Hecla to acquire three high-grade Nevada gold mines with the acquisition of Klondex Mines Ltd.

by Keith Powell — April 04, 2018

Logos for Hecla Mining Company and Klondex Mines Ltd.

— Photo courtesy Hecla Mining Company/Klondex Mines Ltd.

Hecla Mining Company (NYSE:HL) (Hecla) and Klondex Mines Ltd. (NYSE American:KLDX) (TSX:KDX) (Klondex) announced Hecla will acquire all the outstanding shares of Klondex, a high-grade Nevada underground gold producer with its Fire Creek, Midas and Hollister mines, through a plan of arrangement (the Transaction). Klondex's Canadian assets will be spun out to its existing shareholders.

Under the Transaction, Hecla will acquire Klondex for consideration of US$462 million with a mix of cash and shares of Hecla common stock and the newly formed company (Klondex Canada). Klondex’s shareholders will receive US$2.47 per share in cash or shares of Hecla, which represents a 59% premium to Klondex’s 30-day volume-weighted average price, as at March 16, 2018 on the NYSE American.

“Opportunities to acquire significant land packages along Nevada’s prolific gold trends are very rare. Rarer still are for these land packages to have the highest grade mines in the U.S. and this transaction is consistent with Hecla’s strategy of owning large prospective land packages with mines where we can improve costs, grow reserves and expand production,” said Phillips S. Baker, Jr., Hecla’s President and CEO. “We structured the deal to use our excess cash balance so our shareholders can benefit from the approximately 162,000 gold equivalent ounces a year of production while minimizing dilution.”

Mr. Baker continued, “One of our core strengths is operating high-grade, narrow-vein underground mines, and Klondex’s three operating mines – Fire Creek, Midas and Hollister – are some of the highest-grade gold mines in the world. After extensive due diligence, we see significant opportunity to improve costs, throughput and recoveries over time with our expertise. The combined approximately 110 square mile land position offers the opportunity to make discoveries and grow the reserve base as we improve our knowledge of the geology, something we have done at our other operations. We expect this transaction to be accretive on many important financial and credit metrics, with potentially significant synergies. We are pleased that two significant Klondex shareholders have committed to support this transaction, and look forward to welcoming other Klondex shareholders to our company.”

“This transaction is an excellent outcome for Klondex and our shareholders, delivering premium value and a clear pathway to develop and optimize the Nevada mining assets and create further value in the future,” said Paul Huet, Klondex’s President and CEO. “Hecla has a proven track record of developing and optimizing mining assets such as ours, and has a strong balance sheet that should help Fire Creek and our other properties reach their full potential. Hecla operates a diverse portfolio of some of the highest-grade mines in the world, and the addition of our assets strengthens the portfolio further. We are delighted to enter into this agreement and the Klondex board unanimously recommends that Klondex shareholders vote in favour of this transaction.”

A Further Transformation of Hecla

Seven large land positions located in Alaska, Quebec, Nevada, Mexico and Idaho – Some of the safest and most prolific mining jurisdictions in the world.
Proven operational excellence to be leveraged across expanded portfolio of high-grade mines – Hecla has an extensive track record of optimizing acquired assets as demonstrated at Casa Berardi and Greens Creek. Hecla’s expertise in narrow-vein mining and mill optimization will be applied to the acquisitions to improve the operational consistency and enhance the value of the expanded portfolio.
Well capitalized pro-forma company with strong cash flow and solid balance sheet – Hecla expects to improve financial metrics with the Nevada mines’ cash flow.
Significant production base with highly prospective growth opportunities and cost reductions – Adds about 162,000 oz of annual gold equivalent production. Hecla will launch a significant exploration program at Fire Creek and at the prospective Hatter Graben discovery at Hollister.
Increased precious metals production – Peer group leading pro-forma production profile amongst intermediate precious metal producers of 762koz AuEq (2017A) or 54.1moz AgEq and commodity distribution of 30% Ag, 50% Au, 15% Zn and 5% Pb (by revenue).

Benefits to Hecla Shareholders

Adds significant land position with extensive exploration and development potential, and production in Nevada, one of the most prolific gold mining jurisdictions in the world.
Increases pro-forma 2017 annual production by 27%, equating to 162koz on a gold equivalent basis or 11.5 million ounces on a silver equivalent basis.
Fire Creek is a cornerstone producing asset with robust cash flows and significant opportunities for exploration, mine life expansion, and increased throughput.
The Transaction is structured to minimize dilution and is expected to be accretive on most important financial and operating metrics.
Allows Hecla the opportunity to capture meaningful synergies.
Further increases the grade of one of the highest-grade asset portfolios in the industry.
Klondex’s assets leverage Hecla’s core competency in narrow-vein underground mining.

Benefits to Klondex Shareholders

Immediate and significant premium of approximately 59% based on the 30-day volume weighted average price and approximately 72% based on closing prices on March 16, 2018, with ongoing participation in upside through Hecla shares and through Klondex Canada shares.
Superior financial strength and flexibility to support critical development and exploration programs for Klondex’s assets.
Hecla is well capitalized, with a lower cost of capital, making possible critical development and exploration programs for Klondex’s assets.
Proven track record of successfully acquiring and optimizing underground assets.
Superior investment with enhanced liquidity and a far more diversified production and financial base.
Hecla has extensive experience operating efficient underground mines for over 125 years.
Ownership in Klondex Canada, a gold company created to leverage Klondex’s exploration expertise and significant mining infrastructure assets in Canada.

Klondex Canada

Klondex is pleased to be forming Klondex Canada. Certain members of Klondex’s board and management team will continue on at Klondex Canada. Hecla will subscribe for US$7.0 million of common shares of New Klondex in exchange for a 13.46% equity interest, based on a pre-investment Klondex Canada valuation of US$45 million. Klondex Canada intends to make an application to list its shares on the TSX-V.

About Hecla

Founded in 1891, Hecla Mining Company (NYSE:HL) is a leading low-cost U.S. silver producer with operating mines in Alaska, Idaho and Mexico, and is a growing gold producer with an operating mine in Quebec, Canada. Hecla also has exploration and pre-development properties in seven world-class silver and gold mining districts in the U.S., Canada, and Mexico, and an exploration office and investments in early-stage silver exploration projects in Canada.

About Klondex

Klondex is a junior-tier gold and silver mining company focused on exploration, development, and production in a safe, environmentally responsible, and cost-effective manner. Klondex has 100% interests in three producing mineral properties: the Fire Creek Mine, the Midas Mine and ore milling facility, and the Hollister Mine, all of which are located in the state of Nevada, USA. Klondex also has a 100% interest in the True North Mine and mill in Manitoba, Canada and the Aurora Mine and ore milling facility, located in Nevada, USA.