A few days after announcing the signing of a definitive agreement to buy the Midas mine and mill complex in Nevada from Newmont, Klondex Mines (KDX:TSX) has an idea to finance the acquisition and development of that project with a gold, equity and note financing package. KDX agreed to pay Newmont a total of $83 million ($55 million cash and $28 million in surety arrangements) for the Midas mine and mill complex. The financing package includes a gold loan and 2.5% NSR royalty for proceeds of $35 million from Pierre Lassonde's Franco-Nevada, another $35 million in subscription receipts being completed through a syndicate of banks led by GMP and a $25 million acquisition facility which comprised of 11% senior secured notes.
Senior executives at Klondex are very familiar with the Midas mine. President and CEO, Paul Huet was the previous mine manager and the company's Chief Engineer was also the senior mine engineer at the Midas mine.
In the world of divestitures for majors, the Midas mine and mill complex represented a non-core asset and as a result was on the sales block for Newmont. Midas has 50,000 ounces of gold in 2P reserves on the books, but KDX feels confident there is more exploration upside. Newmont has 14 open-pit mines, 4 underground mines and 14 processing facilities in Nevada alone. Newmont acquired the Midas mine as part of its 2002 acquisition of Normandy Mining.
Klondex owns the Fire Creek project, which is also in Nevada, and hosts a small high-grade Measured and Indicated resource of 295,000 ounces at an average grade of 44.7g/t gold. The Midas mill has 1,200tpd throughput capacity and is only running 500-800tpd and therefore, should have enough capacity to process ore from both Fire Creek and Midas. This offers a lower capital program over the next few years as it avoids building a mill at the Fire Creek project.
The company had $18 million in cash and $7 million in debt which it intends to pay off with the proceeds of the acquisition facility notes. Klondex has strong institutional support from K2, Sun Valley and Frank Holmes' US Global Advisors.
In September, Newmont signed a letter of intent with Waterton Global to acquire the Midas mine and mill, but that fell through. Details of that failed acquisition were not disclosed.