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Klondex Mines posts better-than-expected Q3 profit, lifts outlook

Klondex Mines (TSE:KDX) (OTCQX:KLNDF) swung to a profit in its third quarter as the company started to generate revenues from its Midas mine and mill earlier this year. Klondex said Thursday that based on its operational results this year, it is increasing its target to recover at least 95,000 gold equivalent ounces and to sell at least 85,000 ounces in 2014.

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Klondex Mines (TSE:KDX) (OTCQX:KLNDF) swung to a profit in its third quarter as the company started to generate revenues from its Midas mine and mill earlier this year.

The Canadian company, which is focused on its operations in Nevada and reports in Canadian currency, posted net income for the third quarter of $7.2 million, or 6 cents per share, topping estimates for 4 cents per share.

This is up from a net loss of almost $1 million, or 2 cents per share, in the year-ago period.

Revenue for the third quarter was $38.0 million, up from nil in the same quarter last year, as Klondex acquired the operating Midas mine in February of 2014.

Sales also improved by 4 percent from the second quarter of this year, due to a 9 percent increase in gold equivalent ounces sold, partly offset by a 5 percent decline in the average price per ounce.

The company sold 23,166 gold ounces and 315,504 ounces of silver during the latest period, at an average realized price of US$1,262 per ounce and US$18.02 an ounce, respectively.

Klondex said Thursday that based on its operational results this year, it is increasing its target to recover at least 95,000 gold equivalent ounces and to sell at least 85,000 ounces in 2014. It previously was aiming for production in the range of 70,000 to 85,000 ounces. 

The company has already recovered 77,401 gold equivalent ounces year-to-date.

The gold miner also owns the Fire Creek project in Nevada, which sits just 112 miles away from its Midas mine. The company is engaged in a bulk sampling program at Fire Creek, and is focused on developing the asset into a full production scenario.

"The third quarter operational results continue to transform Klondex from a development company into a profitable low-cost precious metals producer," said president and chief executive officer Paul Huet.

"We anticipate that even within the current volatile gold price environment, Klondex will continue to generate positive cash flows from operations, further strengthening our balance sheet," he added. 

In the third quarter, cash flow --- an important metric in the industry that measures a company's ability to fund future operations --- came to $16.2 million, for year-to-date cash flow of $27.8 million.

Production costs were $613 (US$563) per gold equivalent ounce sold, 16 percent lower than the second quarter of this year.

Looking ahead, the company said it is preparing to release an updated mineral resource estimate for its Fire Creek project in the fourth quarter after releasing encouraging drill results last month, while it will complete a pre-feasibility study for Midas in the first quarter of next year.

Klondex has taken every opportunity it can to grow. Ripe from closing a $16 million financing in July, the company in September announced the start of a development and exploration program at its producing Midas mine, with the gold miner saying it found several drilling targets to test over the next 18 months following a review of the site's historic database. 

It also in September bolstered the mineral resources at Midas after just seven months of ownership, a result of its ability to mine narrower veins with lower waste dilution compared to previous production, as well as positive 2014 drilling results in remnant areas, which sparked the technical evaluation of all historically mined veins at the site.

"In my opinion, the updated Midas mineral resource estimate is the most significant accomplishment for Klondex within the quarter," said Huet.

"This is game-changing for Klondex."

The updated resource for Midas includes measured and indicated gold equivalent ounces of 526,000 and inferred gold equivalent ounces of 286,000.

The company ended September with a cash balance of $43.2 million.

Quick facts: Klondex Mines Ltd

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TSX:KDX
Market: TSX
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