Alexco Resource Corp. Prospectus 12/21/2005 (excerp)
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CORPORATE STRUCTURE
The Issuer was incorporated under the Business Corporations Act (Yukon) on December 3, 2004 under the name "Alexco Resource Corp.".
The Issuer’s head office is located at Suite 900, 570 Granville Street, Vancouver, British Columbia V6C 3P1 and its registered and records office is located at Suite 200, 204 Lambert Street, Whitehorse, Yukon Y1A 3T2.
The Issuer's wholly-owned subsidiary, 650399 B.C. Ltd. ("AlexSub"), is organized under the laws of British Columbia.
GENERAL DEVELOPMENT OF THE BUSINESS
Three Year History and Significant Acquisitions and Significant Dispositions
On March 15, 2005, the Issuer completed a series of transactions pursuant to which it acquired a number of property interests and rights to certain operating contracts in the Yukon Territory and British Columbia.
Pursuant to a sale and assignment agreement with Quest Mortgage Corp. (formerly Viceroy Minerals Corporation) ("Viceroy") dated February 1, 2005 (the "Viceroy Agreement"), the Issuer acquired certain assets of Viceroy comprising its Brewery Creek mine near Dawson City, Yukon Territory and a $2,500,000 payment from Viceroy to post replacement security under a related water license. The assets include mining assets and infrastructure/equipment located on the Brewery Creek property, all rights, title and interest of Viceroy in and to the 708 quartz mining claims and 93 mining leases on the Brewery Creek property and all rights, title and interest of Viceroy in and to the agreements, accords, memoranda and licences relating to the Brewery Creek property, described under "Narrative Description of the Business – Mineral Projects – Brewery Creek Property" below. In exchange, the Issuer issued to Viceroy 2,686,567 Common Shares of the Issuer at a deemed price of $0.67 per Common Share and assumed all liabilities and obligations of Viceroy with respect to its Brewery Creek property interests.
Pursuant to a sale and assignment agreement with NovaGold Canada Inc. ("NovaGold Canada") dated February 1, 2005 (the "NovaGold Agreement"), the Issuer acquired all of the issued and outstanding shares of AlexSub in exchange for the issuance to NovaGold Canada of 4,104,478 Common Shares of the Issuer at a deemed price of $0.67 per Common Share and a $599,812 cash payment to NovaGold Canada.
The Issuer also agreed to cause the payment by AlexSub to NovaGold Canada of approximately $137,000 to be paid to AlexSub by the Canada Revenue Agency as a refundable mineral tax credit for the period from December 1, 2003 to November 30, 2004. AlexSub holds interests in the McQuesten, Sprogge, Harlan and Klondike properties in the Yukon Territory and royalty interests in the Kiniskan Lake and Manson Creek claims and the Telegraph Creek/Iskut River claims in British Columbia, described under "Narrative Description of the Business" below.
Pursuant to a sale and assignment agreement with Asset Liability Management Group ULC ("ALM") dated February 1, 2005 (the "ALM Agreement"), the Issuer acquired certain rights, title and interest of ALM in and to certain contracts and arrangements of ALM including current technical support and service contracts with various mine operating and exploration companies and any intellectual property used in connection therewith (including rights to secure certain patents). The assets acquired are more fully described under "Narrative Description of the Business – Remediation Business" below. In exchange, the Issuer issued to ALM 1,940,299 Common Shares of the Issuer at a deemed price of $0.67 per Common Share. Alexco also agreed to assume all liabilities and obligations of ALM under the contracts and arrangements to a maximum of the value of the remaining work to be performed under such contracts.
The net assets acquired by the Issuer under the Viceroy Agreement, NovaGold Agreement and ALM Agreement were measured at their approximate fair value. The fair value approximated book values for the assets. With respect to the assets acquired by the Issuer from ALM, the fair value was determined by the directors with the benefit of independent financial advice.
The above-described sale and assignment agreements were completed concurrently with an organization agreement (the "Organization Agreement") dated February 1, 2005 with Viceroy, NovaGold Canada, AlexSub and ALM. The Issuer agreed to complete a seed capital private placement financing to raise gross proceeds of not less than $2,500,000 by the issuance of up to 5,300,000 Common Shares of the Issuer at a price of $0.67 per Common Share, which it completed effective March 15, 2005.
Effective September 16, 2005, the Issuer entered into a letter agreement with NovaGold Canada granting NovaGold Canada a back-in right to acquire a 70% interest in the sulphide project and a 30% interest in the oxide project with respect to the Brewery Creek property. The sulphide project relates to exploration and if successful, future development of deeper sulphide resources related to one or more of the various oxide mineralized zones which are present along the Brewery Creek mineralized trend. The sulphide zone is generally interpreted to be the non-oxidized and deeper expression of surface mineralization or, in some cases, the "feeder" zones to the shallower, more disseminated gold mineralization. The oxide project, on the other hand, relates to exploration and if successful, development of shallower oxidized and direct cyanide leachable disseminated gold mineralization similar in character and geometry to the ore previously mined at Brewery Creek.
Under the terms of the letter agreement, within 60 days of the Issuer incurring a minimum of $750,000 in expenditures on the Brewery Creek property, the Issuer will deliver to NovaGold Canada a report as to the results of such expenditures. NovaGold Canada will have 60 days following receipt of the report to give notice that it wishes to exercise the back-in right. The back-in right will be exercisable by NovaGold Canada by paying $500,000 to the Issuer over a four year period and incurring $1,750,000 in expenditures on the Brewery Creek property over a five year period. The letter agreement contemplates the parties entering into joint venture agreements upon the completion of the payments and expenditures by NovaGold Canada.
The Issuer intends to fund the exploration and development of the Brewery Creek and McQuesten properties and its mine reclamation and remediation business using the proceeds of its prior private placement financing(s) and this Offering. In addition, the Issuer intends to seek and acquire additional properties worthy of exploration and development.
Certain of the directors and/or officers of Viceroy, NovaGold Canada and ALM were also directors and/or officers of the Issuer at the time the agreements with such parties were entered into. In addition, Clynton Nauman and Bradley Thrall hold 55% and 40%, respectively, of the outstanding shares of ALM.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Issuer's principal business is the exploration and development of the Brewery Creek and McQuesten properties in the Yukon Territory acquired from Viceroy pursuant to the Viceroy Agreement and NovaGold Canada pursuant to the NovaGold Agreement. In addition, the Issuer operates a mine reclamation and remediation business.
Mineral Projects
The Issuer's principal mineral projects are the Brewery Creek and McQuesten projects in the Yukon Territory.
Brewery Creek Property
Effective, September 16, 2005, the Issuer granted a back-in right to NovaGold Canada to acquire a 70% interest in the sulphide project and a 30% interest in the oxide project with respect to the Brewery Creek property. See "General Development of the Business – Three Year History and Significant Acquisitions and Significant Dispositions".
The Brewery Creek property is subject to two underlying royalty agreements, as follows:
(a) A royalty agreement with Hemlo Gold Mines Inc. (now Newmont Mining Corporation), requiring the owner of the Brewery Creek mine to pay a "sliding scale" royalty on the first 300,000 ounces of production from the Brewery Creek property. The royalty is payable on quarterly gold production on the basis of (i) $10 per ounce if the average gold price for the quarter is less than $350 per ounce, (ii) $20 per ounce if the average gold price for the quarter is between $350 and $400 per ounce, (iii) $30 per ounce if the average gold price for the quarter is between $400 and $450 per ounce, and (iv) $40 per ounce if the average gold price for the quarter is greater than $400 per ounce. As of the cessation of gold production at Brewery Creek, royalties under this agreement had already been paid on 278,484 ounces of gold production.
(b) A royalty agreement with Total Erickson Resources, Ltd. and Energold Minerals, Inc. requiring the owner of the Brewery Creek mine to pay a 5% net profits royalty (after recapture of preproduction expenditures) on profits from gold production at Brewery Creek.
The Issuer had an asset retirement obligation of $1,827,000 at March 31, 2005 at the Brewery Creek property, based on the estimated cash flows required to settle any abandonment and site restoration obligations relating to the Issuer's mining properties at the end of their useful lives. The asset retirement obligation of $1,827,000 was arrived at by the directors of the Issuer with the benefit of independent engineering and financial advice. The Issuer on an annual basis retains an independent engineering firm to review and opine on the remaining outstanding reclamation liability at Brewery Creek. The cost obligation to offset the liability is estimated using government published rates and schedules. Most of the payments to settle the obligations will occur on an ongoing basis over the lives of the related assets estimated to be for a period of up to 13 years. Undiscounted cash flows are estimated at $2,080,000.
Cash flows have been discounted at 4% for the purposes of determining the asset retirement obligation and were recorded as a part of the Brewery Creek acquisition.
All of the reclamation work on the Brewery Creek property has been completed as per the conditions outlined in the Issuer's approved reclamation and closure plan. Final reclamation of the process solution ponds and the single remaining mine building will be completed once these facilities are no longer required and appropriate regulatory authorizations have been secured for their removal. Monitoring and terrestrial maintenance activities at the mine continue as per the schedule outlined in the Issuer's Water Use and Quartz Mining Licenses.
Qualifying Report
An independent qualifying report (the "Brewery Creek Report") on the Brewery Creek property entitled "Brewery Creek Gold Project, Yukon Territory, Canada" has been authored by Ronald G. Simpson, P. Geo. (the "Brewery Creek Report Author") of GeoSim Services Inc. dated November 4, 2005. The Brewery Creek Report is available for review under the Issuer's profile on the SEDAR database at www.sedar.com. A copy of the Brewery Creek Report may also be inspected during distribution of the Common Shares being offered under this Prospectus and for 30 days thereafter at the corporate head office of the Issuer at Suite 900, 570 Granville Street, Vancouver, British Columbia, Canada V6C 3P1, during normal business hours.
The following disclosure relating to the Brewery Creek property has been derived from the Brewery Creek Report.
Property Description and Location The Brewery Creek property and mine site are located 55 kilometres due east of Dawson City, Yukon on NTS map sheet 116B-1 at latitude 64°02' N and longitude 138°15' W. The property covers an area of approximately 9 x 17 kilometres or 12,772 hectares, consisting of 801 mineral quartz claims and fractions held under the provisions of the Yukon Quartz Mining Act. 93 claims are legally surveyed and have been converted to "Quartz Mining Leases", covering mine facilities, pits, waste dumps and adjacent drill indicated deposits including the Bohemian, West Big Rock, East Big Rock and South Fosters zones. 76 of the mining leases expire on May 21, 2016, seven expire on May 24, 2018 and ten expire on August 24, 2019.
The Brewery Creek mine is authorized under a Type A Water License (Water License) to obtain and use up to 2,724 cubic meters of water per day from Laura Creek (a tributary of the South Klondike River), and to deposit waste, as defined in Viceroy's water license application, into the catchment basins of Laura, Lucky and Pacific Creeks. The expiry date of the Water License, which is subject to the restrictions and conditions contained in the Yukon Waters Act and the Regulations made thereunder, is December 31, 2021. The Brewery Creek mine has a production license for the production of minerals pursuant to the Yukon Quartz Mining Act. The expiry date of the production license is December 31, 2021.
During 2002 - 2004, Viceroy undertook and completed approximately 90% of the mine area reclamation related to re-contouring and re-vegetation of pits and dumps. Exploration work outboard from mine areas is also authorized under a five year operating plan pursuant to mining land use regulations under the Yukon Quartz Mining Act.
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