Site visit leads to rating, price target upgrades on gold/silver miner

A PI Financial analyst reported how a recent visit to the Nevada operations of this precious metals company changed his outlook on it.

Philip Ker, an analyst with PI Financial, wrote that the visit to Klondex Mines Ltd.'s (KDX:TSX; KLDX:NYSE.MKT) Hollister and Fire Creek left a good impression and provided a "vision of [the] future" for the company in Nevada.

Regarding Hollister specifically, Ker noted that "it demonstrated considerable upside with an expected increase in head grades, declining costs as a result of successful long-hole stoping and exploration potential at Hatter Graben." He added, "Positive takeaways have led us to have a more favorable long-term view of Hollister and resulted in improved valuation metrics for the company."

As for Fire Creek and Midas, Klondex "continue[s] to expand the resource footprints at those operations," the analyst noted. Specifically at Fire Creek, "it appeared a considerable updip extension of the Karen vein was discovered ~300 feet above the existing resource," though assays remain pending. Expansion of known mineralized zones, "along with other efforts across Fire Creek and Midas continue to demonstrate further mine life extension."

As a result, PI Financial revised it model on Klondex to "incorporate upside from Hatter Graben and reducing costs at Hollister," explained Ker, noting that a key catalyst for the company will be demonstrating exploration success at Hatter Graben. "We are increasing our rating to Buy from Neutral and our target price to $4.85 per share from $4.15 per share." This compares to CA$4.38, where Klondex's stock is currently trading.

In the near term, however, it will be "a challenge" for the miner to meet its stated consolidated 2017 guidance of 213–230 Koz of gold equivalent due to "an unplanned delay in processing Hollister ore," Ker said. "Operations elsewhere will need to pick up the slack."