Adds 27% more high-grade production to its
strong North American silver and gold mines
Hecla Mining Company (NYSE:HL) (Hecla) and Klondex Mines Ltd.
(NYSE American:KLDX; TSX:KDX) (Klondex) today announced Hecla will
acquire all the outstanding shares of Klondex, a high-grade Nevada
underground gold producer with its Fire Creek, Midas and Hollister
mines, through a plan of arrangement (the Transaction). Klondex's
Canadian assets will be spun out to its existing shareholders.
Under the Transaction, Hecla will acquire Klondex for
consideration of US$462 million with a mix of cash and shares of
Hecla common stock and the newly formed company (Klondex Canada).
Klondex’s shareholders will receive US$2.47 per share in cash or
shares of Hecla, which represents a 59% premium to Klondex’s 30-day
volume-weighted average price, as at March 16, 2018, on the NYSE
American.
“Opportunities to acquire significant land packages along
Nevada’s prolific gold trends are very rare. Rarer still are for
these land packages to have the highest grade mines in the U.S. and
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,” said Phillips S.
Baker, Jr., Hecla’s President and CEO. “We structured the deal to
use our excess cash balances so our shareholders can benefit from
the approximately 162,000 gold equivalent ounces a year of
production while minimizing dilution.”
Mr. Baker continued, “One of our core strengths is operating
high-grade, narrow-vein underground mines, and Klondex’s three
operating mines – Fire Creek, Midas and Hollister – are some of the
highest-grade gold mines in the world. After extensive due
diligence, we see significant opportunity to improve costs,
throughput and recoveries over time with our expertise. The
combined approximately 110 square mile land position offers the
opportunity to make discoveries and grow the reserve base as we
improve our knowledge of the geology, something we have done at our
other operations. We expect this transaction to be accretive on
many important financial and credit metrics, with potentially
significant synergies. We are pleased that two significant Klondex
shareholders have committed to support this transaction, and look
forward to welcoming other Klondex shareholders to our
company.”
“This transaction is an excellent outcome for Klondex and our
shareholders, delivering premium value and a clear pathway to
develop and optimize the Nevada mining assets and create further
value in the future,” said Paul Huet, Klondex’s President and CEO.
“Hecla has a proven track record of developing and optimizing
mining assets such as ours, and has a strong balance sheet that
should help Fire Creek and our other properties reach their full
potential. Hecla operates a diverse portfolio of some of the
highest-grade mines in the world, and the addition of our assets
strengthens the portfolio further. We are delighted to enter into
this agreement and the Klondex board unanimously recommends that
Klondex shareholders vote in favour of this transaction.”
A Further Transformation of Hecla
- Seven large land positions located
in Alaska, Quebec, Nevada, Mexico and Idaho – Some of the
safest and most prolific mining jurisdictions in the world.
- Proven operational excellence to be
leveraged across expanded portfolio of high-grade mines – Hecla
has an extensive track record of optimizing acquired assets as
demonstrated at Casa Berardi and Greens Creek. Hecla’s expertise in
narrow-vein mining and mill optimization will be applied to the
acquisitions to improve the operational consistency and enhance the
value of the expanded portfolio.
- Well capitalized pro-forma company
with strong cash flow and solid balance sheet – Hecla expects
to improve financial metrics with the Nevada mines’ cash flow.
- Significant production base with
highly prospective growth opportunities and cost reductions –
Adds about 162,000 oz of annual gold equivalent production. Hecla
will launch a significant exploration program at Fire Creek and at
the prospective Hatter Graben discovery at Hollister.
- Increased precious metals production
– Peer group leading pro-forma production profile amongst
intermediate precious metal producers of 762koz AuEq (2017A) or
54.1moz AgEq and commodity distribution of 30% Ag, 50% Au, 15% Zn
and 5% Pb (by revenue).
Benefits to Hecla Shareholders
- Adds significant land position with
extensive exploration and development potential, and production in
Nevada, one of the most prolific gold mining jurisdictions in the
world.
- Increases pro-forma 2017 annual
production by 27%, equating to 162koz on a gold equivalent basis or
11.5 million ounces on a silver equivalent basis.
- Fire Creek is a cornerstone producing
asset with robust cash flows and significant opportunities for
exploration, mine life expansion, and increased throughput.
- The Transaction is structured to
minimize dilution and is expected to be accretive on most important
financial and operating metrics.
- Allows Hecla the opportunity to capture
meaningful synergies.
- Further increases the grade of one of
the highest-grade asset portfolios in the industry.
- Klondex’s assets leverage Hecla’s core
competency in narrow-vein underground mining.
Benefits to Klondex Shareholders
- Immediate and significant premium of
approximately 59% based on the 30-day volume weighted average price
and approximately 72% based on closing prices on March 16, 2018,
with ongoing participation in upside through Hecla shares and
through Klondex Canada shares.
- Superior financial strength and
flexibility to support critical development and exploration
programs for Klondex’s assets.
- Hecla is well capitalized, with a lower
cost of capital, making possible critical development and
exploration programs for Klondex’s assets.
- Proven track record of successfully
acquiring and optimizing underground assets.
- Superior investment with enhanced
liquidity and a far more diversified production and financial
base.
- Hecla has extensive experience
operating efficient underground mines for over 125 years.
- Ownership in Klondex Canada, a gold
company created to leverage Klondex’s exploration expertise and
significant mining infrastructure assets in Canada.
Klondex Canada
Klondex is pleased to be forming Klondex Canada. Certain members
of Klondex’s board and management team will continue on at Klondex
Canada. Hecla will subscribe for US$7.0 million of common shares of
New Klondex in exchange for a 13.46% equity interest, based on a
pre-investment Klondex Canada valuation of US$45 million.
Klondex Canada intends to make an application to list its shares on
the TSX-V.
Terms of the Transaction
Klondex shareholders may elect to receive either US$2.47 in cash
(Cash Alternative) or 0.6272 of a Hecla share (Share Alternative),
each full Hecla share being currently valued at US$3.94, subject in
each case to pro-ration based on a maximum cash consideration of
US$157.4 million and a maximum number of Hecla shares issued of
77.4 million. If all Klondex shareholders elect either the Cash
Alternative or the Share Alternative, each Klondex shareholder
would be entitled to receive US$0.8411 in cash and 0.4136 Hecla
shares. Klondex shareholders may also elect to receive US$0.8411 in
cash and 0.4136 of a Hecla share and Klondex shareholders who
fail to make an election will automatically receive US$0.8411 in
cash and 0.4136 of a Hecla share. Klondex shareholders will also
receive shares of a newly formed company (Klondex Canada) which
will hold Klondex’s Canadian assets, including the True North and
Bison Gold Resources properties.
At closing existing Hecla and Klondex shareholders will own
approximately 83.8% and 16.2% of Hecla’s outstanding common stock,
respectively.
Major Shareholder Support
CI Investments Inc. and Sentry Investments Inc., which together
hold approximately 42.5 million shares of Klondex, representing
approximately 23.7% of Klondex’s issued and outstanding shares,
have entered into support agreements with Hecla, agreeing to vote
their Klondex shares in favour of the Transaction. Each of
Klondex’s directors and officers have also entered into an
agreement to support the Transaction and the Board of Directors of
Klondex has unanimously recommended that Klondex’s affected
securityholders vote in favour of the transaction.
Board of Directors’ Recommendations
The Transaction has been unanimously approved by the Board of
Directors of each of Klondex and Hecla. The Board of Directors of
Klondex unanimously recommends that Klondex’s affected
securityholders vote in favour of the Transaction.
GMP Securities L.P. and INFOR Financial Inc. have each acted as
financial advisors to Klondex with GMP Securities L.P. and Maxit
Capital LP having provided fairness opinions to the Board of
Directors of Klondex and the Independent Committee of the Board of
Directors of Klondex, respectively. CIBC World Markets Inc. and
J.P. Morgan have each acted as advisors to the Board of Directors
of Hecla and have provided fairness opinions to Hecla’s Board of
Directors.
Each of the directors and senior officers of Klondex, who as of
the date hereof, collectively hold approximately 1.7% of Klondex’s
issued and outstanding common shares have entered into agreements
to support the Transaction.
Transaction Conditions and Timing
The Transaction will be implemented by way of a Court-approved
plan of arrangement under the Business Corporations Act (British
Columbia) and will require the approval of: (i) 66 2/3% of the
votes cast by the holders of Klondex’s common shares, (ii) 66 2/3%
of the votes cast by the affected securityholders of Klondex voting
as a single class, and (iii) if applicable, a majority of the votes
cast by the holders of Klondex’s common shares after excluding any
votes of Hecla and other persons required to be excluded under
Canadian Multilateral Instrument 61-101 Protection of Minority
Security Holders in Special Transactions, all at a special meeting
to consider the Transaction.
The completion of the Transaction will also be subject to
applicable regulatory approvals and closing conditions customary in
transactions of this nature. The Arrangement Agreement provides for
customary deal-protection provisions, including a non-solicitation
covenant on the part of Klondex and a right for Hecla to match any
superior proposal. The Arrangement Agreement includes a termination
fee of US$21 million, payable by Klondex or Hecla, under certain
circumstances.
It is anticipated that the special meeting of Klondex
shareholders to consider the Transaction will be held in June 2018.
The Transaction is expected to close in the second quarter of
2018.
No Financing Contingency
Hecla has sufficient cash on hand and available under existing
credit arrangements to finance the cash portion of the
consideration for the Transaction.
Section 3(a)(10) of the United States Securities Act of 1933, as
amended (the Securities Act), exempts from the registration
requirements of the Securities Act the issuance and exchange of
securities which have been approved, after a hearing upon the
fairness of the terms and conditions on which all persons to whom
it is proposed the securities will be issued shall have the right
to appear, by any Court expressly authorized by law to grant such
approval. The parties expect this exemption to apply to Hecla’s
issuance of shares in the Transaction and the issuance of shares of
Klondex Canada as a result of the expected Court approval described
below.
Advisors and Counsel
CIBC World Markets Inc. and J.P. Morgan are acting as financial
advisors to Hecla in connection with the Transaction. Cassels Brock
& Blackwell LLP is serving as Canadian counsel and K&L
Gates LLP is acting as U.S. counsel to Hecla.
GMP Securities L.P. and INFOR Financial Inc. are acting as
financial advisors to Klondex. Bennett Jones LLP is serving as
Canadian counsel to the Independent Committee of the Board of
Directors of Klondex and Dorsey & Whitney LLP is acting as U.S.
counsel to Klondex.
Conference Call Details
Hecla and Klondex will host a conference call on Monday, March
19, 2018 at 8:30 a.m. Eastern Time to discuss the acquisition. You
may join the conference call by dialing toll-free 1-855-760-8158
or 1-720-634-2922. The participant code is HECLA.
Hecla’s live and archived webcast can be accessed at
www.hecla-mining.com under Investors or via Thomson StreetEvents
Network.
ABOUT HECLA
Founded in 1891, Hecla Mining Company (NYSE:HL) is a leading
low-cost U.S. silver producer with operating mines in Alaska, Idaho
and Mexico, and is a growing gold producer with an operating mine
in Quebec, Canada. Hecla also has exploration and pre-development
properties in seven world-class silver and gold mining districts in
the U.S., Canada, and Mexico, and an exploration office and
investments in early-stage silver exploration projects in
Canada.
ABOUT KLONDEX
Klondex is a junior-tier gold and silver mining company focused
on exploration, development, and production in a safe,
environmentally responsible, and cost-effective manner. Klondex has
100% interests in three producing mineral properties: the Fire
Creek Mine, the Midas Mine and ore milling facility, and the
Hollister Mine, all of which are located in the state of Nevada,
USA. Klondex also has a 100% interest in the True North Mine and
mill in Manitoba, Canada, and the Aurora Mine and ore milling
facility, located in Nevada, USA.
Important Additional Information About the Transaction and
Where to Find It
This material relates to Hecla’s proposed acquisition (the
“Transaction”) of Klondex. Shares of Hecla’s common stock (the
“Hecla Shares”) issued in connection with the proposed Transaction
may be registered pursuant to a registration statement to be filed
with the SEC or issued pursuant to an available exemption. This
information is not a substitute for any registration statement or
any other document that Hecla may file with the SEC or that it or
Klondex may send to their respective shareholders in connection
with the offer and/or issuance of Hecla Shares. Investors are urged
to read any registration statement, if and when filed, and all
other relevant documents that may be filed with the SEC or with
Canadian regulatory authorities as and if they become available
because they will contain important information about the issuance
of Hecla Shares. Documents, if and when filed with the SEC, will be
available free of charge at the SEC’s website (www.sec.gov) and
under Hecla’s profile on the SEDAR website at www.sedar.com. You
may also obtain these documents by contacting Hecla’s Investor
Relations department at Hecla Mining Company; Investor Relations;
1-800-HECLA91 (1-800-432-5291); hmc-info@hecla-mining.com. This
release does not constitute an offer to sell or the solicitation of
an offer to buy any securities.
In connection with the proposed transaction, Klondex will file
proxy soliciting materials with the SEC and/or Canadian regulatory
authorities. The information contained in any such filing may not
be complete and may be updated, amended or changed. SHAREHOLDERS
ARE URGED TO READ SUCH MATERIALS WHEN AVAILABLE AND ANY OTHER
RELEVANT MATERIALS FILED WITH THE SEC AND/OR CANADIAN REGULATORY
AUTHORITIES CAREFULLY IN THEIR ENTIRETY BEFORE MAKING ANY VOTING OR
INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTION
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION AND THE PARTIES THERETO.
Proxy solicitation materials will be mailed to Klondex’s
shareholders seeking their approval of the proposed transaction.
Anyone may also obtain a copy of such materials free of charge once
available by directing a request to: Klondex Mines Ltd., 6110
Plumas Street, Reno, NV 89506, Attention: Investor Relations or,
Hecla Mining Company, 6500 N. Mineral Drive, Suite 200, Coeur
d’Alene, ID 83815-9408; Investor Relations; 1-800-HECLA91
(1-800-432-5291). In addition, any relevant materials filed with
the SEC will be available free of charge at the SEC’s website at
www.sec.gov and under Klondex’s profile on the SEDAR website at
www.sedar.com. Interested persons may also access copies of such
documentation filed with the SEC by visiting the Klondex’s website
at www.klondexmines.com.
Participants in Solicitation
Hecla, Klondex, their respective directors and certain of their
respective executive officers may be considered participants in the
solicitation of proxies in connection with the proposed
transaction. Information about the directors and executive officers
of Hecla is set forth in its Annual Report on Form 10-K for the
year ended December 31, 2017, which was filed with the SEC on
February 15, 2018, its proxy statement for its 2017 annual
meeting of shareholders, which was filed with the SEC on April 10,
2017, and its Current Report on Form 8-K, which was filed with the
SEC on June 1, 2017. These documents may be obtained free of charge
from the SEC’s website at www.sec.gov and Hecla’s website at
www.hecla-mining.com. Information about the directors and executive
officers of Klondex is set forth in its Annual Report on Form 10-K
for the year ended December 31, 2017, which was filed with the
SEC on March 15, 2018, its proxy statement for its 2017 annual and
special meeting of shareholders, which was filed with the SEC on
April 11, 2017 and its Current Report on Form 8-K, which was
filed with the SEC on May 8, 2017. Other information regarding
the participants in the proxy solicitations and a description of
their direct and indirect interests, by security holdings or
otherwise, will be contained in the Klondex proxy statement and
other relevant materials to be filed with the SEC when they become
available. These documents may be obtained free of charge from the
SEC’s website at www.sec.gov and Klondex’s website at
www.klondexmines.com.
Cautionary Statements Regarding Forward Looking
Statements
Statements made or information provided in this news release
that are not historical facts are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995 and "forward-looking information" within the meaning of
Canadian securities laws. Words such as “may”, “will”, “should”,
“expects”, “intends”, “projects”, “believes”, “estimates”,
“targets”, “anticipates” and similar expressions are used to
identify these forward-looking statements. Such forward-looking
statements or forward-looking information include statements or
information regarding the completion of the Transaction; additions
to Hecla’s gold production and cash flow; the accretive nature of
the Transaction; the realization of potential synergies, the impact
of the Transaction on Hecla’s financial flexibility, cash flow,
balance sheet and liquidity; and the exploration potential of
Klondex’s land position. The material factors or assumptions used
to develop such forward-looking statements or forward-looking
information include that the Hecla’s plans for development and
production will proceed as expected and will not require revision
as a result of risks or uncertainties, whether known, unknown or
unanticipated, to which the Hecla’s operations are subject.
Forward-looking statements involve a number of risks and
uncertainties that could cause actual results to differ materially
from those projected, anticipated, expected or implied. These risks
and uncertainties include, but are not limited to, metals price
volatility, volatility of metals production and costs, litigation,
regulatory and environmental risks, operating risks, project
development risks, political risks, labor issues, ability to raise
financing and exploration risks and results. Refer to Hecla’s
Form 10K and 10-Q reports for a more detailed discussion of
factors that may impact expected future results Neither Hecla nor
Klondex undertakes any obligation to update forward-looking
statements in this news release other than as may be required by
law.
Similarly, please refer to the securities filings of Klondex for
further information concerning risks applicable to it and its
forward-looking information.
Information About Each Company
Information in this news release about Hecla has been
provided by, and is the responsibility of, Hecla. For further
information about Hecla, please refer to Hecla’s SEC filings,
including its Annual Report on Form 10-K filed on February 15, 2018
and its filings with Canadian securities regulatory authorities
under its issuer profile on SEDAR. Information in this news release
about Klondex has been provided by, and is the responsibility of,
Klondex. For further information about Klondex, please refer to
Klondex’s SEC filings, including its Annual Report on Form 10-K
filed on March 15, 2018 and its filings with Canadian securities
regulatory authorities under its issuer profile on SEDAR.
Qualified Person (QP)
Pursuant to Canadian National Instrument 43-101, Dean McDonald,
PhD, P.Geo., Senior Vice President – Exploration of Hecla Mining
Company, who serves as a Qualified Person under National Instrument
43-101, supervised the preparation of the scientific and technical
information in this news release as it relates to Hecla.
Pursuant to NI 43-101, Brian Morris, CPG, Senior Vice President
– Exploration of Klondex, who serves as a Qualified Person under NI
43-101, supervised the preparation of the scientific and technical
information in this news release as it relates to Klondex.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180319005446/en/
Hecla:Mike WesterlundVice
President, Investor Relations800-HECLA91 (800-432-5291)Investor
RelationsEmail: hmc-info@hecla-mining.comWebsite:
www.hecla-mining.comorKlondex:Mike
BecksteadDirector, Investor RelationsO: 775-284-5757 | M:
406-290-4165Email: mbeckstead@klondexmines.comWebsite:
www.klondexmines.com
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