Klondex Mines (KLNDF) has announced that its subsidiary has entered into a toll milling agreement with a company called LKA Gold (OTCQB:LKAI) to process high-grade ore produced from LKA's Golden Wonder Mine. Under the terms of the agreement, high grade ore greater than 51.4 g/t gold delivered from the mine will be delivered to Klondex's Midas Mill for processing.
"This agreement marks the second toll milling agreement put in place since we bought Midas in February," says Mike Doolin, Klondex VP of Business Development and Technical Services. "Processing third-party material makes good use of the mill, while still leaving us with ample capacity as we continue to develop the Midas and Fire Creek mines."
Previously, the company had entered into a toll milling agreement with French Gulch Nevada Mining Corp. to process concentrates produced from the company's Washington mine. In addition, Klondex has said that it continues to pursue other potential toll milling opportunities.
In a previous article, I argued that Klondex is a buy as the company owns and operates a highly profitable gold mine, with 1.5 million ounces of gold in resources and excellent exploration potential. Because of the high grade nature of the resource, Klondex produces gold at very low all-in sustaining costs and should remain profitable even if gold dropped much further. In addition, the soon-to-be producing Fire Creek deposit is projected to produce gold at $636 all-in sustaining costs.
The announcement of the new toll milling agreement is good news because it allows Klondex to make better use of the excess capacity at the Midas Mill, providing additional revenue and cash flow to the company, as it continues to explore and produce its own gold, and as it gets ready to initiate production at Fire Creek late next year. I remain very bullish on shares of Klondex, and think the current price presents a compelling entry point.
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