Mr. Phillips Baker Jr. of Hecla reports
HECLA TO ACQUIRE THREE HIGH-GRADE NEVADA GOLD MINES WITH THE ACQUISITION OF KLONDEX MINES LTD.
Hecla Mining Company will acquire all the outstanding shares of Klondex Mines Ltd. through a plan of arrangement. Klondex's Canadian assets will be spun out to its existing shareholders.
Under the Transaction, Hecla will acquire Klondex for consideration of $462-million (U.S.) with a mix of cash and shares of Hecla common stock and the newly formed company (Klondex Canada). Klondex's shareholders will receive $2.47 (U.S.) per share in cash or shares of Hecla, which represents a 59-per-cent premium to Klondex's 30-day volume-weighted average price, as at March 16, 2018, on the NYSE American.
"Opportunities to acquire significant land packages along Nevada's prolific gold trends are very rare. Rarer still are for these land packages to have the highest grade mines in the U.S. and this transaction is consistent with Hecla's strategy of owning large prospective land packages with mines where we can improve costs, grow reserves and expand production," said Phillips S. Baker Jr., Hecla's president and chief executive officer."We structured the deal to use our excess cash balance so our shareholders can benefit from the approximately 162,000 gold equivalent ounces a year of production while minimizing dilution.
"One of our core strengths is operating high-grade, narrow-vein underground mines, and Klondex's three operating mines -- Fire Creek, Midas and Hollister -- are some of the highest-grade gold mines in the world.After extensive due diligence, we see significant opportunity to improve costs, throughput and recoveries over time with our expertise.The combined approximately 110-square-mile land position offers the opportunity to make discoveries and grow the reserve base as we improve our knowledge of the geology, something we have done at our other operations.We expect this transaction to be accretive on many important financial and credit metrics, with potentially significant synergies.We are pleased that two significant Klondex shareholders have committed to support this transaction, and look forward to welcoming other Klondex shareholders to our company."
"This transaction is an excellent outcome for Klondex and our shareholders, delivering premium value and a clear pathway to develop and optimize the Nevada mining assets and create further value in the future," said Paul Huet, Klondex's president and CEO."Hecla has a proven track record of developing and optimizing mining assets such as ours and has a strong balance sheet that should help Fire Creek and our other properties reach their full potential.Hecla operates a diverse portfolio of some of the highest-grade mines in the world, and the addition of our assets strengthens the portfolio further.We are delighted to enter into this agreement and the Klondex board unanimously recommends that Klondex shareholders vote in favour of this transaction."
A further transformation of Hecla:
Seven large land positions located in Alaska, Quebec, Nevada, Mexico and Idaho -- some of the safest and most prolific mining jurisdictions in the world;Proven operational excellence to be leveraged across expanded portfolio of high-grade mines -- Hecla has an extensive record of optimizing acquired assets as demonstrated at Casa Berardi and Greens Creek.Hecla's expertise in narrow-vein mining and mill optimization will be applied to the acquisitions to improve the operational consistency and enhance the value of the expanded portfolio;Well capitalized pro forma company with strong cash flow and solid balance sheet -- Hecla expects to improve financial metrics with the Nevada mines' cash flow;Significant production base with highly prospective growth opportunities and cost reductions -- adds about 162,000 ounces of annual gold equivalent production.Hecla will launch a significant exploration program at Fire Creek and at the prospective Hatter Graben discovery at Hollister;Increased precious metals production -- peer group leading pro forma production profile amongst intermediate precious metal producers of 762,000 oz gold equivalent (2017A) or 54.1 million ounces silver equivalent and commodity distribution of 30 per cent silver, 50 per cent gold, 15 per cent zinc and 5 per cent lead (by revenue).
Benefits to Hecla shareholders:
Adds significant land position with extensive exploration and development potential, and production in Nevada, one of the most prolific gold mining jurisdictions in the world;Increases pro forma 2017 annual production by 27 per cent, equating to 162,000 oz on a gold equivalent basis or 11.5 million ounces on a silver equivalent basis;Fire Creek is a cornerstone producing asset with robust cash flows and significant opportunities for exploration, mine life expansion and increased throughput;The transaction is structured to minimize dilution and is expected to be accretive on most important financial and operating metrics;Allows Hecla the opportunity to capture meaningful synergies;Further increases the grade of one of the highest-grade asset portfolios in the industry;Klondex's assets leverage Hecla's core competency in narrow-vein underground mining.
Benefits to Klondex shareholders:
Immediate and significant premium of approximately 59 per cent based on the 30-day volume-weighted average price and approximately 72 per cent based on closing prices on March 16, 2018, with continuing participation in upside through Hecla shares and through Klondex Canada shares;Superior financial strength and flexibility to support critical development and exploration programs for Klondex's assets;Hecla is well capitalized, with a lower cost of capital, making possible critical development and exploration programs for Klondex's assets;Proven record of successfully acquiring and optimizing underground assets;Superior investment with enhanced liquidity and a far more diversified production and financial base;Hecla has extensive experience operating efficient underground mines for over 125 years;Ownership in Klondex Canada, a gold company created to leverage Klondex's exploration expertise and significant mining infrastructure assets in Canada.
Klondex Canada
Klondex is pleased to be forming Klondex Canada. Certain members of Klondex's board and management team will continue on at Klondex Canada.Hecla will subscribe for $7.0-million (U.S.) of common shares of New Klondex in exchange for a 13.46-per-cent equity interest, based on a preinvestment Klondex Canada valuation of $45-million (U.S.). Klondex Canada intends to make an application to list its shares on the TSX Venture Exchange.
Terms of the transaction
Klondex shareholders may elect to receive either $2.47 (U.S.) in cash (cash alternative) or 0.6272 of a Hecla share (share alternative), each full Hecla share being currently valued at $3.94 (U.S.), subject in each case to proration based on a maximum cash consideration of $157.4-million (U.S.) and a maximum number of Hecla shares issued of 77.4 million.If all Klondex shareholders elect either the cash alternative or the share alternative, each Klondex shareholder would be entitled to receive 84.11 U.S. cents in cash and 0.4136 Hecla share. Klondex shareholders may also elect to receive 84.11 U.S. cents in cash and 0.4136 of a Hecla share and Klondex shareholders who fail to make an election will automatically receive 84.11 U.S. cents in cash and 0.4136 of a Hecla share. Klondex shareholders will also receive shares of a newly formed company (Klondex Canada) which will hold Klondex's Canadian assets, including the True North and Bison Gold Resources properties.
At closing existing Hecla and Klondex shareholders will own approximately 83.8 per cent and 16.2 per cent of Hecla's outstanding common stock, respectively.
Major shareholder support
CI Investments Inc. and Sentry Investments Inc., which together hold approximately 42.5 million shares of Klondex, representing approximately 23.7 per cent of Klondex's issued and outstanding shares, have entered into support agreements with Hecla, agreeing to vote their Klondex shares in favour of the transaction.Each of Klondex's directors and officers has also entered into an agreement to support the transaction and the board of directors of Klondex has unanimously recommended that Klondex's affected securityholders vote in favour of the transaction.
Board of directors recommendations
The transaction has been unanimously approved by the board of directors of each of Klondex and Hecla. The board of directors of Klondex unanimously recommends that Klondex's affected securityholders vote in favour of the transaction.
GMP Securities LP and INFOR Financial Inc. have each acted as financial advisers to Klondex with GMP Securities LP and Maxit Capital LP having provided fairness opinions to the board of directors of Klondex and the independent committee of the board of directors of Klondex, respectively. CIBC World Markets Inc. and J.P. Morgan have each acted as advisers to the board of directors of Hecla and have provided fairness opinions to Hecla's board of directors.
Each of the directors and senior officers of Klondex, who as of the date hereof, collectively hold approximately 1.7 per cent of Klondex's issued and outstanding common shares, has entered into agreements to support the transaction.
Transaction conditions and timing
The transaction will be implemented by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia) and will require the approval of: (i) 66-2/3rds per cent of the votes cast by the holders of Klondex's common shares; (ii) 66-2/3rds per cent of the votes cast by the affected securityholders of Klondex voting as a single class; and (iii) if applicable, a majority of the votes cast by the holders of Klondex's common shares after excluding any votes of Hecla and other persons required to be excluded under Multilateral Instrument 61-101, all at a special meeting to consider the transaction.
The completion of the transaction will also be subject to applicable regulatory approvals and closing conditions customary in transactions of this nature.The arrangement agreement provides for customary deal-protection provisions, including a non-solicitation covenant on the part of Klondex and a right for Hecla to match any superior proposal.The arrangement agreement includes a termination fee of $21-million (U.S.), payable by Klondex or Hecla, under certain circumstances.
It is anticipated that the special meeting of Klondex shareholders to consider the transaction will be held in June, 2018. The transaction is expected to close in the second quarter of 2018.
No financing contingency
Hecla has sufficient cash on hand and available under existing credit arrangements to finance the cash portion of the consideration for the transaction.Section 3(a)(10) of the United States Securities Act of 1933, as amended (the Securities Act) exempts from the registration requirements of the Securities Act the issuance and exchange of securities which have been approved, after a hearing upon the fairness of the terms and conditions on which all persons to whom it is proposed the securities will be issued shall have the right to appear, by any court expressly authorized by law to grant such approval.The parties expect this exemption to apply to Hecla's issuance of shares in the transaction and the issuance of shares of Klondex Canada as a result of the expected court approval described below.
Advisers and counsel
CIBC World Markets Inc. and J.P. Morgan are acting as financial advisers to Hecla in connection with the transaction. Cassels Brock & Blackwell LLP is serving as Canadian counsel and K&L Gates LLP is acting as U.S. counsel to Hecla.
GMP Securities LP and INFOR Financial Inc. are acting as financial advisers to Klondex. Bennett Jones LLP is serving as Canadian counsel to the independent committee of the board of directors of Klondex and Dorsey & Whitney LLP is acting as U.S. counsel to Klondex.
Conference call details
Hecla and Klondex will host a conference call on Monday, March 19, 2018, at 8:30 a.m. ET to discuss the acquisition.You may join the conference call by dialling toll-free 1-855-760-8158 or 1-720-634-2922. The participant code is Hecla. Hecla's live and archived webcast can be accessed at its 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.Klondex has 100-per-cent interests in three producing mineral properties: the Fire Creek mine, the Midas mine and ore milling facility, and the Hollister mine, all of which are located in the state of Nevada.Klondex also has a 100-per-cent interest in the True North mine and mill in Manitoba, Canada, and the Aurora mine and ore milling facility, located in Nevada.
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