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 balance
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.
For further information, please contact:
Hecla:
Mike Westerlund
Vice President, Investor Relations
800-HECLA91 (800-432-5291)
Investor Relations
Email: hmc-info@hecla-mining.com
Website: www.hecla-mining.com
Klondex:
Mike Beckstead
Director, Investor Relations
O: 775-284-5757 | M: 406-290-4165
Email: mbeckstead@klondexmines.com
Website: www.klondexmines.com
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