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Klondex Reports First Quarter 2018 Financial Results

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VANCOUVER, British Columbia, May 03, 2018 (GLOBE NEWSWIRE) -- Klondex Mines Ltd. (TSX:KDX) (NYSE:KLDX) ("Klondex", the "Company", "we", "our", or "us") is pleased to announce its operational and financial results for the first quarter 2018. This press release should be read in conjunction with the Company's 2018 Quarterly Report on Form 10-Q, which includes the unaudited Condensed Consolidated Financial Statements and related Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), which is available on the Company's website (www.klondexmines.com), on SEDAR (www.sedar.com), and on EDGAR (www.sec.gov). All dollar amounts included in this press release are expressed in thousands of United States dollars, unless otherwise noted, and are based on the MD&A and the Condensed Consolidated Financial Statements, which were prepared in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States. References to "Notes" refers to the notes contained in the Condensed Consolidated Financial Statements.

First Quarter 2018 Highlights

  • Acquisition by Hecla - Announced proposed acquisition of Klondex by Hecla Mining Company (Hecla) for $462 million, and related spin out to shareholders of the Canadian assets.
  • Safety - No lost-time injuries occurred at the Company's properties during the quarter. As of March 31, 2018, the Company operated 1,993 days (~5.5 years) at Fire Creek, 1,273 days (~3.5 years) at Midas, 143 days (~.4 years) at True North, and 544 days (~1.5 years) at Hollister and Aurora, without a lost-time injury.
  • Consolidated operating performance - Mined a total of 49,873 gold equivalent ounces ("GEOs"), with production of 43,525 GEOs.
  • Nevada performance - Total GEOs mined in Nevada were 47,499, with production of 41,415 GEOs.
  • Canada performance - At the True North mine, the Company mined and produced 2,374 and 2,111 GEOs respectively from underground operations.
  • Ounces sold - The Company sold 42,541 GEOs, consisting of 40,572 gold ounces and 158,239 silver ounces. Revenue was $56.8 million from average realized selling prices per gold and silver ounce of $1,334 and $16.61, respectively.
  • Financial Results - Net loss for the quarter was $8.0 million or $0.04 per share (basic and diluted). First quarter net loss was negatively impacted by $3.6 million for costs related to the pending acquisition of Klondex by Hecla. Excluding the net impact of these costs, the Company's adjusted net loss(1) for the quarter was $5.1 million or $0.02 per share (basic and diluted).
(1) This is a non-GAAP measure; refer to the Non-GAAP performance measures section of this Press Release for additional detail.

Proposed Transaction with Hecla

On March 19, 2018, the Company announced that Hecla will acquire all of the outstanding shares of Klondex through a plan of arrangement. Hecla will acquire Klondex for consideration of $462 million comprised of cash and shares of Hecla common stock. Klondex shareholders will receive $2.47 per share in cash or shares of Hecla which represents a 59% premium to Klondex's 30-day volume-weighted average price at March 16, 2018 and a premium of approximately 72% based on the closing price on March 16, 2018. Klondex's Canadian assets will be spun out to its existing shareholders. Klondex shareholders will receive, for each Klondex share, 0.125 of a common share of a newly formed company which will own Klondex's Canadian assets.

The closing of the transaction is subject to certain conditions including shareholder and regulatory approvals. Additional details regarding the transaction will be available in the preliminary proxy statement that is expected to be filed with regulatory agencies in May. Pending receipt of all required approvals, the Company anticipates that the transaction will be completed around the end of the second quarter of 2018.

Consolidated Financial Results of Operations

    Three months ended March 31,
    2018   2017
Revenues   $ 56,771     $ 41,710  
Cost of sales        
Production costs   35,449     26,229  
Depreciation and depletion   13,103     7,728  
Write-down of production inventories   8,517     3,680  
    (298 )   4,073  
Other operating expenses        
General and administrative   5,824     4,488  
Exploration   502     127  
Development and projects costs       5,505  
Asset retirement and accretion   334     381  
Arrangement agreement costs   3,616      
Loss on equipment disposal   20     116  
(Loss) income from operations   (10,594 )   (6,544 )
Other income (expense)        
(Loss) gain on derivatives, net   (128 )   (2,144 )
Interest expense, net   (599 )   (1,158 )
Foreign currency (loss) gain, net   3,185     (1,021 )
Interest income and other (expense), net   6     17  
Income (loss) before tax   (8,130 )   (10,850 )
Income tax benefit (expense)   132     623  
Net (loss) income   $ (7,998 )   $ (10,227 )
         
Net (loss) income per share        
Basic   $ (0.04 )   $ (0.06 )
Diluted   $ (0.04 )   $ (0.06 )

First quarter 2018

First quarter 2018 revenues increased compared to the first quarter of 2017 due to more ounces sold and a higher price per ounce of gold. Increases in production costs during the first quarter of 2018, as compared to the same period in 2017 were driven by the operations at Hollister and Aurora, which were not operating during first quarter 2017. General and administrative costs for the first quarter of 2018 increased as compared to the prior year period primarily due to severance costs related to the restructuring of the True North operations in early January of 2018. The decrease in Development and project costs during the first quarter of 2018 was due to expenses incurred at Hollister and Aurora during the first quarter of 2017. The Company incurred a foreign currency gain of $3.2 million during the first quarter of 2018 compared to a foreign currency loss of $1.0 million for the first quarter of 2017.

Net loss for the first quarter of 2018 was $8.0 million or $0.04 per share (basic and diluted). The first quarter of 2018 includes $3.6 million for costs related to the pending acquisition of Klondex by Hecla. Excluding the net impact of these costs, the Company's adjusted net loss(1) for the quarter was $5.1 million or $0.02 per share (basic and diluted).

(1) This is a non-GAAP measure; refer to the Non-GAAP performance measures section of this Press Release for additional detail.

 

Liquidity and Capital Resources

    Three months ended March 31,
    2018   2017
Net (loss) income   $ (7,998 )   $ (10,227 )
Net non-cash adjustments   13,531     10,942  
Net change in non-cash working capital   2,477     (3,809 )
Net cash provided by (used in ) operating activities   8,010     (3,094 )
Net cash used in investing activities   (3,271 )   (17,927 )
Net cash (used in) provided by financing activities   (507 )   2,880  
Effect of foreign exchange on cash balances   (143 )   59  
Net increase (decrease) in cash, cash equivalents and restricted cash   4,089     (18,082 )
Cash, cash equivalents and restricted cash, beginning of period   33,229     57,691  
Cash, cash equivalents and restricted cash, end of period   $ 37,318     $ 39,609  

Working capital and liquidity

Cash balance at the end of the first quarter of 2018 was $27.8 million after $8.0 million of operating cash inflows, $3.3 million used in investing activities, and $0.5 million used in financing activities. As of March 31, 2018, the Company had total liquidity of $43.8 million, consisting of $38.8 million in working capital and $5.0 million Revolver borrowing availability. The Company held metal inventory valued at approximately $28.8 million at the end of the first quarter.

First Quarter 2018 Summary Operational Results

  Three months ended March 31, 2018
Mine operations Fire Creek   Midas   Hollister   Aurora(4)   Nevada Total   True North   Total
Ore tons mined 30,409     23,761     27,282     10,851     92,303     19,301     111,604  
Average gold equivalent mined head grade (oz/ton)(1) 0.80     0.43     0.43     0.09     0.51     0.12       0.45  
Gold equivalent mined (oz)(1) 24,453     10,174     11,864     1,016     47,499     2,374     49,873  
Gold mined (o
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