443,000 at December 31, 2016. In addition, the Corporation’s restricted cash
and deposits at December 31, 2017 totalled $7,092,000 compared to $6,948,000 at December
31, 2016.
AEG recognized revenues of $10,732,000 in 2017 for a gross profit of $4,000,000 and a gross
margin of 37% compared to revenues of $11,361,000 in 2016 for a gross profit of $2,866,000 and
a gross margin of 25%.
On May 30, 2017, the Corporation closed a flow-through private placement whereby the
Corporation issued 4,205,820 flow-through shares at a price of $2.15 per share for aggregate
gross proceeds of $9,042,513.
The Corporation received an amended Type A Water Use Licence (“WUL”) from the Yukon Water
Board authorizing, subject to certain conditions, the use and discharge of treated water and
deposition of dry stacked tailings from the Flame & Moth deposit.
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In August 2017, the Corporation received an amended Class IV permit allowing the Corporation
to commence a 580 meter (“m”) underground exploration decline into the high grade Bermingham
silver deposit. As of the date of this MD&A, the Corporation has completed 430 m of the decline
with completion expected in April 2018.
On November 7, 2017 the Corporation announced comprehensive results from its 2017 surface
diamond drilling exploration program, drilling a total of 13,832 m in the immediate vicinity of the
Bermingham deposit at a cost of approximately $3,600,000.
On March 29, 2017 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.
On March 29, 2017 the Corporation 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
the Amended SPA with 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 $2,003,000 and
a pre-tax realized gain of $1,204,000.
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 Keno Hill Silver Dictrict (“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 ($338,954 incurred), issue 1,600,000 shares (400,000
shares issued), 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.
HIGHLIGHTS SUBSEQUENT TO YEAREND
On February 23, 2018 the Company entered into a definitive credit agreement with Sprott Private
Resource Lending (Collector), L.P. (“Sprott”) to provide a US$15,000,000 credit facility (the
“Credit Facility”). The Credit Facility has the following key terms:
Term of 3 years, Maturity Date – February 23, 2021
Interest rate on funds drawn down: the greater of
o 7% plus US Dollar 3 month LIBOR and
o 8% per annum, payable monthly
Repayable in quarterly installments from October 31, 2019 through to the Maturity Date
Upon draw down of funds a 3% charge of the draw down is charged
1,000,000 share purchase warrants were issued to Sprott with a five-year term, an
exercise price of Cdn$2.25 per share and a right by the Company to accelerate the expiry
date to 30 days following the closing price of the shares exceeding Cdn$5.63 for more
than 20 consecutive trading days
Repayable in whole or in part, without penalty, provided not less than twelve (12) months
of interest has been paid on any outstanding amount
The Corporation has the option to extend the availability period of draw down from twelve
(12) to eighteen (18) months by issuing to Sprott 171,480 Alexco common shares
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SELECTED ANNUAL INFORMATION
(expressed in thousands of Canadian
dollars, except per share amounts)
Revenue from environmental services
Gross profit from environmental services
Revenue from all operations
Gross profit from all operations
Net loss
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
2017
10,732
4,000
10,732
4,000
(7,648)
($0.08)
($0.08)
123,836
19,787
Nil
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
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 grams per tonne (“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 M ounces of
silver during that time. In September 2013 Alexco suspended Bellekeno mining operations in light of a
sharply reduced silver and base metal 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. This work culminated
with the publication of an updated PEA in 2017. With this new study in hand, 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 Water
and Environment Inc. (“AWE”) and Elsa Reclamation & Development Company Ltd. (“ERDC”). Alexco
Environmental Group (US) Inc. (“AEG US”), a subsidiary of the Corporation, was sold on December 28,
2017, with continuing services in the United States now being provided by AWE. 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 American equities exchange (under the symbol AXU).
OUTLOOK AND STRATEGY
Keno Hill Silver District
Alexco’s current primary focus is to re-start mining operations at Keno Hill, commodity prices and markets
considered. Alexco has the requisite permits and authorizations for future ore production from the
Bellekeno, Flame & Moth, Lucky Queen, and Onek deposits, as well as the necessary authorization to
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drive the Bermingham decline, currently ongoing. In November 2017 a project proposal for environmental
assessment was submitted to Yukon Environmental and Socio-economic Assessment Board (“YESAB”)
for future production and processing of ore from the Bermingham deposit. It is anticipated that this
application process, including completion of the amendments to Alexco’s Quartz Mining Licence (“QML”)
and WUL will be completed by the end of 2018 or early 2019.
Alexco’s Keno Hill mineral properties comprise mineral rights spanning approximately 243 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 217 million ounces of silver with average grade of 44 ounces per tonne (“oz/t”) silver,
5.6% lead and 3.1% 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.
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 WUL under the Yukon Waters Act to undertake care and maintenance
activities in the Keno Hill area. The final Existing State of Mine (“ESM”) Reclamation Plan at Keno Hill will
undergo assessment by the YESAB, a process which is anticipated to begin in the first half of 2018.
Subsequent to completion of the YESAB assessment process, a WUL amendment will be required from
the Yukon Water Board to authorize the activities necessary effect closure of the site. 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 final ESM Reclamation Plan is
subject to amendment that may result from requirements during the assessment, licencing, and funding
approval processes.
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On December 28, 2017, Alexco restructured its US environmental division. In this restructuring, Alexco’s
wholly-owned subsidiary, Alexco Environmental Group Inc. (“AEG Canada”) entered into a share
purchase agreement with Arete Property Holdings LLC (“Arete”) for the purchase by Arete of all of the
issued shares of Alexco Environmental Group (US) Inc. (“AEG US”) and its wholly-owned subsidiary,
Alexco Financial Guaranty Corp. (collectively with AEG US, the “AEG US Group”) for nominal
consideration. Arete is wholly-owned by Mr. James Harrington, President of Alexco’s environmental
consulting business. As a result of this transaction, a newly formed, wholly-owned AWE, a company
organized under the laws of Colorado, will continue current and future environmental work for the
Corporation in the United States. On disposal the Corporation realized a loss of $250,000. The
Corporation also crystalized a $1,000,000 foreign exchange gain as the result of the settlement on
intercompany loans.
Economic Climate
Silver, lead and zinc are the primary metals found within the Keno Hill District historically. With respect to
the economic climate during 2017, lead and zinc prices have increased significantly while the silver price
has remained relatively flat. Silver traded from a high of US$18.56 on April 13, 2017 to a low of US$15.22
on July 10, 2017, while lead traded between US$1.18 to US$0.93 and zinc traded between US$1.52 to
US$1.10 per pound. As at the date of this MD&A, prices are approximately US$16.50 per ounce silver,
US$1.06 per pound for lead and US$1.47 per pound for zinc and the Canadian-US exchange rate is
approximately US$0.78 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$1.09 per pound,
and for zinc US$1.44 per pound, with the Canadian-US exchange rate forecast at US$0.80 per CAD (see
“Risk Factors” in the MD&A for the year ended December 31, 2017, including but not limited to “Potential
Profitability Of Mineral Properties Depends Upon Other Factors Beyond the Control of the Corporation”
and “General Economic Conditions May Adversely Affect the Corporation’s Growth and Profitability”
thereunder).
RESULTS OF OPERATIONS
Keno Hill Silver District
2017 Exploration Program
In early June, the Corporation commenced a surface diamond drilling exploration program to further
explore potentially mineralized structural targets in the immediate vicinity of the Bermingham deposit. In
September 2017 the Corporation completed its 2017 exploration program as planned, drilling a total of
13,832 m. Program costs were $3,600,000. Comprehensive drill results were released on November 7,
2017 (see September 7, 2017 press release entitled "Alexco Completes 2017 Surface Exploration
Program, Expands Bermingham Silver Deposit, Advances Underground Development”).
The Corporation also commenced an underground exploration program at the high grade Bermingham
silver deposit. In August 2017, the Corporation received the required amended Class IV permit allowing
the Corporation to commence the 580 m underground exploration decline. As of the date of this MD&A
the Corporation has completed 430 m of the ramp and decline with completion expected in early April
2018. Subsequent to completion of the Bermingham decline, a 5,000 m underground drill program will be
initiated to tighten up spacing to upgrade the existing inferred resources to indicated resources and to
upgrade existing indicated resources to measured resource while also increasing the confidence in the
geological model. The total estimated cost of the underground exploration development and drilling
project is $8,700,000, which includes a combination of purchase and rebuilds of underground equipment.
- 6 -
Permitting Update
Bermingham Deposit:
In August 2017, the Corporation received an amended Class IV permit allowing the Corporation to
commence a 580 m underground exploration decline into the high grade Bermingham silver deposit.
A further amendment to the Corporation’s QML and WUL will be required for future production and
processing of ore from Bermingham. The project proposal for these amendments was submitted to
YESAB in November 2017 and it is anticipated the Corporation will have the completed permits by the
end of 2018 or early 2019.
Flame & Moth Deposit:
In December 2017 the Company received an amendment to its WUL from the Yukon Water Board for the
development and operation (and eventual closure) of the Flame & Moth deposit.
Mine Site Care and Maintenance
Mine site care and maintenance costs for 2017 totaled $1,723,000 compared to $1,954,000 in 2016. The
decrease in costs is due primarily to lower depreciation charges, along with continued operating
efficiencies while in care and maintenance. Included in mine site care and maintenance costs is
depreciation expense of $1,366,000 for 2017 compared to $1,602,000 in 2016.
General and Administrative Expenses
Corporate:
Corporate general and administrative expenses for 2017 totaled $8,164,000 compared to $4,475,000 in
2016. The increase in corporate general and administrative expenses in 2017 was primarily due to an
increase of $1,391,000 for non-cash share-based compensation expense in 2017 and incurring
$1,353,000 in 2017 for costs related to restructuring the Amended SPA with Wheaton and restructuring
AEG. In addition, the salaries and contractors expense increased in 2017 as it included annual bonuses
paid which were not paid in 2016.
Environmental Services:
Environmental Services general and administrative expenses for 2017 totaled $2,778,000 compared to
$3,039,000 in 2016. The general and administrative expenses during 2017 decreased compared to 2016
as a result of AEG achieving higher utilization rates in 2017.
Alexco Environmental Group (AEG)
AEG Highlights during 2017:
AEG recognized revenues of $10,732,000 for the year ended December 31, 2017 for a gross
profit of $4,000,000 and a gross margin of 37% compared to revenues of $11,361,000 for a gross
profit of $2,866,000 and a gross margin of 25% for the year ended December 31, 2016. The
increase in gross profit during 2017 was mainly due to AEG’s US operations achieving improved
profitability over the course of 2017.
During the year ended December 31, 2017 the majority of the work on the Keno Hill Reclamation
Plan was completed internally, including completion of the ESM Reclamation Plan indicative
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design document as well as initiation of the permitting document. This work was performed
primarily by AEG employees rather than sub-consultants, leading to increased profit margins.
Throughout 2017, AEG successfully operated two water treatment facilities in the US, the
Gladstone and Schwartzwalder industrial water treatment plants, as well as four smaller water
treatment facilities at Keno Hill in Yukon Territory, Canada. At the Gladstone facility, the US
Environmental Protection Agency (“EPA”) authorized a pilot study for the temporary treatment of
water discharged from two nearby mines. AEG successfully completed this pilot study by
operating the Gladstone treatment facility at the increased treatment rate. AEG anticipates the
continued operation of the Gladstone treatment facility throughout 2018.
AEG successfully completed the installation and operation of a dewatering/desludging system
that removed sludge from a historic pit and lined pond at the Gilt Edge Mine, located in Lawrence
County, near Deadwood, South Dakota.
AEG successfully completed the installation and temporary operation of an in-situ treatment
system at the Grey Eagle Mine located in Northern California. Operations are expected to
continue intermittently throughout 2018.
FOURTH QUARTER
For the quarter ended December 31, 2017 Alexco reported a net loss of $1,749,000 on total revenues of
$2,507,000 compared to a net loss of $1,761,000 on total revenues of $2,939,000 in 2016. AEG
recognized revenues of $2,507,000 in the fourth quarter of 2017 for a gross profit of $993,000 and a
gross margin of 40% compared to revenues of $2,939,000 in the fourth quarter of 2016 for a gross profit
of $881,000 and a gross margin of 30%. The higher 2016 revenue was attributed to AEG’s completion of
the expansion of an interim water treatment plant (“IWTP”) at the Gold King Project.
Mine site care and maintenance costs in fourth quarter of 2017 totaled $453,000 compared to $480,000
for the same period in 2016. The decrease in costs is mainly due to a lower depreciation charge in the
2017 period. Included in mine site care and maintenance costs is depreciation expense of $318,000 in
fourth quarter of 2017 compared to $380,000 in same period of 2016.
Corporate general and administrative expenses in the fourth quarter of 2017 totaled $1,895,000
compared to $1,264,000 in the fourth quarter of 2016. The increase in the 2017 period relates to an
increase in share-based compensation and costs related to restructuring AEG.
Environmental Services general and administrative expenses in the fourth quarter of 2017 totaled
$585,000 compared to 668,000 in the fourth quarter of 2016. The decrease in general and administrative
expenses compared to the same period of 2016 is a result of higher personnel utilization to billable
projects.
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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
2016-Q1
2016-Q2
2016-Q3
2016-Q4
2016 Total
2017-Q1
2017-Q2
2017-Q3
2017-Q4
2017 Total
2,348
2,831
3,243
2,939
11,361
1,935
2,504
3,786
2,507
10,732
565
710
710
881
2,866
549
913
1,545
993
4,000
(2,110)
152
(640)
(1,761)
(4,359)
(932)
(2,695)
(2,272)
(1,749)
(7,648)
$(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)
$(0.01)
$(0.03)
$(0.02)
$(0.02)
$(0.08)
255
1,084
3,040
987
5,366
885
1,782
3,491
2,809
8,967
Note: Sum of all the quarters may not add up to the yearly totals due to rounding
The net losses 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. The net loss for 2017 reflects site based expenditures along with general and
administrative expenses, costs related to restructuring the Wheaton SPA and AEG partially offset by AEG
profits, a foreign exchange gain and a gain on investments.
The mineral property expenditures in 2016 reflect the surface drill program at Bermingham and continued
re-engineering work being done on the Flame and Moth deposit. Furthermore, the mineral property
expenditures in 2016 reflect the ongoing costs of modeling, data logging and resource estimation work for
Bermingham and the Flame and Moth deposits. The mineral property expenditures in 2017 reflect the
resource estimation work being completed on the Bermingham and Flame and Moth deposits and
completion of the PEA during the first quarter followed by the surface exploration program and
commencement of the advanced underground exploration program at the Bermingham deposit.
Liquidity, Cash Flows and Capital Resources
Liquidity
At December 31, 2017 the Corporation had cash and cash equivalents of $17,906,000, and net working
capital of $18,414,000 compared to cash and cash equivalents of $20,382,000 and net working capital of
$23,443,000 at December 31, 2016. The Corporation faces no known liquidity issues or are aware of any
significant credit risks in any of its financial assets. In addition, the Corporation’s restricted cash and
deposits at December 31, 2017 totalled $7,092,000 compared to $6,948,000 at December 31, 2016.
With its cash resources and net working capital on hand at December 31, 2017, 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
- 9 -
elsewhere in this MD&A, re-start of mining operations is dependent on a number of factors, including a
supportive silver market, maintaining current metal prices and foreign exchange rates. 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 provided by (used in) operating
activities
Cash flow used in investing activities
Cash flow provided by financing activities
Three Months Ended
December 31
Year Ended
December 31
2017
2016
2017
2016
$ 478
$ (1,156)
$ (4,054)
$ (4,608)
(3,965)
29
(1,942)
465
(7,329)
8,907
(1,684)
18,511
$ (3,458)
$ (2,633)
$ (2,476)
$ 12,219
Cash inflow in operating activities was $478,000 for the fourth quarter of 2017 versus a cash outflow of
$1,156,000 for the fourth quarter of 2016. The increase of cash inflow from operating activities during the
2017 was attributed to the collection of receivables from AEG clients in the fourth quarter. In the
comparable quarter of 2016 AEG was completing the expansion of the IWTP at the Gold King Project
which increased the cash outflow. Cash outflow from investing activities was $3,965,000 for the fourth
quarter of 2017 versus $1,942,000 for the fourth quarter of 2016. The increase in cash outflow during the
fourth quarter of 2017 compared to the 2016 period related to the purchase of underground mobile
equipment and continued advancement of the underground exploration decline at Bermingham. The cash
outflow during the fourth quarter of 2016 related primarily to the portal development at the Flame and
Moth property. Cash inflow from financing activities was $29,000 for the fourth quarter of 2017 compared
to cash inflow of $465,000 for the fourth quarter of 2016. The 2017 fourth quarter cash inflow relates to
warrant exercises. The 2016 fourth quarter cash inflow relates to warrant and stock option exercises.
Cash used in operating activities was $4,054,000 for 2017 versus $4,608,000 in 2016. The majority of
cash consumed in operating activities during 2017 and 2016 were expended on environmental services,
site based operations and general and administrative costs. Cash outflow from investing activities was
$7,329,000 for 2017 versus $1,684,000 in 2016. The increased cash outflow in 2017 related to the
purchase of mobile equipment, the surface exploration program and advancement of the underground
exploration decline at Bermingham. These outflows were partially offset from the proceeds on the sale of
investments. The cash outflow during 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. Cash inflow from financing activities was $8,907,000 for 2017 compared to $18,511,000
in 2016. The 2017 cash inflow relates to proceeds from a private placement consisting of 4,205,820 flow-
through shares for proceeds of $9,043,000 along with $418,000 from the exercise of warrants and
$162,000 from the exercise of stock options. The 2016 cash inflow relates to a non-brokered private
- 10 -
placement consisting of 10,839,972 units for proceeds of $13,008,000 and the exercise of warrants for
$6,208,000 and stock options for $231,000.
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 Wheaton under which Wheaton will receive 25% of the life of mine
payable 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 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 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 Wheaton amended the SPA such that Wheaton will continue to
receive 25% of the life of mine payable silver from the Keno Hill Silver District with a variable production
payment based on monthly silver head grade and monthly silver spot price. The actual monthly
production payment from Wheaton will be determined based on the monthly average silver head grade at
the mill and the monthly average spot price, as determined by a grade and pricing curve with an upper
ceiling grade of 1,400 grams per tonne (“g/t”) silver and price of US$25 per ounce of silver and a floor
grade of 600 g/t silver and price of US$13 per ounce of silver. Additional terms of the amendment include
a date for completion of the 400 tonne per day mine and mill completion test, which has now 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 Wheaton in the maximum amount of
US$8,788,000, which can be further reduced by mine production and mill throughput exceeding 322
tonnes per day for a 30 day period prior to December 31, 2019.
In consideration of the foregoing amendments, the Corporation issued 3,000,000 shares to Wheaton with
a fair value of $6,600,000 (US$4,934,948). Under the terms of the Amended SPA, the original
US$50,000,000 deposit was reduced by this amount. The variability in the future cash flows to be
received from Wheaton upon extraction and delivery of their 25% interest of future production is
considered an embedded derivative within this host contract under IAS 39, Financial Instruments. The
embedded derivative asset was initially recorded at fair value based on the value of the consideration
paid to Wheaton and will be re-measured at fair value on a re-occurring basis at each period end with
changes in value being recorded within the Statement of Income/(loss).
As at December 31, 2017, the fair value of the embedded derivative was calculated based on the
discounted future cash flows associated with the difference between the original US$3.90 per ounce
production payment Wheaton would pay for each payable ounce delivered under the SPA and the new
production payment under the Amended SPA which varies depending on the monthly silver head grade
and silver price. The model relies upon inputs from the preliminary economic assessment (the “PEA”),
such as payable ounces delivered, head grade and silver price and will be updated as a result of updated
studies, mine plans and actual production. A discount rate of 13%, representing the implied discount rate
applied to the payment made under the Amended SPA was used to calculate the net present value.
There was no adjustment recorded during the year ended December 31, 2017.
On May 30, 2017, the Corporation completed a bought deal financing and issued 4,205,820 flow-through
common shares on a private placement basis at a price of $2.15 per share for aggregate gross proceeds
- 11 -
of $9,042,513. The underwriter to the financing received a cash fee of 6% of gross proceeds plus 126,174
compensation warrants, each warrant exercisable for one common share of the Corporation at an
exercise price of $2.15 per share at any time until May 30, 2019. Net proceeds from the issuance were
$8,337,000, after issuance costs comprised of the agent’s commission of $542,550, and other issuance
costs of $173,000. As of December 31, 2017 the Corporation had spent $4,023,157 of the flow-through
funds raised with $5,191,606 to be spent prior to December 31, 2018.
On February 23, 2018 the Company entered into a definitive credit agreement with Sprott to provide a
US$15 M Credit Facility. The Credit Facility has the following key terms:
Term of 3 years, Maturity Date – February 23, 2021
Interest rate on funds drawn down: the greater of
o 7% plus US Dollar 3 month LIBOR and
o 8% per annum, payable monthly
Repayable in quarterly installments from October 31, 2019 through to the Maturity Date
Upon draw down of funds a 3% charge of the draw down is charged
1,000,000 share purchase warrants were issued to Sprott with a five-year term, an exercise
price of Cdn$2.25 per share and a right by the Company to accelerate the expiry date to 30
days following the closing price of the shares exceeding Cdn$5.63 for more than 20 consecutive
trading days
Repayable in whole or in part, without penalty, provided not less than twelve (12) months of
interest has been paid on any outstanding amount
The Company has the option to extend the availability period of draw down from twelve (12) to
eighteen (18) months by issuing to Sprott 171,480 Alexco common shares
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)
$ 732
240
$ 341
60
$ 391
120
$ Nil
60
$ Nil
Nil
6,187
36
809
172
5,170
Total
$ 7,159
$ 437
$ 1,320
$ 232
$ 5,170
- 12 -
During 2017, 463,078 warrants were exercised for proceeds of $417,900. The warrants outstanding as of
the December 31, 2017 are summarized as follows:
Expiry Date
May 17, 2018
May 17, 2018
May 30, 2019
Exercise Price
$1.75
$1.49
$2.15
Balance at
December 31, 2017
4,868,620
60,900
126,174
$1.76
5,055,694
Share Data
As at the date of this MD&A, the Corporation has 101,642,752 common shares issued and outstanding.
In addition, there are outstanding incentive share options for a further 8,083,666 common shares,
restricted share units that can be settled by way of shares issued from treasury for a further 263,323
common shares, and purchase warrants for a further 6,045,694.
Use of Financial Instruments
All of Alexco’s cash and cash equivalents at December 31, 2017 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, 2017, a total of $6,507,000 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 $499,000
(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, 2017 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, 2017, 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.
- 13 -
Alexco’s accounts and other receivables at December 31, 2017 total $2,086,000, 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, 2017, AEG trade receivables are recorded net of a recoverability provision of $1,000.
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:
Key Management Personnel Compensation
Key Management
Personnel
Compensation
Three Months Ended Dec. 31
2016
2017
Year Ended Dec. 31
2016
2017
Salaries and other short-term benefits
$
$ 456 $ 2,246 $ 1,765
Share-based compensation
485
285
227
2,072
1,079
$ 770
$ 683
$ 4,318
$ 2,844
Key management includes the Corporation’s Board of Directors and members of senior management.
Other Related Party Transactions:
During the year ended December 31, 2017, the Corporation incurred $125,000 (2016 – $nil) of consulting
expenses from a company controlled by a Director of the Corporation. The consulting services provided
by the company controlled by this director concluded by September 30, 2017.
On December 28, 2017, the Corporation restructured its US environmental division. In this restructuring,
the Corporation’s wholly-owned subsidiary, AEG Canada entered into a share purchase agreement with
Arete Property Holdings LLC (“Arete”) for the purchase by Arete of all of the issued shares of AEG US
and its wholly-owned subsidiary, AFCG, for nominal consideration. Arete is wholly-owned by Mr. James
Harrington, President of AEG. As a result of this transaction, a new Colorado affiliate of AEG Canada,
AWE is continuing the current and future environmental work in the United States. On disposal the
- 14 -
Corporation realized a loss of $250,000. The Corporation also crystalized a $1,000,000 foreign exchange
gain as the result of the settlement on intercompany loans.
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, 2017 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
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, 2017.
- 15 -
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.
Fair value of derivatives
The fair values of financial instruments that are not traded in an active market are
determined using valuation techniques. Management uses its judgment to select a
method of valuation and makes estimates of specific model inputs that are based on
conditions existing at the end of each reporting period. Refer to Note 14 for further details
on the methods and assumptions associated with the measurement of the embedded
derivative within the Silver Streaming Interest.
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, 2017:
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.
We have concluded that this standard will not have a material effect on our financial
statements.
We have made the irrevocable classification choice to record fair value changes on our
available-for-sale investments in other comprehensive income. This election will result in a
reclassification of $nil from our retained earnings to accumulated other comprehensive
income (loss), all within equity, on January 1, 2018.
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. IFRS 15 also requires enhanced disclosures about revenue to help investors better
understand the nature, amount, timing and uncertainty of revenue and cash flows from
- 16 -
contracts with customers. 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.
In 2013, the Corporation put the previously operating Keno Hill District (“District”) on care and
maintenance, where it has remained since that date. When the District resumes mining
operations, we will review the sales contracts in place and assess the effects of the new
standard.
We have substantially completed our analysis of IFRS 15 and the effect the adoption will
have on our financial statements. Management’s primary focus was evaluating contracts
under our Environmental Services business, as this is currently our primary source of
revenue. Based on this analysis, we do not anticipate significant changes to the timing and
amount of our revenue recognition related to from environmental services under IFRS 15, as
the majority of our contracts contain a single performance obligation. Consequently,
consistent with our existing policy, revenue will be recognized “over time”, as the services are
provided.
We have also assessed the impact of IFRS 15 on our silver streaming arrangement with
Wheaton, as described in Note 14 in the financial statements. At the date the transaction
was completed, we determined that the contract is a sale of a mineral interest and a related
contract to provide extraction services. Under our existing policy, we apply the provisions of
IFRS 6, which allows for an accounting policy choice to either apply the proceeds received as
a credit to the carrying value of the exploration and evaluation (“E&E”) asset, or account for
the transaction as a partial sale, with deferral of the gain, to be recognised on a units-of-
production sold basis. Upon the effective date of IFRS 15, the company will continue to apply
IFRS 6, as permitted, but as a result, will elect the policy to apply the proceeds received as a
credit to the carrying value of the E&E asset. Management believes this approach to be more
relevant and reliable.
Specifically, advance payments received under the Wheaton contract will be accounted for as
follows:
o The USD $50,000,000 initial deposit recorded as consideration will be applied
against the carrying value of the mineral interest, with no gain or loss being recorded;
and
o Revenue from extraction services will be recognized using a transaction price of
US$3.90/oz, which is considered the stand-alone selling price of those services at the
inception of the contract.
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 standard is
expected to have on its consolidated financial statements.
- 17 -
In June 2017, the IFRS Interpretation Committee issued IFRIC 23, which clarifies how the
recognition and measurement requirements of IAS 12 Income Taxes are applied where there
is uncertainty over income tax treatments. IFRIC 23 becomes effective for annual periods
beginning on or after January 1, 2019 and is to be applied retrospectively with early adoption
permitted. The Corporation is in the process of assessing the impact of IFRIC 23 on the
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
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
- 18 -
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, 2017, 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, 2017.
The effectiveness of Alexco’s internal control over financial reporting as at December 31, 2017 has been
audited by PricewaterhouseCoopers LLP, Alexco’s independent registered public accounting firm.
There has been no change in Alexco’s internal control over financial reporting during Alexco’s fiscal year
ended December 31, 2017 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, 2017.
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.
- 19 -
Exploration, Evaluation and Development
Mineral exploration, evaluation and development involves a high degree of risk and few properties which
are explored are ultimately developed into producing mines. With respect to Alexco’s properties, should
any ore reserves exist, substantial expenditures will be required to confirm ore reserves which are
sufficient to commercially mine, and to obtain the required environmental approvals and permitting
required to commence commercial operations. Should any mineral resource be defined on such
properties there can be no assurance that the mineral resource on such properties can be commercially
mined or that the metallurgical processing will produce economically viable and saleable products. The
decision as to whether a property contains a commercial mineral deposit and should be brought into
production will depend upon the results of exploration programs and/or technical studies, and the
recommendations of duly qualified engineers and/or geologists, all of which involves significant expense.
This decision will involve consideration and evaluation of several significant factors including, but not
limited to: (1) costs of bringing a property into production, including exploration and development work,
preparation of appropriate technical studies and construction of production facilities; (2) availability and
costs of financing; (3) ongoing costs of production; (4) market prices for the minerals to be produced; (5)
environmental compliance regulations and restraints (including potential environmental liabilities
associated with historical exploration activities); and (6) political climate and/or governmental regulation
and control.
The ability of Alexco to sell, and profit from the sale of any eventual production from any of the Alexco’s
properties will be subject to the prevailing conditions in the marketplace at the time of sale. Many of
these factors are beyond the control of Alexco and therefore represent a market risk which could impact
the long term viability of Alexco and its operations.
Figures for the Alexco’s Resources are Estimates Based on Interpretation and Assumptions and May
Yield Less Mineral Production Under Actual Conditions than is Currently Estimated
In making determinations about whether to advance any of its projects to development, Alexco must rely
upon estimated calculations as to the mineral resources and grades of mineralization on its properties.
Until ore is actually mined and processed, mineral resources and grades of mineralization must be
considered as estimates only. Mineral resource estimates are imprecise and depend upon geological
interpretation and statistical inferences drawn from drilling and sampling which may prove to be
unreliable. Alexco cannot be certain that:
reserve, resource or other mineralization estimates will be accurate; or
mineralization can be mined or processed profitably.
Any material changes in mineral resource estimates and grades of mineralization will affect the economic
viability of placing a property into production and a property’s return on capital. Alexco's resource
estimates have been determined and valued based on assumed future prices, cut-off grades and
operating costs that may prove to be inaccurate. Extended declines in market prices for silver, gold, lead,
zinc and other commodities may render portions of Alexco’s mineralization uneconomic and result in
reduced reported mineral resources.
Amendments to Silver Purchase Agreement with Wheaton
The March 29, 2017 Amended SPA with 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 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
- 20 -
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
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.
- 21 -
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.
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.
- 22 -
AEG may not be able to keep pace with continual and rapid technological developments that characterize
the market for AEG's environmental services, and AEG’s failure to do so may result in a loss of its market
share. Similarly, changes in existing regulations relating to mine reclamation and remediation activities
could require AEG to change the way it conducts its business.
AEG is dependent on the professional skill sets of its employees, some of whom would be difficult to
replace. The loss of any such employees could significantly affect AEG’s ability to service existing clients,
its profitability and its ability to grow its business.
Potential Profitability of Mineral Properties Depends Upon Factors Beyond the Control of Alexco
The potential profitability of mineral properties is dependent upon many factors beyond Alexco’s control.
For instance, world prices of and markets for gold, silver, lead and zinc are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging and/or controls and respond to changes in domestic,
international, political, social and economic environments. Another factor is that rates of recovery may
vary from the rate experienced in tests and a reduction in the recovery rate will adversely affect
profitability and, possibly, the economic viability of a property. Profitability also depends on the costs of
operations, including costs of labour, materials, equipment, electricity, environmental compliance or other
production inputs. Such costs will fluctuate in ways Alexco cannot predict and are beyond Alexco’s
control, and such fluctuations will impact on profitability and may eliminate profitability altogether.
Additionally, due to worldwide economic uncertainty, the availability and cost of funds for development
and other costs have become increasingly difficult, if not impossible, to project. These changes and
events may materially affect the financial performance of Alexco.
First Nation Rights and Title
The nature and extent of First Nation rights and title remains the subject of active debate, claims and
litigation in Canada, including in the Yukon and including with respect to intergovernmental relations
between First Nation authorities and federal, provincial and territorial authorities. There can be no
guarantee that such claims will not cause permitting delays, unexpected interruptions or additional costs
for Alexco’s projects. 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.
- 23 -
General Economic Conditions May Adversely Affect Alexco’s Growth and Profitability
The unprecedented events in global financial markets since 2008 have had a profound impact on the
global economy and led to increased levels of volatility. Many industries, including the mining industry,
are impacted by these market conditions. Some of the impacts of the current financial market turmoil
include contraction in credit markets resulting in a widening of credit risk, devaluations and high volatility
in global equity, commodity, foreign currency exchange and precious metal markets, and a lack of market
liquidity. If the current turmoil and volatility levels continue they may adversely affect Alexco's growth and
profitability. Specifically:
•
•
•
•
a global credit/liquidity or foreign currency exchange crisis could impact the cost and
availability of financing and Alexco’s overall liquidity;
the volatility of silver and other commodity prices would impact Alexco’s revenues, profits,
losses and cash flow;
volatile energy prices, commodity and consumables prices and currency exchange rates
would impact Alexco’s operating costs; and
the devaluation and volatility of global stock markets could impact the valuation of Alexco’s
equity and other securities.
These factors could have a material adverse effect on Alexco’s financial condition and results of
operations.
Operating Hazards and Risks
In the course of exploration, development and production of mineral properties, certain risks, particularly
including but not limited to unexpected or unusual geological operating conditions including rock bursts,
cave-ins, fires, flooding and earthquakes, may occur. It is not always possible to fully insure against such
risks and the Corporation may decide not to insure against such risks as a result of high premiums or
other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and
result in increasing costs and a decline in the value of the securities of the Corporation.
Adverse weather conditions could also disrupt the Corporation’s environmental services business and/or
reduce demand for the Corporation’s services.
Competition
Significant and increasing competition exists for mining opportunities internationally. There are a number
of large established mining companies with substantial capabilities and far greater financial and technical
resources than the Corporation. The Corporation may be unable to acquire additional attractive mining
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.
- 24 -
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
1,371,200
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., Mine Manager and a Qualified Person as
defined by NI 43-101.
- 26 -
Cautionary Statement Regarding Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of applicable
Canadian securities laws (together, “forward-looking statements”) concerning the Corporation's business
plans, including but not limited to anticipated results and developments in the Corporation’s operations in
future periods, planned exploration and development of its mineral properties, plans related to its
business and other matters that may occur in the future, made as of the date of this MD&A.
Forward-looking statements may include, but are not limited to, statements with respect to future
remediation and reclamation activities, future mineral exploration, the estimation of mineral reserves and
mineral resources, the realization of mineral reserve and mineral resource estimates, future mine
construction and development activities, future mine operation and production, the timing of activities, the
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 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, 2017; (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
- 27 -
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”.
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,
2017, 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, 2017.
“Clynton R. Nauman”
(signed)
Clynton R. Nauman
Chairman and Chief Executive Officer
March 14, 2018
“Michael Clark”
(signed)
Michael Clark
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Alexco Resource Corp.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Alexco Resource Corp. and its
subsidiaries, (together, the Company) as of December 31, 2017 and 2016, and the related consolidated
statements of loss and comprehensive loss, shareholders’ equity and cash flows for the years then ended,
including the related notes (collectively referred to as the consolidated financial statements). We also have
audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2017 and 2016, and their financial
performance and their cash flows for the years then ended in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board (IFRS). Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 Control
Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated
financial statements and on the Company's internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
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.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and limitations 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.
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.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
Vancouver, Canada
March 14, 2018
We have served as the Company's auditor since 2005.
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
Investments
Inventories
Property, plant and equipment
Mineral properties
Intangible assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities
Environmental services contract loss provision
Deferred revenue
Flow-through share premium pending renunciation
Non-Current Liabilities
Environmental services contract loss provision
Deferred revenue
Silver streaming interest
Decommissioning and rehabilitation provision
Deferred income tax liabilities, net
Total Liabilities
Shareholders' Equity
Total Liabilities and Shareholders' Equity
COMMITMENTS
SUBSEQUENT EVENT
Note
2017
2016
$
17,906
2,086
$
20,382
2,938
499
728
646
538
22,403
6,593
1,027
4,743
14,139
74,816
115
-
1,691
151
401
25,563
6,948
-
5,110
13,967
65,849
195
$
123,836
$
117,632
$
3,601
25
$
1,832
121
87
276
3,989
101
109
11,518
5,055
3,004
167
-
2,120
156
170
18,118
4,955
1,440
23,776
26,959
100,060
90,673
$
123,836
$
117,632
6
7
8
9
10
8
9
10
11
12
13
14
15
19
25
26
APPROVED ON BEHALF OF
THE BOARD OF DIRECTORS
“Terry Krepiakevich”
(signed)
______________________________
Director
“Elaine Sanders”
(signed)
______________________________
Director
The accompanying notes are an integral part of these consolidated financial statements
ALEXCO RESOURCE CORP.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31
(expressed in thousands of Canadian dollars, except per share
and share amounts)
Revenues
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 and finance costs
Gain on investments
Foreign exchange (loss) gain
Loss Before Taxes
Income Tax Provision
Current
Deferred
Net Loss
Other Comprehensive Income (Loss)
Items that may be reclassified subsequently to net income (loss)
Cumulative translation adjustments, net of tax
Unrealized gain on available-for-sale investments, net of tax
Recycle of gain on available-for-sale to income, net of tax
Other Comprehensive Income (Loss)
Note
2017
2016
10,732
11,361
17
18
9
19
19
6,732
4,000
10,942
1,723
12,665
(8,665)
184
1,341
964
8,495
2,866
7,514
1,954
9,468
(6,602)
30
2,742
(137)
(6,176)
(3,967)
-
1,472
(7,648)
(564)
253
(356)
(667)
2
390
(4,359)
24
1,530
(1,306)
248
Total Comprehensive Loss
$
(8,315)
$
(4,111)
Basic and diluted loss per common share
$
(0.08)
$
(0.05)
Weighted average number of common shares outstanding
98,486,437
86,475,882
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 used in 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 on investments
Advisory fees paid in shares
Deferred income tax provision
Changes in non-cash working capital balances related to operations
(Increase) decrease in accounts and other receivables
Increase in inventories
(Increase) decrease in prepaid expenses and other current assets
Increase (decrease) in accounts payable and accrued liabilities
Cash Flows used in 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 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
SUPPLEMENTAL CASH FLOW INFORMATION (see note 22)
2017
2016
$
(7,648)
$
(4,359)
(142)
(152)
1,558
76
2,359
(1,418)
(1,204)
(632)
500
1,472
849
(129)
(140)
597
(382)
(49)
1,964
112
1,095
72
(1,530)
(1,212)
-
390
(450)
(15)
6
(250)
(4,054)
(4,608)
(143)
(7,012)
(1,982)
2,003
-
(195)
(264)
(5,017)
(63)
1,778
3,873
(1,991)
(7,329)
(1,684)
9,043
(716)
418
162
8,907
(2,476)
20,382
17,906
13,008
(936)
6,208
231
18,511
12,219
8,163
20,382
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, 2017 AND 2016
(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, 2016
92,950,194
$
186,952
$
2,134
$
7,216
$
12,880
$
(118,045)
$
(464)
$
90,673
Net loss
Other comprehensive income
Share-based compensation
expense recognized
Equity offering, net of issuance
costs
Shares issued - advisory fees
Shares issued - consideration for
Wheaton (note 14)
Exercise of share options
Exercise of warrants
Share options forfeited or expired
Release of RSU settlement shares
-
-
-
-
-
-
4,205,820
250,000
7,222
500
3,000,000
6,600
126,340
458,878
-
289,618
240
532
-
343
-
-
-
-
-
-
72
(114)
-
-
-
-
2,728
-
-
-
(78)
-
(2,863)
(343)
-
-
-
-
-
-
-
-
2,863
-
(7,648)
-
-
-
-
-
-
-
-
-
-
(667)
(7,648)
(667)
-
-
-
-
-
-
-
-
2,728
7,294
500
6,600
162
418
-
-
Balance ‐ December 31, 2017
101,280,850
$
202,389
$
2,092
$
6,660
$
15,743
$
(125,693)
$
(1,131)
$
100,060
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
Share options forfeited or expired
Release of RSU settlement shares
-
-
-
10,839,972
316,669
4,364,575
-
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
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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 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 American Stock 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 14, 2018.
These consolidated financial statements have been prepared on a going concern basis under the historical
cost method, except for derivative financial instruments 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
Mining Consultants Ltd.), Alexco Environmental Group Holdings Inc. and Alexco Water and
Environment Inc. (“AWE”). During the period January 1, 2017 through December 28, 2017 amounts
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
from Alexco Environmental (US) Group Inc. (“AEG US”) and Alexco Financial Guarantee Corp.
(“AFGC”) (together referred to as “AEG US Group”) were consolidated by the Corporation. 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, 2017 AND 2016
(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.
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
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.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
(h)
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.
(i)
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 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.
(j)
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.
(k)
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
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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.
(l)
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.
(m)
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
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.
(n)
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 AWE is the Canadian
dollar, while the functional currency of AWE is the United States dollar. The financial statements of
AWE 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
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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.
(o)
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.
(p)
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
provisions. Measurement
instrument’s
in subsequent periods depends on
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.
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 and
realized gains and losses recognized in other comprehensive income. Available-for-sale
investments are recorded as current assets unless management intends to hold them for a period
longer than twelve months from the balance sheet date.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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.
(q)
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
4.
New and Revised Accounting Standards
A number of new standards and amendments to standards and interpretations that have been issued but
are not yet effective:
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.
We have concluded that this standard will not have a material effect on our financial statements.
We have made the irrevocable classification choice to record fair value changes on our available-for-sale
investments in other comprehensive income. This election will result in a reclassification of $nil from our
retained earnings to accumulated other comprehensive income (loss), all within equity, on January 1, 2018.
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
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
and obtain the benefits from the good or service. IFRS 15 also requires enhanced disclosures about revenue
to help investors better understand the nature, amount, timing and uncertainty of revenue and cash flows
from contracts with customers.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.
In 2013, the Corporation put the previously operating Keno Hill District (“District”) on care and maintenance,
where it has remained since that date. When the District resumes mining operations, we will review the sales
contracts in place and assess the effects of the new standard.
We have substantially completed our analysis of IFRS 15 and the effect the adoption will have on our
financial statements. Management’s primary focus was evaluating contracts under our Environmental
Services business, as this is currently our primary source of revenue. Based on this analysis, we do not
anticipate significant changes to the timing and amount of our revenue recognition related to from
environmental services under IFRS 15, as the majority of our contracts contain a single performance
obligation. Consequently, consistent with our existing policy, revenue will be recognized “over time”, as the
services are provided.
We have also assessed the impact of IFRS 15 on our silver streaming arrangement with Wheaton Precious
Metals Corp. (“Wheaton”), as described in Note 14. At the date the transaction was completed, we
determined that the contract is a sale of a mineral interest and a related contract to provide extraction
services. Under our existing policy, we apply the provisions of IFRS 6, which allows for an accounting
policy choice to either apply the proceeds received as a credit to the carrying value of the exploration and
evaluation (“E&E”) asset, or account for the transaction as a partial sale, with deferral of the gain, to be
recognised on a units-of-production sold basis. Upon the effective date of IFRS 15, the company will
continue to apply IFRS 6, as permitted, but as a result, will elect the policy to apply the proceeds received as
a credit to the carrying value of the E&E asset. Management believes this approach to be more relevant and
reliable.
Specifically, advance payments received under the Wheaton contract will be accounted for as follows:
The USD $50,000,000 initial deposit recorded as consideration will be applied against the carrying
value of the mineral interest, with no gain or loss being recorded; and
Revenue from extraction services will be recognized using a transaction price of US$3.90/oz, which
is considered the stand-alone selling price of those services at the inception of the contract.
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 standard is expected to have on its
consolidated financial statements.
In June 2017, the IFRS Interpretation Committee issued IFRIC 23, which clarifies how the recognition and
measurement requirements of IAS 12 Income Taxes are applied where there is uncertainty over income tax
treatments. IFRIC 23 becomes effective for annual periods beginning on or after January 1, 2019 and is to
be applied retrospectively with early adoption permitted. The Corporation is in the process of assessing the
impact of IFRIC 23 on the 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.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
5.
Critical Judgements and Major Sources of Estimation Uncertainty
The preparation of the consolidated financial statements requires management to select accounting policies
and make estimates and judgments that may have a significant impact on the consolidated financial
statements. Estimates are continuously evaluated and are based on management’s experience and
expectations of future events that are believed to be reasonable under the circumstances. The estimates
management makes in this regard include those regarding future commodity prices and foreign currency
exchange rates, which are an important component of several estimates and assumptions management
must make in preparing the financial statements, including but not limited to estimations and assumptions
regarding the evaluation of the carrying amount of mineral properties and other assets, the estimation of
decommissioning and rehabilitation provisions, the estimation of revenues and the value of the embedded
derivative related to sales of concentrate, and the estimation of the net realizable value of inventories.
Management bases its estimates of future commodity prices and foreign currency exchange rates primarily
on consensus investment analyst forecasts, which are tracked and updated as published on generally a
quarterly basis. Actual outcomes can differ from these estimates.
The most significant judgments and estimates made by management in preparing the Corporation’s financial
statements are described as follows:
Mineral Resources
The determination of the Corporation’s estimated mineral resources by appropriately qualified
persons requires significant judgements regarding the interpretation of complex geological and
engineering data including the size, depth, shape and nature of the deposit and anticipated plans
for mining, as well as estimates of future commodity prices, foreign exchange rates, capital
requirements and production costs. These mineral resource estimates are used in many
determinations required to prepare the Corporation’s financial statements, including evaluating the
recoverability of the carrying amount of its non-current non-financial assets 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, 2017.
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.
Fair value of derivatives
The fair values of financial instruments that are not traded in an active market are determined using
valuation techniques. Management uses its judgment to select a method of valuation and makes
estimates of specific model inputs that are based on conditions existing at the end of each reporting
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
period. Refer to Note 14 for further details on the methods and assumptions associated with the
measurement of the embedded derivative within the Silver Streaming Interest.
6.
Cash and Cash Equivalents
Cash at bank and on hand
Short-term bank deposits
7.
Accounts and Other Receivables
Trade receivables
Interest and other
Less: allowance for doubtful accounts
8.
Restricted Cash and Deposits
Security for remediation services agreement
Security for decommissioning obligations
Other
Restricted cash and deposits
Less: Current portion
December 31
2017
December 31
2016
$ 6,019
11,887
$ 6,484
13,898
$ 17,906
$ 20,382
December 31
2017
December 31
2016
$ 1,988
99
(1)
$ 2,760
179
(1)
$ 2,086
$ 2,938
December 31
2017
December 31
2016
$ 499
6,507
86
$ 534
6,328
86
7,092
499
6,948
-
$ 6,593
$ 6,948
Security for remediation services agreement of $499,000 (US$398,000) as at December 31, 2017 (2016 -
$534,000; US$398,000) represents security that has been posted in support of a cost and environmental
performance commitment provided under an environmental consulting and remediation services agreement
with a third party customer. Subject to consent from third parties, this security is expected to be released
within twelve months.
Security for decommissioning obligations of $6,507,000 as at December 31, 2017 (2016 - $6,328,000)
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.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
9.
Investments
Common shares held
Warrants held
Investments
Less: Current Portion
December 31
2017
December 31
2016
$ 673
1,082
$ 365
1,326
1,755
728
1,691
1,691
$ 1,027
$ -
As of December 31, 2017, the common shares held consist of 4,775,000 common shares of Banyan Gold
Corp. (“Banyan”) (December 31, 2016 – nil) and 300,000 common shares of Golden Predator Mining Corp.
(“Golden Predator”) (December 31, 2016 – 473,500). As of December 31, 2017, the warrants held consist of
4,375,000 warrants of Banyan (December 31, 2016 – nil) with an exercise price of $0.115 and 1,425,000
warrants of Golden Predator (December 31, 2016 – 2,125,000) with exercise prices ranging between $0.15
and $1.00 per share.
During the year ended December 31, 2017, the Corporation recorded a pre-tax gain on investments in the
amount of the $1,341,000 (2016 - $1,530,000). The gain on investments for the year ended December 31,
2017 consists of a realized pre-tax gain on the sale of Golden Predator shares in the amount $1,204,000
(2016 – $111,000) and a fair value measurement adjustment on warrants held in Banyan and Golden
Predator in the amount of $137,000 (2016 – $224,000).
10.
Inventories
Ore in stockpiles and mining supplies
Materials and supplies
Inventory
Less: Current portion
December 31
2017
December 31
2016
$ 4,743
646
$ 5,110
151
5,389
646
5,261
151
$ 4,743
$ 5,110
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
11.
Property, Plant and Equipment
Cost
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
Total
$ 1,364
-
-
$ 5,213
-
-
$ 20,402
-
(106)
$ 6,707
-
-
$ 1,322
72
-
$ 35,008
72
(106)
-
-
-
(55)
-
(55)
December 31, 2016
Additions
$ 1,364
345
$ 5,213
14
$ 20,296
13
$ 6,652
1,594
$ 1,394
34
$ 34,919
2,000
December 31, 2017
$ 1,709
$ 5,227
$ 20,309
$ 8,246
$ 1,428
$ 36,919
Accumulated
Depreciation
Land and
Buildings
Camp, Roads,
and Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
Total
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
Depreciation
$ 275
75
$ 4,356
286
$ 8,828
1,040
$ 6,254
384
$ 1,239
43
$ 20,952
1,828
December 31, 2017
$ 350
$ 4,642
$ 9,868
$ 6,638
$ 1,282
$ 22,780
Net book Value
Land and
Buildings
Camp, Roads,
and Other Site
Ore
Processing
Mill
Heavy
Machinery
and
Equipment
Leasehold
Improvements
& Other
Total
December 31, 2016
$ 1,089
$ 857
$ 11,468
$ 398
$ 155
$ 13,967
December 31, 2017
$ 1,359
$ 585
$ 10,441
$ 1,608
$ 146
$ 14,139
During the year ended December 31, 2017, the Corporation recorded total depreciation of property, plant
and equipment of $1,828,000 (2016 – $2,083,000), of which $1,563,000 (2016 – $1,964,000) has been
charged to income with $142,000 (2016 – $246,000) recorded in environmental services cost of sales and
$1,421,000 (2016 – $1,718,000) reflected under general expenses and mine site care and maintenance.
Of the balance, $265,000 (2016 – $119,000) was related to property, plant and equipment used in
exploration activities and has been capitalized to mineral properties.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
12.
Mineral Properties
Mineral Properties
Keno Hill District Properties
Bellekeno
Lucky Queen
Onek
McQuesten (i)
Silver King
Flame & Moth
Bermingham
Elsa Tailings
Other Keno Hill Properties
Other
Total
Mineral Properties
Keno Hill District Properties
Bellekeno
Lucky Queen
Onek
McQuesten(i)
Silver King
Flame & Moth
Bermingham
Elsa Tailings
Other Keno Hill Properties
Other
December 31
2016
Expenditures
Incurred
December 31
2017
$ 8,804
2,113
321
3,814
7,154
21,966
15,193
884
5,410
190
$ 76
130
16
73
-
489
8,184
-
-
-
$ 8,880
2,243
337
3,886
7,154
22,455
23,377
884
5,410
190
$ 65,849
$ 8,967
$ 74,816
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
Total
(i) Effective May 24, 2017, the Corporation entered into an Option Agreement with Banyan Gold Corp. (“Banyan”) to option up
to 100% the McQuesten property. In three stages, Banyan may earn up to 100% of the McQuesten property, by incurring a
minimum of $2,600,000 in exploration expenditures ($338,954 incurred), issue 1,600,000 shares (400,000 shares issued),
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. Any payments received are credited
against the mineral property.
$ 60,483
$ 65,849
$ 5,366
December 31, 2017
Cost
Accumulated depletion and write-downs
Net book value
December 31, 2016
Cost
Accumulated depletion and write-downs
Net book value
(a)
Keno Hill District Properties
Mining
Operations
Properties
Exploration and
Evaluation
Properties
$ 130,387
(118,927)
$ 11,460
$ 130,165
(118,927)
$ 11,238
$ 70,366
(7,010)
$ 63,356
$ 61,621
(7,010)
$ 54,611
Total
$ 200,753
(125,937)
$ 74,816
$ 191,786
(125,937)
$ 65,849
The Corporation’s mineral interest holdings in the Keno Hill District, located in Canada’s Yukon
Territory, are comprised of a number of properties.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
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, 2017 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 on care and maintenance
The Corporation’s historical 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.
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% all of which are incorporated under the Option
Agreement with Banyan. 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%.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
13.
Accounts payable and accrued liabilities
Trade payables
Accrued liabilities and other
14.
Silver Streaming Interest
Balance – Silver Stream Interest
Less: Embedded derivative asset
December 31
2017
December 31
2016
$ 1,468
2,133
$ 814
1,016
$ 3,601
$ 1,830
December 31
2017
December 31
2016
$ 18,118
$ 18,118
(6,600)
-
$ 11,518
$ 18,118
On October 2, 2008 (with subsequent amendments on October 20, 2008, December 10, 2008,
December 22, 2009, March 31, 2010, January 15, 2013, March 11, 2014 and June 16, 2014), the
Corporation entered into a silver purchase agreement (the "SPA") with Wheaton under which Wheaton will
receive 25% of the life of mine payable 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 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 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 Wheaton amended the SPA (the “Amended SPA, such that
Wheaton will continue to receive 25% of the life of mine payable silver from the Keno Hill Silver District with
a variable production payment based on monthly silver head grade and monthly silver spot price. The actual
monthly production payment from Wheaton will be determined based on the monthly average silver head
grade at the mill and the monthly average silver spot price, as determined by a grade and pricing curve with
an upper ceiling grade of 1,400 grams per tonne (“g/t”) silver and price of US$25 per ounce of silver and a
floor grade of 600 g/t silver and price of US$13 per ounce of silver. Additional terms of the amendment
include a date for completion of the 400 tonne per day mine and mill completion test, which has now 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 Wheaton in the maximum amount of
US$8,788,000, which can be further reduced by mine production and mill throughput exceeding 322 tonnes
per day for a 30 day period prior to December 31, 2019.
In consideration of the foregoing amendments, the Corporation issued 3,000,000 shares to Wheaton with a
fair value of $6,600,000 (US$4,934,948). Under the terms of the Amended SPA, the original US$50,000,000
deposit was reduced by this amount. The variability in the future cash flows to be received from Wheaton
upon extraction and delivery of their 25% interest of future production is considered an embedded derivative
within this host contract under IAS 39, Financial Instruments. The embedded derivative asset was initially
recorded at fair value based on the value of the consideration paid to Wheaton and will be re-measured at
fair value on a re-occurring basis at each period end with changes in value being recorded within the
Statement of Income/(loss).
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
As at December 31, 2017, the fair value of the embedded derivative was calculated based on the discounted
future cash flows associated with the difference between the original US$3.90 per ounce production
payment Wheaton would pay for each payable ounce delivered under the SPA and the new production
payment under the Amended SPA which varies depending on the monthly silver head grade and silver price.
The model relies upon inputs from the preliminary economic assessment (the “PEA”), such as payable
ounces delivered, head grade and silver price and will be updated as a result of updated studies, mine plans
and actual production. A discount rate of 13%, representing the implied discount rate applied to the payment
made under the Amended SPA was used to calculate the NPV. There were no significant changes in fair
value to the underlying embedded derivative therefore there were no adjustments recorded during the year
ended December 31, 2017.
15.
Decommissioning and Rehabilitation Provision
Balance – beginning of year
(Decrease) increase due to re-estimation
Accretion expense, included in finance costs
December 31
2017
December 31
2016
$ 4,955
$ 5,111
37
63
(220)
64
Balance – end of year
$ 5,055
$ 4,955
The Corporation’s decommissioning and rehabilitation provision consists of costs expected to be incurred 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 $6,499,000 currently posted
is included in the Corporation’s non-current restricted cash and deposits.
The total inflation adjusted estimated cash flows required to settle the decommissioning and rehabilitation
provision is estimated to be $6,187,000 (2016 – $6,056,000), with the expenditures expected to be incurred
substantially over the course of the next 17 years. In determining the carrying value of the decommissioning
and rehabilitation provision as at December 31, 2017, the Corporation has used a risk-free discount rate of
2.11% (2016 – 2.1%) and an inflation rate of 2.0% (December 31, 2016 – 2.0%) resulting in a discounted
amount of $5,055,000 (2016 – $4,955,000).
16.
Capital and Reserves
Shareholders’ Equity
The following share transactions took place in the year ended December 31, 2017:
1. On May 30, 2017, the Corporation completed a bought deal financing and issued 4,205,820 flow-
through common shares on a private placement basis at a price of $2.15 per share for aggregate
gross proceeds of $9,042,513. Share issuance costs were $788,000 including non-cash items of
$72,000 related to the valuation of broker warrants;
2. 126,339 stock options were exercised for proceeds of $162,000;
3. 463,078 warrants were exercised for proceeds of $418,000;
4. 289,626 common shares were issued from treasury upon vesting of restricted share units (“RSUs”);
5. 3,000,000 common shares were issued from treasury in consideration to Wheaton for amending
the silver stream agreement (see Note 14); and
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
6. 250,000 common shares were issued from treasury for advisory services rendered (see Note 14).
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
December 8, 2017
May 17, 2018
May 17, 2018
May 30, 2019
Exercise
Price
$0.53
$1.75
$1.49
$2.15
Balance at
December 31, 2016
323,362
5,008,336
60,900
-
Issued
Exercised
-
-
-
126,174
(323,362)
(139,716)
-
-
Balance at
December 31, 2017
-
4,868,620
60,900
126,174
$1.76
5,392,598
126,174
(463,078)
5,055,694
The following share transactions took place in the year ended December 31, 2016:
a) 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.
b) 316,669 stock options were exercised for proceeds of $231,000.
c) 4,364,575 warrants were exercised for proceeds of $6,208,000.
d) 202,952 common shares were issued from treasury on the vesting of RSUs.
Equity Incentive Plan
Under the Corporations equity incentive plan (the “Equity Incentive Plan”), 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, 2017, a total of 6,546,666 stock options and
398,326 RSUs were outstanding under the New Plan and a total of 3,183,093 remain available for future
grants.
Incentive Stock Options
Stock options under the Equity Incentive 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, 2017 AND 2016
(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, 2016
Stock options granted
Share based compensation expense
Options exercised
Options forfeited or expired
Balance – December 31, 2017
Balance – December 31, 2015
Stock options granted
Share based compensation expense
Options exercised
Options forfeited or expired
Balance – December 31, 2016
Weighted
average
exercise
price
Number of
shares issued
or issuable on
exercise
Amount
$2.48
$2.31
-
$1.28
$4.78
$2.06
$3.20
$1.11
-
$0.72
$3.01
$2.48
6,175,995
$ 6,996
1,645,500
-
(126,332)
(1,148,497)
-
2,204
(78)
(2,864)
6,546,666
$ 6,258
4,444,497
$ 6,906
2,537,500
-
(316,669)
(489,333)
-
1,018
(111)
(817)
6,175,995
$ 6,996
During the year ended December 31, 2017, 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 1.02% (2016 – 0.53%) per
annum, an expected life of options of 4 years (2016 – 4 years), an expected volatility of 73% based on
historical volatility (2016 – 70%), an expected forfeiture rate of 2% (2016 – 4%) and no expected dividends
(2016 – nil).
Incentive share options outstanding and exercisable at December 31, 2017 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
$1.75
$1.78
$1.94
$2.32
$4.16
$7.10
$8.13
35,000
1,085,333
1,640,833
600,000
42,000
150,000
496,500
1,601,500
336,000
556,000
3,500
6,546,666
1.96
2.12
3.12
3.44
4.63
3.49
1.12
4.09
0.06
0.03
0.35
2.66
Average
Exercise
Price
$ 0.60
$ 0.60
$ 0.84
$ 1.73
$ 1.75
$ 1.78
$ 1.94
$ 2.32
$ 4.16
$ 7.10
$ 8.13
Number of
Shares
Issuable on
Exercise
35,000
1,085,333
1,093,889
600,000
10,500
150,000
496,500
800,750
336,000
556,000
3,500
Average
Exercise
Price
$ 0.60
$ 0.60
$ 0.84
$ 1.73
$ 1.75
$ 1.78
$ 1.94
$ 2.32
$ 4.16
$ 7.10
$ 8.13
$ 2.06
5,167,472
$ 2.15
The weighted average share price at the date of exercise for options exercised during the year ended
December 31, 2017 was $2.26 (2016 – $1.59).
During the year ended December 31, 2017, the Corporation recorded total share-based compensation
expense of $2,204,000 (2016 – $1,018,000) related to incentive share options, of which $369,000 (2016 –
$136,000) is recorded to mineral properties, $1,835,000 (2016 – $882,000) has been charged to income.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Subsequent to December 31, 2017, a further 2,464,000 incentive stock options have been granted with an
exercise price of $2.07, 333 stock options were exercised, 451,000 stock options expired unexercised and
8,000 stock options were forfeited.
Restricted Share Units
The Corporation has a RSU Plan. 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, 2017, a total of 398,326 RSUs were
outstanding.
The changes in RSUs outstanding are summarized as follows:
Balance – December 31, 2016
RSUs granted
Share-based compensation expense recognized
RSUs vested
Balance – December 31, 2017
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
452,951
$ 220
235,000
-
(289,625)
-
524
(343)
398,326
$ 401
360,903
$ 471
295,000
-
(202,952)
-
213
(464)
452,951
$ 220
During the year ended December 31, 2017 the Corporation granted a total of 235,000 RSUs (2016 –
295,000), with total grant-date fair value determined to be $545,000 (2016 - $268,000). Included in general
and administrative expenses for the year ended December 31, 2017 is share-based compensation expense
of $524,000 (2016 – $213,000) related to RSU awards.
The weighted average share price at the date of vesting for RSUs during the year ended December 31,
2017 was $2.31 (2016 - $1.04).
Subsequent to December 31, 2017, a total of 177,700 RSUs were granted.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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, 2017 and
2016 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
Restructuring costs
Salaries and contractors
Share-based compensation
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
Travel
2017
2016
$ 89
13
567
682
433
309
1,353
2,112
2,305
301
$ 84
13
419
603
647
159
-
1,416
914
220
$ 8,164
$ 4,475
$ 19
59
164
756
29
1,657
-
94
$ 32
98
75
748
39
1,837
161
49
$ 2,778
$ 3,039
Total General and Administrative Expenses
$ 10,942
$ 7,514
18.
Mine Site Care and Maintenance
The Corporation recorded mine site care and maintenance expenses for the years ended December 31,
2017 and 2016 as follows:
Mine site care and maintenance
Depreciation
Office, operating and non-operating overheads
Other expenses
2017
2016
$ 1,366
357
-
$ 1,602
274
78
$ 1,723
$ 1,954
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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, 2017 and 2016 are as
follows:
(a)
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% (2016 –
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
2017
2016
$ (6,176)
(1,605)
$ (3,967)
(1,031)
495
-
2,488
(1,075)
1,040
(72)
201
1,472
(53)
(95)
(131)
1,424
594
(396)
80
1,423
Income tax provision
$ 1,472
$ 392
(b)
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:
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
Deferred tax liabilities
Mineral
Property
Interest
Inventory
Property,
Plant and
Equipment
Other
Total
December 31, 2015
Charged to the income
statement
Charged to OCI
December 31, 2016
(Charged) credited to the
income statement
$ (4,712)
$ (126)
$ (1,365)
$ (1,219)
$ (7,422)
(1,425)
-
-
-
(140)
-
(50)
119
(1,615)
119
$ (6,137)
$ (126)
$ (1,505)
$ (1,150)
$ (8,918)
(1,390)
13
41
41
(1,295)
December 31, 2017
$ (7,527)
$ (113)
$ (1,464)
$ (1,109) $ (10,213)
Deferred tax assets
Mineral
Property
Interest
Loss
Carry
Forward
Property,
Plant and
Equipment
Decommissioning
and rehabilitation
provision
Other
Total
December 31, 2015
Credited (charged) to the
income statement
Charged to OCI
December 31, 2016
Credited (charged) to the
income statement
Charged to OCI
$ 592
$ 2,757
$ 316
$ 1,533
$ 1,440
$ 6,638
178
-
1,524
-
(173)
-
(48)
-
(561)
(80)
920
(80)
$ 770
$ 4,281
$ 143
$ 1,485
$ 799
$ 7,478
69
-
(13)
-
(66)
-
(121)
-
(775)
637
(906)
637
December 31, 2017
$ 839
$ 4,268
$ 77
$ 1,364
$ 661
$ 7,209
Net deferred tax liabilities
December 31, 2016
Charged to the income statement
Charged to OCI
December 31, 2017
$ (1,440)
(2,201)
637
$ (3,004)
(c)
At December 31, 2017, the Corporation has unrecognized tax attributes, noted below, that are
available to offset future taxable income. The Company has 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
$ 40,604
24,518
8,431
$ 73,553
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
As at December 31, 2017, the Corporation has available non-capital losses for income tax
purposes in Canada 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:
2029
2030
2031
2032
2033
2034
2035
2036
2037
Canada
3,195
3,397
421
88
2,222
9,520
6,751
6,687
8,323
Total
3,195
3,397
421
88
2,222
9,520
6,751
6,687
8,323
$ 40,604
$ 40,604
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
Embedded derivative - Wheaton agreement
Available-for-sale
Investment in marketable securities
Fair Value
Hierarchy
Classification
December 31
2017
December 31
2016
Level 2
Level 3
$ 1,082
$ 6,600
$ 1,326
-
Level 1
$ 673
$ 365
$ 8,355
$ 1,691
During the year ended December 31, 2017, the fair value of warrants held for trading were estimated using
the Black-Scholes option pricing model, assuming a risk-free interest rate of 1.66% (2016 – 0.73%) per
annum, an expected life of options of ranging from 2.98 to 0.17 years (2016 – 1.19), an expected volatility of
84.18% (2016 – 87%) based on historical volatility and no expected dividends (2016 – 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, 2017 AND 2016
(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 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 cash equivalents
Accounts and other receivable
Accounts payable and accrued liabilities
Net exposure
December 31
2017
December 31
2016
$ 1,336
510
(298)
$ 3,023
972
(391)
$ 1,548
$ 3,604
Based on the above net exposure at December 31, 2017, a 10% depreciation or appreciation of the US
dollar against the Canadian dollar would result in an approximately $158,000 decrease or increase
respectively in both net and comprehensive loss (2016 – $360,000). 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
2017
December 31
2016
$ 1,035
940
13
1,988
6,019
11,887
7,092
$ 857
1,315
32
2,204
6,484
13,898
6,948
$ 26,986
$ 29,534
Substantially all of the Corporation’s cash, cash equivalents 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, 2017, trade
receivables are recorded net of a recoverability provision of $1,000 (2016 – $1,000).
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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
2017
December 31
2016
$ 3,601
-
$ 1,830
-
$ 3,601
$ 1,830
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, 2017 remains fundamentally unchanged from the year ended December 31,
2016.
22.
Supplemental Cash Flow Information
Supplemental cash flow information with respect to the years ended December 31, 2017 and 2016 is
summarized as follows:
Operating Cash Flows Arising From Interest and Taxes
Interest received
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
Exploration and evaluation properties
2017
2016
$ 221
$ 63
$ 369
$ 265
$ 37
$ 136
$ 119
$ (220)
$ (1,130)
$ (23)
$ 54
$ -
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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, 2017 and 2016, 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, 2017
Environmental
Services
Mining Corporate and
Other
Total
Segment revenues
External customers
Canadian
Non-Canadian
Total revenues as reported
Cost of sales
Gross profit as reported
Depreciation and amortization
Share-based compensation
Other G&A expenses
Mine site care and maintenance
Restructuring Costs
Foreign exchange loss (gain)
Gain on investments
Other (income) loss
$ 5,881
4,851
10,732
6,732
4,000
$ -
-
-
-
-
$ -
-
-
-
-
$ 5,881
4,851
10,732
6,732
4,000
79
-
2,700
-
(1,080)
-
250
-
-
-
1,723
(4)
(247)
101
2,305
4,404
-
1,353
120
(1,341)
(187)
180
2,305
7,104
1,723
1,353
(964)
(1,341)
(184)
Segment income (loss) before taxes
$ 2,051
$ (1,472)
$ (6,755)
$ (6,176)(i)
Total assets
Total liabilities
$ 6,198
$ 1,642
$ 99,815
$ 20,670
$ 17,823
$ 1,464
$ 123,836
$ 23,776
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
Gross profit as reported
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
8,495
2,866
$ -
-
-
-
-
$ -
-
-
-
-
$ 6,754
4,607
11,361
8,495
2,866
130
161
2,748
-
(2)
-
(1)
-
-
-
1,954
-
-
46
97
914
3,464
-
139
(2,742)
(75)
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
(i) Represents consolidated loss before taxes.
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
For the year ended December 31, 2017, revenue from three customers of the Corporation’s Environmental Services
segment represents approximately $6,594,000 of the Corporation’s consolidated revenue.
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, 2017 and 2016 was as follows:
(a)
Key Management Personnel Compensation
Salaries and other short-term benefits
Share-based compensation
2017
2016
$ 2,246
2,072
$ 1,765
1,079
$ 4,318
$ 2,844
Key management includes the Corporation’s Board of Directors and members of senior
management.
Other Related Party Transactions:
During the year ended December 31, 2017, the Corporation incurred $125,000 (2016 – $nil) of
consulting expenses from a Corporation controlled by a Director of the Company. The consulting
services provided by the Company controlled by this director concluded effective September 30,
2017.
On December 28, 2017, the Corporation restructured its US environmental division. In this
restructuring, the Corporation’s wholly-owned subsidiary, AEG Canada, entered into a share
purchase agreement with Arete Property Holdings LLC (“Arete”) for the purchase by Arete of all of
the issued shares of AEG US and its wholly-owned subsidiary, AFCG, for nominal consideration.
Arete is wholly-owned by Mr. James Harrington, President of AEG. As a result of this transaction, a
new Colorado affiliate of AEG Canada, AWE, is continuing the current and future environmental
work in the United States. On disposal the Corporation realized a loss of $250,000. The
Corporation also crystalized a $1,000,000 foreign exchange gain as the result of the settlement on
intercompany loans.
25.
Commitments
As at December 31, 2017, 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:
2018
2019
Thereafter
$ 341
296
95
$ 732
(b)
The Corporation’s other contractual obligations,
expenditures, totaled approximately $240,000.
including with respect
to capital asset
ALEXCO RESOURCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(figures in tables are expressed in thousands of Canadian dollars, except per share amounts)
(c)
As a consequence of its commitment to renounce deductible exploration expenditures to the
purchasers of flow-through shares, the Corporation is required to incur further renounceable
exploration expenditures totaling $5,192,000 by December 31, 2018.
26.
Subsequent Event
On February 23, 2018 the Corporation entered into a definitive credit agreement with Sprott Private
Resource Lending (Collector), L.P. (“Sprott”) to provide a US$15,000,000 credit facility (the “Credit Facility”).
The Credit Facility has the following key terms:
Term of 3 years, Maturity Date – February 23, 2021
Interest rate on funds drawn down: the greater of
7% plus US Dollar 3 month LIBOR and
8% per annum, payable monthly
o
o
Repayable in quarterly installments from October 31, 2019 through to the Maturity Date
Upon draw down of funds a 3% charge of the draw down is charged
1,000,000 share purchase warrants were issued to Sprott with a five-year term, an exercise price of
Cdn$2.25 per share and a right by the Company to accelerate the expiry date to 30 days following
the closing price of the shares exceeding Cdn$5.63 for more than 20 consecutive trading days
Repayable in whole or in part, without penalty, provided not less than twelve (12) months of interest
has been paid on any outstanding amount
The Corporation has the option to extend the availability period of draw down from twelve (12) to
eighteen (18) months by issuing to Sprott 171,480 Alexco common shares
Senior Management
Board of Directors
Clynton Nauman, BSc (Hons)
Chairman & Chief Executive Officer
Brad Thrall, BSc, MBA
President
Michael Clark, CPA, CA
Chief Financial Officer &
Company Ethics Officer
Alan McOnie, MSc (Geology), FAusIMM
Vice President, Exploration
Gordon Wong, CPA, CA
Vice President, Finance
Linda Broughton
Vice President, Technical Services
James Harrington, MSc
President, Alexco Environmental Group
Clynton Nauman, Chairman
Richard Zimmer, P.Eng., MBA
Michael Winn
Terry Krepiakevich, CPA, CA, ICD.D.
Rick Van Nieuwenhuyse, MSc
Elaine Sanders, CA, CPA
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
555 Burrard Street
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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