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TABLE OF CONTENTS Feb 18 - 24, 2013 Volume 99 Number 1 - 0 comments

Shaking it up at Klondex

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By: Trish Saywell

Last June Klondex Mines (KDX-T) replaced its board with a new slate of directors and in September hired Paul Huet as its chief executive, a mine engineer and expert in narrow vein gold mining best known for building and permitting Great Basin Gold’s (GBG-T, GBG-X) Hollister mine and managing Newmont Mining’s (NMC-T, NEM-N) Midas mine.   

Both the Hollister and Midas mines are near Klondex’s flagship Fire Creek underground gold project in Lander County near the center of the Battle Mountain gold belt in Nevada’s Crescent Valley. Fire Creek sits about 16 km northwest of Barrick Gold’s (ABX-T, ABX-N) Pipeline deposit and 8 km southeast of Newmont’s Mule Canyon deposit.

Since the management shake-up, the news flow from the company has been steady and positive. In January Klondex strengthened its balance sheet by raising $23 million in an equity financing and $7 million in debt financing. It used some of the proceeds to pay off a US$10.9 million debt to Waterton Global Value, trimming the company’s monthly cash burn by $760,000 and freeing up funds for development and exploration.

In January Klondex reported a new discovery that it is calling the West zone — about 165 metres west of the A-Vein mineralization that forms part of Fire Creek’s Main zone. Klondex made the discovery while it was completing a geotechnical drill hole for the design of its vent raise and reported an interval of 123.9 grams gold over 1.5 metres. The company encountered visible gold in three locations: on the left rib of the nearby drift in a drill hole at the base of the access ramp, and in the geotechnical hole about 6 metres above the access ramp.

“The discovery just supports our theory that this deposit needs more drilling — it tells us there’s more gold there,” Huet says in an interview by telephone, adding that Fire Creek’s indicated and inferred resource of 2.1 million oz. gold has been delineated on just 10% of Fire Creek’s land claim. “There’s tremendous opportunity for growth. We’re in an area that forms part of the Northern Nevada Rift. There are two other epithermal deposits in this rift, and I have had the opportunity to work at both of them.”

So far the narrow vein and high-grade Fire Creek deposit is demonstrating widths between 0.9 metre and 1.8 metres (3 feet and 6 feet) and grades that vary from between 4 grams and 5 grams gold per tonne, up to 2,910 grams gold per tonne.

“That’s phenomenal,” he says. “It’s not across the whole deposit, but it’s showing evidence of some of the highest grades around. I’ve worked in Timmins and Red Lake, and Fire Creek reminds me of those types of deposits.”

Fire Creek is already permitted for small-scale mining. Once Klondex delivers certain milestones and catalysts this year, it will be able to start trial mining a 109,000-tonne bulk sample in the second half of the year.

The first thing it needs to do before that, however, is excavate a secondary egress, or vent raise. Drilling and blasting is underway, and Huet says it should be completed by June 15. The company is also working on a rapid infiltration basin (RIB), part of a water-management system that allows it to discharge treated water back into the earth.

Klondex expects to complete an updated resource estimate by mid-2013. Indicated resources stand at 5.18 million tonnes grading 9.9 grams gold for 1.65 million oz. contained gold at a 4-gram-gold-per-tonne cut-off grade, while inferred resources add 1.73 million tonnes at 8.2 grams gold for 458,084 contained oz. gold.

“We’re going to continue drilling after the resource is released because this thing is underexplored,” he continues. “We will be drilling Fire Creek for the next five to seven years, even as we’re trial mining and putting it into production. What we’ve delineated so far is just within 1.5 square miles — it’s a small footprint.”

In the meantime, Huet is working on nailing down a milling agreement this quarter. “By June 15 we will have the secondary egress done, and we need a place to treat the ore,” he explains. “We need a place to convert that stockpile into doré bars.  You don’t want to be paying the mining costs with ore sitting on surface that you can’t convert into revenue.”

Klondex has begun some of the baseline work for a full-scale environmental assessment. “We’re committed to do some of the bench-line work, and the expectation is that we’d have a fully permitted mine in the fourth quarter of 2014, or the first quarter of 2015,” he says.

Huet notes that everything he is doing at Klondex is similar to what he did when he was in charge of building and permitting the Hollister mine. “When I joined [Great Basin Gold] we had no secondary egress, we had no mill and we had to negotiate a milling agreement — we had to build an RIB, we had no production,” he recalls. “When I look back on my life this is identical to what we did at Hollister. We intend to grow this company, and we’re very excited.”

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