Hecla Mining Company [HL-NYSE] has launched a friendly bid to acquire Klondex Mines Ltd. [KDX-TSX; KLDX-NYSE] and its three high-grade gold mines in Nevada in a cash and stock deal that values Klondex at US$462 million.
Under the offer, Klondex shareholders will receive US$2.47 per share in cash or shares of Hecla, marking a 59% premium to Klondex’s 30-day volume weighted average prices as at March 16, 2018.
On Monday, Klondex shares jumped 60.56% or C$1.09 to $2.89. The 52-week range is $6.45 and $1.66.
CI Investments and Sentry Investments, which together hold approximately 42.5 million shares of Klondex, or 23.7%, have agreed to vote their shares in favour of the deal.
Klondex Mines is a junior gold and silver mining company with a focus in safe and environmentally responsible jurisdictions. The company has 100% interest in four producing mineral properties: the Fire Creek Mine, the Midas Mine and ore facility, the Hollister Mine, all of which are located in Nevada. The company also a 100% stake in the True North Mine and mill in Manitoba.
Under the terms of the offer, Klondex’s Canadian assets, (the True North Mine and Mill) will be spun out to the company’s existing shareholders.
During 2017, the company produced 189,500 gold equivalent ounces, an increase of 17% from 161,289 ounces in 2016, but below the recently revised guidance of between 196,000 to 212,000 ounces.
The production shortfall was largely due to an intentional deferral in processing ore at the Hollister mine to maximize recoveries.
The company said it decided to defer the processing of the majority of the mined Hollister ore as it continues to optimize recoveries at the Midas mill for this ore. Stockpiled material at the end of 2017 contained approximately 15,000 gold equivalent ounces.
“In addition, the expected production results were not achieved at True North as a result of aggressive expectations and operational issues,” the company said.
The True North Mine produced 27,919 gold equivalent ounces in 2017, a number that failed to meet the low end of previous guidance. The company attributed the shortfall to mining of lower than forecast grades from the True North and Cohiba mines.
The True North mine has been placed on care and maintenance, allowing the company to review strategic options and provide optionality at higher metal prices. Tailings reprocessing is planned to continue there during the warmer months.
According to its recently released guidance for 2018, Klondex is forecasting consolidated production of 186,000-202,000 ounces at an all-in sustaining cost of between US$940 and US$990 an ounce.
With the deal, Hecla will acquire three high grade gold mines in Nevada and expand its operating portfolio in the United States as well as its overall gold exposure. The assets being acquired are largely high grade, narrow vein deposits operated as underground mines that fit well with Hecla’s underground experience and expertise located close by in Idaho.