GOLD POUR at Klondex's Midas gold mine, Nevada. Photo: Klondex Mines.

GOLD POUR at Klondex's Midas gold mine, Nevada. Photo: Klondex Mines.

Klondex Mines: Nevada's Newest Gold Producer

Issue 77, March 2014

Paul Huet, president of Klondex Mines, has tried to buy the Midas mill in Nevada from Newmont three times.

In 2011 he bid for the mill on behalf of the nearby Hollister gold mine, but the offer was rejected. Two years later, in early 2013, he approached Newmont again, now as president of Klondex, but again, the offer failed.

Then in April the gold price cracked, turning majors from scale to margins, shedding non-core assets. Huet ventured a third bid, Newmont agreed and in February, Klondex assumed ownership of the Midas mine and mill.

“I tried to do this exact deal in 2011 and we weren’t successful,” Huet explains, “so this is definitely a function of the timing. For us to build this mill in Nevada would take 5 years to permit. And the price tag would be $100m. We paid $55m for it, plus we got $30m of equipment. The cycle really helped us.” 

Midas offers Klondex a permanent processing hub in Nevada: aside from a $5m dam expansion in 3 years, the mill is 50 years from major refurbishment. “It’s a cadillac mill,” Huet says.

The Midas deposit, an underground gold and silver system with grades of 20 gold grams per tonne packed into 5ft-wide veins, is budgeted to produce c.40,000 gold equivalent ounces this year, rising 50 per cent by 2015. “Midas wasn’t receiving any additional capital,” Huet explains, having managed the mine for Newmont for 7 years until 2007. “We knew the asset. That’s why we were so aggressive.” Blasting by Klondex has already extended the mine’s working veins.

Surplus capacity at the mill also throws Klondex’s Fire Creek deposit to the south into immediate production. High grade ore from bulk sampling is currently being processed, lifting total production to over 70,000 ounces this year and over 120,000 in 2015.

The deal was funded through debt, equity and a $35m royalty deal with Franco-Nevada. 38,250 gold ounces are deliverable to Franco over 5 years, Klondex's current resource life, followed by a 2.5 per cent royalty over both Midas and Fire Creek.

Including warrants, Klondex issued 49 per cent of its market cap to close the deal, with over 10 per cent going to insiders. “80 per cent of my worth is in one stock,” Huet says. “That’s Klondex. I can’t control metal pricing, but I can control my costs and where I mine.”

“Having that ability, I could be profitable below $700 per ounce. Is gold going to below $700? I doubt it. But we can be ready for it.” 

“We knew the asset. That’s why we were so aggressive.”

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