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Message: The Gold Report - Nov 9th

Christos Doulis comments:

TGR: Would you like to talk about other companies?

CD: A recent one that I've picked up is Alexco Resource Corp. (AXR:TSX; AXU:NYSE.MKT), which is a silver producer in Canada's Yukon. I've come out with an Outperform rating and a $5.75 target. The stock is around $3.75/share today. This was an $8/share stock that got crushed down to $3.50/share. I'm a little opportunistic here, but these sub-$4/share prices hold a lot of upside potential.

Alexco has had a little trouble in the last year with feeding its mill. The mill is rated at 400 tpd, but it has never been able to get it more than 300 tpd. Part of the reason is that Alexco only has had one mine, Bellekeno, feeding the mill. It is bringing on two other regional mines, Onek and Lucky Queen, in Q1/13. That will allow it to start feeding the mill at its rated capacity of 400 tpd, which will change it from a 2 Moz producer into a 3+ Moz producer. Alexco is in a politically safe jurisdiction and has very high grades. It's a prolific past-producing camp with lots of potential to find new discoveries.

TGR: The Yukon is not an inexpensive place to do business. What do cash costs look like?

CD: High cash costs in 2012 were one of the reasons the stock has been punished this year. Costs were in the $13/oz range, while in 2011 they were below $10/oz. Alexco should be able to get back to that $10/oz range when the mill feed gets to 400 tpd.

TGR: Are there significant co-products in that deposit? The economics of lead and zinc in remote areas can be a challenge.

CD: This is super high-grade ore with 700–800 g/t silver with around 5% each lead and zinc. The $10/oz number is net of credits. It takes these robust lead and zinc credits for this project.

TGR: You have mentioned a lot of projects with strong economics at current prices. Does it concern you that there's a lot of silver coming on-line from many diverse sources that could put downward pressure on the silver price?

CD: It is something to consider, but I expect the monetary base to grow faster than miners can bring the silver to market. There will be a lot of volatility in the silver price and massive ups and downs. However, as long as the money supply grows faster than the precious metals supply, the price momentum for both gold and silver will continue to be positive.

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