Klondex lifts 2016 exploration budget despite Q1 loss

TORONTO (miningweekly.com) – Junior gold and silver miner Klondex Mines has swung to a first-quarter loss of $1.1-million, or $0.01 a share, as slightly fewer ounces sold and lower prices, as well as several special items, weighed on the company's bottom line.

The TSX- and NYSE MKT-listed company reported revenue of $35.5-million from average selling prices of $1 138/oz of gold and $14.72/oz of silver.

It also reported sales of 31 172 oz of gold-equivalent ounces (GEOs), consisting of 26 964 oz of gold and 325 274 oz of silver, as higher ore tons milled offset planned lower ore grades.

“We are doing the necessary development work to position us to achieve our annual production and cost targets,” president and CEO Paul Huet stated in a press release Tuesday.

He noted that the strong operational and financial performance over the last two years had been instrumental in creating a very strong balance sheet. “With that, and increased certainty in our near-term metal price environment, we have made the choice to increase our capital spending this year in Nevada by $10-million to aggressively develop and explore our core assets. We believe this is the best use of our capital in the current metal price environment,” Huet advised.

During the quarter ended March 31, sales from its Nevada-based assets Fire Creek and Midas totalled 26 964 oz of gold and 325 274 oz silver.

Production costs were in line with expectations given the first-quarter mine plan. All-in sustaining costs per gold ounce sold were $1 282/oz, $241/oz more year-on-year.

In April, Klondex had entered into fixed forward spot trades covering 67 600 oz of gold at an average price of $1 258/oz and 798 500 oz of silver at an average price of $16.71/oz, both of which would be physically delivered during the second, third and fourth quarters of 2016.

During the quarter, the company had also completed the acquisition of the Rice Lake project, located in Manitoba, Canada, as well as certain other assets, for $32-million. The company advised that it had started a number of exploration and project development activities.

Klondex reiterated its targeted full-year production costs and GEO output, which were expected to be weighted about 40% to 45% in the first half of the year and 55% to 60% in the second half of the year. Consolidated output was expected to range between 145 000 oz and 150 000 oz of GEO.

Output and grades were expected to progressively increase from the first quarter to the fourth quarter following the completion of planned first-half development and silling activities, the company advised.

Entering into forward sales contracts had increased Klondex's planned operating cash flows and, as a result, the company had increased its yearly capital expenditure projections from its original estimate by $10-million to $60-million. The additional capital is expected to be spent largely on nonsustaining exploration and advanced development. As a result, the company had revised higher its all-in costs per gold ounce sold (excluding Rice Lake) by $75 to between $1 025/oz and $1 075/oz.

FIRE CREEK SUCCESS
Meanwhile, the company had recently reported positive drilling results from its Fire Creek property, saying it had extended the Karen, Joyce and Hui Wu veins by 137 m, 107 m and 131 m, respectively.

A total of 57 underground drill holes totalling 7 052 m were drilled during the first quarter of 2016.

VP of exploration Brian Morris explained at the time that the drill results supported the company’s belief that Fire Creek was a much larger system than what was known today. Of the known veins, these three primary veins in the system continued to extend to the north-west and downdip, exhibiting similar widths and grades as the existing mineral resource. These results were all new and had not yet been included in the existing mineral resource estimate.