During his presentation in February at the BMO Global Metals & Mining conference in Hollywood, Fla., Paul Huet promised that Klondex Mines (TSX: KDX) would deliver an updated resource estimate for its True North gold mine in Manitoba in the first quarter of the year.
The president and CEO has delivered on this promise — only two days shy of a self-imposed deadline and six months after the company prepared its first resource estimate. And the numbers were positive. Klondex increased the mine’s measured and indicated resource by 32% and improved its grade 2%, while inferred resources have grown 45%, with a 10% increase in grade.
Klondex acquired the underground mine, 250 km northeast of Winnipeg, in January 2016. When it released its initial resource in September 2016, it also announced it is planning to put the mine into production, making True North the company’s third operating asset.
Formerly known as the Rice Lake mine, True North has several narrow-vein gold deposits and a fully permitted gold mill that can process up to 2,500 tons per day. The mine, discovered in 1911, has intermittently produced 1.5 million oz. gold since 1931.
The updated resource release from March 29 is based on 1.5 million metres of drilling and 7,877 drill holes, and includes data from 131 holes (118,000 metres) by Klondex to May 2016. The new resource also includes 29,124 channel samples from mineralization.
True North has measured and indicated resources of 1.8 million tons (1.6 million tonnes) grading 7.40 grams gold per tonne for 388,000 contained oz. gold and inferred resources of 3.7 million tons (3.34 million tonnes) grading 6.24 grams gold per tonne for 668,000 contained oz. gold. The cut-off was 3.09 grams gold per tonne.
Huet could not be reached for comment at press time but said in a press release that the management team’s “mineral resource estimate was just the beginning,” and that the deposit “continues to evolve into an important asset.”
In a research note, Brian Quast of BMO Capital Markets notes that growing a resource at True North is “still on the horizon.”
“Klondex still has exploration potential at True North, notwithstanding the exploration results that were recently incorporated into the resource estimate,” he writes. “Exploration for 2017 will focus on adding ounces at depth, with incrementally higher grades.”
Klondex released last year’s financial and production results in April.
The company produced 10,199 equivalent oz. gold at True North (production started in the third quarter from reprocessing tailings, and increased in the fourth quarter along with stockpiled ore).
At its Nevada mining operations — Fire Creek and Midas — Klondex produced 151,007 equivalent oz. gold, bringing annual production last year to 161,289 equivalent oz. gold, in a 26.3% year-on-year increase.
Fire Creek, 101 km west of Elko in Lander Country, is a narrow-vein mine and has a mill 177 km north, while Midas, also a narrow-vein mine, is 85 km northeast of Winnemucca in Elko County. Since 1998, Midas produced 2.2 million oz. gold and 26.9 million oz. silver under previous owners Franco-Nevada (TSX: FNV), Normandy and Newmont Mining (NYSE: NEM).
Klondex’s three producing mines last year sold 159,111 equivalent oz. gold (138,516 oz. gold and 1.47 million oz. silver), up 19.4% over 2015.
Klondex posted a net loss of US$1.7 million (1¢ per share) on record revenues of US$198.2 million.
Cash costs came in at US$637 per equivalent oz. gold sold and within the company’s range of US$600 to US$650 per equivalent oz. gold.
The company ended the year with a US$47.6-million cash balance and working capital of US$33.2 million.
In addition to acquiring True North, Klondex picked up the Hollister mine in Nevada in August 2016. The low-sulphidation, epithermal gold-silver deposit is located 29 km southeast of the Midas mine and 130 km northeast of Winnemucca.
Klondex expects to produce between 210,000 and 225,000 equivalent oz. gold in 2017, in a 36% year-on-year increase. The increase stems from bulk sampling at Hollister in Nevada and higher production from True North, as the mine’s ramp-up continues. Production this year at Fire Creek and Midas are expected to be in line with the amount the two mines produced last year.
Klondex estimates production costs this year will range between US$680 and US$710 per equivalent oz. gold sold.
This year management expects to spend between US$57 million and US$62 million, with most going towards underground expansion (primary access development and advancement of a second portal) at Fire Creek. Of the total, US$7 million to US$9 million will be spent on Hollister, as the company starts a bulk-sampling program and underground definition drilling at the mine’s Gloria zone.
Another US$3 million to US$5 million is earmarked for exploration. Fire Creek is open in all directions and at depth, while at True North, the company is extending mineralization in the 710 and 711 zones, and has made a discovery called the SAM zone. At Hollister, the Hatter Graben zone is also a target area.
BMO has a $7-per-share target price on the stock. At press time, Klondex shares were trading at $5.45 within a 52-week range of $3.40 per share (April 2016) and $7.95 per share (November 2016).
I am interested to hear how Klondex plans to do what previous owners seemed to fail to achieve – making money at the Bisset mine. The geology and workforce are the same as they have always been. Does Klondex have narrow-vein expertise that can actually drive the AISC much lower than their predecessors without just high-grading the mine? I need to have more confidence before I again invest in this location.
You are right to be concerned. First Klondex has strong narrow vein mine experience.
Plus the price of gold in CA $ is about 25 % or $350 higher than when San Gold was struggling to make a profit. Klondex will improve the grade to the resource level of
6-7 g/T. At 6 g/T and $1680 CAD gold price, the profits will be very good.