VANCOUVER — Klondex Mines Ltd. announced its operational and financial results for the fourth quarter and full year 2017, including a net loss of $23.7 million or $0.13 per share.
The report came just before news that Hecla Mining Co. plans to purchase Klondex’s outstanding shares and three Nevada mines for $462 million.
“Klondex has had a history of setting operating targets and achieving them. The company produced more ounces and generated more revenue during 2017 than any year in the organization’s history,” said Paul Huet, Klondex president and CEO, regarding the financial results. “However, we did not deliver on our stated objectives and we understand that is not acceptable. We have learned from the challenges in 2017 and are moving forward.”
Revenues increased in 2017 due to increases in the number of gold ounces sold from higher ounces produced at Fire Creek and due to production commencing at True North at the end of 2016 and during 2017 for Hollister. These volumes were also positively impacted by the increase in average realized gold prices.
General and administrative costs increased during 2017 as compared to 2016 due to higher compensation and benefit costs from increased staff levels at the corporate office and professional fees, both of which are due to company growth.
Development and project costs increased during 2017 as compared to 2016, primarily driven by expenses incurred at Hollister for rehabilitating drifts and ramps. This increase was partially offset by the decrease in project costs at True North in Canada in 2017.
The reduction of business acquisition costs from 2017 to 2016 was a result of expenses incurred for the acquisition of True North, and Hollister and Aurora in 2016.
The company incurred a foreign currency loss of $8.6 million during 2017, compared to a foreign currency gain of $0.6 million for 2016. The company recognized an $8.9 million income tax expense as a result of applying the changes in U.S. income tax laws in 2017. Excluding the impact of the tax law changes, the company’s adjusted net loss for 2017 was $14.8 million or $0.08 per share (basic and diluted).
Working capital and liquidity
During the fourth quarter, the company used its revolving credit facility to repay its gold loan to Franco-Nevada, ahead of schedule. Repaying the gold loan improved working capital by replacing current debt with noncurrent debt and will improve 2018 quarterly cash flow as it frees up 2,000 gold ounces per quarter.
Additionally, the company’s gold supply agreement expired on Feb. 28. This agreement provided the option for Waterton to purchase gold produced from the Fire Creek Mine. Historically, the realized purchase price under this agreement has been at a discount to market price, which negatively impacted Klondex’s cash flow.
As of Dec. 31, the company had total liquidity of $42.4 million, consisting of $37.4 million in working capital and $5.0 million of borrowing availability under the Revolver. The company held metal inventory valued at approximately $35.9 million at the end of the year.
Subsequent to year-end 2017, to further liquidate the metal inventory, the company has signed an ore purchase agreement to sell Hollister ore that would otherwise remain in stockpiles. The opportunity provides additional cash flow of approximately $6 million.
During 2017, the company’s Nevada operations milled 329,948 ore tons at an average milled head grade of 0.55 gold equivalent ounces per ton during 2017. Nevada operations produced 161,536 gold equivalent ounces, an increase of 7 percent from 151,007 gold equivalent ounces produced during 2016. Core operations at Fire Creek and Midas performed in line with expectations.
Total gold equivalent ounces produced were less than the lower end of the most recent guidance range primarily due to results from Hollister, which produced 7,371 gold equivalent ounces compared to the low end of the guidance range of 21,000 gold equivalent ounces. The company mined 25,464 gold equivalent ounces from Hollister and deferred the processing of a majority of the mined Hollister ounces as it continued to optimize recoveries at the Midas mill for this ore. The majority of stockpiles at the end of 2017 were from Hollister. New modifications to the Midas mill are underway and recoveries for the Hollister ore are approximately 80 percent with additional improvements expected.