Friday, 26 July 2013

Klondex Mines to monetize high grade material with Newmont deal, gets $2.4 mln in bridge loan financing

Klondex Mines (TSE:KDX) (OTCQX:KLNDF) has indeed been keeping busy as it works to advance its Fire Creek project, making two big announcements in the span of the last 24 hours, including an agreement with U.S. mining giant Newmont (NYSE:NEM) to begin processing the company's higher grade mineralized material from the Nevada property this month. 
The second piece of news, announced after the closing bell last night, sees Klondex secure $2.39 million in bridge loans as a means to support the development of Fire Creek, from where initial production from bulk sampling is due to start later this year, with an updated resource from drilling due this summer, to be followed by a new and comprehensive mine plan. 
The Fire Creek project is situated at the intersection of the Battle Mountain trend and Northern Nevada Rift, which also hosts the Midas and Hollister narrow-vein epithermal gold deposits. Klondex is working hard at having the next new producing asset in Nevada, with the company having the advantage of grade on its side, according to CEO Paul Huet, who made the assurance to investors at the company's annual general meeting in June.
Indeed, the agreement announced Friday with Newmont is part of the gold development company's way to monetize its high grade material, with the CEO highlighting at the annual meeting that these deals will be a "great opportunity to improve margins and separate the high grades over 3 ounces that [the company] has."
"Testing this high-grade material not only gives us the much needed metallurgical information on Fire Creek mineralization, but it allows us the opportunity to monetize mineralized material generated from the trial exploration drifting from the Joyce and Vonnie structures," said Huet in the release Friday.
"Proceeds from the processing of this material will be used towards funding our own waste development and a second drill to follow up on recent discoveries." Indeed, earlier this month, the company unveiled grades as high as 30,228.7 g/t gold from sampling at the Joyce vein on the site, and has made three discoveries at the deposit in the last eight months. 
According to the terms of the agreement for the high grade material, Newmont is responsible for the handling, milling and refining of minerals as well as tailings disposal, and Klondex is responsible for delivering the material. 
Shipments will be in lots of 1,000 tons up to 9,000 tons in 2013, and could continue as needed through to the end of 2014 as high grade material is generated, Klondex said. The first shipment of 1,000 tons is scheduled to begin in August, and processing is expected to follow immediately after the receipt of the first lot.
"Newmont's terms to process the Fire Creek material provide great opportunity and support for both parties based on the processing costs, improved recoveries and resulting payables," said Huet, adding that all near-term shipments of mineralized material will be sent for processing to Newmont, including the material in May that was previously slated for direct-smelter processing. 
As for the financial details, Klondex will get an initial "partial" upfront payment of 60 per cent from Newmont, based on Newmont assays, with the remaining 40 per cent to be paid based upon the finalization of settlement assays. The first payment is expected in August, according to Klondex's statement. 
Separately, the company will get a bridge loan facility of nearly $2 million from K2 Principal Fund L.P., a major shareholder of Klondex, and a bridge loan of $400,000 from an undisclosed third party. Huet said the loans will not only allow his company to meet financial requirements, but also "enhance" its exploration and development program at Fire Creek. 
"Monetizing the high-grade material remains our number one priority and we intend to repay the loan with the funds we expect to generate from Fire Creek, by November 2013," the chief executive said. 
Each of the loans bear interest at a rate of 1 per cent per 30-day period, and mature on November 30 this year, with provisions for additional interest payments if minimum payments are not made during the loans' term. In connection with the loans, Klondex has issued a total of 500,000 warrants to the parties, it said. 
Aside from being surrounded by major producers, the Fire Creek property is as expected also proximate to power, transportation, infrastructure and a milling facility in the heart of the U.S. state’s gold trend. Apart from the Rapid Infiltration Basin permit, which has been submitted and is on track for the third quarter, most other major permitting is in place. 
"The advantage is that the deposit is not homogenous, and in the case where gold is declining, we have the opportunity to increase the gold cutoff grade. Costs remain the same but we can get a lot more from the revenue end, giving us the opportunity to survive at different metal prices," Huet said at the meeting in June.  He explained that the nature of the deposit allows the mining of selective areas, but more importantly, 75 per cent of the indicated ounces at the deposit remain at a higher cut off grade, something Huet says is an advantage from any operator's standpoint, and one Klondex "will make sure to capitalize on". 

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