AMEX

The idea of getting 'free' silver sounds ludicrous, especially given surging demand for the precious metal. But I've found a small mining company producing free silver for investors now that it's gone from silver explorer to silver producer.

This Canadian company's stock shows every sign of running higher along with the precious metal, yet it remains a good value despite a strong post-recession rebound over the past year.

The company is Alexco Resource (AMEX: AXU, TSX: AXR.TO), which engages in the exploration and development of mineral properties in Canada's Yukon Territory.Alexco Resource's stock finished 2010 with a 118 percent gain and has almost risen another 10 percent this year.

Alexco Resource was founded in 2005 by a management team with decades of experience in the mining industry. Shares of the Vancouver-based company, which has a market cap of $520 million, have traded on the Toronto exchange since 2006 and on the AMEX exchange since 2007.

All indications are that Alexco will turn profitable in the fiscal year that ends in June, which should help green light the stock in many investors' minds.

The company's exploration has thus far been centered on its holdings in the Yukon's Keno Hill Silver District where it began to accumulate land in 2006. Rated at 40 ounces per ton, Keno Hill is historically one of the richest silver production districts in the world.

From 1941 to 1989, the Keno Hill district delivered more than 217 million ounces of silver, with average grades of 40.5 ounces per ton of silver, 5.6 percent lead and 3.1 percent zinc. Production was halted in 1989 because of rising costs and low metals prices.

Commercial production began at the company's Bellekeno mine on January 1, and is the mine appears ready to release its wealth to today's improved, more cost-effective technologies.

The company's production plans indicate that Alexco Resource will deliver 2.8 million ounces of silver in 2011. It projects this will increase to 5 million ounces by 2013, and to 7 to 10 million ounces by 2015.

So how can Alexco Resource deliver 'free' silver? This is possible because Bellekeno produces two metals typically found with silver - lead and zinc. As gold and silver have drawn most of the attention due to rising prices, other less glamorous non-precious metals, including lead and zinc, also have marched higher.

In addition to its silver lode, Alexco projects that it will produce 18 million pounds of lead and 8 million pounds of zinc from the mine this year. At spot market prices of around $1.10 and $1.25 per pound, respectively, production of those metals should pay for ALL mining costs.

And therefore, the silver coming up becomes 'free' - produced at a negative cash cost. While lead and zinc pay the freight, the silver is all profit If Alexco Resource reaches 7 million ounces of silver output a year, the company will have a tremendous cash flow.

Interestingly, Alexco Resource also has another mining-related business - restoring mine sites and other brownfields environmental eyesores by returning the land and water to the way they were pre-mining. So it cleans up after itself, and even cleans up any messes that other less conscientious outfits have left behind.

The company is sitting on $46.1 million in cash, thanks to a refinancing move made in 2010, and it also has no long-term debt on its books.