Financing a mine purchase

Raising money in 2013 has been onerous — even impossible — for many companies in the gold exploration sector, but Klondex Mines of Sparks said a few days ago it had put together a deal to finance its $83 million purchase of the Midas mine and mill in Lander County from Newmont Mining Corp.

The three-pronged acquisition finance package includes:

$35 million from a gold loan provided by Franco-Nevada Corporation.

$25 million (Canadian) raised through the sale senior secured notes to be held by existing shareholders with an interest rate of 11 percent.

$25 million (Canadian) raised by selling Klondex Mines stock.

GMP Securities L.P., MGI Securities Inc., Mackie Research Capital Corporation, M Partners Inc., Jones, Gable & Company Limited and PI Financial Corp. will complete the private placement financing.

Klondex intends to repay the loan from Franco-Nevada through a five-year agreement to provide Franco-Nevada with a total of 38,250 ounces of gold from its Midas and Firecreek properties. Under the agreement, Klondex will give Franco-Nevada 6,750 ounces in 2014, 7,500 in 2015, and 8,000 ounces from 2016 through 2018.

It also will give up a 2.5 percent net smelter royalty once the prepayment agreement is fulfilled. Klondex expects to produce as much as 70,000 to 100,000 ounces of gold from the Midas mine in 2014. The company’s Firecreek asset is in Lander County expected to move into full production by 2016.

“(Franco-Nevada) did a huge due diligence on both our assets,” Klondex President and Chief Executive Officer Paul Huet says. “In order to unlock value on an asset, you need a very strong team — and that’s what we are experts at.

“We look forward to completing the deal with Newmont. These aren’t easy transactions. To do this type of transaction in this market you need a solid work plan and you need a solid story, and that’s what we have.”

Klondex earlier this year completed a private placement of its stock to raise money for the Firecreek project and took in $20 million in less than one hour. Huet is the firm’s fourth-largest private shareholder with 1.2 million shares.

Rob Sabo