TORONTO (miningweekly.com) – Vancouver-based Alexco Resource Corp will start building its Bellekeno project, in the Keno Hill silver district of Canada's Yukon Territory, and plans to be in full production by the third quarter of 2010, the company announced on Wednesday.

Alexco has finalised a development plan for the silver/lead/zinc project, and received the thumbs up from Silver Wheaton, which agreed last year to buy 25% of the payable silver produced at the mine.

The mine is expected to cost about C$41,6-million to achieve commercial production, including a contingency of about 15%.

Of this, Silver Wheaton will fund $35-million under its silver-purchase agreement with Alexco.

"This completion of the Bellekeno development plan is a watershed event for Alexco, setting us up to bring into production what I believe will be the first of many Alexco mines in the Keno Hill district," said CEO Clynton Nauman.

The company owns a large property package in the silver-rich area, which includes a number of historical mines.

According to the Bellekeno development plan, the average operating costs over the initial four-year mine life are projected at C$287/t, including mining, milling, general and administrative costs and royalty payments.

Silver production costs after by-product credits are forecast at an average $6,07/oz at the base-case scenario in the study, but would be as low as $3,83/oz at current metal prices.

Accounting for mining dilution and recovery, the current mine plan includes a total of 321 941 t, containing an estimated 871 g/t silver, 9,5% lead and 5,6% zinc. The plan is based entirely on indicated resources.

In total, the operation is expected to produce about 8,6-million ounces of silver, 65,2-million pounds of lead and 35,2-million pounds of zinc.

Processing will involve a standard lead and zinc differential flotation process incorporating dry stack tailings technology.

Alexco plans to hire a mining contractor, which will use mainly cut-and-fill mining methods, as well as some minor shrink stoping to improve high-grade mineralisation extraction and reduce dilution.

Silver Wheaton agreed in October 2008 to pay $50-million upfront, and the lesser of $3,90/oz or the prevailing market price, on delivery of 25% of the silver produced at the Keno Hill project.

The $50-million would be paid in several tranches, with an initial $15-million to be used by Alexco to fund ongoing underground development, and the remaining $35-million payment, to fund mill construction and mine development costs, to be made on a drawdown basis, after various conditions had been satisfied.

Alexco shares rose 1% on Wednesday, to C$2,97 apiece by 15:50 in Toronto.