VANCOUVER — Klondex Mines (TSX: KDX; NYSE-AM: KLDX) is drilling its Fire Creek underground gold-silver mine in northern Nevada, but grades and ounces in the wider deposit have fallen year-on-year.
Klondex punched 227 underground core holes over 48,000 metres last year, as well as 35 core and reverse-circulation holes from surface for 7,200 metres.
Underground drilling tested up-dip extensions of veins and structures above the current mine workings for open-pit analysis; veins west of the decline; and extensions of the Karen Joyce, Vonnie, Hui Wu and Honeyrunner veins.
On Feb. 6, Klondex released an upgraded technical report showing that Fire Creek’s underground proven and probable gold reserves had dropped 22%, while average grades were down 42% to 24.3 grams gold per tonne.
The project now hosts 289,000 proven and probable tonnes grading 24.3 grams gold and 23.66 grams silver for 229,000 equivalent oz. gold.
Meanwhile, Fire Creek’s measured and indicated resources were hit with a 28% grade drop, and now total 622,000 tonnes at 23.33 grams gold and 23.33 grams silver for 473,000 oz. gold equivalent.
The project also has lower-grade, open-pit material of 39 million indicated tonnes at 0.87 gram gold and 1.88 grams silver for 1.1 million contained oz. gold equivalent; and 29 million inferred tonnes at 1.17 gram gold and 3.12 grams silver for 1.1 million oz. gold equivalent.
Fire Creek produced 25,550 tonnes of material during the fourth quarter at an average grade of 21 grams gold equivalent. The operation provided 112,270 tonnes at a grade of 25.5 grams gold equivalent in 2017.
Fire Creek could produce between 100,000 and 105,000 oz. gold equivalent this year at production cash costs ranging from US$450 to US$500 per oz. gold equivalent. Klondex says the project’s capital expenses would total US$24 million.
The company reports the epithermal deposit is vertically zoned within high-angle, northwest-striking structures, and has low-sulphidation hosted in a mid-Miocene basalt package.
Mineralization occurs in shallow, structurally controlled gold in variably altered Tertiary basalt, and as native gold in steeply dipping quartz-calcite veins or structures.
“Our underground resource is expanding to the northwest of existing mine workings,” senior vice-president of exploration Brian Morris said in the release. He noted the area has 30% of Fire Creek’s underground resource ounces.
“With ongoing district-wide exploration and the 9-haulage development to the northwest in 2018, which will provide access for infill drilling, I fully expect to see continued growth of our underground and open-pit resource at Fire Creek,” Morris added.
BMO Capital Markets analyst Brian Quast cut his price target on Klondex by 25¢ to $2.50 per share. He noted that tonnage had increased at Fire Creek, but that “grades and ounces suffer.”
“It is our contention that very little, if any, of the open-pit resources at Fire Creek will be high enough grade to truck to the Midas mill,” Quast wrote.
The company has 100% interest in four producing properties: the Fire Creek underground, the Midas mine and mill, and the Hollister mine — all in Nevada.
It also owns the True North mine and mill in Manitoba.
The company could produce between 186,000 and 202,000 total equivalent oz. gold this year at cash costs of US$675 to US$725 per oz. sold.
Klondex shares have traded in a 52-week range of $2.04 to $7.73 per share, and closed at $2.12 at press time.
The company has 180 million shares outstanding for a $381-million market capitalization, and reported US$21 million in cash and equivalents at the end of September.