Klondex Mines (TSE:KDX) was touted as having a high grade resource in a strategic location with potential for a "number of upside opportunities" on Friday, in an initial coverage report by Casimir Capital's Erin Winmill.
The analyst started the advanced-stage development company, which is focused on its Fire Creek gold project in Nevada, with a speculative buy rating and a $2.50 price target - more than double its current trading price.
The company's property is situated at the intersection of the Battle Mountain trend and Northern Nevada Rift, which also hosts the Midas and Hollister narrow-vein epithermal gold deposits. Aside from being surrounded by major producers, it is also nearby power, transportation, infrastructure and a milling facility in the heart of the U.S. state's gold trend.
Earlier this month, Klondex said it completed its drill core re-logging program at the site five weeks ahead of schedule. It started the campaign in January, which involved the photographing and re-logging of around 73,000 metres of archived drill core from previous operators at the property.
This comes ahead of an initial bulk sampling program in the third quarter at the mine. It is aiming to extract around 10,000 tons of material in 2013 as part of its initial bulk sampling, with targets for next year to be announced with the completion of an updated mineral resource estimate - expected in June.
"Resource grade is considered high vis-à-vis other producing gold deposits with an Indicated resource grade of 17.6 g/t Au (using a 7 g/t cut-off) and multiple bonanza-grade intercepts such as the recent discovery of 1.82m @ 497 g/t Au," wrote Winmill in his note.
"In our view, the high grade nature of the deposit not only provides for strong economic returns but also helps protect against lower gold prices through the ability to adjust the mine plan to maintain profitability."
Indeed, the company is also planning to keep development costs low and avoid lengthy potential delays in permitting through the use of toll milling agreements, having recently signed such a deal with Veris Gold for the initial processing of ore from Fire Creek.
"As a result, Klondex expects to generate meaningful revenue from gold sales in 2013 upon commencement of bulk sampling. Longer term, Klondex may look to build an on-site processing facility using internally generated cash flows," the analyst took note in his report.
Winmill also highlighted Klondex's "strong management team", lead by CEO Paul Huet, who joined in last September, and who has more than 25 years of mining experience, including managing similar high grade, narrow-vein gold operations in Nevada such as the Hollister and Midas mines, among others.
Huet was raised in Timmins - one of Canada's most prolific mining districts, and started his career underground in the mines, drilling and blasting for a decade at Kinross Gold (TSE:K) - where he was among three people selected for an advanced program designed to train the next generation of mining execs.
After moving on to build and manage the operations of both the Midas and Hollister mines in Nevada, the chief executive, who says he was the only one of the three to graduate the Kinross program with a degree in mining, decided it was time for a new direction in his career, in the way of building a company from the ground up, he told Proactiveinvestors in a recent interview.
And though Huet, also the former COO at Premier Gold, sees this as no small feat, he is confident that the company's Fire Creek project in Nevada is a recipe for success and has the potential to be a "company builder".
Casimir's Winmill concluded: "We see a number of upside opportunities as project milestones are achieved, including potential for new discoveries, better recoveries, lower costs and/or higher grade."
Next potential catalysts highlighted in the research note include a new resource due in the middle of this year, new metallurgy work, the bulk sample program, infill and step out drilling later in the year, and finally - a preliminary economic assessment study late in 2013 or early 2014.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.