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Canada Miner Eyes Nevada

09/06/2016 7:00 am EST


Brien Lundin

President, Jefferson Financial, Inc.

Brien Lundin is a leading specialist on mining stocks, particularly junior or development stage mining outfits. Here, the editor of Gold Newsletter looks at a favorite Canada-based miner involved in the acquisition of a Nevada property.

Klondex Mines (KLDX) took a giant step toward completing the acquisition, announced last month, of the Hollister and Esmeralda mines in Nevada. It did so by completing a C$129.5 million subscription receipt offering.

Expanded from an initial C$100 million offering, the bought deal private placement issued 25.9 million subscription receipts priced at C$5.00 per subscription receipt.

Gross proceeds from the offering have been placed in escrow and will be released once all conditions of the Hollister and Esmeralda acquisition have been satisfied.

Should that not happen by November 16, 2016, the funds raised will be returned to the receipt holders.

Once the deal conditions for the mines have been satisfied, receipt holders will need to exercise their receipts (each good for one common share of Klondex).

The shares issued from this transaction are subject to a four-month- plus-one-day hold. In addition to paying for the acquisition, Klondex will use the funds raised for exploration at Hollister and Esmeralda and for development at Hollister.

The acquisition will allow the company to grow through both production and exploration and to build on the impressive results from its active Fire Creek and Midas mines, which are also in Nevada.

Those mines delivered a strong Q2 2016 to Klondex. The company achieved revenue of $48.0 million from sales of gold and silver that averaged, respectively, $1,266 per ounce and $16.78 per ounce.

Production at the two mines hit a record 41,436 gold equivalent ounces (“GEOs”), based on 0.44 ounce/ton gold head grades and 5.72 ounce/ton silver head grades.

Management continues to expect production to increase in the back half of 2016 and is maintaining its guidance for Fire Creek and Midas of 145,000-150,000 GEOs for the full year.

All-in sustaining costs per gold ounce sold are projected to be between $1,025 and $1,075. Those AISC projections exclude the money Klondex is spending to make a production decision on its True North mine in Manitoba.

Having more than doubled in price since my initial recommendation of the company last October, Klondex has more than justified its addition to our list.

The acquisition of Hollister and Esmeralda has the potential to supercharge the company’s growth plans and to provide current shareholders with even more reasons to smile down the road.

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By Brien Lundin, Editor of Gold Newsletter

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