There is this notion that if a mine can produce more silver per ton, it will be able to generate more profits. Unfortunately, for Alexco Resources this is not case.
Alexco Resources’ Bellekeno project is Canada’s only primary silver mine producing silver at over 800 g/t (24 oz/t), which is twice the ore grade of the top two silver mines in the world.
However, Alexco recorded a NET INCOME LOSS of $2.6 million in the second quarter of 2012.
If we take a look at Alexco’s Q2 2012 report we can see that it averaged 800 g/t of silver in the first half of 2012. Furthermore, Alexco was able to recover 93% of the silver from the ore which is one of the highest in the industry:
If we take their JAN-JUL total production of 1,040,257 oz and divide it by their processed ore of 43,460 metric tonnes, we get the 24 oz per tonne yield. Just to give you an sense of comparison, Alexco’s Bellekeno mine produced silver at more than twice the ore grade than the two biggest silver miners in the world in 2011.
Here are the stats from 2011:
Alexco Bellekeno = 834 g/t
Fresnillo = 396 g/t
BHP Billiton Cannington = 352 g/t
Furthermore, Alexco’s cash costs more than doubled in a year:
Here we can see that their cash costs have more than doubled from $6.30 oz in second quarter of 2011, to $15.53 in the same period in 2012. Thus, the increase in costs plus the decline of the silver price in the first half of 2012, Alexco recorded a NET INCOME LOSS of $1.3 million from Jan-Jul.
Alexco even had higher revenues in the first half of 2012 compared to the same period last year. The big difference was the increase in COST OF SALES from $27.8 million 2011, to $35.3 million in 2012.
Part of the reason why Alexco has a net income loss is due to the fact that it has a silver-stream contract with Silver Wheaton. Silver Wheaton provided $50 million of the $61 million it took to build out the Bellekeno mine. For their part, Silver Wheaton is awarded 25% of Bellekeno’s silver production at $3.90 an ounce for the life of the mine.
Some analysts such as Ned Schimdt believe the FAIR PRICE of silver should be $16 an ounce. If silver was trading at $16 an ounce it would be nearly what Alexco shows for its cash cost alone.
Thus, if Alexco want’s to make a profit, it will have to get at least $30 an ounce silver. I would imagine if silver did trade anywhere below $20 an ounce Alexco and many other marginal silver produces would be losing a great deal of money and would be forced to close shop.