2 October 2018 Klondike Gold Corp. FIRST BERLIN Equity Research Analyst: Ellis Acklin,Simon Scholes, Tel. +49 (0)30 - 80 93 96 83 2 Klondike Gold Corp. Kl on Canada / Mining Primary: Toronto Secondary: Frankfurt Stock Exchange RATING BUY PRICE TARGET C$ 0.70 Bloomberg: KG CN Return Potential 248.0% ISIN: CA4989033010 Initiation of Coverage Risk Rating High AT THE HEART OF A SECOND, BIGGER KLONDIKE GOLD RUSH Ellis Acklin,Simon Scholes, Tel. +49 (0)30 - 80 93 96 83 FINANCIAL HISTORY & PROJECTIONS 2015/16 2016/17 2017/18 2018/19E 2019/20E 2020/21E Revenue (C$m) 0.00 0.00 0.00 0.00 0.00 0.00 Y / Y growth n.a. n.a. n.a. n.a. n.a. n.a. EBIT (C$m) -0.66 -1.25 -2.00 -2.26 -2.39 -2.53 EBIT margin n.a. n.a. n.a. n.a. n.a. n.a. Net income (C$m) -0.56 -0.56 -1.65 -2.26 -2.39 -2.53 EPS (diluted) (C$) -0.02 -0.01 -0.02 -0.02 -0.02 -0.02 DPS (C$) 0.00 0.00 0.00 0.00 0.00 0.00 FCF (C$m) -0.67 -2.67 -4.51 -5.25 -5.57 -9.33 Net gearing -5.9% -7.8% -30.6% -6.8% -7.5% -3.1% Liquid assets (C$m) 0.52 0.99 6.53 1.28 1.71 0.85 RISKS The main risks are failure to identify enough gold for an economic extraction and potential friction with First Nations. COMPANY PROFILE Klondike Gold Corp. is a Canadian gold exploration company with offices in Vancouver, British Columbia, and Dawson City, Yukon Territory. The company’s 557km² Klondike District Project encompasses the original 1896 gold rush discoveries at Bonanza and Eldorado Creeks. MARKET DATA As of 10/1/2018 Closing Price C$ 0.20 Shares outstanding 96.83m Market Capitalisation C$ 19.37m 52-week Range C$ 0.20 / 0.44 Avg. Volume (12 Months) 217,097 Multiples 2017/18 2018/19E 2019/20E P/E n.a. n.a. n.a. EV/Sales n.a. n.a. n.a. EV/EBIT n.a. n.a. n.a. Div. Yield 0.0% 0.0% 0.0% STOCK OVERVIEW 0.18 0.28 0.38 0.48 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 4870 5370 5870 6370 6870 7370 7870 Klondike Gold Corp. S&P/TSX Composite Diversified M etals + M ining COMPANY DATA As of 31 May 2018 Liquid Assets C$ 5.88m Current Assets C$ 5.99m Intangible Assets C$ 15.39m Total Assets C$ 21.70m Current Liabilities C$ 0.57m Shareholders’ Equity C$ 21.13m SHAREHOLDERS F. Giustra 14.0% E. Sprott 13.0% Management 10.0% Free Float 63.0% Over 20 Moz of gold have been recovered from Klondike gravels (placer mining) since the region’s first gold rush in 1896. Exploration for hard rock deposits was very limited until 2007. Since then over seven Moz have been discovered in the region sparking C$1bn of investment. Klondike Gold’s (KG) exploration of its hard rock Klondike District Project supports a model with direct similarities to the nearby Golden Saddle and Coffee projects. Kaminak’s Coffee project was acquired by Goldcorp Inc. in 2016 for C$520m confirming interest in the region’s gold-bearing potential generated by Kinross’ purchase of Underworld’s Golden Saddle deposit for C$139m in 2010. The Klondike has also seen recent joint ventures by Newmont, Barrick, and Agnico Eagle with junior explorers. Results of exploration work carried out by KG’s current management since 2015 show promise. Up to C$2.5m is budgeted for exploration next year. Property infrastructure is excellent, while gold mineralisation is at or near surface and likely to be amenable to low cost gravity separation. We initiate coverage with a Buy rating and C$0.70 price target. There’s gold in them thar hills During 2015-2017 the company succeeded in demonstrating in-place bedrock gold mineralization as the source of historic Klondike placer gold production in multiple locations both in the form of gold-in- quartz veining and disseminated gold, while the Lone Star Zone appears to be the first sizeable Au ounce target. Does fault system at Lone Star extend along 55km length of property? KG recently completed a property-spanning survey including airborne geophysical, soil and structural components to determine whether the fault / structural system at Lone Star extends along the entire 55km length of property. Final results are pending. 2018 drilling programme tops targets Prompted by good results at the Nugget Zone (1.55 g/t over 45.2 m; 1.0g/t over 51.0 m), management decided in August to almost double its 2018 drilling programme from 44 to ca. 80 holes and most recently reported 87 holes completed as the season winds down. KG is targeting the publication of a maiden resource estimate in 2021.
RISKS The main risks are failure to identify enough gold for an economic extraction and potential friction with First Nations.
COMPANY PROFILE Klondike Gold Corp. is a Canadian gold exploration company with offices in Vancouver, British Columbia, and Dawson City, Yukon Territory. The company’s 557km² Klondike District Project encompasses the original 1896 gold rush discoveries at Bonanza and Eldorado Creeks.
Klondike Gold Corp. S&P/TSX Composite Diversif ied M etals + M ining
COMPANY DATA As of 31 May 2018
Liquid Assets C$ 5.88m Current Assets C$ 5.99m Intangible Assets C$ 15.39m Total Assets C$ 21.70m Current Liabilities C$ 0.57m Shareholders’ Equity C$ 21.13m SHAREHOLDERS F. Giustra 14.0% E. Sprott 13.0% Management 10.0% Free Float 63.0%
Over 20 Moz of gold have been recovered from Klondi ke gravels (placer mining) since the region’s first gold rush in 1896. Exploration for hard rock deposits was very limited until 2007. Since then over seven Moz have been discovered in the region sparking C$1bn of investme nt. Klondike Gold’s (KG) exploration of its hard rock Klondike District Project supports a model with direct similarities to the nearby Golden Saddl e and Coffee projects. Kaminak’s Coffee project was acquired by Goldcorp I nc. in 2016 for C$520m confirming interest in the region’s gold- bearing potential generated by Kinross’ purchase of Underworld’s Gold en Saddle deposit for C$139m in 2010. The Klondike has also seen recent joint ventures by Newmont, Barrick, and Agnico Eagle with junior expl orers. Results of exploration work carried out by KG’s current manage ment since 2015 show promise. Up to C$2.5m is budgeted for exploration n ext year. Property infrastructure is excellent, while gold mineralisation is at or near surface and likely to be amenable to low cost gravity separ ation. We initiate coverage with a Buy rating and C$0.70 price target.
There’s gold in them thar hills During 2015-2017 the company succeeded in demonstrating in-place bedrock gold mineralization as the source of historic Klondike placer gold production in multiple locations both in the form of gold-in-quartz veining and disseminated gold, while the Lone Star Zone appears to be the first sizeable Au ounce target.
Does fault system at Lone Star extend along 55km le ngth of property? KG recently completed a property-spanning survey including airborne geophysical, soil and structural components to determine whether the fault / structural system at Lone Star extends along the entire 55km length of property. Final results are pending.
2018 drilling programme tops targets Prompted by good results at the Nugget Zone (1.55 g/t over 45.2 m; 1.0g/t over 51.0 m), management decided in August to almost double its 2018 drilling programme from 44 to ca. 80 holes and most recently reported 87 holes completed as the season winds down. KG is targeting the publication of a maiden resource estimate in 2021.
Investment Case ........................................................................................................................................... 3
Company Profile ........................................................................................................................................... 9
Klondike’s Claim Acquisition History ........................................................................................................... 17
Gold Rush 2.0 – Searching For The Mother Lode ...................................................................................... 19
Government Supportive of Gold Exploration............................................................................................... 21
KG’s Summarized Drilling History ............................................................................................................... 23
2018 Work Agenda and Early Results ........................................................................................................ 26 Thus far in 2018 .................................................................................................................................... 27 Final drilling sprint tops year end targets............................................................................................... 28
Management & Board of Directors.............................................................................................................. 31
Income Statement....................................................................................................................................... 34
Major mining investor restructures long time underp erforming explorer KG has been exploring in the Klondike goldfields of the Yukon Territory since 1980. The company has operated under several regimes with the current iteration emerging out of the merger with Klondike Star Mineral Corp (KSMC) in Q1 2017. KG currently controls 557 km² of quartz claims in the Klondike District, as well as 20 km² of placer claims. After years of mismanagement and disappointing results under the old Klondike Gold regime, veteran mining financier, Frank Giustra (14% KG stake), hired Peter Tallman in 2014 to demystify legacy financial inconsistencies and make a fresh assessment of the District’s gold-bearing potential. Modern day gold rush The gold business is booming again in Yukon Territory. Investments have topped $1bn with over 90% targeting gold. Industry giants Gold Corp, Newmont, Agnico Eagle and Barrick Gold have all set up camp across the Yukon Territory. This gives us a high degree of confidence in the prospects for the Klondike’s claims, which are up the road from Kaminak’s Coffee project—acquired by Gold Corp in 2016. Miners believe that Klondike’s mother lode may still be out there and point to the “California Mother Lode Belt” where prospectors mined 40 Moz of placer gold from 1846 – 2016 and 220 Moz of bedrock gold from 1860 – 2016. This dwarfs the Klondike District where some 20 Moz have been scooped up from the riverbeds since 1896 coupled with 1,200 bedrock ounces from 1906–1910. Does Klondike hold the key to the potential mother lode? Airborne, ground magnetic and radiometric surveying have been conducted across the entire District for the first time this year. Mr Tallman believes he has found the original bedrock source. After numerous explorers failed for over a century to find it, recent evidence supports his confidence. KG’s acreage sits on top of one of the sources of the historic placer goldfields, and the company has identified gold-bearing structures throughout its drill sites including disseminated gold showings. We learned on our property field trip that the Klondike team has identified 44 bedrock showings of visible gold in 3 plus years of drilling. Accelerated 2018 work program tops 9,000 meter targ et This year Klondike wants to determine if the fault and structural system found at Lone Star Zone extends throughout the 55km property to Gold Run Zone by systematically testing for gold mineralization associated with faulting. Spurred by recent results at the Nugget Zone showing gold mineralization of 1.55 g/t Au over 45.2 meters, including 5.3 g/t Au over 7.6 meters (EC15-03) and 1.0 g/t Au over 51.0 meters (EC15-15) along a 1,400 meter length, Klondike Gold upgraded its seasonal drilling targets in late August aiming for ~80 holes and 9,000 meters for the 2018 season. The company announced on 18 September, that the year-end sprint beat these targets with 9,512 meters of drill core and 87 holes, thus topping its reset targets. This gives us a high degree of confidence in management’s future drilling forecasts. More results in the works Klondike has released assays from only 20 holes (LS18-151 to LS18-159 and LS18-164 to LS18-174) from the current season leaving plenty of scope for further news flow after the season winds down. The delays stem from a technical issue at the lab, which has been resolved. KG has also completed a regional survey of the entire Klondike District including airborne geophysical, soil, structural and lithologic mapping, as well as prospecting components. This is the first ever geological survey spanning the entire district in its 120 year history. Some 500 rock, 5,000 soil, and 6,500 drill core samples have been submitted for analysis with nearly all assays pending.
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Recent drilling results show promise of near-surfac e disseminated gold After recognizing the potential for gold disseminated in the host rock at the Lone Star Zone in 2016, Klondike has been re-assessing and further sampling all drill core from the 2015 – 2016 drill campaigns. This led to the discovery of further intervals where disseminated gold is present. Data released 2 August on four Nugget Zone holes from extended and infill sampling showed extended gold assay intervals. This was highlighted by best hole EC15-03, which starting at the surface, showed 1.55 g/t Au over 45.2 meters from 4.40 to 49.60 meters. It also included a sub-interval from 4.40 meters of 5.3 g/t Au over 7.60 meters Initiate with a Buy rating based on take-out prospe cts Klondike’s progress is certainly being watched closely by the mining majors, who have been positioning themselves in the Yukon in recent years. Assuming forthcoming assays confirm gold mineralisation and the company continues its current exploration trajectory, we believe it will only be a matter of time before Klondike becomes the object of corporate activity. The company benefits from an exceptionally strong investor roster, favourable local infrastructure, and the stewardship of Mr Tallman, who boasts an impressive track record of success. We value the company based on a take-out scenario that tracks Gold Corp’s acquisition of Kaminak’s Coffee project. This yields a fair value of C$134m or C$0.70 per share. Our rating is Buy.
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SWOT ANALYSIS
STRENGTHS
● Proven management Peter Tallman is a veteran of the industry with deep expertise that includes the discovery and delineation of three mineral deposits, and a passionate hands on approach that resonates throughout the KG camp. Mr Tallman has assembled a strong team recently bolstered by the addition of Ian Perry, who adds 35 years of exploration experience.
● Financial firepower KG’s investor roster includes two high profile mining financiers. Fully backed by billionaires Frank Giustra and Eric Sprott, the company enjoys unusually strong financial support for a junior explorer. Most recently, Mr Giustra sanctioned deployment of a second drill after a mere phone call.
● Local infrastructure The property is 20 km outside Dawson City and benefits from a solid road network and local infrastructure to support exploration and development operations. This positively impacts current operations and will help accelerate future mining operations.
● Low operating costs Gold discoveries have been close to the surface and can conceptually be harvested through gravity separation without expensive and time consuming leaching. This should result in quicker cash flows and higher profitability once mining is underway.
● Stable and supportive jurisdiction The Federal and Yukon governments have committed to inject $360m into infrastructure supportive of mining in the Dawson and Nahanni Ranges: The latter is located in the southeast of Yukon Territory, several hundred km from Dawson City. Overall, Canada ranks among the top jurisdictions worldwide for its mineral potential and ability to attract investment.
WEAKNESSES
● Early stage While initial testing results have been encouraging, management caution that much work is still to be done and that a gold resource remains conceptual in nature until enough data can be complied and an NI43-101- compliant resource estimate can be declared.
● Winter-related seasonality The company releases drilling results and assays regularly during the drilling season. However, a harsh winter shuts down operations for half the year starting early fall. Investors can be impatient during the winter lull causing share price volatility.
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OPPORTUNITIES
● Resource estimate The Klondike land package harbours potential for multi-million ounces in gold deposits. While early assays are encouraging, a resource estimate would be even better. The company will step up drilling in 2019, which could pave the way for a resource estimate in 2021 assuming the envisioned intermediate 1 Moz target has been reached in 2019.
● Disseminated gold potential After initially following the path of prior explorers over the past 120 years by focusing on gold-bearing quartz veins, the company is now concentrating on the high potential for disseminated gold close to the surface. This would translate into much lower cost for future extraction.
● Capitalise on claim volume Klondike has so far explored less than half of its sizable property package—2,942 contiguous claims. The company could also sell some of its 100% owned claims to meet some of its cash needs once it has a resource estimate in hand.
● Corporate activity As exploration activities progress, Klondike should be on the radar of larger mining outfits. Gold Corp in particular should have high interest, given the proximity to its recently purchased Coffee project and the immediate benefits KG’s infrastructure could provide.
THREATS
● Future friction with First Nations Klondike has been active in building solid and respectful relations with local First Nations representatives. However, there is no guarantee that the positive cooperative spirit will persist.
● Regulatory head winds With a view to expanding its revenue base, the Yukon Territory has been highly supportive of mineral exploration and development. That said, government winds tend to blow variably and Klondike is affected by the decisions taken by the Yukon YESAB (Yukon Environmental and Socio-economic Assessment Board), EMR (Department of Energy, Mines and Resources) and Water Board.
● Personnel attrition Management and the exploration team we met are well balanced. But Peter Tallman, President and CEO, is particularly important to continued success. As with many small caps, retaining key personnel is imperative—this is doubly true of a junior explorer.
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VALUATION
Klondike is a pre-revenue junior exploration company. Therefore, cash flow valuation methods are unsuitable at this stage. To value KG, we refer to the corporate activity involving Kaminak’s Coffee project, which neighbours Klondike’s property package. We contend that Klondike is on a trajectory similar to Kaminak/Gold Corp as depicted in the timeline below.
Figure 1: Coffee case study
Source: Klondike Gold Corp
Located within the Yukon-Tanana Terrane (YTT), the Kaminak property comprises 3,021 contiguous Yukon Quartz Lease mining claims covering a total area of 60,502 hectares. Gold Corp Inc paid C$520m Kaminak Gold Corp in 2016 for its Coffee Project (3 Moz indicated and 2 Moz Inferred) equal to $100 per oz Au (+C$20m cash on hand). This transaction has sparked renewed interest in the gold potential of the region leading to several exploration joint ventures (Figure 9) involving Newmont, Barrick, and Agnico Eagle with nearby junior explorers. Klondike’s exploration to date also supports an orogenic gold deposit model of mineralization with direct similarities, including age and veining style, to the neighbouring Golden Saddle deposit discovered by Underworld Resources. This was acquired by Kinross Gold in 2011 for $139m equal to C$100 per Au ounce in all categories For a potential takeout, we assume a mining major will need to see potential for 2 Moz in order to justify investment in a mine. At its current pace, we believe the company will hit this Au target in 2021 supported by a maiden resource estimate and PEA (preliminary economic assessment). Assuming Klondike achieves the targeted Au ounces, we think the company would fetch at least the same price as Kaminak given the immediate proximity to that project. In fact, we consider KG a potentially more attractive target, given the likely amenability of Klondike’s disseminated gold deposits to gravity separation vs. the cost and time intensive leaching required at the Coffee project. It also makes sense that Klondike will draw considerable interest form Goldcorp Inc, given the advantages the KG infrastructure would provide to its Coffee project.
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The company is equity financed and funded into 2019. We expect the company to raise further equity next year to help finance future operating and exploration expenses and have factored in equity issuances in 2019/20 (C$6.0m), 2020/21 (C$8.0m), and 2021/22 (C$4.2m) using the same financing structure of past issuances—each “unit” issued contained one common share and one half of a warrant. The proceeds will facilitate drilling meterage (FBe: 75k meters) required for the maiden resource estimate as well as corporate costs until then. We have assumed C$100 per ounce and an initial Au target of 2 Moz. But depending on future results, the Au target could climb to 5 Moz, which would warrant a higher valuation. For now, we take a more conservative approach and make a base assumption of a 2 Moz resource estimate in the beginning of 2021 leading to a potential takeover in 2022.
Our takeover scenario results in a value of C$200m, which we discount by 15% to account for the early stage exploration risk. We have also discounted all outstanding options and warrants, future issuances, and proceeds to derive pro-forma shares outstanding and net cash. The resulting fair value of C$134 corresponds to C$0.70 per share using a pro-forma share count (188m).
Table 2: Summary of outstanding warrants & options a s of 30 September 2018
Warrants Strike price (C$) Expiry
2,000,000 0.35 30-Nov-18
1,761,666 0.35 13-Mar-19
1,441,286 0.20 04-Apr-19
149,389 0.34 23-Aug-19
2,861,340 0.40 23-Aug-19
1,809,386 0.45 23-Aug-19
551,650 0.34 30-Aug-19
3,103,000 0.45 30-Aug-19
7,025,000 0.30 04-Apr-20
20,702,717
Options Strike price (C$) Expiry
1,686,500 0.12 16-Dec-24
825,000 0.19 19-Apr-26
685,000 0.28 21-Jun-26
400,000 0.30 13-Sep-26
150,000 0.17 19-Jan-27
150,000 0.19 02-Feb-27
1,400,000 0.26 04-Apr-27
3,650,000 0.29 28-Mar-28
8,946,500 Source: Klondike Gold Corp
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COMPANY PROFILE
Klondike Gold Corp (KG) is focused on the exploration and development of its 100% owned Yukon gold projects spanning 557 square kilometres of hard rock claims and 20 square kilometres of placer claims. The company completed its merger with Klondike Star Mineral Corp (KSMC) in Q1 2017 and assumed ownership of all claims, including many areas already explored by KG. In a stock swap, Klondike Star shareholders received 0.25 shares of KG for each KSMC share (see Acquisition History section for details). KG trades on the TSX Venture Exchange (TSX.V: KG) as well as the Frankfurt Stock Exchange (FRA: LBDB). KG has been actively exploring in the Yukon since 1980 making it one of the longest established hard rock explorers in the region. The company currently holds 2,942 contiguous quartz claims spread across a district spanning 55km in length. The goal of the exploration work is to demonstrate that gold mineralisation occurs throughout the 55km long Klondike district. Management have set their sights on a resource estimate by 2021 and want to identify 2 Moz using 0.3 g/t as a cut-off grade. The KG project encompasses the area of the historic Klondike goldrush of 1896-1899. These goldfields have yielded some 20 million ounces of gold since 1896. This total is based on calculations by the Yukon Geological Survey of gold mined from the creeks and gravels located within Klondike Gold’s current bedrock mineral claims.
Figure 2: Klondike Gold property map
Source: First Berlin Equity Research; Klondike Gold Corp.
Recent corporate history After years of disappointing results under the previous Klondike Gold and Klondike Star regimes, Frank Giustra hired Peter Tallman in 2013 for a fresh assessment of the claims.
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Mr Tallman was a trusted advisor on previous exploration undertakings and ideally suited to conduct a critical evaluation of the prospects and prior operational shortcomings. We learned on our trip that no one had ever looked for disseminated gold in the area. Nor had anyone ever reviewed the results of early twenty-first century magnetic, radiometric, and VLF (very low frequency) surveys conducted on the Klondike area by the Geological Survey of Canada (GSC) until Mr Tallman dusted them off.
Figure 3: Dawson City – authentic local infrastruct ure for the next gold rush
Klondike Property District location KG’s property package is situated some 20 km south of Dawson City, Yukon Territory. The iconic town become the epicentre of the Klondike gold rush of 1896–1899 when its populace peaked north of 35k. Today, the town has a population of some 3,500 and is well equipped to support Klondike’s exploration campaigns. The property package is also located within the traditional Tr’ondëk Hwëch’in First Nation territory.
KG’s property package features the uniquely named property areas: Lone Star, Bonanza, Dominion, Gold Run, Sulphur Creek, and Washington Creek, while the major creeks have been named after global gold districts. The property stretches across 2,942 contiguous quartz claims and 14 Crown Grants found on the historic Lone Star Mine in the Klondike Goldfields. The quartz claims span 555 square km, while the Crown Grants cover two square km.
The Lone Star Zone is centred along Lone Star ridge, the site of the original Lone Star Mine in 1912-1914. The Nugget-to-Buckland Zone runs along the south side of Lone Star ridge. Across Eldorado Creek to the south, the Violet Zone is situated along the next ridge.
Llithologies traced to the Permian Klondike Schist Assemblage—part of the Yukon-Tanana Terrain—underlie the Eldorado Property. This plot has a complex deformation history with at least four phases of deformation (D1-D4), and the D4 quartz veins are gold-bearing.
The Indian River property, including McKinnon Creek, is a 7 x 2 km property, which hosts one of the region’s largest unmined White Channel Gravel-hosted placer gold resources. The property was staked by Klondike Gold in March 2005 and is owned 100%, subject to an underlying 5% gross production royalty payable to 19651 Yukon Inc.
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Rugged terrain, “the bush” and extreme climate We extensively toured the property, which lies between 320 – 1,175 meters above sea level and overlooks the Yukon river about 10 - 15 km away. Much of the district and local region features dense forests and is covered with thick brushy vegetation consisting of mixed spruce and poplar with bushy willow undergrowth. The area has a subarctic continental climate with temperatures ranging from
35°C to -70°C. The summer mean temperature is 10°C, while the winter averages a rather
frigid -23°C. The drilling season thus usually ends at the latest in early November.
Orogenic Gold Deposits Orogenic gold deposits are a diverse class of epigenetic hydrothermal gold deposits formed under compressional to transpressional deformation, associated in space and time with accretionary or collisional orogenesis which are distributed worldwide through most of geologic time. Gold mineralization in the Klondike District was deposited as part of the Cordilleran orogeny during accretion of an island arc terrane which spanned the western north and central America margin prior to collision and obduction onto the north American craton during the late Paleozoic to Mesozoic age (Permian, Triassic, Jurassic, Cretaceous ages). Gold mineralization relating to this event includes the Mother Lode district in California, the Bridge River district and area in British Columbia, the Klondike district in Yukon, and the Juneau, Fairbanks, and Nome districts in Alaska among others. From a metallogenic perspective there is relatively high gold endowment worldwide within accreted terranes aged Triassic to Cretaceous. Yukon-Tanana Terrane The Klondike District is underlain by Permian age Klondike Schist within the Yukon-Tanana terrane, part of an obducted island arc assemblage which extends from Alaska through the Yukon and British Columbia and has its equivalent in Oregon and California. The Yukon-Tanana terrane includes obducted Devonian-Mississippian strata of continental affinity which are overlain by volcanic arc successions that include back arc and island arc tectonic settings. Figure 17 shows a map of Yukon Terranes. These units are now polydeformed and, on a regional scale, show a range of metamorphic grade from lower greenschist to amphibolite facies. The Yukon-Tanana terrane has been intruded by syntectonic Mississippian to Permian granitoids, and post-tectonic Cretaceous to Eocene felsic, mafic and lamprophyre dykes. Klondike District Geology The northwestern Klondike area is underlain by three recognizable thrust fault bounded assemblages (Rushton et al., 1993) that constitute the mid Permian Klondike Schist. These are: Assemblage III of carbonaceous quartz muscovite phyllite, schist and marble that crops out southwest of the Indian River and also to the northeast of Hunker Creek. Structurally above is Assemblage II of micaceous and chloritic quartzite, feldspathic quartzite, marble and calcareous schists which is intruded by the Mt. Burnham orthogneiss, found in the east of the Klondike. Assemblage I consists of three units: quartz augen schist; the Sulphur Creek orthogneiss; and intercalated chloritic schist, metagabbro, amphibolite, quartzite and felsic schist. The Sulphur Creek orthogneiss and the latter sequence are found in the Eldorado-Bonanza area. Thrust faults are in part marked by slivers of serpentinised ultramafics and/or graphitic cleavages. A map of regional geology is shown in Figure 18. In the immediate claim block area Mortensen (1996) has mapped quartz and quartz feldspar augen schist, interpreted as being a metamorphosed subvolcanic intrusion (his unit Pas) on the immediate west side of Eldorado Creek. The Eldorado to Bonanza ridge (Lone Star) is underlain by unit Pfs: felsic schists, interpreted to have been derived from a sequence of tuffs, cherty tuffs and cherts on the 27 Pup side and over the Lone Star area. The east side of the ridge is largely unit Pms: chlorite schist, mafic meta-volcanics. Northeast of Bonanza Creek units Pms predominates.
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Figure 5: Distribution of individual units within t he Klondike District
Source: First Berlin Equity Research; Klondike Gold Corp.
Structural Geology In the Klondike Schist within the Yukon-Tanana terrane and equivalents, styles of deformation are similar in that F1 folding transposed original bedding into parallelism with axial planar foliation such that F1 fold hinges are rarely seen. During this ductile deformation the rocks were metamorphosed to chlorite-biotite facies (and in some regions to amphibolite grade). F2 folds are isoclinal and often east to northeast vergent. In the Klondike, regional scale thrust faulting (D4) produced F4 open folds over the district. .
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Figure 6: Major structural terrain of Alaska, Yukon and BC
Source: First Berlin Equity Research; Klondike Gold Corp.
In general, at least four phases of deformation (D1-D4) can be attributed to progressive fabric development. Not all the deformation phases are observed throughout the schist. Observations of original bedding (S0) is very rarely preserved. The first phase of deformation consisted of ductile completely isoclinal folding. Only rare cm scale rootless fold hinges may be observed. In the Eldorado-Bonanza area the obvious foliation seen is S2 i.e, compositional layering transposed by F2 folding. The attitude of S2 foliation in the Eldorado-Bonanza area describes a ridge scale macroscopic antiformal structure whose northeast limb is sheared by a thrust fault (the inferred “Rabbit Creek thrust”) on the northeast side of the Lone Star ridge. This Rabbit Creek thrust is inferred from the presence of imbricated thin sheets of serpentinite, graphitic phyllite, and Klondike Schist extending over 200 meters at mid-slope on the south side of Bonanza Creek. The presence of the Rabbit Creek thrust is not required in the current gold model of mineralization in the Klondike District; further work is required here. The third phase of deformation (D3) folds S2 with generally tight similar style folds with northwest trend. Note that F3 crenulations developed in the fold hinges define an L3 lineation. A penetrative axial planar foliation (S3) is occasionally developed. F3 folding of metamorphic segregation veins has produced rootless fold hinges that outline S3 (intrafolial folds). Phase 4 deformation (D4) is conjugate angular kink folds and possible macroscopic warping (km scale) of the penetrative foliation. This produced pervasive folding and a pattern of refolded folds. Fold styles range from tight chevron folds and broad open folds. F4 fold axes are at a high angle to F3 fold axes and may appear as two conjugate sets: north to northeast and east to southeast.
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In general, fold style appears to be lithologically controlled. For example, the more incompetent micaceous units are folded with an S3 crenulation cleavage developed. Detailed mapping over the Lone Star-Pioneer area has produced a reinterpretation of the macroscopic structures above the Lone Star thrust fault. The immediate succession of felsic schist at the Lone Star has been disrupted by northward striking brittle faulting (i.e, possibly of both late D4 and D5 timing). Structural studies during the 2018 season have included an interpretation of the effect of brittle, presumably extensional faulting in the Lone Star area. This faulting would likely be coeval with the larger fault zones marked by gouge zones such as are found along Eldorado Creek, i.e. they would represent a D5 deformation. These are expressed as regularly spaced moderately to steeply dipping, roughly north-south trending normal faults (typically 5-25 cm of clay gouge) with sub-meter to tens of meters displacement, and are observed throughout the Lone Star.
Table 3: Summary comparison of thrust slices (in rel ative structural order) in the Klondike area relevant to gold exploration
Pervasive recrystallisation, fine metamorphic grain size
Pervasive slaty foliation, weak metamorphic
segregation
Common, spaced fracture cleavage, minimal mica
recrystallisation
Greenstones Metabasic rocks Lower greenschist faciesVariable recrystallisation, fine
metamorphic grain sizeMinor foliation development None?
Source: Klondike Gold Corp
Quartz Vein System of the Klondike and Mineralizatio n Two types of quartz vein are common in the Klondike Schist:
● Unmineralized foliaform veins that are concordant with foliation, may be up to meters thick but which are lenticular, and locally may contain anhedral disseminated pyrite.
● Early unmineralized and overprinting mineralized discordant veins that may contain sulphides.
There are four (pyrite, with minor galena, chalcopyrite and tetrahedrite) mineralization and visible gold which is both commonly contained in selvedges of pyrite (or after weathering, pseudomorphs of goethite/limonite) and as free gold grains in the white quartz. The discordant veins are rarely up to 2-3 m thick and can persist for hundreds of meters strike length. Some spectacular gold grades are reported from this vein type (Rushton et al., 1993). The majority of discordant veins occupy approximately planar, smooth sided fractures. Most are typically several centimeters thick, with some up to 0.5 m thick. Many of the veins mapped typically terminate as gradually tapering structures in two dimensions. Examination of the vein margins at the macro scale reveal a distinct absence of any hydrothermal alteration with the exception of locally developed sulphide rich vein / wall rock margins over much of the Klondike.
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Timing of the discordant, mineralized quartz veining is likely immediately after D4. A model of mesothermal type vein formation is proposed by Rushton et al. (1993), whereby the southeast part of Klondike represents a deeper level in the system and that the Hunker Dome region would have been mineralized as ascending meteoric / metamorphic CO2 - bearing fluids reached a level sufficient for the exsolved CO2 gas to have effervesced. They interpret the 27 Pup-Lone Star area as having being mineralized at a comparatively shallow level (pressures of 0.3 to 0.625 kb). More recent work (J.K. Mortensen, pers. comm.) favours a model for foliaform vein formation as secondary structures developed between near horizontal extensional floor and roof faults during the process of rapid early Cretaceous uplift, analogous to formation of detachment faults above metamorphic core complexes. Very detailed mapping in the Buckland area has indicated that the ‘Buckland shear’ referred to in Arbor Resources’ work is a D4 deformation zone. Table 4: Summary of principal structural events (sho wn from oldest, bottom, to youngest, top) that affect the Klondike Schist
EventDesignation in
Klondike SchistMain Feature Orientation Mineralisation Deformation Age
Normal fault Normal fault Gouge zones NW to N Regional extension Cretaceous?
First foliation S1 Foliation, segregations Variable Compression Permian?
Deposition S0 Bedding etc. Not seenSulphides in some
rocksPermian?
Source: Klondike Gold Corp
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KLONDIKE’S CLAIM ACQUISITION HISTORY
The table below summarizes the district’s quartz and placer holdings consolidated by Klondike since 2012 and shows royalty encumbrances where applicable.
Table 5: Klondike Yukon property summary
Ownership Property Type Claims Area (km²) Royalty
Klondike Gold Klondike District Claims 1,692 310 n.a.
Klondike Gold Klondike District Crown grants 14 2 n.a.
Klondike Gold Klondike District Claims-Gimlex 1,230 244 2%
Klondike Gold Klondike District Claims-Burkhard 6 1 2%
Total claims 2,942 557
Klondike Gold Placer Indian River 239 13 5%
Klondike Gold Placer Eldorado Creek 114 7 n.a.
Total placers 353 20 Source: First Berlin Equity Research; Klondike Gold Corp.
Klondike Star claims Klondike Gold initiated a takeover bid to acquire a majority stake in Klondike Star Mineral Corp (KSMC) in March 2012. Klondike Star’s key assets were a 20% stake in Lone Star Gold Inc, a 27.5% interest in the Lone Star property, and a 55% stake in 342 quartz claims covering key areas of the northern Klondike Gold Fields along with a 100% interest in the 26 quartz claims that form the Gold Run Property. Plus, KSMC had spent some $12m on exploration of its claim group including soil sampling, trenching, and over 8,000 metres of drilling—data which had never been assimilated. The takeover rationale was for Klondike Gold to consolidate ownership of the gold properties in the Yukon by acquiring the KSMC assets and data to promote a more efficient exploration of the area and enhance exploration financing opportunities. This deal resulted in a continuous block of 1,100 quartz claims covering some 200 km² of the northern and southern Klondike Gold Fields. Following a lengthy preparation period required to satisfy the US regulator (SEC), 49.2m common KSMC shares, equal to a 71% stake, were tendered to KG in February 2014. Under the terms of the offer, KSMC shareholders received 0.25 of one common KG share for each KSMC share tendered. In Q1 2017, Klondike and Klondike Star agreed to a merger for the remaining KSMC shares. Each remaining outstanding share of Klondike Star’s common stock (19,488,640) will be automatically converted into the right to receive either: (1) 0.025 shares of common stock of Klondike Gold Corp, or (2) $0.0035 per share of Klondike Star in cash. Klondike Star shareholders have until 20 December, 2019 to tender the necessary documentation to convert their shareholdings. Indian River In September 2014, KG acquired all outstanding shares of the privately held 46799 Yukon Inc against the issuance of 6,435,000 common KG shares for C$0.20 per share. The deal gave Klondike a 100% stake in the Indian River property, which is subject to a 5% royalty on gold and mineral production. Gimlex claims In August 2016, KG’s land grab continued when it entered into an agreement with Gimlex Enterprises for a 100% interest in the private company’s 1,125 mining claims covering 223 km² of the Dawson mining district. The deal effectively doubled KG’s land package. It also allowed the company to consolidate its Yukon District footprint into one contiguous district-spanning claim group. In return for its claims and 24 years of mining data, Gimlex received a $0.5m cash payment, 3m no par value common KG shares, and a 2% NSR royalty, of which KG may buy one-half (1%) from Gimlex for $1.5m in cash at any time.
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Figure 7: Debriefing on the progress at McKinnon Cr eek
Source: Klondike Gold Corp
Burkhard claims In September 2017, Klondike Gold Corp entered into a Property Acquisition Agreement with Sylvia Burkhard to purchase a 100% stake in six mining claims covering 122.6 hectares located in the Dawson mining district. For a $20,000 cash deal, Mrs Burkhard was granted a 2% Net Smelter Return (NSR) Royalty, of which KG can purchase one-half (1%) for $1m cash at any time.
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GOLD RUSH 2.0 – SEARCHING FOR THE MOTHER LODE
Klondike’s claims are located in the heart of Yukon Territory’s mining district. This lies within the Tintina Gold Belt—a 200 km wide and 1,200 km long arc extending from northern British Columbia into southwest Alaska. Made famous by the gold rush of 1896, the province has a long, rich gold bearing history with an estimated total of 69 Moz of gold having been discovered. Prior to 2007, very little hard rock exploration had been conducted in the area. Underworld kicked off a series of major events in 2007 when it optioned the White Gold Project from Shawn Ryan, the veteran prospector who helped usher in a modern day gold rush in the area. Recent discoveries in the Klondike have prompted geologists to theorise that that the lion’s share of the gold in the area is still to be discovered
Figure 8: Original miner’s camp at the top of Lone Star
Why hasn’t the Mother Lode been discovered before? When news of George Washington Carmack’s discovery and a potential major strike in the Yukon District hit the outside world in 1896, it triggered a flood of 30,000 prospectors that spawned the Dawson City boom town and first major gold rush in the area. Some 20 Moz of placer gold were eventually recovered at the surface mainly by men with pick axes and crude sluices, leaving the hard rock source of the gold untouched. Plus, the early prospectors had no way to find it. The subsequent deployment of heavy dredging equipment in local rivers also failed to hit the mother lode. Technology has changed that. KG is in the process of conducting a systematic assessment of its District using some of today’s latest technology to overcome the rugged terrain that defines its property package. 3D subsurface scanning of conductivity and resistivity rock properties has been completed over the Lone Star Zone. Airborne, ground magnetic and radiometric surveying have been completed for the first time throughout the District in 2018, as has geochemical sampling for gold in soils. This information is synthesized back at the camp, and if an interesting gold signature is identified, diamond drills are deployed to extract samples. Structural and whole rock chemical information is immediately gathered on site with specialized analytic tools, following which samples are sent to a lab for quantitative analysis for gold.
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Given the experience of Klondike’s team and the benefits of modern technology, we have a high a degree of confidence that the company will overcome the handicaps of the early miners. This could lead to a much bigger discovery if Klondike Mother Lode is indeed still out there and resembles California’s historic production. The Golden State produced some 40 Moz of gold in gravels and another 220 Moz of bedrock gold from 1848 to 2016.
Table 6: Timeline of recent major discoveries and e vents in Yukon Territory
2009 Major gold discovery of 1 Moz on Underworld Resources' White Gold property
2009 Kaminak Gold acquires the Coffee Gold Project
2010Underworld delineated the Golden Saddle deposit with an indicated resource of 1 Moz of gold grading 3.2 g/t plus an inferred resource of 0.4 Moz of gold grading 2.5 g/t.
2012 Comstock strikes drill intersection of 3.04 g/t over 45.5 meters
2010 Kinross Gold purchased Underworld for $139 million (C$100 / ounce)
2015 Kaminak confirms 3 Moz Au Indicated and 2.2 Moz Inferred on its Coffee project
2016 Goldcorp acquires Kaminak Gold Corp. and its Coffee project for about CAD 520m (C$100 / ounce)
2017Federal and territorial governments commit > $360m to improve road access in two mineral-rich areas in Yukon, including the Dawson Range, which hosts the Klondike Gold package
2017 White Gold buys Golden Saddle from Kinross for ~C$60m
2018 White Gold publishes mineral resource of 1 Moz AU Indicated and 0.3 Moz Inferred
Source: First Berlin Equity Research; Yukon Mining Association, Klondike Gold Corp; White Gold Corp
“The best place to find a new mine is right next do or to an old mine” – Tom Zoellner Since 2007, the Yukon has seen over 50,000 claims staked, over 7 Moz of gold have been discovered, and the majors have acquired two projects. Most recently, Gold Corp took out Kaminak at a valuation of C$100 per ounce in 2016, while Kinross vended its Yukon properties, consisting of the White Gold, Black Fox, JP Ross, Yellow, and Battle properties, to White Gold Corp in May 2017. The included an upfront cash payment ($10m) and 17.5m WGO shares making the senior gold miner a 20% shareholder in White Gold. Meanwhile, WGO recently reported a total gold resource of 961k ounces Au of Indicated and 283k ounces Au Inferred.
Figure 9: Latest Yukon investment activity by the ma jors
Source: First Berlin Equity Research; Yukon Mining Association, Klondike Gold Corp; White Gold Corp
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GOVERNMENT SUPPORTIVE OF GOLD EXPLORATION
In September 2017, the Government of Canada and the Government of Yukon announced the Yukon Resource Gateway Project (YRGP)—a jointly funded project to overhaul and upgrade the existing roads and infrastructure to two key areas (Dawson and Nahanni Ranges) with high mineral potential and instrumental to active mining in the Yukon. The Government of Yukon will inject $113m alongside $247m in Federal funds. The exploration industry has pledged another $109m to the envisioned 8 year project.
Figure 10: Overview of targeted YRGP upgrades
Source: Government of Yukon
The YRGP proposes upgrades of existing infrastructure to two key areas of high mineral potential and active mining in Yukon. These areas include the Dawson Range and the Nahanni Range. YRGP will result in around 650 km of upgraded roads as well as the replacement of numerous bridges, culverts, and stream crossings. The Dawson Range component of the project would include upgrades to four separate road systems that will provide improved access to a significant area of mineralization in the central Yukon on existing public roads and resource-related access trails from southern and northern access points.
Klondike Gold Property
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The Yukon government is working on the project collaboratively with First Nations and will not proceed with any road components proposed in their Traditional Territories without their agreement. KG’s land package is in an infrastructure sweet spot, given its proximity to Dawson City and the intersection of government maintained and local infrastructure. Although all regions should strongly benefit over the long term from the YRSP, Klondike already enjoys the government maintained road network that intersects its land package and supports exploration. We believe this makes KG attractive to one of the majors aiming to consolidate land packages and grab the infrastructure to avoid expensive CapEx. Other factors contribute to low exploration costs. The camp benefits from a local substation located 20km away that distributes stepped down power, while Dawson City Airport is also just up the road to facilitate last mile service.
Figure 11: Aerial view of Indian River claims looki ng north
Source: Klondike Gold Corp
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KG’S SUMMARIZED DRILLING HISTORY
Since taking over the company reins, Mr Tallman has steadily increased the size and scope of Klondike’s exploration activities as shown in the table below. In 2014, KG used historical airborne geophysical surveys to interpret a series of previously unrecognized district-scale faults: Bonanza, Nugget, Eldorado, and Irish Faults, plus the Rabbit Creek Thrust from magnetic surveys. During the 2015 and 2016 seasons, the company focussed exploration on gold-bearing quartz veins following the footsteps of previous explorers over the past 120 years.
Table 7: Overview of drilling programs
2015 2016 2017 2018E
Primary zone Lone Star Lone Star Lone Star Lone Star
Meters drilled 1,374 5,365 8,620 9,512
Drill holes 19 71 70 87
Holes showing Au 15 12 14 TBD
Best hole EC15-10 LS16-58 LS17-82 LS18-156
Au g/t 75.6 2.4 2.4 1.4
Interval (m) 2.8 37.0 41.2 65.1
Soil samples 0 0 4,919 5,625 Source: First Berlin Equity Research; Klondike Gold Corp
2015 – 2016 campaigns The 2015 diamond drill program tested various areas of quartz veining containing visible gold across economically interesting widths within the Lone Star property. Some 1,374 metres and 19 holes were drilled in a 2 km by 1 km area within the Lone Star property to test the zones at Nugget, Gay Gulch, and Buckland. Visible gold was detected in 15 of the 19 drill holes and in all targeted zones.
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Table 8: Highlights from 2015 campaign
Hole ID From (m) To (m) Au g/t Interval (m)
EC15-03 4.40 12.00 5.30 7.60
EC15-10 23.90 26.70 75.60 2.80
including 23.90 24.40 420.00 0.50
EC15-15 54.70 56.50 3.70 1.80 Source: First Berlin Equity Research; Klondike Gold Corp
Klondike completed another 71 diamond drill holes in three phases during the 2016 season on a variety of targets and collected a total of 5,365 meters of core. Disseminated gold was identified for the first time as well as a zone with lateral continuity and multiple showings of size and scope.
Table 9: Highlights from 2016 campaign
Hole ID From (m) To (m) Au g/t Interval (m)
LS16-58 6.50 43.50 2.40 37.00
including 6.50 13.60 6.60 7.10
including 27.10 30.70 9.40 3.60
LS16-59 16.50 44.20 1.20 27.70
including 16.50 23.80 2.30 7.30
EC15-32 3.55 17.89 5.10 14.34 Source: First Berlin Equity Research; Klondike Gold Corp
The two years of drilling produced discoveries of economically compelling grades of gold mineralization over interesting widths at Gay Gulch (75.6 g/t Au over 2.8 meters) and Nugget (5.1 g/t Au over 14.3 meters). At Lone Star, consistent drill results from 17 holes demonstrated the potential for substantial gold target zones. The results included LS16-58 with 2.4 g/t gold over 37.0 meters across a 700 meter strike length, starting from the surface. Klondike thus achieved its initial objective of demonstrating in-place bedrock gold mineralization as the source for the historic rich Klondike placer production in multiple locations within the Klondike District.
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Results from 2017 season Late in the 2016 drill campaign, the Klondike team identified disseminated gold mineralization in the host rock adjacent to quartz veining at the Lone Star Zone. Therefore, the 2017 drill program included systematic testing for gold mineralization that prioritised the targeting of disseminated gold.
The company completed 70 holes in 2017 for a total 8,620 meters collected. This matched the number of holes drilled in 2016 but topped the meterage by 60%. The drilling activity intersected near-surface gold at 50 metre intervals across 1,000 metres of strike length, and broad exploration step-outs intersected gold over 2,700 metres.
Table 10: Highlights from 2017 campaign
Hole ID From (m) To (m) Au g/t Interval (m)
LS17-81 5.50 46.62 2.10 41.12
LS17-82 10.42 51.63 2.40 41.21
LS17-91 4.30 35.00 1.60 30.70 Source: First Berlin Equity Research; Klondike Gold Corp
The average actual cost per meter drilled in 2017 was $120 / meter. This included heavy equipment required for moves and pad levelling and compares with $105 per meter for previous drilling. The incremental rise in per meter drilling cost owes mainly to the deeper holes and additional drill pad preparations compared to prior years. However, the cost stacks up favourably to other Yukon and Canadian rates (C$150 – C$450 per meter), thanks largely to the proximity of the Klondike District Project to Dawson (20 km) and the network of government maintained mining roads that intersect the Klondike property package.
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2018 WORK AGENDA AND EARLY RESULTS
Lone Star area results from 2015 to 2017 suggested that a first-order major fault—Rabbit Creek Thrust—has been a conduit of gold-bearing fluids. They also hinted that the secondary Bonanza, Nugget, Eldorado, and Irish faults harbour gold mineralization as quartz veins or as broader disseminations. Drill testing on three of these structures during 2015-2017 yielded significant gold intercepts of size and scope associated with these faults at the Lone Star, Nugget, and Gay Gulch showings respectively.
Figure 15: Mapping of the fault system
Source: First Berlin Equity Research; Klondike Gold Corp
Key objectives for the 2018 season In March, the company budgeted up to $2.5m for the 2018 exploration of the Klondike Property District, which corresponds to a 25% increase on the 2017 exploration program. Initial major components for the 2018 season included: (1) 5,000 to 7,000 meters of drilling between multiple targets; (2) 3,000 to 5,000 new soils; and (3) 300 to 500 linear kilometers of ground magnetics. The company also earmarked part of the budget to conduct the first geological survey in the history of the Klondike District to prove that gold mineralization can occur throughout the 55 km long Klondike District from the northwest end at the Lone Star target to the southeast end at the new Gold Run target. The work included lithographic and structural mapping, along with airborne surveys and extensive soil sampling to provide a comprehensive data base.
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THUS FAR IN 2018
In July Klondike released results from the first seven holes (LS18-151 to LS18-157) as part of testing of the Lone Star Zone in 2018. LS18-155 / LS18-156 highlighted the results. These holes were drilled from the same collar with LS18-156 turned in the opposite direction. The premise was to test the grade and extent of near-surface gold mineralization. LS18-155 intersected 1.33 g/t Au over 26.20 meters drilled southerly; LS18-156 intersected 1.4 g/t Au over 65.05 meters drilled northerly from the same origin. These intersections start at surface and are entirely within 45 meters of surface. Also, the sub-interval in LS18-156 intersected 6.07 g/t Au over 8.45 meters hinting at higher grade pockets of mineralization. All other holes within the mapped mineralized envelope intersected broad zones of gold mineralization.
Table 11: Highlights from LS18-151 to LS18-157 and L S18-164 to LS18-169
Hole ID From (m) To (m) Au g/t Interval (m)
LS18-155 6.60 32.80 1.33 26.20
LS18-156 2.50 67.55 1.40 65.05
including 6.65 15.10 6.07 8.45
LS18-166 8.60 47.00 1.08 38.40
LS18-168 5.60 85.05 0.69 79.45
including 5.60 21.30 1.36 15.70 Source: First Berlin Equity Research; Klondike Gold Corp
On 18 September, KG published assays from six more drill holes (LS18-164 to LS18-169) from the western to central portion of the mineralised area of the Lone Star Zone. The results showed broad areas of gold mineralisation starting at the surface with the 50 meters being the deepest intersection. The latest assays were highlighted by LS18-166 / LS18-168. the former intersected 1.08 g/t Au over 38.40 meters while LS18-168 intersected 0.69 g/t Au over 79.45 meters. Reassessment of 2015 – 2016 drill campaigns Klondike is also re-assessing and sampling all drill core from the 2015 and 2016 seasons after confirmation of disseminated gold in various drill holes in addition to the gold-bearing quartz veins, which have been the focus of explorers the past 120 years. In 2015 and 2016, the drill core was selectively sampled for quartz veining which left the majority of each hole un-sampled. After confirming disseminated gold mineralisation over broader intervals, a total of 43 holes (37 from Nugget, 6 from Gay Gulch) are being re-logged, further sampled, and assayed. This should result in up to 2,500 new meters of core being sampled from these holes.
Table 12: New Nugget Zone assays from extended and infill sampling
Hole ID From (m) To (m) Au g/t Interval (m)
EC15-01 3.80 47.40 0.88 43.60
including 3.80 11.45 4.60 7.65
EC15-02 4.40 50.29 0.59 45.89
including 4.40 11.60 2.30 7.20
EC15-03 4.40 49.60 1.55 45.20
including 4.40 12.00 5.30 7.60
EC15-04 18.45 27.60 2.52 9.15
including 21.10 24.10 5.70 3.00 Source: First Berlin Equity Research; Klondike Gold Corp
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In early August, Klondike published assays from core re-sampling of four holes as part of the Nugget Zone and Nugget Fault area re-valuations (table 12). Three of the four holes show extended gold assay intervals, different from results reported in 2015. These new results show broad intersections of near-surface gold mineralization. The best hole was EC15-03 starting at surface assays 1.55 g/t Au over 45.2 meters from 4.40 to 49.60 meters.
FINAL DRILLING SPRINT TOPS YEAR END TARGETS
On 14 August, Klondike announced the acceleration of its 2018 diamond drill program upgrading its meterage and hole targets to 9,000 meters (~80 holes). The company deployed a second drill to focus on testing the Nugget Zone to attempt to broadly outline the geometry, continuity, and extent of disseminated gold mineralization and gold-bearing quartz vein mineralization. A total of 2,000 meters of drilling are planned here to gather more data following the encouraging results showing gold mineralization of 1.55 g/t Au over 45.2 meters, including 5.3 g/t Au over 7.6 meters (EC15-03) and 1.0 g/t Au over 51.0 meters (EC15-15) along a 1,400 meter length. The first drill remained at the Bonanza Fault area to focus on expansion of the Lone Star gold target and continue outlining the extent of disseminated gold mineralization and gold-bearing quartz vein mineralization. The team also wants to complete an additional 2,000 meters this season with this drill. On 18 September, KG announced final drilling results to wrap up the season. The programme topped the recent August targets with 9,512 meters of core drilled in 87 holes (Table 13).
Table 13: 2018 drill hole and meterage summary
Zone Holes Meters
Lone Star 56 6,473
Nugget 20 1,906
Glacier 2 201
French 5 479
Gold Run 4 453
Total 87 9,512 Source: First Berlin Equity Research; Klondike Gold Corp
KG has just finished its fourth season of drilling under Peter Tallman and has completed some 25k meters of drilling and some 251 holes since 2015. The systematic exploration activities in the Klondike District continue to produce encouraging results—over 44 bedrock showings of visible gold in 3+ years of drilling— although management continue to caution that the potential quantity of Lone Star remains conceptual until sufficient exploration data can be gathered to define a mineral resource. We expect the company to publish new magnetic results in the coming months as well as results from the remaining 2018 drill holes into the new year. In its latest news release, the company noted technical issues at the lab where 70 core samples are waiting to be processed. Management believe the bottleneck has now been cleared.
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Figure 16: Top of the Klondike property package
Source: Klondike Gold Corp
Drilling intensity to increases further next season Previewing 2019, management want to step up drilling by deploying three drills and two crews with the aim of drilling up to 20k meters. The company has budgeted another C$2.5m for the year, which will be solely dedicated to drilling with the regional mapping largely completed. This would give the company over 40k meters of drill core and set up a potential maiden resource estimate in 2021. Assuming operations continue their current trajectory, we believe prerequisite 100k – 200k meters drilled is an achievable goal.
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FINANCIAL POSITION
Klondike is a pre-revenue junior explorer. Mr Tallman runs a tight operation, and exploration costs are also unusually low, due chiefly to the proximity to Dawson City (< 20km). At present, drilling expenses run at around C$120 per meter—well below the regional mean of C$250. Aside from operational expenses (OpEx), KG has a rolling stock option plan reflected in the P&L used to compensate consultants, management and key staff. The number of reserved shares may not exceed 10% of total shares outstanding. The company carries no debt and leases most of the equipment required for drilling. Thus, the bottom line closely tracks OpEx. The balance sheet is driven by capitalised exploration and evaluation costs. The company has also received C$0.7m in royalty payments according to lease agreements, which has been netted against activated exploration and evaluation costs. Last year, Klondike have invested some C$3.4m in exploration expenses. We expect a similar figure this year and in 2019/20. We expect cash consumption of some C$5.3m in the full year ending February 2019. We expect further capital raises in 2019/20 (C$6.0m), 2020/21 (C$8.0m), and 2021/22 (C$4.2m) using the same financing structure of past issuances—each “unit” issued contained one common share and one half of a warrant. The proceeds will facilitate drilling meterage (FBe: 75k meters) required for the maiden resource estimate as well as corporate costs until then. We have only assumed conversion of the in-the-money warrants and options (table 2) for cash flow planning in our model. Given the strong support of its anchor investors, we see little financing risk to the ongoing success.
Table 14: Exploration and evaluation asset developme nt
C$ per meter 105 120 120 120 120 Source: First Berlin Equity Research; Klondike Gold Corp
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MANAGEMENT & BOARD OF DIRECTORS
CEO Peter Tallman is a veteran mining entrepreneur and geologist with 35 years’ experience in the mining industry. He took the helm as president and CEO of Klondike in 2014. Mr Tallman has worked in Canada, Chile, Mexico, and Australia. His track record includes the discovery and delineation of three mineral deposits, two of which have been mined including gold, antimony, and one zinc deposit. He is also currently director of Fiore Exploration Ltd. which operates a 40,000 oz Au per annum heap leach mine in Nevada. Mr Tallman has held founder, director, and senior management positions at a number of publicly listed Canadian mining companies since 1995. CFO Jessica Van Den Akker is a chartered professional accountant (CPA) with 11 years experience in the mining sector. She took over the financial reins of Klondike in January 2017. Ms Van Den Akker gained extensive experience through a stint at a Canadian audit firm providing reporting and accounting assurance services to publicly traded companies, primarily in natural resources. She is a graduate of Simon Fraser University where she received a bachelor of business administration. VP Exploration Ian Perry was brought in this summer to fill the role of VP Exploration. He has over 35 years of experience including the management of the technical and engineering aspects of advanced exploration and development projects in Canada and internationally. Mr Perry has worked previously with Mr Tallman and is now responsible for directing the ongoing explorations. Director Gordon Keep brings extensive business experience in investment banking and forming public resource companies. He is currently CEO of Fiore Management & Advisory Corp., a private financial advisory firm, while also serving as an officer and / or director of several natural resource companies. From 2001 to 2007, Mr Keep was managing director of Corporate Finance at Endeavour Financial Corporation, and from 1997 - 2004, he was senior vice president and a director of Lions Gate Entertainment Corp. He obtained his B.Sc. in Geological Science from Queen’s University in 1979 and his MBA from the University of British Columbia in 1983. Mr Keep is also a professional geologist in the province of British Columbia. Director John L. Pallot has over 32 years business experience in the telecommunications industry. He previously served as the Chief Executive Officer and president of Windarra Minerals Ltd. and West African Iron Ore Corp. (formerly, Westward Explorations Ltd.) from 2002 to 2013. He has continuously served as a director of various public companies focused on the resource sector since 1993.
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Director Mr Brunelle is a graduate of Queen’s University with over 30 years of exploration and management experience of Canadian and international exploration projects. He was an officer and director of Corner Bay Silver Inc. and played an integral part in the discovery and assessment of the Alamo Dorado silver-gold project in Sonora, Mexico. Corner Bay Silver (TSX) was merged with Pan American Silver Corp. in 2003. Mr Brunelle was a founder, officer and director of Stingray Copper Inc., which shepherded the El Pilar Copper Property, Sonora, to feasibility, after which the company was acquired by Mercator Minerals Ltd. in 2009. He is also currently a director of several resource companies listed on the TSX Venture Exchange. Director Tara Christie has 20 years’ experience in the exploration and mining sectors. Ms Christie’s stake in KG stems from the deal for the Gimlex claims. She is currently president of KECM Services and was previously president of the privately held Gimlex Gold Mines Ltd. (2006-2016)—one the Yukon’s largest placer mining operations. Ms Christie also currently serves as president of TSXV listed Banyan Gold Corp, director of Constantine Metal Resources Ltd and Director of the Prospector & Developers Association of Canada. She was a founding board member of the Yukon Environmental and Socio-Economic Assessment Board (2004-2016) and past president of the Klondike Placer Miners Association. Ms Christie has a Masters Degree in geotechnical engineering from the University of British Columbia and is a registered professional engineer in BC and Yukon.
Figure 17: Directors’ property tour
Source: Klondike Gold Corp
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SHAREHOLDERS & STOCK INFORMATION
Stock Information
ISIN CA4989033010
WKN A119BJ
Bloomberg ticker KG CN; LBDP GF
No. of issued shares 96.83m
Transparency Standard TSX Venture
Country Canada
Sector Mining
Subsector Gold
Source: Börse Frankfurt, First Berlin Equity Research
Shareholder Structure
F. Giustra 14.0%
E. Sprott 13.0%
Management 10.0%
Free Float 63.0%
Source: Klondike Gold Corp.
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INCOME STATEMENT
All figures in C$ '000 2015/16 2016/17 2017/18 2018/19E 2019/20E 2020/21E
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