Big Picture – A Deep Dive Examination of Klondex Mines Ltd
Klondex Mines Ltd Snapshot
Klondex Mines (TSX: KDX; OTCQX: KLNDF) is primarily engaged in the surface and underground exploration and development of its 100% owned Fire Creek gold property in North Central Nevada. Fire Creek is strategically located between the past producing Mule Canyon Mine to the north and the world-class Pipeline and Cortez gold deposits to the south. The property comprises 11,208 acres (17.5 square miles) and is readily accessible via Federal and state roads with close access to the electrical power grid.
Klondex’s secondary focus is acquiring, exploring and developing other gold and silver properties in Nevada. Currently Klondex has three other gold exploration properties, and it reviews and considers other projects for inclusion.
On September 12, 2011, Klondex announced an updated Technical report and resource estimation that produced an Indicated Mineral Resource of 1.65 million ounces of gold and an Inferred Mineral Resource of 0.46 million ounces of gold identified via its deep surface drilling program at its Fire Creek Property. The resource figures, which are as of May 21, 2011, reflect a 4 grams per tonne cutoff. In late April 2011, Klondex initiated an underground program at Fire Creek including a 1,113 meter (3,650 foot) decline that will enable underground in-fill exploration drilling.
Pursuing a dream. Building a Legacy. The Underground Mining Company. The best thing to come out of a mine is its miners.
Midas is a low-sulphidation, epithermal vein underground gold and silver mine located in Nevada between Elko and Reno. It has been producing gold and silver since 1998, when Franco-Nevada, Normandy and Newmont started mining. At it's peak, Newmont operated Midas at approximately 200k ozs AuEq per year.
Klondex acquired the Midas Property including the underground mine, the Merrill Crow processing facility, related support infrastructure and mining and milling equipment, on February 11, 2014 from Newmont Mining. Within eight days, Klondex started running the mill, on February 19th and within another few weeks, Klondex poured its first gold and silver bars from Midas with Fire Creek and Midas mineralized materials.
Status: Gold and silver production
Location: Elko County, Nevada, in the historic Midas Mining District
Ownership: Wholly-owned by Klondex
Permits: Fully-permitted. An expansion permit for the tailings is underway; expected in 2016 and constructed in 2017
Royalty: in 2019, a 2.5% royalty on the mine paid to Franco-Nevada, begins
Historical Production: From 1998 - 2013, ~2,000,000 oz Au
Mining Method: Modern mechanized underground mining, using a combination of cut and fill, and shrinkage stoping
Mill: 1200 tpd capacity; conventional leach technology and Merrill Crowe precipitation, with gravity concentration after crushing and grinding
Expected Recoveries: ~93%
View Klondex Mines Fire Creek Project in a larger map
Klondex owns and operates the Fire Creek Project in north central Nevada, a low-sulphidation high-grade, epithermal vein deposit in the Northern Nevada Rift. The Company is operating an ongoing bulk sampling program, and shipping all mineralized material to the Midas Mill, 112 miles to the north. Klondex filed its Preliminary Feasibility Study on the Fire Creek Project, on March 17, 2015 with an effective date of December 31, 2014. (Click here to read the Pre-Feasibility Report)
Fire Creek is located in Lander County near the center of the Battle Mountain gold belt in Crescent Valley, approximately ten miles northwest of the massive Pipeline deposit of Barrick (7 million ounces) and five miles southeast of the Mule Canyon deposits of Newmont (3 million ounces). All of this mineralization exists in volcanics within the trend in Crescent Valley that runs south as far as Buckhorn (Barrick).
For much of its history, Fire Creek was considered to be a low-grade, high tonnage "Carlin" type open pit deposit. However geologic data in the late 1980s from the nearby Midas and Mule Canyon deposits suggested Fire Creek was more likely a deeper, higher-grade epithermal deposit.
Deep Drilling Program Finds High-Grade Gold
A selection of high-grade intercepts have been plotted on the photo. The gold and silver grades and actual widths are reviewed in a table you can access by clicking here. Old pit workings can be seen in the middle of the photo, with access roads for surface drilling program surrounding. The main entry road is in the foreground. Fire Creek runs diagonally across the bottom left portion of the photo.
Klondex Takes its Development Underground in April 2011
In addition to continuing its productive surface exploration programs at Fire Creek, Klondex commenced underground development of Fire Creek with the driving of a 1,113 meter (3,650 foot) decline to efficiently access underground mineralization. The underground program has a two-fold objective of exploration and in-fill drilling. By going underground, Klondex will substantially shorten the length of drill holes, reducing both the cost and time required for exploration activity. Through in-fill drilling Klondex aims to better define its mineral resource.
Fire Creek Exploration History
Gold was first produced at Fire Creek from a 2,000-ton leach pad test conducted by Klondex in 1981. Sixty-seven ounces of gold were recovered over a thirty days with a recovery rate of 80%. Having proven the leach-ability of the ore without crushing or agglomeration, a joint leasing and production agreement was signed with Minex Resources from Riverton, WY. Though undercapitalized, they managed to produce a total of about 1,000 ounces at $300 per ounce before equipment problems and a declining gold price forced them to abandon their plans in late 1983.
When Klondex undertook the search for gold in Nevada thirty years ago, its organizing concept was to grow as a strategic land bank and its motivating force was the work of Dr. Ralph Roberts who pioneered the concept of sub-microscopic gold deposits. His most famous paper was published in 1960 and entitled "Alignment of Mining Districts in North-Central Nevada." It was the catalyst for all subsequent development in the parallel Carlin and Battle Mountain Trends and the evolution of the 'Heap-leach' method of gold extraction. All the great deposits being worked by Newmont, Barrick, Anglo and Placer-Dome were realized as a result of his geological interpretation.
The next joint venture partner was Alma-American, a unit of Coors Brewing Company. They conducted an aggressive exploration and development drilling program with aerial and electro-magnetic surveys. They dropped the project after six months, even with encouraging results, because Klondex refused to renegotiate the terms of the production and royalty schedule in the lease agreement. Klondex's strong position has been vindicated by the position in which it now finds itself.
In 1988, Klondex entered into a lease agreement with Aurenco Partners to drill and eventually mine the property. Aurenco Partners was formed specifically for the project by Black Beauty Resources and Covenanter Mining from Evansville, IN. Under the terms of the lease, Klondex received an advance minimum royalty of $10,000 per month and all advance royalty payments were to have been recoverable by the lessee out of net smelter royalty production (NSR). As of April 30th, 1999 a total of $1,215,000 had been paid to Klondex.
After a great amount of exploration and test drilling, Aurenco expanded the original Klondex acreage of 2,155 acres with an additional 4,995 acres, bringing the total land package to 7,150 acres. The program was undertaken to establish the parameters of the ore body and to enable their management to make an informed production decision when market conditions turned favorable.
No drilling below 500 feet was undertaken on Klondex ground where the Company had the right to participate up to a 25% working interest below that depth by contributing its share of production costs. Alternatively Klondex could have had elected to take a 6% NSR interest. As a result, the property remained unexplored at depth where all the great deposits in Nevada have shown improving grade below 1,000 feet.
The joint-venture agreement with Aurenco was terminated in 1999 due to adverse conditions in the gold market. The project and all improvements reverted to Klondex.
Since that time Klondex has self-funded all development of the Fire Creek property and today the Fire Creek land position has been expanded to approximately 17,000 acres as of 12/31/14.
The True North mining complex, which Klondex acquired in January of 2016, covers 43,000 hectares and is part of a 400 km2 land package. It is located approximately 250 kilometers northeast of Winnipeg near the town of Bissett, Manitoba. True North is an underground mining operation consisting of several underground narrow-vein gold deposits in addition to a modern, fully-permitted modern gold mill capable of processing up to 2,500 tons per day. This facility will be able to maintain the capacity from True North as well as alternate ore sources.
Gold was originally discovered at True North in 1911. The mine has been in operation intermittently since 1931 and has produced more than 1.5 million ounces of gold. From 2007 until 2015, significant investments were made in the property and approximately 390,000 ounces of gold were produced. The mine is accessed by a 4,050 foot ‘A-Shaft’ and Klondex has undertaken a project to improve the hoisting speed and efficiency of the shaft. At the same time, the Company has been improving the track and main haulage systems to meet future production goals.
To date, Klondex has successfully completed two long hole test stopes with bulk sampling (of the 710) expected to commence in July. Additionally, the Company has also begun initial reprocessing of the tailings left behind from the previous operator with positive results. For 2016, it is expected that between 8,000 to 12,000 ounces will be recovered from the test stope mining and tailings reprocessing. A mineral resource update is expected in the third quarter of 2016 which will form the basis for the True North mine plan.
The Hollister Mine (Ivanhoe Mining District), which Klondex acquired in August 2016, is located in Elko County, approximately 130 km (~80 mi.) northeast of the town of Winnemucca, Nevada and 29 km (~18 mi.) southeast of the Midas Mine. The Hollister Mine is a very well preserved low-sulfidation, epithermal gold-silver deposit associated with mid-Miocene bimodal volcanism of the NNR. Over 115,000 ounces of volcanic-hosted, low-grade gold were extracted from 2 open pits. Later drilling led to the discovery of blind, high-grade veins in the Valmy Formation, Paleozoic basement rocks, which have produced >450,000 ounces of gold and >2.5 million ounces of silver from ore averaging ~34 g/t Au (1.00 opt) and 200 g/t Ag (5.83 opt) from cut-and-fill and longhole stoping since 2007. Typical epithermal vein textures are displayed at Hollister, most commonly massive, banded, bladed quartz, and vein breccias. Other features spatially related to the highest grades include the presence of banded quartz, bladed quartz, and alunite. An underground resource is anticipated to be released in second quarter of 2017.
The eight Reef claims in the Fairchild district of Churchill County are in the heart of an old silver mining district with production dating back to the late 19th century. The geologic formation is volcanic. Anomalous gold and silver have been detected along a siliceous reef which runs about half a mile. The claims were staked in 1986 and cover much of the exposed mineralized zone which shows evidence of pits, shallow shafts and trench work from prior examinations. The claims are surrounded on all sides with land staked by a major mining conglomerate.
Klondex holds a 66.66% interest in 48 claims in the Schroeder Mountain quadrangle. The property is on three separate sections miles located about three miles northeast of Newmont's Gold Quarry mine and 1.5 miles east of the old Queen Anne mine in the heart of the Carlin Trend. The mine and mill complex at Gold Quarry was built at an estimated cost of U.S. $200,000,000, and is considered to be Newmont's crowning financial and mining achievement. Gold Quarry produced 1.6 million ounces of gold in 1996. Numerous small pits can be found throughout the property which have been dug on mineralized surface outcrops. (Updated June 2009)
Klondex has 42 claims at Hot Springs Point, about six miles east of the town of Crescent Valley. The claims are in a basalt-andesite geological setting close to a sulfur deposit. The original claims were staked in 1993 and were reduced by "checker boarding" in 2003 to lower filing costs while retaining the land position.
BOARD OF DIRECTORS
RICHARD (RITCH) J. HALL, Acc.Dir.
Richard J. Hall is a seasoned mining executive, bringing over 40 years of building leading precious metals companies in the America’s and Australia, to the Company. In addition to consulting to the mining industry, he presently serves on the Board of Directors for IAMGOLD Corporation and Kaminak Gold Corporation. Previously, he was Chairman of Premier Gold Mines Limited, while Mr. Huet was Chief Operating Officer at Premier. Mr. Hall served as CEO of Northgate Minerals Corp. and Metallica Resources Inc., Chairman of Grayd Resource Corp. and as Chairman of the Special Committee for Creston Moly Corp. From 1998 to 2008, as President and CEO of Metallica, he was involved in all aspects of the company’s development, including the financing, construction and commissioning of the Cerro San Pedro gold and silver mine in Mexico. While at Metallica, the El Morro deposit was discovered in Chile and was brought through to a final feasibility study in conjunction with Metallica’s operating partner on the project, Xstrata. Metallica was part of a $1.6 billion three-way merger with Peak Gold Ltd. into what is now New Gold Inc. Prior to his tenure at Metallica, Mr. Hall has held senior management positions with Dayton Mining Corp. and Pegasus Gold Corp.
Mr. Hall holds a Bachelor’s and a Master’s degree in geology, and a Master of Business Administration from Eastern Washington University. He also completed an executive development program at the University of Minnesota. Mr. Hall is also a member of the National Association of Corporate Directors and member of both the Audit and Investment Committees of the Society of Economic Geologists.
BLAIR SCHULTZ, Acc.Dir.
Blair Schultz, who has 13 years of experience evaluating M&A transactions in the mining space, served as Chairman of the Company from 2012 to 2014. Most recently he was Vice President and Head of Special Situation Analytics, Portfolio Management & Trading at K2 & Associates Investment Management Inc. His duties involved management of various investment silos including special situation analytics, merger arbitrage, commodity and currency hedging and investment execution. Blair has previously worked for Canada Life, TD Securities, Trimark and Perigee Investment Counsel in debt private placements, interest rate derivatives and equity research. He is also a part owner and director of RYR Sports Inc., a hockey equipment manufacturer based in Toronto, Canada. Mr. Schultz holds an Honours Bachelor of Mathematics degree from the University of Waterloo with a Business Administration option from Wilfred Laurier University.
RODNEY COOPER, Acc.Dir.
Rodney Cooper has been involved in the mining industry for over 30 years, with broad experience in technical services, operations, project management, investment evaluation and finance. He is a mining engineer, having obtained the P.Eng. designation, and a past director of the Mining Association of Canada and the Alberta Chamber of Resources. Currently President and Chief Operating Officer of Labrador Iron Mines Holdings Limited, he previously served as Vice President and Senior Analyst at Dundee Securities, Chief Operating Officer at Baffinland Iron Mines Corporation and Vice President Technical Services at Kinross Gold Corporation. His experience in gold mining extends over twenty years, including extensive work in the western United States, including Nevada. Mr. Cooper’s underground design, development and operations experience is directly applicable to the Company’s projects. He graduated with Honours in Applied Science, Mining Engineering, from Queens University, in Kingston, Ontario and earned his MBA from the University of Toronto.
MARK DANIEL, Acc.Dir.
Mark Daniel, a Ph.D. in Economics, brings over 30 years of experience to Klondex. He started his career at the Government of Canada as an Economist, and soon after joined the Conference Board of Canada, responsible for the Board’s research and networking programs in management effectiveness. Most currently, Mr. Daniel was Vice President, Human Resources at CVRD INCO, where he was responsible for Company’s world-wide people strategy including Industrial Relations, Recruitment, Organizational Development and Compensation. Mr. Daniel now provides counsel to Boards, CEOs and senior management on organizational design, executive recruitment and development, compensation and performance improvement in organizations that range from start-ups to global multi-billion dollar enterprises. He is a current Board member of AuRico Gold Inc
JAMIE HAGGARTY, Acc.Dir.
James Haggarty is a Chartered Professional Accountant (C.P.A. and C.A.) and holds an Honours Bachelor of Commerce degree from the University of Windsor. As a financial and operational executive with over 20 years of experience ranging from strategic planning to M&A transactions to managing diverse businesses day-to-day, Mr. Haggarty is highly experienced and adept at managing complex financial structures, partnership agreements/regulations/business technologies and systems. Mr. Haggarty’s career has covered a range of industries from broadcasting, telecommunications, mining and public accounting. He has held senior executive positions as Executive VP Operations, VP Financial Operations, and VP Corporate Development with public and private companies like SHOP.CA where he currently is Chief Executive Officer. He has extensive experience with audit committees and public company boards throughout his career, stemming back to 1993 with Inmet Mining (formerly Metall Mining). Mr. Haggarty is also on the board of directors of SHOP.CA, and the board of directors of the Toronto Blue Jays Care Foundation.
PAUL ANDRE HUET, Acc.Dir.
Paul Andre Huet
Paul Huet brings 28 years of experience in high-grade mining, with particular expertise in narrow vein gold mining and has supervised Mine Operations, Mine Engineering, Geology and Mine Safety in Nevada. Prior to joining the Company, Mr. Huet served as Chief Operating Officer of Premier Gold Mines Limited and oversaw its gold projects. Mr. Huet also previously served as General Manager at the Hollister mine for five years and was Mine Manager at the Midas Mine, prior to it being acquired by the Company and while operating under Newmont and Franco-Nevada ownership, serving in several roles during his seven-year tenure.
Mr. Huet earned an Honours degree in Mining Engineering Technology from Haileybury School of Mines in Ontario and an Executive MBA from the Stanford University School of Business. He was appointed as a director for the Northwest Mining Association in 2014.
WILLIAM MATLACK, Acc.Dir.
William Matlack has 20 years of experience in the mining industry, primarily with major gold mining companies, followed by 17 years in mining finance in the securities industry, including 4 years in metals & mining equity research, which included large-cap gold producers, with major brokerage firms. Mr. Matlack is an investment banker, private investor, and mineral explorer. He specializes in metals and mining investment banking with Scarsdale Equities LLC. His prior experience in metals and mining equities includes equity research positions with BMO Capital Markets and Citigroup Capital Markets. Mr. Matlack was involved in several world-class gold discoveries with Santa Fe Pacific Gold Corp. (now Newmont Mining Corporation) and Gold Fields Ltd. spanning a 20-year career in exploration. He also has significant industry experience in non-ferrous metals and uranium. He previously served as Interim CEO of the Company in 2012. He has a B.A. in Geology from Carleton College and a M.S. in Geology from the University of Minnesota.
CHARLES OLIVER, Acc.Dir.
Charles Oliver, a CFA, HB.Sc. in Geology, brings to Klondex over 25 years of experience as an award winning fund manager. He recently retired from Sprott Asset Management as Lead Portfolio Manager of the Gold and Precious Metals Fund. Mr. Oliver is currently a board member for Integra Gold. He began his career as a field geologist in Québec after which, he moved to Toronto to work as a trader and broker, eventually joining the buy-side at AGF Funds where he was Senior Vice President and Lead Portfolio Manager of several funds including their Precious Metals Funds.
Symbol: TSX:KDX, OTCQX:KLNDF
Share Price: C$1.19
52 Week Range: C$0.91 to C$1.95
Average Volume (3M): 38K
Shares Issued and Out: 64.4M
Fully Diluted: 85.3M
Market Cap: C$72M
Enterprise Value: C$67M
Sentry Investments - 13.4
Sun Valley Gold - 12.7
K2 Principal Find - 12.2
US Global Investors - 9.6
Glenn Pountney - 6.5
NGIC - 5.0
Investors Group - 4.0
Van Eck - 3.3
Klondex Mines Ltd.
US Corporate Office
6110 Plumas St.
Reno, NV 89519
Tel: +1 775-284-5757
Fax: +1 775-284-5756
Mine Office - Elko
PO Box 1867
Elko, Nevada 89803
Tel: +1 775-738-6070
Mine Office - Winnemucca
4000 W Winnemucca Blvd
Winnemucca, NV 89445
Tel: +1 775-621-5347
Fax: +1 775-621-5300
Senior Vice President, Investor Relations
Office: +1 775-284-5757
Canadian Corporate Office
1055 West Hastings Street, Suite 2200
Vancouver, BC V6E 2E9
PwC Canada LP
250 Howe Street, Suite 700
Canada, V6C 3S7