Klondex Mines to boost cash flow in second quarter as it clears processing backlog

Klondex Mines Ltd (TSE:KDX) remains on track to produce up production by more than a third year-on-year in 2017.

The gold producer said the first quarter of 2017 was a record one, with 57,000 gold equivalent ounces mined, primarily from its Fire Creek and Midas assets in Nevada.

Klondex continued to ramp up True North in Canada and the Hollister asset in Nevada towards full production, which is expected to occur in the second half of the year.

President and chief executive officer Paul Huet revealed that not all of the ounces mined made it through the mill in the first quarter because of inclement weather, but the company expects to process the backlog in the current quarter.

“This is simply a timing issue. Our operations are running well, and we are on track to meet our annual production and cost guidance for the year,” Huet said.

Production guidance reiterated as ramp-up at True North and Hollister continues

Klondex reiterated its 2017 consolidated production guidance of 210,000 to 225,000 gold equivalent ounces during 2017 at an expected production cash cost per gold equivalent ounce sold of $680 to $710 per gold equivalent ounce sold. This represents an increase in gold equivalent ounces produced of around 36% from the prior year as the company benefits from bulk sampling extraction at Hollister and True North as the ramp-up continues.

The company completed a significant amount of project development activities at Hollister in the first three months of the year, including the rehabilitation of some 4,000 feet of underground workings in the main zone; 4,000 feet of air and water lines; repair of underground support systems; and the advance of around 1,025 feet and 2,600 feet of waste and ore development in the Gloria zone, respectively.

Fire Creek and Midas’s 2017 production is expected to be in line with the prior year. Production for 2017 is weighted more heavily in the second half of the year as True North and Hollister continue to ramp up toward full production, Klondex said.

Development and project costs increased significantly in the first quarter

Revenue in the first three months of 2017 rose to US$51.71mln versus US$36.44mln the year before.

Klondex sold 33,737 gold equivalent ounces, consisting of 29,559 gold ounces and 287,000 silver ounces. Average realized selling prices per gold and silver ounce clocked in at $1,237 and $18.00, respectively.

Development and project costs rose significantly in the quarter to US$5.5mln from US$766,000 the year before, ad along with a US$3.7mln write-down of the value of production inventories this tipped the company into the red at the operating level.

The loss from operations was US$6.54mln, versus a profit the year before of US$3.56mln.

Foreign exchange movements and losses on commodity derivatives (for hedging purposes) took further chunks out of the bottom line, with the result that the net loss was US$10.23mln, compared to a loss of US$6.66mln in the first quarter of 2016.

The loss per share widened to six cents from five cents the year before.

Healthy cash position and cash flow is expected to receive a boost

Klondex ended the quarter with a cash balance of US$29.6 million after US$4.0 million of operating cash outflows, US$17.0 million that was used in investing activities, and US$2.9 million provided by financing activities.

End-quarter working capital was US$22.7 million and total liquidity was US$45.7 million when including the US$23.0 million revolving credit facility.

“We expect an increase in operating cash flow in the second quarter as the ounces contained in stockpiles in Nevada are processed through the Midas mill,” management said.  

Story by ProactiveInvestors