Casimir Capital's Eric Winmill says he views the metallurgical sampling results released by Klondex Mines (TSE:KDX) on Wednesday as a positive for the company, even boosting his estimates for pre-commercial production this year.
The Nevada-focused company reported the metallurgical sampling program at its Fire Creek gold project in Nevada yielded 682 tons of mineralized material at an average grade of 73.8 grams per tonne (g/t) gold during the month of May, with sampling expected to continue throughout the year in an effort to gain a better understanding of the Joyce and Vonnie structures.
It told investors that the high grade material is to be shipped for direct smelting, with contract finalization now underway. Shipment of the first lot is expected before the end of June.
"Given that typical recoveries in the high 90% range can be achieved through direct smelting, we contend that this could generate material near-term funds for the company (we estimate $1.5mm or more using spot gold prices)," wrote Winmill in an emailed research note received on Thursday.
Metallurgical sampling is expected to continue through the remainder of 2013 and vent raise construction is underway, with completion expected in the coming weeks, according to Klondex, followed by the start of the bulk sampling program as the company transitions to initial production.
Winmill noted that he viewed the metallurgical sampling results as a positive for several reasons, including a positive indication on diluted grades, the expectation that the company could generate nearly 20 per cent of Casimir's forecast ounces for 2013 with these results, and cash generation of revenue from the sampling that could help bolster the balance sheet.
The analyst made some minor modifications to his model, and now assumes pre-commercial production of 8.1k ounces in 2013, versus 7.6k previously. His 2013 cash flow per share estimate also increased to 4 cents versus his prior forecast of 3 cents.
"We continue our positive view on the Fire Creek project and we are maintaining our $2.50/share price target based on the estimated 5% discounted cash flow of the Fire Creek asset, using a 1.0x Net Asset Value (NAV) multiple, adjusted for corporate and other items," the analyst concluded in the report.
Winmill, which has a $2.50 price target on Klondex, maintained his speculative buy rating on the company, which is looking forward to an updated resource estimate due in the coming weeks, followed by the start of the bulk sampling and a preliminary economics report due later this year or early next.
Shares of Klondex were trading up 3.5 per cent on Thursday, at $1.19.
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