Resource World Magazine

Resource World - July 2013 - Vol 11 Iss 7

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MINING Klondex Mines' forty-year success story by David Forest Looking across the Fire Creek Project in north-central Nevada. Photo courtesy Klondex Mines Ltd. T he current gold mining boom has taught patience for project developers. Drilling, permitting, licensing and construction take a lot of time and it can take several years to develop a new mine. Some stories take even longer to unfold. In the case of Klondex Mines' [KDXTSX; KLNDF-OTCQX] Fire Creek Project in north-central Nevada, success in the current gold bull market was actually born nearly 40 years ago, during the last big run in the bullion price. Today, Fire Creek is a sizeable resource of over 2.1 million ounces, grading better than 9 g/t gold. But for Klondex, it began as a bet on a just-drilled exploration prospect. The year was 1975 – the height of the 1970s gold boom. It was during this time that the company and its joint-venture partners drilled more than 140 holes on the project. A small heap leach operation was even constructed, although production results were mixed. Then came the downturn of the late 1980s; with gold prices falling, activity at Fire Creek ceased for several years. A resource estimate (non 43-101 compliant) in 1991 pegged Fire Creek's gold endowment at just under 150,000 ounces. Despite the name, the project was then nothing that would set the world on fire. But Klondex saw potential here beyond the numbers. The company signed up another joint venture during the mining mini-boom of the later 1990s, completing geophysics, and the drilling of a further 67 holes. This would prove to be one of the JULY 2013 keys in unlocking Fire Creek's rich mineral endowment. But first came another quiet period. Once again, the company dutifully tended its project, waiting for a chance to show its potential to the world. In 2004, a rising gold price gave Fire Creek the chance it needed. A recapitalized Klondex came up with a radical re-think of the project: why not look deeper? Klondex geologists took a fresh look at the data from the 1995-96 drill campaign. They noticed something unusual. There seemed to be a second mineralized zone, the Main Vein, lying just beside the Base Line Vein zone, where work up that point had focused. This new target seemed to offer better grade. Holes drilled in 1995-96 had tagged intercepts here up to 43 g/t gold. The zones were just a metre or two wide, but geologists saw that the bonanza grades might add up to a workable underground mine. A fresh 2004 drill program proved the theory out. The company hit a swath of double-digit gold intercepts. Including some of the richest mineralization ever seen at the project; one intersection showed 25 feet grading a towering 88.82 g/t. Drilling hasn't stopped since then. Following a revised resource estimate, showing a ten-fold increase from 1991 levels, the company continues to dog high-grades at Fire Creek. In March 2013, drilling uncovered a super-enriched zone of 915 g/t gold over 0.4 metres. Advancing a high-grade, narrow-vein deposit like Fire Creek to such a forward stage, has its challenges. You need to drill a lot of metres from surface to hit a small interval of mineralized rock. To deal with this, Klondex has gone underground. The company drove a decline in 2011, allowing them to get the drill closer to the ore body and substantially reduced the length of drilling required. This underground access is also being used to take bulk samples of mineralization, a critical step for the project in assessing mineral resources and metallurgy for a potential full-scale mining development. Following such work, underground bulk sampling is planned to the tune of 10,000 tons during the second half of 2013. The company has even signed a toll milling agreement with Veris Gold, operators of the nearby Jerritt Canyon mill. What's next for this well-traveled project? Perhaps a buyout, if past events are any indicator. In 2009, successful vein miner Silvercorp Metals [SVM-TSX; NYSE] liked Fire Creek enough to make a bid for Klondex. Paramount Gold and Silver [PZG-TSX; NYSE] also jumped into the fray, making a rival offer for the company. Neither deal was consummated in the end. But the interest from two significant players shows how high-grade targets like Fire Creek are very much in the sights of today's mining companies. With an updated resource targeted for this summer, the project may get even juicier for interested firms. Thus, Fire Creek may finally be nearing the end of its four-decade journey to production. n www.resourceworld.com 31

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