With silver and zinc prices on a downward trend Alexco Resource Corp. has deemed it prudent to rein in spending until the markets recover.
Workforce reductions, a capital projects roll-back, vendor discussions, deferral of new mine commissioning and executive salary cutbacks are all part of a plan to offset expected decreases in revenue due to lower metals prices.
Despite the cutbacks, Alexco’s guidance of 1.9 million and 2.1 million ounces of silver produced during 2013 remains unchanged.
“While there are some that believe precious metals prices will rebound in the near term, we believe it is only prudent to do what we can to weather this period of lower prices,” explains Alexco President and CEO Clynt Nauman. “These measures are very painful to implement, as they will impact the lives of all our employees in one way or another, but hard as it is, I believe it is the only appropriate action to take given current conditions.”
These painful measures include a roughly 25 percent reduction in Alexco employees and positions at the company’s Keno Hill Silver District site in central Yukon Territory. Alexco said about half of the 30 lost jobs are currently vacant positions that will not be filled.
In addition to cutting jobs at Keno Hill, Alexco is reducing staff its Whitehorse and Vancouver offices by 10 percent and company executives have agreed to have their take-home pay cut by 20 percent.
Alexco’s cost-cutting analysis centered on current metal prices, cash flow contribution, and in the case of capital projects, selection of only those projects with acceptable return on capital investment in the current market.
Considering these factors, the company decided to defer the commissioning of the Onek mine until metals prices – especially zinc and silver – return to a level closer to where they were six to twelve months ago.
Alexco said it will evaluate the markets and make a decision on how to proceed with development of Lucky Queen one it obtains regulatory approval of an amended waste rock management plan for the mine.
Work will continue on a new preliminary economic assessment which covers all the operating and development properties, including the Flame & Moth property, which continues to show increasing importance. Exploration activities will remain largely unchanged from earlier plans, due to the availability of exploration funding from the flow through financing completed earlier in the year.
Nauman said that the capital and cost reduction measures are necessary for Keno Hill to achieve and maintain operating margins while positioning Alexco to further develop the district when metal prices recover.
“There are many variables ranging from metals price outlook to underlying fixed cost considerations involved in making these tough decisions, but this is the correct path for Alexco at this time,” he explained. “Return of operating focus to Bellekeno and modest continuation of our Flame & Moth exploration program will still position the company to benefit from recovery of prices in the future.”