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Klondex’s flagship Fire Creek to provide ‘immediate positive cash’

Klondex’s flagship Fire Creek to provide ‘immediate positive cash’

Photo by Klondex Mines

1st May 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Narrow-vein gold miner Klondex Mines this week announced the results of an independent preliminary economic assessment (PEA) for its Fire Creek project near Elko, Nevada, which concluded that the project could be developed in a short timeframe to be the cornerstone for Klondex’s growth.

The PEA, prepared by Practical Mining, assumed an average gold price of $1 250/oz and $18/oz for silver, and estimated the project to hold an after-tax net present value (NPV) at a 5% discount rate of $141.5-million, and $128.3-million at a discount rate of 10%.

The after-tax project-level cash flow was calculated at $157.3-million.

The Vancouver-based company said the internal rate of return could not be calculated owing to the cash flow being positive in the first year, and every subsequent year of the project.

Over the five-year life of the mine, the project was estimated to produce 280 000 oz of gold and 139 000 oz of silver. Capital costs for the life of the mine were pinned at $49.6-million with a payback period of six months, while all-in sustaining costs, including silver by-product, were estimated at $636/oz.

“The Fire Creek PEA represents a significant and encouraging milestone for Klondex. The PEA details an initial mine plan with immediate positive cash flows that have the potential to remain economic in low gold price environments.

“We believe Fire Creek is a unique project, and what sets it apart are the gold grades, short path to production, and the substantial exploration upside. The PEA establishes that our mining operation has the potential to be the cornerstone for our growth for many years,” Klondex president and CEO Paul Huet said.

He added that drilling over the past few years had been constrained to surface and infill drilling for definition, within only 7% of the land package.

This year, Klondex had allocated $9-million for waste development and new drilling platforms to test new extensions of the current veins and the potential for new discoveries, particularly to the West and North zones.

The PEA was based on the company’s National 43-101-compliant resource estimate as of the end of last year, comprising measured and indicated resources totalling 295 900 oz of gold grading 44.7 g/t, and inferred resources of 421 400 oz of gold grading 19.2 g/t, all at a cutoff grade of 7 g/t gold.

The gold miner, which recently acquired the nearby Midas mine and mill, said the mined material from Fire Creek would be shipped to the Midas mill for processing, and then be blended with the Midas material before processing started.

Klondex started operating the Midas Mill in February, and immediately began processing a blend of the Fire Creek and Midas ores at a rate averaging 25 t/h. At the end of the first quarter, more than 7 800 t of Fire Creek ore was processed with gold and silver recoveries calculated at 96% and 95% respectively. Currently, the mill is being operated at half of its capacity.

The Midas mine and milling facility is located about 200 km from Fire Creek. Klondex had previously said it planned to prepare its own mine plan for Midas and split the mill's capacity equally between the two mines.

Klondex expects to produce between 70 000 oz and 100 000 oz of gold this year.

Klondex’s TSX-listed stock had risen almost 18% from the start of the year and on Wednesday gained a penny to close at C$1.93 apiece.

Edited by Creamer Media Reporter

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