Klondex advances True North mine

In January, Klondex Mines (TSX: KDX; NYSE-MKT: KLDX) negotiated a deal with creditors to buy the Rice Lake gold mine and mill complex near Bisset, Man., for US$32 million.

The previous owners had put the mine on care and maintenance and declared bankruptcy around mid-2015.

Before that, according to Klondex, they had spent US$375 million in the operation over the previous five years, which included 220 pieces of mobile equipment, some of which Klondex dispatched to its mines in Nevada.

“We picked up a tremendous amount of value for only US$32 million,” Klondex’s senior vice-president of investor relations and corporate development John Seaberg says. “It has a fully permitted, 2,500-tonne-per-day mill. We’re not going to run it that hard, but it shows you how much infrastructure was put in and how much capital has been invested.”

Since the acquisition, Klondex has renamed the mine “True North,” begun  an underground drill campaign, reported updated resources and reserves, and announced plans to put the mine back into production.

Proven and probable reserves stand at 85,000 oz. from 319,300 tonnes grading 8.33 grams gold. Measured and indicated resources stand at 294,000 oz. (averaging 7.27 grams gold per tonne) and inferred resources add another 460,000 oz. gold (5.66 grams gold per tonne).

Seaberg and the team at Klondex are confident that these numbers will grow. “We came out with a 754,000 oz. initial resource in September and of that, only 85,000 oz. was proven and probable,” he says. “But do we think that’s all? No. We did a 50-hole drill program in the second quarter and only 15 of those holes made it into the resource.”

The company plans to update the resource in the first quarter of 2017.

Seaberg says that “we know it’s going to grow. We just have to do the work.”

Klondex has unveiled a probable reserve estimate for the mine’s tailings of 32,400 oz. gold (at a grade of 0.96 gram gold per tonne).

The previous owners had tried to fill the mill to capacity, Seaberg says, and the result was that a lot of gold ended up in the waste pile. “The recoveries from the prior operation were so low,” he says. “We assayed the tailings and realized there was a 1- to 1.5-gram-per-tonne orebody sitting right there.

“They were pushing the mill so hard that a lot of gold went straight out with the tailings,” he says in a telephone interview from Nevada. “They were trying to fill it to capacity, but because it was a narrow-vein, underground mine, this brought in dilution … the long-hole stopes were too wide, and they brought in a lot of waste material. We’re going to narrow the stopes and run it at 600 to 1,000 tonnes per day, which is the right rate for the mine.”

Klondex plans to modify the mill to process the tailings concurrently with the fresh ore. The idea is to run the tailings mid-year and suspend processing at year-end or early 2017, when everything freezes.

“The tailings are a seasonal process,” he says. “The dozers push them into sumps and they’re pumped one mile to the mill. So when the weather turns, it will freeze. We’ve already winterized it and have switched to running the ore.”

During the third quarter, test stope mining and tailings processing produced 1,752 oz. gold. The company expects to produce 8,000 to 12,000 oz. gold in 2016.

Klondex estimates initial annual production between 45,000 and 65,000 oz. gold at an average all-in sustaining cost of $950 and $1,050 per oz. gold. Annual capital expenses are expected to fall between $15 and $25 million.

The True North mining complex covers 430 sq. km and is part of a 400 sq. km land package, 253 km northeast of Winnipeg. It will be Klondex’s third operating mine.

The mine is accessed by a 1,234-metre A-Shaft, and Klondex is improving its hoisting speed and efficiency. The company is also improving the track and main haulage systems.

Gold was discovered there in 1911. The mine has operated intermittently since 1931, and has produced more than 1.5 million oz. gold.