Mr. John Seaberg reports
KLONDEX REPORTS THIRD QUARTER 2017 FINANCIAL RESULTS; REITERATES FULL-YEAR TOTAL COMPANY PRODUCTION GUIDANCE OF 213,000 - 230,000 GEOS AT PRODUCTION CASH COST OF $675 - $700 PER GEO SOLD
Klondex Mines Ltd.
has released its operational and financial results for the third quarter of 2017. This press release should be read in conjunction with our 2017 third quarter report on form 10-Q, which includes our unaudited condensed consolidated financial statements and related management's discussion and analysis of financial condition and results of operations, which are available on our website, on SEDAR and on EDGAR. All dollar amounts included in this press release are expressed in thousands of U.S. dollars, unless otherwise noted, and are based on our MD&A and our unaudited condensed consolidated financial statements, which were prepared in accordance with Generally Accepted Accounting Principles in the United States. References to notes refers to the notes contained in the third quarter of 2017 unaudited condensed consolidated financial statements.
Third quarter 2017 highlights
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Safety: No lost-time injuries occurred at the company's properties during the quarter. The operating teams recently achieved the following milestones without a lost-time injury: Fire Creek -- 5 years, Midas -- 3 years, Hollister and Aurora -- 1 year. In addition, it has been approximately 1.7 years without a lost-time injury at True North.
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Consolidated performance: The company mined a total of 54,172 gold equivalent ounces, in line with management's expectations. The company produced a total of 40,819 GEOs. Total sales for the third quarter were 38,012 GEOs, consisting of 35,477 gold ounces and 189,904 silver ounces. Production cash costs per GEO sold(1) were $809 for the third quarter and $727 year-to-date.
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Nevada performance: At Fire Creek, Midas and Hollister, the company mined 92,333 ore tons in the third quarter at an average mined head grade of 0.48 GEOs per ton. Total ounces mined in Nevada were 44,266. The company ended the third quarter with a stockpile in Nevada of approximately 43,000 tons containing approximately 18,000 GEOs. The company began to process Hollister ore at the Midas mill at the end of quarter with blend feed optimization continuing.
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Canada performance: At True North, the company mined a total of 120,864 ore tons from both the mine and tailings. Average mined head grade from the True North mine was 0.11 GEOs per ton. Total production from True North was 8,026 GEOs. The company ended the third quarter with a stockpile at True North of approximately 11,000 tons containing approximately 1,600 GEOs.
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Full-year guidance: Based on year-to-date results and the company's current forecast for 2017, total annual production guidance of 213,000 to 230,000 GEOs remains unchanged. This projection now consists of 178,000 to 185,000 GEOs produced from Nevada operations. The company is widening its annual production guidance range for Canadian operations by 6,000 ounces to 35,000 to 45,000 GEOs. In addition, the company is reiterating consolidated guidance for production cash costs per GEO sold(1) of $675 to $700.
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Acquisition: On Oct. 19, 2017, the company completed the previously announced acquisition of Bison Gold Resources Inc. This opportunistic acquisition consolidates Bison's complementary land package with existing operations at True North. Bison's land package contains numerous historic drill holes with future potential for high-grade feed material to leverage our mill at True North.
(1) This is a non-GAAP measure; refer to the Non-GAAP performance measures section of this press release for additional detail.
Paul Huet, president and chief executive officer, commented: "Mined ounces and consolidated production cash costs for the third quarter were in line with our expectations. However, we did not process all of the mined ore and built stockpiles, both in Nevada and Canada, during the quarter. We are working through the stockpiles now and anticipate the majority of those ounces will be processed in the fourth quarter, in addition to our planned fourth quarter production. A significant accomplishment was reached during the third quarter as we began processing Hollister ore through the Midas mill for the first time. We are making progress to improve recovery rates of the Hollister ore, as we analyze feed blends to provide the most favorable results. We anticipate this optimization process will be completed by year end." Mr. Huet continued: "We are making significant progress in ramping up True North and Hollister to full production. In addition, we continue to achieve strong operating results at Fire Creek and Midas. Our annual operating plans, which are heavily weighted to the fourth quarter, have not changed. We remain confident in our plans and the company is well positioned to achieve the annual production and cash cost targets we have reiterated today."
2017 full-year outlook
We continue to expect total company consolidated production between 213,000 and 230,000 GEOs during 2017. This represents an increase in GEOs of approximately 40 per cent from the prior year as we are now benefiting from production at Hollister in Nevada as well as higher production from True North in Canada as ramp-up continues. Fire Creek and Midas' 2017 production is expected to be in line or slightly higher than the prior year.
The company maintains its expectation of consolidated production cash cost per GEO sold of $675 to $700. We are reiterating previous production cash cost guidance for each of our Nevada operations. At True North, we now expect cash cost per GEO sold to be $1,000 to $1,050 for the year, up from the previous range of $900 to $950. The company now expects all-in costs per gold ounce sold of $1,150 to $1,200 for 2017, an increase from the previous forecast of $1,070 to $1,130.
Guidance for 2017 site capital expenditures is unchanged at $63-million to $71-million with an additional $7-million to $9 million to be spent on district and near mine exploration. The majority of capital is being spent at Fire Creek as we continue underground expansion in the form of primary access development and advancement of a second portal.
Full-year general and administrative costs are now expected to be in the range of $20-million to $22-million, an increase from the previous guidance range of $17-million to $18-million. The increase is due to expenses associated with company growth, including salaries and professional service fees.
We now expect total annual development and project costs for Hollister to be between $10-million and $11-million, up from the previous forecast amount of $9-million. The year-to-date development and project costs for Hollister of $10.6-million are above the high end of the originally expected range primarily due to additional development at the Hollister mine in preparation for initial production.
Tables summarizing key 2017 operating guidance metrics
Gold equivalent Production cash costs per Capital expenditures
ounces produced (1) gold equivalent ounce sold (1) (thousands)
2017 full-year outlook
Low High Low High Low High
Midas 48,000 50,000 $800 $850 9,000 10,000
Midas Mill - - - - 6,000 8,000
Fire Creek 109,000 110,000 425 450 27,000 29,000
Hollister 21,000 25,000 935 960 6,000 8,000
Nevada Total 178,000 185,000 625 650 48,000 55,000
True North(2) 35,000 45,000 1,000 1,050 15,000 16,000
213,000 230,000 675 700 63,000 71,000
Low High
Corporate general and administrative (thousands) $ 20,000 $ 22,000
Hollister development and project costs (thousands) $ 10,000 $ 11,000
All-in sustaining costs per gold ounce sold(1) $ 950 $ 1,000
Regional exploration (thousands) $ 7,000 $ 9,000
All-in costs per gold ounce sold(1) $ 1,150 $ 1,200
(1) This is a non-GAAP measure; refer to the Non-GAAP performance measures section of this press release for additional detail.
(2) Based on an estimated Canadian:U.S.-dollar exchange rate of 0.75:1.
CONSOLIDATED FINANCIAL RESULTS OF OPERATIONS
Three months ended Sept. 30, Nine months ended Sept. 30,
2017 2016 2017 2016
Revenues $ 48,853 $ 55,641 $ 177,355 $ 142,075
Cost of sales
Production costs 26,108 27,774 94,035 70,681
Depreciation and depletion 10,673 6,885 33,273 19,114
Write-down of production inventories 6,394 - 12,309 -
5,678 20,982 37,738 52,280
Other operating expenses
General and administrative 5,738 4,837 15,953 11,435
Exploration 3,667 3,421 5,093 8,263
Development and projects costs 2,288 - 11,674 5,530
Asset retirement and accretion 382 256 1,143 755
Business acquisition costs - 818 - 1,870
Provision for legal settlement - - - 2,250
Loss on equipment disposal 201 105 343 109
(Loss) income from operations (6,598) 11,545 3,532 22,068
Other income (expense)
(Loss) on derivatives, net (219) (1,297) (699) (15,578)
Interest (expense), net (1,028) (1,218) (3,285) (3,949)
Foreign currency (loss) gain, net (4,652) 328 (8,756) (2,222)
Interest income and other (expense), net (65) 52 40 57
Income (loss) before tax (12,562) 9,410 (9,168) 376
Income tax (expense) (830) (2,141) (6,759) (4,254)
Net income (loss) $ (13,392) $ 7,269 $ (15,927) $ (3,878)
Net income (loss) per share
Basic $ (0.08) $ 0.05 $ (0.09) $ (0.03)
Diluted $ (0.08) $ 0.05 $ (0.09) $ (0.03)
Third quarter 2017
Revenues decreased in the third quarter of 2017 compared with the third quarter of 2016 due to fewer ounces sold and a lower realized price per ounce of gold. Revenues increased year-to-date in 2017 due to more ounces sold as a result of higher grades from Fire Creek and Midas along with the addition of production at True North. Consolidated ore tons milled year-to-date 2017 and 2016 were 440,436 and 261,753, respectively. See the mining operations review in the MD&A section of the third quarter Form 10-Q for additional discussion on operating results at each mine.
General and administrative costs increased during three and nine months ended Sept. 30, 2017, as compared with the same periods in 2016 due to higher compensation and benefit costs from increased staff levels at the corporate office and professional fees, both of which are due to company growth.
Development and project costs during the three and nine months ended Sept. 30, 2017, were $1.8-million and $10.6-million, respectively at Hollister. These costs were generally for rehabilitating drifts, and ramps which enable us to physically access the underground stopes and working faces, drilling, engineering, metallurgical and other related costs to delineate or expand mineralization, all of which occurred in the Main and Gloria zones.
Liquidity and capital resources
Third quarter 2017
During the three and nine months ended Sept. 30, 2017 and 2016, operating cash flows were positively impacted by GEO's sold. During the three months ended Sept. 30, 2017, net cash used in investing activities increased by $3.1-million as a result of larger capital expenditures as compared with the same period of the prior year. During the nine months ended Sept. 30, 2017, net cash used in investing activities decreased by $5.5-million as compared with the nine months ended Sept. 30, 2016, as the True North acquisition resulted in a $20-million cash payment during the first half of 2016. This decrease was partially offset by higher 2017 capital expenditures. During the nine months ended Sept. 30, 2017 and 2016, the company financed capital expenditures for mineral properties, plant and equipment. During the three and nine months ended Sept. 30, 2017, net cash provided by financing activities decreased by $100.9-million and $101.8-million, respectively, as a result of cash proceeds received for the issuance of common shares in connection with the Hollister acquisition in the third quarter of 2016.
Working capital and liquidity
As of Sept. 30, 2017, the company had total liquidity of $40.4-million, consisting of $17.4-million in working capital and $23-million of borrowing availability under the revolver. The company held metal inventory valued at approximately $43.1-million at the end of the third quarter.
Nevada operations
The company's Nevada operations milled 78,035 ore tons at an average milled head grade of 0.48 GEOs per ton during the third quarter of 2017. Operations at Fire Creek continue to perform ahead of management expectations. In addition to the positive Q3 production results, mine development at Fire Creek will continue to ramp-up in the fourth quarter for 2018 mining. We began to process Hollister ore at the Midas mill towards the end of quarter. The commissioning of the new CIL circuit was in process while we tested ore blends from the Nevada mines to yield the most favorable overall recovery results. Initially, we processed 100 per cent Hollister ore in the Midas mill at approximately 40 tons per hour. Subsequent to incurring normal commissioning activities, modifications were made to the feed blend adding approximately 30-per-cent low grade Midas ore to dilute the organic carbon. Metallurgical test work is on-going and throughout this process recoveries have steadily improved and are expected to be between 85 per cent and 90 per cent for the Hollister ore going forward. Additionally, silver recoveries have also improved and are expected to increase to be approximately 70 per cent, approximately 10 per cent higher than predicted. Production from Hollister was also impacted by a delay in the delivery of the new carbon screens which were needed for the mill modifications. It is anticipated that the new processing circuit will be optimized during the fourth quarter. Hollister is well positioned to achieve significant production improvements during the fourth quarter as we plan to mine higher-grade stopes already developed.
Canada operations
At True North, the company milled 62,480 ore tons at an average milled head grade of 0.11 gold ounce per tonne, producing 6,145 gold equivalent ounces. The company also processed 48,110 tonnes from the True North Tailings at an average grade of 0.04 gold ounce per tonne, producing an additional 1,881 gold equivalent ounces. Third quarter production was negatively impacted by sequencing of underground stopes. Waste development is now in place to deliver higher grade stopes in the fourth quarter. Additionally, during the third quarter of 2017, staffing changes have been successfully implemented including management additions and the company continues to make progress transitioning to Klondex employees from third-party contractors.
The third quarter ended with significant momentum in several areas. Over 60 per cent of the gold equivalent ounces mined during the third quarter were mined during the month of September. Also, for the month of September, ore development advance rates achieved were more than double the year-to-date average. In addition, approximately 70 per cent of planned stoping fronts have been developed for fourth quarter production.
Webcast and conference call
A conference call and webcast will be held on Friday, Nov. 10, 2017, at 10:30 a.m. ET/7:30 a.m. PT. The conference call telephone numbers are listed below.
Canada and U.S. toll-free dial-in: 1-800-319-4610
Toronto: 1-416-915-3239
International: 1-604-638-5340
Callers should dial-in five to 10 minutes prior to the scheduled start time and ask to join the Klondex call. The webcast will be available on the company's website.
About Klondex Mines Ltd.
Klondex is a well-capitalized, junior-tier gold and silver mining company focused on exploration, development and production in a safe, environmentally responsible and cost-effective manner. The company has 100-per-cent interests in three producing mineral properties: the Fire Creek mine and the Midas mine and ore milling facility, both of which are located in the state of Nevada, United States, and the True North gold mine and mill in Manitoba, Canada. The company also has 100-per-cent interests in two recently acquired projects, the Hollister mine and the Aurora mine and ore milling facility, also located in Nevada.
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