Update: Klondex And LKA Gold Enter Into Toll Milling Agreement

| About: Klondex Mines (KLDX)
This article is now exclusive for PRO subscribers.


Klondex Mines has entered into a toll milling agreement with LKA Gold to process LKA's high grade ore.

The agreement has a one-year term beginning on Dec. 1, 2014 and is subject to renewal annually.

All ore produced will become the property of Klondex, and Klondex will pay LKA the value of the recovered gold minus all toll mill charges.

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.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.