Hecla Buying Klondex, Spinning Out Canadian Assets Into New Venture-Listed Company

For small retail traders the idea of an investment in a small or microcap that gets bought out is usually the kind of stuff dreams are made of. For those with some money in Klondex Mines Ltd. (NYSE American:KLDX)(TSX:KDX), the dream came true Monday morning with the junior miner agreeing to acquired by Hecla Mining Co. (NYSE:HL) for $462 million in cash and/or stock.

Per the deal, Klondex shareholders will receive $2.47 per share in cash or can opt for the same dollar amount in shares of Hecla (0.6272 of a Hecla share) or a combination of the two, representing a 59% premium to the value of the 30 day VWAP (volume weighted average price) of KLDX stock through Friday. The cash component will be capped at US$157.4 million and the maximum number of HL shares will be held at 77.4 million.

If there's any bad news, it's for those investors that bought in (and never averaged down) when shares were around $6 each late in 2016 and early in 2017 before heading into a downtrend that found a bottom earlier this month at $1.29.

The main prizes for Hecla are Klondex's Fire Creek, Midas and Hollister high-grade underground gold mines in Nevada and a total of seven large land positions in all. The buyout will add about 162,000 ounces of gold equivalent production to Hecla's portfolio annually, an increasing pro-forma 2017 annual production by 27 percent. With its experience, Hecla believes it can make the mines even more efficient.

Upon completion of the acquisition, Hecla also intends to launch an aggressive exploration program at highly prospective targets on certain Klondex property in Nevada.

Klondex's Canadian assets, including the True North and Bison Gold Resources properties, will be spun out to existing Klondex shareholders into a company to be appropriately named Klondex Canada. Hecla will make an investment of US$7.0 million in Klondex Canada in exchange for a 13.46% equity interest, based on a pre-investment valuation of US$45 million. It is further planned that Klondex Canada will trade on the TSX-Venture.

Both boards have approved the transaction.

Shares of KLDX closed the day at $2.20 for a gain of 52.8%. Toronto-listed shares gained 58.9% to $2.86. Meanwhile, shares of HL sunk 52 cents to $3.33 for a loss of 13.5% on the day.