December 30, 2010

Klondex Mines All Set For A Quantum Leap At Fire Creek In 2011

By Sally White

http://www.minesite.com/nc/minews/singlenews/article/klondex-mines-all-set-for-a-quantum-leap-at-fire-creek-in-2011/1.html

Klondex Mines is looking set up for a quantum leap at its major 100 per cent owned project, the Fire Creek gold and silver mine in north central Nevada. At end June it had C$1.6 million of working capital to which it has just added C$9 million from a bought deal private placement and it is in the process of completing a gold-backed loan agreement that it hopes to announce in the next few days. When that is done it will be fully funded to complete the first phase of its underground programme at Fire Creek.

“Klondex remains in the diligence phase on a loan agreement, but the continued rise in the value of gold and timing of development plans has delayed signing. Both parties are committed to closing but agree that there is little sense in taking on a C$10 to 20 million debt until needed. As we begin underground development in the first quarter of 2011 Klondex will require funding and plans to close the agreement early in the year,” is the comment from Klondex in response to Minesite’s questions.'

Fire Creek is Klondex’s flagship property where it has discovered an NI 43-101 compliant indicated mineral resource exceeding 1.6 million ounces of gold equivalent and an inferred resource of over 500,000 ounces of gold. The resource is approx. 98.3 per cent gold and 1.7 per cent silver and reflects a cut off grade of 5 grams per tonne and 60 units of silver equivalent to one unit of gold. The 43-101 was completed in early 2009 and only includes drill and exploration data collected prior to 2009.

The mine is well located near power, transportation, mining infrastructure and several milling facilities. It is strategically located in the Crescent Valley area of the Battle Mountain gold belt between the past producing Mule Canyon Mine to the north and the world-class Pipeline and Cortez gold deposits to the south. The Northern Nevada Rift in North Central Nevada, an area of substantial mining activity, has produced in excess of 100 million ounces of gold.

So, the picture is quite different from last year. Then Klondex was hobbled by the tight credit markets and substantially reduced spending to preserve capital. The speed with which that drew an unwanted and rejected predator, Silvercorp, is proof of Klondex’s attraction. Klondex’s journey at Fire Creek, has been achieved, its says, by being “very focused”. The resource was discovered in a very cost effective manner, with total drilling and related costs of approximately US $23.5 million as of December 31, 2009. “This puts Klondex's finding costs for its 2.1 million ounces at approximately US $10.92 per ounce,” it adds. This finding cost is very attractive relative to industry costs and in light of gold prices of US $1,400 per ounce.

Klondex has steadily developed the Fire Creek property and the land position has been expanded to 11,108 acres as end September. Now the task is to add to the resource. Last summer drilling commenced, with a first rig arriving on site at end-June for a programme of step-out drilling, complemented by strategic infill drilling. This was aimed at showing vein continuity and generating further metallurgical testing as the company prepared for underground mine development this year and initial bulk sampling in 2011. The latest news is that the 2010 exploration drilling programme has identified six previously unknown gold vein structures and intercepted several new gold bearing shears at Fire Creek. Assays have been received from 11 of 15 completed holes as surface drilling continues.

Blane Wilson, President and COO, explained: “Given the onset of winter weather at Fire Creek, we expect to suspend further reverse circulation drilling in the near term but plan to continue our core drilling into late February or beyond. We expect to initiate underground operations in 2011, though surface exploration will remain a priority for the company. Our current surface exploration programme covers four square miles, and we are confident it can lead the way to expanding our resource and additional underground development."

Klondex announced earlier in the year that it was going for gold-backed financing to complete the underground work as it wanted to avoid the dilution of a large placing. Terms detailed in July were for Klondex to raise C$10-20 million through delivery at US$825 an ounce from anticipated gold recovery. William Solloway, now CEO said at the time that this “provides KDX the financial and operational flexibility to fund the development of its high grade Fire Creek property, without restrictions on operations.” Hopefully he will have tightened the terms in view of current market conditions. Anyway the market seems pretty happy with Klondex’s progress as its current price of US$2.49 comfortably tops the Silvercorp bid which was worth C$2.18 a share