Hecla Mining Increases Gold Production to 162,000 Ounces

Hecla Mining pays $462 milion to purchase Klondex

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Hecla Mining Company (HL, Financial) has informed its shareholders through its website that it will purchase U.S. gold-mining company, Klondex Mines (KLDX) for $462 million.

That consideration equals a value of $2.47 per share of Klondex Mines, which is a 59% premium, Hecla Mining says, to a weighted average price computed over the last 30 days of trading. One share of Klondex Mines will be exchanged either with cash or ordinary shares.

Klondex Mines is a U.S. based gold-mining company that produces the metal from its assets, which are located in Nevada. The metal is extracted through underground mining techniques.

The company also holds 100% mineral interests in properties which are located in the Canadian province of Manitoba. The Canadian assets will flow into a new business entity, Klondex Canada. Klondex Canada will operate as standalone company.

Hecla Mining will have 13.46% interest stake in Klondex Canada. The intention of Klondex Canada is to apply with the TSX Venture Exchange to have its shares traded on the Canadian stock market.

Phillips S. Baker, Jr., the president and CEOr of Hecla Mining, commented: “this transaction is consistent with Hecla’s strategy of owning large prospective land packages with mines where we can improve costs, grow reserves and expand production.”.

Most of the deal to transfer an annual production of approximately 162,000 ounces of gold equivalent to Hecla Mining’s portfolio will be settled through cash. This means that the impact on shareholders in terms of dilution will stay at very low levels.

Hecla Mining estimates that holders of Hecla will own about 83.8% of the outstanding common stock in Hecla Mining once the deal is completed, while holders of Klondex will own approximately 16.2%.

The news should trigger a stock appreciation in Hecla Mining over the following days of trading.

Hecla Mining is trading at $3.45 on the New York Stock Exchange. The stock has a market capitalization of $1.378 billion, a price-book (P/B) ratio of 0.93 times versus an industry median of 2.06 times and an EV-to-Ebitda ratio of 10.75 times. The industry has an EV-to-Ebitda ratio of 9.90 times.

The 52-week range is $3.38 to $6.17 per share.

The recommendation rating is 2.5 out of a total of 5. The average target price of $5.08 per share is a mean of ten estimates that range from $4.10 to $8.00.

(Disclosure: I have no positions in any stock mentioned in this article.)