Klondex Mines warns against hedge fund group

Klondex Mines (KDX-T) says a “dissident hedge fund-led group” holding 8.1% of the company is trying to take control and elect its own slate of directors.

Klondex said the group “is attempting to marginalize” the company’s shareholders “while offering ZERO premium for control.”

The junior’s shares, which have returned 82.1% over the last twelve months ended June 13, “have substantially outperformed several indices over the past year” the company says, including the TSX (+12.2%); the TSX Materials Capped Index (+18.7%), and the Philadelphia Gold and Silver Index (+10.5).

Klondex’s management also noted that the company’s share price has outperformed that of those companies “in which the proposed dissident group’s board has been associated.”

“The dissident group has not stated their plans for the company,” Klondex declared in a press release today. “Their ownership stake clearly suggests they see substantial value in the company and in our accomplishments. However, we know at least one member of the group is staunchly opposed to our underground initiative. Additionally, their group has, on several occasions over the past two years, brought potential merger/combination transactions to our attention — but on terms or at valuations that were not favorable to Klondex shareholders, and/or with companies in which they had an ownership stake.”

Klondex also pointed out that the group had not outlined any specific plans for the company.

The closely held company has about 36.7 million shares outstanding and 43.3 million shares fully diluted.

Klondex started exploration in 2004 at its Fire Creek gold property in north-central Nevada. In 2009 and 2010 it conducted 48,000 feet of core and RC drilling and has launched a 59,000 ft surface drilling program for this year.

It has also completed about 800 feet of an exploration decline into its main zone and secured all the necessary permits for underground exploration and bulk sampling. The decline will allow Klondex to start exploration in-fill drilling from underground before the end of August and begin bulk sampling for metallurgical testing by the end of the year.

On the financing side, Klondex says it has completed a $9 million equity offering and closed a US$20 million gold loan financing with US$10 million of initial funding.

Klondex started its underground program in March 2007 because it decided the costs to prove up Fire Creek’s resource for full-scale development through a deep drilling program from the surface were roughly the same as those required to pursue an underground program.And an underground program “offered the additional advantage of placing us in position to initiate bulk sampling of high-grade mineralization within the Main Zone,” Klondex’s management explained in a press release. 

Klondex has scheduled a conference call for June 21 at 11 a.m.

At presstime, Klondex was trading at $2.34 within a 52-week range of $1.40 (June 22, 2010) and $3.89 (Feb. 23, 2011).