Klondex Mines (TSE:KDX) (OTCQX:KLNDF) has reported that it has yielded 1,302 tonnes (1,435 tons) of mineralized material in June from its underground development program at its Fire Creek project in Nevada, ahead of targeted initial production later this year. The results from the program, which targeted the Joyce and Vonnie structures at the site, come just days after the company made two big announcements, 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 last week, announced after the closing bell last Thursday, saw 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 underground development program at Joyce and Vonnie in June yielded 1,302 tonnes of mineralized material at an average grade of 119.8 grams per tonne gold (3.49 ounces per ton), using a 1,714.7 g/t cap on gold sample results. The development program is expected to continue throughout the rest of the year, with June's production adding to the 682 tons in May, for a total of 2,117 tons that will be shipped to Newmont for processing.
The agreement announced Friday with Newmont is part of the gold development company's way to monetize its high grade material, with CEO Paul Huet highlighting at Klondex's annual shareholder meeting in June 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 toward funding the company's own waste development ahead of the 2014 bulk sampling program, and for 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.
Klondex said Monday that July activities are expected to be more in line with May's development, resulting from the areas of the project being developed.
"We're extremely encouraged by the grades and continuity of widths encountered during this month's program along the Joyce and Vonnie structures and look forward to shipping our material in the coming weeks," said the company's general manager in a statement accompanying the June results on Monday, Mike Doolin.
"Our resource estimate is progressing well and will be released within the coming weeks. In addition, while our team is focused on the exploration and development program, our vent raise contractors are making steady, but slower than expected progress, and now anticipate completion by early September."
After the vent raise access is complete, the company plans to move into its bulk sampling program.
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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