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Klondex Mines Ltd: THE INVESTMENT CASE

Klondex Mines confident on operating and cash flow aims for 2018 after challenges of last year

Total gold equivalent ounces (GEOs) produced clocked in at 189,456, up 17% on the 161,289 GEOs produced in 2016...
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Precious metals miner Klondex Mines Ltd (TSE:KDX,NYSE:KLDX) told investors it has learnt from the challenges of 2017 and is confident it will deliver on its operating and cash flow aims for 2018.

In the year to end December, the miner, with assets in Nevada and Manitoba, produced more ounces and generated more revenue than any year in its history, but did not deliver on its stated objectives, it noted.

Total gold equivalent ounces (GEOs) produced clocked in at 189,456, up 17% on the 161,289 GEOs produced in 2016.

Less than guidance..

This was less than the lower end of the most recent guidance range due to results from the group’s Hollister and True North mines, in Nevada and Canada respectively.

Integrating the two assets simultaneously proved more challenging than the company had anticipated.

Indeed, at True North, in January, the firm  placed the mine under care and maintenance, following a review.

But Klondex will continue to process tailings through the mill for the near future to maximise cash flow and offset expected care-and-maintenance costs.

Revenues up, net loss widened..

Group revenue for the year was US$240.6mln versus US$198.1 in 2016, while the net loss was US$23.6mln compared to a net loss of US$1.7mln a year earlier.

The net loss was negatively impacted by US$8.9mln for income tax expense related to changes in the US tax laws, Klondex noted.

Meanwhile, revenues rose last year due to increases in the number of gold ounces sold from higher ounces produced at Fire Creek and due to production beginning at True North at the end of 2016 and during 2017 for Hollister.

Cash at the end of the year was US$23.7mln (2016: US$47.6mln)  after US$26.4mln of operating cash flows, US$66.4mln was used in investing activities, and US$15.7mln came in from financing.

Looking ahead to this year..

Looking ahead to this year,  the firm expects to produce between 186,000 and 202,000 total GEOs during 2018 at an expected cash cost of US$675 to US$725 per GEO sold.

Total production  is not expected to be equally distributed by quarter during the year as higher levels of production are expected during the second and third quarters due to the processing of tailings.

It is anticipated that production could vary 5,000 to 10,000 ounces between the highest and lowest producing quarters.

Production from the Fire Creek and Midas mines are expected to be in-line with 2017.

Hollister mine production is expected to ramp up during the year as the benefit of processing the stock pile from 2017 is realised. In addition, Klondex has begun processing historical Hollister tailings at the Aurora mill and expects to realise incremental production from that operation during 2018.

Production from the True North mine in Canada will decrease as mining operations will be suspended and most of the GEOs produced will come from the processing of tailings.

Total all-in sustaining costs (AISC) are projected to be between US$940 and US$990 per gold ounce sold for 2018.

The company anticipates its 2018 capital expenditures will be between US$48 and US$56mln, including US$16 to US$18mln of capital to be spent on the expansion of the tailings facility at the Midas mill.

Focused on cash generation.. 

Klondex chief Paul Huet said in a statement: "Our vast land package has also demonstrated incredible near-mine exploration potential.

"We are confident in our plans and are determined to deliver on our stated operating and cash flow objectives for 2018.

"Production guidance for 2018 is in line with total production achieved during 2017, including a renewed emphasis on cash generation."

In Toronto, Klondex shares fell 12.69% to US$1.72 each.

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