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Klondex Mines' New Fire Creek Resource Confirms High Grades, Advances To Next Step With First Production In View

|Includes: Klondex Mines Ltd. (KLDX)

Klondex Mines (TSE:KDX) (OTCQX:KLNDF) has in hand its new mineral resource estimate for its Fire Creek project in Nevada, with the report proving the high grades at the property and moving the company one step closer to production.

The new resource consists of 295,900 ounces of gold at a grade of 44.7 grams per tonne (g/t) in the measured and indicated category, and 421,400 ounces of gold at a grade of 19.2 g/t, applying a 7 g/t gold cut off. The Vancouver, British Columbia-based company, whose shares were halted on Monday prior to the release of the news, said the report illustrates the high grades and confirms the continuity of gold mineralization down dip and along strike from work mainly completed in the Main zone.

The estimate, which was prepared by Practical Mining, is based on data from 380 surface and underground drill holes available up to the beginning of September, and also includes data from 240,000 feet of re-logged drill core completed earlier this year as part of the company's efforts to improve confidence in past work and develop a new mine plan. A new comprehensive mine plan will be made using this new resource that now includes a "measured category", said Klondex.

The Nevada gold company is developing the Fire Creek project with the aim of starting initial production later this year though bulk sampling. As a first step to unlocking value, it is undertaking an underground development program at the Joyce and Vonnie structures on the property as a way to monetize its high grades, with Klondex shipping the high grade mineralized material to mining giant Newmont (NYSE:NEM) under a processing agreement signed between the two parties earlier this year. CEO Paul Huet highlighted at the company's annual meeting in June that these types of deals will be a "great opportunity to improve margins and separate the high grades over 3 ounces that [the company] has."

In July, the underground program yielded 1,329 tonnes of mineralized material, at an average grade of 32.7 grams per tonne (g/t) gold. Proceeds from the processing of this material will be used toward funding the company's own waste development ahead of the 2014 bulk sampling program, and for a second drill to follow up on recent discoveries ahead of targeted initial production.

"We have reached a major milestone in defining the Fire Creek deposit, only limited by the completed drilling and underground development program," said Huet in a statement released late Monday.

"This high quality resource estimate shows the potential of Fire Creek and is substantiated by the underground development program. The deposit remains open along strike and at depth providing Klondex with upside for resource growth given that 93% of Fire Creek's property is unexplored."

Indeed, Huet says the company focused on defining the Main zone for the new resource, and can now begin to expand exploration and step out drilling, providing the necessary data to convert the existing known mineralization into additional resource ounces, further unlocking the project's value.

The 17.5 square mile asset certainly lies on a valuable stretch of land. It 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.

The new resource and the information from the underground development program will be used to complete a preliminary economic assessment, expected to wrap up by the end of this year. "The high-grade nature of this deposit will play a key role in assessing economic scenarios for Fire Creek," said Huet.

The company said Monday that future exploration programs will follow up on recent discoveries near the ramp and mine workings to the south, to the west as well as in the North zone and the parallel zones identified to the east by an IP survey from two years ago.

Shares of Klondex, which this summer secured $2.39 million in bridge loans as a means to support the development of Fire Creek, closed Friday at $1.56, prior to being halted on Monday. Its shares have advanced nearly 25 per cent so far this year - quite a feat in an industry that is suffering from rising costs and declining gold prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.