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Klondex Mines "well positioned" to deliver on 2017 output guidance

In the three months to end March, the group mined 57,633 gold equivalent ounces, which was in line with its expectations.
Klondex Mines "well positioned" to deliver on 2017 output guidance
The firm sold 33,737 gold equivalent ounces in the period

Klondex Mines Ltd (NYSE:KLDX, TSE:KDX) has repeated its production guidance for 2017 of between 210,000 to 225,000 gold equivalent ounces, as it posted what it called 'solid' first quarter operating results.

The firm said output will be more heavily weighted in the second half as the True North mine in Manitoba, Canada and Hollister in Nevada, USA, continue to ramp up towards full output.

In the three months to end March, the group mined 57,633 gold equivalent ounces, which was in line with its expectations.

It sold 33,737 gold equivalent ounces in the period, 29,559 ounces of which were gold.

In Nevada, where it operates the Fire Creek and Midas mines, it built a significant stockpile of 30,890 tons at an average grade of 0.94 gold equivalent ounces per ton containing 29,142 gold equivalent ounces.

These tons will be processed at Midas in the second quarter.

Forward sold ounces....

Meanwhile, the miner has forward sold 20,000 ounces of the stockpiled gold ounces in the first quarter at an average realized price of $1,250 per ounce, it revealed.

Klondex president and chief executive Paul Huet told investors: "First quarter production was largely from two mines, Fire Creek and Midas in Nevada.

"Our True North and Hollister operations will contribute more in the second half of the year as they continue to ramp up towards full production.

"We are well positioned to deliver on our annual company-wide production guidance of 210,000 to 225,000 gold equivalent ounces."

Klondex continues to ramp up True North in Canada towards full production, which is expected to occur in the second half of the year, with grades expected to progressively increase throughout the year as mining moves to the higher grade 710 incline and decline zones.

Hollister resource estimate eyed...

An initial mineral resource estimate for Hollister is expected to be completed in the second quarter.

Development work continued with ore silling in the Gloria zone; stockpiled ore is expected to be processed at the Midas mill in the third quarter.

What the broker says...

Broker Rodman repeated a 'buy' on the shares, noting first quarter production was hampered by heavy snowfall.

However, Klondex continued mining at Fire Creek and built a stockpile at site that now totals 30,890 tons grading 0.94 opt (ounces per ton), says analyst Heiko Ihle.

"Given this, the firm now has approximately 29,142 gold equivalent ounces in the stockpile ready to be processed at the Midas Mill in 2Q17. As this mill continues to have excess capacity, we reiterate our 2017 production estimate of 219,400 gold equivalent ounces since we expect lost production from 1Q17 to be made up for in 2Q17."

On the miner's decision to forward sell a portion of production, Rodman reckons it provides near-term pricing certainty, and allows for a locked-in margin for surfaced ore.

"We believe this is particularly important during this period of development for Klondex, as the firm is in the process of ramping up two newly acquired mines.

"Since we are generally in favor of precious metals companies locking in margins through forward sales, we especially think this strategy is prudent in Klondex’ case, and are supporters of management’s decision to hedge a portion of production."

The broker has a target price of $6.25 a share - which is a fair distance from the current price of $4.81 - up 1.26%% on the day.

---UPDATES FOR BROKER COMMENT---

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