Klondex Mines PEA Highlights Low Cash Costs

“Completing this transformational and highly synergistic acquisition is very exciting for us. The addition of the operating Midas mine and mill complex to our portfolio creates an enhanced platform for future growth in one of the world’s most prolific and mining-friendly jurisdictions,” said CEO Paul Huet in a company statement.

Costs

Klondex’s figures, which are based on an average gold price of $1,250 and a silver price of $18 per ounce, show that the project has an estimated after-tax cash flow of $157.5 million and an after-tax net present value of $141.5 million at a 5-percent discount rate. The company notes that because positive cash flow is expected in the first year of production, an internal rare of return could not be calculated.

The PEA looks at a life of mine of five years, over which the company expects to produce about 280,000 ounces of gold and 139,000 ounces of silver. Capital costs for Fire Creek sit at $49.6 million and the payback period is expected to be half a year. Meanwhile, the company is looking at an all-in sustaining costs (including silver by-product) of $636 per ounce.

Resource estimates

To complete the assessment, the Klondex used a mineral resource estimate from December 2013 that includes results from 408 drill holes and 1,120 channel and face samples. It reflects underground development work undertaken on the project during in 2013; that work resulted in the processing of 8,007 tons of mineralized material. The mineral resource estimate uses a gold cut-off grade of 0.225 ounces per ton. The mine plan for Fire Creek assumes that a total of 439,000 tons of material containing 297,000 ounces of gold and 50,800 ounces of silver will be mined over the course of the mine’s life.

Klondex notes that for the PEA, the mine plan only includes mineral resources within the veins that can be readily accessed from the existing development platform. Not considered in the assessment were the majority of mineral resources found in the North Zone and all the mineral resources in the Far North Zone; they were excluded due to mine development requirements for those zones. Klondex expects that the mine plan could be extended to include these mineral resources when there is further exploration information.

Midas mill and mine

In February, Klondex completed the acquisition of the Midas mine and mill complex from Newmont Mining (NYSE:NEM). In what could be called a game-changing event for the company, Klondex has been able to process a blend of both the Fire Creek and Midas mineralized material at the Midas mill since February, an important caveat for the company as it has contributed to Klondex’s ability to fund its own exploration.

With the Midas mine alongside Fire Creek, Klondex has added a robust platform upon which it can proceed with its operations.

Permits

One of the next catalysts for Klondex is the approval of an amendment to its plan of operations and reclamation permits. Once the company obtains the amendment, it will be able to construct and operate two Rapid Infiltration Basins at Fire Creek. Klondex doesn’t foresee any delays or issues associated with acquiring permits for Fire Creek’s full production.

“We believe Fire Creek is a unique project, and what sets it apart are the gold grades, short path to production, and the substantial exploration upside. The PEA establishes that our mining operation has the potential to be the cornerstone for our growth for many years,” Huet said.

What others said

In response to Klondex’s PEA, M|Partners published a research note that states the lower cash costs will slightly offset the mine’s shorter life and lower throughput. The firm writes that the PEA’s “better than expected head grades result in lower than expected cash costs” that were “partially offset by higher per tonne costs, with the net result being LOM TCC of US$459/oz.” That’s a 14-percent improvement on M|Partners’ estimate of US$533 per ounce.

Overall, the firm sees Klondex’s PEA as conservative in its assumptions. M|Partners expects that “with continued exploration, the mine-life is likely to be more in line with [their] current seven plus year estimate rather than the five years defined in the PEA.”

The firm concludes that “as Klondex executes on the integration of Midas, along with continued exploration success and operational execution at Fire Creek, it should re-rate towards peers.” M|Partners holds a “Buy” rating on Klondex with a 12-month target of $3.25.

Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned. 

Editorial Disclosure: Klondex Mines is an advertising client of the Investing News Network. This article was not written as part of any advertising campaign and is not paid-for content.