Mr. Paul Huet reports
KLONDEX REPORTS 2017 PRODUCTION RESULTS AND PROVIDES 2018 GUIDANCE; ANNOUNCES POSTPONEMENT OF INVESTOR DAY
Klondex Mines Ltd. has releasedits preliminary operating results for the fourth quarter and full-year 2017. In addition, the company reported that its investor day, previously scheduled for Feb. 7, 2018, has been postponed as Paul Huet, the president and chief executive officer of the company, is recovering from pneumonia and is restricted from travelling. An alternative date will be determined in the near future.
2017 operating results:
Mined 222,233 gold equivalent ounces (GEOs); Produced 189,456 GEOs, an increase of 17 per cent from 161,289 GEOs produced during 2016; Fire Creek and Midas delivered GEO production in line with guidance; Sold 190,865 GEOs, an increase of 20 per cent from 159,118 GEOs sold during 2016.
Total GEOs produced were less than the lower end of the most recent guidance range primarily due to results from Hollister and True North. At Hollister, the company made the prudent decision to defer the processing of a majority of the mined Hollister ore as it continued to optimize recoveries at the Midas mill for this ore. Stockpiles at the end of 2017 contained approximately 15,000 GEOs from 44,000 tons at a GEO grade of 0.40 ounce per ton. Mined ounces at Hollister were in line with expectations. In addition, the expected production results were not achieved at True North as a result of aggressive expectations and operational issues.
Mr. Huet commented: "Two thousand seventeen was a year of progress and learning for Klondex. The company produced more ounces than any year in the company's history: 28,000 GEOs or 17 per cent more than last year. Our core operations, Fire Creek and Midas, continue to perform well, as expected. However, we were not successful in delivering on our overall company plan. Integrating our two recently developed assets, Hollister and True North, simultaneously was more challenging than we thought it would be. The processing of Hollister ore through the Midas mill was delayed during the year as we work to improve ore recoveries, which resulted in production delays and a stockpile accumulation. In addition, we were not able to deliver on our plans at True North and had to make a difficult decision there, placing mining operations on care and maintenance."
Mr. Huet continued: "Looking forward, we expect that Fire Creek and Midas will continue to deliver consistent results from our operations in Nevada. We also expect significant growth in production at Hollister in 2018. The new modifications to the Midas mill are under way, and recoveries for the Hollister ore are now approximately 80 per cent, with additional improvements expected. In addition, the changes we have made at True North will result in improved profitability for the company and provide optionality as we evaluate the district. Over all, we have learned from the challenges of 2017, and I am confident in our team and the plans we have developed for a successful 2018."
Fourth quarter and year-to-date 2017 operating results
CONSOLIDATED RESULTSThree months ended Dec. 31, 2017 12 months ended Dec. 31, 2017 Nevada total Canada total Total Nevada total Canada total TotalOre tons mined 95,619 89,706 185,325356,697309,343 666,040Gold equivalent grade mined (opt) (1)0.48 0.120.30 0.53 0.100.33Gold equivalent ounces mined (1) 45,483 10,41555,893190,409 31,824 222,233Ore tons milled98,714 88,624 187,338329,948297,826 627,774Gold equivalent grade milled (opt) (1) 0.46 0.110.30 0.55 0.100.33Gold equivalent ounces produced (1)38,4539,16947,619161,536 27,919 189,456Gold equivalent ounces sold (1)40,6868,99349,676165,016 25,850 190,865GEO ratio (1)76.5 73.876.6 73.1 72.773.1(1) Gold equivalent ounces (GEO) and grades are computed as the applicable gold ounces per grade plus the silver ounces per grade divided by a GEO ratio. GEO ratios are computed by dividing the average realized gold price per ounce by the average realized silver price per ounce received by the company in the respective period. Preliminary GEO ratios are listed herein.
NEVADA RESULTS Three months ended Dec. 31, 2017Fire Creek Midas Hollister Aurora Nevada totalOre tons mined 28,16237,45420,4409,563 95,619Gold equivalent grade mined (opt) (1)0.760.360.44 0.17 0.48Gold equivalent ounces mined (1) 21,29213,514 9,0211,652 45,483Ore tons milled32,52235,58321,0469,563 98,714Gold equivalent grade milled (opt) (1) 0.730.340.41 0.17 0.46Average gold recovery rate (%) 90.289.770.5 63.5 85.6Average silver recovery rate (%) 72.674.353.9 31.9 66.3Gold equivalent ounces produced (1)21,18010,371 5,914985 38,453Gold equivalent ounces sold (1)25,42010,512 4,752- 40,686GEO ratio (1)76.576.676.5 76.5 76.5 12 months ended Dec. 31, 2017 Fire Creek Midas Hollister Aurora Nevada totalOre tons mined123,754 156,92766,4539,563356,697Gold equivalent grade mined (opt) (1)0.900.330.38 0.17 0.53Gold equivalent ounces mined (1)111,12552,11625,4641,652190,409Ore tons milled 134,152 157,36328,8709,563329,948Gold equivalent grade milled (opt) (1) 0.880.320.37 0.17 0.55Average gold recovery rate (%) 91.790.871.0 63.5 90.1Average silver recovery rate (%) 82.181.955.5 31.9 79.3Gold equivalent ounces produced (1) 108,12645,062 7,371986161,536Gold equivalent ounces sold (1) 112,45547,298 5,281-165,016GEO ratio (1)73.572.876.3 76.3 73.1(1) Gold equivalent ounces and grades are computed as the applicable gold ounces per gradeplus the silver ounces per grade divided by a GEO ratio. GEO ratios are computed by dividing the average realized gold price per ounce by the average realized silver price per ounce received by the company in the respective period. Preliminary GEO ratios are listed herein.
CANADIAN RESULTS Three months ended Dec. 31, 2017 True North mine True North tailings Canada totalOre tons mined82,159 7,547 89,706Gold equivalent grade mined (opt) (1) 0.120.04 0.12Gold equivalent ounces mined (1)10,120 295 10,415Ore tons milled 81,077 7,547 88,624Gold equivalent grade milled (opt) (1)0.120.04 0.11Average gold recovery rate (%)92.089.0 92.0Gold equivalent ounces produced (1)8,906 2639,169Gold equivalent ounces sold (1)8,730 2638,993GEO ratio (1) 73.873.8 73.8 12 months ended Dec. 31, 2017 True North mine True North tailings Canada totalOre tons mined 228,49580,848309,343Gold equivalent grade mined (opt) (1) 0.120.04 0.10Gold equivalent ounces mined (1)28,208 3,616 31,824Ore tons milled216,97880,848297,826Gold equivalent grade milled (opt) (1)0.120.04 0.10Average gold recovery rate (%)93.091.0 93.0Gold equivalent ounces produced (1) 24,636 3,285 27,919Gold equivalent ounces sold (1) 22,606 3,244 25,850GEO ratio (1) 72.772.7 72.7(1) Gold equivalent ounces and grades are computed as the applicable gold ounces per grade plus the silver ounces per grade divided by a GEO ratio. GEO ratios are computed by dividing the average realized gold price per ounce by the average realized silver price per ounce received by the company in the respective period. Preliminary GEO ratios are listed herein.
Nevada operations
Fire Creek
The Fire Creek mine continues to excel and performed in line with guidance for the year. For the fourth quarter, 28,162 tons at a grade of 0.76 ounce per ton gold equivalent were mined at Fire Creek. For the year, 123,754 tons at a grade of 0.90 opt AuEq were mined. Fourth quarter and year-to-date (YTD) recovered GEOs were 21,180 and 108,126, respectively.Sold ounces for the same periods were 25,420 and 112,455 GEOs as metal inventories were depleted during the year.
Midas
The Midas mine also performed in line with guidance for the year.For the quarter, 37,454 tons at a grade of 0.36 opt AuEqwere mined at Midas.For the year, 156,927 tons at a grade of 0.33 opt AuEq were mined.Fourth quarter and YTD recovered GEOs were 10,371 and 45,062, respectively. Sold ounces for the same periods were 10,512 and 47,298 GEOs as metal inventories depleted throughout the year.
Hollister
The Hollister mine had its best quarter of mining in the fourth quarter, mining over 9,000 GEOs, as the majority of the underground rehab was completed in the third quarter, and development was advanced, providing additional access to the Gloria vein. For the quarter, Hollister mined 20,440 tons at a grade of 0.44 opt AuEq. For the year, Hollister mined 66,453 tons at a grade of 0.38 opt AuEq. Fourth quarter and YTD recovered GEOs were 5,914 and 7,371, respectively. Sold ounces for the same periods were 4,752 and 5,281 GEOs. Stockpiles at the end of 2017 contained approximately 15,000 GEOs from 44,000 tons at a GEO grade of 0.40 opt.
As previously reported, metallurgical testwork is being performed to identify processing improvements to increase the gold and silver recoveries of the Hollister ore processed through the Midas mill. The recent mill modification, eliminating all cyanide in the grinding circuit, planned for the fourth quarter, was not finished until the first week of January, 2018.As a result, the decision was made to stockpile the Hollister ore during the fourth quarter to limit the risk of lower mill recoveries and less revenue. In 2018, the company has already milled approximately 15,000 tons of Hollister ore at estimated gold and silver grades of 0.48 and 3.20 opt, respectively. Gold and silver recoveries for that material are estimated at approximately 80 per cent and 65 per cent, respectively. Continuing metallurgical testwork supports that gold recoveries of 85 to 90 per cent can be achieved with additional modifications to the Midas mill circuit, including increasing leach time and finer grinding. Design and engineering of these modifications are being evaluated.
Canadian operations
The True North mine in Manitoba, Canada, produced 9,169 and 27,919 GEOs for the fourth quarter and full year, respectively, approximately 7,000 GEOs short of the low end of the revised guidance for the year. This shortfall was due to mining lower-than-forecasted grades from the True North and Cohiba mines. The lower mined grades are attributed to three issues:
Delays in waste development postponed mining planned stopes in the 711/713 areas of the True North mine;Excessive dilution from a hangingwall failure at True North, resulting in additional tons with no grade; Negative model grade reconciliation at the Cohiba mine.
For the quarter, True North mined 82,159 tons at a grade of 0.12 opt AuEq.For the year, True North mined 228,495 tons at a grade of 0.12 opt AuEq. Total fourth quarter and YTD recovered GEOs from the mine were 8,906 and 24,636, respectively. Total sold ounces for the same periods were 8,730 and 22,606 GEOs.
Tailings milled during the quarter totalled 7,547 tons at a grade of 0.04 opt Au. For the year, True North milled 80,848 tons from tailings at an average gold grade of 0.04 opt Au. Recovered gold ounces from tailings for the fourth quarter and YTD were 263 and 3,285, respectively.
As previously announced, following an extensive review of the operational performance at True North, the company decided to place the mine under care and maintenance to review strategic options and to provide optionality at higher metal prices. This decision was largely based on the site's inability to achieve planned operating and cash flow targets in 2017 and to refocus company resources on Nevada assets.The company will continue to process tailings through the mill for the foreseeable futureto maximize cash flow and offset expected care-and-maintenance costs.
2018 guidance
Attached is a 2018 guidance table summarizing company guidance for 2018.
2018 GUIDANCEGold equivalent Production cash costs Capitalounces produced (1)per gold equivalentexpendituresounce sold (1) (thousands)2018 full-year outlookLowHigh LowHigh LowHighMidas35,00040,000$850$900$4,000$5,000Midas mill- - - -16,00018,000Fire Creek100,000 105,000 450 50023,00025,000Hollister37,00040,000 920 970 5,000 7,000Aurora4,000 5,000 550 600 200 500Nevada total176,000 190,000 645 69548,20055,500True North 10,00012,000 1,130 1,180 - -186,000 202,000 675 72548,20055,500 LowHighCorporate general and administrative (1) (thousands)$18,000 $19,000All-in sustaining costs per gold ounce sold (2) 940 990Exploration (thousands)10,00012,000(1) Includes share-based compensation of approximately $4-million, a non-cash item.(2) This is a non-generally accepted accounting principle measure.
The company expects to produce between 186,000 and 202,000 total GEOs during 2018 at an expected cash cost of $675 to $725 per GEO sold. Total production will not 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 is 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 realized. In addition, Klondex has begun processing historical Hollister tailings at the Aurora mill and expects to realize 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 $940 and $990 per gold ounce sold for 2018.
The company anticipates its 2018 capital expenditures (capex) to be between $48-million and $56-million, including $16-million to $18-million of capital to be spent on the expansion of the tailings facility at the Midas mill. Total capex guidance consists of $36-million to $42-million of sustaining and $12-million to $14-million of non-sustaining capital. The majority of the capital is expected to be spent at Fire Creek as the company continues underground expansion in the form of primary access development. Total exploration expense is planned to be $10-million to $12-million in 2018.
Webcast and conference call
Klondex will report its 2017 financial results after the U.S. and Canada financial markets close on March 14, 2018. The company will conduct a conference call and webcast the following morning at 7:30 a.m. PST/10:30 a.m. EST.
Dial-in numbers
United States and Canada toll-free: 1-800-319-4610
Toronto: 1-416-915-3239
International: 1-604-638-5340
Conference call participants should dial in five to 10 minutes prior to the scheduled start time and ask to join the Klondex call. A simultaneous webcast and presentation to accompany the conference call will be available through the investor relations section of the company's website.
About Klondex Mines Ltd.
Klondex is a 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 four producing mineral properties: the Fire Creek mine, the Midas mine and ore milling facility, the Hollister mine, all of which are located in the state of Nevada, United States, and the True North mine and mill in Manitoba, Canada. The company also has a 100-per-cent interest in the Aurora mine and ore milling facility, also located in Nevada, United States.
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