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Klondex Mines Tipped To Keep Delivering

Nov. 16, 2015 4:48 PM ETKLDX
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Mine expansion and better grades promise upside for investors in Klondex Mines (TSE:KDX, NYSEMKT:KLDX), according to Mackie Research Capital, which has today repeated a 'buy' recommendation.

Analyst Barry Allan highlighted in a note that the Klondex team is 'delivering as promised' and he predicts more positives are still to come as the company advances its Midas and Fire Creek projects in Nevada.

"We continue to foresee good execution on production ahead," Allan said.

"Our expectation is for expanded ore output and better ore grades from the Fire Creek mine augmented by additional exploration success at Midas and Fire Creek."

The analyst added: "It is our expectation that not only will ore grades trend higher, but the amount of ore extracted and processed will trend higher as well.

"As development at the Fire Creek continues, more operating areas will come available allowing for higher production and more operating flexibility.

"This will also be the case at Midas, but lesser so given the reduced amount of resources to work with."

Allan highlighted that at Midas success will be driven more by exploration success and expansion of the mine's resources.

Klondex last week lifted its full year production guidance as it unveiled another strong quarter in the three months to end September, which saw the miner strengthen the balance sheet and pay off debt.

Full year gold equivalent ounce guidance is now put at approximately 130,000 to 135,000 ounces - an increase of 5,000 GEOs from the previous estimate.

Klondex president and chief executive Paul Andre Huet, told investors: "We had another strong quarter both operationally and financially.

"Raising annual production guidance for the second consecutive quarter is a reflection of this performance and the tremendous efforts from the entire Klondex team.

"Additionally, despite lower grades in the third quarter compared to the first half of the year, our year-to-date cash costs per GEO sold actually decreased from the second quarter as a result of managing our costs and becoming more efficient at our operations.

"We also continued to strengthen our balance sheet by increasing our cash balance by approximately $6 million during the quarter and completely repaying our Senior Notes."

The group increased its cash by $5.8 million to $60.3 million and prepaid in full $17.6 million of principal on the 11.0% Senior secured notes with proceeds received from a September public offering.

In the three months, the group sold 33,853 gold equivalent ounces (GEOS), consisting of 27,934 of gold and 454,611 in silver.

Revenues came in at $38.4 million (2014: 34.9mln) from an average selling prices per gold and silver ounce of $1,135 and $14.78, respectively. Net income was $4.1 million (2014: $6.6mln) or $0.03 per share.

Production in the first half of the year was better than planned due to higher tons and grades from Midas while the second half is expected to benefit from higher tons mined and consistent grades at Fire Creek, Klondex said.

It is keeping its outlook for production costs at a low case of $750 for all in sustaining costs per ounce of gold sold.

In today's note, Mackie's Barry Allen summarised: "With a good balance sheet and positive operating cash flow, we think KDX has a "ticket to ride" an increase in underlying valuation."

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