UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): December 4, 2013

KLONDEX MINES LTD.
(Exact name of registrant as specified in its charter)

British Columbia 001-37563 98-1153397
(State or other jurisdiction of    
incorporation or organization) (Commission File Number) (IRS Employer Identification No.)

6110 Plumas Street, Suite A
Reno, Nevada 89519
(Address of Principal Executive Offices)

(775) 284-5757
(Registrant's telephone number, including area code)

N/A
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instructions A.2 below):

[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))


Item 8.01 Other Items.

Klondex Mines Ltd. (the “Company”) was, until January 1, 2017, a “foreign private issuer” (as defined under Rule 3b-4 under the Exchange Act of 1934, as amended) and filed its annual and other reports on Form 40-F and Form 6-K, respectively. In light of the Company’s change in status to a domestic issuer, the Company is filing, as exhibits, the documents set forth in the Exhibit Index to this report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(d) List of Exhibits

  Exhibit Description
  2.1 Stock Purchase Agreement dated December 4, 2013
  10.1 Employment Agreement of Barry Dahl
  10.2 Employment Agreement of Paul Huet
  10.3 Employment Agreement of John Seaberg
  10.4 Employment Agreement of Brian Morris
  10.5 Employment Agreement of Michael Doolin
  10.6 Employment Agreement of Brent Kristof
  10.7 Employment Agreement of John Antwi
  99.1 Technical Report for the Fire Creek Project, Lander County, Nevada
  99.2 Technical Report and Pre-Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada


SIGNATURE

            Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

  KLONDEX MINES LTD.
   
Date: March 15, 2017 By: /s/ Barry Dahl
  Name: Barry Dahl
  Title: Chief Financial Officer


EXHIBIT INDEX

Exhibit Description
   
2.1 Stock Purchase Agreement dated December 4, 2013
   
10.1 Employment Agreement of Barry Dahl
   
10.2 Employment Agreement of Paul Huet
   
10.3 Employment Agreement of John Seaberg
   
10.4 Employment Agreement of Brian Morris
   
10.5 Employment Agreement of Michael Doolin
   
10.6 Employment Agreement of Brent Kristof
   
10.7 Employment Agreement of John Antwi
   
99.1 Technical Report for the Fire Creek Project, Lander County, Nevada
   
99.2 Technical Report and Pre-Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada



EXECUTION COPY

STOCK PURCHASE AGREEMENT

dated December 4, 2013

between

Newmont USA Limited

(“ Seller ”)

and

Klondex Holdings (USA) Inc.

(“ Buyer ”)

and

Klondex Mines Ltd.

(“ Buyer Guarantor ”)


Table of Contents

    Page
     
ARTICLE I CERTAIN DEFINITIONS    1
   
ARTICLE II BASIC TRANSACTIONS    7
   
2.1 Purchase and Sale of Shares 7
2.2 Purchase Price 7
2.3 Adjustments to Purchase Price 7
2.4 Calculation of Purchase Price 8
     
ARTICLE III RELATED MATTERS    9
   
3.1 Exclusion of Certain Assets 9
3.2 Delivery of Precious Metals in Circuit 9
3.3 Exclusion of Retained Accounts Payable. 9
3.4 Affiliate Debt 9
3.5 Nevada Net Proceeds Tax Prepayment 9
3.6 Transfer Taxes 10
     
ARTICLE IV SELLER’S REPRESENTATIONS AND WARRANTIES    10
   
4.1 Organization of Seller 10
4.2 Organization of the Companies 10
4.3 Authority 10
4.4 Capitalization of the Companies; Subsidiaries 10
4.5 No Conflict; Required Consents 11
4.6 Litigation 11
4.7 Compliance with Applicable Legal Requirements; Permits 11
4.8 Financial Information 12
4.9 Liabilities 12
4.10 Tax Returns and Payments 12
4.11 Material Contracts 14
4.12 Title to Assets and Properties 15
4.13 Environmental 16
4.14 Surety Arrangements 17
4.15 Employee Matters 17
4.16 Affiliate Contracts 17
4.17 Insurance 17
4.18 Corporate Records 17
4.19 Money Laundering 17
4.20 Corrupt Practices 18
4.21 Absence of Certain Changes or Events. 18
4.22 Intellectual Property. 18
4.23 Investment Representations. 18
     
ARTICLE V BUYER’S REPRESENTATIONS AND WARRANTIES    18
   
5.1 Organization and Qualification 18
5.2 Authority 19
5.3 No Conflict; Required Consents 19

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Table of Contents

    Page
     
5.4 Investment Representations; Independent Investigation 19
     
ARTICLE VI  COVENANTS   20
     
6.1 Interim Period Covenants 20
6.2 Confidentiality 22
6.3 Third Party Consents; Permits 23
6.4 Tax Matters. 23
6.5 Employees 29
6.6 Retention of Records 29
6.7 Surety Arrangements 30
6.8 Financial Statement Matters 32
6.9 Verizon Tower Access 32
6.10 Use of Newmont Name 32
     
ARTICLE VII CONDITIONS PRECEDENT    33
   
7.1 Conditions to Buyer’s Obligations 33
7.2 Conditions to Seller’s Obligations 34
     
ARTICLE VIII CLOSING    35
   
8.1 Closing; Time and Place 35
8.2 Seller’s Obligations 35
8.3 Buyer’s Obligations 36
     
ARTICLE IX TERMINATION    36
   
9.1 Termination Events 36
9.2 Effect of Termination 37
     
ARTICLE X I INDEMNIFICATION    37
   
10.1 Indemnification by Seller 37
10.2 Indemnification by Buyer 37
10.3 Procedure for Indemnified Third Party Claim 38
10.4 Payment of Indemnification Amounts and Related Matters 38
10.5 Determination of Indemnification Amounts; Time For Making Claims. 38
10.6 Survival 39
10.7 Sole Remedy 39
     
ARTICLE XI MISCELLANEOUS PROVISIONS    40
   
11.1 Expenses 40
11.2 Brokerage 40
11.3 Waivers 40
11.4 Notices 40
11.5 Entire Agreement; Amendments 41
11.6 Binding Effect; Benefits 41
11.7 Headings, Schedules, and Exhibits 41
11.8 Counterparts; Facsimile Signature 42
11.9 Governing Law 42

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Table of Contents

    Page
     
11.10 Severability 42
11.11 Third Parties; Joint Ventures 42
11.12 Construction 43
11.13 Attorneys’ Fees 43
11.14 Further Assurances 43
11.15 Guaranty 43

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STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (together with the Schedules hereto and as may be amended or supplemented from time to time, the “ Agreement ”) is made and entered into as of December 4, 2013, by and between Newmont USA Limited, a Delaware corporation (“ Seller ”), Klondex Holdings (USA) Inc., a Nevada corporation (“ Buyer ”), and Klondex Mines Ltd., a British Columbia corporation (“ Klondex ” or “ Buyer Guarantor ”).

Recitals

A.     Seller is the sole shareholder of Newmont Midas Holdings Limited, a Nevada corporation (“ Holdings ”).

B.     Holdings is the sole shareholder of Newmont Midas Operations Inc., a Nevada corporation (“ Operations ”), which owns and operates the Midas mine and related ore milling facility (collectively, the “ Midas Mine ”) located in the State of Nevada, United States of America. Holdings and Operations sometimes are referred to in this Agreement together as the “ Companies ” and each individually as a “ Company .”

C.     Klondex indirectly owns 100% of the outstanding common stock in the capital of Buyer.

D.     Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all of the issued and outstanding capital stock of Holdings, on the terms and conditions of this Agreement (the “ Acquisition ”).

Agreements

In consideration of the mutual covenants in this Agreement, Seller and Buyer agree as follows:

ARTICLE I
CERTAIN DEFINITIONS

As used in this Agreement, the following terms, whether in singular or plural forms, shall have the following meanings:

Accounting Firm ” has the meaning given in Section 2.4.

Acquisition ” has the meaning given in the Recitals.

Adjustment Time ” means 12:01 a.m. Pacific Time on the Closing Date.

Affiliate ” means, with respect to any Person, any other Person controlling, controlled by or under common control with such Person, with “control” for such purpose meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or voting interests, by contract or otherwise.


Affiliate Debt ” means, collectively, (i) indebtedness of Holdings to Seller’s Affiliate NMC in the approximate amount, as of the date of this Agreement, of $230 million, and (ii) indebtedness of Operations to Seller in the approximate amount, as of the date of this Agreement, of $560 million.

Affiliated Group ” means any affiliated group within the meaning of Code Section 1504(a) or any similar group under a similar provision of state, local or foreign law.

Assets ” has the meaning given in Section 4.12.

Business Day ” means any day other than Saturday, Sunday or a day on which banking institutions in Denver, Colorado, New York, New York or Toronto, Ontario are required or authorized to be closed.

Buyer Surety Arrangements ” has the meaning given in Section 6.7.

Cash Consideration ” has the meaning given in Section 2.2.

CERCLA ” means the Federal Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq .

Closing ” has the meaning given in Section 8.1.

Closing Date ” means the date on which Closing occurs.

Code ” means the Internal Revenue Code of 1986, as amended.

Company ” and “ Companies ” have the meanings given in the Recitals.

Contract ” means any written contract, mortgage, deed of trust, bond, indenture, lease, license, note, franchise, certificate, option, warrant, right, or other instrument, document, obligation, or agreement, and any oral obligation, right, or agreement.

Dollar ” and “ $ ” mean lawful money of the United States of America.

Encumbrance ” means any security interest, lien, prior claim, mortgage, indenture, pledge, option, or other encumbrance or adverse claim of any nature or kind, together with any agreement to grant any of the foregoing rights or interests.

Environmental Law ” means any Legal Requirement relating to pollution, protection or conservation of public health, safety or welfare or the environment, whether indoors or outdoors, including those relating to emissions, discharges, releases or threatened releases of Regulated Substances into the environment (including ambient air, surface water, ground water or land), or otherwise relating to the manufacture, processing, distribution, use, reuse, recycling, treatment, storage, disposal, transport or handling of Regulated Substances.

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Escrow Agent ” has the meaning given in Section 8.2(e) .

Escrow Agreement ” has the meaning given in Section 8.2(e) .

Excepted Representations and Warranties ” has the meaning given in Section 10.5(a) .

Existing NDA ” has the meaning given in Section 6.2.

GAAP ” means United States generally accepted accounting principles.

Governmental Authority ” means the United States of America or any other country or sovereign entity, any state, commonwealth, territory, or possession thereof, and any political subdivision or quasi-governmental authority of any of the same, including but not limited to courts, tribunals, departments, commissions, boards, bureaus, agencies, counties, municipalities, provinces, parishes, other instrumentalities and bodies exercising any administrative, executive, judicial, legislative, police, regulatory, expropriation or taxing authority, domestic or foreign, or self-regulatory organization or stock exchange having jurisdiction in the relevant circumstances.

Governmental Permits ” means franchises, approvals, authorizations, permits, licenses, easements, registrations, qualifications, leases, variances and similar rights obtained from any Governmental Authority, including those required under Environmental Law.

including ” means including without limitation.

Income Tax ” or “ Income Taxes ” shall mean all Taxes based upon, measured by, or calculated with respect to (i) gross or net income or gross or net receipts or profits (including, but not limited to, any capital gains, minimum taxes and any Taxes on items of tax preference, but not including sales, use, goods and services, real or personal property transfer or other similar Taxes), (ii) multiple bases (including, but not limited to, corporate franchise, doing business or occupation Taxes) if one or more of the bases upon which such Tax may be based upon, measured by, or calculated with respect to, is described in clause (i) above or (iii) withholding taxes measured by, or calculated with respect to, any payments or distributions (other than wages).

Income Tax Return ” means a Tax Return with respect to an Income Tax.

Judgment ” means any judgment, writ, order, injunction, award, or decree of any court, judge, justice, magistrate or arbitrator, including any bankruptcy court or judge, and any order of or by any Governmental Authority.

Klondex Shares ” means common shares without par value in the capital of Klondex.

knowledge ” with respect to any matter refers to the actual knowledge of: (i) the current officers and directors of the Companies (in the case of Seller); and (ii) the current officers and directors of Buyer (in the case of Buyer).

Leasehold Interests ” has the meaning given in Section 4.12.

3


Legal Requirements ” means applicable common law and any statute, ordinance, code or other law, rule, regulation, order, requirement, or procedure enacted, adopted, promulgated, applied, or followed by any Governmental Authority, including any Judgment.

Litigation ” means any claim, action, suit, proceeding, arbitration, investigation, hearing, or other activity or procedure that could result in a Judgment.

Losses ” means any claims, losses, liabilities, damages, Encumbrances, penalties, costs, and expenses, including but not limited to interest which may be imposed in connection therewith, and reasonable fees and disbursements of counsel.

Material Adverse Effect ” means any change, effect, event, development, occurrence, circumstance or state of facts that, individually or in the aggregate:

(a)     is, or would reasonably be expected to be, material and adverse to the business, affairs, results of operations, assets, capital, capitalization, condition (financial or otherwise), rights, liabilities or obligations (whether absolute, accrued, conditional or otherwise), whether contractual or otherwise, of the Companies, taken as a whole; or

(b)     would reasonably be expected to prevent or materially impede or delay the sale of the Shares or the completion of the other transactions contemplated hereby,

provided , however , that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change resulting from: (i) any changes, conditions or effects in the United States or foreign economies or securities or financial markets in general, except to the extent any such events, occurrences, facts, conditions or changes have had a disproportionate effect on the Companies or their business or assets as compared to other entities of similar size operating in the mining industry; (ii) changes, conditions or effects that affect the gold mining industry generally, including but not limited to the market prices of precious metals, except to the extent any such events, occurrences, facts, conditions or changes have had a disproportionate effect on the Companies or their business or assets as compared to other entities of similar size operating in the mining industry; (iii) the performance of any obligation hereunder by the Seller or either Company or any action taken by the Seller or either Company at the written request or with the written consent of the Purchaser; (iv) the effect of any changes in applicable Legal Requirements or accounting rules, including GAAP; (v) any change, effect or circumstance resulting from the announcement of this Agreement; or (vi) conditions caused by acts of terrorism or war (whether or not declared) or any natural or man-made disaster, except to the extent any such events, occurrences, facts, conditions or changes have had a disproportionate effect on the Companies or their business or assets as compared to other entities of similar size operating in the mining industry.

Midas Mill ” means the ore milling facility forming part of the Midas Mine.

Midas Mine ” has the meaning given in the Recitals.

Midas Mine Employees ” has the meaning given in Section 4.15.

Movable Assets ” has the meaning given in Section 4.12.

4


Nevada State Net Proceeds of Minerals Taxes ” means the Taxes imposed under Chapter 362 of the Nevada Revised Statues and the regulations promulgated thereunder.

NMC ” means Newmont Mining Corporation, a Delaware corporation.

NPT Closing Payment ” has the meaning given in Section 3.5.

Parties ” means, collectively, Buyer and Seller, and “ Party ” means either one of them.

Past Employees ” has the meaning given in Section 4.15.

Permitted Encumbrances ” means the following Encumbrances: (i) liens for Taxes that are not yet due and payable or are being contested in good faith and for which adequate reserves are maintained in the appropriate financial statements; (ii) rights reserved to any Governmental Authority to regulate the affected Properties; (iii) in the case of any Leasehold Interests, rights of the relevant lessors and/or sublessors and obligations reflected in the respective Property Leases; (iv) the paramount title of the United States of America or any other Governmental Authority, if any; (v) any matter that is reflected in public real property records; and (vi) any defect in title not created by or through Seller that does not materially and adversely individually or in the aggregate affect the aggregate value of the Properties or the ability of Operations to realize the economic benefits thereof.

Person ” means any natural person, Governmental Authority, corporation, general or limited partnership, joint venture, limited liability company, trust, association, or unincorporated entity of any kind.

Post-Closing Statement ” has the meaning given in Section 2.3.

Precious Metals in Circuit ” means all gold, silver and other precious metals contained in material that, as of the Adjustment Time, is in the Midas Mine Merrill Crowe plant and has not been converted to doré or other more refined form, as determined in accordance with Section 3.2.

Pre-Closing Tax Period ” means a Tax period ending on or before the Closing Date.

Preliminary Statement ” has the meaning given in Section 2.3.

Prime Rate ” means the rate announced from time to time by J.P. Morgan Chase at its New York office, as its prime rate for demand loans to commercial customers (which may not be the lowest rate at which it loans funds).

Properties ” has the meaning given in Section 4.12.

Property Leases ” has the meaning given in Section 4.12.

Reclamation ” means the reclamation, restoration or closure of any facility or land utilized in any exploration, mining or processing operation required by any Legal Requirement or any Governmental Permits.

5


Reclamation and Environmental Liabilities ” means all liabilities and obligations (i) for the Reclamation of any of the Properties or the remediation of any Regulated Substances on, or released from, any of the Properties, and (ii) associated with noncompliance with Environmental Laws (including fines, penalties, damages, and remedies), in each case regardless of when the operations or activities which gave rise to such liabilities or obligations or release or presence of Regulated Substances on or from the Properties occurred or arose.

Reclamation Liability Amount ” has the meaning given in Section 2.2.

Regulated Substances ” means any pollutants, contaminants, chemicals, industrial, toxic, hazardous or noxious substances or wastes which are regulated by any Governmental Authority or Legal Requirements, including but not limited to: (i) any petroleum or petroleum compound (refined or crude), flammable substance, explosive, radioactive material or any other material or pollutant which pose a hazard or potential hazard to real property or Persons; (ii) asbestos or any asbestos-containing material of any kind or character; (iii) polychlorinated biphenyls, as regulated by the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq .; (iv) any materials or substances designated as “hazardous substances” pursuant to the Clean Water Act, 33 U.S.C. § 1251 et seq .; (v) ”economic poison,” as defined in the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 135 et seq .; (vi) “chemical substance,” “new chemical substance” or “hazardous chemical substance or mixture” pursuant to the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq . and including, for certainty, elemental mercury; (vii) “hazardous substances” pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq .; and (viii) “hazardous waste” pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq .

Retained Accounts Payable ” has the meaning given in Section 3.3.

Securities Act ” has the meaning given in Section 4.23.

Seller Surety Arrangements ” has the meaning given in Section 4.14.

Seller Tax Claim ” has the meaning given in Section 6.4(h) .

Straddle Period ” means a Tax period beginning on or before the Closing Date and ending after the Closing Date.

Surety Arrangements ” means bonds, letters of credit, guarantees and other instruments or arrangements securing or guarantying performance of obligations.

Tax Claim ” has the meaning given in Section 6.4(h) .

Taxes ” means all levies, charges and assessments of any kind or nature imposed by any Governmental Authority, including but not limited to all income, alternative minimum, sales, use, ad valorem, value added, franchise, severance, net or gross proceeds, withholding, payroll, social security, unemployment, employment, excise, or property taxes, together with any interest thereon and any penalties, additions to tax, or additional amounts applicable thereto.

Transition Services Agreement ” has the meaning given in Section 8.2(d) .

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Transitioned Employees ” has the meaning given in Section 6.5(b) .

TSX ” means the Toronto Stock Exchange.

WARN Act ” has the meaning given in Section 6.5(d) .

Warrant Exercise Price ” has the meaning given in Section 2.2.

Warrant Expiry Date ” means the earlier of (a) the fifteen year anniversary of the Closing Date and (b) the date that is 12 months following receipt of notice from Buyer that the Klondex Shares have traded at a price higher than 500% of the Warrant Exercise Price for 60 consecutive trading days.

Warrants ” has the meaning given in Section 2.2.

ARTICLE II
BASIC TRANSACTIONS

2.1     Purchase and Sale of Shares . Subject to the terms and conditions of this Agreement, at Closing Seller shall sell and convey to Buyer, and Buyer shall purchase for the Purchase Price, free and clear of all Encumbrances, all of the issued and outstanding shares of capital stock of Holdings (the “ Shares ”).

2.2     Purchase Price . The aggregate purchase price payable by Buyer for the Shares shall be $83,000,000, satisfied as follows:

(a)     Buyer shall make a cash payment to Seller or its designee in the amount of $54,929,355, subject to adjustment for accrued and prepaid expenses pursuant to Section 2.3 (the “ Cash Consideration ”); and

(b)     pursuant to the Escrow Agreement, Buyer shall deposit in escrow with U.S. Bank National Association, as escrow agent (the “ Escrow Agent ”), cash in the amount of $28,070,645 being equal to the total dollar amount of the Buyer Surety Arrangements (the “ Reclamation Liability Amount ” and together with the Cash Consideration, the “ Purchase Price ”), less the amount of any Buyer Surety Arrangements for which equivalent Seller Surety Arrangements have been released on Closing.

In addition, subject to TSX approval, Buyer shall cause Klondex to issue to Seller or its designee 5 million common share purchase warrants of Klondex in the form attached to this Agreement as Exhibit 2.2 (the “ Warrants ”). Each Warrant may be exercised to acquire one Klondex Share until 5:00 p.m. (Denver time) on the Warrant Expiry Date at a price equal to 120% of the five-day volume weighted average price of the Klondex Shares on the TSX during the five trading days immediately preceding the Closing Date (the “ Warrant Exercise Price ”).

2.3     Adjustments to Purchase Price . The Purchase Price shall be adjusted as follows:

(a)     The Purchase Price shall be adjusted on a pro rata basis as of the Adjustment Time for all (i) prepaid expenses, including but not limited to property Taxes and lease payments; (ii) Retained Accounts Payable that relate to any period that includes the Adjustment Time, and (iii) other accrued expenses, all as determined in accordance with the Companies’ usual accounting policies, on the principle that all expenses and income of the Companies attributable to periods prior to the Adjustment Time are for the account of Seller, and all expenses and income of the Companies attributable to periods at or after the Adjustment Time are for the account of Buyer (and calculated, in the case of property Taxes, in accordance with Section 6.4(d)) provided, however , that such calculations shall exclude all Reclamation and Environmental Liabilities.

7


(b)     The Purchase Price shall be increased by the amount of all deposits that are held by third parties as of the Adjustment Time, if any, if and to the extent that Buyer or either Company will have the benefit of such deposits following Closing.

2.4     Calculation of Purchase Price

(a)     At least five (5) Business Days prior to Closing, Seller shall deliver to Buyer a statement of its estimate of the Purchase Price, as adjusted in accordance with Section 2.3 (the “ Preliminary Statement ”). The Preliminary Statement shall be the basis on which the Purchase Price is provisionally calculated for purposes of Closing.

(b)     Within thirty (30) days after the Closing Date, Buyer shall prepare and deliver to Seller its determination of the Purchase Price, as adjusted in accordance with Section 2.3 (the “ Post-Closing Statement ”).

(c)     During the fifteen (15) days immediately following receipt of the Post-Closing Statement by Seller, Seller and its accountants shall be entitled to review the Post-Closing Statement and any working papers, trial balances and similar materials relating to the Post-Closing Statement prepared by Buyer’s accountants, and Buyer shall provide Seller and its accountants with timely access, during Buyer’s normal business hours, to Buyer’s and the Companies’ personnel, properties, books and records. The Post-Closing Statement shall become final and binding upon the Parties at 5:00 p.m. (Denver time) on the tenth day following delivery thereof unless Seller gives written notice to Buyer of Seller’s disagreement with the Post-Closing Statement (a “ Notice of Disagreement ”) prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement asserted. If a timely Notice of Disagreement is received by Buyer with respect to the Post-Closing Statement, then the Post-Closing Statement (as revised in accordance with clause (x) or (y) below), shall become final and binding upon the Parties on the earlier of (x) the date on which Buyer and Seller resolve in writing any differences they have with respect to any matter specified in a Notice of Disagreement or (y) the date on which any matters in dispute are finally resolved in writing by a nationally recognized accounting firm mutually acceptable to Buyer and Seller (the “ Accounting Firm ”). The date on which the Post-Closing Statement becomes final and binding is referred to as the “ Final Determination Date .” During the fifteen (15) days immediately following the delivery of any Notice of Disagreement (the “ Discussion Period ”), Buyer and Seller shall seek in good faith to resolve in writing any differences which they may have with respect to any matter specified in such Notice of Disagreement. During the Discussion Period, Buyer and Seller each shall afford the other access to its accountants’ working papers, trial balances and similar materials prepared in connection with the its preparation of the Post-Closing Statement or the Notice of Disagreement, as the case may be. At the end of the Discussion Period, Seller and Buyer shall submit to the Accounting Firm for review and resolution any and all matters that remain in dispute and were included in any Notice of Disagreement, and the Accounting Firm shall reach a final, binding resolution of all matters that remain in dispute, which final resolution shall be (A) in writing, (B) furnished to Buyer and Seller as soon as practicable after the items in dispute have been referred to the Accounting Firm, (C) made in accordance with this Agreement and (D) conclusive and binding upon the Parties and not subject to collateral attack for any reason absent manifest error. The Post-Closing Statement, with any adjustments necessary to reflect the Accounting Firm’s resolution of the matters in dispute, shall become final and binding on Buyer and Seller on the date the Accounting Firm delivers its final resolution to the Parties, which shall be no later than ninety (90) days after the Closing Date. Each Party shall pay its own costs and expenses incurred in connection with such arbitration, except that the fees and expenses of the Accounting Firm shall be borne equally by Buyer and Seller.

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(d)     Within fifteen (15) days following the Final Determination Date, Buyer shall pay to Seller, or Seller shall pay to Buyer, the amount if any by which the Purchase Price as finally determined is greater or less, respectively, than stated in the Preliminary Statement, by wire transfer of immediately available funds.

ARTICLE III
RELATED MATTERS

3.1     Exclusion of Certain Assets . Prior to Closing, Seller shall cause the Companies to convey to Seller or other Affiliates of Seller, all rights, titles and interests of the Companies in or to the following assets: (i) all accounts receivable of the Companies outstanding as of the Adjustment Time, including but not limited to accounts receivable of refiners; (ii) all gold, silver and other precious metals in doré or more refined form as of the Adjustment Time; (iii) all Precious Metals In Circuit as of the Adjustment Time; (iv) all cash and cash equivalents; and (iv) the other assets described on attached Schedule 3.1.

3.2     Delivery of Precious Metals in Circuit . Within thirty (30) days following the Closing Date, Buyer shall deliver the Precious Metals in Circuit as of the Adjustment Time in kind to Seller or its designated Affiliate by credit to accounts designated by Seller. The Precious Metals in Circuit shall be determined in accordance with the procedure described on attached Exhibit 3.2 .

3.3     Exclusion of Retained Accounts Payable . Effective as of Closing, Seller shall assume and cause to be paid in accordance with their terms all trade and other accounts payable of the Companies outstanding as of the Adjustment Time, excluding all obligations for Reclamation and Environmental Liabilities (the “ Retained Accounts Payable ”).

3.4     Affiliate Debt . Immediately prior to Closing, Seller shall assume, or cause Affiliates of Seller other than the Companies, to assume all of the Affiliate Debt, and deliver to the Companies releases of all obligations with respect to the Affiliate Debt in form reasonably acceptable to Buyer.

3.5     Nevada Net Proceeds Tax Prepayment . The Parties acknowledge that (i) the Companies have paid to the State of Nevada the sum of $3,597,139 (the “ Prepaid NPT Amount ”), against their actual liability for Nevada State Net Proceeds of Minerals Taxes for 2013 and later periods and (ii) Seller’s estimate of the Companies’ actual liability for the portion of 2013 for which Seller will be responsible under Section 6.4 is $1,600,000 (“ Seller’s Estimated NPT Liability ”). At Closing, in addition to the Purchase Price as provisionally calculated in accordance with Section 2.4 and paid at Closing, Buyer shall pay to Seller, by wire transfer of immediately available funds to account designated by Seller, the sum of $1,997,139, representing the difference between the Prepaid Amount and Seller’s Estimated NPT Liability (the “ NPT Closing Payment ”). If the amount of Seller’s allocated responsibility for the Companies’ liability for Nevada State Net Proceeds of Minerals Taxes for 2013 as finally determined pursuant to Section 6.4(d) is greater or less than Seller’s Estimated NPT Liability, then Seller shall pay to Buyer, or Buyer shall pay to Seller, respectively, the amount of such difference, by wire transfer of immediately available funds within ten Business Days following the date of such final determination.

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3.6     Transfer Taxes . Each of the Parties shall bear one-half of all sales, use, transfer, recording and similar fees and Taxes (for certainty, excluding Income Taxes) payable in connection with the Acquisition. For certainty, all such Taxes incurred by Seller, the Companies or any other member of Seller’s Affiliated Group in connection with transactions described in Sections 3.1, 3.2, 3.3 and 3.4 shall be borne exclusively by Seller.

ARTICLE IV
SELLER’S REPRESENTATIONS AND WARRANTIES

Seller represents and warrants to Buyer as follows:

4.1     Organization of Seller . Seller is a corporation or other entity duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all requisite power and authority to hold its assets, conduct its activities as currently conducted and to execute, deliver and perform its obligations under this Agreement.

4.2     Organization of the Companies . Each of the Companies is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, and has all requisite power and authority to hold its assets and conduct its activities as currently conducted.

4.3     Authority . The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby by Seller have been duly and validly authorized by all necessary action on the part of Seller. This Agreement has been duly and validly executed and delivered by Seller, and is the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms.

4.4     Capitalization of the Companies; Subsidiaries .

(a)     The authorized capital stock of Holdings consists of 25,000 shares of common stock, no par value, of which 1,095 shares (comprising the Shares) are issued and outstanding as fully paid and non-assessable shares, and held beneficially and of record by Seller, free and clear of any Encumbrances or restrictions on transfer (other than restrictions under applicable securities law). Except for the Shares, there are not outstanding any shares of capital stock of Holdings, or any options, warrants, subscriptions or other rights of any Person to acquire, or any instruments that are convertible into, any shares of capital stock or other equity interests of Holdings or Contracts or understandings of any kind relating to the issuance, transfer, repurchase, redemption, reacquisition or voting of any capital stock of, or equity interests in, Holdings.

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(b)     The authorized capital stock of Operations consists of 25,000 shares of common stock, no par value, of which 25,000 shares are issued and outstanding as fully paid and non-assessable shares, and held beneficially and of record by Holdings, free and clear of any Encumbrances or restrictions on transfer (other than restrictions under applicable securities law). Except for such shares, there are not outstanding any shares of capital stock of Operations, or any options, warrants, subscriptions or other rights of any Person to acquire, or any instruments that are convertible into, any shares of capital stock or other equity interests of Operations or Contracts or understandings of any kind relating to the issuance, transfer, repurchase, redemption, reacquisition or voting of any capital stock.

(c)     Except for Operations, Holdings does not have any direct or indirect subsidiaries. Operations does not have any direct or indirect subsidiaries.

4.5     No Conflict; Required Consents . Except as described on Schedule 4.5 , the execution, delivery, and performance by Seller of this Agreement do not and will not: (i) conflict with or violate any provision of the charter or bylaws or other organizational or constituent documents of the Seller or either of the Companies; (ii) violate any provision of any Legal Requirements; (iii) conflict with, violate, result in a breach of, constitute a default under any Contract or Encumbrance to which Seller or either Company is a party or by which Seller or either Company is bound or affected; (iv) result in the creation or imposition of any Encumbrance against or upon the Shares or the assets of either of the Companies; or (v) require any consent, approval or authorization of, or registration, declaration or filing with, any Governmental Authority or other Person, or give any Governmental Authority the right to terminate, modify or suspend any Governmental Permit listed on Schedule 4.7 .

4.6     Litigation . Except as described on Schedule 4.6 , (i) there is no Litigation pending or, to Seller’s knowledge, threatened against either Company, or (ii) any outstanding unsatisfied Judgments against either Company.

4.7     Compliance with Applicable Legal Requirements; Permits .

(a)     The ownership, leasing and use of the assets and properties of the Companies as they are currently owned, leased and used and the operation, closure, remediation and Reclamation of the Midas Mine as it currently is conducted by Operations do not violate in any material respect any Legal Requirements. Except as set forth on Schedule 4.13 , neither Seller nor either of the Companies has received any written notice claiming any material violation by Operations of any Legal Requirement applicable to the Midas Mine or the operation, closure, remediation and Reclamation thereof, as it currently is and as it has in the past been conducted.

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(b)     Attached Schedule 4.7 includes a description of all material Governmental Permits held by or for the benefit of, or material to the operations of, Operations, all of which are currently in full force and effect, and are valid under all applicable Legal Requirements according to their terms. There is no Litigation pending or, to Seller’s knowledge, threatened, to terminate, suspend or modify any such Governmental Permit, and Operations is in material compliance with the terms and conditions of all such Governmental Permits and with other applicable Legal Requirements relating to such Governmental Permits.

4.8     Financial Information . Attached Schedule 4.8 contains a trial balance of Operations as of July 31, 2013. The trial balance was prepared following Operations’ policies and procedures.

4.9     Liabilities . Except as described in the trial balance attached as Schedule 4.8 or as described on Schedule 4.9 , as of the date of this Agreement the Companies have no liabilities that are required to be reflected as liabilities on a balance sheet prepared in accordance with GAAP, except non-delinquent obligations for trade payables, and other obligations incurred in the ordinary course of business since the date of such balance sheets.

4.10     Tax Returns and Payments .

Except as described on Schedule 4.10 :

(a)     All material Taxes required to be paid by each Company have been timely paid or caused to be paid through the date hereof and as of the Closing;

(b)     All material Taxes that the Companies were required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been properly paid to the appropriate Governmental Authority, and the Companies have complied with all information reporting and backup withholding requirements, including the maintenance of required records with respect thereto, in connection with amounts paid to any past or present shareholder, director, officer, agent, employee, independent contractor, creditor, or other third party;

(c)     Each Company has filed or caused to be filed in a timely manner (within any applicable extension periods) all Income Tax Returns and other material Tax Returns required to be filed by it with the appropriate Governmental Authority in all jurisdictions in which such Tax Returns are required to be filed, and such Tax Returns were complete and correct in all material respects as of the time of filing;

(d)     Each Affiliated Group has filed all Tax Returns that it was required to file for each taxable period during which either of the Companies was a member of such Affiliated Group and has paid all material Taxes shown as due thereon;

(e)     The Companies have paid to the State of Nevada the sum of $3,597,139 against their actual liability for Nevada State Net Proceeds of Minerals Taxes for 2013 and later periods;

(f)       Seller's estimate of the Companies' actual liability for the portion of 2013 for which Seller will be responsible under Section 6.4 is $1,600,000;

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(g)     There are no ongoing Tax audits or other Tax proceedings and no waivers of statutes of limitations have been given or requested with respect to either Company;

(h)     No Tax liens, other than Permitted Encumbrances, have been filed against either Company;

(i)     No unresolved deficiencies or additions to Taxes have been proposed, asserted, or assessed in writing against either Company by any Governmental Authority;

(j)     No claim has been made in writing within the last three years by any Governmental Authority in a jurisdiction in which either Company does not file Tax Returns that either Company is or may be subject to taxation by that jurisdiction;

(k)     Neither Company is or has been a member of any Affiliated Group other than a group for which NMC is the common parent corporation;

(l)     Operations has not ever been required to make a basis reduction pursuant to former Treasury Regulation Section 1.1502 -20(b) or Treasury Regulation Section 1.337(d) -2(b). Operations has not been required to redetermine or reduce basis pursuant to Treasury Regulation Section 1.1502 -36(b). Neither Company is or has been required to reduce any attributes under Treasury Regulation Section 1.1502 -36(d), or (iii) has incurred (or been allocated) any dual consolidated loss within the meaning of Section 1503 of the Code;

(m)     Neither Company will be required to include any item of income in, or exclude any item of deduction from, taxable income for any period (or any portion thereof) ending after the Closing Date as a result of any (i) deferred intercompany gain or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding provision of state, local or foreign Tax Law), (ii) closing agreement as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Tax Law) executed on or prior to the Closing Date, (iii) installment sale or other open transaction disposition made on or prior to the Closing Date, (iv) prepaid amount received on or prior to the Closing Date, (v) election made pursuant to Section 108(i) of the Code on or prior to the Closing Date, or (vi) adjustments under Section 481 of the Code (or any similar adjustments under any provision of the Code or the corresponding foreign, state or local Tax Law);

(n)     Neither Company has ever engaged in any “listed transaction” for purposes of Treasury Regulation Sections 1.6011 -4(b) or 301.6111 -2(b)(2) or any analogous provision of state, local or foreign law;

(o)     Each Company has disclosed on its U.S. federal Income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code;

(p)     Neither Company (i) is a party to any joint venture, partnership, or other arrangement that is treated as a partnership for United States federal income Tax purposes, (ii) has made an entity classification (“check-the-box”) election under Section 7701, (iii) is or has ever been a shareholder of a “controlled foreign corporation” as defined in Section 957 of the Code (or any similar provision of state, local or foreign Law), or (iv) is or has ever been a shareholder in a “passive foreign investment company” within the meaning of Section 1297 of the Code;

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(q)     Neither Company has any actual or potential liability under Treasury Regulations Section 1.1502 -6 (or any comparable or similar provision of federal, provincial, state, local or foreign law), as a transferee or successor, pursuant to any contractual obligation, or otherwise for any material Taxes of any Person other than the Companies or the group for which NMC is the common parent corporation;

(r)     Neither Company is a party to or bound by any Tax indemnity, Tax sharing, Tax allocation or similar agreement other than such agreements which shall be terminated under Section 6.4(a);

(s)     Neither Company has distributed to their shareholders or security holders stock or securities of a controlled corporation, nor has stock or securities of such Company been distributed, in a transaction to which Section 355 of the Code applies (i) in the two (2) years prior to the date of this Agreement or (ii) in a distribution that could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) that includes the transactions contemplated by this Agreement; and

(t)     (i)     Holdings and Operations are currently and will continue to be until the Closing, members of an Affiliated Group for which NMC is the common parent, (ii) the members of such Affiliated Group own all of the issued and outstanding capital stock of Holdings and Operations, (iii) Holdings and Operations have been included in prior tax years, and will be included for the tax period ending on the Closing Date, in the U.S. federal consolidated income tax return filed by NMC as the common parent, and (iv) upon the completion of the Acquisition, NMC will be eligible to file an election under Section 338(h)(10) of the Code with respect to Holdings and Operations.

4.11     Material Contracts .

(a)     Except for Contracts described on Schedule 4.11 or other Schedules to this Agreement (collectively, including the Property Leases, but excluding the Contracts set forth on Schedule 3.1 , the “ Material Contracts ”), neither Company is a party to any of the following: (i) leases or subleases of real property or personal property (whether as lessor or lessee); (ii) Contracts with consultants or independent contractors; (iii) Contracts other than those described in any other clause of this paragraph that are material to the ownership, operation, closure, remediation or Reclamation of the properties of Operations; or (iv) Contracts that would materially restrict the ability of either Company to conduct or compete with any line of business.

(b)     Seller has made available to Buyer true and correct copies of each of the Material Contracts, including all amendments and modifications thereof. Each of the Material Contracts is valid, in full force and effect (unless such Material Contract has terminated, expired or been cancelled in accordance with its terms), and enforceable in accordance with its terms against the parties thereto other than the Companies, and the Companies have fulfilled when due, or have taken all action necessary to enable them to fulfill when due, all of their respective obligations thereunder. Except as could not reasonably be expected to result in a Material Adverse Effect, there has not occurred any default (without regard to lapse of time, the giving of notice, the election of any Person other than the Companies, or any combination thereof) by the Companies nor, to the knowledge of Seller, has there occurred any default (without regard to lapse of time, the giving of notice, the election of the Companies, or any combination thereof) by any Person other than the Companies under any of the Material Contracts.

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4.12     Title to Assets and Properties .

(a)     Holdings does not hold any interests in real property.

(b)     Schedule 4.12 includes a description of all (i) patented mining claims and other fee interests in real property, in each case held by Seller or Operations and forming part of the Midas Mine (collectively, the “ Fee Properties ”), (ii) unpatented mining claims, in each case held by Seller or Operations and forming part of the Midas Mine (collectively, the “ Unpatented Claims ,” and (iii) leasehold interests in real property, including fee interests and patented and unpatented mining claims), in each case held by Seller or Operations and forming part of the Midas Mine (collectively, the “ Leasehold Interests ”). The Fee Properties, the Unpatented Mining Claims and the Leasehold Interests are referred to collectively in this Agreement as the (“ Properties ”).

(c)     Operations has good and marketable title to the Fee Properties, subject only to Permitted Encumbrances.

(d)     To Seller’s knowledge: (i) subject to the paramount title of the United States of America (the “ U.S. ”), Operations is the sole owner of each of the Unpatented Mining Claims, (ii) each of the Unpatented Claims has been validly located, filed, recorded, and maintained in compliance with the past and current Legal Requirements of the U.S. and the State of Nevada; (iii) Operations has timely complied with all of the filing provisions of the Federal Land Policy and Management Act (43 U.S.C. Section 1701, et seq.) as they pertain to the Unpatented Claims; (iv) the Unpatented Claims are subsisting mining claims, valid and in good standing under the Legal Requirements applicable thereto; and (v) Operations has performed assessment work upon the Unpatented Claims, or paid the applicable holding fees in lieu thereof that have become due and payable prior to the date of this Agreement, and has recorded and filed proof thereof, all of which work, recordings, and filings have been completed in accordance with the applicable Legal Requirements pertaining to assessment work.

(e)     Operations has valid leasehold interests in each of the Leasehold Interests pursuant to the leases (including any amendments or modifications thereof) described on attached Schedule 4.12 (the “ Property Leases ”).

(f)     Schedule 4.12 contains a complete and accurate list of all royalties, overriding royalties, net profit interests, payments on or out of production, and any other burdens, restrictions or other Encumbrances to which any of the Properties is subject.

(g)     Each Company owns (or, in the case of assets or properties that are leased, has valid leasehold interests in) its assets and properties, other than interests in real property (the “ Movable Assets ”, and together with the Properties, the “ Assets ”), free and clear of any Encumbrances (except for Permitted Encumbrances). Schedule 4.12 identifies, as of the date hereof, each Movable Asset that, to Seller’s knowledge, has a fair market value of at least $25,000. Except as disclosed at Schedule 4.12 , the Assets constitute all of the real property and other tangible assets used in the Companies’ operations as currently conducted.

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(h)     Schedule 4.12 includes a description of all water rights held by Operations (collectively, the “ Water Rights ”). Operations has good title to the Water Rights, subject only to Permitted Encumbrances.

(i)     All easements, rights of way and similar rights that are material to the Companies’ conduct of operations are identified at Schedule 4.12 and are valid and in full force and effect.

4.13     Environmental .

Except as described on Schedule 4.13 :

(a)     Any disposals, releases, or threatened releases of reportable quantities of Regulated Substances on, from, or under the Properties, occurring during Operations’ possession of the Properties, have been reported on a timely basis to the applicable Governmental Authority in accordance with applicable Legal Requirements; there have occurred no such disposals, releases or threatened releases that are reportable to any Governmental Authority under any Legal Requirements within any period of time that has not yet expired; and there are no outstanding notices of violation or other administrative Litigation affecting the Properties or Operations in respect of any such disposals, releases or threatened releases;

(b)     Seller has no knowledge of the presence of, or of any disposals, releases, or threatened releases of reportable quantities of Regulated Substances on, from or under, the Properties which may have occurred prior to Operations taking possession of the Properties;

(c)     The Companies have all Governmental Permits required under Environmental Laws to operate and conduct their business as currently operated and conducted;

(d)     Neither of the Companies (i) has entered into or agreed to any consent decree or order or is subject to any judgment, decree or judicial order relating to compliance with Environmental Laws, Governmental Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Regulated Substances and, to the knowledge of the Seller, no investigation, litigation or other proceedings is pending or threatened with respect thereto, or (ii) is contractually obligated as an indemnitor in connection with any threatened or asserted claim by any third party, indemnitee for any liability under any Environmental Law or relating to any Regulated Substances;

(e)     None of the real property owned or leased by the Company or any Company Subsidiary is listed or, to the knowledge of Seller, proposed for listing on the “National Properties List” or the Comprehensive Environmental Response, Compensation and Liability Information System under CERCLA, or any similar state or foreign list of sites requiring investigation or cleanup;

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(f)     To Seller’s knowledge, there are no rare or endangered species or any other species that is considered extinct, endangered, rare or at risk or any habitat of any such species present at the Midas Mine or any other of the assets of the Companies or any property currently used or occupied by or under the charge, management or control of the Companies; and

(g)     True and complete copies of all material environmental data and studies (including the results of any environmental audit assessment or environmental management system) relating to the Companies have been delivered or made available to the Buyer.

4.14     Surety Arrangements . Schedule 4.14 describes all Surety Arrangements maintained by either Company, Seller or any Affiliate of Seller with respect to the operation, closure, Reclamation or remediation of the Midas Mine (collectively, “Seller Surety Arrangements ”). The Governmental Authorities have not called on the Seller Surety Arrangements.

4.15     Employee Matters .

(a)     Neither of the Companies has or has had any employees. All employees that provide services for Operations in connection with the Mine are employees of Seller (the “ Midas Mine Employees ”). Neither Seller nor either of the Companies is a party to, or bound by, any collective bargaining agreements relating to the Midas Mine Employees. There are no existing or, to Seller’s knowledge, threatened, labor disputes, representation questions or union organizing activities with respect to the Midas Mine Employees, or any previous employees of the Seller who provided services to Operations in connection with the Midas Mine (the “ Former Employees ”).

(b)     Since July 31, 2013, no payments have been made or arranged by or on behalf the Companies to or for the benefit of any of the Companies’ respective directors, officers, shareholders or employees other than in the ordinary course of business.

4.16     Affiliate Contracts . Except as described on attached Schedule 4.16 , neither Company is a party to any Contract with Seller or any other Affiliate of Seller .

4.17     Insurance . Schedule 4.17 sets out true, accurate and complete particulars of all insurance policies in force as at the date hereof that are maintained by Seller or its Affiliates with respect to the Companies’ operations, specifying in each case, the name of the insurer, the name(s) of the insured, the risks insured against, the amount of the coverage, the amount of the deductible, the policy number, and any pending claims under the policy.

4.18     Corporate Records . Seller has made available to Buyer the minute books of each of the Companies and all corporate records, proceedings and actions for each of the Companies that are in its possession.

4.19     Money Laundering . The operations of the Companies have been conducted in compliance in all material respects with financial record-keeping and reporting requirements of applicable laws relating to money laundering, and the Companies have instituted and maintain policies and procedures designed to ensure continued compliance with such laws.

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4.20     Corrupt Practices . Neither of the Companies nor, to the Seller’s Knowledge, any of their respective officers, directors, employees, advisors or agents, has made any payment, directly or indirectly, on behalf of or to the benefit of either of the Companies, in violation of any applicable laws prohibiting the payment of undisclosed commissions or bonuses or the making of bribe or incentive payments or other arrangements of a similar nature, including the Corruption of Foreign Public Officials Act (Canada) and the Foreign Corrupt Practices Act (U.S.), and the Companies have instituted and maintain policies and procedures designed to ensure continued compliance with such laws.

4.21     Absence of Certain Changes or Events . Since July 31, 2013, except for the transactions contemplated by this Agreement:

(a)     the Companies have conducted their business only in the ordinary course of business consistent with past practice;

(b)     no liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) material to the Companies, taken as a whole, has been incurred other than in the ordinary course of business consistent with past practice; and

(c)     to Seller’s knowledge, there has not been any Material Adverse Effect.

4.22     Intellectual Property . Except as described on Schedule 4.22, (a) each Company owns or is licensed or otherwise has the right to use all intellectual property that is used in the operation of its business without conflict with the rights of any other Person and (b) neither Company has received any notice of any claim of infringement or similar claim or proceeding relating to any of the intellectual property which could reasonably be expected to have a Material Adverse Effect and no present or former employee of either of the Companies or of the Seller Affiliated Group and no other Person owns or claims to own or has or claims to have any interest, direct or indirect, in whole or in part, in any of the intellectual property of either such Company that could reasonably be expected to have a Material Adverse Effect.

4.23     Investment Representations . The Warrants being acquired by Seller are for investment only and not with a view of any distribution thereof. Seller understands that the Warrants and underlying securities have not been registered under the Securities Act of 1933 (the “ Securities Act ”) or the securities laws of any state and must be held indefinitely unless subsequently registered under the Securities Act and any applicable U.S. state securities laws or unless an exemption from registration becomes or is available. Seller will not distribute any Warrants or underlying securities in violation of the Securities Act or the applicable securities laws of any U.S. state. Seller is on the date hereof an “accredited investor” (as defined in Rule 501(a) of Regulation D under the Securities Act).

ARTICLE V
BUYER’S REPRESENTATIONS AND WARRANTIES

Each of Buyer and Buyer Guarantor represents and warrants to Seller as follows:

5.1     Organization and Qualification . (a) Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada and has all requisite power and authority to carry out its obligations under this Agreement; and (b) Buyer Guarantor is a corporation duly organized, validly existing, and in good standing under the laws of the province of British Columbia and has all requisite power and authority to carry out its obligations under this Agreement.

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5.2     Authority . (a) Buyer has all requisite power and authority to execute, deliver, and perform this Agreement and consummate the transactions contemplated by this Agreement. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement on the part of Buyer have been duly and validly authorized by all necessary action on the part of Buyer. This Agreement has been duly and validly executed and delivered by Buyer, and is the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms; and (b) Buyer Guarantor has all requisite power and authority to execute, deliver, and perform this Agreement and consummate the transactions contemplated by this Agreement. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement on the part of Buyer Guarantor have been duly and validly authorized by all necessary action on the part of Buyer Guarantor. This Agreement has been duly and validly executed and delivered by Buyer Guarantor, and is the valid and binding obligation of Buyer Guarantor, enforceable against Buyer Guarantor in accordance with its terms.

5.3     No Conflict; Required Consents . The execution, delivery, and performance by each of Buyer and Buyer Guarantor of this Agreement do not and will not: (i) conflict with or violate any provision of the charter or bylaws of Buyer or Buyer Guarantor; (ii) violate any provision of any Legal Requirements; (iii) conflict with, violate, result in a breach of, constitute a default under or permit the acceleration of the performance required by, any Contract or Encumbrance to which Buyer or Buyer Guarantor is a party or by which Buyer or Buyer Guarantor or their respective assets or properties are bound or affected; or (iv) require any consent, approval or authorization of any Governmental Authority or other Person, other than the approval of the TSX in connection with the issuance of the Warrants and the listing of the Klondex Shares underlying such Warrants.

5.4     Investment Representations; Independent Investigation . The Shares being acquired by Buyer are for investment only and not with a view of any distribution thereof. Buyer understands that the Shares have not been registered under the Securities Act or the securities laws of any state and must be held indefinitely unless subsequently registered under the Securities Act and any applicable U.S. state securities laws or unless an exemption from registration becomes or is available. Buyer will not distribute any Shares in violation of the Securities Act or the applicable securities laws of any U.S. state. Buyer (i) is familiar with the Companies, their assets and operations, (ii) has been given the opportunity to ask questions of representatives of Seller and the Companies and to obtain (and has received to Buyer’s satisfaction) such information about the Companies, their assets and operations, as Buyer has reasonably requested, and (iii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the prospective investment in the Shares. In formulating a decision to enter into this Agreement, (x) Buyer has relied solely upon an independent investigation of the Companies and upon consultations with Buyer’s legal and financial advisors with respect to this Agreement and the nature of this investment and (y) no reliance was placed by Buyer upon any representations or warranties other than those of Seller stated in Article IV of this Agreement.

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ARTICLE VI
COVENANTS

6.1     Interim Period Covenants . (a) Except as Buyer otherwise may consent in writing (which consent Buyer shall not unreasonably withhold), or as otherwise contemplated in connection with or associated with the transactions contemplated by this Agreement, between the date of this Agreement and Closing, Seller shall cause the Companies to:

(i)     operate in the usual, regular, and ordinary course and in accordance with past practices and applicable Legal Requirements and Governmental Permits and use commercially reasonable efforts to: (x) preserve their current business organization; (y) keep available the services of employees whose performance and conduct meets the Companies’ normal requirements; and (z) preserve beneficial business relationships with all suppliers, and others having business dealings with the Companies;

(ii)     maintain their assets and properties in their condition as of the date of this Agreement, ordinary wear excepted; and

(iii)     (x) provide to Buyer, and its counsel, accountants, and other representatives, during normal business hours and after reasonable advance notice, reasonable access to the assets, properties, books and records of the Companies and, to the extent relevant to the business and operations of the Companies, of the Seller (including access to any working papers, trial balances and similar materials relating to the Preliminary Statement prepared by Seller’s accountants); and (y) furnish or make available to Buyer and such representatives all such additional documents (certified by officers of the Companies, if requested), financial information, and other information relating to the Companies’ and their operations as Buyer may from time to time reasonably request; provided , however , that Buyer shall exercise such right of access in such a manner as not to interfere unnecessarily with the operations of the Companies.

(b)     Without limiting the generality of the foregoing, Seller shall not, without the prior written consent of Buyer (which consent Buyer shall not unreasonably withhold):

(i)     sell, dispose, mortgage, pledge, grant a security interest in, grant a license to or otherwise encumber any of the Assets, except in the ordinary course of business consistent with past practice, such as sales of inventory and obsolete equipment in the ordinary course and in amounts which, individually and in the aggregate, are not material to the financial condition or the business or operations of the Companies;

(ii)     enter into any lease or other Contract relating to the business or operations of the Companies that is not in the ordinary course of business and that would, if existing on the date hereof, constitute a Material Contract hereunder;

(iii)     terminate or cancel (other than the termination, expiration or cancellation of a Material Contract in accordance with its terms), modify or amend in any material respect or take or fail to take any action which would entitle any party to any Material Contract to terminate or cancel (other than the termination, expiration or cancellation of a Material Contract in accordance with its terms), modify or amend any Material Contract;

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(iv)     amend or otherwise alter (or propose any amendment or alteration to) the governing documents of either of the Companies;

(v)     permit either of the Companies to create, issue, sell, deliver, pledge or otherwise encumber any securities or interest in the capital of either of the Companies or any securities or instruments convertible or exercisable for any such securities or interest, or declare or pay any dividend or make any other distribution of any of either Company’s assets to its securityholders;

(vi)     permit either of the Companies to become a party to any merger, consolidation, share exchange, business combination, recapitalization, or similar transaction;

(vii)     permit either of the Companies to incur any indebtedness for borrowed money (except for intercompany indebtedness between the Companies) other than in the ordinary course or guarantee any indebtedness of another Person (other than the other Company) or make any loans, advances, or capital contributions to, or investments in, any other Person;

(viii)     permit either of the Companies to settle any Litigation to which it is a party other than settlements with respect to, or payments of, penalties under citations issued by the Mine Safety and Health Administration of the U.S. Department of Labor; or

(ix)     encourage or solicit any offers or proposals for, initiate discussions or engage in negotiations with, agree, commit, or enter into any understanding to take any of the forgoing actions or enter into any arrangement having the economic effect of any of the foregoing actions.

(c)    None of Seller or any of its Affiliates or their respective representatives shall solicit, encourage, or enter into any letter of intent, contract or other agreement with any Person (other than Buyer) concerning any offers to purchase, directly or indirectly, shares or all or substantially all of the assets of either of the Companies including any joint venture or royalty transaction or similar arrangement, and none of Seller or any of its Affiliates or their respective representatives will initiate or participate in any discussions or negotiations with any Person (other than Buyer) with respect to any such transactions or similar transactions, during the period commencing on the date hereof and ending on the termination of this Agreement.

(d)     Buyer and Seller agree that subject to applicable Legal Requirements, each shall provide the other prompt notice in writing of:

(i)     any notice or communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated hereby;

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(ii)     any material notice or communication from any Governmental Authority in connection with the transactions contemplated hereby;

(iii)    any material Litigation commenced or threatened against it which could reasonably be expected to have a Material Adverse Effect or impede or delay the consummation of the transactions contemplated hereby; and

(iv)    any failure by it to comply with or satisfy in all material respects any covenant, condition or agreement to be complied with or satisfied under this Agreement; provided that the giving of any such notice shall not in any way change or modify the representations and warranties of Buyer or Seller, or any covenants or conditions in favor of the Buyer or Seller, contained in this Agreement or otherwise affect the remedies available to the Buyer and Seller under this Agreement.

6.2     Confidentiality .

(a)     Prior to Closing, any non-public information that Buyer may obtain from Seller in connection with this Agreement with respect to Seller shall be deemed confidential, and Buyer shall not disclose any such information to any third party (other than its directors, officers and employees, and representatives of its advisers and lenders or other investors whose knowledge thereof is necessary in order to facilitate the consummation of the transactions contemplated hereby) or use such information for any commercial purpose; provided, however, that (i) Buyer may use and disclose any such information once it has been publicly disclosed (other than by Buyer in breach of its obligations under this Section) or which rightfully has come into the possession of Buyer (other than from Seller); (ii) Buyer may disclose such information to its officers, directors, agents, employees, advisors and lenders as necessary in connection with the transactions contemplated in this Agreement; and (iii) to the extent that Buyer may be required or may become compelled by Legal Requirements to disclose any of such information, Buyer may disclose such information if it shall have used all commercially reasonable efforts, and shall have afforded Seller the opportunity, to obtain an appropriate protective order, or other satisfactory assurance of confidential treatment, for the information compelled to be disclosed.

(b)     Any non-public information that Seller shall obtain from Buyer in connection with this Agreement with respect to Buyer shall be deemed confidential, and Seller shall not disclose such information to any third party or use such information for any commercial purpose; provided, however, that (i) Seller may use and disclose any such information once it has been publicly disclosed (other than by Seller in breach of its obligations under this Section) or which rightfully has come into the possession of Seller (other than from Buyer); (ii) Seller may disclose such information to its officers, directors, agents, employees, representatives, advisors and lenders as necessary in connection with the transactions contemplated in this Agreement; and (iii) to the extent that Seller may be required or may become compelled by Legal Requirements to disclose any of such information, Seller may disclose such information if it shall have used all commercially reasonable efforts, and shall have afforded Buyer the opportunity, to obtain an appropriate protective order, or other satisfactory assurance of confidential treatment, for the information compelled to be disclosed.

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(c)     Except as required by applicable Legal Requirements, neither Seller nor Buyer shall make any press release or public announcement or statement without the prior written consent and approval of the other. Subject to applicable Legal Requirements, Seller and Buyer shall consult with and cooperate with the other with respect to the content and timing of all press releases and other public announcements or statements, and any oral or written statements to Seller’s employees concerning this Agreement and the transactions contemplated hereby.

(d)     This Section does not supersede the confidentiality letter agreement dated February 27, 2013 between Seller and Buyer (the “ Existing NDA ”), which shall remain in full force and effect until Closing or, if Closing does not occur, in accordance with its terms.

6.3     Third Party Consents; Permits .

(a)     Seller and Buyer each shall exercise commercially reasonable efforts to obtain all consents and approvals of Governmental Authorities and other Persons required for consummation of the transactions contemplated by this Agreement.

(b)     Without limiting the generality of paragraph (a) of this Section 6.3, prior to and following Closing, Seller and Buyer each shall, and shall each cause its respective Affiliates to, exercise commercially reasonable efforts to (i) promptly obtain all consents and approvals required in connection with the consummation of the transactions contemplated by this Agreement under the Governmental Permits identified on Schedule 4.5 , including, in the case of any such Governmental Permit held by an Affiliate of Seller other than the Companies, consent to the transfer of such Governmental Permit to Buyer, Operations or such other Affiliate of Buyer as may be designated by Buyer, and (ii) permit Buyer, Operations or such other Affiliate of Buyer as may be designated by Buyer to operate under each Governmental Permit described in clause (i) until such consent or approval has been obtained in respect of such Governmental Permit.

6.4     Tax Matters.

(a)     Seller shall cause any tax sharing agreement or similar arrangement with respect to Taxes involving the Companies to be terminated effective as of the Closing Date, to the extent that any such agreement or arrangement relates to the Companies, and after the Closing Date the Companies shall have no obligation under any such agreement or arrangement for any past, present or future period. To the extent that, prior to Closing, the Companies are part of an Affiliated Group for purposes of any Income Tax, Seller shall prepare and file, or cause to be prepared and filed, all Tax Returns related to such Income Taxes with the appropriate Governmental Authorities relating to the Companies for periods ending on or prior to the Closing Date and shall pay all Income Taxes due with respect to such Tax Returns. To the extent permitted under applicable Tax law, Seller shall include the income of the Companies (including any deferred items triggered into income by Treasury Regulation Section 1.1502 -13 and any excess loss account taken into income by Treasury Regulation Section 1.1502 -19 or comparable provisions of state and local income Tax regulations) on Seller’s Tax Returns for all periods through the Closing Date and pay any federal, state, and local and non-U.S. income Taxes attributable to such income. To the extent permitted by law and otherwise necessary, the income of the Companies shall be apportioned to the period up to and including the Closing Date and the period after the Closing Date by closing the books of the Companies as of the end of the Closing Date. At Seller’s request, each of the Companies shall join with Seller in making any election with respect to any Tax Return for an Affiliated Group of which the Companies were a member prior to Closing, if the making of such election does not adversely affect Buyer (or either of the Companies) for any period ending after the Closing Date.

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(b)     In addition, Seller shall prepare and cause to be filed all other Tax Returns of the Companies for Pre-Closing Tax Periods, in accordance with the past practices of the Companies in preparing Tax Returns, except where such practice is not consistent with applicable Legal Requirements. At the reasonable request of Seller, Buyer shall execute or cause the Companies to execute any Tax Return prepared in accordance with this Section 6.4(b)as revised under the procedures set forth in Section 6.4(e) .

(c)     Buyer shall prepare or cause to be prepared and timely filed or cause to be filed all Tax Returns of the Companies for Pre-Closing Tax Periods that are due after the Closing Date and for Straddle Periods other than Tax Returns described in Sections 6.4(a)and (b) (“ Buyer Tax Returns ”). Buyer Tax Returns shall be prepared in accordance with past practices of the Companies, except where such practice is not consistent with applicable Legal Requirements. Seller shall reimburse Buyer for an amount equal to the portion of unpaid Taxes that are due with a Buyer Tax Return to the extent that such Taxes are allocable to a Pre-Closing Tax Period or the portion of a Straddle Period ending on and including the Closing Date (determined in accordance with Section 6.4(d)), within ten (10) days of Buyer’s providing proof, reasonably acceptable to Seller, of such liability, except to the extent that such Taxes were reflected in adjustments to the Purchase Price pursuant to Section 2.3.

(d)     Except as otherwise provided in Section 3.5, for purposes of this Agreement, Taxes allocable to the portion of a Straddle Period ending on the Closing Date shall be (A) in the case of any Taxes other than Income Taxes, Nevada State Net Proceeds of Mineral Taxes and Taxes based on receipts or sales or that are otherwise transactionally based, be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days in the Taxable period prior to and ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period, and (B) in the case of any Income Taxes, Nevada State Net Proceeds of Mineral Taxes and Taxes based on receipts or sale or that are otherwise transactionally based, be deemed equal to the amount which would be payable if the relevant Straddle Period ended on the Closing Date, provided that all permitted allowances, credits, exemptions and deductions that are normally computed on the basis of an entire year period (such as depreciation and amortization deductions) shall accrue on a daily basis and shall be allocated between the pre-Closing portion of the Straddle Period and the post-Closing portion of the Straddle Period in proportion to the number of days in each such period; provided , however , that any credits relating to a Straddle Period shall be taken into account as though the relevant taxable period ended on the Closing Date and provided further that all determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practices of the Companies, except where such practice is not consistent with applicable Legal Requirements. Notwithstanding the foregoing, any penalty, interest, or addition to Tax shall be allocated to the Party that bears the liability for the Tax to which such penalty, interest, or addition to Tax relates, regardless of when such penalty, interest, or addition to Tax is assessed.

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(e)     Buyer shall provide Seller, and Seller shall provide Buyer, with copies of any Tax Returns to be filed by Buyer or Seller, as applicable, pursuant to Section 6.4(b)or 6.4(c) at least twenty days prior to the due date thereof (giving effect to any extensions thereto) (or, in the case of any Tax Return due less than twenty days after the Closing Date, at least ten days prior to the due date thereof). Seller or Buyer, as applicable, shall have the right to review such Tax Returns prior to the filing of such Tax Returns. If Seller or Buyer, as applicable, disputes any amounts shown to be due on such Tax Returns, Seller and Buyer shall consult and resolve in good faith any issues arising as a result of the review of such Tax Returns. If the Parties are unable to resolve any dispute prior to the due date of the Tax Return, such dispute shall be resolved by the Accounting Firm, which shall resolve any issue in dispute as promptly as practicable. If the Accounting Firm is unable to make a determination with respect to any disputed issue prior to the due date (including any extensions) for the filing of the Tax Return in question, (i) such Tax Return shall be filed without such determination having been made and (ii) Seller shall pay to Buyer, not later than three days after the due date (including any extensions thereof) for the payment of Taxes with respect to such Tax Return, an amount determined by Seller as the proper amount chargeable to Seller pursuant to this Section 6.4 (subject to Section 3.5, in the case of any such dispute relating to Nevada State Net Proceeds of Minerals Taxes). Upon the Accounting Firm’s delivery of its determination to Buyer and Seller, appropriate adjustments shall be made to the amount paid by Seller in accordance with the immediately preceding sentence in order to reflect the Accounting Firm’s determination. The fees, costs and expenses of the Accounting Firm shall be shared equally by Seller and Buyer, unless either Seller or Buyer prevails on all material issues, in which case such fees, costs and expenses shall be paid by the non-prevailing Party. The determination by the Accounting Firm shall be final, conclusive and binding on the Parties.

(f)     Seller shall pay and indemnify Buyer and the Companies for the following Taxes (and all other related costs and damages), but without duplication of any liabilities that are taken into account as an adjustment to the Purchase Price under Section 2.3(a):

(i)     all Taxes of the Companies for (A) any Pre-Closing Tax Periods or (B) the portion of any Straddle Period ending on the Closing Date, including the ultimate liability for Taxes resulting from the assessment by the Nevada Department of Taxation in a Deficiency Notice dated October 16, 2013;

(ii)     all income Taxes that the Companies are liable for (including under Treasury Regulation Section 1.1502 -6 or any similar provision of state, local, or foreign applicable law) as a result of being a member of (or leaving) an affiliated, consolidated, combined, or unitary Tax group on or before the Closing Date;

(iii)    all Taxes resulting from or related to the transactions described in Sections 3.1, 3.2, 3.3 and 3.4 of this Agreement; and

(iv)    all Taxes resulting from a breach of a representation in Section 4.10 or a breach of a covenant of Seller contained in this Section 6.4.

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(g)     On or before the Closing Date, Seller shall provide Buyer with all Tax books and records (including, without limitation, Tax Returns) of the Companies, which may be provided in Excel or other usable electronic format. Seller and Buyer shall cooperate, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Section 6.4 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention (in accordance with such Party’s practices for such records) and (upon the other Party’s request) the provision of records and information which are reasonably relevant to such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer agrees (i) to retain all books and records with respect to all material Tax matters pertinent to either Company relating to any Tax period beginning before the Closing Date until ninety days after the expiration of the statute of limitations (and any extensions thereof) of the respective Tax periods, and to abide by all record retention agreements entered into with any Governmental Authority, and (ii) to give Seller reasonable written notice prior to transferring, destroying or discarding any such books and records and, if Seller so requests, Buyer shall allow Seller to take possession of such books and records. Seller and Buyer agree, upon request, to use their commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). To the extent permitted by applicable law, Seller and Buyer shall cause any Tax period to end on the Closing Date.

(h)     Buyer shall notify Seller in writing upon receipt by either Company of a written notice of any pending or threatened Tax audit, assessment, litigation or other proceeding if such audit, assessment, litigation or other proceeding is reasonably likely to result in an obligation of Seller under applicable law or under this Agreement (“ Tax Claim ”). The failure to provide such notice, however, shall not create any Buyer liability, except to the extent that Seller is actually and materially prejudiced by such failure. Seller shall have the right, at its own expense, to elect in writing, within ten days of receiving such notice, to control any Tax Claim with respect to any Pre-Closing Tax Period (“ Seller Tax Claim ”). Buyer shall have the right, at Buyer’s expense, to participate in (but not control) any Seller Tax Claim. If Seller elects to assume the defense of a Seller Tax Claim, Seller shall (x) keep Buyer reasonably informed of all material developments and events relating to such Seller Tax Claim (including promptly forwarding copies to Buyer of any related correspondence, and shall provide the Buyer with an opportunity to review and comment on any material correspondence before Seller sends such correspondence to any Governmental Authority), (y) consult with Buyer in connection with the defense or prosecution of such Seller Tax Claim and (z) provide such cooperation and information as Buyer shall reasonably request. Seller shall not settle any Seller Tax Claim without the prior written consent of Buyer (such consent, not to be unreasonably withheld, conditioned, or delayed); provided, however, that Buyer shall not be required to consent to any proposed settlement which may have an adverse Tax consequence on the Buyer or either Company during any Tax period which is not a Pre-Closing Tax Period.

(i)     Buyer shall control any Tax Claims that (i) are Seller Tax Claims that Seller does not timely elect to control pursuant to Section 6.4(h), or (ii) are not Seller Tax Claims, including for the avoidance of doubt, any Tax Claims involving a Straddle Period (any such Tax Claim, a “ Buyer Tax Claim ”). Seller shall have the right, at Seller’s expense, to participate in (but not control) any Buyer Tax Claim. Buyer shall not settle, or allow to be settled any Buyer Tax Claim without the prior written consent of Seller (such consent, not to be unreasonably withheld, conditioned, or delayed). Buyer shall (x) keep Seller informed of all material developments and events relating to a Buyer Tax Claim (including promptly forwarding copies to Seller of any related correspondence and shall provide Seller with an opportunity to review and comment on any material correspondence before Buyer sends such correspondence to any Governmental Authority), (y) consult with Seller in connection with the defense or prosecution of any such Buyer Tax Claim, and (z) provide such cooperation and information as Seller shall reasonably request.

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(j)     Notwithstanding anything in this Agreement to the contrary, in case of any conflict between this Section 6.4 and Article X with respect to any Tax Claim, this Section 6.4 shall govern with respect to such Tax Claim.

(k)     Notwithstanding anything to the contrary in the foregoing provisions of this Section 6.4, Buyer shall not cause or allow the Companies or any other Person to initiate any claim for refund or file any amended Tax Returns for Pre-Closing Tax Periods or for Straddle Periods that could reasonably be expected to adversely affect Seller without Seller’s prior written consent, which shall not be unreasonably conditioned, delayed or withheld. Any refunds of Taxes for Pre-Closing Tax Periods or attributable to the pre-Closing portion of any Straddle Period shall be paid to Seller when received. At the request of Seller, and with the agreement of Buyer, which shall not be unreasonably withheld, conditioned or delayed, Buyer shall file request for refunds of Taxes for a Pre-Closing Tax Periods or for a Straddle Period. All reasonable third-party costs and expenses incurred by Buyer or the Companies with respect to any such request for refund shall be promptly paid by Seller.

(l)     Buyer agrees to indemnify Seller and its Affiliates for any additional Taxes owed by Seller or its Affiliates resulting from any transaction outside the ordinary course of business engaged in by Buyer or the Companies occurring on the Closing Date and after the Buyer’s purchase of the Shares, and any such transaction shall be reported on Buyer’s federal Income Tax Return under Treasury Regulation Section 1.1502 -76(b)(1)(ii)(B) to the extent permitted under applicable Legal Requirements.

(m)     Section 338(h)(10) Election.

(i)     Buyer shall notify Seller by the later of (x) March 31, 2014 or (y) Closing, of its intention to make or not to make an election solely by Buyer under Section 338(h)(10) of the Code and Section 1.338(h)(10) -1 of the Treasury Regulations promulgated thereunder and any comparable elections available under state or local Tax law in respect of both of the Companies (the “ Elections ”), and if Buyer makes such Elections Seller shall cause NMC (and its Affiliates as applicable) to join with Buyer in timely making the Elections and in taking all legally required steps to effectuate the same. Buyer shall, with the assistance and cooperation of Seller, prepare all Internal Revenue Service Forms 8023 and 8883 and any similar state or local forms (together with any schedules or attachments thereto) that are required by Section 338(h)(10) of the Code and the underlying Treasury Regulations (or any comparable applicable provision of state or local law) (collectively, the “ Section 338 Forms ”) in accordance with applicable Tax laws. Subject to the provisions of Section 6.4(m)(ii), Buyer shall deliver the Section 338 Forms to Seller at least sixty (60) days prior to the due date of filing and Seller shall deliver to Buyer completed Section 338 Forms signed by NMC, as required under Section 338(h)(10) of the Code and analogous provisions of state or local law, at least thirty (30) days prior to the due date of filing. Seller (and NMC and its Affiliates) and Buyer shall each adopt and abide by the Section 338 Forms for purposes of all income Tax Returns filed by them and shall not take any position inconsistent therewith in connection with any examination of any such Tax Return, any refund claim, or any Tax proceeding, except as otherwise required by a final determination of a Governmental Authority. In the event that the Elections or Purchase Price Allocation described in this Section 6.4(m) is disputed by any taxing authority, the party receiving notice of the dispute shall promptly notify the other parties hereto of such dispute and the parties hereto shall consult and cooperate with each other concerning resolution of the dispute.

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(ii)     No later than one hundred fifty (150) days after the Closing Date, Buyer shall prepare and deliver to Seller for its review, comment and consent (such consent not to be unreasonably withheld) a statement (together with all supporting documentation) setting forth the allocation of the sum of the Purchase Price, plus any related assumed liabilities, plus any other amounts as required by applicable Tax law among the assets of the Companies, which allocation shall be made in accordance with Section 338(h)(10) of the Code and any applicable Treasury Regulations (the “ Purchase Price Allocation ”). Seller shall notify Buyer in writing within fifteen (15) days after receipt of the Purchase Price Allocation of any disagreement or reasonable objections Seller may have with the Purchase Price Allocation, in which case Buyer and Seller shall use their reasonable best efforts to reach agreement thereon. In the event Buyer and Seller fail to so agree within fifteen (15) days after Seller’s notice of disagreement has been delivered, then Buyer and Seller shall promptly engage an Accounting Firm in accordance with the procedures described in Section 2.4(c), to be applied mutatis mutandis, to resolve the dispute within thirty (30) days of the engagement and resolution shall be final and binding on the parties as described in Section 2.4(c) . The Purchaser Price Allocation finally determined pursuant to this Section 6.4(m) shall be used by Seller (and NMC and its Affiliates) and Buyer for all purposes, including preparation and filing of the Section 338 Forms and any other domestic or any foreign income Tax Returns with respect to the Acquisition, and Seller (and NMC and its Affiliates) and Buyer shall not take or assert any position inconsistent therewith, except as otherwise required by a final determination of a Governmental Authority. Any subsequent adjustments to Purchase Price required pursuant to the Agreement shall also be allocated in accordance with the Purchase Price Allocation finally determined pursuant to this Section 6.4(m)(ii) .

(iii)     Except as otherwise set forth in this Section 6.4(m), none of the Companies, Buyer, or any of their respective Affiliates shall file an election under Section 338 of the Code (or any similar or corresponding provision of state, local or foreign Law) with respect to the transactions contemplated under this Agreement. Seller shall cause NMC and its Affiliates to cooperate with the filing of the Elections and to comply with the terms of this Section 6.4(m) in the same manner as if NMC and its Affiliates were parties to this Agreement.

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(iv)     Notwithstanding anything in this Agreement to the contrary, the provisions of this Section 6.4 shall survive for the full period of all applicable statues of limitations (giving effect to any waiver, mitigation or extension thereof) plus 90 days.

6.5     Employees .

(a)     Buyer intends to operate the Midas Mine and related ore milling facility from and after Closing.

(b)     Prior to the Closing Date, Buyer shall offer employment to no less than sixty-seven of the active Midas Mine Employees as of the Closing Date (the “ Transitioned Employees ”) for employment with Buyer to begin the day following the Closing Date. Such individual offers of employment to Transitioned Employees shall include a commitment by Buyer to provide severance payments to Transitioned Employees in the amounts of six weeks of base salary for hourly Transitioned Employees, or eight weeks of base salary to salaried Transitioned Employees, if Buyer terminates the employment of any Transitioned Employee for job elimination, plant abandonment or reduction in force, within six months of the Closing Date. Between the date of this Agreement and Closing, Buyer and Seller shall reasonably cooperate to allow for sufficient levels of access to the active Midas Mine Employees to permit Buyer to conduct interviews and take such other actions as may be reasonably required to make the offers of employment contemplated in this Section 6.5(b), provided that such access and actions do not unreasonably interfere with the operations of the Midas Mine.

(c)     Seller shall pay all Midas Mine Employees all compensation, including salaries, commissions, bonuses, deferred compensation, severance, insurance, pensions profit sharing, vacation, sick pay and other compensation or benefits to which they are entitled for periods prior to Closing. All claims and obligations under, pursuant to or in connection with any welfare, medical, insurance, disability or other employee benefit plans of Seller or arising under any Legal Requirement affecting any of the Midas Mine Employees and Former Employees incurred before Closing, or resulting or arising from events or occurrences occurring or commencing prior to Closing, including settlements with respect to, or payments of, penalties under citations issued by the Mine Safety and Health Administration of the U.S. Department of Labor, shall remain the responsibility of Seller.

(d)     Seller shall be responsible for discharging all obligations in respect of employees under the Workers Adjustment and Retraining Notification Act (together with any similar state or local Law, the “ WARN Act ”) for the notification of any “employment loss” within the meaning of the WARN Act which occurs on or prior to the Closing Date. Buyer shall be responsible for discharging all obligations in respect of the Transitioned Employees under the WARN Act for the notification of any “employment loss” with the meaning of the WARN Act which occurs after the Closing Date.

6.6      Retention of Records . Each Party shall retain all books and records relating to matters that are the subject of indemnification pursuant to Article X for a period of five years following the Closing Date and give to the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if such other Party so requests, allow it to take possession of such books and records.

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6.7     Surety Arrangements .

(a)     Buyer shall exercise its reasonable best efforts to arrange for and substitute Surety Arrangements prior to Closing for each of the Seller Surety Arrangements in form and amount acceptable to each of the Governmental Authorities that hold or are benefitted by the Seller Surety Arrangements (the “ Buyer Surety Arrangements ”).

(b)     As expeditiously as possible following Closing, Buyer shall take all actions necessary to implement the Buyer Surety Arrangements to replace any then remaining Seller Surety Arrangements and obtain the final release and return to Seller of the Seller Surety Arrangements.

(c)     The Reclamation Liability Amount deposited in escrow as required by Section 2.2(b) of this Agreement may only be released from escrow upon joint written instructions from Buyer and Seller to the Escrow Agent, and only for the purpose of implementing the Buyer Surety Arrangements, in accordance with the following:

(i)     from time to time at the request of Buyer, Seller will sign a joint direction directing the Escrow Agent to release dollar amounts of the Reclamation Liability Amount as required by Buyer to support the Buyer Surety Arrangements being put in place to replace Seller Surety Arrangements. Buyer Surety Arrangements may be implemented over time and from time to time and Buyer and Seller will jointly direct Escrow Agent to release such dollar amount of the Reclamation Liability Amount as is required by Buyer to support the Buyer Surety Arrangements being replaced to such Person as the Buyer directs, including the provider of the applicable Surety Arrangements, in implementing the particular Buyer Surety Arrangements. For certainty, it is expected by Buyer and Seller that Buyer will use the Reclamation Liability Amount to be drawn from escrow to support the implementation of the Buyer Surety Arrangements so that Buyer will not be required to bridge finance the Buyer Surety Arrangements;

(ii)     Buyer will seek the release of individual Seller Surety Arrangements as they are replaced, however, Seller acknowledges that all of the Seller Surety Arrangements may not be released by Governmental Authorities until such time as all of the Buyer Surety Arrangements are in place;

(iii)     if any amount of the Reclamation Liability Amount remains after the release of the Seller Surety Arrangements, such amount shall be paid to Buyer, and the Purchase Price shall be downward adjusted on a dollar for dollar basis by the remaining amount;

(iv)     if more than the Reclamation Liability Amount is required to obtain the release of the Seller Surety Arrangements, such amount shall be funded by Buyer and the Purchase Price shall be upward adjusted on a dollar for dollar basis by the additional amount; and

(v)     if prior to the release to Buyer of all the Reclamation Liability Amount, all or any of the Seller Surety Arrangements are called upon by applicable Governmental Authorities prior to being replaced with Buyer Surety Arrangements, then promptly upon receiving notice thereof, Seller shall notify Buyer, and Buyer and Seller will cooperate in dealing with the applicable Governmental Authorities, and Buyer and Seller shall jointly direct the Escrow Agent to pay Seller from escrow an amount of the Reclamation Liability Amount equal to the amount paid under the Seller Surety Arrangements that were called, thereby reducing the amount of the Reclamation Liability Amount available to Buyer for Buyer Surety Arrangements or as residual. Seller and Buyer will make adjusting payments between them when the final amount owing to the applicable Governmental Authorities is determined.

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(d)     All interest earned on the Reclamation Liability Amount while in escrow accrues to the Buyer and unless otherwise Buyer advises Seller in writing, shall be paid to Buyer on a monthly basis commencing on March 31, 2014 (unless prior to such day the last of the Reclamation Liability Amount held in escrow is released by the Escrow Agent), and on the day that the last of the Reclamation Liability Amount held in escrow is released by the Escrow Agent. Seller and Buyer shall jointly direct the Escrow Agent in accordance with this paragraph.

(e)     If the Seller Surety Arrangements have not been finally released and returned in full by the first anniversary of Closing, then the remaining Reclamation Liability Amount held in escrow shall be released to Seller in accordance with the terms of the Escrow Agreement, and upon Seller’s receipt of such amount, shall thereafter be released by Seller in accordance with the following:

(i)     from time to time at the request of Buyer, Seller will release dollar amounts of the Reclamation Liability Amount as required by Buyer to support the Buyer Surety Arrangements being put in place to replace Seller Surety Arrangements. Buyer Surety Arrangements may be implemented over time and from time to time and Seller will release such dollar amount of the Reclamation Liability Amount as is required by Buyer to support the Buyer Surety Arrangements being replaced to such Person as the Buyer directs, including the provider of the applicable Surety Arrangements, in implementing the particular Buyer Surety Arrangements. For certainty, it is expected by Buyer and Seller that Buyer will use the Reclamation Liability Amount to support the implementation of the Buyer Surety Arrangements so that Buyer will not be required to bridge finance the Buyer Surety Arrangements;

(ii)     Buyer will seek the release of individual Seller Surety Arrangements as they are replaced, however, Seller acknowledges that all of the Seller Surety Arrangements may not be released by Governmental Authorities until such time as all of the Buyer Surety Arrangements are in place;

(iii)     if any amount of the Reclamation Liability Amount remains after the release of the Seller Surety Arrangements, such amount shall be paid to Buyer, and the Purchase Price shall be downward adjusted on a dollar for dollar basis by the remaining amount;

(iv)     if more than the Reclamation Liability Amount is required to obtain the release of the Seller Surety Arrangements, such amount shall be funded by Buyer and the Purchase Price shall be upward adjusted on a dollar for dollar basis by the additional amount; and

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(v)     if prior to the release to Buyer of all the Reclamation Liability Amount, all or any of the Seller Surety Arrangements are called upon by applicable Governmental Authorities prior to being replaced with Buyer Surety Arrangements, then promptly upon receiving notice thereof, Seller shall notify Buyer, and Buyer and Seller will cooperate in dealing with the applicable Governmental Authorities, and the amount of the Reclamation Liability Amount available to Buyer for Buyer Surety Arrangements or as residual will be reduced by the amount of Seller Surety Arrangements drawn. Seller and Buyer will make adjusting payments between them when the final amount owing to the applicable Governmental Authorities is determined.

(f)     Buyer acknowledges and agrees that it shall not be entitled to any interest or other income in respect of any Reclamation Liability Amount released to and held by Seller pursuant to paragraph (e) of this Section 6.7.

6.8     Financial Statement Matters . Following the execution and delivery of this Agreement, Seller shall (a) reasonably cooperate with Buyer to facilitate audits of the combined financial statements of the Companies consisting of the combined balance sheets of the Companies as of December 31, 2012 and 2011 and related combined statements of income and cash flows for the years then ended; and (b) prepare unaudited financial statements of the Companies (without footnotes) consisting of the combined balance sheets of the Companies as of September 30, 2013 and 2012 and related combined statements of income and cash flows for the nine month periods then ended. The audit of the financial statements contemplated in clause (a) of the immediately preceding sentence shall be performed pursuant to an engagement letter among Buyer, Seller and an auditor reasonably acceptable to Buyer and Seller. The costs and expenses incurred by the auditor and by Seller in connection with the preparation of the financial statements contemplated in this Section 6.8 shall (i) in the case of the auditor’s costs and expenses, be paid or reimbursed by, and shall be the sole responsibility of, Buyer in accordance with the terms of the engagement letter and (ii) in the case of Seller’s costs and expenses, shall be paid by Buyer promptly following receipt of one or more invoices from Seller detailing the same, it being agreed that all time expended by Seller personnel in connection with the preparation of the financial statements contemplated in this Section 6.8 shall be billed and paid at the rate of $125 per person per hour, up to $30,000 in aggregate. The financial statements contemplated in this Section 6.8 shall be prepared in accordance with GAAP.

6.9     Verizon Tower Access . Following the execution and delivery of this Agreement, Seller and Buyer shall negotiate in good faith to reach an agreement reasonably satisfactory to the Parties and to Southwestco Wireless, L.P. d/b/a Verizon Wireless (“ Verizon ”) pursuant to which Seller and its Affiliates shall have access to, and the right to maintain and use the microwave dish located on, the tower that is the subject of that certain License Agreement dated January 28, 2013 between Verizon and Operations, for a period of one year following the Closing Date.

6.10     Use of Newmont Name . From and after Closing, Buyer shall, and shall cause its Affiliates to, cease use of the “Newmont” name in connection with Buyer’s ownership of the Companies and operation of the Midas Mine, including with respect to Contracts to which Holdings or Operations is a party, assets and properties (including the Assets) owned or leased by Holdings or Operations and Governmental Permits held by Holdings or Operations. Without limiting the generality of the foregoing, immediately following Closing Buyer shall amend the articles of incorporation of each Company or take such other action as necessary to remove the “Newmont” name from the name of each Company.

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ARTICLE VII
CONDITIONS PRECEDENT

7.1      Conditions to Buyer’s Obligations . The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the following conditions, which, if capable of being waived, may be waived by Buyer in its sole discretion:

(a)     Seller shall have performed and complied in all material respects with all covenants and obligations of this Agreement to be complied with and performed by it at or before Closing.

(b)     All representations and warranties of the Seller in this Agreement shall be true and correct in all material respects (or, if qualified by materiality, in all respects) as of the date of Closing, with the same force and effect as if made on and as of that date.

(c)     Seller shall have delivered to Buyer a certificate, dated as of the date of Closing, executed by an executive officer of Seller, certifying that the conditions stated in paragraphs 7.1(a) and 7.1(b) have been satisfied.

(d)     All authorizations, approvals and consents described on Schedule 7.1(d) of shall have been obtained.

(e)     There shall be no pending or threatened third party Litigation seeking to obtain damages in connection with, or to restrain, prohibit, invalidate, set aside, in whole or in part, the consummation of this Agreement or the transactions contemplated by this Agreement, or which if successful could have the effect of any of the foregoing or any Judgment providing for any of the foregoing.

(f)     Seller, Holdings and Operations shall have delivered to Buyer a properly completed and executed non-foreign certificate pursuant to Treasury Regulations Section 1.1445 -2(b).

(g)     There shall not have occurred and be continuing any Material Adverse Effect.

(h)     Seller shall have delivered to Buyer evidence of (i) assumption of Retained Accounts Payable and (ii) assumption of Affiliate Debt, all in form and substance reasonably satisfactory to Buyer.

(i)     TSX shall have conditionally approved for listing the Klondex Shares underlying the Warrants.

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(j)     On or before Closing, Seller shall cause NMC to deliver to Buyer a letter stating that NMC, on behalf of itself and its Affiliates, will cooperate with the filing of the Elections and to comply with the terms of Section 6.4(m) in the same manner as if NMC and its Affiliates were parties to this Agreement.

(k)     Seller shall have caused to be transferred to Operations each of the Material Contracts to which Seller or another member of Seller Affiliated Group (other than Operations) is a party.

(l)     Seller shall have caused to be transferred to Operations each of the Properties that is registered to or held by Seller or another member of Seller Affiliated Group (other than Operations).

(m)     Not less than five business days prior to Closing, Buyer shall have received copies of the financial statements contemplated by Section 6.8.

7.2      Conditions to Seller’s Obligations . The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the following conditions, which, if capable of being waived, may be waived by Seller in its sole discretion:

(a)     Buyer shall have performed and complied in all material respects with all covenants and obligations in this Agreement to be complied with and performed by Buyer at or before Closing.

(b)     All representations and warranties of Buyer in this Agreement shall be true and correct in all material respects (or, if qualified by materiality, in all respects) as of the date of Closing with the same force and effect as if such representations and warranties had been made on and as of that date.

(c)     Buyer shall have delivered to the Seller a certificate dated as of the date of Closing, executed by an executive officer of the Buyer, certifying that the conditions stated in paragraphs 7.2(a) and 7.2(b) have been satisfied.

(d)     All authorizations, approvals and consents described on Schedule 7.1(d) of shall have been obtained.

(e)     (i) Buyer shall have exercised its reasonable best efforts to arrange for each of the Buyer Surety Arrangements prior to Closing, and Seller shall be reasonably satisfied that, upon implementation of the Buyer Surety Arrangements, the Seller Surety Arrangements will be released by the relevant Governmental Authorities. (ii) To the extent that any of the Seller Surety Arrangements shall not have been released as of Closing, the Buyer shall have deposited with the Escrow Agent an amount in cash equal to the remaining Reclamation Liability Amount as of Closing.

(f)     There shall be no pending or threatened third party Litigation seeking to obtain damages in connection with, or to restrain, prohibit, invalidate, set aside, in whole or in part, the consummation of this Agreement or the transactions contemplated by this Agreement, or which if successful could have the effect of any of the foregoing or any Judgment providing for any of the foregoing.

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(g)     TSX shall have conditionally approved for listing the Klondex Shares underlying the Warrants.

(h)     Buyer shall have performed and complied in all respects with the covenants and obligations in Section 6.5(b) to be complied with and performed by Buyer at or before Closing.

ARTICLE VIII
CLOSING

8.1     Closing; Time and Place . The consummation and closing of the transactions contemplated by this Agreement (“ Closing ”) shall take place at the offices of Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite 500, Denver, Colorado 80202, or such other location as Buyer and Seller agree upon, on February 4, 2014; provided , however , that, subject to Section 9.1, either Buyer or Seller may postpone Closing on one or more occasions to a later date in order to allow additional time for the satisfaction of conditions to its obligations stated in Article VII.

8.2     Seller’s Obligations . At Closing, Seller shall deliver or cause to be delivered to Buyer the following:

(a)     Shares . The original certificates for the Shares, executed in blank for transfer or with separate stock powers or equivalent instruments executed for transfer in blank.

(b)     Constituent Documents . Copies of the articles of incorporation, bylaws or other constituent documents of each of the Companies, certified as being true and correct by an authorized officer of Seller, and the original minute books and share ledgers of each of the Companies.

(c)     Resignations and Releases . Resignations and releases, in form reasonably satisfactory to Buyer, of the outgoing officers and directors of each of the Companies.

(d)     Transition Services Agreement. A counterpart of a Transition Services Agreement in the form attached hereto as Exhibit 8.2(d) (the “ Transition Services Agreement ”), executed by Seller.

(e)     Escrow Agreement. To the extent that any of the Seller Surety Arrangements shall not have been released as of Closing, a counterpart of an Escrow Agreement substantially in the form attached hereto as Exhibit 8.2(e) (the “ Escrow Agreement ”), among Buyer, Seller and the Escrow Agent, executed by Seller.

(f)     Other . Such other documents and instruments as may be reasonably requested by the Buyer in order to effect the intent of this Agreement and consummate the transactions contemplated hereby.

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8.3     Buyer’s Obligations . At Closing, Buyer shall deliver or cause to be delivered to Seller the following:

(a)      Purchase Price . (i) The Cash Consideration, as stated in the Preliminary Statement, by wire transfer of immediately available funds; (ii) evidence of the Buyer having deposited with the Escrow Agent an amount in cash equal to the Reclamation Liability Amount less the amount of any Buyer Surety Arrangements for which equivalent Seller Surety Arrangements have been released on Closing; and (iii) one or more definitive certificates representing the Warrants registered to Seller or its designee, executed by Buyer Guarantor.

(b)     NPT Closing Payment . The NPT Closing Payment, by wire transfer of immediately available funds.

(c)     Transition Services Agreement. A counterpart of the Transition Services Agreement, executed by Buyer.

(d)     Escrow Agreement. To the extent that any of the Seller Surety Arrangements shall not have been released as of Closing, counterparts of the Escrow Agreement, executed by Buyer and the Escrow Agent.

(e)     Other . Such other documents and instruments as may be reasonably requested by the Seller in order to effect the intent of this Agreement and consummate the transactions contemplated hereby.

ARTICLE IX
TERMINATION

9.1     Termination Events . This Agreement may be terminated and the transactions contemplated hereby may be abandoned:

(a)     at any time, by the mutual written agreement of the Buyer and Seller;

(b)     by either Buyer or Seller, at any time prior to Closing, if the other is in material breach or default of its respective covenants, agreements, or other obligations in this Agreement or if any of its representations in this Agreement are not true and accurate in all material respects when made or when otherwise required by this Agreement to be true and accurate, and such breach, default or inaccuracy has not been cured within thirty days following written notice thereof given by the terminating Party;

(c)     by either Buyer or Seller upon written notice to the other, if any of the conditions to its obligations in Sections 7.1 and 7.2, respectively, shall not have been satisfied on or before March 31, 2014, for any reason other than a material breach or default by such Party of its respective covenants, agreements, or other obligations hereunder, or any of its representations herein not being true and accurate in all material respects when made or when otherwise required by this Agreement to be true and accurate in all material respects;

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(d)     Upon written notice by Seller, if within thirty (30) calendar days following the date hereof, Seller is not reasonably satisfied that Buyer has or will have at Closing sufficient funds to pay the Purchase Price and other Closing payments; or

(e)     as otherwise provided in this Agreement.

9.2     Effect of Termination . If this Agreement shall be terminated pursuant to Section 9.1, all obligations of the Parties hereunder shall terminate, except for the obligations in Section 6.2, this Section 9.2 and Article XI, and provided that such termination shall not relieve any Party of liability for breaches of this Agreement occurring prior to termination.

ARTICLE X
INDEMNIFICATION

10.1     Indemnification by Seller . From and after Closing, Seller shall indemnify and hold harmless Buyer and its Affiliates and their respective officers and directors, employees, agents, and representatives, and any Person claiming by or through any of them, as the case may be, from and against any and all Losses arising out of or resulting from: (a) any representations and warranties of Seller in this Agreement not being true and accurate when made or at Closing; (b) any failure by Seller to perform any of its covenants, agreements, or obligations in this Agreement; (c) (i) all Retained Accounts Payable, (ii) the Affiliate Debt, and (iii) all other liabilities and obligations arising out of or relating to ownership of the Companies or the ownership or operation of, or activities conducted on, the Properties by the Companies prior to Closing, except those that are subject to indemnification by Buyer pursuant to Section 10.2.

10.2     Indemnification by Buyer . From and after Closing, Buyer shall indemnify and hold harmless Seller and its Affiliates and their respective officers and directors, agents, and representatives, and any Person claiming by or through any of them, as the case may be, from and against any and all Losses arising out of or resulting from:

(a)     any representations and warranties of Buyer in this Agreement not being true and accurate when made or at Closing;

(b)     any failure by Buyer to perform any of its covenants, agreements, or obligations in this Agreement;

(c)     all Reclamation and Environmental Liabilities, except to the extent of Losses for which Buyer is entitled to indemnification under Section 10.1(a);

(d)     all liabilities and obligations relating to or arising out of the ownership or operation of, or activities conducted on, the Properties following Closing; and

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(e)     all liabilities or obligations arising out of or relating to the Seller Surety Arrangements.

10.3     Procedure for Indemnified Third Party Claim . Promptly after receipt by a Party entitled to indemnification hereunder (the “ Indemnitee ”) of written notice of the assertion or the commencement of any Litigation with respect to any matter referred to in Sections 9.1 or 9.2, the Indemnitee shall give written notice thereof to Seller if the Indemnitee is a Person entitled to indemnification under Section 10.1, or Buyer, if the Indemnitee is a Person entitled to indemnification under Section 10.2 (in either case, the “ Indemnitor ”), and thereafter shall keep the Indemnitor reasonably informed with respect thereto; provided , however , that failure of the Indemnitee to give the Indemnitor notice as provided herein shall not relieve the Indemnitor of its obligations hereunder except to the extent that the Indemnitor is prejudiced thereby. If any third party commences any Litigation against any Indemnitee, the Indemnitor shall be entitled to participate in such Litigation and, at its option, assume the defense thereof with counsel reasonably satisfactory to the Indemnitee, at the Indemnitor’s sole expense; provided , however , that the Indemnitor shall not have the right to assume the defense of any Litigation if (i) the Indemnitee shall have one or more legal or equitable defenses available to it which are different from or in addition to those available to the Indemnitor, and, in the reasonable opinion of the Indemnitee, counsel for the Indemnitor could not adequately represent the interests of the Indemnitee because such interests could be in conflict with those of the Indemnitor, (ii) such Litigation is reasonably likely to have a material adverse effect on any other matter beyond the scope or limits of the indemnification obligation of the Indemnitor, or (iii) the Indemnitor shall not have assumed the defense of the Litigation in a timely fashion (but in any event within thirty days of notice of such Litigation). If the Indemnitor shall assume the defense of any Litigation, the Indemnitee shall be entitled to participate in any Litigation at its expense, and the Indemnitor shall not settle such Litigation unless the settlement shall include as an unconditional term thereof the giving by the claimant or the plaintiff of a full and unconditional release of the Indemnitee, from all liability with respect to the matters that are subject to such Litigation, or otherwise shall have been approved reasonably by the Indemnitee.

10.4     Payment of Indemnification Amounts and Related Matters . Amounts payable pursuant to Sections 10.1 or 10.2 shall be payable by the Indemnitor as incurred by the Indemnitee, and shall bear interest at the Prime Rate from the date the Losses for which indemnification is sought were incurred by the Indemnitee until the date of payment of indemnification by the Indemnitor.

10.5     Determination of Indemnification Amounts; Time For Making Claims.

(a)     Buyer shall not be entitled to indemnification under Section 10.1(a) in respect of any Losses unless and until (and then shall be entitled to such indemnification only to the extent that) the aggregate amount of all such Losses exceeds the amount of $500,000 (the “ Threshold Amount ”), upon which Buyer shall be entitled to indemnification only for such Losses in excess of the Threshold Amount; provided , however , that such limitation shall not apply to any rights to indemnification under Section 10.1(a) with respect to the representations or warranties in Sections 4.1, 4.2, 4.3, 4.4, 4.10 and 4.12 (the “ Excepted Representations and Warranties ”). In no event shall the aggregate liability of Seller under Section 10.1(a) for all matters other than breaches of the Excepted Representations and Warranties exceed $5,500,000, and in no event shall the aggregate liability of (i) Seller under Section 10.1(a) or (ii) Buyer under Section 10.2(a), exceed the Cash Consideration; provided, however , that none of the foregoing limitations shall apply to any rights to indemnification under Section 10.1(a) with respect to the representations and warranties in Section 4.10.

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(b)     No Person shall be entitled to indemnification under Section 10.1(a) or Section 10.2(a) unless it shall have given the Party or Parties from which indemnity is sought written notice of the Losses for which it seeks indemnification (which notice may be, in the case of third party claims, notice under Section 10.3) within the applicable period of survival stated in Section 10.6. Each such notice shall include a reasonably detailed description of the circumstances surrounding the Losses in respect of which indemnification is claimed.

(c)     In determining the amount of the Losses of any Party entitled to indemnification under this Article X shall be, such Losses shall be reduced by the amount of any insurance proceeds or other recoupment received or realized by such Party for or as a result of the circumstance or occurrence giving rise to its indemnification claim.

(d)     If Seller is required to make any indemnity payment due to Buyer under Section 10.1, and the events giving rise to the Loss at issue actually result in a Tax benefit to Buyer or the Companies, then (i) any indemnity amount to be paid with respect to such Loss shall be reduced by the amount of any such Tax benefit actually realized prior to the indemnity payment, and (ii) to the extent such Tax benefit is actually realized after the indemnity payment is paid to the Buyer, Buyer shall pay Seller the amount of such Tax benefit within ten days of filing the Tax Return realizing the benefit (or if the Tax benefit is in the form of an increased Tax refund, within ten days of receiving the refund). For purposes of this Section 10.5(d), “Tax benefit” shall mean a reduction in the amount of Tax actually paid by Buyer or the Companies.

(e)     Indemnification payments under this Article X shall constitute adjustments to the Purchase Price.

10.6     Survival . Notwithstanding any investigation made by or on behalf of Buyer, the representations and warranties of the Parties in this Agreement or in any certificate delivered in connection with this Agreement shall survive Closing (i) until the fifth anniversary of the Closing Date, in the case of Sections 4.1, 4.2, 4.3, 4.4, 4.12, 5.1, 5.2 and 5.4; (ii) for a period of 90 days following expiration of the applicable statutory period of limitations applicable to claims by any Governmental Authority with respect to any matter that constitutes a breach of such representations and warranties, in the case of Section 4.10; and (iii) until the first anniversary of the Closing Date, in all other cases.

10.7     Sole Remedy . Subject to Section 11.15, the provisions of this Article X and Section 6.4 are the sole remedies of Buyer and Seller (other than claims arising from intentional fraud on the part of a Party in connection with the transactions contemplated by this Agreement) with respect to this Agreement and the transactions contemplated by this Agreement following Closing, and Buyer and Seller waive any and all other rights and remedies in respect of this Agreement and such transactions.

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ARTICLE XI
MISCELLANEOUS PROVISIONS

11.1     Expenses . Except as otherwise provided in Section 11.13 or elsewhere in this Agreement, each of the Parties shall pay its own expenses and the fees and expenses of its counsel, accountants, and other experts in connection with this Agreement.

11.2     Brokerage . Seller shall indemnify and hold Buyer harmless from and against any and all Losses arising from any employment by it of, or services rendered to it by, any finder, broker, agency, or other intermediary, in connection with the transactions contemplated hereby, or any allegation of any such employment or services. Buyer shall indemnify and hold Seller harmless from and against any and all Losses arising from any employment by it of, or services rendered to it by, any finder, broker, agency, or other intermediary, in connection with the transactions contemplated hereby, or any allegation of any such employment or services.

11.3     Waivers . No action taken pursuant to this Agreement, including any investigation by or on behalf of any Party, shall be deemed to constitute a waiver by the Party taking the action of compliance with any representation, warranty, covenant or agreement contained in this Agreement. The waiver by any Party of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any Party of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived.

11.4     Notices . All notices, requests, demands, applications, services of process, and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if sent by electronic mail or facsimile transmission or delivered by courier or mailed, certified first class mail, postage prepaid, return receipt requested, to the Parties at the following addresses:

To Seller:

c/o Newmont Mining Corporation
6363 South Fiddler’s Green Circle
Suite 800
Greenwood Village CO 80111
Attention: Stephen P. Gottesfeld
Facsimile: 303.837.5810
Email: Stephen.Gottesfeld@newmont.com

And to:

c/o Newmont Mining Corporation
1655 Mountain City Highway
Elko NV 89801
Attention: Richard J. Matthews
Facsimile: 775.778.2513
Email: Richard.Matthews@newmont.com

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With a copy (which shall not constitute notice) to:

Davis Graham & Stubbs LLP
1550 17 th Street, Suite 500
Denver, CO 80202
Attention: Bruce D. Stocks
Facsimile: 303.893.1379
Email: bruce.stocks@dgslaw.com

To Buyer and Buyer Guarantor:

c/o Klondex Mines Ltd.
Suite 600-595 Howe Street
Vancouver BC V6C 2T5
Attention: Paul Huet
Facsimile: 604.662.3904
Email: phuet@klondexmines.com

With a copy (which shall not constitute notice) to:

Bennett Jones LLP
3400 One First Canadian Place
PO Box 130
Toronto ON M5X 1A4
Attention: Abbas Ali Khan
Facsimile: 416.863.1716
Email: alikhana@bennettjones.com

or to such other address as any Party shall have furnished to the other by notice given in accordance with this Section. Such notice shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, or (ii) if sent by electronic mail or facsimile transmission, upon receipt, or (iii) if mailed, upon the date of first attempted delivery.

11.5     Entire Agreement; Amendments . This Agreement and the Existing NDA embody the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect thereto. This Agreement may not be modified orally, but only by an agreement in writing signed by the Party or Parties against whom any waiver, change, amendment, modification, or discharge may be sought to be enforced.

11.6     Binding Effect; Benefits . This Agreement shall inure to the benefit of and will be binding upon the Parties and their respective successors and permitted assigns. Neither Buyer nor Seller shall assign this Agreement or delegate any of its duties hereunder to any other Person without the prior written consent of the other.

11.7     Headings, Schedules, and Exhibits . The section and other headings in this Agreement are for reference purposes only and will not affect the meaning of interpretation of this Agreement. Reference to Exhibits shall, unless otherwise indicated, refer to the Exhibits attached to this Agreement, each of which shall be incorporated in and constitute a part of this Agreement by such reference. Any item that could be deemed to be properly disclosable on more than one Exhibit to this Agreement shall be deemed to be properly disclosed on all such Exhibits if it is disclosed in reasonable detail on any Exhibit to the Agreement.

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11.8     Counterparts; Facsimile Signature . This Agreement may be executed and delivered by facsimile or other electronic transmission in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together will be deemed to be one and the same instrument.

11.9     Governing Law .

(a)     The validity, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflicts of law of such State.

(b)     Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any Delaware state court or federal court of the United States of America sitting in the State of Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such Delaware State court or, to the extent permitted by law, in such federal court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(c)     Each of the Parties irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any Delaware State or federal court. Each of the Parties irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

11.10    Severability . Any term or provision of this Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining rights of the Person intended to be benefited by such provision or any other provisions of this Agreement.

11.11    Third Parties; Joint Ventures . This Agreement constitutes an agreement solely among the Parties, and, except as otherwise provided herein, is not intended to and will not confer any rights, remedies, obligations, or liabilities, legal or equitable, including any right of employment, on any Person (including but not limited to any employee or former employee of Seller) other than the Parties and their respective successors, or assigns, or otherwise constitute any Person a third party beneficiary under or by reason of this Agreement. Nothing in this Agreement, expressed or implied, is intended to or shall constitute the Parties partners or participants in a joint venture.

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11.12     Construction . This Agreement has been negotiated by Buyer and Seller and their respective legal counsel, and legal or equitable principles that might require the construction of this Agreement or any provision of this Agreement against the Party drafting this Agreement shall not apply in any interpretation of this Agreement.

11.13     Attorneys’ Fees . If any Litigation between Seller and Buyer with respect to this Agreement or the transaction contemplated hereby shall be resolved or adjudicated by a Judgment of any court, the Party prevailing under such Judgment shall be entitled, as part of such Judgment, to recover from the other Party its reasonable attorneys’ fees and costs and expenses of litigation.

11.14    Further Assurances . Following Closing, each of the Parties shall from time to time execute and deliver all such further documents and instruments and do all acts and things as any other Party may reasonably require to effectively carry out or better evidence or perfect the full intent of this Agreement.

11.15    Guaranty .

(a)     Buyer Guarantor hereby absolutely, unconditionally and irrevocably guarantees, as a direct obligation, in favour of Seller the full and timely performance, observance and payment by Buyer of each and every covenant, agreement, undertaking, representation, warranty, indemnity and obligation of Buyer contained in this Agreement, including but not limited to the obligation of Buyer to pay the Purchase Price and the NPT Closing Payment when required pursuant to Sections 2.2, 3.5 and 8.3 and any adjustment to the Purchase Price required to be paid by Buyer in accordance with Section 2.3 and Section 2.4.

(b)     Subject to Section 10.5, the liability of Buyer Guarantor hereunder shall be absolute and unconditional and shall be in effect irrespective of: (i) any failure, neglect or omission on the part of Seller to realize upon any obligations or liabilities of Buyer; (ii) any amalgamation, merger or reorganization of Buyer in which event the guarantee of Buyer Guarantor shall apply to the corporation resulting therefrom; (iii) any amalgamation, merger or reorganization of Buyer Guarantor; (iv) any sale, lease or transfer of the assets of Buyer or Buyer Guarantor; (v) any change in the ownership of any shares in the capital of Buyer or Buyer Guarantor; or (vi) any other occurrence or circumstances whatsoever similar to the foregoing.

(c)     The guaranty of Buyer Guarantor hereunder is a guaranty of both performance and payment when due, and not of collection.

(c)     Seller may resort to or proceed against Guarantor for performance or payment of any guaranteed obligations hereunder whether or not Seller shall have proceed against Buyer or any other obligor primarily or secondarily obligated with respect to any of such obligations or shall have pursued any other remedy.

(d)     Buyer Guarantor hereby expressly waives (i) notice of the acceptance by Seller of the guaranty of Buyer Guarantor hereunder; (ii) notice of the existence, creation, release, compromise, extension, alteration, modification, non-performance, or non-payment of any or all of the guaranteed obligations hereunder; (iii) presentment, demand, notice of dishonor, protest, and all other notices whatsoever; and (iv) all diligence in collection of or realization upon any payments on, or assurance of performance of, any of the guaranteed obligations hereunder, or in collection on, realization upon, or protection of any security for, or guaranty of, any of the guaranteed obligations hereunder.

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[SIGNATURE PAGE FOLLOWS]

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Buyer, Buyer Guarantor and Seller have executed this Agreement as of the date first written above.

  SELLER
   
  Newmont USA Limited
       
       
  By:   "David R. Faley" (signed)
    Name:   David R. Faley
    Title:   Vice- President
       
  BUYER
  Klondex Holdings (USA) Inc.
       
  By:   "Paul Huet" (signed)
    Name:   Paul Huet
    Title:   President
       
  BUYER GUARANTOR
   
  Klondex Mines Ltd.
       
  By:   "Paul Huet" (signed)
    Name:   Paul Huet
    Title:   President and C.E.O.

Signature Page – Stock Purchase Agreement



EMPLOYMENT AGREEMENT

THIS AGREEMENT, made effective as of March 1, 2015, is between KLONDEX GOLD & SILVER MINING COMPANY , a corporation duly organized under the laws of Nevada with offices at 360 Western Road, Suite 1, Reno, Nevada 89506 (" Klondex G&S " or the " Company ") and Barry Dahl, residing at [ REDACTED ], (the " Employee "). This Agreement replaces and supersedes the amended and restated employment agreement between Employee, Klondex G&S and Klondex Mines Ltd. (" Klondex Mines "), a corporation duly organized and existing under the laws of British Columbia, dated effective as of October 11, 2013.

WHEREAS:

A.     Klondex G&S is a wholly owned subsidiary of Klondex Mines, a reporting issuer in Canada listed on the Toronto Stock Exchange (the " TSX ") with operations in Vancouver, British Columbia, Reno, Nevada, Winnemucca, Nevada and Elko, Nevada;

B.     substantially all of Klondex Mines's operations are conducted through Klondex Holdings (USA) Inc., Klondex G&S, Klondex Midas Holdings Limited and Klondex Midas Operations Inc. (each such entity, including Klondex Mines, but other than Klondex G&S, an " Affiliate ");

C.     Klondex G&S desires to employ Employee and Employee desires to be employed by Klondex G&S pursuant to the terms and conditions of this Agreement;

THEREFORE , the parties, in consideration of the promises and the mutual covenants and agreements contained herein, mutually agree and covenant as follows:

SECTION 1. EMPLOYMENT AND WORK DUTIES

1.1

Employment

Klondex G&S agrees to employ Employee and Employee agrees to be employed by Klondex G&S to provide such management services as requested by Klondex G&S. Employee understands that as an employee of Klondex G&S, he may be required to provide management services to an Affiliate, including, but not limited to, services as chief financial officer to Klondex Mines, if requested by Klondex G&S in fulfillment of Klondex G&S's obligations under applicable administrative and technical services agreements.

1.2

Duties

Subject to the terms and conditions of this Agreement, the Employee shall report to the President of Klondex G&S (the " President "). The Employee shall continue to perform such duties and responsibilities and exercise such powers as may from time to time be reasonably assigned to the Employee by the President.


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1.3

Location

The Employee shall work from the Klondex G&S office in Reno, Nevada but also will have a presence at the mine sites (or office locations) of Klondex Mines and Affiliates, as reasonably may be requested by Klondex G&S, and occasional presence in Vancouver, and/or Toronto to attend meetings.

SECTION 2. COMPENSATION AND BENEFITS (IN US$)

2.1

Base Salary and Other Compensation

Subject to the other terms and conditions of this Agreement, Klondex G&S shall pay to the Employee a base salary of US$220,000 per annum (the " Base Salary "), less required and authorized deductions and withholdings, paid to the Employee in equal bimonthly (twice a month) payments in arrears, and pro-rated for any partial month of employment. The Base Salary will be reviewed by the President from time to time.

Klondex G&S shall pay to the Employee an amount equal to the employee cost of family coverage under the Anthem Medical, Anthem Dental and EyeMed Vision Plans (or any plans which replace these plans), on an after tax basis, regardless of whether or not the Employee has elected such coverage (the " Other Compensation "). The Other Compensation will be reviewed by the President from time to time.

2.2

Annual Bonus

The Employee shall be eligible for a target annual bonus of 50% of the Employee's annual Base Salary, less required and authorized deductions and withholdings, subject to achieving corporate and personal targets to be mutually agreed upon in writing at the beginning of each calendar year with the President. It is a term and condition of eligibility for the payment of any bonus payment that the Employee be employed by Klondex G&S or an Affiliate on the last day of the fiscal year in respect of which the annual bonus is payable. The Employee shall not be deemed to be employed following the date the Employee ceases to be actively employed by Klondex G&S and all Affiliates, and for greater certainty, in the event of the termination of the Employee's employment without just cause, such date shall be as specified in the notice of termination from Klondex G&S (and shall not include or be deemed to include any period of notice of termination to which the Employee may be entitled under this Agreement, statute, common law or otherwise). If the Employee is eligible to receive a bonus, any such bonus generally will be paid within 90 days following the approval of the annual financial statements for the fiscal year, provided that in all cases such payment will occur during the calendar year following the last day of the fiscal year in which the services giving rise to the bonus are performed.


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2.3

Group Benefits

During the term of this Agreement, the Employee shall be entitled to participate in any group insurance, supplemental health insurance, qualified pension, 401(k), hospitalization, medical health and accident, disability, life, or similar plan or program of Klondex G&S or an Affiliate now existing or hereafter established covering employees of Klondex G&S in both Canada and the United States, subject to the terms and conditions of such plans, Any claim or dispute relating to a decision made by the group benefits insurer will be with and directed to the insurer only, and will not form the basis for any dispute or liability as between Klondex G&S or an Affiliate and the Employee. Notwithstanding anything herein to the contrary, however, Klondex G&S or an Affiliate sponsoring such plan may at any time and from time to time modify, suspend, or discontinue any or all such benefit plans for its employees generally or for any group thereof at its sole discretion, without any obligation to replace such modified, suspended or discontinued benefit with any other benefit, equivalent or otherwise, or to otherwise compensate the Employee in respect thereof.

2.4

Vacation and Holidays

In addition to any statutory and other holidays observed by Klondex G&S, during the term of this Agreement, the Employee shall be entitled to paid vacation of four (4) weeks during each calendar year, pro-rated for any partial calendar years. Such vacation shall be taken at a time or times acceptable to Klondex G&S having regard to its operations. The vacation will be subject to the Vacation Policy contained in the Employee Handbook of Klondex G&S.

2.5

Equity Incentive Plans

The Employee shall be eligible to participate in any equity incentive plan made available to senior management of Klondex G&S, including any such plans sponsored by Klondex Mines, in accordance with the terms and conditions of such plan(s) as may be amended from time to time. Annual equity incentive grants will be made following the Annual Meeting of Klondex Mines in or around June annually.

SECTION 3. EXPENSES

3.1

Travel Expense

The Employee will be reimbursed for all reasonable and documented travel and other reasonable and documented out-of-pocket expenses actually, exclusively, necessarily, and properly incurred by the Employee in connection with the performance of his duties and functions, subject to the policies of Klondex G&S in effect from time to time and the Employee first providing receipts or vouchers to Klondex G&S and reasonable particulars of such expenses within sixty (60) days after the date the expenses are incurred. If such expense qualifies hereunder for reimbursement, then Klondex G&S will reimburse the Employee for that expense within thirty (30) days thereafter. Each reimbursement must be made no later than the end of the calendar year following the calendar year in which the expense was incurred. The amount of reimbursements in any calendar year shall not affect the expenses eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.


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3.2

Professional Development

The parties acknowledge that it will benefit if the Employee holds and improves his professional qualifications and engages in professional and trade organizations. Accordingly, subject to prior approval by the President, Klondex G&S will pay or reimburse the Employee for the costs and fees of business and professional organization memberships reasonably intended to improve the Employee's professional qualifications or the visibility and/or reputation of Klondex G&S and Affiliates within the business community. The Employee must provide receipts or vouchers to Klondex G&S for such costs and fees within sixty (60) days after the later of (i) the Employee's incurrence of such cost and fees; and (ii) the Employee's receipt of the invoice for such cost and fees. Klondex G&S will reimburse the Employee for such costs and fees within thirty (30) days thereafter. In no event will any such payment or reimbursement be made later than the end of the calendar year following the calendar year in which the cost and fees were incurred. The amount of such reimbursements in any calendar year shall not affect the costs and fees eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.

3.3

Professional Insurance

Klondex G&S will maintain, or cause Klondex Mines to maintain, adequate Directors & Officers Liability Insurance to properly protect the Employee against loss. Klondex G&S and Klondex Mines will be directly responsible for all legal fees and other expenses for actions brought against the Employee provided that (i) the Employee had reasonable grounds for believing he acted honestly and in good faith with a view to the best interests of Klondex G&S and Affiliates and, (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

3.4

Non-US Income Taxes

Klondex G&S has a tax equalization policy and the Employee will be subject to such tax equalization policy, which is intended to reduce the potential for double taxation.

SECTION 4. EMPLOYEE COVENANTS

4.1

Employee's Services

The Employee hereby covenants and agrees that:

  (a)

the Employee shall, in the exercise of the Employee's duties, at all times follow the policies of Klondex G&S (and the policies of Affiliates, to the extent applicable) and the lawful instructions given and any regulations made by the Board of Directors of Klondex G&S (and the Board of Directors of Klondex Mines, to the extent applicable) and will, from time to time, and at all times when required to do so, give an account of Employee's activities to the President with respect to all transactions, matters and things relating to Klondex G&S and Affiliates; and

     
  (b)

the Employee shall, for the term of this Agreement, unless prevented by illness:



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  (i)

devote the Employee's whole time and attention to the Employee's duties in the Employee's position and provide Klondex G&S (and Affiliates, to the extent applicable) with the full benefit of the Employee's knowledge, expertise, skill, experience and ingenuity with respect to the business and affairs of Klondex G&S and Affiliates, except to the extent that the parties agree in writing that the Employee may work or provide services for remuneration to another entity, including serving on the board of directors or as an officer of other public or private companies, provided that such activities do not unduly interfere with the Employee's obligations to Klondex G&S and Affiliates;

     
  (ii)

do his utmost to promote, develop and extend the business of Klondex G&S and Affiliates, during the term of this Agreement, communicate and channel to Klondex G&S and/or Affiliates all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the business of Klondex G&S and Affiliates. Any such information thus communicated to Klondex G&S and Affiliates will be and remain the property of Klondex G&S and/or Affiliates notwithstanding any subsequent termination of the Employee's employment; and

     
  (iii)

exercise the degree of care, diligence and skill that a prudent senior officer would exercise in comparable circumstances.


4.2

Non-Solicitation

The Employee recognizes that he will obtain access to or obtain confidential information about other employees or consultants of Klondex G&S, Affiliates or other entities that may become affiliated with Klondex G&S or Klondex Mines in the future (" Related Entities "), including information about their education, experience, skills, ability, salary and benefits and relationships with customers, shareholders and suppliers of Klondex G&S, Affiliates and Related Entities. The Employee further recognizes that such information is not generally known, is of substantial value to Klondex G&S, Affiliates and Related Entities in securing and retaining customers, shareholders and suppliers, and will be acquired by the Employee because of his employment. Accordingly, the Employee shall not, during his employment and for twelve (12) months following the cessation of the Employee's employment with Klondex G&S, directly or indirectly, on his own behalf or on behalf of any other person, hire, solicit or induce any person who is, or was within six (6) months prior to any attempted hiring, solicitation or inducement, employed or engaged by Klondex G&S, an Affiliate or a Related Entity to leave such employment or engagement or enter into employment or engagement with any other person or entity.

4.3

Non-Competition

The Employee shall not, at any time during the term of this Agreement and for a period of six (6) months following the termination of this Agreement and/or the Employee's employment with Klondex G&S, for any reason, either directly or indirectly, individually or in partnership or jointly or in association with any person as principal, agent, consultant, employee, investor, shareholder (other than an investment of less than two (2) per cent of the shares of a company traded on a registered stock exchange) or in any other manner whatsoever, be employed or engaged by, advise, carry on or be interested in any person or entity that is involved in the business of mineral exploration in any area within two hundred (200) kilometers of any property Klondex G&S, an Affiliate or a Related Entity, in whole or part, owned or leased during the time the Employee was employed by Klondex G&S.


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4.4

Confidentiality


  (a)

In this Agreement, " Confidential Information " means confidential or proprietary information or material relating to the operations, personnel or business of Klondex G&S, Affiliates and Related Parties which the Employee obtains from Klondex G&S, an Affiliate or a Related Entity or from the officers, employees or agents of Klondex G&S, an Affiliate or a Related Entity, or otherwise by virtue of his employment by Klondex G&S, including, without limitation, corporate information, including plans, strategies, tactics, policies, resolutions, and any information regarding existing or contemplated litigation or negotiations; financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings; operational and scientific information, including trade secrets; technical information, technical drawings and designs, drill results, mine plans, pit designs and reserve and resource estimates; and personnel information, including personnel lists, staff compensation, resumes, personnel data, organizational structure and performance evaluations.

     
  (b)

In the course of carrying out and performing his/her duties and responsibilities to Klondex G&S (and for Affiliates with respect to services Employee provides to them as an employee of Klondex G&S) pursuant to this Agreement, the Employee will obtain access to and be entrusted with Confidential Information. Except as authorized by the Board of Directors of Klondex G&S or required by law, the Employee shall, during and after his employment:


  (i)

keep the Confidential Information in strict confidence and shall not copy or reproduce the Confidential Information except in the proper course of the Employee's employment and for the benefit of Klondex G&S;

     
  (ii)

not use the Confidential Information for his own account or to the detriment of Klondex G&S, an Affiliate or a Related Entity or their lenders; and

     
  (iii)

not directly or indirectly disclose, allow access to or transfer the Confidential Information to any third party (other than Klondex G&S or its directors, officers, bankers, lenders and financial advisors in the course of his employment or at the express direction of the Board of Directors of Klondex G&S).



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4.5

Remedy

The parties acknowledge and agree that provisions of Sections 4.1, 4.2, 4.3 and 4.4 are reasonable in the circumstances and that a breach by the Employee of any such provisions would cause irreparable harm to Klondex G&S, Affiliates and Related Entities, which could not be adequately compensated for by damages; and in the event of a breach of the said provisions by the Employee, the Employee consents to an injunction being issued restraining the Employee from any further breach thereof, but the provisions herein shall not be construed so as to be in derogation of any other remedy which Klondex G&S may have in the event of such a breach.

SECTION 5. TERMINATION OF EMPLOYMENT

5.1

Termination Date

In this Agreement, " Termination Date " means the date on which the Employee ceases to actively perform services for Klondex G&S.

5.2

Voluntary Resignation

If the Employee wishes to resign the Employee's employment voluntarily, the Employee shall provide sixty (60) days' notice in writing to Klondex G&S (the " Resignation Period "). Klondex G&S may, in its sole discretion, waive the Resignation Period in whole or in part by paying the Employee's Base Salary and continuing the Employee's group benefits coverage to the effective date of resignation. The Employee agrees that such waiver will not constitute termination of the Employee's employment by Klondex G&S. In the event of the Employee's voluntary resignation, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options he holds with respect to shares of Klondex Mines (or any successor entity) that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.2 or as required by law, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

5.3

Termination with Cause


  (a)

Klondex G&S may terminate the Employee's employment and this Agreement at any time without notice for just cause. For the purposes of this Agreement, " just cause " means:

       
  (i)

the non-performance, breach or default by the Employee of or under any of his covenants in this Agreement;

       
  (ii)

the failure by Employee to substantially perform Employee's duties with Klondex G&S (other than any such failure resulting from the Employee's disability as defined under the disability plans or programs as in effect for employees of Klondex G&S from time to time) after a written demand for substantial performance is delivered to the Employee that specifically identifies the manner in which Klondex G&S believes that the Employee has not substantially performed the Employee's duties, and the Employee has failed to resume on a continuous basis substantial performance of the Employee's duties (as determined by Klondex G&S) within 30 days of such written demand;



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  (iii)

Employee's disregard of or failure to comply with any lawful directive or instruction, written or otherwise, from the Board of Directors of Klondex G&S or any other person to whom Employee reports if such failure or disregard has a material adverse effect upon Klondex G&S or Affiliates;

     
  (iv)

negligence by Employee which causes, or which would reasonably be expected to cause, Klondex G&S or Affiliates material harm;

     
  (v)

Employee's material violation of applicable state, provincial or federal law relating to the business of Klondex G&S and Affiliates;

     
  (vi)

Employee's commission during the course of employment of any act of dishonesty, theft, fraud, embezzlement. misappropriation, assault, battery, malicious destruction of property, arson, sabotage, harassment, acts or omissions which violate the rules or policies (such as breaches of confidentiality) of Klondex G&S (or an Affiliate, to the extent applicable), or other conduct which demonstrates a disregard of the interests of Klondex G&S and Affiliates (regardless of whether the misconduct occurs on the premises of Klondex G&S); or

     
  (vii)

Employee's conviction of a crime (including, without limitation, a misdemeanor offense) which impairs Employee's ability substantially to perform Employee's duties under this Agreement.


  (b)

If the Employee's employment and this Agreement are terminated under this section, the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary and vacation pay, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date. All unexercised stock options, whether vested or unvested, in Klondex Mines held by the Employee shall be forfeited without any consideration or damages of any kind on the Termination Date.


5.4

Termination without Cause

     
(a)

If the Employee experiences an involuntary termination of employment by Klondex G&S (or any successor) for any reason other than for just cause, then Klondex G&S (or its successor) shall provide the Employee with written notice specifying the Termination Date. Klondex G&S shall pay the Employee for all accrued but unpaid wages and vacation entitlements up to the Termination Date (net of applicable withholdings). In addition, provided that the Release under Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, Klondex G&S shall provide to the Employee a lump sum separation payment, net of applicable withholdings and less any amounts owing by the Employee to Klondex G&S, (the " Separation Payment ") equal to:



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  (i)

the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's date of hire on November 15, 2013 (the “Employee’s Date of Hire” ), an additional amount equal to one month's base salary will be added; plus

     
  (ii)

the monthly premium cost of coverage described in Section 2.3 multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire an additional amount equal to one month's premium cost will be added; plus

     
  (iii)

an amount equal to the Employee's then current target bonus amount pursuant to Section 2.2 for the year in which the Termination Date occurs (or if the target bonus amount for the year in which the Termination Date occurs has not been determined as of the Termination Date, the target bonus amount for the year prior to the Termination Date) plus an additional amount equal to 1/12th of such bonus amount for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire; plus

     
  (iv)

An amount equal to 4% of the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire, an additional amount equal to 4% of one month's base salary will be added.

For greater certainty, in no circumstances shall the Employee be entitled to a Separation Payment that is more than the equivalent of a total of 18 months of the payments in paragraphs 5.4(a)(i),(ii),(iii) and (iv) above (i.e., 12 months plus an additional month for each of the first six years of completed of service from Employee's Date of Hire, up to a maximum of an additional 6 months). With respect to the calculation in paragraph 5.4(a)(iii), the target annual bonus amount shall be used without regard to the achievement of any corporate and personal targets established in connection with such target bonus amount.

  (b)

The Separation Payment described in this Section 5.4 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), unless the Employee has failed to execute a Release as described in Section 5.4(c), in which case Employee shall forfeit any Separation Payment. The Separation Payment is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and therefore will be paid by March 15 th of the calendar year following the calendar year in which the notice of termination is given, provided that if the notice of termination specifies a termination date that will occur in a subsequent calendar year and further specifies that the Employee is required to continue providing service through that later termination date, then such payment will be paid by March 15 th of the calendar year following the Employee's termination date (such date, in either case, referred to herein as the "latest payment date").



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  (c)

In order for the Employee to receive the Separation Payment, the Employee must sign a release of claims ("Release") in substantially the form set forth in Attachment A to this Agreement on or prior to the date of the expiration of the consideration period (not less than 21 days) set forth in the Release. The Company agrees to provide the Employee with the Release within 10 days of the Termination Date, and in all cases no later than a date such that the last day of any revocation period described in the Release will occur on or before February 28 of the year in which the latest payment date occurs. If the Employee fails to sign the release within the time frame specified therein, the Employee will forfeit any right to the Separation Pay and the Employee shall not be entitled to any payments replacing the Separation Payment.

     
  (d)

In the event the Company terminates the Agreement and the Employee's employment under this section, all outstanding equity awards granted under compensatory plans shall vest 100%; provided however, if an outstanding equity award is subject to Section 409A, the acceleration of vesting will not change the time or form of payment in a manner that would violate Section 409A; if an outstanding equity award is exempt from Section 409A, the award will be administered in a manner that retains such exemption or otherwise complies with Section 409A.

     
  (e)

In the event the Company terminates the Agreement and the Employee's employment under this section, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options to acquire shares of Klondex Mines (or any successor) that he holds that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.4 or as otherwise provided under minimum employment standards legislation, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

     
  (f)

The Separation Payment is attributable to services performed in the United States.


5.5

Termination in the Event of a Change of Control


  (a)

For the purposes of this Agreement, a " Change of Control " means:



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  (i)

the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Klondex Mines to any person or entity or group of persons or entities, but not including the entering into of an option, joint venture or other arrangement whereby Klondex Mines transfers, or has the right to transfer, an interest in its mineral properties yet maintains control, majority ownership or an operating interest in the mineral properties, resulting entity or new arrangement;

     
  (ii)

the amalgamation, merger or arrangement of Klondex Mines with or into another entity where the shareholders of Klondex Mines immediately prior to the transaction will hold less than 50% of the voting securities of the resulting entity upon completion of the transaction;

     
  (iii)

any person or combination of persons acting jointly or in concert, acquiring or becoming the beneficial owner of, directly or indirectly, of more than 50% of the voting securities of Klondex Mines whether through the acquisition of previously issued and outstanding voting securities of Klondex Mines or of voting securities of Klondex Mines that have not previously been issued or any combination thereof or any other transaction with similar effect; or

     
  (iv)

the Board of Directors of Klondex Mines adopting a resolution to the effect that, for purposes of the Agreement, a Change of Control has occurred, or that such a Change of Control is imminent, in which case, the date of the Change of Control shall be deemed to be the date of such resolution.


  (b)

For the purposes of this Agreement, " Good Reason " means the continued occurrence of any of the following conditions without Employee's consent after the Employee has given Klondex G&S written notice of such condition within thirty days following the initial existence of the condition, and Klondex G&S has failed to cure such condition within 30 days of the date it received notice of the condition:


  (i)

Klondex G&S assigning to the Employee duties materially inconsistent with the Employee's duties and responsibilities under this Agreement, including those management duties performed by Employee, as an employee of Klondex G&S, for Klondex Mines or an Affiliate;

     
  (ii)

a unilateral reduction by Klondex G&S of the Employee's Base Salary, or any unilateral change in the basis upon which the Employee's Base Salary is determined or paid if the change is or will be materially adverse to the Employee, except where (x) such reduction or change is part of a general reduction in the base salary of all or substantially all of the members of management of Klondex G&S and which affects the Employee in substantially the same manner as the other members of the management of Klondex G&S who are also affected by such general reduction and (y) such change does not constitute more than ten percent (10%) of the Employee's Base Salary;



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  (iii)

Klondex G&S unilaterally relocating the Employee's principal location more than 100 miles from the Employee's current work location ( i.e., Klondex G&S's Reno, Nevada office); or

     
  (iv)

any material breach by Klondex G&S of any provision of this Agreement, which is not cured by Klondex G&S within thirty (30) days following written notice from the Employee.


  (c)

Notwithstanding Section 5.4, if, within one hundred and eighty (180) days following a Change of Control, the Employee experiences an involuntary termination of employment by Klondex G&S or any successor entity without just cause or if the Employee terminates employment for Good Reason, provided that a Release as described in Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, then:


  (i)

all unvested stock options to acquire shares of Klondex Mines (or any successor) held by the Employee shall immediately vest on the Termination Date and the Employee shall have one (1) year after the date of the Change of Control to exercise the vested stock options;

     
  (ii)

Klondex G&S shall provide the Employee with a lump-sum payment equal to the Separation Payment the Employee would have received under Sections 5.4(a);

     
  (iii)

the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date; and

     
  (iv)

The lump sum payment described in this Section 5.5 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), and in all cases by March 15 th of the calendar year following the calendar year in which the Employee's Termination Date occurs (in the case of an involuntary termination by the Company) or the calendar year in which the Employee's notice to the Company of termination for Good Reason occurs (in the case of Employee's termination for Good Reason).

For greater certainty, if the Employee's employment is terminated without Cause one hundred and eighty-one (181) days or more after the Change of Control the Employee's entitlements will be as per Section 5.4 above.


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  (d)

The lump sum payment is attributable to services performed in the United States.


5.6

Return of Property

In the event that the Employee's employment terminates for any reason, the Employee agrees to deliver to a nominated employee of Klondex G&S on the Termination Date all property of Klondex G&S and Affiliates and Related Entities, and other property for which Klondex G&S is liable to others, in the Employee's possession, charge or control (and any copies thereof) wherever situated including, without limiting the generality of the foregoing, any Confidential Information and all notes, memoranda and other documents concerning any of the business, personnel or affairs of Klondex G&S, Affiliates and Related Entities, whether in written or electronic form, all books, effects, money, securities, keys, pass cards, credit cards, laptops or vehicles.

5.7

Stock Options

Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement shall extend the term of any stock option past the expiration date of the option in accordance with the terms of such option agreement and/or option plan governing such option.

SECTION 6. MISCELLANEOUS

6.1

Headings

The headings of the Sections and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof.

6.2

Applicable Law

This Agreement will be governed by and be construed in accordance with the Laws of the State of Nevada. Venue for any action brought by the parties to this Agreement will be in the courts of the State of Nevada.

6.3

Arbitration

The parties agree that any dispute relating to the terms of this Agreement or the Employee's employment with Klondex G&S will be determined by arbitration in accordance with the then-current JAMS employment arbitration rules and procedures, except as modified herein. The arbitration will be conducted by a sole neutral arbitrator who has had both training and experience as an arbitrator of general employment and commercial matters and who is and for at least ten (10) years has been, a partner, a shareholder, or a member in a law firm. If Klondex G&S and Employee cannot agree on an arbitrator, then the arbitrator will be selected by JAMS in accordance with Rule 15 of the JAMS employment arbitration rules and procedures. No person who has served as a mediator under the mediation provision, however, may be selected as the arbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide any issue as to discovery. The arbitrator may decide any issue as to whether or as to the extent to which any dispute is subject to the dispute resolution provisions in this Agreement and the arbitrator may award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of this Section 6.3 and applicable law and must render the award in writing, including an explanation of the reasons for the award. Judgment upon the award may be entered by any court having jurisdiction of the matter, and the decision of the arbitrator will be final and binding. The statute of limitations applicable to the commencement of a lawsuit will apply to the commencement of an arbitration under this Section. The arbitrator's fees will be paid in equal portions by Klondex G&S and Employee, unless Klondex G&S agrees to pay all such fees.


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6.4

Severability

Each provision of this Agreement is intended to be severable; if any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal, void or invalid for any reason whatsoever, such provision shall be severed from this Agreement and the remaining terms and provisions shall remain in full force and effect.

6.5

Survivability

The provisions of Section 4, Section 5 and Section 6.3 shall survive the termination of this Agreement.

6.6

Pre-Contractual Representations

The Employee hereby waives any right to assert any claim based on any pre-contractual representations, negligent or otherwise, made by Klondex G&S, Klondex Mines or any Affiliates.

6.7

Assignability

This Agreement may not be assigned by the Employee. Without in any way limiting the rights of Klondex G&S to assign this Agreement, it is expressly understood and agreed that Klondex G&S shall have the right to assign this Agreement to any other entity to which the business of Klondex G&S is transferred, in whole or in part, which thereafter carries on the business of Klondex G&S.

6.8

Successors

This Agreement and all rights of the Employee hereunder will be binding upon and shall enure to the benefit and be binding upon Klondex G&S and its successors and assigns and the Employee and his heirs, representatives and administrators.

6.9

Waiver of Breach

The waiver by either the Employee or Klondex G&S of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that party.


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6.10

Modification of Agreement

Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void.

6.11

Entire Agreement

This Agreement reflects the entire agreement of the parties and supersedes and replaces all prior letters of intent, agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, between all or any of the parties with respect to the subject matter of this Agreement, including without limitation, the amended and restated employment agreement between Employee, Klondex G&S and Klondex Mines effective as of October 11, 2013. The recitals and any schedules form a part of and are incorporated by reference into this Agreement.

6.12

Further Acts

The Employee agrees that on the request of Klondex G&S, he will execute, acknowledge, perform and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the better carrying out and performance of the terms of this Agreement.

6.13

Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

6.14

Independent Legal Advice

The Employee acknowledges that this Agreement has been prepared by Klondex G&S and that he has had sufficient time to review this Agreement thoroughly, that he has read and understood the terms of this Agreement and that he has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.

6.15

Compliance with Section 409A of the Internal Revenue Code

Payments and benefits provided under this Agreement as a result of Employee's termination of employment are intended to fall within the exception in U.S. Treasury Regulation 1.409A -1(b)(4) for short term deferrals or other applicable exceptions and will be interpreted and administered accordingly. However, to the extent that any payment under this Agreement is subject to Section 409A of the Code, it is intended to comply with Section 409A and this Agreement shall be interpreted and construed accordingly and in a manner that avoids the imposition of taxes and other penalties under Section 409A (such taxes and other penalties referred to collectively as "409A Penalties"). In the event that Klondex G&S determines that the terms of this Agreement would subject the Employee to 409A Penalties, Klondex G&S and the Employee shall cooperate diligently to amend the terms of this Agreement to avoid such 409A Penalties, to the extent possible; provided , however , that this Section 6.15 shall not create any obligation on the part of Klondex G&S to adopt any such amendment or take any such other action. All references in this Agreement to the Employee's termination of employment shall mean a "separation from service" within the meaning of Section 409A of the Code, to the extent required to comply with Section 409A of the Code. Any payment that is "deferred compensation" within the meaning of and subject to Section 409A of the Code that becomes payable as a result of the Employee's separation from service and that is conditioned upon the Employee's execution of a Release will be paid within 90 days following the Employee's separation from service and if such period begins in one taxable year and carries over into a second taxable year, payment shall be made in the second taxable year, and in no event shall the Employee have the ability to influence the year in which payment will occur. Notwithstanding any other provision in this Agreement, if on the date of the Employee's "separation from service" the Employee is a "specified employee," as defined in Section 409A of the Code, then to the extent any amount payable under this Agreement upon the Employee's separation from service would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such payment shall be delayed until the earlier to occur of (x) the first day of the seventh month following the Employee's separation from service or (y) the date of the Employee's death.


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6.16

Taxes; Parachute Payment


  (a)

Withholding. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as Klondex G&S may reasonably determine should be withheld pursuant to any applicable law or regulation.

     
  (b)

Parachute Payment. Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by Klondex G&S to or for the Employee's benefit (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a "Parachute Payment"), would result in an "excess parachute payment" within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Parachute Payments, net of all taxes imposed on the Employee (the "Net After-Tax Amount") that the Employee would receive would be increased if the Parachute Payments were reduced, then the Parachute Payments shall be reduced by an amount (the "Reduction Amount") so that the Net After-Tax Amount after such reduction is greatest. For purposes of determining the Net After-Tax Amount, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Parachute Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Parachute Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Subject to the provisions of this Section 6.16, all determinations required to be made under this Section 6.16, including the Net After-Tax Amount, the Reduction Amount and the Parachute Payments that are to be reduced pursuant to this Section 6.16 and the assumptions to be utilized in arriving at such determinations, shall be made by independent public accounting firm selected by Employee (the "Accounting Firm"), which shall provide detailed supporting calculations both to Klondex G&S and the Employee within fifteen (15) business days of the receipt of notice from the Employee that there has been a Parachute Payment, or such earlier time as is requested by the Employee. The Accounting Firm's decision as to which Parachute Payments are to be reduced shall be made (a) only from Parachute Payments that the Accounting Firm determines reasonably may be characterized as "parachute payments" under Section 280G of the Code; (b) only from Parachute Payments that are required to be made in cash; (c) only with respect to any amounts that are not payable pursuant to a "nonqualified deferred compensation plan" subject to Section 409A of the Code, until those payments have been reduced to zero; and (d) in reverse chronological order, to the extent that any Parachute Payments subject to reduction are made over time (e.g., in installments). In no event, however, shall any Parachute Payments be reduced if and to the extent such reduction would cause a violation of Section 409A of the Code or other applicable law. All fees and expenses of the Accounting Firm shall be borne solely by Klondex G&S. Any determination by the Accounting Firm shall be binding upon Klondex G&S and the Employee.



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6.17

Copy of Agreement

The Employee hereby acknowledges receipt of a copy of this Agreement duly executed by Klondex G&S.

[Remainder of page intentionally left blank. Signature page follows.]

 

 


IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on January 27, 2016.

KLONDEX GOLD & SILVER MINING COMPANY

PAUL HUET, President

ACCEPTED:

/s/ Barry Dahl   /s/ Carl Artinger
BARRY DAHL   Witness Signature
     
January 27, 2016   Carl Artinger
Date Signed   Witness Name
     
     
    [REDACTED]
    Witness Address


ATTACHMENT A

RELEASE OF CLAIMS

This Agreement and General Release of all Claims (this " Release ") is entered into by _________________ (the " Employee ") and Klondex Gold & Silver Mining Co. (the "Company"), effective as of ___________________. In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the " Employment Agreement "), the Employee and the Company agree as set forth in this Release. Capitalized terms not defined in this Release shall have the meaning ascribed to them in the Employment Agreement.

The form of this Release is being provided to the Employee on _______________, 20__ and the Employee will have ________ days from such date [a minimum of 21 days must be given] to consider whether to sign this Release (the "Consideration Period") and return it to the Company. If this Release is not executed and delivered to the Company by __________________, 20__, or if so delivered by the Employee but it is nevertheless revoked by the Employee within the applicable Revocation Period, then the Employee will forfeit all rights to any Separation Payment and other benefits to which the Employee may otherwise have been entitled pursuant to Section 5.4 or Section 5.5 of the Employment Agreement . The Employee may choose to sign and deliver this Release to the Company before the end of the Consideration Period. The Employee will have ____ days [must be at least 7 days and could be longer depending on employee's age and other factors. Consult U.S. counsel before completing this section] following the date of delivery to the Company of the executed Release to revoke the Release (the "Revocation Period") by delivery to the Company of written notice of such revocation within such Revocation Period.

In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the "Employment Agreement"), the Employee and the Company agree as follows:

1.     Return of Property . All files, access keys, desk keys, ID badges, computers, electronic devices, telephones and credit cards, and such other property of the Company, Affiliates and Related Parties as the Company may reasonably request, in the Employee's possession must be returned no later than the date of the Employee's termination from the Company.


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2.     General Release and Waiver of Claims .

(a)     Release . In consideration of the payments and benefits provided to the Employee under the Employment Agreement and after consultation with counsel, the Employee, his marital community, and each of the Employee's respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the " Releasors ") hereby irrevocably and unconditionally release and forever discharge the Company, Affiliates and Related Parties and each of their respective officers, employees, directors, shareholders and agents (" Releasees ") from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, " Claims "), including, without limitation, any Claims under any federal, state, local, provincial or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) the Employee's employment relationship with and service as an employee, officer or director of the Company, Affiliates of Related Parties, and the termination of such relationship or service, and (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that the Employee does not release, discharge or waive (i) the Employee's rights to payments and benefits provided under the Employment Agreement that are contingent upon the execution by the Employee of this Release, or rights to enforce the performance by the Company of its obligations under the Employment Agreement, (ii) any employee benefits payable pursuant to the terms of the applicable plans of the Company or any of its affiliates, which benefits shall be paid or provided in accordance with the terms of such plans, or (iii) any right of indemnification or contribution that the Employee may have under the organizational documents of the Company or from any other source, including, any directors' or officers' insurance policy maintained by the Company.

(b)     Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to the Employee under the Employment Agreement, the Releasors hereby unconditionally release and forever discharge the Releasees from any and all Claims that the Releasors may have as of the date the Employee signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (" ADEA "). By signing this Release, the Employee hereby acknowledges and confirms the following: (i) the Employee was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to the Employee the terms of this Release, including, without limitation, the terms relating to the Employee's release of claims arising under; (ii) the Employee was given a period of not fewer than [21]/[45] days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) the Employee knowingly and voluntarily accepts the terms of this Release; [and (iv) in accordance with the requirements of ADEA regarding an "employment termination program", the Employee was provided with the information appended hereto as Schedule 1]. The Employee also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph.


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(c)     No Assignment . The Employee represents and warrants that he has not assigned any of the Claims being released under this Release.

3.     Proceedings . The Employee has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Releasees before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Employee under the Employment Agreement (each, individually, a " Proceeding "), and agrees not to participate voluntarily in any Proceeding. The Employee waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.

4.     Remedies . In the event the Employee initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Release or his post-termination obligations contained in the Employment Agreement, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein. The Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Employee acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Employee from breaching his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

The Employee understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.

5.     Survival of Certain Terms of Employment Agreement . The Employee acknowledges and affirms that the Employee has previously executed the Employment Agreement (Attached hereto as Attachment A), and that the terms and conditions of the Employment Agreement that survive the employment relationship, including but not limited to the Employee's continuing confidentiality, non-competition and non-solicitation obligations, survive and are not affected by this Release.

6.     Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

7.     EEOC . Nothing in this Agreement shall be construed to prohibit the Employee from filing a charge or complaint, including a challenge to the validity of the waiver provision of this Agreement, with the Equal Employment Opportunity Commission. However, Employee has waived any right to monetary relief.


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8.     Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company.

9.     Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed in that State.

10.    Arbitration . Any dispute or controversy arising under or in connection with this Release or otherwise in connection with the Employee's employment by the Company that cannot be mutually resolved by the parties to this Release and their respective advisors and representatives shall be settled exclusively by arbitration in accordance with the provisions of Section 6.3 of the Employment Agreement.

11.     Counterparts . This Release may be executed via facsimile or electronic mail and in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument, binding on the parties.

12.     Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:

____________________

____________________
Attn : _______________

To the Employee:

The address most recently on file in the payroll records of the Company.

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission.

[Signature Page Follows]


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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.

Klondex Gold & Silver Mining Co.

By:  
   
Its:  

Employee:

   
Name:  
   
Address:  
   
Date:  



EMPLOYMENT AGREEMENT

THIS AGREEMENT, made effective as of March 1, 2015, is between KLONDEX GOLD & SILVER MINING COMPANY , a corporation duly organized under the laws of Nevada with offices at 360 Western Road, Suite 1, Reno, Nevada 89506 (" Klondex G&S " or the " Company ") and Paul Huet, residing at [ REDACTED ], (the " Employee "). This Agreement replaces and supersedes the employment agreement between Employee, Klondex G&S and Klondex Mines Ltd. (" Klondex Mines "), a corporation duly organized and existing under the laws of British Columbia, dated effective as of September 12, 2012, as amended by an amending agreement dated March 26, 2013.

WHEREAS:

A.     Klondex G&S is a wholly owned subsidiary of Klondex Mines, a reporting issuer in Canada listed on the Toronto Stock Exchange (the " TSX ") with operations in Vancouver, British Columbia, Reno, Nevada, Winnemucca, Nevada and Elko, Nevada;

B.     substantially all of Klondex Mines's operations are conducted through Klondex Holdings (USA) Inc., Klondex G&S, Klondex Midas Holdings Limited and Klondex Midas Operations Inc. (each such entity, including Klondex Mines, but other than Klondex G&S, an " Affiliate ");

C.     Klondex G&S desires to employ Employee and Employee desires to be employed by Klondex G&S pursuant to the terms and conditions of this Agreement;

THEREFORE , the parties, in consideration of the promises and the mutual covenants and agreements contained herein, mutually agree and covenant as follows:

SECTION 1. EMPLOYMENT AND WORK DUTIES

1.1

Employment

Klondex G&S agrees to employ Employee and Employee agrees to be employed by Klondex G&S to provide such management services as requested by Klondex G&S. Employee understands that as an employee of Klondex G&S, he may be required to provide management services to an Affiliate, including, but not limited to, services as President and Chief Executive Officer to Klondex Mines, if requested by Klondex G&S in fulfillment of Klondex G&S's obligations under applicable administrative and technical services agreements.

1.2

Duties

Subject to the terms and conditions of this Agreement, the Employee shall report to the Board of Directors of Klondex G&S. The Employee shall continue to perform such duties and responsibilities and exercise such powers as may from time to time be reasonably assigned to the Employee by the Board of Directors of Klondex G&S.


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1.3

Location

The Employee shall work from the Klondex G&S office in Reno, Nevada but also will have a presence at the mine sites (or office locations) of Klondex Mines and Affiliates, as reasonably may be requested by Klondex G&S, and occasional presence in Vancouver, and/or Toronto to attend meetings.

SECTION 2. COMPENSATION AND BENEFITS (IN US$)

2.1

Base Salary and Other Compensation

Subject to the other terms and conditions of this Agreement, Klondex G&S shall pay to the Employee a base salary of US$424,000 per annum (the " Base Salary "), less required and authorized deductions and withholdings, paid to the Employee in equal bimonthly (twice a month) payments in arrears, and pro-rated for any partial month of employment. The Base Salary will be reviewed by the Board of Directors of Klondex G&S from time to time.

Klondex G&S shall pay to the Employee an amount equal to the employee cost of family coverage under the Anthem Medical, Anthem Dental and EyeMed Vision Plans (or any plans which replace these plans), on an after tax basis, regardless of whether or not the Employee has elected such coverage (the " Other Compensation "). The Other Compensation will be reviewed by the Board of Directors from time to time.

2.2

Annual Bonus

The Employee shall be eligible for a target annual bonus of 85% of the Employee's annual Base Salary, less required and authorized deductions and withholdings, subject to achieving corporate and personal targets to be mutually agreed upon in writing at the beginning of each calendar year with the Board of Directors of Klondex G&S. It is a term and condition of eligibility for the payment of any bonus payment that the Employee be employed by Klondex G&S or an Affiliate on the last day of the fiscal year in respect of which the annual bonus is payable. The Employee shall not be deemed to be employed following the date the Employee ceases to be actively employed by Klondex G&S and all Affiliates, and for greater certainty, in the event of the termination of the Employee's employment without just cause, such date shall be as specified in the notice of termination from Klondex G&S (and shall not include or be deemed to include any period of notice of termination to which the Employee may be entitled under this Agreement, statute, common law or otherwise). If the Employee is eligible to receive a bonus, any such bonus generally will be paid within 90 days following the approval of the annual financial statements for the fiscal year, provided that in all cases such payment will occur during the calendar year following the last day of the fiscal year in which the services giving rise to the bonus are performed.

2.3

Group Benefits

During the term of this Agreement, the Employee shall be entitled to participate in any group insurance, supplemental health insurance, qualified pension, 401(k), hospitalization, medical health and accident, disability, life, or similar plan or program of Klondex G&S or an Affiliate now existing or hereafter established covering employees of Klondex G&S in both Canada and the United States, subject to the terms and conditions of such plans. Any claim or dispute relating to a decision made by the group benefits insurer will be with and directed to the insurer only, and will not form the basis for any dispute or liability as between Klondex G&S or an Affiliate and the Employee. Notwithstanding anything herein to the contrary, however, Klondex G&S or an Affiliate sponsoring such plan may at any time and from time to time modify, suspend, or discontinue any or all such benefit plans for its employees generally or for any group thereof at its sole discretion, without any obligation to replace such modified, suspended or discontinued benefit with any other benefit, equivalent or otherwise, or to otherwise compensate the Employee in respect thereof.


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2.4

Vacation and Holidays

In addition to any statutory and other holidays observed by Klondex G&S, during the term of this Agreement, the Employee shall be entitled to paid vacation of five (5) weeks during each calendar year, pro-rated for any partial calendar years. Such vacation shall be taken at a time or times acceptable to Klondex G&S having regard to its operations. The vacation will be subject to the Vacation Policy contained in the Employee Handbook of Klondex G&S.

2.5

Equity Incentive Plans

The Employee shall be eligible to participate in any equity incentive plan made available to senior management of Klondex G&S, including any such plans sponsored by Klondex Mines, in accordance with the terms and conditions of such plan(s) as may be amended from time to time. Annual equity incentive grants will be made following the Annual Meeting of Klondex Mines in or around June annually.

2.6

Company Vehicle

In order to perform his responsibilities under this Agreement, the Employee will have access to a vehicle leased or owned by Klondex G&S at all times that the Employee is located in Reno, Nevada during the normal course of his employment. The Employee acknowledges that his use of such vehicle may constitute a taxable benefit to him in whole or in part, and that he shall be responsible for any and all tax liabilities arising from his personal use of such vehicle, if any.

SECTION 3. EXPENSES

3.1

Travel Expense

The Employee will be reimbursed for all reasonable and documented travel and other reasonable and documented out-of-pocket expenses actually, exclusively, necessarily, and properly incurred by the Employee in connection with the performance of his duties and functions, subject to the policies of Klondex G&S in effect from time to time and the Employee first providing receipts or vouchers to Klondex G&S and reasonable particulars of such expenses within sixty (60) days after the date the expenses are incurred. If such expense qualifies hereunder for reimbursement, then Klondex G&S will reimburse the Employee for that expense within thirty (30) days thereafter. Each reimbursement must be made no later than the end of the calendar year following the calendar year in which the expense was incurred. The amount of reimbursements in any calendar year shall not affect the expenses eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.


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3.2

Professional Development

The parties acknowledge that it will benefit if the Employee holds and improves his professional qualifications and engages in professional and trade organizations. Accordingly, subject to prior approval by the Board of Directors of Klondex G&S, Klondex G&S will pay or reimburse the Employee for the costs and fees of business and professional organization memberships reasonably intended to improve the Employee's professional qualifications or the visibility and/or reputation of Klondex G&S and Affiliates within the business community. The Employee must provide receipts or vouchers to Klondex G&S for such costs and fees within sixty (60) days after the later of (i) the Employee's incurrence of such cost and fees; and (ii) the Employee's receipt of the invoice for such cost and fees. Klondex G&S will reimburse the Employee for such costs and fees within thirty (30) days thereafter. In no event will any such payment or reimbursement be made later than the end of the calendar year following the calendar year in which the cost and fees were incurred. The amount of such reimbursements in any calendar year shall not affect the costs and fees eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.

3.3

Professional Insurance

Klondex G&S will maintain, or cause Klondex Mines to maintain, adequate Directors & Officers Liability Insurance to properly protect the Employee against loss. Klondex G&S and Klondex Mines will be directly responsible for all legal fees and other expenses for actions brought against the Employee provided that (i) the Employee had reasonable grounds for believing he acted honestly and in good faith with a view to the best interests of Klondex G&S and Affiliates and, (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

3.4

Non-US Income Taxes

Klondex G&S has a tax equalization policy and the Employee will be subject to such tax equalization policy, which is intended to reduce the potential for double taxation.

SECTION 4. EMPLOYEE COVENANTS

4.1

Employee's Services

The Employee hereby covenants and agrees that:

  (a)

the Employee shall, in the exercise of the Employee's duties, at all times follow the policies of Klondex G&S (and the policies of Affiliates, to the extent applicable) and the lawful instructions given and any regulations made by the Board of Directors of Klondex G&S (and the Board of Directors of Klondex Mines, to the extent applicable) and will, from time to time, and at all times when required to do so, give an account of Employee's activities to the Board of Directors of Klondex G&S with respect to all transactions, matters and things relating to Klondex G&S and Affiliates; and



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  (b)

the Employee shall, for the term of this Agreement, unless prevented by illness:

       
  (i)

devote the Employee's whole time and attention to the Employee's duties in the Employee's position and provide Klondex G&S (and Affiliates, to the extent applicable) with the full benefit of the Employee's knowledge, expertise, skill, experience and ingenuity with respect to the business and affairs of Klondex G&S and Affiliates, except to the extent that the parties agree in writing that the Employee may work or provide services for remuneration to another entity, including serving on the board of directors or as an officer of other public or private companies, provided that such activities do not unduly interfere with the Employee's obligations to Klondex G&S and Affiliates;

       
  (ii)

do his utmost to promote, develop and extend the business of Klondex G&S and Affiliates, during the term of this Agreement, communicate and channel to Klondex G&S and/or Affiliates all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the business of Klondex G&S and Affiliates. Any such information thus communicated to Klondex G&S and Affiliates will be and remain the property of Klondex G&S and/or Affiliates notwithstanding any subsequent termination of the Employee's employment; and

       
  (iii)

exercise the degree of care, diligence and skill that a prudent senior officer would exercise in comparable circumstances.


4.2

Non-Solicitation

The Employee recognizes that he will obtain access to or obtain confidential information about other employees or consultants of Klondex G&S, Affiliates or other entities that may become affiliated with Klondex G&S or Klondex Mines in the future (" Related Entities "), including information about their education, experience, skills, ability, salary and benefits and relationships with customers, shareholders and suppliers of Klondex G&S, Affiliates and Related Entities. The Employee further recognizes that such information is not generally known, is of substantial value to Klondex G&S, Affiliates and Related Entities in securing and retaining customers, shareholders and suppliers, and will be acquired by the Employee because of his employment. Accordingly, the Employee shall not, during his employment and for twelve (12) months following the cessation of the Employee's employment with Klondex G&S, directly or indirectly, on his own behalf or on behalf of any other person, hire, solicit or induce any person who is, or was within six (6) months prior to any attempted hiring, solicitation or inducement, employed or engaged by Klondex G&S, an Affiliate or a Related Entity to leave such employment or engagement or enter into employment or engagement with any other person or entity.


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4.3

Non-Competition

The Employee shall not, at any time during the term of this Agreement and for a period of six (6) months following the termination of this Agreement and/or the Employee's employment with Klondex G&S, for any reason, either directly or indirectly, individually or in partnership or jointly or in association with any person as principal, agent, consultant, employee, investor, shareholder (other than an investment of less than two (2) per cent of the shares of a company traded on a registered stock exchange) or in any other manner whatsoever, be employed or engaged by, advise, carry on or be interested in any person or entity that is involved in the business of mineral exploration in any area within two hundred (200) kilometers of any property Klondex G&S, an Affiliate or a Related Entity, in whole or part, owned or leased during the time the Employee was employed by Klondex G&S.


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4.4

Confidentiality

       
(a)

In this Agreement, " Confidential Information " means confidential or proprietary information or material relating to the operations, personnel or business of Klondex G&S, Affiliates and Related Parties which the Employee obtains from Klondex G&S, an Affiliate or a Related Entity or from the officers, employees or agents of Klondex G&S, an Affiliate or a Related Entity, or otherwise by virtue of his employment by Klondex G&S, including, without limitation, corporate information, including plans, strategies, tactics, policies, resolutions, and any information regarding existing or contemplated litigation or negotiations; financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings; operational and scientific information, including trade secrets; technical information, technical drawings and designs, drill results, mine plans, pit designs and reserve and resource estimates; and personnel information, including personnel lists, staff compensation, resumes, personnel data, organizational structure and performance evaluations.

       
(b)

In the course of carrying out and performing his/her duties and responsibilities to Klondex G&S (and for Affiliates with respect to services Employee provides to them as an employee of Klondex G&S) pursuant to this Agreement, the Employee will obtain access to and be entrusted with Confidential Information. Except as authorized by the Board of Directors of Klondex G&S or required by law, the Employee shall, during and after his employment:

       
(i)

keep the Confidential Information in strict confidence and shall not copy or reproduce the Confidential Information except in the proper course of the Employee's employment and for the benefit of Klondex G&S;

       
(ii)

not use the Confidential Information for his own account or to the detriment of Klondex G&S, an Affiliate or a Related Entity or their lenders; and

       
(iii)

not directly or indirectly disclose, allow access to or transfer the Confidential Information to any third party (other than Klondex G&S or its directors, officers, bankers, lenders and financial advisors in the course of his employment or at the express direction of the Board of Directors of Klondex G&S).

       
4.5

Remedy

The parties acknowledge and agree that provisions of Sections 4.1, 4.2, 4.3 and 4.4 are reasonable in the circumstances and that a breach by the Employee of any such provisions would cause irreparable harm to Klondex G&S, Affiliates and Related Entities, which could not be adequately compensated for by damages; and in the event of a breach of the said provisions by the Employee, the Employee consents to an injunction being issued restraining the Employee from any further breach thereof, but the provisions herein shall not be construed so as to be in derogation of any other remedy which Klondex G&S may have in the event of such a breach.


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SECTION 5. TERMINATION OF EMPLOYMENT

5.1

Termination Date

In this Agreement, " Termination Date " means the date on which the Employee ceases to actively perform services for Klondex G&S.

5.2

Voluntary Resignation

If the Employee wishes to resign the Employee's employment voluntarily, the Employee shall provide sixty (60) days' notice in writing to Klondex G&S (the " Resignation Period "). Klondex G&S may, in its sole discretion, waive the Resignation Period in whole or in part by paying the Employee's Base Salary and continuing the Employee's group benefits coverage to the effective date of resignation. The Employee agrees that such waiver will not constitute termination of the Employee's employment by Klondex G&S. In the event of the Employee's voluntary resignation, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options he holds with respect to shares of Klondex Mines (or any successor entity) that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.2 or as required by law, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

5.3

Termination with Cause

       
(a)

Klondex G&S may terminate the Employee's employment and this Agreement at any time without notice for just cause. For the purposes of this Agreement, " just cause " means:

       
(i)

the non-performance, breach or default by the Employee of or under any of his covenants in this Agreement;

       
(ii)

the failure by Employee to substantially perform Employee's duties with Klondex G&S (other than any such failure resulting from the Employee's disability as defined under the disability plans or programs as in effect for employees of Klondex G&S from time to time) after a written demand for substantial performance is delivered to the Employee that specifically identifies the manner in which Klondex G&S believes that the Employee has not substantially performed the Employee's duties, and the Employee has failed to resume on a continuous basis substantial performance of the Employee's duties (as determined by Klondex G&S) within 30 days of such written demand;



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  (iii)

Employee's disregard of or failure to comply with any lawful directive or instruction, written or otherwise, from the Board of Directors of Klondex G&S or any other person to whom Employee reports if such failure or disregard has a material adverse effect upon Klondex G&S or Affiliates;

     
  (iv)

negligence by Employee which causes, or which would reasonably be expected to cause, Klondex G&S or Affiliates material harm;

     
  (v)

Employee's material violation of applicable state, provincial or federal law relating to the business of Klondex G&S and Affiliates;

     
  (vi)

Employee's commission during the course of employment of any act of dishonesty, theft, fraud, embezzlement. misappropriation, assault, battery, malicious destruction of property, arson, sabotage, harassment, acts or omissions which violate the rules or policies (such as breaches of confidentiality) of Klondex G&S (or an Affiliate, to the extent applicable), or other conduct which demonstrates a disregard of the interests of Klondex G&S and Affiliates (regardless of whether the misconduct occurs on the premises of Klondex G&S); or

     
  (vii)

Employee's conviction of a crime (including, without limitation, a misdemeanor offense) which impairs Employee's ability substantially to perform Employee's duties under this Agreement.


  (b)

If the Employee's employment and this Agreement are terminated under this section, the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary and vacation pay, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date. All unexercised stock options, whether vested or unvested, in Klondex Mines held by the Employee shall be forfeited without any consideration or damages of any kind on the Termination Date.


5.4

Termination without Cause

     
(a)

If the Employee experiences an involuntary termination of employment by Klondex G&S (or any successor) for any reason other than for just cause, then Klondex G&S (or its successor) shall provide the Employee with written notice specifying the Termination Date. Klondex G&S shall pay the Employee for all accrued but unpaid wages and vacation entitlements up to the Termination Date (net of applicable withholdings). In addition, provided that the Release under Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, Klondex G&S shall provide to the Employee a lump sum separation payment, net of applicable withholdings and less any amounts owing by the Employee to Klondex G&S, (the " Separation Payment ") equal to:



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  (i)

the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed two years) measured from the Employee's date of hire on September 13, 2012(the “Employee’s Date of Hire” ), an additional amount equal to six months' base salary will be added; plus

     
  (ii)

the monthly premium cost of coverage described in Section 2.3 multiplied by 12, provided that for each completed year of service (but not to exceed two years) measured from the Employee's Date of Hire an additional amount equal to six months' premium cost will be added; plus

     
  (iii)

an amount equal to the Employee's then current target bonus amount pursuant to Section 2.2 for the year in which the Termination Date occurs (or if the target bonus amount for the year in which the Termination Date occurs has not been determined as of the Termination Date, the target bonus amount for the year prior to the Termination Date) plus an additional amount equal to 1/2 of such bonus amount for each completed year of service (but not to exceed two years) measured from the Employee's Date of Hire; plus

     
  (iv)

An amount equal to 4% of the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed two years) measured from the Employee's Date of Hire, an additional amount equal to 4% of six months' base salary will be added.

For greater certainty, in no circumstances shall the Employee be entitled to a Separation Payment that is more than the equivalent of a total of 24 months of the payments in paragraphs 5.4(a)(i),(ii),(iii) and (iv) above (i.e., 12 months plus an additional six months for each of the first two years of completed of service from Employee's Date of Hire, up to a maximum of an additional 12 months). With respect to the calculation in paragraph 5.4(a)(iii), the target annual bonus amount shall be used without regard to the achievement of any corporate and personal targets established in connection with such target bonus amount.

  (b)

The Separation Payment described in this Section 5.4 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), unless the Employee has failed to execute a Release as described in Section 5.4(c), in which case Employee shall forfeit any Separation Payment. The Separation Payment is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and therefore will be paid by March 15 th of the calendar year following the calendar year in which the notice of termination is given, provided that if the notice of termination specifies a termination date that will occur in a subsequent calendar year and further specifies that the Employee is required to continue providing service through that later termination date, then such payment will be paid by March 15 th of the calendar year following the Employee's termination date (such date, in either case, referred to herein as the "latest payment date").



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  (c)

In order for the Employee to receive the Separation Payment, the Employee must sign a release of claims ("Release") in substantially the form set forth in Attachment A to this Agreement on or prior to the date of the expiration of the consideration period (not less than 21 days) set forth in the Release. The Company agrees to provide the Employee with the Release within 10 days of the Termination Date, and in all cases no later than a date such that the last day of any revocation period described in the Release will occur on or before February 28 of the year in which the latest payment date occurs. If the Employee fails to sign the release within the time frame specified therein, the Employee will forfeit any right to the Separation Pay and the Employee shall not be entitled to any payments replacing the Separation Payment.

     
  (d)

In the event the Company terminates the Agreement and the Employee's employment under this section, all outstanding equity awards granted under compensatory plans shall vest 100%; provided however, if an outstanding equity award is subject to Section 409A, the acceleration of vesting will not change the time or form of payment in a manner that would violate Section 409A; if an outstanding equity award is exempt from Section 409A, the award will be administered in a manner that retains such exemption or otherwise complies with Section 409A.

     
  (e)

In the event the Company terminates the Agreement and the Employee's employment under this section, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options to acquire shares of Klondex Mines (or any successor) that he holds that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.4 or as otherwise provided under minimum employment standards legislation, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

     
  (f)

The Separation Payment is attributable to services performed in the United States.


5.5

Termination in the Event of a Change of Control

       
(a)

For the purposes of this Agreement, a " Change of Control " means:

       
(i)

the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Klondex Mines to any person or entity or group of persons or entities, but not including the entering into of an option, joint venture or other arrangement whereby Klondex Mines transfers, or has the right to transfer, an interest in its mineral properties yet maintains control, majority ownership or an operating interest in the mineral properties, resulting entity or new arrangement;



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  (ii)

the amalgamation, merger or arrangement of Klondex Mines with or into another entity where the shareholders of Klondex Mines immediately prior to the transaction will hold less than 50% of the voting securities of the resulting entity upon completion of the transaction;

       
  (iii)

any person or combination of persons acting jointly or in concert, acquiring or becoming the beneficial owner of, directly or indirectly, of more than 50% of the voting securities of Klondex Mines whether through the acquisition of previously issued and outstanding voting securities of Klondex Mines or of voting securities of Klondex Mines that have not previously been issued or any combination thereof or any other transaction with similar effect; or

       
  (iv)

the Board of Directors of Klondex Mines adopting a resolution to the effect that, for purposes of the Agreement, a Change of Control has occurred, or that such a Change of Control is imminent, in which case, the date of the Change of Control shall be deemed to be the date of such resolution.

       
  (b)

For the purposes of this Agreement, " Good Reason " means the continued occurrence of any of the following conditions without Employee's consent after the Employee has given Klondex G&S written notice of such condition within thirty days following the initial existence of the condition, and Klondex G&S has failed to cure such condition within 30 days of the date it received notice of the condition:

       
  (i)

Klondex G&S assigning to the Employee duties materially inconsistent with the Employee's duties and responsibilities under this Agreement, including those management duties performed by Employee, as an employee of Klondex G&S, for Klondex Mines or an Affiliate;

       
  (ii)

a unilateral reduction by Klondex G&S of the Employee's Base Salary, or any unilateral change in the basis upon which the Employee's Base Salary is determined or paid if the change is or will be materially adverse to the Employee, except where (x) such reduction or change is part of a general reduction in the base salary of all or substantially all of the members of management of Klondex G&S and which affects the Employee in substantially the same manner as the other members of the management of Klondex G&S who are also affected by such general reduction and (y) such change does not constitute more than ten percent (10%) of the Employee's Base Salary;



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  (iii)

Klondex G&S unilaterally relocating the Employee's principal location more than 100 miles from the Employee's current work location ( i.e., Klondex G&S's Reno, Nevada office); or

     
  (iv)

any material breach by Klondex G&S of any provision of this Agreement, which is not cured by Klondex G&S within thirty (30) days following written notice from the Employee.


  (c)

Notwithstanding Section 5.4, if, within one hundred and eighty (180) days following a Change of Control, the Employee experiences an involuntary termination of employment by Klondex G&S or any successor entity without just cause or if the Employee terminates employment for Good Reason, provided that a Release as described in Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, then:


  (i)

all unvested stock options to acquire shares of Klondex Mines (or any successor) held by the Employee shall immediately vest on the Termination Date and the Employee shall have one (1) year after the date of the Change of Control to exercise the vested stock options;

     
  (ii)

Klondex G&S shall provide the Employee with a lump-sum payment equal to the Separation Payment the Employee would have received under Sections 5.4(a);

     
  (iii)

the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date; and

     
  (iv)

The lump sum payment described in this Section 5.5 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), and in all cases by March 15 th of the calendar year following the calendar year in which the Employee's Termination Date occurs (in the case of an involuntary termination by the Company) or the calendar year in which the Employee's notice to the Company of termination for Good Reason occurs (in the case of Employee's termination for Good Reason).

For greater certainty, if the Employee's employment is terminated without Cause one hundred and eighty-one (181) days or more after the Change of Control the Employee's entitlements will be as per Section 5.4 above.

  (d)

The lump sum payment is attributable to services performed in the United States.



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5.6

Return of Property

In the event that the Employee's employment terminates for any reason, the Employee agrees to deliver to a nominated employee of Klondex G&S on the Termination Date all property of Klondex G&S and Affiliates and Related Entities, and other property for which Klondex G&S is liable to others, in the Employee's possession, charge or control (and any copies thereof) wherever situated including, without limiting the generality of the foregoing, any Confidential Information and all notes, memoranda and other documents concerning any of the business, personnel or affairs of Klondex G&S, Affiliates and Related Entities, whether in written or electronic form, all books, effects, money, securities, keys, pass cards, credit cards, laptops or vehicles.

5.7

Stock Options

Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement shall extend the term of any stock option past the expiration date of the option in accordance with the terms of such option agreement and/or option plan governing such option.

SECTION 6. MISCELLANEOUS

6.1

Headings

The headings of the Sections and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof.

6.2

Applicable Law

This Agreement will be governed by and be construed in accordance with the Laws of the State of Nevada. Venue for any action brought by the parties to this Agreement will be in the courts of the State of Nevada.

6.3

Arbitration

The parties agree that any dispute relating to the terms of this Agreement or the Employee's employment with Klondex G&S will be determined by arbitration in accordance with the then-current JAMS employment arbitration rules and procedures, except as modified herein. The arbitration will be conducted by a sole neutral arbitrator who has had both training and experience as an arbitrator of general employment and commercial matters and who is and for at least ten (10) years has been, a partner, a shareholder, or a member in a law firm. If Klondex G&S and Employee cannot agree on an arbitrator, then the arbitrator will be selected by JAMS in accordance with Rule 15 of the JAMS employment arbitration rules and procedures. No person who has served as a mediator under the mediation provision, however, may be selected as the arbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide any issue as to discovery. The arbitrator may decide any issue as to whether or as to the extent to which any dispute is subject to the dispute resolution provisions in this Agreement and the arbitrator may award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of this Section 6.3 and applicable law and must render the award in writing, including an explanation of the reasons for the award. Judgment upon the award may be entered by any court having jurisdiction of the matter, and the decision of the arbitrator will be final and binding. The statute of limitations applicable to the commencement of a lawsuit will apply to the commencement of an arbitration under this Section. The arbitrator's fees will be paid in equal portions by Klondex G&S and Employee, unless Klondex G&S agrees to pay all such fees.


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6.4

Severability

Each provision of this Agreement is intended to be severable; if any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal, void or invalid for any reason whatsoever, such provision shall be severed from this Agreement and the remaining terms and provisions shall remain in full force and effect.

6.5

Survivability

The provisions of Section 4, Section 5 and Section 6.3 shall survive the termination of this Agreement.

6.6

Pre-Contractual Representations

The Employee hereby waives any right to assert any claim based on any pre-contractual representations, negligent or otherwise, made by Klondex G&S, Klondex Mines or any Affiliates.

6.7

Assignability

This Agreement may not be assigned by the Employee. Without in any way limiting the rights of Klondex G&S to assign this Agreement, it is expressly understood and agreed that Klondex G&S shall have the right to assign this Agreement to any other entity to which the business of Klondex G&S is transferred, in whole or in part, which thereafter carries on the business of Klondex G&S.

6.8

Successors

This Agreement and all rights of the Employee hereunder will be binding upon and shall enure to the benefit and be binding upon Klondex G&S and its successors and assigns and the Employee and his heirs, representatives and administrators.

6.9

Waiver of Breach

The waiver by either the Employee or Klondex G&S of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that party.

6.10

Modification of Agreement

Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void.


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6.11

Entire Agreement

This Agreement reflects the entire agreement of the parties and supersedes and replaces all prior letters of intent, agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, between all or any of the parties with respect to the subject matter of this Agreement, including without limitation, the employment agreement between Employee, Klondex G&S and Klondex Mines effective as of September 12, 2012, as amended. The recitals and any schedules form a part of and are incorporated by reference into this Agreement.

6.12

Further Acts

The Employee agrees that on the request of Klondex G&S, he will execute, acknowledge, perform and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the better carrying out and performance of the terms of this Agreement.

6.13

Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

6.14

Independent Legal Advice

The Employee acknowledges that this Agreement has been prepared by Klondex G&S and that he has had sufficient time to review this Agreement thoroughly, that he has read and understood the terms of this Agreement and that he has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.

6.15

Compliance with Section 409A of the Internal Revenue Code

Payments and benefits provided under this Agreement as a result of Employee's termination of employment are intended to fall within the exception in U.S. Treasury Regulation 1.409A -1(b)(4) for short term deferrals or other applicable exceptions and will be interpreted and administered accordingly. However, to the extent that any payment under this Agreement is subject to Section 409A of the Code, it is intended to comply with Section 409A and this Agreement shall be interpreted and construed accordingly and in a manner that avoids the imposition of taxes and other penalties under Section 409A (such taxes and other penalties referred to collectively as "409A Penalties"). In the event that Klondex G&S determines that the terms of this Agreement would subject the Employee to 409A Penalties, Klondex G&S and the Employee shall cooperate diligently to amend the terms of this Agreement to avoid such 409A Penalties, to the extent possible; provided , however , that this Section 6.15 shall not create any obligation on the part of Klondex G&S to adopt any such amendment or take any such other action. All references in this Agreement to the Employee's termination of employment shall mean a "separation from service" within the meaning of Section 409A of the Code, to the extent required to comply with Section 409A of the Code. Any payment that is "deferred compensation" within the meaning of and subject to Section 409A of the Code that becomes payable as a result of the Employee's separation from service and that is conditioned upon the Employee's execution of a Release will be paid within 90 days following the Employee's separation from service and if such period begins in one taxable year and carries over into a second taxable year, payment shall be made in the second taxable year, and in no event shall the Employee have the ability to influence the year in which payment will occur. Notwithstanding any other provision in this Agreement, if on the date of the Employee's "separation from service" the Employee is a "specified employee," as defined in Section 409A of the Code, then to the extent any amount payable under this Agreement upon the Employee's separation from service would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such payment shall be delayed until the earlier to occur of (x) the first day of the seventh month following the Employee's separation from service or (y) the date of the Employee's death.


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6.16

Taxes; Parachute Payment

     
(a)

Withholding. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as Klondex G&S may reasonably determine should be withheld pursuant to any applicable law or regulation.

     
(b)

Parachute Payment. Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by Klondex G&S to or for the Employee's benefit (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a "Parachute Payment"), would result in an "excess parachute payment" within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Parachute Payments, net of all taxes imposed on the Employee (the "Net After-Tax Amount") that the Employee would receive would be increased if the Parachute Payments were reduced, then the Parachute Payments shall be reduced by an amount (the "Reduction Amount") so that the Net After-Tax Amount after such reduction is greatest. For purposes of determining the Net After-Tax Amount, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Parachute Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Parachute Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Subject to the provisions of this Section 6.16, all determinations required to be made under this Section 6.16, including the Net After-Tax Amount, the Reduction Amount and the Parachute Payments that are to be reduced pursuant to this Section 6.16 and the assumptions to be utilized in arriving at such determinations, shall be made by independent public accounting firm selected by Employee (the "Accounting Firm"), which shall provide detailed supporting calculations both to Klondex G&S and the Employee within fifteen (15) business days of the receipt of notice from the Employee that there has been a Parachute Payment, or such earlier time as is requested by the Employee. The Accounting Firm's decision as to which Parachute Payments are to be reduced shall be made (a) only from Parachute Payments that the Accounting Firm determines reasonably may be characterized as "parachute payments" under Section 280G of the Code; (b) only from Parachute Payments that are required to be made in cash; (c) only with respect to any amounts that are not payable pursuant to a "nonqualified deferred compensation plan" subject to Section 409A of the Code, until those payments have been reduced to zero; and (d) in reverse chronological order, to the extent that any Parachute Payments subject to reduction are made over time (e.g., in installments). In no event, however, shall any Parachute Payments be reduced if and to the extent such reduction would cause a violation of Section 409A of the Code or other applicable law. All fees and expenses of the Accounting Firm shall be borne solely by Klondex G&S. Any determination by the Accounting Firm shall be binding upon Klondex G&S and the Employee.



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6.17

Copy of Agreement

The Employee hereby acknowledges receipt of a copy of this Agreement duly executed by Klondex G&S.

[Remainder of page intentionally left blank. Signature page follows.]

 


IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on December 5, 2015.

KLONDEX GOLD & SILVER MINING COMPANY

ACCEPTED:

/s/ Paul Huet   /s/ Carl Artinger
PAUL HUET   Witness Signature
     
December 5, 2015   Carl Artinger
Date Signed   Witness Name
     
     
    [REDACTED]
    Witness Address


ATTACHMENT A

RELEASE OF CLAIMS

This Agreement and General Release of all Claims (this " Release ") is entered into by _________________ (the " Employee ") and Klondex Gold & Silver Mining Co. (the "Company"), effective as of ___________________. In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the " Employment Agreement "), the Employee and the Company agree as set forth in this Release. Capitalized terms not defined in this Release shall have the meaning ascribed to them in the Employment Agreement.

The form of this Release is being provided to the Employee on _______________, 20__ and the Employee will have ________ days from such date [a minimum of 21 days must be given] to consider whether to sign this Release (the "Consideration Period") and return it to the Company. If this Release is not executed and delivered to the Company by __________________, 20__, or if so delivered by the Employee but it is nevertheless revoked by the Employee within the applicable Revocation Period, then the Employee will forfeit all rights to any Separation Payment and other benefits to which the Employee may otherwise have been entitled pursuant to Section 5.4 or Section 5.5 of the Employment Agreement . The Employee may choose to sign and deliver this Release to the Company before the end of the Consideration Period. The Employee will have ____ days [must be at least 7 days and could be longer depending on employee's age and other factors. Consult U.S. counsel before completing this section] following the date of delivery to the Company of the executed Release to revoke the Release (the "Revocation Period") by delivery to the Company of written notice of such revocation within such Revocation Period.

In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the "Employment Agreement"), the Employee and the Company agree as follows:

1.     Return of Property . All files, access keys, desk keys, ID badges, computers, electronic devices, telephones and credit cards, and such other property of the Company, Affiliates and Related Parties as the Company may reasonably request, in the Employee's possession must be returned no later than the date of the Employee's termination from the Company.


2.     General Release and Waiver of Claims .

(a)     Release . In consideration of the payments and benefits provided to the Employee under the Employment Agreement and after consultation with counsel, the Employee, his marital community, and each of the Employee's respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the " Releasors ") hereby irrevocably and unconditionally release and forever discharge the Company, Affiliates and Related Parties and each of their respective officers, employees, directors, shareholders and agents (" Releasees ") from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, " Claims "), including, without limitation, any Claims under any federal, state, local, provincial or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) the Employee's employment relationship with and service as an employee, officer or director of the Company, Affiliates of Related Parties, and the termination of such relationship or service, and (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that the Employee does not release, discharge or waive (i) the Employee's rights to payments and benefits provided under the Employment Agreement that are contingent upon the execution by the Employee of this Release, or rights to enforce the performance by the Company of its obligations under the Employment Agreement, (ii) any employee benefits payable pursuant to the terms of the applicable plans of the Company or any of its affiliates, which benefits shall be paid or provided in accordance with the terms of such plans, or (iii) any right of indemnification or contribution that the Employee may have under the organizational documents of the Company or from any other source, including, any directors' or officers' insurance policy maintained by the Company.

(b)     Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to the Employee under the Employment Agreement, the Releasors hereby unconditionally release and forever discharge the Releasees from any and all Claims that the Releasors may have as of the date the Employee signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (" ADEA "). By signing this Release, the Employee hereby acknowledges and confirms the following: (i) the Employee was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to the Employee the terms of this Release, including, without limitation, the terms relating to the Employee's release of claims arising under; (ii) the Employee was given a period of not fewer than [21]/[45] days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) the Employee knowingly and voluntarily accepts the terms of this Release; [and (iv) in accordance with the requirements of ADEA regarding an "employment termination program", the Employee was provided with the information appended hereto as Schedule 1]. The Employee also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph.


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(c)     No Assignment . The Employee represents and warrants that he has not assigned any of the Claims being released under this Release.

3.     Proceedings . The Employee has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Releasees before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Employee under the Employment Agreement (each, individually, a " Proceeding "), and agrees not to participate voluntarily in any Proceeding. The Employee waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.

4.     Remedies . In the event the Employee initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Release or his post-termination obligations contained in the Employment Agreement, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein. The Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Employee acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Employee from breaching his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

The Employee understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.

5.     Survival of Certain Terms of Employment Agreement . The Employee acknowledges and affirms that the Employee has previously executed the Employment Agreement (Attached hereto as Attachment A), and that the terms and conditions of the Employment Agreement that survive the employment relationship, including but not limited to the Employee's continuing confidentiality, non-competition and non-solicitation obligations, survive and are not affected by this Release.

6.     Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

7.     EEOC . Nothing in this Agreement shall be construed to prohibit the Employee from filing a charge or complaint, including a challenge to the validity of the waiver provision of this Agreement, with the Equal Employment Opportunity Commission. However, Employee has waived any right to monetary relief.


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8.     Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company.

9.     Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed in that State.

10.     Arbitration . Any dispute or controversy arising under or in connection with this Release or otherwise in connection with the Employee's employment by the Company that cannot be mutually resolved by the parties to this Release and their respective advisors and representatives shall be settled exclusively by arbitration in accordance with the provisions of Section 6.3 of the Employment Agreement.

11.    Counterparts . This Release may be executed via facsimile or electronic mail and in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument, binding on the parties.

12.    Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:

____________________

____________________
Attn : _______________

To the Employee:

The address most recently on file in the payroll records of the Company.

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission.

[Signature Page Follows]


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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.

Klondex Gold & Silver Mining Co.

By:  
   
Its:  

Employee:

   
Name:  
   
Address:  
   
Date:  



EMPLOYMENT AGREEMENT

THIS AGREEMENT, made effective as of July 31, 2015, is between KLONDEX GOLD & SILVER MINING COMPANY , a corporation duly organized under the laws of Nevada with offices at 360 Western Road, Suite 1, Reno, Nevada 89506 (" Klondex G&S " or the " Company ") and John Seaberg, residing at [ REDACTED ], (the " Employee ").

WHEREAS:

A.     Klondex G&S is a wholly owned subsidiary of Klondex Mines, a reporting issuer in Canada listed on the Toronto Stock Exchange (the " TSX ") with operations in Vancouver, British Columbia, Reno, Nevada, Winnemucca, Nevada and Elko, Nevada;

B.     Substantially all of Klondex Mines's operations are conducted through Klondex Holdings (USA) Inc., Klondex G&S, Klondex Midas Holdings Limited and Klondex Midas Operations Inc. (each such entity, including Klondex Mines, but other than Klondex G&S, an " Affiliate ");

C.     Klondex G&S desires to employ Employee and Employee desires to be employed by Klondex G&S pursuant to the terms and conditions of this Agreement; THEREFORE , the parties, in consideration of the promises and the mutual covenants and agreements contained herein, mutually agree and covenant as follows:

SECTION 1. EMPLOYMENT AND WORK DUTIES

1.1

Employment

Klondex G&S agrees to employ Employee and Employee agrees to be employed by Klondex G&S to provide such management services as requested by Klondex G&S. Employee understands that as an employee of Klondex G&S, he may be required to provide management services to an Affiliate, including, but not limited to, services as Senior Vice President, Investor Relations to Klondex Mines, if requested by Klondex G&S in fulfillment of Klondex G&S's obligations under applicable administrative and technical services agreements.

1.2

Duties

Subject to the terms and conditions of this Agreement, the Employee shall report to the President of Klondex G&S (the " President "). The Employee shall continue to perform such duties and responsibilities and exercise such powers as may from time to time be reasonably assigned to the Employee by the President.


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1.3

Location

The Employee shall work from the Klondex G&S office in Reno, Nevada but also will have a presence at the mine sites (or office locations) of Klondex Mines and Affiliates, as reasonably may be requested by Klondex G&S, and occasional presence in Vancouver, and/or Toronto to attend meetings.

SECTION 2. COMPENSATION AND BENEFITS (IN US$)

2.1

Base Salary and Other Compensation

Subject to the other terms and conditions of this Agreement, Klondex G&S shall pay to the Employee a base salary of US$220,000 per annum (the " Base Salary "), less required and authorized deductions and withholdings, paid to the Employee in equal bimonthly (twice a month) payments in arrears, and pro-rated for any partial month of employment. The Base Salary will be reviewed by the President from time to time.

Klondex G&S shall pay to the Employee an amount equal to the employee cost of family coverage under the Anthem Medical, Anthem Dental and EyeMed Vision Plans (or any plans which replace these plans), on an after tax basis, regardless of whether or not the Employee has elected such coverage (the " Other Compensation "). The Other Compensation will be reviewed by the President from time to time.

2.2

Annual Bonus

The Employee shall be eligible for a target annual bonus of 50% of the Employee's annual Base Salary, less required and authorized deductions and withholdings, subject to achieving corporate and personal targets to be mutually agreed upon in writing at the beginning of each calendar year with the President. It is a term and condition of eligibility for the payment of any bonus payment that the Employee be employed by Klondex G&S or an Affiliate on the last day of the fiscal year in respect of which the annual bonus is payable. The Employee shall not be deemed to be employed following the date the Employee ceases to be actively employed by Klondex G&S and all Affiliates, and for greater certainty, in the event of the termination of the Employee's employment without just cause, such date shall be as specified in the notice of termination from Klondex G&S (and shall not include or be deemed to include any period of notice of termination to which the Employee may be entitled under this Agreement, statute, common law or otherwise). If the Employee is eligible to receive a bonus, any such bonus generally will be paid within 90 days following the approval of the annual financial statements for the fiscal year, provided that in all cases such payment will occur during the calendar year following the last day of the fiscal year in which the services giving rise to the bonus are performed.


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2.3

Group Benefits

During the term of this Agreement, the Employee shall be entitled to participate in any group insurance, supplemental health insurance, qualified pension, 401(k), hospitalization, medical health and accident, disability, life, or similar plan or program of Klondex G&S or an Affiliate now existing or hereafter established covering employees of Klondex G&S in both Canada and the United States, subject to the terms and conditions of such plans. Any claim or dispute relating to a decision made by the group benefits insurer will be with and directed to the insurer only, and will not form the basis for any dispute or liability as between Klondex G&S or an Affiliate and the Employee. Notwithstanding anything herein to the contrary, however, Klondex G&S or an Affiliate sponsoring such plan may at any time and from time to time modify, suspend, or discontinue any or all such benefit plans for its employees generally or for any group thereof at its sole discretion, without any obligation to replace such modified, suspended or discontinued benefit with any other benefit, equivalent or otherwise, or to otherwise compensate the Employee in respect thereof.

2.4

Vacation and Holidays

In addition to any statutory and other holidays observed by Klondex G&S, during the term of this Agreement, the Employee shall be entitled to paid vacation of four (4) weeks during each calendar year, pro-rated for any partial calendar years. Such vacation shall be taken at a time or times acceptable to Klondex G&S having regard to its operations. The vacation will be subject to the Vacation Policy contained in the Employee Handbook of Klondex G&S.

2.5

Equity Incentive Plans

The Employee shall be eligible to participate in any equity incentive plan made available to senior management of Klondex G&S, including any such plans sponsored by Klondex Mines, in accordance with the terms and conditions of such plan(s) as may be amended from time to time. Annual equity incentive grants will be made following the Annual Meeting of Klondex Mines in or around June annually.

2.6

Restricted Shares

Subject to regulatory approval, in connection with his appointment pursuant to this Agreement, the Employee will be issued an aggregate of 20,000 common shares of the Klondex Mines Ltd (“Common Shares”) promptly after the effective date of this Agreement and taxes and other deductions will be applied, where applicable. Twenty percent (20%) of the restricted shares granted, shall vest one year after the date this Agreement was signed, twenty percent (20%) of the restricted shares shall vest on the second anniversary following the effective date of this Agreement and sixty percent (60%) of the restricted shares shall vest on the third anniversary of this Agreement.

2.7

Stock Matching

Subject to regulatory approval, in connection with his appointment pursuant to this Agreement, the Company will match, in the form of Klondex Mines Ltd. restricted common shares, 15% of any direct purchase of Common Shares in the first financing (or purchase as agreed by the Company). The Employee purchase match will match 15% of his shares purchased (to a maximum of $112,500 matched). One-third (1/3) of any restricted Common Shares issued to the Employee pursuant to this provision shall vest immediately, one-third (1/3) shall vest on the first anniversary following the effective date of this Agreement and one-third (1/3) shall vest on the second anniversary following the effective date of this Agreement.


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2.8

Stock Options

Subject to regulatory approval, in connection with his appointment pursuant to this Agreement, the Employee will be granted options to purchase Klondex Mines Ltd. shares within 30 days of Commencement Date options to purchase:

  (a)

300,000 Common Shares under its current stock option plan at an exercise price (the " Option Price ") which shall be determined by the Board based on the current market price of the Company's common shares on the TSX Exchange at date of grant;

     
  (b)

Twenty percent (20%) of the stock options granted above in Sections 2.8(a), shall vest six months after the date this Agreement was signed, twenty percent (20%) of the stock options granted above in Sections 2.8(a) above shall vest on the first anniversary following the effective date of this Agreement and sixty percent (60%) of the stock options granted above in Sections 2.8(a) above shall vest on the second anniversary of this Agreement. Such options shall be exercisable for a period of five (5) years from the grant date thereof, subject to the terms and conditions of the Company's stock option plan, which the Employee acknowledges having reviewed and being satisfied with.

SECTION 3. EXPENSES

3.1

Travel Expense

The Employee will be reimbursed for all reasonable and documented travel and other reasonable and documented out-of-pocket expenses actually, exclusively, necessarily, and properly incurred by the Employee in connection with the performance of his duties and functions, subject to the policies of Klondex G&S in effect from time to time and the Employee first providing receipts or vouchers to Klondex G&S and reasonable particulars of such expenses within sixty (60) days after the date the expenses are incurred. If such expense qualifies hereunder for reimbursement, then Klondex G&S will reimburse the Employee for that expense within thirty (30) days thereafter. Each reimbursement must be made no later than the end of the calendar year following the calendar year in which the expense was incurred. The amount of reimbursements in any calendar year shall not affect the expenses eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.



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3.2

Professional Development

The parties acknowledge that it will benefit if the Employee holds and improves his professional qualifications and engages in professional and trade organizations. Accordingly, subject to prior approval by the President, Klondex G&S will pay or reimburse the Employee for the costs and fees of business and professional organization memberships reasonably intended to improve the Employee's professional qualifications or the visibility and/or reputation of Klondex G&S and Affiliates within the business community. The Employee must provide receipts or vouchers to Klondex G&S for such costs and fees within sixty (60) days after the later of (i) the Employee's incurrence of such cost and fees; and (ii) the Employee's receipt of the invoice for such cost and fees. Klondex G&S will reimburse the Employee for such costs and fees within thirty (30) days thereafter. In no event will any such payment or reimbursement be made later than the end of the calendar year following the calendar year in which the cost and fees were incurred. The amount of such reimbursements in any calendar year shall not affect the costs and fees eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.

3.3

Professional Insurance

Klondex G&S will maintain, or cause Klondex Mines to maintain, adequate Directors & Officers Liability Insurance to properly protect the Employee against loss. Klondex G&S and Klondex Mines will be directly responsible for all legal fees and other expenses for actions brought against the Employee provided that (i) the Employee had reasonable grounds for believing he acted honestly and in good faith with a view to the best interests of Klondex G&S and Affiliates and, (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

3.4

Non-US Income Taxes

Klondex G&S has a tax equalization policy and the Employee will be subject to such tax equalization policy, which is intended to reduce the potential for double taxation.

SECTION 4. EMPLOYEE COVENANTS

4.1

Employee's Services

The Employee hereby covenants and agrees that:

  (a)

the Employee shall, in the exercise of the Employee's duties, at all times follow the policies of Klondex G&S (and the policies of Affiliates, to the extent applicable) and the lawful instructions given and any regulations made by the Board of Directors of Klondex G&S (and the Board of Directors of Klondex Mines, to the extent applicable) and will, from time to time, and at all times when required to do so, give an account of Employee's activities to the President with respect to all transactions, matters and things relating to Klondex G&S and Affiliates; and

     
  (b)

the Employee shall, for the term of this Agreement, unless prevented by illness:



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  (i)

devote the Employee's whole time and attention to the Employee's duties in the Employee's position and provide Klondex G&S (and Affiliates, to the extent applicable) with the full benefit of the Employee's knowledge, expertise, skill, experience and ingenuity with respect to the business and affairs of Klondex G&S and Affiliates, except to the extent that the parties agree in writing that the Employee may work or provide services for remuneration to another entity, including serving on the board of directors or as an officer of other public or private companies, provided that such activities do not unduly interfere with the Employee's obligations to Klondex G&S and Affiliates;

     
  (ii)

do his utmost to promote, develop and extend the business of Klondex G&S and Affiliates, during the term of this Agreement, communicate and channel to Klondex G&S and/or Affiliates all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the business of Klondex G&S and Affiliates. Any such information thus communicated to Klondex G&S and Affiliates will be and remain the property of Klondex G&S and/or Affiliates notwithstanding any subsequent termination of the Employee's employment; and

     
  (iii)

exercise the degree of care, diligence and skill that a prudent senior officer would exercise in comparable circumstances.


4.2

Non-Solicitation

The Employee recognizes that he will obtain access to or obtain confidential information about other employees or consultants of Klondex G&S, Affiliates or other entities that may become affiliated with Klondex G&S or Klondex Mines in the future (" Related Entities "), including information about their education, experience, skills, ability, salary and benefits and relationships with customers, shareholders and suppliers of Klondex G&S, Affiliates and Related Entities. The Employee further recognizes that such information is not generally known, is of substantial value to Klondex G&S, Affiliates and Related Entities in securing and retaining customers, shareholders and suppliers, and will be acquired by the Employee because of his employment. Accordingly, the Employee shall not, during his employment and for twelve (12) months following the cessation of the Employee's employment with Klondex G&S, directly or indirectly, on his own behalf or on behalf of any other person, hire, solicit or induce any person who is, or was within six (6) months prior to any attempted hiring, solicitation or inducement, employed or engaged by Klondex G&S, an Affiliate or a Related Entity to leave such employment or engagement or enter into employment or engagement with any other person or entity.

4.3

Non-Competition

The Employee shall not, at any time during the term of this Agreement and for a period of six (6) months following the termination of this Agreement and/or the Employee's employment with Klondex G&S, for any reason, either directly or indirectly, individually or in partnership or jointly or in association with any person as principal, agent, consultant, employee, investor, shareholder (other than an investment of less than two (2) per cent of the shares of a company traded on a registered stock exchange) or in any other manner whatsoever, be employed or engaged by, advise, carry on or be interested in any person or entity that is involved in the business of mineral exploration in any area within two hundred (200) kilometers of any property Klondex G&S, an Affiliate or a Related Entity, in whole or part, owned or leased during the time the Employee was employed by Klondex G&S.


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4.4

Confidentiality


  (a)

In this Agreement, " Confidential Information " means confidential or proprietary information or material relating to the operations, personnel or business of Klondex G&S, Affiliates and Related Parties which the Employee obtains from Klondex G&S, an Affiliate or a Related Entity or from the officers, employees or agents of Klondex G&S, an Affiliate or a Related Entity, or otherwise by virtue of his employment by Klondex G&S, including, without limitation, corporate information, including plans, strategies, tactics, policies, resolutions, and any information regarding existing or contemplated litigation or negotiations; financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings; operational and scientific information, including trade secrets; technical information, technical drawings and designs, drill results, mine plans, pit designs and reserve and resource estimates; and personnel information, including personnel lists, staff compensation, resumes, personnel data, organizational structure and performance evaluations.

       
  (b)

In the course of carrying out and performing his/her duties and responsibilities to Klondex G&S (and for Affiliates with respect to services Employee provides to them as an employee of Klondex G&S) pursuant to this Agreement, the Employee will obtain access to and be entrusted with Confidential Information. Except as authorized by the Board of Directors of Klondex G&S or required by law, the Employee shall, during and after his employment:

       
  (i)

keep the Confidential Information in strict confidence and shall not copy or reproduce the Confidential Information except in the proper course of the Employee's employment and for the benefit of Klondex G&S;

       
  (ii)

not use the Confidential Information for his own account or to the detriment of Klondex G&S, an Affiliate or a Related Entity or their lenders; and

       
  (iii)

not directly or indirectly disclose, allow access to or transfer the Confidential Information to any third party (other than Klondex G&S or its directors, officers, bankers, lenders and financial advisors in the course of his employment or at the express direction of the Board of Directors of Klondex G&S).



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4.5

Remedy

The parties acknowledge and agree that provisions of Sections 4.1, 4.2, 4.3 and 4.4 are reasonable in the circumstances and that a breach by the Employee of any such provisions would cause irreparable harm to Klondex G&S, Affiliates and Related Entities, which could not be adequately compensated for by damages; and in the event of a breach of the said provisions by the Employee, the Employee consents to an injunction being issued restraining the Employee from any further breach thereof, but the provisions herein shall not be construed so as to be in derogation of any other remedy which Klondex G&S may have in the event of such a breach.

SECTION 5. TERMINATION OF EMPLOYMENT

5.1

Termination Date

In this Agreement, " Termination Date " means the date on which the Employee ceases to actively perform services for Klondex G&S.

5.2

Voluntary Resignation

If the Employee wishes to resign the Employee's employment voluntarily, the Employee shall provide sixty (60) days' notice in writing to Klondex G&S (the " Resignation Period "). Klondex G&S may, in its sole discretion, waive the Resignation Period in whole or in part by paying the Employee's Base Salary and continuing the Employee's group benefits coverage to the effective date of resignation. The Employee agrees that such waiver will not constitute termination of the Employee's employment by Klondex G&S. In the event of the Employee's voluntary resignation, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options he holds with respect to shares of Klondex Mines (or any successor entity) that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.2 or as required by law, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

5.3

Termination with Cause


  (a)

Klondex G&S may terminate the Employee's employment and this Agreement at any time without notice for just cause. For the purposes of this Agreement, " just cause " means:

       
  (i)

the non-performance, breach or default by the Employee of or under any of his covenants in this Agreement;

       
  (ii)

the failure by Employee to substantially perform Employee's duties with Klondex G&S (other than any such failure resulting from the Employee's disability as defined under the disability plans or programs as in effect for employees of Klondex G&S from time to time) after a written demand for substantial performance is delivered to the Employee that specifically identifies the manner in which Klondex G&S believes that the Employee has not substantially performed the Employee's duties, and the Employee has failed to resume on a continuous basis substantial performance of the Employee's duties (as determined by Klondex G&S) within 30 days of such written demand;



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  (iii)

Employee's disregard of or failure to comply with any lawful directive or instruction, written or otherwise, from the Board of Directors of Klondex G&S or any other person to whom Employee reports if such failure or disregard has a material adverse effect upon Klondex G&S or Affiliates;

     
  (iv)

negligence by Employee which causes, or which would reasonably be expected to cause, Klondex G&S or Affiliates material harm;

     
  (v)

Employee's material violation of applicable state, provincial or federal law relating to the business of Klondex G&S and Affiliates;

     
  (vi)

Employee's commission during the course of employment of any act of dishonesty, theft, fraud, embezzlement. misappropriation, assault, battery, malicious destruction of property, arson, sabotage, harassment, acts or omissions which violate the rules or policies (such as breaches of confidentiality) of Klondex G&S (or an Affiliate, to the extent applicable), or other conduct which demonstrates a disregard of the interests of Klondex G&S and Affiliates (regardless of whether the misconduct occurs on the premises of Klondex G&S); or

     
  (vii)

Employee's conviction of a crime (including, without limitation, a misdemeanor offense) which impairs Employee's ability substantially to perform Employee's duties under this Agreement.


  (b)

If the Employee's employment and this Agreement are terminated under this section, the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary and vacation pay, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date. All unexercised stock options, whether vested or unvested, in Klondex Mines held by the Employee shall be forfeited without any consideration or damages of any kind on the Termination Date.


5.4

Termination without Cause


  (a)

If the Employee experiences an involuntary termination of employment by Klondex G&S (or any successor) for any reason other than for just cause, then Klondex G&S (or its successor) shall provide the Employee with written notice specifying the Termination Date. Klondex G&S shall pay the Employee for all accrued but unpaid wages and vacation entitlements up to the Termination Date (net of applicable withholdings). In addition, provided that the Release under Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, Klondex G&S shall provide to the Employee a lump sum separation payment, net of applicable withholdings and less any amounts owing by the Employee to Klondex G&S, (the " Separation Payment ") equal to:



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  (i)

the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's date of hire on July 31, 2015 (the “Employee’s Date of Hire” ), an additional amount equal to one month's base salary will be added; plus

     
  (ii)

the monthly premium cost of coverage described in Section 2.3 multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire an additional amount equal to one month's premium cost will be added; plus

     
  (iii)

an amount equal to the Employee's then current target bonus amount pursuant to Section 2.2 for the year in which the Termination Date occurs (or if the target bonus amount for the year in which the Termination Date occurs has not been determined as of the Termination Date, the target bonus amount for the year prior to the Termination Date) plus an additional amount equal to 1/12th of such bonus amount for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire; plus

     
  (iv)

An amount equal to 4% of the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire, an additional amount equal to 4% of one month's base salary will be added.

For greater certainty, in no circumstances shall the Employee be entitled to a Separation Payment that is more than the equivalent of a total of 18 months of the payments in paragraphs 5.4(a)(i),(ii),(iii) and (iv) above (i.e., 12 months plus an additional month for each of the first six years of completed of service from Employee's Date of Hire, up to a maximum of an additional 6 months). With respect to the calculation in paragraph 5.4(a)(iii), the target annual bonus amount shall be used without regard to the achievement of any corporate and personal targets established in connection with such target bonus amount.

  (b)

The Separation Payment described in this Section 5.4 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), unless the Employee has failed to execute a Release as described in Section 5.4(c), in which case Employee shall forfeit any Separation Payment. The Separation Payment is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and therefore will be paid by March 15 th of the calendar year following the calendar year in which the notice of termination is given, provided that if the notice of termination specifies a termination date that will occur in a subsequent calendar year and further specifies that the Employee is required to continue providing service through that later termination date, then such payment will be paid by March 15 th of the calendar year following the Employee's termination date (such date, in either case, referred to herein as the "latest payment date").



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  (c)

In order for the Employee to receive the Separation Payment, the Employee must sign a release of claims ("Release") in substantially the form set forth in Attachment A to this Agreement on or prior to the date of the expiration of the consideration period (not less than 21 days) set forth in the Release. The Company agrees to provide the Employee with the Release within 10 days of the Termination Date, and in all cases no later than a date such that the last day of any revocation period described in the Release will occur on or before February 28 of the year in which the latest payment date occurs. If the Employee fails to sign the release within the time frame specified therein, the Employee will forfeit any right to the Separation Pay and the Employee shall not be entitled to any payments replacing the Separation Payment.

     
  (d)

In the event the Company terminates the Agreement and the Employee's employment under this section, all outstanding equity awards granted under compensatory plans shall vest 100%; provided however, if an outstanding equity award is subject to Section 409A, the acceleration of vesting will not change the time or form of payment in a manner that would violate Section 409A; if an outstanding equity award is exempt from Section 409A, the award will be administered in a manner that retains such exemption or otherwise complies with Section 409A.

     
  (e)

In the event the Company terminates the Agreement and the Employee's employment under this section, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options to acquire shares of Klondex Mines (or any successor) that he holds that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.4 or as otherwise provided under minimum employment standards legislation, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

     
  (f)

The Separation Payment is attributable to services performed in the United States.


5.5

Termination in the Event of a Change of Control


  (a)

For the purposes of this Agreement, a " Change of Control " means:



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  (i)

the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Klondex Mines to any person or entity or group of persons or entities, but not including the entering into of an option, joint venture or other arrangement whereby Klondex Mines transfers, or has the right to transfer, an interest in its mineral properties yet maintains control, majority ownership or an operating interest in the mineral properties, resulting entity or new arrangement;

       
  (ii)

the amalgamation, merger or arrangement of Klondex Mines with or into another entity where the shareholders of Klondex Mines immediately prior to the transaction will hold less than 50% of the voting securities of the resulting entity upon completion of the transaction;

       
  (iii)

any person or combination of persons acting jointly or in concert, acquiring or becoming the beneficial owner of, directly or indirectly, of more than 50% of the voting securities of Klondex Mines whether through the acquisition of previously issued and outstanding voting securities of Klondex Mines or of voting securities of Klondex Mines that have not previously been issued or any combination thereof or any other transaction with similar effect; or

       
  (iv)

the Board of Directors of Klondex Mines adopting a resolution to the effect that, for purposes of the Agreement, a Change of Control has occurred, or that such a Change of Control is imminent, in which case, the date of the Change of Control shall be deemed to be the date of such resolution.

       
  (b)

For the purposes of this Agreement, " Good Reason " means the continued occurrence of any of the following conditions without Employee's consent after the Employee has given Klondex G&S written notice of such condition within thirty days following the initial existence of the condition, and Klondex G&S has failed to cure such condition within 30 days of the date it received notice of the condition:

       
  (i)

Klondex G&S assigning to the Employee duties materially inconsistent with the Employee's duties and responsibilities under this Agreement, including those management duties performed by Employee, as an employee of Klondex G&S, for Klondex Mines or an Affiliate;

       
  (ii)

a unilateral reduction by Klondex G&S of the Employee's Base Salary, or any unilateral change in the basis upon which the Employee's Base Salary is determined or paid if the change is or will be materially adverse to the Employee, except where (x) such reduction or change is part of a general reduction in the base salary of all or substantially all of the members of management of Klondex G&S and which affects the Employee in substantially the same manner as the other members of the management of Klondex G&S who are also affected by such general reduction and (y) such change does not constitute more than ten percent (10%) of the Employee's Base Salary;



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  (iii)

Klondex G&S unilaterally relocating the Employee's principal location more than 100 miles from the Employee's current work location ( i.e., Klondex G&S's Reno, Nevada office); or

     
  (iv)

any material breach by Klondex G&S of any provision of this Agreement, which is not cured by Klondex G&S within thirty (30) days following written notice from the Employee.


  (c)

Notwithstanding Section 5.4, if, within one hundred and eighty (180) days following a Change of Control, the Employee experiences an involuntary termination of employment by Klondex G&S or any successor entity without just cause or if the Employee terminates employment for Good Reason, provided that a Release as described in Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, then:


  (i)

all unvested stock options to acquire shares of Klondex Mines (or any successor) held by the Employee shall immediately vest on the Termination Date and the Employee shall have one (1) year after the date of the Change of Control to exercise the vested stock options;

     
  (ii)

Klondex G&S shall provide the Employee with a lump-sum payment equal to the Separation Payment the Employee would have received under Sections 5.4(a);

     
  (iii)

the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date; and

     
  (iv)

The lump sum payment described in this Section 5.5 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), and in all cases by March 15 th of the calendar year following the calendar year in which the Employee's Termination Date occurs (in the case of an involuntary termination by the Company) or the calendar year in which the Employee's notice to the Company of termination for Good Reason occurs (in the case of Employee's termination for Good Reason).

For greater certainty, if the Employee's employment is terminated without Cause one hundred and eighty-one (181) days or more after the Change of Control the Employee's entitlements will be as per Section 5.4 above.


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  (d)

The lump sum payment is attributable to services performed in the United States.


5.6

Return of Property

In the event that the Employee's employment terminates for any reason, the Employee agrees to deliver to a nominated employee of Klondex G&S on the Termination Date all property of Klondex G&S and Affiliates and Related Entities, and other property for which Klondex G&S is liable to others, in the Employee's possession, charge or control (and any copies thereof) wherever situated including, without limiting the generality of the foregoing, any Confidential Information and all notes, memoranda and other documents concerning any of the business, personnel or affairs of Klondex G&S, Affiliates and Related Entities, whether in written or electronic form, all books, effects, money, securities, keys, pass cards, credit cards, laptops or vehicles.

5.7

Stock Options

Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement shall extend the term of any stock option past the expiration date of the option in accordance with the terms of such option agreement and/or option plan governing such option.

SECTION 6. MISCELLANEOUS

6.1

Headings

The headings of the Sections and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof.

6.2

Applicable Law

This Agreement will be governed by and be construed in accordance with the Laws of the State of Nevada. Venue for any action brought by the parties to this Agreement will be in the courts of the State of Nevada.

6.3

Arbitration

The parties agree that any dispute relating to the terms of this Agreement or the Employee's employment with Klondex G&S will be determined by arbitration in accordance with the then-current JAMS employment arbitration rules and procedures, except as modified herein. The arbitration will be conducted by a sole neutral arbitrator who has had both training and experience as an arbitrator of general employment and commercial matters and who is and for at least ten (10) years has been, a partner, a shareholder, or a member in a law firm. If Klondex G&S and Employee cannot agree on an arbitrator, then the arbitrator will be selected by JAMS in accordance with Rule 15 of the JAMS employment arbitration rules and procedures. No person who has served as a mediator under the mediation provision, however, may be selected as the arbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide any issue as to discovery. The arbitrator may decide any issue as to whether or as to the extent to which any dispute is subject to the dispute resolution provisions in this Agreement and the arbitrator may award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of this Section 6.3 and applicable law and must render the award in writing, including an explanation of the reasons for the award. Judgment upon the award may be entered by any court having jurisdiction of the matter, and the decision of the arbitrator will be final and binding. The statute of limitations applicable to the commencement of a lawsuit will apply to the commencement of an arbitration under this Section. The arbitrator's fees will be paid in equal portions by Klondex G&S and Employee, unless Klondex G&S agrees to pay all such fees.


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6.4

Severability

Each provision of this Agreement is intended to be severable; if any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal, void or invalid for any reason whatsoever, such provision shall be severed from this Agreement and the remaining terms and provisions shall remain in full force and effect.

6.5

Survivability

The provisions of Section 4, Section 5 and Section 6.3 shall survive the termination of this Agreement.

6.6

Pre-Contractual Representations

The Employee hereby waives any right to assert any claim based on any pre-contractual representations, negligent or otherwise, made by Klondex G&S, Klondex Mines or any Affiliates.

6.7

Assignability

This Agreement may not be assigned by the Employee. Without in any way limiting the rights of Klondex G&S to assign this Agreement, it is expressly understood and agreed that Klondex G&S shall have the right to assign this Agreement to any other entity to which the business of Klondex G&S is transferred, in whole or in part, which thereafter carries on the business of Klondex G&S.

6.8

Successors

This Agreement and all rights of the Employee hereunder will be binding upon and shall enure to the benefit and be binding upon Klondex G&S and its successors and assigns and the Employee and his heirs, representatives and administrators.

6.9

Waiver of Breach

The waiver by either the Employee or Klondex G&S of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that party.


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6.10

Modification of Agreement

Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void.

6.11

Entire Agreement

This Agreement reflects the entire agreement of the parties and supersedes and replaces all prior letters of intent, agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, between all or any of the parties with respect to the subject matter of this Agreement, including without limitation, the employment agreement between Employee, Klondex G&S and Klondex Mines effective as of July 31, 2015. The recitals and any schedules form a part of and are incorporated by reference into this Agreement.

6.12

Further Acts

The Employee agrees that on the request of Klondex G&S, he will execute, acknowledge, perform and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the better carrying out and performance of the terms of this Agreement.

6.13

Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

6.14

Independent Legal Advice

The Employee acknowledges that this Agreement has been prepared by Klondex G&S and that he has had sufficient time to review this Agreement thoroughly, that he has read and understood the terms of this Agreement and that he has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.

6.15

Compliance with Section 409A of the Internal Revenue Code

Payments and benefits provided under this Agreement as a result of Employee's termination of employment are intended to fall within the exception in U.S. Treasury Regulation 1.409A -1(b)(4) for short term deferrals or other applicable exceptions and will be interpreted and administered accordingly. However, to the extent that any payment under this Agreement is subject to Section 409A of the Code, it is intended to comply with Section 409A and this Agreement shall be interpreted and construed accordingly and in a manner that avoids the imposition of taxes and other penalties under Section 409A (such taxes and other penalties referred to collectively as "409A Penalties"). In the event that Klondex G&S determines that the terms of this Agreement would subject the Employee to 409A Penalties, Klondex G&S and the Employee shall cooperate diligently to amend the terms of this Agreement to avoid such 409A Penalties, to the extent possible; provided , however , that this Section 6.15 shall not create any obligation on the part of Klondex G&S to adopt any such amendment or take any such other action. All references in this Agreement to the Employee's termination of employment shall mean a "separation from service" within the meaning of Section 409A of the Code, to the extent required to comply with Section 409A of the Code. Any payment that is "deferred compensation" within the meaning of and subject to Section 409A of the Code that becomes payable as a result of the Employee's separation from service and that is conditioned upon the Employee's execution of a Release will be paid within 90 days following the Employee's separation from service and if such period begins in one taxable year and carries over into a second taxable year, payment shall be made in the second taxable year, and in no event shall the Employee have the ability to influence the year in which payment will occur. Notwithstanding any other provision in this Agreement, if on the date of the Employee's "separation from service" the Employee is a "specified employee," as defined in Section 409A of the Code, then to the extent any amount payable under this Agreement upon the Employee's separation from service would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such payment shall be delayed until the earlier to occur of (x) the first day of the seventh month following the Employee's separation from service or (y) the date of the Employee's death.


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6.16

Taxes; Parachute Payment

     
(a)

Withholding. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as Klondex G&S may reasonably determine should be withheld pursuant to any applicable law or regulation.

     
(b)

Parachute Payment. Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by Klondex G&S to or for the Employee's benefit (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a "Parachute Payment"), would result in an "excess parachute payment" within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Parachute Payments, net of all taxes imposed on the Employee (the "Net After-Tax Amount") that the Employee would receive would be increased if the Parachute Payments were reduced, then the Parachute Payments shall be reduced by an amount (the "Reduction Amount") so that the Net After-Tax Amount after such reduction is greatest. For purposes of determining the Net After-Tax Amount, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Parachute Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Parachute Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Subject to the provisions of this Section 6.16, all determinations required to be made under this Section 6.16, including the Net After-Tax Amount, the Reduction Amount and the Parachute Payments that are to be reduced pursuant to this Section 6.16 and the assumptions to be utilized in arriving at such determinations, shall be made by independent public accounting firm selected by Employee (the "Accounting Firm"), which shall provide detailed supporting calculations both to Klondex G&S and the Employee within fifteen (15) business days of the receipt of notice from the Employee that there has been a Parachute Payment, or such earlier time as is requested by the Employee. The Accounting Firm's decision as to which Parachute Payments are to be reduced shall be made (a) only from Parachute Payments that the Accounting Firm determines reasonably may be characterized as "parachute payments" under Section 280G of the Code; (b) only from Parachute Payments that are required to be made in cash; (c) only with respect to any amounts that are not payable pursuant to a "nonqualified deferred compensation plan" subject to Section 409A of the Code, until those payments have been reduced to zero; and (d) in reverse chronological order, to the extent that any Parachute Payments subject to reduction are made over time (e.g., in installments). In no event, however, shall any Parachute Payments be reduced if and to the extent such reduction would cause a violation of Section 409A of the Code or other applicable law. All fees and expenses of the Accounting Firm shall be borne solely by Klondex G&S. Any determination by the Accounting Firm shall be binding upon Klondex G&S and the Employee.



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6.17

Copy of Agreement

The Employee hereby acknowledges receipt of a copy of this Agreement duly executed by Klondex G&S.

[Remainder of page intentionally left blank. Signature page follows.] 

 


IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on January 29, 2016.

KLONDEX GOLD & SILVER MINING COMPANY

PAUL HUET, President

ACCEPTED:

/s/ John Seaberg   /s/ Barry Dahl
JOHN SEABERG   Witness Signature
     
January 29, 2016   Barry Dahl
Date Signed   Witness Name
     
     
    [REDACTED]
    Witness Address


ATTACHMENT A

RELEASE OF CLAIMS

This Agreement and General Release of all Claims (this " Release ") is entered into by _________________ (the " Employee ") and Klondex Gold & Silver Mining Co. (the "Company"), effective as of ___________________. In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the " Employment Agreement "), the Employee and the Company agree as set forth in this Release. Capitalized terms not defined in this Release shall have the meaning ascribed to them in the Employment Agreement.

The form of this Release is being provided to the Employee on _______________, 20__ and the Employee will have ________days from such date [a minimum of 21 days must be given] to consider whether to sign this Release (the "Consideration Period") and return it to the Company. If this Release is not executed and delivered to the Company by __________________, 20__, or if so delivered by the Employee but it is nevertheless revoked by the Employee within the applicable Revocation Period, then the Employee will forfeit all rights to any Separation Payment and other benefits to which the Employee may otherwise have been entitled pursuant to Section 5.4 or Section 5.5 of the Employment Agreement . The Employee may choose to sign and deliver this Release to the Company before the end of the Consideration Period. The Employee will have ____ days [must be at least 7 days and could be longer depending on employee's age and other factors. Consult U.S. counsel before completing this section] following the date of delivery to the Company of the executed Release to revoke the Release (the "Revocation Period") by delivery to the Company of written notice of such revocation within such Revocation Period.

In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the "Employment Agreement"), the Employee and the Company agree as follows:

1.     Return of Property . All files, access keys, desk keys, ID badges, computers, electronic devices, telephones and credit cards, and such other property of the Company, Affiliates and Related Parties as the Company may reasonably request, in the Employee's possession must be returned no later than the date of the Employee's termination from the Company.


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2.     General Release and Waiver of Claims .

(a)     Release . In consideration of the payments and benefits provided to the Employee under the Employment Agreement and after consultation with counsel, the Employee, his marital community, and each of the Employee's respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the " Releasors ") hereby irrevocably and unconditionally release and forever discharge the Company, Affiliates and Related Parties and each of their respective officers, employees, directors, shareholders and agents (" Releasees ") from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, " Claims "), including, without limitation, any Claims under any federal, state, local, provincial or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) the Employee's employment relationship with and service as an employee, officer or director of the Company, Affiliates of Related Parties, and the termination of such relationship or service, and (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that the Employee does not release, discharge or waive (i) the Employee's rights to payments and benefits provided under the Employment Agreement that are contingent upon the execution by the Employee of this Release, or rights to enforce the performance by the Company of its obligations under the Employment Agreement, (ii) any employee benefits payable pursuant to the terms of the applicable plans of the Company or any of its affiliates, which benefits shall be paid or provided in accordance with the terms of such plans, or (iii) any right of indemnification or contribution that the Employee may have under the organizational documents of the Company or from any other source, including, any directors' or officers' insurance policy maintained by the Company.

(b)     Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to the Employee under the Employment Agreement, the Releasors hereby unconditionally release and forever discharge the Releasees from any and all Claims that the Releasors may have as of the date the Employee signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (" ADEA "). By signing this Release, the Employee hereby acknowledges and confirms the following: (i) the Employee was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to the Employee the terms of this Release, including, without limitation, the terms relating to the Employee's release of claims arising under; (ii) the Employee was given a period of not fewer than [21]/[45] days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) the Employee knowingly and voluntarily accepts the terms of this Release; [and (iv) in accordance with the requirements of ADEA regarding an "employment termination program", the Employee was provided with the information appended hereto as Schedule 1]. The Employee also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph.


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(c)     No Assignment . The Employee represents and warrants that he has not assigned any of the Claims being released under this Release.

3.     Proceedings . The Employee has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Releasees before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Employee under the Employment Agreement (each, individually, a " Proceeding "), and agrees not to participate voluntarily in any Proceeding. The Employee waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.

4.     Remedies . In the event the Employee initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Release or his post-termination obligations contained in the Employment Agreement, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein. The Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Employee acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Employee from breaching his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

The Employee understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.

5.     Survival of Certain Terms of Employment Agreement . The Employee acknowledges and affirms that the Employee has previously executed the Employment Agreement (Attached hereto as Attachment A), and that the terms and conditions of the Employment Agreement that survive the employment relationship, including but not limited to the Employee's continuing confidentiality, non-competition and non-solicitation obligations, survive and are not affected by this Release.

6.      Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

7.     EEOC . Nothing in this Agreement shall be construed to prohibit the Employee from filing a charge or complaint, including a challenge to the validity of the waiver provision of this Agreement, with the Equal Employment Opportunity Commission. However, Employee has waived any right to monetary relief.


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8.     Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company.

9.     Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed in that State.

10.    Arbitration . Any dispute or controversy arising under or in connection with this Release or otherwise in connection with the Employee's employment by the Company that cannot be mutually resolved by the parties to this Release and their respective advisors and representatives shall be settled exclusively by arbitration in accordance with the provisions of Section 6.3 of the Employment Agreement.

11.    Counterparts . This Release may be executed via facsimile or electronic mail and in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument, binding on the parties.

12.    Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:

____________________

____________________
Attn : _______________

To the Employee:

The address most recently on file in the payroll records of the Company.

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission.

[Signature Page Follows]


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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.

Klondex Gold & Silver Mining Co.

By:  
   
Its:  

Employee:

   
Name:  
   
Address:  
   
Date:  



EMPLOYMENT AGREEMENT

THIS AGREEMENT, made effective as of March 1, 2015, is between KLONDEX GOLD & SILVER MINING COMPANY , a corporation duly organized under the laws of Nevada with offices at 360 Western Road, Suite 1, Reno, Nevada 89506 (" Klondex G&S " or the " Company ") and Brian Morris, residing at [ REDACTED ], (the " Employee "). This Agreement replaces and supersedes the employment agreement between Employee, Klondex G&S and Klondex Mines Ltd. (" Klondex Mines "), a corporation duly organized and existing under the laws of British Columbia, dated effective as of December 18, 2014.

WHEREAS:

A.     Klondex G&S is a wholly owned subsidiary of Klondex Mines, a reporting issuer in Canada listed on the Toronto Stock Exchange (the " TSX ") with operations in Vancouver, British Columbia, Reno, Nevada, Winnemucca, Nevada and Elko, Nevada;

B.     substantially all of Klondex Mines's operations are conducted through Klondex Holdings (USA) Inc., Klondex G&S, Klondex Midas Holdings Limited and Klondex Midas Operations Inc. (each such entity, including Klondex Mines, but other than Klondex G&S, an " Affiliate ");

C.     Klondex G&S desires to employ Employee and Employee desires to be employed by Klondex G&S pursuant to the terms and conditions of this Agreement;

THEREFORE , the parties, in consideration of the promises and the mutual covenants and agreements contained herein, mutually agree and covenant as follows:

SECTION 1. EMPLOYMENT AND WORK DUTIES

1.1

Employment

Klondex G&S agrees to employ Employee and Employee agrees to be employed by Klondex G&S to provide such management services as requested by Klondex G&S. Employee understands that as an employee of Klondex G&S, he may be required to provide management services to an Affiliate, including, but not limited to, services as Vice President, Exploration to Klondex Mines, if requested by Klondex G&S in fulfillment of Klondex G&S's obligations under applicable administrative and technical services agreements.

1.2

Duties

Subject to the terms and conditions of this Agreement, the Employee shall report to the President of Klondex G&S (the " President "). The Employee shall continue to perform such duties and responsibilities and exercise such powers as may from time to time be reasonably assigned to the Employee by the President.


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1.3

Location

The Employee shall work from the Klondex G&S office in Reno, Nevada but also will have a presence at the mine sites (or office locations) of Klondex Mines and Affiliates, as reasonably may be requested by Klondex G&S, and occasional presence in Vancouver, and/or Toronto to attend meetings.

SECTION 2. COMPENSATION AND BENEFITS (IN US$)

2.1

Base Salary and Other Compensation

Subject to the other terms and conditions of this Agreement, Klondex G&S shall pay to the Employee a base salary of US$185,000 per annum (the " Base Salary "), less required and authorized deductions and withholdings, paid to the Employee in equal bimonthly (twice a month) payments in arrears, and pro-rated for any partial month of employment. The Base Salary will be reviewed by the President from time to time.

Klondex G&S shall pay to the Employee an amount equal to the employee cost of employee and spouse coverage under the Anthem Medical, Anthem Dental and EyeMed Vision Plans (or any plans which replace these plans), on an after tax basis, regardless of whether or not the Employee has elected such coverage (the " Other Compensation "). The Other Compensation will be reviewed by the President from time to time.

2.2

Annual Bonus

The Employee shall be eligible for a target annual bonus of 40% of the Employee's annual Base Salary, less required and authorized deductions and withholdings, subject to achieving corporate and personal targets to be mutually agreed upon in writing at the beginning of each calendar year with the President. It is a term and condition of eligibility for the payment of any bonus payment that the Employee be employed by Klondex G&S or an Affiliate on the last day of the fiscal year in respect of which the annual bonus is payable. The Employee shall not be deemed to be employed following the date the Employee ceases to be actively employed by Klondex G&S and all Affiliates, and for greater certainty, in the event of the termination of the Employee's employment without just cause, such date shall be as specified in the notice of termination from Klondex G&S (and shall not include or be deemed to include any period of notice of termination to which the Employee may be entitled under this Agreement, statute, common law or otherwise). If the Employee is eligible to receive a bonus, any such bonus generally will be paid within 90 days following the approval of the annual financial statements for the fiscal year, provided that in all cases such payment will occur during the calendar year following the last day of the fiscal year in which the services giving rise to the bonus are performed.


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2.3

Group Benefits

During the term of this Agreement, the Employee shall be entitled to participate in any group insurance, supplemental health insurance, qualified pension, 401(k), hospitalization, medical health and accident, disability, life, or similar plan or program of Klondex G&S or an Affiliate now existing or hereafter established covering employees of Klondex G&S in both Canada and the United States, subject to the terms and conditions of such plans. Any claim or dispute relating to a decision made by the group benefits insurer will be with and directed to the insurer only, and will not form the basis for any dispute or liability as between Klondex G&S or an Affiliate and the Employee. Notwithstanding anything herein to the contrary, however, Klondex G&S or an Affiliate sponsoring such plan may at any time and from time to time modify, suspend, or discontinue any or all such benefit plans for its employees generally or for any group thereof at its sole discretion, without any obligation to replace such modified, suspended or discontinued benefit with any other benefit, equivalent or otherwise, or to otherwise compensate the Employee in respect thereof.

2.4

Vacation and Holidays

In addition to any statutory and other holidays observed by Klondex G&S, during the term of this Agreement, the Employee shall be entitled to paid vacation of four (4) weeks during each calendar year, pro-rated for any partial calendar years. Such vacation shall be taken at a time or times acceptable to Klondex G&S having regard to its operations. The vacation will be subject to the Vacation Policy contained in the Employee Handbook of Klondex G&S.

2.5

Equity Incentive Plans

The Employee shall be eligible to participate in any equity incentive plan made available to senior management of Klondex G&S, including any such plans sponsored by Klondex Mines, in accordance with the terms and conditions of such plan(s) as may be amended from time to time. Annual equity incentive grants will be made following the Annual Meeting of Klondex Mines in or around June annually.

2.6

Company Vehicle

In order to perform his responsibilities under this Agreement, the Employee will have access to a vehicle leased or owned by Klondex G&S at all times that the Employee is located in Reno, Nevada during the normal course of his employment. The Employee acknowledges that his use of such vehicle may constitute a taxable benefit to him in whole or in part, and that Klondex G&S shall be responsible for any and all tax liabilities arising from his personal use of such vehicle, if any.

SECTION 3. EXPENSES

3.1

Travel Expense

The Employee will be reimbursed for all reasonable and documented travel and other reasonable and documented out-of-pocket expenses actually, exclusively, necessarily, and properly incurred by the Employee in connection with the performance of his duties and functions, subject to the policies of Klondex G&S in effect from time to time and the Employee first providing receipts or vouchers to Klondex G&S and reasonable particulars of such expenses within sixty (60) days after the date the expenses are incurred. If such expense qualifies hereunder for reimbursement, then Klondex G&S will reimburse the Employee for that expense within thirty (30) days thereafter. Each reimbursement must be made no later than the end of the calendar year following the calendar year in which the expense was incurred. The amount of reimbursements in any calendar year shall not affect the expenses eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.


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3.2

Professional Development

The parties acknowledge that it will benefit if the Employee holds and improves his professional qualifications and engages in professional and trade organizations. Accordingly, subject to prior approval by the President, Klondex G&S will pay or reimburse the Employee for the costs and fees of business and professional organization memberships reasonably intended to improve the Employee's professional qualifications or the visibility and/or reputation of Klondex G&S and Affiliates within the business community. The Employee must provide receipts or vouchers to Klondex G&S for such costs and fees within sixty (60) days after the later of (i) the Employee's incurrence of such cost and fees; and (ii) the Employee's receipt of the invoice for such cost and fees. Klondex G&S will reimburse the Employee for such costs and fees within thirty (30) days thereafter. In no event will any such payment or reimbursement be made later than the end of the calendar year following the calendar year in which the cost and fees were incurred. The amount of such reimbursements in any calendar year shall not affect the costs and fees eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.

3.3

Professional Insurance

Klondex G&S will maintain, or cause Klondex Mines to maintain, adequate Directors & Officers Liability Insurance to properly protect the Employee against loss. Klondex G&S and Klondex Mines will be directly responsible for all legal fees and other expenses for actions brought against the Employee provided that (i) the Employee had reasonable grounds for believing he acted honestly and in good faith with a view to the best interests of Klondex G&S and Affiliates and, (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

3.4

Non-US Income Taxes

Klondex G&S has a tax equalization policy and the Employee will be subject to such tax equalization policy, which is intended to reduce the potential for double taxation.

SECTION 4. EMPLOYEE COVENANTS

4.1

Employee's Services

The Employee hereby covenants and agrees that:


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  (a)

the Employee shall, in the exercise of the Employee's duties, at all times follow the policies of Klondex G&S (and the policies of Affiliates, to the extent applicable) and the lawful instructions given and any regulations made by the Board of Directors of Klondex G&S (and the Board of Directors of Klondex Mines, to the extent applicable) and will, from time to time, and at all times when required to do so, give an account of Employee's activities to the President with respect to all transactions, matters and things relating to Klondex G&S and Affiliates; and

       
  (b)

the Employee shall, for the term of this Agreement, unless prevented by illness:

       
  (i)

devote the Employee's whole time and attention to the Employee's duties in the Employee's position and provide Klondex G&S (and Affiliates, to the extent applicable) with the full benefit of the Employee's knowledge, expertise, skill, experience and ingenuity with respect to the business and affairs of Klondex G&S and Affiliates, except to the extent that the parties agree in writing that the Employee may work or provide services for remuneration to another entity, including serving on the board of directors or as an officer of other public or private companies, provided that such activities do not unduly interfere with the Employee's obligations to Klondex G&S and Affiliates;

       
  (ii)

do his utmost to promote, develop and extend the business of Klondex G&S and Affiliates, during the term of this Agreement, communicate and channel to Klondex G&S and/or Affiliates all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the business of Klondex G&S and Affiliates. Any such information thus communicated to Klondex G&S and Affiliates will be and remain the property of Klondex G&S and/or Affiliates notwithstanding any subsequent termination of the Employee's employment; and

       
  (iii)

exercise the degree of care, diligence and skill that a prudent senior officer would exercise in comparable circumstances.


4.2

Non-Solicitation

The Employee recognizes that he will obtain access to or obtain confidential information about other employees or consultants of Klondex G&S, Affiliates or other entities that may become affiliated with Klondex G&S or Klondex Mines in the future (" Related Entities "), including information about their education, experience, skills, ability, salary and benefits and relationships with customers, shareholders and suppliers of Klondex G&S, Affiliates and Related Entities. The Employee further recognizes that such information is not generally known, is of substantial value to Klondex G&S, Affiliates and Related Entities in securing and retaining customers, shareholders and suppliers, and will be acquired by the Employee because of his employment. Accordingly, the Employee shall not, during his employment and for twelve (12) months following the cessation of the Employee's employment with Klondex G&S, directly or indirectly, on his own behalf or on behalf of any other person, hire, solicit or induce any person who is, or was within six (6) months prior to any attempted hiring, solicitation or inducement, employed or engaged by Klondex G&S, an Affiliate or a Related Entity to leave such employment or engagement or enter into employment or engagement with any other person or entity.


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4.3

Non-Competition

The Employee shall not, at any time during the term of this Agreement and for a period of six (6) months following the termination of this Agreement and/or the Employee's employment with Klondex G&S, for any reason, either directly or indirectly, individually or in partnership or jointly or in association with any person as principal, agent, consultant, employee, investor, shareholder (other than an investment of less than two (2) per cent of the shares of a company traded on a registered stock exchange) or in any other manner whatsoever, be employed or engaged by, advise, carry on or be interested in any person or entity that is involved in the business of mineral exploration in any area within two hundred (200) kilometers of any property Klondex G&S, an Affiliate or a Related Entity, in whole or part, owned or leased during the time the Employee was employed by Klondex G&S.

4.4

Confidentiality


  (a)

In this Agreement, " Confidential Information " means confidential or proprietary information or material relating to the operations, personnel or business of Klondex G&S, Affiliates and Related Parties which the Employee obtains from Klondex G&S, an Affiliate or a Related Entity or from the officers, employees or agents of Klondex G&S, an Affiliate or a Related Entity, or otherwise by virtue of his employment by Klondex G&S, including, without limitation, corporate information, including plans, strategies, tactics, policies, resolutions, and any information regarding existing or contemplated litigation or negotiations; financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings; operational and scientific information, including trade secrets; technical information, technical drawings and designs, drill results, mine plans, pit designs and reserve and resource estimates; and personnel information, including personnel lists, staff compensation, resumes, personnel data, organizational structure and performance evaluations.

     
  (b)

In the course of carrying out and performing his/her duties and responsibilities to Klondex G&S (and for Affiliates with respect to services Employee provides to them as an employee of Klondex G&S) pursuant to this Agreement, the Employee will obtain access to and be entrusted with Confidential Information. Except as authorized by the Board of Directors of Klondex G&S or required by law, the Employee shall, during and after his employment:


  (i)

keep the Confidential Information in strict confidence and shall not copy or reproduce the Confidential Information except in the proper course of the Employee's employment and for the benefit of Klondex G&S;



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  (ii)

not use the Confidential Information for his own account or to the detriment of Klondex G&S, an Affiliate or a Related Entity or their lenders; and

     
  (iii)

not directly or indirectly disclose, allow access to or transfer the Confidential Information to any third party (other than Klondex G&S or its directors, officers, bankers, lenders and financial advisors in the course of his employment or at the express direction of the Board of Directors of Klondex G&S).


4.5

Remedy

The parties acknowledge and agree that provisions of Sections 4.1, 4.2, 4.3 and 4.4 are reasonable in the circumstances and that a breach by the Employee of any such provisions would cause irreparable harm to Klondex G&S, Affiliates and Related Entities, which could not be adequately compensated for by damages; and in the event of a breach of the said provisions by the Employee, the Employee consents to an injunction being issued restraining the Employee from any further breach thereof, but the provisions herein shall not be construed so as to be in derogation of any other remedy which Klondex G&S may have in the event of such a breach.

SECTION 5. TERMINATION OF EMPLOYMENT

5.1

Termination Date

In this Agreement, " Termination Date " means the date on which the Employee ceases to actively perform services for Klondex G&S.

5.2

Voluntary Resignation

If the Employee wishes to resign the Employee's employment voluntarily, the Employee shall provide sixty (60) days' notice in writing to Klondex G&S (the " Resignation Period "). Klondex G&S may, in its sole discretion, waive the Resignation Period in whole or in part by paying the Employee's Base Salary and continuing the Employee's group benefits coverage to the effective date of resignation. The Employee agrees that such waiver will not constitute termination of the Employee's employment by Klondex G&S. In the event of the Employee's voluntary resignation, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options he holds with respect to shares of Klondex Mines (or any successor entity) that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.2 or as required by law, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.


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5.3

Termination with Cause


  (a)

Klondex G&S may terminate the Employee's employment and this Agreement at any time without notice for just cause. For the purposes of this Agreement, " just cause " means:


  (i)

the non-performance, breach or default by the Employee of or under any of his covenants in this Agreement;

     
  (ii)

the failure by Employee to substantially perform Employee's duties with Klondex G&S (other than any such failure resulting from the Employee's disability as defined under the disability plans or programs as in effect for employees of Klondex G&S from time to time) after a written demand for substantial performance is delivered to the Employee that specifically identifies the manner in which Klondex G&S believes that the Employee has not substantially performed the Employee's duties, and the Employee has failed to resume on a continuous basis substantial performance of the Employee's duties (as determined by Klondex G&S) within 30 days of such written demand;

     
  (iii)

Employee's disregard of or failure to comply with any lawful directive or instruction, written or otherwise, from the Board of Directors of Klondex G&S or any other person to whom Employee reports if such failure or disregard has a material adverse effect upon Klondex G&S or Affiliates;

     
  (iv)

negligence by Employee which causes, or which would reasonably be expected to cause, Klondex G&S or Affiliates material harm;

     
  (v)

Employee's material violation of applicable state, provincial or federal law relating to the business of Klondex G&S and Affiliates;

     
  (vi)

Employee's commission during the course of employment of any act of dishonesty, theft, fraud, embezzlement. misappropriation, assault, battery, malicious destruction of property, arson, sabotage, harassment, acts or omissions which violate the rules or policies (such as breaches of confidentiality) of Klondex G&S (or an Affiliate, to the extent applicable), or other conduct which demonstrates a disregard of the interests of Klondex G&S and Affiliates (regardless of whether the misconduct occurs on the premises of Klondex G&S); or

     
  (vii)

Employee's conviction of a crime (including, without limitation, a misdemeanor offense) which impairs Employee's ability substantially to perform Employee's duties under this Agreement.


  (b)

If the Employee's employment and this Agreement are terminated under this section, the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary and vacation pay, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date. All unexercised stock options, whether vested or unvested, in Klondex Mines held by the Employee shall be forfeited without any consideration or damages of any kind on the Termination Date.



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5.4

Termination without Cause


  (a)

If the Employee experiences an involuntary termination of employment by Klondex G&S (or any successor) for any reason other than for just cause, then Klondex G&S (or its successor) shall provide the Employee with written notice specifying the Termination Date. Klondex G&S shall pay the Employee for all accrued but unpaid wages and vacation entitlements up to the Termination Date (net of applicable withholdings). In addition, provided that the Release under Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, Klondex G&S shall provide to the Employee a lump sum separation payment, net of applicable withholdings and less any amounts owing by the Employee to Klondex G&S, (the " Separation Payment ") equal to:


  (i)

the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's date of hire on January 2, 2015 (the “Employee’s Date of Hire” ), an additional amount equal to one month's base salary will be added; plus

     
  (ii)

the monthly premium cost of coverage described in Section 2.3 multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire an additional amount equal to one month's premium cost will be added; plus

     
  (iii)

an amount equal to the Employee's then current target bonus amount pursuant to Section 2.2 for the year in which the Termination Date occurs (or if the target bonus amount for the year in which the Termination Date occurs has not been determined as of the Termination Date, the target bonus amount for the year prior to the Termination Date) plus an additional amount equal to 1/12th of such bonus amount for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire; plus

     
  (iv)

An amount equal to 4% of the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire, an additional amount equal to 4% of one month's base salary will be added. For greater certainty, in no circumstances shall the Employee be entitled to a Separation Payment that is more than the equivalent of a total of 18 months of the payments in paragraphs 5.4(a)(i),(ii),(iii) and (iv) above (i.e., 12 months plus an additional month for each of the first six years of completed of service from Employee's Date of Hire, up to a maximum of an additional 6 months). With respect to the calculation in paragraph 5.4(a)(iii), the target annual bonus amount shall be used without regard to the achievement of any corporate and personal targets established in connection with such target bonus amount.



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  (b)

The Separation Payment described in this Section 5.4 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), unless the Employee has failed to execute a Release as described in Section 5.4(c), in which case Employee shall forfeit any Separation Payment. The Separation Payment is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and therefore will be paid by March 15 th of the calendar year following the calendar year in which the notice of termination is given, provided that if the notice of termination specifies a termination date that will occur in a subsequent calendar year and further specifies that the Employee is required to continue providing service through that later termination date, then such payment will be paid by March 15 th of the calendar year following the Employee's termination date (such date, in either case, referred to herein as the "latest payment date").

     
  (c)

In order for the Employee to receive the Separation Payment, the Employee must sign a release of claims ("Release") in substantially the form set forth in Attachment A to this Agreement on or prior to the date of the expiration of the consideration period (not less than 21 days) set forth in the Release. The Company agrees to provide the Employee with the Release within 10 days of the Termination Date, and in all cases no later than a date such that the last day of any revocation period described in the Release will occur on or before February 28 of the year in which the latest payment date occurs. If the Employee fails to sign the release within the time frame specified therein, the Employee will forfeit any right to the Separation Pay and the Employee shall not be entitled to any payments replacing the Separation Payment.

     
  (d)

In the event the Company terminates the Agreement and the Employee's employment under this section, all outstanding equity awards granted under compensatory plans shall vest 100%; provided however, if an outstanding equity award is subject to Section 409A, the acceleration of vesting will not change the time or form of payment in a manner that would violate Section 409A; if an outstanding equity award is exempt from Section 409A, the award will be administered in a manner that retains such exemption or otherwise complies with Section 409A.

     
  (e)

In the event the Company terminates the Agreement and the Employee's employment under this section, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options to acquire shares of Klondex Mines (or any successor) that he holds that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.4 or as otherwise provided under minimum employment standards legislation, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.



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  (f)

The Separation Payment is attributable to services performed in the United States.


5.5

Termination in the Event of a Change of Control


  (a)

For the purposes of this Agreement, a " Change of Control " means:

       
  (i)

the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Klondex Mines to any person or entity or group of persons or entities, but not including the entering into of an option, joint venture or other arrangement whereby Klondex Mines transfers, or has the right to transfer, an interest in its mineral properties yet maintains control, majority ownership or an operating interest in the mineral properties, resulting entity or new arrangement;

       
  (ii)

the amalgamation, merger or arrangement of Klondex Mines with or into another entity where the shareholders of Klondex Mines immediately prior to the transaction will hold less than 50% of the voting securities of the resulting entity upon completion of the transaction;

       
  (iii)

any person or combination of persons acting jointly or in concert, acquiring or becoming the beneficial owner of, directly or indirectly, of more than 50% of the voting securities of Klondex Mines whether through the acquisition of previously issued and outstanding voting securities of Klondex Mines or of voting securities of Klondex Mines that have not previously been issued or any combination thereof or any other transaction with similar effect; or

       
  (iv)

the Board of Directors of Klondex Mines adopting a resolution to the effect that, for purposes of the Agreement, a Change of Control has occurred, or that such a Change of Control is imminent, in which case, the date of the Change of Control shall be deemed to be the date of such resolution.

       
  (b)

For the purposes of this Agreement, " Good Reason " means the continued occurrence of any of the following conditions without Employee's consent after the Employee has given Klondex G&S written notice of such condition within thirty days following the initial existence of the condition, and Klondex G&S has failed to cure such condition within 30 days of the date it received notice of the condition:



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  (i)

Klondex G&S assigning to the Employee duties materially inconsistent with the Employee's duties and responsibilities under this Agreement, including those management duties performed by Employee, as an employee of Klondex G&S, for Klondex Mines or an Affiliate;

     
  (ii)

a unilateral reduction by Klondex G&S of the Employee's Base Salary, or any unilateral change in the basis upon which the Employee's Base Salary is determined or paid if the change is or will be materially adverse to the Employee, except where (x) such reduction or change is part of a general reduction in the base salary of all or substantially all of the members of management of Klondex G&S and which affects the Employee in substantially the same manner as the other members of the management of Klondex G&S who are also affected by such general reduction and (y) such change does not constitute more than ten percent (10%) of the Employee's Base Salary;

     
  (iii)

Klondex G&S unilaterally relocating the Employee's principal location more than 100 miles from the Employee's current work location ( i.e., Klondex G&S's Reno, Nevada office); or

     
  (iv)

any material breach by Klondex G&S of any provision of this Agreement, which is not cured by Klondex G&S within thirty (30) days following written notice from the Employee.


  (c)

Notwithstanding Section 5.4, if, within one hundred and eighty (180) days following a Change of Control, the Employee experiences an involuntary termination of employment by Klondex G&S or any successor entity without just cause or if the Employee terminates employment for Good Reason, provided that a Release as described in Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, then:


  (i)

all unvested stock options to acquire shares of Klondex Mines (or any successor) held by the Employee shall immediately vest on the Termination Date and the Employee shall have one (1) year after the date of the Change of Control to exercise the vested stock options;

     
  (ii)

Klondex G&S shall provide the Employee with a lump-sum payment equal to the Separation Payment the Employee would have received under Sections 5.4(a);

     
  (iii)

the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date; and



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  (iv)

The lump sum payment described in this Section 5.5 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), and in all cases by March 15 th of the calendar year following the calendar year in which the Employee's Termination Date occurs (in the case of an involuntary termination by the Company) or the calendar year in which the Employee's notice to the Company of termination for Good Reason occurs (in the case of Employee's termination for Good Reason).

For greater certainty, if the Employee's employment is terminated without Cause one hundred and eighty-one (181) days or more after the Change of Control the Employee's entitlements will be as per Section 5.4 above.

  (d)

The lump sum payment is attributable to services performed in the United States.


5.6

Return of Property

In the event that the Employee's employment terminates for any reason, the Employee agrees to deliver to a nominated employee of Klondex G&S on the Termination Date all property of Klondex G&S and Affiliates and Related Entities, and other property for which Klondex G&S is liable to others, in the Employee's possession, charge or control (and any copies thereof) wherever situated including, without limiting the generality of the foregoing, any Confidential Information and all notes, memoranda and other documents concerning any of the business, personnel or affairs of Klondex G&S, Affiliates and Related Entities, whether in written or electronic form, all books, effects, money, securities, keys, pass cards, credit cards, laptops or vehicles.

5.7

Stock Options

Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement shall extend the term of any stock option past the expiration date of the option in accordance with the terms of such option agreement and/or option plan governing such option.

SECTION 6. MISCELLANEOUS

6.1

Headings

The headings of the Sections and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof.

6.2

Applicable Law

This Agreement will be governed by and be construed in accordance with the Laws of the State of Nevada. Venue for any action brought by the parties to this Agreement will be in the courts of the State of Nevada.


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6.3

Arbitration

The parties agree that any dispute relating to the terms of this Agreement or the Employee's employment with Klondex G&S will be determined by arbitration in accordance with the then-current JAMS employment arbitration rules and procedures, except as modified herein. The arbitration will be conducted by a sole neutral arbitrator who has had both training and experience as an arbitrator of general employment and commercial matters and who is and for at least ten (10) years has been, a partner, a shareholder, or a member in a law firm. If Klondex G&S and Employee cannot agree on an arbitrator, then the arbitrator will be selected by JAMS in accordance with Rule 15 of the JAMS employment arbitration rules and procedures. No person who has served as a mediator under the mediation provision, however, may be selected as the arbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide any issue as to discovery. The arbitrator may decide any issue as to whether or as to the extent to which any dispute is subject to the dispute resolution provisions in this Agreement and the arbitrator may award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of this Section 6.3 and applicable law and must render the award in writing, including an explanation of the reasons for the award. Judgment upon the award may be entered by any court having jurisdiction of the matter, and the decision of the arbitrator will be final and binding. The statute of limitations applicable to the commencement of a lawsuit will apply to the commencement of an arbitration under this Section. The arbitrator's fees will be paid in equal portions by Klondex G&S and Employee, unless Klondex G&S agrees to pay all such fees.

6.4

Severability

Each provision of this Agreement is intended to be severable; if any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal, void or invalid for any reason whatsoever, such provision shall be severed from this Agreement and the remaining terms and provisions shall remain in full force and effect.

6.5

Survivability

The provisions of Section 4, Section 5 and Section 6.3 shall survive the termination of this Agreement.

6.6

Pre-Contractual Representations

The Employee hereby waives any right to assert any claim based on any pre-contractual representations, negligent or otherwise, made by Klondex G&S, Klondex Mines or any Affiliates.

6.7

Assignability

This Agreement may not be assigned by the Employee. Without in any way limiting the rights of Klondex G&S to assign this Agreement, it is expressly understood and agreed that Klondex G&S shall have the right to assign this Agreement to any other entity to which the business of Klondex G&S is transferred, in whole or in part, which thereafter carries on the business of Klondex G&S.


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6.8

Successors

This Agreement and all rights of the Employee hereunder will be binding upon and shall enure to the benefit and be binding upon Klondex G&S and its successors and assigns and the Employee and his heirs, representatives and administrators.

6.9

Waiver of Breach

The waiver by either the Employee or Klondex G&S of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that party.

6.10

Modification of Agreement

Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void.

6.11

Entire Agreement

This Agreement reflects the entire agreement of the parties and supersedes and replaces all prior letters of intent, agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, between all or any of the parties with respect to the subject matter of this Agreement, including without limitation, the employment agreement between Employee, Klondex G&S and Klondex Mines effective as of December 18, 2014. The recitals and any schedules form a part of and are incorporated by reference into this Agreement.

6.12

Further Acts

The Employee agrees that on the request of Klondex G&S, he will execute, acknowledge, perform and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the better carrying out and performance of the terms of this Agreement.

6.13

Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

6.14

Independent Legal Advice

The Employee acknowledges that this Agreement has been prepared by Klondex G&S and that he has had sufficient time to review this Agreement thoroughly, that he has read and understood the terms of this Agreement and that he has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.


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6.15

Compliance with Section 409A of the Internal Revenue Code

Payments and benefits provided under this Agreement as a result of Employee's termination of employment are intended to fall within the exception in U.S. Treasury Regulation 1.409A -1(b)(4) for short term deferrals or other applicable exceptions and will be interpreted and administered accordingly. However, to the extent that any payment under this Agreement is subject to Section 409A of the Code, it is intended to comply with Section 409A and this Agreement shall be interpreted and construed accordingly and in a manner that avoids the imposition of taxes and other penalties under Section 409A (such taxes and other penalties referred to collectively as "409A Penalties"). In the event that Klondex G&S determines that the terms of this Agreement would subject the Employee to 409A Penalties, Klondex G&S and the Employee shall cooperate diligently to amend the terms of this Agreement to avoid such 409A Penalties, to the extent possible; provided , however , that this Section 6.15 shall not create any obligation on the part of Klondex G&S to adopt any such amendment or take any such other action. All references in this Agreement to the Employee's termination of employment shall mean a "separation from service" within the meaning of Section 409A of the Code, to the extent required to comply with Section 409A of the Code. Any payment that is "deferred compensation" within the meaning of and subject to Section 409A of the Code that becomes payable as a result of the Employee's separation from service and that is conditioned upon the Employee's execution of a Release will be paid within 90 days following the Employee's separation from service and if such period begins in one taxable year and carries over into a second taxable year, payment shall be made in the second taxable year, and in no event shall the Employee have the ability to influence the year in which payment will occur. Notwithstanding any other provision in this Agreement, if on the date of the Employee's "separation from service" the Employee is a "specified employee," as defined in Section 409A of the Code, then to the extent any amount payable under this Agreement upon the Employee's separation from service would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such payment shall be delayed until the earlier to occur of (x) the first day of the seventh month following the Employee's separation from service or (y) the date of the Employee's death.

6.16

Taxes; Parachute Payment

     
(a)

Withholding. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as Klondex G&S may reasonably determine should be withheld pursuant to any applicable law or regulation.

     
(b)

Parachute Payment. Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by Klondex G&S to or for the Employee's benefit (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a "Parachute Payment"), would result in an "excess parachute payment" within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Parachute Payments, net of all taxes imposed on the Employee (the "Net After-Tax Amount") that the Employee would receive would be increased if the Parachute Payments were reduced, then the Parachute Payments shall be reduced by an amount (the "Reduction Amount") so that the Net After-Tax Amount after such reduction is greatest. For purposes of determining the Net After-Tax Amount, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Parachute Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Parachute Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Subject to the provisions of this Section 6.16, all determinations required to be made under this Section 6.16, including the Net After-Tax Amount, the Reduction Amount and the Parachute Payments that are to be reduced pursuant to this Section 6.16 and the assumptions to be utilized in arriving at such determinations, shall be made by independent public accounting firm selected by Employee (the "Accounting Firm"), which shall provide detailed supporting calculations both to Klondex G&S and the Employee within fifteen (15) business days of the receipt of notice from the Employee that there has been a Parachute Payment, or such earlier time as is requested by the Employee. The Accounting Firm's decision as to which Parachute Payments are to be reduced shall be made (a) only from Parachute Payments that the Accounting Firm determines reasonably may be characterized as "parachute payments" under Section 280G of the Code; (b) only from Parachute Payments that are required to be made in cash; (c) only with respect to any amounts that are not payable pursuant to a "nonqualified deferred compensation plan" subject to Section 409A of the Code, until those payments have been reduced to zero; and (d) in reverse chronological order, to the extent that any Parachute Payments subject to reduction are made over time (e.g., in installments). In no event, however, shall any Parachute Payments be reduced if and to the extent such reduction would cause a violation of Section 409A of the Code or other applicable law. All fees and expenses of the Accounting Firm shall be borne solely by Klondex G&S. Any determination by the Accounting Firm shall be binding upon Klondex G&S and the Employee.



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6.17

Copy of Agreement

The Employee hereby acknowledges receipt of a copy of this Agreement duly executed by Klondex G&S.

[Remainder of page intentionally left blank. Signature page follows.]

 


IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on January 28, 2016.

KLONDEX GOLD & SILVER MINING COMPANY

PAUL HUET, President

ACCEPTED:

/s/ Brian Morris   /s/ Barry Dahl
BRIAN MORRIS   Witness Signature
     
January 28, 2016   Barry Dahl
Date Signed   Witness Name
     
     
    [REDACTED]
    Witness Address


ATTACHMENT A

RELEASE OF CLAIMS

This Agreement and General Release of all Claims (this " Release ") is entered into by _________________ (the " Employee ") and Klondex Gold & Silver Mining Co. (the "Company"), effective as of ___________________. In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the " Employment Agreement "), the Employee and the Company agree as set forth in this Release. Capitalized terms not defined in this Release shall have the meaning ascribed to them in the Employment Agreement.

The form of this Release is being provided to the Employee on _______________, 20__ and the Employee will have ________ days from such date [a minimum of 21 days must be given] to consider whether to sign this Release (the "Consideration Period") and return it to the Company. If this Release is not executed and delivered to the Company by __________________, 20__, or if so delivered by the Employee but it is nevertheless revoked by the Employee within the applicable Revocation Period, then the Employee will forfeit all rights to any Separation Payment and other benefits to which the Employee may otherwise have been entitled pursuant to Section 5.4 or Section 5.5 of the Employment Agreement . The Employee may choose to sign and deliver this Release to the Company before the end of the Consideration Period. The Employee will have ____ days [must be at least 7 days and could be longer depending on employee's age and other factors. Consult U.S. counsel before completing this section] following the date of delivery to the Company of the executed Release to revoke the Release (the "Revocation Period") by delivery to the Company of written notice of such revocation within such Revocation Period.

In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the "Employment Agreement"), the Employee and the Company agree as follows:

1.     Return of Property . All files, access keys, desk keys, ID badges, computers, electronic devices, telephones and credit cards, and such other property of the Company, Affiliates and Related Parties as the Company may reasonably request, in the Employee's possession must be returned no later than the date of the Employee's termination from the Company.


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2.     General Release and Waiver of Claims .

(a)     Release . In consideration of the payments and benefits provided to the Employee under the Employment Agreement and after consultation with counsel, the Employee, his marital community, and each of the Employee's respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the " Releasors ") hereby irrevocably and unconditionally release and forever discharge the Company, Affiliates and Related Parties and each of their respective officers, employees, directors, shareholders and agents (" Releasees ") from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, " Claims "), including, without limitation, any Claims under any federal, state, local, provincial or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) the Employee's employment relationship with and service as an employee, officer or director of the Company, Affiliates of Related Parties, and the termination of such relationship or service, and (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that the Employee does not release, discharge or waive (i) the Employee's rights to payments and benefits provided under the Employment Agreement that are contingent upon the execution by the Employee of this Release, or rights to enforce the performance by the Company of its obligations under the Employment Agreement, (ii) any employee benefits payable pursuant to the terms of the applicable plans of the Company or any of its affiliates, which benefits shall be paid or provided in accordance with the terms of such plans, or (iii) any right of indemnification or contribution that the Employee may have under the organizational documents of the Company or from any other source, including, any directors' or officers' insurance policy maintained by the Company.

(b)     Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to the Employee under the Employment Agreement, the Releasors hereby unconditionally release and forever discharge the Releasees from any and all Claims that the Releasors may have as of the date the Employee signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (" ADEA "). By signing this Release, the Employee hereby acknowledges and confirms the following: (i) the Employee was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to the Employee the terms of this Release, including, without limitation, the terms relating to the Employee's release of claims arising under; (ii) the Employee was given a period of not fewer than [21]/[45] days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) the Employee knowingly and voluntarily accepts the terms of this Release; [and (iv) in accordance with the requirements of ADEA regarding an "employment termination program", the Employee was provided with the information appended hereto as Schedule 1]. The Employee also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph.


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(c)     No Assignment . The Employee represents and warrants that he has not assigned any of the Claims being released under this Release.

3.     Proceedings . The Employee has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Releasees before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Employee under the Employment Agreement (each, individually, a " Proceeding "), and agrees not to participate voluntarily in any Proceeding. The Employee waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.

4.     Remedies . In the event the Employee initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Release or his post-termination obligations contained in the Employment Agreement, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein. The Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Employee acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Employee from breaching his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

The Employee understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.

5.     Survival of Certain Terms of Employment Agreement . The Employee acknowledges and affirms that the Employee has previously executed the Employment Agreement (Attached hereto as Attachment A), and that the terms and conditions of the Employment Agreement that survive the employment relationship, including but not limited to the Employee's continuing confidentiality, non-competition and non-solicitation obligations, survive and are not affected by this Release.

6.     Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

7.     EEOC . Nothing in this Agreement shall be construed to prohibit the Employee from filing a charge or complaint, including a challenge to the validity of the waiver provision of this Agreement, with the Equal Employment Opportunity Commission. However, Employee has waived any right to monetary relief.


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8.     Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company.

9.     Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed in that State.

10.    Arbitration . Any dispute or controversy arising under or in connection with this Release or otherwise in connection with the Employee's employment by the Company that cannot be mutually resolved by the parties to this Release and their respective advisors and representatives shall be settled exclusively by arbitration in accordance with the provisions of Section 6.3 of the Employment Agreement.

11.    Counterparts . This Release may be executed via facsimile or electronic mail and in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument, binding on the parties.

12.    Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:

____________________

____________________
Attn : _______________

To the Employee:

The address most recently on file in the payroll records of the Company.

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission.

[Signature Page Follows]


THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.

Klondex Gold & Silver Mining Co.

By:  
   
Its:  

Employee:

Name:  
   
Address:  
   
Date:  



EMPLOYMENT AGREEMENT

THIS AGREEMENT, made effective as of March 1, 2015, is between KLONDEX GOLD & SILVER MINING COMPANY , a corporation duly organized under the laws of Nevada with offices at 360 Western Road, Suite 1, Reno, Nevada 89506 (" Klondex G&S " or the " Company ") and Michael Doolin, residing at [ REDACTED ], (the " Employee "). This Agreement replaces and supersedes the employment agreement between Employee, Klondex G&S and Klondex Mines Ltd. (" Klondex Mines "), a corporation duly organized and existing under the laws of British Columbia, dated effective as of October 15, 2012.

WHEREAS:

A.     Klondex G&S is a wholly owned subsidiary of Klondex Mines, a reporting issuer in Canada listed on the Toronto Stock Exchange (the " TSX ") with operations in Vancouver, British Columbia, Reno, Nevada, Winnemucca, Nevada and Elko, Nevada;

B.     substantially all of Klondex Mines's operations are conducted through Klondex Holdings (USA) Inc., Klondex G&S, Klondex Midas Holdings Limited and Klondex Midas Operations Inc. (each such entity, including Klondex Mines, but other than Klondex G&S, an " Affiliate ");

C.     Klondex G&S desires to employ Employee and Employee desires to be employed by Klondex G&S pursuant to the terms and conditions of this Agreement;

THEREFORE , the parties, in consideration of the promises and the mutual covenants and agreements contained herein, mutually agree and covenant as follows:

SECTION 1. EMPLOYMENT AND WORK DUTIES

1.1

Employment

Klondex G&S agrees to employ Employee and Employee agrees to be employed by Klondex G&S to provide such management services as requested by Klondex G&S. Employee understands that as an employee of Klondex G&S, he may be required to provide management services to an Affiliate, including, but not limited to, services as Vice President, Business Development and Technical Services to Klondex Mines, if requested by Klondex G&S in fulfillment of Klondex G&S's obligations under applicable administrative and technical services agreements.

1.2

Duties

Subject to the terms and conditions of this Agreement, the Employee shall report to the President of Klondex G&S (the " President "). The Employee shall continue to perform such duties and responsibilities and exercise such powers as may from time to time be reasonably assigned to the Employee by the President.


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1.3

Location

The Employee shall work from the Klondex G&S office in Reno, Nevada but also will have a presence at the mine sites (or office locations) of Klondex Mines and Affiliates, as reasonably may be requested by Klondex G&S, and occasional presence in Vancouver, and/or Toronto to attend meetings.

SECTION 2. COMPENSATION AND BENEFITS (IN US$)

2.1

Base Salary and Other Compensation

Subject to the other terms and conditions of this Agreement, Klondex G&S shall pay to the Employee a base salary of US$248,000 per annum (the " Base Salary "), less required and authorized deductions and withholdings, paid to the Employee in equal bimonthly (twice a month) payments in arrears, and pro-rated for any partial month of employment. The Base Salary will be reviewed by the President from time to time.

Klondex G&S shall pay to the Employee an amount equal to the employee cost of family coverage under the Anthem Medical, Anthem Dental and EyeMed Vision Plans (or any plans which replace these plans), on an after tax basis, regardless of whether or not the Employee has elected such coverage (the " Other Compensation "). The Other Compensation will be reviewed by the President from time to time.

2.2

Annual Bonus

The Employee shall be eligible for a target annual bonus of 45% of the Employee's annual Base Salary, less required and authorized deductions and withholdings, subject to achieving corporate and personal targets to be mutually agreed upon in writing at the beginning of each calendar year with the President. It is a term and condition of eligibility for the payment of any bonus payment that the Employee be employed by Klondex G&S or an Affiliate on the last day of the fiscal year in respect of which the annual bonus is payable. The Employee shall not be deemed to be employed following the date the Employee ceases to be actively employed by Klondex G&S and all Affiliates, and for greater certainty, in the event of the termination of the Employee's employment without just cause, such date shall be as specified in the notice of termination from Klondex G&S (and shall not include or be deemed to include any period of notice of termination to which the Employee may be entitled under this Agreement, statute, common law or otherwise). If the Employee is eligible to receive a bonus, any such bonus generally will be paid within 90 days following the approval of the annual financial statements for the fiscal year, provided that in all cases such payment will occur during the calendar year following the last day of the fiscal year in which the services giving rise to the bonus are performed.


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2.3

Group Benefits

During the term of this Agreement, the Employee shall be entitled to participate in any group insurance, supplemental health insurance, qualified pension, 401(k), hospitalization, medical health and accident, disability, life, or similar plan or program of Klondex G&S or an Affiliate now existing or hereafter established covering employees of Klondex G&S in both Canada and the United States, subject to the terms and conditions of such plans. Any claim or dispute relating to a decision made by the group benefits insurer will be with and directed to the insurer only, and will not form the basis for any dispute or liability as between Klondex G&S or an Affiliate and the Employee. Notwithstanding anything herein to the contrary, however, Klondex G&S or an Affiliate sponsoring such plan may at any time and from time to time modify, suspend, or discontinue any or all such benefit plans for its employees generally or for any group thereof at its sole discretion, without any obligation to replace such modified, suspended or discontinued benefit with any other benefit, equivalent or otherwise, or to otherwise compensate the Employee in respect thereof.

2.4

Vacation and Holidays

In addition to any statutory and other holidays observed by Klondex G&S, during the term of this Agreement, the Employee shall be entitled to paid vacation of four (4) weeks during each calendar year, pro-rated for any partial calendar years. Such vacation shall be taken at a time or times acceptable to Klondex G&S having regard to its operations. The vacation will be subject to the Vacation Policy contained in the Employee Handbook of Klondex G&S.

2.5

Equity Incentive Plans

The Employee shall be eligible to participate in any equity incentive plan made available to senior management of Klondex G&S, including any such plans sponsored by Klondex Mines, in accordance with the terms and conditions of such plan(s) as may be amended from time to time. Annual equity incentive grants will be made following the Annual Meeting of Klondex Mines in or around June annually.

2.6

Company Vehicle

In order to perform his responsibilities under this Agreement, the Employee will have access to a vehicle leased or owned by Klondex G&S at all times that the Employee is located in Reno, Nevada during the normal course of his employment. The Employee acknowledges that his use of such vehicle may constitute a taxable benefit to him in whole or in part, and that Klondex G&S shall be responsible for any and all tax liabilities arising from his personal use of such vehicle, if any.

SECTION 3. EXPENSES

3.1

Travel Expense

The Employee will be reimbursed for all reasonable and documented travel and other reasonable and documented out-of-pocket expenses actually, exclusively, necessarily, and properly incurred by the Employee in connection with the performance of his duties and functions, subject to the policies of Klondex G&S in effect from time to time and the Employee first providing receipts or vouchers to Klondex G&S and reasonable particulars of such expenses within sixty (60) days after the date the expenses are incurred. If such expense qualifies hereunder for reimbursement, then Klondex G&S will reimburse the Employee for that expense within thirty (30) days thereafter. Each reimbursement must be made no later than the end of the calendar year following the calendar year in which the expense was incurred. The amount of reimbursements in any calendar year shall not affect the expenses eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.


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3.2

Professional Development

The parties acknowledge that it will benefit if the Employee holds and improves his professional qualifications and engages in professional and trade organizations. Accordingly, subject to prior approval by the President, Klondex G&S will pay or reimburse the Employee for the costs and fees of business and professional organization memberships reasonably intended to improve the Employee's professional qualifications or the visibility and/or reputation of Klondex G&S and Affiliates within the business community. The Employee must provide receipts or vouchers to Klondex G&S for such costs and fees within sixty (60) days after the later of (i) the Employee's incurrence of such cost and fees; and (ii) the Employee's receipt of the invoice for such cost and fees. Klondex G&S will reimburse the Employee for such costs and fees within thirty (30) days thereafter. In no event will any such payment or reimbursement be made later than the end of the calendar year following the calendar year in which the cost and fees were incurred. The amount of such reimbursements in any calendar year shall not affect the costs and fees eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.

3.3

Professional Insurance

Klondex G&S will maintain, or cause Klondex Mines to maintain, adequate Directors & Officers Liability Insurance to properly protect the Employee against loss. Klondex G&S and Klondex Mines will be directly responsible for all legal fees and other expenses for actions brought against the Employee provided that (i) the Employee had reasonable grounds for believing he acted honestly and in good faith with a view to the best interests of Klondex G&S and Affiliates and, (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

3.4

Non-US Income Taxes

Klondex G&S has a tax equalization policy and the Employee will be subject to such tax equalization policy, which is intended to reduce the potential for double taxation.

SECTION 4. EMPLOYEE COVENANTS

4.1

Employee's Services

The Employee hereby covenants and agrees that:


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  (a)

the Employee shall, in the exercise of the Employee's duties, at all times follow the policies of Klondex G&S (and the policies of Affiliates, to the extent applicable) and the lawful instructions given and any regulations made by the Board of Directors of Klondex G&S (and the Board of Directors of Klondex Mines, to the extent applicable) and will, from time to time, and at all times when required to do so, give an account of Employee's activities to the President with respect to all transactions, matters and things relating to Klondex G&S and Affiliates; and

       
  (b)

the Employee shall, for the term of this Agreement, unless prevented by illness:

       
  (i)

devote the Employee's whole time and attention to the Employee's duties in the Employee's position and provide Klondex G&S (and Affiliates, to the extent applicable) with the full benefit of the Employee's knowledge, expertise, skill, experience and ingenuity with respect to the business and affairs of Klondex G&S and Affiliates, except to the extent that the parties agree in writing that the Employee may work or provide services for remuneration to another entity, including serving on the board of directors or as an officer of other public or private companies, provided that such activities do not unduly interfere with the Employee's obligations to Klondex G&S and Affiliates;

       
  (ii)

do his utmost to promote, develop and extend the business of Klondex G&S and Affiliates, during the term of this Agreement, communicate and channel to Klondex G&S and/or Affiliates all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the business of Klondex G&S and Affiliates. Any such information thus communicated to Klondex G&S and Affiliates will be and remain the property of Klondex G&S and/or Affiliates notwithstanding any subsequent termination of the Employee's employment; and

       
  (iii)

exercise the degree of care, diligence and skill that a prudent senior officer would exercise in comparable circumstances.


4.2

Non-Solicitation

The Employee recognizes that he will obtain access to or obtain confidential information about other employees or consultants of Klondex G&S, Affiliates or other entities that may become affiliated with Klondex G&S or Klondex Mines in the future (" Related Entities "), including information about their education, experience, skills, ability, salary and benefits and relationships with customers, shareholders and suppliers of Klondex G&S, Affiliates and Related Entities. The Employee further recognizes that such information is not generally known, is of substantial value to Klondex G&S, Affiliates and Related Entities in securing and retaining customers, shareholders and suppliers, and will be acquired by the Employee because of his employment. Accordingly, the Employee shall not, during his employment and for twelve (12) months following the cessation of the Employee's employment with Klondex G&S, directly or indirectly, on his own behalf or on behalf of any other person, hire, solicit or induce any person who is, or was within six (6) months prior to any attempted hiring, solicitation or inducement, employed or engaged by Klondex G&S, an Affiliate or a Related Entity to leave such employment or engagement or enter into employment or engagement with any other person or entity.


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4.3

Non-Competition

The Employee shall not, at any time during the term of this Agreement and for a period of six (6) months following the termination of this Agreement and/or the Employee's employment with Klondex G&S, for any reason, either directly or indirectly, individually or in partnership or jointly or in association with any person as principal, agent, consultant, employee, investor, shareholder (other than an investment of less than two (2) per cent of the shares of a company traded on a registered stock exchange) or in any other manner whatsoever, be employed or engaged by, advise, carry on or be interested in any person or entity that is involved in the business of mineral exploration in any area within two hundred (200) kilometers of any property Klondex G&S, an Affiliate or a Related Entity, in whole or part, owned or leased during the time the Employee was employed by Klondex G&S.

4.4

Confidentiality


  (a)

In this Agreement, " Confidential Information " means confidential or proprietary information or material relating to the operations, personnel or business of Klondex G&S, Affiliates and Related Parties which the Employee obtains from Klondex G&S, an Affiliate or a Related Entity or from the officers, employees or agents of Klondex G&S, an Affiliate or a Related Entity, or otherwise by virtue of his employment by Klondex G&S, including, without limitation, corporate information, including plans, strategies, tactics, policies, resolutions, and any information regarding existing or contemplated litigation or negotiations; financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings; operational and scientific information, including trade secrets; technical information, technical drawings and designs, drill results, mine plans, pit designs and reserve and resource estimates; and personnel information, including personnel lists, staff compensation, resumes, personnel data, organizational structure and performance evaluations.

     
  (b)

In the course of carrying out and performing his/her duties and responsibilities to Klondex G&S (and for Affiliates with respect to services Employee provides to them as an employee of Klondex G&S) pursuant to this Agreement, the Employee will obtain access to and be entrusted with Confidential Information. Except as authorized by the Board of Directors of Klondex G&S or required by law, the Employee shall, during and after his employment:


  (i)

keep the Confidential Information in strict confidence and shall not copy or reproduce the Confidential Information except in the proper course of the Employee's employment and for the benefit of Klondex G&S;



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  (ii)

not use the Confidential Information for his own account or to the detriment of Klondex G&S, an Affiliate or a Related Entity or their lenders; and

     
  (iii)

not directly or indirectly disclose, allow access to or transfer the Confidential Information to any third party (other than Klondex G&S or its directors, officers, bankers, lenders and financial advisors in the course of his employment or at the express direction of the Board of Directors of Klondex G&S).


4.5

Remedy

The parties acknowledge and agree that provisions of Sections 4.1, 4.2, 4.3 and 4.4 are reasonable in the circumstances and that a breach by the Employee of any such provisions would cause irreparable harm to Klondex G&S, Affiliates and Related Entities, which could not be adequately compensated for by damages; and in the event of a breach of the said provisions by the Employee, the Employee consents to an injunction being issued restraining the Employee from any further breach thereof, but the provisions herein shall not be construed so as to be in derogation of any other remedy which Klondex G&S may have in the event of such a breach.

SECTION 5. TERMINATION OF EMPLOYMENT

5.1

Termination Date

In this Agreement, " Termination Date " means the date on which the Employee ceases to actively perform services for Klondex G&S.

5.2

Voluntary Resignation

If the Employee wishes to resign the Employee's employment voluntarily, the Employee shall provide sixty (60) days' notice in writing to Klondex G&S (the " Resignation Period "). Klondex G&S may, in its sole discretion, waive the Resignation Period in whole or in part by paying the Employee's Base Salary and continuing the Employee's group benefits coverage to the effective date of resignation. The Employee agrees that such waiver will not constitute termination of the Employee's employment by Klondex G&S. In the event of the Employee's voluntary resignation, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options he holds with respect to shares of Klondex Mines (or any successor entity) that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.2 or as required by law, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.


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5.3

Termination with Cause


  (a)

Klondex G&S may terminate the Employee's employment and this Agreement at any time without notice for just cause. For the purposes of this Agreement, " just cause " means:

       
  (i)

the non-performance, breach or default by the Employee of or under any of his covenants in this Agreement;

       
 

the failure by Employee to substantially perform Employee's duties with Klondex G&S (other than any such failure resulting from the Employee's disability as defined under the disability plans or programs as in effect for employees of Klondex G&S from time to time) after a written demand for substantial performance is delivered to the Employee that specifically identifies the manner in which Klondex G&S believes that the Employee has not substantially performed the Employee's duties, and the Employee has failed to resume on a continuous basis substantial performance of the Employee's duties (as determined by Klondex G&S) within 30 days of such written demand;

       
  (ii)

Employee's disregard of or failure to comply with any lawful directive or instruction, written or otherwise, from the Board of Directors of Klondex G&S or any other person to whom Employee reports if such failure or disregard has a material adverse effect upon Klondex G&S or Affiliates;

       
  (iii)

negligence by Employee which causes, or which would reasonably be expected to cause, Klondex G&S or Affiliates material harm;

       
  (iv)

Employee's material violation of applicable state, provincial or federal law relating to the business of Klondex G&S and Affiliates;

       
  (v)

Employee's commission during the course of employment of any act of dishonesty, theft, fraud, embezzlement. misappropriation, assault, battery, malicious destruction of property, arson, sabotage, harassment, acts or omissions which violate the rules or policies (such as breaches of confidentiality) of Klondex G&S (or an Affiliate, to the extent applicable), or other conduct which demonstrates a disregard of the interests of Klondex G&S and Affiliates (regardless of whether the misconduct occurs on the premises of Klondex G&S); or

       
  (vi)

Employee's conviction of a crime (including, without limitation, a misdemeanor offense) which impairs Employee's ability substantially to perform Employee's duties under this Agreement.

       
  (b)

If the Employee's employment and this Agreement are terminated under this section, the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary and vacation pay, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date. All unexercised stock options, whether vested or unvested, in Klondex Mines held by the Employee shall be forfeited without any consideration or damages of any kind on the Termination Date.



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5.4

Termination without Cause


  (a)

If the Employee experiences an involuntary termination of employment by Klondex G&S (or any successor) for any reason other than for just cause, then Klondex G&S (or its successor) shall provide the Employee with written notice specifying the Termination Date. Klondex G&S shall pay the Employee for all accrued but unpaid wages and vacation entitlements up to the Termination Date (net of applicable withholdings). In addition, provided that the Release under Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, Klondex G&S shall provide to the Employee a lump sum separation payment, net of applicable withholdings and less any amounts owing by the Employee to Klondex G&S, (the " Separation Payment ") equal to:

       
  (i)

the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's date of hire on November 15, 2012 (the “Employee’s Date of Hire” ), an additional amount equal to one month's base salary will be added; plus

       
  (ii)

the monthly premium cost of coverage described in Section 2.3 multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire an additional amount equal to one month's premium cost will be added; plus

       
  (iii)

an amount equal to the Employee's then current target bonus amount pursuant to Section 2.2 for the year in which the Termination Date occurs (or if the target bonus amount for the year in which the Termination Date occurs has not been determined as of the Termination Date, the target bonus amount for the year prior to the Termination Date) plus an additional amount equal to 1/12th of such bonus amount for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire; plus

       
  (iv)

An amount equal to 4% of the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire, an additional amount equal to 4% of one month's base salary will be added.



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For greater certainty, in no circumstances shall the Employee be entitled to a Separation Payment that is more than the equivalent of a total of 18 months of the payments in paragraphs 5.4(a)(i),(ii),(iii) and (iv) above (i.e., 12 months plus an additional month for each of the first six years of completed of service from Employee's Date of Hire, up to a maximum of an additional 6 months). With respect to the calculation in paragraph 5.4(a)(iii), the target annual bonus amount shall be used without regard to the achievement of any corporate and personal targets established in connection with such target bonus amount.

  (b)

The Separation Payment described in this Section 5.4 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), unless the Employee has failed to execute a Release as described in Section 5.4(c), in which case Employee shall forfeit any Separation Payment. The Separation Payment is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and therefore will be paid by March 15 th of the calendar year following the calendar year in which the notice of termination is given, provided that if the notice of termination specifies a termination date that will occur in a subsequent calendar year and further specifies that the Employee is required to continue providing service through that later termination date, then such payment will be paid by March 15 th of the calendar year following the Employee's termination date (such date, in either case, referred to herein as the "latest payment date").

     
  (c)

In order for the Employee to receive the Separation Payment, the Employee must sign a release of claims ("Release") in substantially the form set forth in Attachment A to this Agreement on or prior to the date of the expiration of the consideration period (not less than 21 days) set forth in the Release. The Company agrees to provide the Employee with the Release within 10 days of the Termination Date, and in all cases no later than a date such that the last day of any revocation period described in the Release will occur on or before February 28 of the year in which the latest payment date occurs. If the Employee fails to sign the release within the time frame specified therein, the Employee will forfeit any right to the Separation Pay and the Employee shall not be entitled to any payments replacing the Separation Payment.

     
  (d)

In the event the Company terminates the Agreement and the Employee's employment under this section, all outstanding equity awards granted under compensatory plans shall vest 100%; provided however, if an outstanding equity award is subject to Section 409A, the acceleration of vesting will not change the time or form of payment in a manner that would violate Section 409A; if an outstanding equity award is exempt from Section 409A, the award will be administered in a manner that retains such exemption or otherwise complies with Section 409A.

     
  (e)

In the event the Company terminates the Agreement and the Employee's employment under this section, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options to acquire shares of Klondex Mines (or any successor) that he holds that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.4 or as otherwise provided under minimum employment standards legislation, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.



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  (f)

The Separation Payment is attributable to services performed in the United States.


5.5

Termination in the Event of a Change of Control

       
(a)

For the purposes of this Agreement, a " Change of Control " means:

       
(i)

the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Klondex Mines to any person or entity or group of persons or entities, but not including the entering into of an option, joint venture or other arrangement whereby Klondex Mines transfers, or has the right to transfer, an interest in its mineral properties yet maintains control, majority ownership or an operating interest in the mineral properties, resulting entity or new arrangement;

       
(ii)

the amalgamation, merger or arrangement of Klondex Mines with or into another entity where the shareholders of Klondex Mines immediately prior to the transaction will hold less than 50% of the voting securities of the resulting entity upon completion of the transaction;

       
(iii)

any person or combination of persons acting jointly or in concert, acquiring or becoming the beneficial owner of, directly or indirectly, of more than 50% of the voting securities of Klondex Mines whether through the acquisition of previously issued and outstanding voting securities of Klondex Mines or of voting securities of Klondex Mines that have not previously been issued or any combination thereof or any other transaction with similar effect; or

       
(iv)

the Board of Directors of Klondex Mines adopting a resolution to the effect that, for purposes of the Agreement, a Change of Control has occurred, or that such a Change of Control is imminent, in which case, the date of the Change of Control shall be deemed to be the date of such resolution.

       
(b)

For the purposes of this Agreement, " Good Reason " means the continued occurrence of any of the following conditions without Employee's consent after the Employee has given Klondex G&S written notice of such condition within thirty days following the initial existence of the condition, and Klondex G&S has failed to cure such condition within 30 days of the date it received notice of the condition:



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  (i)

Klondex G&S assigning to the Employee duties materially inconsistent with the Employee's duties and responsibilities under this Agreement, including those management duties performed by Employee, as an employee of Klondex G&S, for Klondex Mines or an Affiliate;

     
  (ii)

a unilateral reduction by Klondex G&S of the Employee's Base Salary, or any unilateral change in the basis upon which the Employee's Base Salary is determined or paid if the change is or will be materially adverse to the Employee, except where (x) such reduction or change is part of a general reduction in the base salary of all or substantially all of the members of management of Klondex G&S and which affects the Employee in substantially the same manner as the other members of the management of Klondex G&S who are also affected by such general reduction and (y) such change does not constitute more than ten percent (10%) of the Employee's Base Salary;

     
  (iii)

Klondex G&S unilaterally relocating the Employee's principal location more than 100 miles from the Employee's current work location ( i.e., Klondex G&S's Reno, Nevada office); or

     
  (iv)

any material breach by Klondex G&S of any provision of this Agreement, which is not cured by Klondex G&S within thirty (30) days following written notice from the Employee.


  (c)

Notwithstanding Section 5.4, if, within one hundred and eighty (180) days following a Change of Control, the Employee experiences an involuntary termination of employment by Klondex G&S or any successor entity without just cause or if the Employee terminates employment for Good Reason, provided that a Release as described in Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, then:


  (i)

all unvested stock options to acquire shares of Klondex Mines (or any successor) held by the Employee shall immediately vest on the Termination Date and the Employee shall have one (1) year after the date of the Change of Control to exercise the vested stock options;

     
  (ii)

Klondex G&S shall provide the Employee with a lump-sum payment equal to the Separation Payment the Employee would have received under Sections 5.4(a);

     
  (iii)

the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date; and



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  (iv)

The lump sum payment described in this Section 5.5 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), and in all cases by March 15 th of the calendar year following the calendar year in which the Employee's Termination Date occurs (in the case of an involuntary termination by the Company) or the calendar year in which the Employee's notice to the Company of termination for Good Reason occurs (in the case of Employee's termination for Good Reason).

For greater certainty, if the Employee's employment is terminated without Cause one hundred and eighty-one (181) days or more after the Change of Control the Employee's entitlements will be as per Section 5.4 above.

  (d)

The lump sum payment is attributable to services performed in the United States.


5.6

Return of Property

In the event that the Employee's employment terminates for any reason, the Employee agrees to deliver to a nominated employee of Klondex G&S on the Termination Date all property of Klondex G&S and Affiliates and Related Entities, and other property for which Klondex G&S is liable to others, in the Employee's possession, charge or control (and any copies thereof) wherever situated including, without limiting the generality of the foregoing, any Confidential Information and all notes, memoranda and other documents concerning any of the business, personnel or affairs of Klondex G&S, Affiliates and Related Entities, whether in written or electronic form, all books, effects, money, securities, keys, pass cards, credit cards, laptops or vehicles.

5.7

Stock Options

Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement shall extend the term of any stock option past the expiration date of the option in accordance with the terms of such option agreement and/or option plan governing such option.

SECTION 6. MISCELLANEOUS

6.1

Headings

The headings of the Sections and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof.

6.2

Applicable Law

This Agreement will be governed by and be construed in accordance with the Laws of the State of Nevada. Venue for any action brought by the parties to this Agreement will be in the courts of the State of Nevada.


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6.3

Arbitration

The parties agree that any dispute relating to the terms of this Agreement or the Employee's employment with Klondex G&S will be determined by arbitration in accordance with the then-current JAMS employment arbitration rules and procedures, except as modified herein. The arbitration will be conducted by a sole neutral arbitrator who has had both training and experience as an arbitrator of general employment and commercial matters and who is and for at least ten (10) years has been, a partner, a shareholder, or a member in a law firm. If Klondex G&S and Employee cannot agree on an arbitrator, then the arbitrator will be selected by JAMS in accordance with Rule 15 of the JAMS employment arbitration rules and procedures. No person who has served as a mediator under the mediation provision, however, may be selected as the arbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide any issue as to discovery. The arbitrator may decide any issue as to whether or as to the extent to which any dispute is subject to the dispute resolution provisions in this Agreement and the arbitrator may award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of this Section 6.3 and applicable law and must render the award in writing, including an explanation of the reasons for the award. Judgment upon the award may be entered by any court having jurisdiction of the matter, and the decision of the arbitrator will be final and binding. The statute of limitations applicable to the commencement of a lawsuit will apply to the commencement of an arbitration under this Section. The arbitrator's fees will be paid in equal portions by Klondex G&S and Employee, unless Klondex G&S agrees to pay all such fees.

6.4

Severability

Each provision of this Agreement is intended to be severable; if any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal, void or invalid for any reason whatsoever, such provision shall be severed from this Agreement and the remaining terms and provisions shall remain in full force and effect.

6.5

Survivability

The provisions of Section 4, Section 5 and Section 6.3 shall survive the termination of this Agreement.

6.6

Pre-Contractual Representations

The Employee hereby waives any right to assert any claim based on any pre-contractual representations, negligent or otherwise, made by Klondex G&S, Klondex Mines or any Affiliates.

6.7

Assignability

This Agreement may not be assigned by the Employee. Without in any way limiting the rights of Klondex G&S to assign this Agreement, it is expressly understood and agreed that Klondex G&S shall have the right to assign this Agreement to any other entity to which the business of Klondex G&S is transferred, in whole or in part, which thereafter carries on the business of Klondex G&S.


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6.8

Successors

This Agreement and all rights of the Employee hereunder will be binding upon and shall enure to the benefit and be binding upon Klondex G&S and its successors and assigns and the Employee and his heirs, representatives and administrators.

6.9

Waiver of Breach

The waiver by either the Employee or Klondex G&S of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that party.

6.10

Modification of Agreement

Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void.

6.11

Entire Agreement

This Agreement reflects the entire agreement of the parties and supersedes and replaces all prior letters of intent, agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, between all or any of the parties with respect to the subject matter of this Agreement, including without limitation, the employment agreement between Employee, Klondex G&S and Klondex Mines effective as of October 15, 2012. The recitals and any schedules form a part of and are incorporated by reference into this Agreement.

6.12

Further Acts

The Employee agrees that on the request of Klondex G&S, he will execute, acknowledge, perform and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the better carrying out and performance of the terms of this Agreement.

6.13

Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

6.14

Independent Legal Advice

The Employee acknowledges that this Agreement has been prepared by Klondex G&S and that he has had sufficient time to review this Agreement thoroughly, that he has read and understood the terms of this Agreement and that he has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.


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6.15

Compliance with Section 409A of the Internal Revenue Code

Payments and benefits provided under this Agreement as a result of Employee's termination of employment are intended to fall within the exception in U.S. Treasury Regulation 1.409A -1(b)(4) for short term deferrals or other applicable exceptions and will be interpreted and administered accordingly. However, to the extent that any payment under this Agreement is subject to Section 409A of the Code, it is intended to comply with Section 409A and this Agreement shall be interpreted and construed accordingly and in a manner that avoids the imposition of taxes and other penalties under Section 409A (such taxes and other penalties referred to collectively as "409A Penalties"). In the event that Klondex G&S determines that the terms of this Agreement would subject the Employee to 409A Penalties, Klondex G&S and the Employee shall cooperate diligently to amend the terms of this Agreement to avoid such 409A Penalties, to the extent possible; provided , however , that this Section 6.15 shall not create any obligation on the part of Klondex G&S to adopt any such amendment or take any such other action. All references in this Agreement to the Employee's termination of employment shall mean a "separation from service" within the meaning of Section 409A of the Code, to the extent required to comply with Section 409A of the Code. Any payment that is "deferred compensation" within the meaning of and subject to Section 409A of the Code that becomes payable as a result of the Employee's separation from service and that is conditioned upon the Employee's execution of a Release will be paid within 90 days following the Employee's separation from service and if such period begins in one taxable year and carries over into a second taxable year, payment shall be made in the second taxable year, and in no event shall the Employee have the ability to influence the year in which payment will occur. Notwithstanding any other provision in this Agreement, if on the date of the Employee's "separation from service" the Employee is a "specified employee," as defined in Section 409A of the Code, then to the extent any amount payable under this Agreement upon the Employee's separation from service would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such payment shall be delayed until the earlier to occur of (x) the first day of the seventh month following the Employee's separation from service or (y) the date of the Employee's death.

6.16

Taxes; Parachute Payment


  (a)

Withholding. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as Klondex G&S may reasonably determine should be withheld pursuant to any applicable law or regulation.

     
  (b)

Parachute Payment. Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by Klondex G&S to or for the Employee's benefit (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a "Parachute Payment"), would result in an "excess parachute payment" within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Parachute Payments, net of all taxes imposed on the Employee (the "Net After-Tax Amount") that the Employee would receive would be increased if the Parachute Payments were reduced, then the Parachute Payments shall be reduced by an amount (the "Reduction Amount") so that the Net After-Tax Amount after such reduction is greatest. For purposes of determining the Net After-Tax Amount, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Parachute Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Parachute Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Subject to the provisions of this Section 6.16, all determinations required to be made under this Section 6.16, including the Net After-Tax Amount, the Reduction Amount and the Parachute Payments that are to be reduced pursuant to this Section 6.16 and the assumptions to be utilized in arriving at such determinations, shall be made by independent public accounting firm selected by Employee (the "Accounting Firm"), which shall provide detailed supporting calculations both to Klondex G&S and the Employee within fifteen (15) business days of the receipt of notice from the Employee that there has been a Parachute Payment, or such earlier time as is requested by the Employee. The Accounting Firm's decision as to which Parachute Payments are to be reduced shall be made (a) only from Parachute Payments that the Accounting Firm determines reasonably may be characterized as "parachute payments" under Section 280G of the Code; (b) only from Parachute Payments that are required to be made in cash; (c) only with respect to any amounts that are not payable pursuant to a "nonqualified deferred compensation plan" subject to Section 409A of the Code, until those payments have been reduced to zero; and (d) in reverse chronological order, to the extent that any Parachute Payments subject to reduction are made over time (e.g., in installments). In no event, however, shall any Parachute Payments be reduced if and to the extent such reduction would cause a violation of Section 409A of the Code or other applicable law. All fees and expenses of the Accounting Firm shall be borne solely by Klondex G&S. Any determination by the Accounting Firm shall be binding upon Klondex G&S and the Employee.



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6.17

Copy of Agreement

The Employee hereby acknowledges receipt of a copy of this Agreement duly executed by Klondex G&S.

[Remainder of page intentionally left blank. Signature page follows.]

 


IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on January 28, 2016.

KLONDEX GOLD & SILVER MINING COMPANY

PAUL HUET, President

ACCEPTED:

/s/ Michael Doolin   /s/ Barry Dahl
MICHAEL DOOLIN   Witness Signature
     
January 28, 2016   Barry Dahl
Date Signed   Witness Name
     
     
    [REDACTED]
    Witness Address


ATTACHMENT A

RELEASE OF CLAIMS

This Agreement and General Release of all Claims (this " Release ") is entered into by _________________ (the " Employee ") and Klondex Gold & Silver Mining Co. (the "Company"), effective as of ___________________. In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the " Employment Agreement "), the Employee and the Company agree as set forth in this Release. Capitalized terms not defined in this Release shall have the meaning ascribed to them in the Employment Agreement.

The form of this Release is being provided to the Employee on _______________, 20__ and the Employee will have ________ days from such date [a minimum of 21 days must be given] to consider whether to sign this Release (the "Consideration Period") and return it to the Company. If this Release is not executed and delivered to the Company by __________________, 20__, or if so delivered by the Employee but it is nevertheless revoked by the Employee within the applicable Revocation Period, then the Employee will forfeit all rights to any Separation Payment and other benefits to which the Employee may otherwise have been entitled pursuant to Section 5.4 or Section 5.5 of the Employment Agreement . The Employee may choose to sign and deliver this Release to the Company before the end of the Consideration Period. The Employee will have ____ days [must be at least 7 days and could be longer depending on employee's age and other factors. Consult U.S. counsel before completing this section] following the date of delivery to the Company of the executed Release to revoke the Release (the "Revocation Period") by delivery to the Company of written notice of such revocation within such Revocation Period.

In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the "Employment Agreement"), the Employee and the Company agree as follows:

1.     Return of Property . All files, access keys, desk keys, ID badges, computers, electronic devices, telephones and credit cards, and such other property of the Company, Affiliates and Related Parties as the Company may reasonably request, in the Employee's possession must be returned no later than the date of the Employee's termination from the Company.


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2.     General Release and Waiver of Claims .

(a)     Release . In consideration of the payments and benefits provided to the Employee under the Employment Agreement and after consultation with counsel, the Employee, his marital community, and each of the Employee's respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the " Releasors ") hereby irrevocably and unconditionally release and forever discharge the Company, Affiliates and Related Parties and each of their respective officers, employees, directors, shareholders and agents (" Releasees ") from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, " Claims "), including, without limitation, any Claims under any federal, state, local, provincial or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) the Employee's employment relationship with and service as an employee, officer or director of the Company, Affiliates of Related Parties, and the termination of such relationship or service, and (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that the Employee does not release, discharge or waive (i) the Employee's rights to payments and benefits provided under the Employment Agreement that are contingent upon the execution by the Employee of this Release, or rights to enforce the performance by the Company of its obligations under the Employment Agreement, (ii) any employee benefits payable pursuant to the terms of the applicable plans of the Company or any of its affiliates, which benefits shall be paid or provided in accordance with the terms of such plans, or (iii) any right of indemnification or contribution that the Employee may have under the organizational documents of the Company or from any other source, including, any directors' or officers' insurance policy maintained by the Company.

(b)      Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to the Employee under the Employment Agreement, the Releasors hereby unconditionally release and forever discharge the Releasees from any and all Claims that the Releasors may have as of the date the Employee signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (" ADEA "). By signing this Release, the Employee hereby acknowledges and confirms the following: (i) the Employee was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to the Employee the terms of this Release, including, without limitation, the terms relating to the Employee's release of claims arising under; (ii) the Employee was given a period of not fewer than [21]/[45] days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) the Employee knowingly and voluntarily accepts the terms of this Release; [and (iv) in accordance with the requirements of ADEA regarding an "employment termination program", the Employee was provided with the information appended hereto as Schedule 1]. The Employee also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph.


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(c)     No Assignment . The Employee represents and warrants that he has not assigned any of the Claims being released under this Release.

3.     Proceedings . The Employee has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Releasees before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Employee under the Employment Agreement (each, individually, a " Proceeding "), and agrees not to participate voluntarily in any Proceeding. The Employee waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.

4.     Remedies . In the event the Employee initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Release or his post-termination obligations contained in the Employment Agreement, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein. The Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Employee acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Employee from breaching his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

The Employee understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.

5.     Survival of Certain Terms of Employment Agreement . The Employee acknowledges and affirms that the Employee has previously executed the Employment Agreement (Attached hereto as Attachment A), and that the terms and conditions of the Employment Agreement that survive the employment relationship, including but not limited to the Employee's continuing confidentiality, non-competition and non-solicitation obligations, survive and are not affected by this Release.

6.     Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

7.     EEOC . Nothing in this Agreement shall be construed to prohibit the Employee from filing a charge or complaint, including a challenge to the validity of the waiver provision of this Agreement, with the Equal Employment Opportunity Commission. However, Employee has waived any right to monetary relief.


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8.     Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company.

9.     Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed in that State.

10.     Arbitration . Any dispute or controversy arising under or in connection with this Release or otherwise in connection with the Employee's employment by the Company that cannot be mutually resolved by the parties to this Release and their respective advisors and representatives shall be settled exclusively by arbitration in accordance with the provisions of Section 6.3 of the Employment Agreement.

11.     Counterparts . This Release may be executed via facsimile or electronic mail and in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument, binding on the parties.

12.    Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:
____________________

____________________
Attn : _______________

To the Employee:

The address most recently on file in the payroll records of the Company.

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission.

[Signature Page Follows]


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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.

Klondex Gold & Silver Mining Co.

By:  
   
Its:  

Employee:

   
Name:  
   
Address:  
   
Date:  



EMPLOYMENT AGREEMENT

THIS AGREEMENT, made effective as of March 1, 2015, is between KLONDEX GOLD & SILVER MINING COMPANY , a corporation duly organized under the laws of Nevada with offices at 360 Western Road, Suite 1, Reno, Nevada 89506 (" Klondex G&S " or the " Company ") and Brent Kristof, residing at [ REDACTED ], (the " Employee "). This Agreement replaces and supersedes the employment agreement between Employee, Klondex G&S and Klondex Mines Ltd. (" Klondex Mines "), a corporation duly organized and existing under the laws of British Columbia, dated effective as of April 15, 2014.

WHEREAS:

A.     Klondex G&S is a wholly owned subsidiary of Klondex Mines, a reporting issuer in Canada listed on the Toronto Stock Exchange (the " TSX ") with operations in Vancouver, British Columbia, Reno, Nevada, Winnemucca, Nevada and Elko, Nevada;

B.     substantially all of Klondex Mines's operations are conducted through Klondex Holdings (USA) Inc., Klondex G&S, Klondex Midas Holdings Limited and Klondex Midas Operations Inc. (each such entity, including Klondex Mines, but other than Klondex G&S, an " Affiliate ");

C.     Klondex G&S desires to employ Employee and Employee desires to be employed by Klondex G&S pursuant to the terms and conditions of this Agreement;

THEREFORE , the parties, in consideration of the promises and the mutual covenants and agreements contained herein, mutually agree and covenant as follows:

SECTION 1. EMPLOYMENT AND WORK DUTIES

1.1

Employment

Klondex G&S agrees to employ Employee and Employee agrees to be employed by Klondex G&S to provide such management services as requested by Klondex G&S. Employee understands that as an employee of Klondex G&S, he may be required to provide management services to an Affiliate, including, but not limited to, services as chief operating officer to Klondex Mines, if requested by Klondex G&S in fulfillment of Klondex G&S's obligations under applicable administrative and technical services agreements.

1.2

Duties

Subject to the terms and conditions of this Agreement, the Employee shall report to the President of Klondex G&S (the " President "). The Employee shall continue to perform such duties and responsibilities and exercise such powers as may from time to time be reasonably assigned to the Employee by the President.


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1.3

Location

The Employee shall work from the Klondex G&S office in Reno, Nevada but also will have a presence at the mine sites (or office locations) of Klondex Mines and Affiliates, as reasonably may be requested by Klondex G&S, and occasional presence in Vancouver, and/or Toronto to attend meetings.

SECTION 2. COMPENSATION AND BENEFITS (IN US$)

2.1

Base Salary and Other Compensation

Subject to the other terms and conditions of this Agreement, Klondex G&S shall pay to the Employee a base salary of US$330,000 per annum (the " Base Salary "), less required and authorized deductions and withholdings, paid to the Employee in equal bimonthly (twice a month) payments in arrears, and pro-rated for any partial month of employment. The Base Salary will be reviewed by the President from time to time.

Klondex G&S shall pay to the Employee an amount equal to the employee cost of family coverage under the Anthem Medical, Anthem Dental and EyeMed Vision Plans (or any plans which replace these plans), on an after tax basis, regardless of whether or not the Employee has elected such coverage (the " Other Compensation "). The Other Compensation will be reviewed by the President from time to time.

2.2

Annual Bonus

The Employee shall be eligible for a target annual bonus of 50% of the Employee's annual Base Salary, less required and authorized deductions and withholdings, subject to achieving corporate and personal targets to be mutually agreed upon in writing at the beginning of each calendar year with the President. It is a term and condition of eligibility for the payment of any bonus payment that the Employee be employed by Klondex G&S or an Affiliate on the last day of the fiscal year in respect of which the annual bonus is payable. The Employee shall not be deemed to be employed following the date the Employee ceases to be actively employed by Klondex G&S and all Affiliates, and for greater certainty, in the event of the termination of the Employee's employment without just cause, such date shall be as specified in the notice of termination from Klondex G&S (and shall not include or be deemed to include any period of notice of termination to which the Employee may be entitled under this Agreement, statute, common law or otherwise). If the Employee is eligible to receive a bonus, any such bonus generally will be paid within 90 days following the approval of the annual financial statements for the fiscal year, provided that in all cases such payment will occur during the calendar year following the last day of the fiscal year in which the services giving rise to the bonus are performed.

2.3

Group Benefits

During the term of this Agreement, the Employee shall be entitled to participate in any group insurance, supplemental health insurance, qualified pension, 401(k), hospitalization, medical health and accident, disability, life, or similar plan or program of Klondex G&S or an Affiliate now existing or hereafter established covering employees of Klondex G&S in both Canada and the United States, subject to the terms and conditions of such plans. Any claim or dispute relating to a decision made by the group benefits insurer will be with and directed to the insurer only, and will not form the basis for any dispute or liability as between Klondex G&S or an Affiliate and the Employee. Notwithstanding anything herein to the contrary, however, Klondex G&S or an Affiliate sponsoring such plan may at any time and from time to time modify, suspend, or discontinue any or all such benefit plans for its employees generally or for any group thereof at its sole discretion, without any obligation to replace such modified, suspended or discontinued benefit with any other benefit, equivalent or otherwise, or to otherwise compensate the Employee in respect thereof.


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2.4

Vacation and Holidays

In addition to any statutory and other holidays observed by Klondex G&S, during the term of this Agreement, the Employee shall be entitled to paid vacation of four (4) weeks during each calendar year, pro-rated for any partial calendar years. Such vacation shall be taken at a time or times acceptable to Klondex G&S having regard to its operations. The vacation will be subject to the Vacation Policy contained in the Employee Handbook of Klondex G&S.

2.5

Equity Incentive Plans

The Employee shall be eligible to participate in any equity incentive plan made available to senior management of Klondex G&S, including any such plans sponsored by Klondex Mines, in accordance with the terms and conditions of such plan(s) as may be amended from time to time. Annual equity incentive grants will be made following the Annual Meeting of Klondex Mines in or around June annually.

2.6

Company Vehicle

In order to perform his responsibilities under this Agreement, the Employee will have access to a vehicle leased or owned by Klondex G&S at all times that the Employee is located in Reno, Nevada during the normal course of his employment. The Employee acknowledges that his use of such vehicle may constitute a taxable benefit to him in whole or in part, and that Klondex G&S shall be responsible for any and all tax liabilities arising from his personal use of such vehicle, if any.

SECTION 3. EXPENSES

3.1

Travel Expense

The Employee will be reimbursed for all reasonable and documented travel and other reasonable and documented out-of-pocket expenses actually, exclusively, necessarily, and properly incurred by the Employee in connection with the performance of his duties and functions, subject to the policies of Klondex G&S in effect from time to time and the Employee first providing receipts or vouchers to Klondex G&S and reasonable particulars of such expenses within sixty (60) days after the date the expenses are incurred. If such expense qualifies hereunder for reimbursement, then Klondex G&S will reimburse the Employee for that expense within thirty (30) days thereafter. Each reimbursement must be made no later than the end of the calendar year following the calendar year in which the expense was incurred. The amount of reimbursements in any calendar year shall not affect the expenses eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.


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3.2

Professional Development

The parties acknowledge that it will benefit if the Employee holds and improves his professional qualifications and engages in professional and trade organizations. Accordingly, subject to prior approval by the President, Klondex G&S will pay or reimburse the Employee for the costs and fees of business and professional organization memberships reasonably intended to improve the Employee's professional qualifications or the visibility and/or reputation of Klondex G&S and Affiliates within the business community. The Employee must provide receipts or vouchers to Klondex G&S for such costs and fees within sixty (60) days after the later of (i) the Employee's incurrence of such cost and fees; and (ii) the Employee's receipt of the invoice for such cost and fees. Klondex G&S will reimburse the Employee for such costs and fees within thirty (30) days thereafter. In no event will any such payment or reimbursement be made later than the end of the calendar year following the calendar year in which the cost and fees were incurred. The amount of such reimbursements in any calendar year shall not affect the costs and fees eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.

3.3

Professional Insurance

Klondex G&S will maintain, or cause Klondex Mines to maintain, adequate Directors & Officers Liability Insurance to properly protect the Employee against loss. Klondex G&S and Klondex Mines will be directly responsible for all legal fees and other expenses for actions brought against the Employee provided that (i) the Employee had reasonable grounds for believing he acted honestly and in good faith with a view to the best interests of Klondex G&S and Affiliates and, (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

3.4

Non-US Income Taxes

Klondex G&S has a tax equalization policy and the Employee will be subject to such tax equalization policy, which is intended to reduce the potential for double taxation.

SECTION 4. EMPLOYEE COVENANTS

4.1

Employee's Services

The Employee hereby covenants and agrees that:

  (a)

the Employee shall, in the exercise of the Employee's duties, at all times follow the policies of Klondex G&S (and the policies of Affiliates, to the extent applicable) and the lawful instructions given and any regulations made by the Board of Directors of Klondex G&S (and the Board of Directors of Klondex Mines, to the extent applicable) and will, from time to time, and at all times when required to do so, give an account of Employee's activities to the President with respect to all transactions, matters and things relating to Klondex G&S and Affiliates; and



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  (b)

the Employee shall, for the term of this Agreement, unless prevented by illness:

       
  (i)

devote the Employee's whole time and attention to the Employee's duties in the Employee's position and provide Klondex G&S (and Affiliates, to the extent applicable) with the full benefit of the Employee's knowledge, expertise, skill, experience and ingenuity with respect to the business and affairs of Klondex G&S and Affiliates, except to the extent that the parties agree in writing that the Employee may work or provide services for remuneration to another entity, including serving on the board of directors or as an officer of other public or private companies, provided that such activities do not unduly interfere with the Employee's obligations to Klondex G&S and Affiliates;

       
  (ii)

do his utmost to promote, develop and extend the business of Klondex G&S and Affiliates, during the term of this Agreement, communicate and channel to Klondex G&S and/or Affiliates all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the business of Klondex G&S and Affiliates. Any such information thus communicated to Klondex G&S and Affiliates will be and remain the property of Klondex G&S and/or Affiliates notwithstanding any subsequent termination of the Employee's employment; and

       
  (iii)

exercise the degree of care, diligence and skill that a prudent senior officer would exercise in comparable circumstances.


4.2

Non-Solicitation

The Employee recognizes that he will obtain access to or obtain confidential information about other employees or consultants of Klondex G&S, Affiliates or other entities that may become affiliated with Klondex G&S or Klondex Mines in the future (" Related Entities "), including information about their education, experience, skills, ability, salary and benefits and relationships with customers, shareholders and suppliers of Klondex G&S, Affiliates and Related Entities. The Employee further recognizes that such information is not generally known, is of substantial value to Klondex G&S, Affiliates and Related Entities in securing and retaining customers, shareholders and suppliers, and will be acquired by the Employee because of his employment. Accordingly, the Employee shall not, during his employment and for twelve (12) months following the cessation of the Employee's employment with Klondex G&S, directly or indirectly, on his own behalf or on behalf of any other person, hire, solicit or induce any person who is, or was within six (6) months prior to any attempted hiring, solicitation or inducement, employed or engaged by Klondex G&S, an Affiliate or a Related Entity to leave such employment or engagement or enter into employment or engagement with any other person or entity.


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4.3

Non-Competition

The Employee shall not, at any time during the term of this Agreement and for a period of six (6) months following the termination of this Agreement and/or the Employee's employment with Klondex G&S, for any reason, either directly or indirectly, individually or in partnership or jointly or in association with any person as principal, agent, consultant, employee, investor, shareholder (other than an investment of less than two (2) per cent of the shares of a company traded on a registered stock exchange) or in any other manner whatsoever, be employed or engaged by, advise, carry on or be interested in any person or entity that is involved in the business of mineral exploration in any area within two hundred (200) kilometers of any property Klondex G&S, an Affiliate or a Related Entity, in whole or part, owned or leased during the time the Employee was employed by Klondex G&S.

4.4

Confidentiality


  (a)

In this Agreement, " Confidential Information " means confidential or proprietary information or material relating to the operations, personnel or business of Klondex G&S, Affiliates and Related Parties which the Employee obtains from Klondex G&S, an Affiliate or a Related Entity or from the officers, employees or agents of Klondex G&S, an Affiliate or a Related Entity, or otherwise by virtue of his employment by Klondex G&S, including, without limitation, corporate information, including plans, strategies, tactics, policies, resolutions, and any information regarding existing or contemplated litigation or negotiations; financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings; operational and scientific information, including trade secrets; technical information, technical drawings and designs, drill results, mine plans, pit designs and reserve and resource estimates; and personnel information, including personnel lists, staff compensation, resumes, personnel data, organizational structure and performance evaluations.

       
  (b)

In the course of carrying out and performing his/her duties and responsibilities to Klondex G&S (and for Affiliates with respect to services Employee provides to them as an employee of Klondex G&S) pursuant to this Agreement, the Employee will obtain access to and be entrusted with Confidential Information. Except as authorized by the Board of Directors of Klondex G&S or required by law, the Employee shall, during and after his employment:

       
  (i)

keep the Confidential Information in strict confidence and shall not copy or reproduce the Confidential Information except in the proper course of the Employee's employment and for the benefit of Klondex G&S;

       
  (ii)

not use the Confidential Information for his own account or to the detriment of Klondex G&S, an Affiliate or a Related Entity or their lenders; and



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  (iii)

not directly or indirectly disclose, allow access to or transfer the Confidential Information to any third party (other than Klondex G&S or its directors, officers, bankers, lenders and financial advisors in the course of his employment or at the express direction of the Board of Directors of Klondex G&S).


4.5

Remedy

The parties acknowledge and agree that provisions of Sections 4.1, 4.2, 4.3 and 4.4 are reasonable in the circumstances and that a breach by the Employee of any such provisions would cause irreparable harm to Klondex G&S, Affiliates and Related Entities, which could not be adequately compensated for by damages; and in the event of a breach of the said provisions by the Employee, the Employee consents to an injunction being issued restraining the Employee from any further breach thereof, but the provisions herein shall not be construed so as to be in derogation of any other remedy which Klondex G&S may have in the event of such a breach.

SECTION 5. TERMINATION OF EMPLOYMENT

5.1

Termination Date

In this Agreement, " Termination Date " means the date on which the Employee ceases to actively perform services for Klondex G&S.

5.2

Voluntary Resignation

If the Employee wishes to resign the Employee's employment voluntarily, the Employee shall provide sixty (60) days' notice in writing to Klondex G&S (the " Resignation Period "). Klondex G&S may, in its sole discretion, waive the Resignation Period in whole or in part by paying the Employee's Base Salary and continuing the Employee's group benefits coverage to the effective date of resignation. The Employee agrees that such waiver will not constitute termination of the Employee's employment by Klondex G&S. In the event of the Employee's voluntary resignation, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options he holds with respect to shares of Klondex Mines (or any successor entity) that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.2 or as required by law, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

5.3

Termination with Cause


  (a)

Klondex G&S may terminate the Employee's employment and this Agreement at any time without notice for just cause. For the purposes of this Agreement, " just cause " means:

       
  (i)

the non-performance, breach or default by the Employee of or under any of his covenants in this Agreement;



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  (ii)

the failure by Employee to substantially perform Employee's duties with Klondex G&S (other than any such failure resulting from the Employee's disability as defined under the disability plans or programs as in effect for employees of Klondex G&S from time to time) after a written demand for substantial performance is delivered to the Employee that specifically identifies the manner in which Klondex G&S believes that the Employee has not substantially performed the Employee's duties, and the Employee has failed to resume on a continuous basis substantial performance of the Employee's duties (as determined by Klondex G&S) within 30 days of such written demand;

     
  (iii)

Employee's disregard of or failure to comply with any lawful directive or instruction, written or otherwise, from the Board of Directors of Klondex G&S or any other person to whom Employee reports if such failure or disregard has a material adverse effect upon Klondex G&S or Affiliates;

     
  (iv)

negligence by Employee which causes, or which would reasonably be expected to cause, Klondex G&S or Affiliates material harm;

     
  (v)

Employee's material violation of applicable state, provincial or federal law relating to the business of Klondex G&S and Affiliates;

     
  (vi)

Employee's commission during the course of employment of any act of dishonesty, theft, fraud, embezzlement. misappropriation, assault, battery, malicious destruction of property, arson, sabotage, harassment, acts or omissions which violate the rules or policies (such as breaches of confidentiality) of Klondex G&S (or an Affiliate, to the extent applicable), or other conduct which demonstrates a disregard of the interests of Klondex G&S and Affiliates (regardless of whether the misconduct occurs on the premises of Klondex G&S); or

     
  (vii)

Employee's conviction of a crime (including, without limitation, a misdemeanor offense) which impairs Employee's ability substantially to perform Employee's duties under this Agreement.


  (b)

If the Employee's employment and this Agreement are terminated under this section, the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary and vacation pay, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date. All unexercised stock options, whether vested or unvested, in Klondex Mines held by the Employee shall be forfeited without any consideration or damages of any kind on the Termination Date.



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5.4

Termination without Cause


  (a)

If the Employee experiences an involuntary termination of employment by Klondex G&S (or any successor) for any reason other than for just cause, then Klondex G&S (or its successor) shall provide the Employee with written notice specifying the Termination Date. Klondex G&S shall pay the Employee for all accrued but unpaid wages and vacation entitlements up to the Termination Date (net of applicable withholdings). In addition, provided that the Release under Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, Klondex G&S shall provide to the Employee a lump sum separation payment, net of applicable withholdings and less any amounts owing by the Employee to Klondex G&S, (the " Separation Payment ") equal to:


  (i)

the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's date of hire on April 15, 2014(the “Employee’s Date of Hire” ), an additional amount equal to one month's base salary will be added; plus

     
  (ii)

the monthly premium cost of coverage described in Section 2.3 multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire an additional amount equal to one month's premium cost will be added; plus

     
  (iii)

an amount equal to the Employee's then current target bonus amount pursuant to Section 2.2 for the year in which the Termination Date occurs (or if the target bonus amount for the year in which the Termination Date occurs has not been determined as of the Termination Date, the target bonus amount for the year prior to the Termination Date) plus an additional amount equal to 1/12th of such bonus amount for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire; plus

     
  (iv)

An amount equal to 4% of the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire, an additional amount equal to 4% of one month's base salary will be added.

For greater certainty, in no circumstances shall the Employee be entitled to a Separation Payment that is more than the equivalent of a total of 18 months of the payments in paragraphs 5.4(a)(i),(ii),(iii) and (iv) above (i.e., 12 months plus an additional month for each of the first six years of completed of service from Employee's Date of Hire, up to a maximum of an additional 6 months). With respect to the calculation in paragraph 5.4(a)(iii), the target annual bonus amount shall be used without regard to the achievement of any corporate and personal targets established in connection with such target bonus amount.


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  (b)

The Separation Payment described in this Section 5.4 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), unless the Employee has failed to execute a Release as described in Section 5.4(c), in which case Employee shall forfeit any Separation Payment. The Separation Payment is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and therefore will be paid by March 15 th of the calendar year following the calendar year in which the notice of termination is given, provided that if the notice of termination specifies a termination date that will occur in a subsequent calendar year and further specifies that the Employee is required to continue providing service through that later termination date, then such payment will be paid by March 15 th of the calendar year following the Employee's termination date (such date, in either case, referred to herein as the "latest payment date").

     
  (c)

In order for the Employee to receive the Separation Payment, the Employee must sign a release of claims ("Release") in substantially the form set forth in Attachment A to this Agreement on or prior to the date of the expiration of the consideration period (not less than 21 days) set forth in the Release. The Company agrees to provide the Employee with the Release within 10 days of the Termination Date, and in all cases no later than a date such that the last day of any revocation period described in the Release will occur on or before February 28 of the year in which the latest payment date occurs. If the Employee fails to sign the release within the time frame specified therein, the Employee will forfeit any right to the Separation Pay and the Employee shall not be entitled to any payments replacing the Separation Payment.

     
  (d)

In the event the Company terminates the Agreement and the Employee's employment under this section, all outstanding equity awards granted under compensatory plans shall vest 100%; provided however, if an outstanding equity award is subject to Section 409A, the acceleration of vesting will not change the time or form of payment in a manner that would violate Section 409A; if an outstanding equity award is exempt from Section 409A, the award will be administered in a manner that retains such exemption or otherwise complies with Section 409A.

     
  (e)

In the event the Company terminates the Agreement and the Employee's employment under this section, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options to acquire shares of Klondex Mines (or any successor) that he holds that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.4 or as otherwise provided under minimum employment standards legislation, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.



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  (f)

The Separation Payment is attributable to services performed in the United States.


5.5

Termination in the Event of a Change of Control


  (a)

For the purposes of this Agreement, a " Change of Control " means:


  (i)

the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Klondex Mines to any person or entity or group of persons or entities, but not including the entering into of an option, joint venture or other arrangement whereby Klondex Mines transfers, or has the right to transfer, an interest in its mineral properties yet maintains control, majority ownership or an operating interest in the mineral properties, resulting entity or new arrangement;

     
  (ii)

the amalgamation, merger or arrangement of Klondex Mines with or into another entity where the shareholders of Klondex Mines immediately prior to the transaction will hold less than 50% of the voting securities of the resulting entity upon completion of the transaction;

     
  (iii)

any person or combination of persons acting jointly or in concert, acquiring or becoming the beneficial owner of, directly or indirectly, of more than 50% of the voting securities of Klondex Mines whether through the acquisition of previously issued and outstanding voting securities of Klondex Mines or of voting securities of Klondex Mines that have not previously been issued or any combination thereof or any other transaction with similar effect; or

     
  (iv)

the Board of Directors of Klondex Mines adopting a resolution to the effect that, for purposes of the Agreement, a Change of Control has occurred, or that such a Change of Control is imminent, in which case, the date of the Change of Control shall be deemed to be the date of such resolution.


  (b)

For the purposes of this Agreement, " Good Reason " means the continued occurrence of any of the following conditions without Employee's consent after the Employee has given Klondex G&S written notice of such condition within thirty days following the initial existence of the condition, and Klondex G&S has failed to cure such condition within 30 days of the date it received notice of the condition:


  (i)

Klondex G&S assigning to the Employee duties materially inconsistent with the Employee's duties and responsibilities under this Agreement, including those management duties performed by Employee, as an employee of Klondex G&S, for Klondex Mines or an Affiliate;



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  (ii)

a unilateral reduction by Klondex G&S of the Employee's Base Salary, or any unilateral change in the basis upon which the Employee's Base Salary is determined or paid if the change is or will be materially adverse to the Employee, except where (x) such reduction or change is part of a general reduction in the base salary of all or substantially all of the members of management of Klondex G&S and which affects the Employee in substantially the same manner as the other members of the management of Klondex G&S who are also affected by such general reduction and (y) such change does not constitute more than ten percent (10%) of the Employee's Base Salary;

     
  (iii)

Klondex G&S unilaterally relocating the Employee's principal location more than 100 miles from the Employee's current work location ( i.e., Klondex G&S's Reno, Nevada office); or

     
  (iv)

any material breach by Klondex G&S of any provision of this Agreement, which is not cured by Klondex G&S within thirty (30) days following written notice from the Employee.


  (c)

Notwithstanding Section 5.4, if, within one hundred and eighty (180) days following a Change of Control, the Employee experiences an involuntary termination of employment by Klondex G&S or any successor entity without just cause or if the Employee terminates employment for Good Reason, provided that a Release as described in Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, then:


  (i)

all unvested stock options to acquire shares of Klondex Mines (or any successor) held by the Employee shall immediately vest on the Termination Date and the Employee shall have one (1) year after the date of the Change of Control to exercise the vested stock options;

     
  (ii)

Klondex G&S shall provide the Employee with a lump-sum payment equal to the Separation Payment the Employee would have received under Sections 5.4(a);

     
  (iii)

the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date; and

     
  (iv)

The lump sum payment described in this Section 5.5 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), and in all cases by March 15 th of the calendar year following the calendar year in which the Employee's Termination Date occurs (in the case of an involuntary termination by the Company) or the calendar year in which the Employee's notice to the Company of termination for Good Reason occurs (in the case of Employee's termination for Good Reason).



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For greater certainty, if the Employee's employment is terminated without Cause one hundred and eighty-one (181) days or more after the Change of Control the Employee's entitlements will be as per Section 5.4 above.

  (d)

The lump sum payment is attributable to services performed in the United States.


5.6

Return of Property

In the event that the Employee's employment terminates for any reason, the Employee agrees to deliver to a nominated employee of Klondex G&S on the Termination Date all property of Klondex G&S and Affiliates and Related Entities, and other property for which Klondex G&S is liable to others, in the Employee's possession, charge or control (and any copies thereof) wherever situated including, without limiting the generality of the foregoing, any Confidential Information and all notes, memoranda and other documents concerning any of the business, personnel or affairs of Klondex G&S, Affiliates and Related Entities, whether in written or electronic form, all books, effects, money, securities, keys, pass cards, credit cards, laptops or vehicles.

5.7

Stock Options

Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement shall extend the term of any stock option past the expiration date of the option in accordance with the terms of such option agreement and/or option plan governing such option.

SECTION 6. MISCELLANEOUS

6.1

Headings

The headings of the Sections and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof.

6.2

Applicable Law

This Agreement will be governed by and be construed in accordance with the Laws of the State of Nevada. Venue for any action brought by the parties to this Agreement will be in the courts of the State of Nevada.

6.3

Arbitration

The parties agree that any dispute relating to the terms of this Agreement or the Employee's employment with Klondex G&S will be determined by arbitration in accordance with the then-current JAMS employment arbitration rules and procedures, except as modified herein. The arbitration will be conducted by a sole neutral arbitrator who has had both training and experience as an arbitrator of general employment and commercial matters and who is and for at least ten (10) years has been, a partner, a shareholder, or a member in a law firm. If Klondex G&S and Employee cannot agree on an arbitrator, then the arbitrator will be selected by JAMS in accordance with Rule 15 of the JAMS employment arbitration rules and procedures. No person who has served as a mediator under the mediation provision, however, may be selected as the arbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide any issue as to discovery. The arbitrator may decide any issue as to whether or as to the extent to which any dispute is subject to the dispute resolution provisions in this Agreement and the arbitrator may award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of this Section 6.3 and applicable law and must render the award in writing, including an explanation of the reasons for the award. Judgment upon the award may be entered by any court having jurisdiction of the matter, and the decision of the arbitrator will be final and binding. The statute of limitations applicable to the commencement of a lawsuit will apply to the commencement of an arbitration under this Section. The arbitrator's fees will be paid in equal portions by Klondex G&S and Employee, unless Klondex G&S agrees to pay all such fees.


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6.4

Severability

Each provision of this Agreement is intended to be severable; if any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal, void or invalid for any reason whatsoever, such provision shall be severed from this Agreement and the remaining terms and provisions shall remain in full force and effect.

6.5

Survivability

The provisions of Section 4, Section 5 and Section 6.3 shall survive the termination of this Agreement.

6.6

Pre-Contractual Representations

The Employee hereby waives any right to assert any claim based on any pre-contractual representations, negligent or otherwise, made by Klondex G&S, Klondex Mines or any Affiliates.

6.7

Assignability

This Agreement may not be assigned by the Employee. Without in any way limiting the rights of Klondex G&S to assign this Agreement, it is expressly understood and agreed that Klondex G&S shall have the right to assign this Agreement to any other entity to which the business of Klondex G&S is transferred, in whole or in part, which thereafter carries on the business of Klondex G&S.


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6.8

Successors

This Agreement and all rights of the Employee hereunder will be binding upon and shall enure to the benefit and be binding upon Klondex G&S and its successors and assigns and the Employee and his heirs, representatives and administrators.

6.9

Waiver of Breach

The waiver by either the Employee or Klondex G&S of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that party.

6.10

Modification of Agreement

Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void.

6.11

Entire Agreement

This Agreement reflects the entire agreement of the parties and supersedes and replaces all prior letters of intent, agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, between all or any of the parties with respect to the subject matter of this Agreement, including without limitation, the employment agreement between Employee, Klondex G&S and Klondex Mines effective as of April 15, 2014. The recitals and any schedules form a part of and are incorporated by reference into this Agreement.

6.12

Further Acts

The Employee agrees that on the request of Klondex G&S, he will execute, acknowledge, perform and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the better carrying out and performance of the terms of this Agreement.

6.13

Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

6.14

Independent Legal Advice

The Employee acknowledges that this Agreement has been prepared by Klondex G&S and that he has had sufficient time to review this Agreement thoroughly, that he has read and understood the terms of this Agreement and that he has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.


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6.15

Compliance with Section 409A of the Internal Revenue Code

Payments and benefits provided under this Agreement as a result of Employee's termination of employment are intended to fall within the exception in U.S. Treasury Regulation 1.409A -1(b)(4) for short term deferrals or other applicable exceptions and will be interpreted and administered accordingly. However, to the extent that any payment under this Agreement is subject to Section 409A of the Code, it is intended to comply with Section 409A and this Agreement shall be interpreted and construed accordingly and in a manner that avoids the imposition of taxes and other penalties under Section 409A (such taxes and other penalties referred to collectively as "409A Penalties"). In the event that Klondex G&S determines that the terms of this Agreement would subject the Employee to 409A Penalties, Klondex G&S and the Employee shall cooperate diligently to amend the terms of this Agreement to avoid such 409A Penalties, to the extent possible; provided , however , that this Section 6.15 shall not create any obligation on the part of Klondex G&S to adopt any such amendment or take any such other action. All references in this Agreement to the Employee's termination of employment shall mean a "separation from service" within the meaning of Section 409A of the Code, to the extent required to comply with Section 409A of the Code. Any payment that is "deferred compensation" within the meaning of and subject to Section 409A of the Code that becomes payable as a result of the Employee's separation from service and that is conditioned upon the Employee's execution of a Release will be paid within 90 days following the Employee's separation from service and if such period begins in one taxable year and carries over into a second taxable year, payment shall be made in the second taxable year, and in no event shall the Employee have the ability to influence the year in which payment will occur. Notwithstanding any other provision in this Agreement, if on the date of the Employee's "separation from service" the Employee is a "specified employee," as defined in Section 409A of the Code, then to the extent any amount payable under this Agreement upon the Employee's separation from service would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such payment shall be delayed until the earlier to occur of (x) the first day of the seventh month following the Employee's separation from service or (y) the date of the Employee's death.

6.16

Taxes; Parachute Payment


  (a)

Withholding. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as Klondex G&S may reasonably determine should be withheld pursuant to any applicable law or regulation.

     
  (b)

Parachute Payment. Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by Klondex G&S to or for the Employee's benefit (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a "Parachute Payment"), would result in an "excess parachute payment" within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Parachute Payments, net of all taxes imposed on the Employee (the "Net After-Tax Amount") that the Employee would receive would be increased if the Parachute Payments were reduced, then the Parachute Payments shall be reduced by an amount (the "Reduction Amount") so that the Net After-Tax Amount after such reduction is greatest. For purposes of determining the Net After-Tax Amount, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Parachute Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Parachute Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Subject to the provisions of this Section 6.16, all determinations required to be made under this Section 6.16, including the Net After-Tax Amount, the Reduction Amount and the Parachute Payments that are to be reduced pursuant to this Section 6.16 and the assumptions to be utilized in arriving at such determinations, shall be made by independent public accounting firm selected by Employee (the "Accounting Firm"), which shall provide detailed supporting calculations both to Klondex G&S and the Employee within fifteen (15) business days of the receipt of notice from the Employee that there has been a Parachute Payment, or such earlier time as is requested by the Employee. The Accounting Firm's decision as to which Parachute Payments are to be reduced shall be made (a) only from Parachute Payments that the Accounting Firm determines reasonably may be characterized as "parachute payments" under Section 280G of the Code; (b) only from Parachute Payments that are required to be made in cash; (c) only with respect to any amounts that are not payable pursuant to a "nonqualified deferred compensation plan" subject to Section 409A of the Code, until those payments have been reduced to zero; and (d) in reverse chronological order, to the extent that any Parachute Payments subject to reduction are made over time (e.g., in installments). In no event, however, shall any Parachute Payments be reduced if and to the extent such reduction would cause a violation of Section 409A of the Code or other applicable law. All fees and expenses of the Accounting Firm shall be borne solely by Klondex G&S. Any determination by the Accounting Firm shall be binding upon Klondex G&S and the Employee.



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6.17

Copy of Agreement

The Employee hereby acknowledges receipt of a copy of this Agreement duly executed by Klondex G&S.

[Remainder of page intentionally left blank. Signature page follows.]

 


IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on January _____, 2016.

KLONDEX GOLD & SILVER MINING COMPANY

PAUL HUET, President

ACCEPTED:

BRENT KRISTOF   Witness Signature
     
     
Date Signed   Witness Name
     
     
     
     
    Witness Address


ATTACHMENT A

RELEASE OF CLAIMS

This Agreement and General Release of all Claims (this " Release ") is entered into by _________________ (the " Employee ") and Klondex Gold & Silver Mining Co. (the "Company"), effective as of ___________________
. In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the " Employment Agreement "), the Employee and the Company agree as set forth in this Release. Capitalized terms not defined in this Release shall have the meaning ascribed to them in the Employment Agreement.

The form of this Release is being provided to the Employee on _______________, 20__ and the Employee will have ________ days from such date [a minimum of 21 days must be given] to consider whether to sign this Release (the "Consideration Period") and return it to the Company. If this Release is not executed and delivered to the Company by __________________, 20__, or if so delivered by the Employee but it is nevertheless revoked by the Employee within the applicable Revocation Period, then the Employee will forfeit all rights to any Separation Payment and other benefits to which the Employee may otherwise have been entitled pursuant to Section 5.4 or Section 5.5 of the Employment Agreement . The Employee may choose to sign and deliver this Release to the Company before the end of the Consideration Period. The Employee will have ____ days [must be at least 7 days and could be longer depending on employee's age and other factors. Consult U.S. counsel before completing this section] following the date of delivery to the Company of the executed Release to revoke the Release (the "Revocation Period") by delivery to the Company of written notice of such revocation within such Revocation Period.

In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the "Employment Agreement"), the Employee and the Company agree as follows:

1.     Return of Property . All files, access keys, desk keys, ID badges, computers, electronic devices, telephones and credit cards, and such other property of the Company, Affiliates and Related Parties as the Company may reasonably request, in the Employee's possession must be returned no later than the date of the Employee's termination from the Company.


2.     General Release and Waiver of Claims .

(a)     Release . In consideration of the payments and benefits provided to the Employee under the Employment Agreement and after consultation with counsel, the Employee, his marital community, and each of the Employee's respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the " Releasors ") hereby irrevocably and unconditionally release and forever discharge the Company, Affiliates and Related Parties and each of their respective officers, employees, directors, shareholders and agents (" Releasees ") from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, " Claims "), including, without limitation, any Claims under any federal, state, local, provincial or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) the Employee's employment relationship with and service as an employee, officer or director of the Company, Affiliates of Related Parties, and the termination of such relationship or service, and (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that the Employee does not release, discharge or waive (i) the Employee's rights to payments and benefits provided under the Employment Agreement that are contingent upon the execution by the Employee of this Release, or rights to enforce the performance by the Company of its obligations under the Employment Agreement, (ii) any employee benefits payable pursuant to the terms of the applicable plans of the Company or any of its affiliates, which benefits shall be paid or provided in accordance with the terms of such plans, or (iii) any right of indemnification or contribution that the Employee may have under the organizational documents of the Company or from any other source, including, any directors' or officers' insurance policy maintained by the Company.

(b)      Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to the Employee under the Employment Agreement, the Releasors hereby unconditionally release and forever discharge the Releasees from any and all Claims that the Releasors may have as of the date the Employee signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (" ADEA "). By signing this Release, the Employee hereby acknowledges and confirms the following: (i) the Employee was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to the Employee the terms of this Release, including, without limitation, the terms relating to the Employee's release of claims arising under; (ii) the Employee was given a period of not fewer than [21]/[45] days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) the Employee knowingly and voluntarily accepts the terms of this Release; [and (iv) in accordance with the requirements of ADEA regarding an "employment termination program", the Employee was provided with the information appended hereto as Schedule 1]. The Employee also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph.


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(c)     No Assignment . The Employee represents and warrants that he has not assigned any of the Claims being released under this Release.

3.     Proceedings . The Employee has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Releasees before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Employee under the Employment Agreement (each, individually, a " Proceeding "), and agrees not to participate voluntarily in any Proceeding. The Employee waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.

4.      Remedies . In the event the Employee initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Release or his post-termination obligations contained in the Employment Agreement, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein. The Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Employee acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Employee from breaching his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

The Employee understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.

5.     Survival of Certain Terms of Employment Agreement . The Employee acknowledges and affirms that the Employee has previously executed the Employment Agreement (Attached hereto as Attachment A), and that the terms and conditions of the Employment Agreement that survive the employment relationship, including but not limited to the Employee's continuing confidentiality, non-competition and non-solicitation obligations, survive and are not affected by this Release.

6.      Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

7.     EEOC . Nothing in this Agreement shall be construed to prohibit the Employee from filing a charge or complaint, including a challenge to the validity of the waiver provision of this Agreement, with the Equal Employment Opportunity Commission. However, Employee has waived any right to monetary relief.


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8.     Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company.

9.     Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed in that State.

10.    Arbitration . Any dispute or controversy arising under or in connection with this Release or otherwise in connection with the Employee's employment by the Company that cannot be mutually resolved by the parties to this Release and their respective advisors and representatives shall be settled exclusively by arbitration in accordance with the provisions of Section 6.3 of the Employment Agreement.

11.     Counterparts . This Release may be executed via facsimile or electronic mail and in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument, binding on the parties.

12.    Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:
____________________

____________________
Attn : _______________

To the Employee:

The address most recently on file in the payroll records of the Company.

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission.

[Signature Page Follows]


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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.

Klondex Gold & Silver Mining Co.

By:  
   
Its:  

Employee:

   
Name:  
   
Address:  
   
Date:  



EMPLOYMENT AGREEMENT

THIS AGREEMENT, made effective as of June 15, 2016, is between KLONDEX GOLD & SILVER MINING COMPANY , a corporation duly organized under the laws of Nevada with offices at 360 Western Road, Suite 1, Reno, Nevada 89506 (" Klondex G&S " or the " Company ") and John Antwi, residing at [ REDACTED ], (the " Employee ").

WHEREAS:

A.     Klondex G&S is a wholly owned subsidiary of Klondex Mines, a reporting issuer in Canada listed on the Toronto Stock Exchange (the " TSX ") with operations in Vancouver, British Columbia, Reno, Nevada, Winnemucca, Nevada and Elko, Nevada;

B.     Substantially all of Klondex Mines's operations are conducted through Klondex Holdings (USA) Inc., Klondex G&S, Klondex Midas Holdings Limited and Klondex Midas Operations Inc. (each such entity, including Klondex Mines, but other than Klondex G&S, an " Affiliate ");

C.     Klondex G&S desires to employ Employee and Employee desires to be employed by Klondex G&S pursuant to the terms and conditions of this Agreement;

THEREFORE , the parties, in consideration of the promises and the mutual covenants and agreements contained herein, mutually agree and covenant as follows:

SECTION 1. EMPLOYMENT AND WORK DUTIES

1.1

Employment

Klondex G&S agrees to employ Employee and Employee agrees to be employed by Klondex G&S to provide such management services as requested by Klondex G&S. Employee understands that as an employee of Klondex G&S, he may be required to provide management services to an Affiliate, including, but not limited to, services as Senior Vice President, Strategic Development to Klondex Mines, if requested by Klondex G&S in fulfillment of Klondex G&S's obligations under applicable administrative and technical services agreements.

1.2

Duties

Subject to the terms and conditions of this Agreement, the Employee shall report to the President of Klondex G&S (the " President "). The Employee shall continue to perform such duties and responsibilities and exercise such powers as may from time to time be reasonably assigned to the Employee by the President.


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1.3

Location

The Employee shall work from the Klondex G&S office in Reno, Nevada but also will have a presence at the mine sites (or office locations) of Klondex Mines and Affiliates, as reasonably may be requested by Klondex G&S, and occasional presence in Vancouver, and/or Toronto to attend meetings.

SECTION 2. COMPENSATION AND BENEFITS (IN US$)

2.1

Base Salary and Other Compensation

Subject to the other terms and conditions of this Agreement, Klondex G&S shall pay to the Employee a base salary of US$220,000 per annum (the " Base Salary "), less required and authorized deductions and withholdings, paid to the Employee in equal bimonthly (twice a month) payments in arrears, and pro-rated for any partial month of employment. The Base Salary will be reviewed by the President from time to time.

Klondex G&S shall pay to the Employee an amount equal to the employee cost of family coverage under the Anthem Medical, Anthem Dental and EyeMed Vision Plans (or any plans which replace these plans), on an after tax basis, regardless of whether or not the Employee has elected such coverage (the " Other Compensation "). The Other Compensation will be reviewed by the President from time to time.

2.2

Annual Bonus

The Employee shall be eligible for a target annual bonus of 50% of the Employee's annual Base Salary, less required and authorized deductions and withholdings, subject to achieving corporate and personal targets to be mutually agreed upon in writing at the beginning of each calendar year with the President. It is a term and condition of eligibility for the payment of any bonus payment that the Employee be employed by Klondex G&S or an Affiliate on the last day of the fiscal year in respect of which the annual bonus is payable. The Employee shall not be deemed to be employed following the date the Employee ceases to be actively employed by Klondex G&S and all Affiliates, and for greater certainty, in the event of the termination of the Employee's employment without just cause, such date shall be as specified in the notice of termination from Klondex G&S (and shall not include or be deemed to include any period of notice of termination to which the Employee may be entitled under this Agreement, statute, common law or otherwise). If the Employee is eligible to receive a bonus, any such bonus generally will be paid within 90 days following the approval of the annual financial statements for the fiscal year, provided that in all cases such payment will occur during the calendar year following the last day of the fiscal year in which the services giving rise to the bonus are performed.


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2.3

Group Benefits

During the term of this Agreement, the Employee shall be entitled to participate in any group insurance, supplemental health insurance, qualified pension, 401(k), hospitalization, medical health and accident, disability, life, or similar plan or program of Klondex G&S or an Affiliate now existing or hereafter established covering employees of Klondex G&S in both Canada and the United States, subject to the terms and conditions of such plans. Any claim or dispute relating to a decision made by the group benefits insurer will be with and directed to the insurer only, and will not form the basis for any dispute or liability as between Klondex G&S or an Affiliate and the Employee. Notwithstanding anything herein to the contrary, however, Klondex G&S or an Affiliate sponsoring such plan may at any time and from time to time modify, suspend, or discontinue any or all such benefit plans for its employees generally or for any group thereof at its sole discretion, without any obligation to replace such modified, suspended or discontinued benefit with any other benefit, equivalent or otherwise, or to otherwise compensate the Employee in respect thereof.

2.4

Vacation and Holidays

In addition to any statutory and other holidays observed by Klondex G&S, during the term of this Agreement, the Employee shall be entitled to paid vacation of four (4) weeks during each calendar year, pro-rated for any partial calendar years. Such vacation shall be taken at a time or times acceptable to Klondex G&S having regard to its operations. The vacation will be subject to the Vacation Policy contained in the Employee Handbook of Klondex G&S.

2.5

Equity Incentive Plans

The Employee shall be eligible to participate in any equity incentive plan made available to senior management of Klondex G&S, including any such plans sponsored by Klondex Mines, in accordance with the terms and conditions of such plan(s) as may be amended from time to time. Annual equity incentive grants will be made following the Annual Meeting of Klondex Mines in or around June annually.

2.6

Restricted Shares

Subject to regulatory approval, laws, regulations and the Share Option and Restricted Share Unit Plan (Effective May 13, 2016), in connection with his appointment pursuant to this Agreement, the Employee will be issued an aggregate of 20,000 restricted share units of the Klondex Mines Ltd (“Common Shares”) promptly after the effective date of this Agreement and taxes and other deductions will be applied, where applicable. Twenty percent (20%) of the restricted shares granted, shall vest one year after the date this Agreement was signed, twenty percent (20%) of the restricted shares shall vest on the second anniversary following the effective date of this Agreement and sixty percent (60%) of the restricted shares shall vest on the third anniversary of this Agreement.

2.7

Stock Matching

Subject to regulatory approval, in connection with his appointment pursuant to this Agreement, the Company will match, in the form of Klondex Mines Ltd. restricted common shares, 15% of any direct purchase of Common Shares in the first financing (or purchase as agreed by the Company). The Employee purchase match will match 15% of his shares purchased (to a maximum of $112,500 matched). One-third (1/3) of any restricted Common Shares issued to the Employee pursuant to this provision shall vest in ninety (90) days, one-third (1/3) shall vest on the first anniversary following the effective date of this Agreement and one-third (1/3) shall vest on the second anniversary following the effective date of this Agreement.


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2.8

Stock Options

Subject to regulatory approval, laws, regulations and the Share Option and Restricted Share Unit Plan (Effective May 13, 2016), in connection with his appointment pursuant to this Agreement, the Employee will be granted options to purchase Klondex Mines Ltd. shares within 30 days of commencement date options to purchase:

  (a)

300,000 Common Shares under its current stock option plan at an exercise price (the " Option Price ") which shall be determined by the Board based on the current market price of the Company's common shares on the TSX Exchange at date of grant;

     
  (b)

Twenty percent (20%) of the stock options granted above in Sections 2.8(a), shall vest six months after the date this Agreement was signed, twenty percent (20%) of the stock options granted above in Sections 2.8(a) above shall vest on the first anniversary following the effective date of this Agreement and sixty percent (60%) of the stock options granted above in Sections 2.8(a) above shall vest on the second anniversary of this Agreement. Such options shall be exercisable for a period of five (5) years from the grant date thereof, subject to the terms and conditions of the Company's stock option plan, which the Employee acknowledges having reviewed and being satisfied with.

SECTION 3. EXPENSES

3.1

Travel Expense

The Employee will be reimbursed for all reasonable and documented travel and other reasonable and documented out-of-pocket expenses actually, exclusively, necessarily, and properly incurred by the Employee in connection with the performance of his duties and functions, subject to the policies of Klondex G&S in effect from time to time and the Employee first providing receipts or vouchers to Klondex G&S and reasonable particulars of such expenses within sixty (60) days after the date the expenses are incurred. If such expense qualifies hereunder for reimbursement, then Klondex G&S will reimburse the Employee for that expense within thirty (30) days thereafter. Each reimbursement must be made no later than the end of the calendar year following the calendar year in which the expense was incurred. The amount of reimbursements in any calendar year shall not affect the expenses eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.


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3.2

Professional Development

The parties acknowledge that it will benefit if the Employee holds and improves his professional qualifications and engages in professional and trade organizations. Accordingly, subject to prior approval by the President, Klondex G&S will pay or reimburse the Employee for the costs and fees of business and professional organization memberships reasonably intended to improve the Employee's professional qualifications or the visibility and/or reputation of Klondex G&S and Affiliates within the business community. The Employee must provide receipts or vouchers to Klondex G&S for such costs and fees within sixty (60) days after the later of (i) the Employee's incurrence of such cost and fees; and (ii) the Employee's receipt of the invoice for such cost and fees. Klondex G&S will reimburse the Employee for such costs and fees within thirty (30) days thereafter. In no event will any such payment or reimbursement be made later than the end of the calendar year following the calendar year in which the cost and fees were incurred. The amount of such reimbursements in any calendar year shall not affect the costs and fees eligible for reimbursement in the same or any other calendar year. The Employee's right to reimbursement may not be liquidated or exchanged for any other benefit.

3.3

Professional Insurance

Klondex G&S will maintain, or cause Klondex Mines to maintain, adequate Directors & Officers Liability Insurance to properly protect the Employee against loss. Klondex G&S and Klondex Mines will be directly responsible for all legal fees and other expenses for actions brought against the Employee provided that (i) the Employee had reasonable grounds for believing he acted honestly and in good faith with a view to the best interests of Klondex G&S and Affiliates and, (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

3.4

Non-US Income Taxes

Klondex G&S has a tax equalization policy and the Employee will be subject to such tax equalization policy, which is intended to reduce the potential for double taxation.

SECTION 4. EMPLOYEE COVENANTS

4.1

Employee's Services

The Employee hereby covenants and agrees that:

  (a)

the Employee shall, in the exercise of the Employee's duties, at all times follow the policies of Klondex G&S (and the policies of Affiliates, to the extent applicable) and the lawful instructions given and any regulations made by the Board of Directors of Klondex G&S (and the Board of Directors of Klondex Mines, to the extent applicable) and will, from time to time, and at all times when required to do so, give an account of Employee's activities to the President with respect to all transactions, matters and things relating to Klondex G&S and Affiliates; and

     
  (b)

the Employee shall, for the term of this Agreement, unless prevented by illness:



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  (i)

devote the Employee's whole time and attention to the Employee's duties in the Employee's position and provide Klondex G&S (and Affiliates, to the extent applicable) with the full benefit of the Employee's knowledge, expertise, skill, experience and ingenuity with respect to the business and affairs of Klondex G&S and Affiliates, except to the extent that the parties agree in writing that the Employee may work or provide services for remuneration to another entity, including serving on the board of directors or as an officer of other public or private companies, provided that such activities do not unduly interfere with the Employee's obligations to Klondex G&S and Affiliates;

     
  (ii)

do his utmost to promote, develop and extend the business of Klondex G&S and Affiliates, during the term of this Agreement, communicate and channel to Klondex G&S and/or Affiliates all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the business of Klondex G&S and Affiliates. Any such information thus communicated to Klondex G&S and Affiliates will be and remain the property of Klondex G&S and/or Affiliates notwithstanding any subsequent termination of the Employee's employment; and

     
  (iii)

exercise the degree of care, diligence and skill that a prudent senior officer would exercise in comparable circumstances.


4.2

Non-Solicitation

The Employee recognizes that he will obtain access to or obtain confidential information about other employees or consultants of Klondex G&S, Affiliates or other entities that may become affiliated with Klondex G&S or Klondex Mines in the future (" Related Entities "), including information about their education, experience, skills, ability, salary and benefits and relationships with customers, shareholders and suppliers of Klondex G&S, Affiliates and Related Entities. The Employee further recognizes that such information is not generally known, is of substantial value to Klondex G&S, Affiliates and Related Entities in securing and retaining customers, shareholders and suppliers, and will be acquired by the Employee because of his employment. Accordingly, the Employee shall not, during his employment and for twelve (12) months following the cessation of the Employee's employment with Klondex G&S, directly or indirectly, on his own behalf or on behalf of any other person, hire, solicit or induce any person who is, or was within six (6) months prior to any attempted hiring, solicitation or inducement, employed or engaged by Klondex G&S, an Affiliate or a Related Entity to leave such employment or engagement or enter into employment or engagement with any other person or entity.

4.3

Non-Competition

The Employee shall not, at any time during the term of this Agreement and for a period of six (6) months following the termination of this Agreement and/or the Employee's employment with Klondex G&S, for any reason, either directly or indirectly, individually or in partnership or jointly or in association with any person as principal, agent, consultant, employee, investor, shareholder (other than an investment of less than two (2) per cent of the shares of a company traded on a registered stock exchange) or in any other manner whatsoever, be employed or engaged by, advise, carry on or be interested in any person or entity that is involved in the business of mineral exploration in any area within two hundred (200) kilometers of any property Klondex G&S, an Affiliate or a Related Entity, in whole or part, owned or leased during the time the Employee was employed by Klondex G&S.


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4.4

Confidentiality


  (a)

In this Agreement, " Confidential Information " means confidential or proprietary information or material relating to the operations, personnel or business of Klondex G&S, Affiliates and Related Parties which the Employee obtains from Klondex G&S, an Affiliate or a Related Entity or from the officers, employees or agents of Klondex G&S, an Affiliate or a Related Entity, or otherwise by virtue of his employment by Klondex G&S, including, without limitation, corporate information, including plans, strategies, tactics, policies, resolutions, and any information regarding existing or contemplated litigation or negotiations; financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings; operational and scientific information, including trade secrets; technical information, technical drawings and designs, drill results, mine plans, pit designs and reserve and resource estimates; and personnel information, including personnel lists, staff compensation, resumes, personnel data, organizational structure and performance evaluations.

     
  (b)

In the course of carrying out and performing his/her duties and responsibilities to Klondex G&S (and for Affiliates with respect to services Employee provides to them as an employee of Klondex G&S) pursuant to this Agreement, the Employee will obtain access to and be entrusted with Confidential Information. Except as authorized by the Board of Directors of Klondex G&S or required by law, the Employee shall, during and after his employment:


  (i)

keep the Confidential Information in strict confidence and shall not copy or reproduce the Confidential Information except in the proper course of the Employee's employment and for the benefit of Klondex G&S;

     
  (ii)

not use the Confidential Information for his own account or to the detriment of Klondex G&S, an Affiliate or a Related Entity or their lenders; and

     
  (iii)

not directly or indirectly disclose, allow access to or transfer the Confidential Information to any third party (other than Klondex G&S or its directors, officers, bankers, lenders and financial advisors in the course of his employment or at the express direction of the Board of Directors of Klondex G&S).



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4.5

Remedy

The parties acknowledge and agree that provisions of Sections 4.1, 4.2, 4.3 and 4.4 are reasonable in the circumstances and that a breach by the Employee of any such provisions would cause irreparable harm to Klondex G&S, Affiliates and Related Entities, which could not be adequately compensated for by damages; and in the event of a breach of the said provisions by the Employee, the Employee consents to an injunction being issued restraining the Employee from any further breach thereof, but the provisions herein shall not be construed so as to be in derogation of any other remedy which Klondex G&S may have in the event of such a breach.

SECTION 5. TERMINATION OF EMPLOYMENT

5.1

Termination Date

In this Agreement, " Termination Date " means the date on which the Employee ceases to actively perform services for Klondex G&S.

5.2

Voluntary Resignation

If the Employee wishes to resign the Employee's employment voluntarily, the Employee shall provide sixty (60) days' notice in writing to Klondex G&S (the " Resignation Period "). Klondex G&S may, in its sole discretion, waive the Resignation Period in whole or in part by paying the Employee's Base Salary and continuing the Employee's group benefits coverage to the effective date of resignation. The Employee agrees that such waiver will not constitute termination of the Employee's employment by Klondex G&S. In the event of the Employee's voluntary resignation, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options he holds with respect to shares of Klondex Mines (or any successor entity) that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.2 or as required by law, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

5.3

Termination with Cause


  (a)

Klondex G&S may terminate the Employee's employment and this Agreement at any time without notice for just cause. For the purposes of this Agreement, " just cause " means:


  (i)

the non-performance, breach or default by the Employee of or under any of his covenants in this Agreement;

     
  (ii)

the failure by Employee to substantially perform Employee's duties with Klondex G&S (other than any such failure resulting from the Employee's disability as defined under the disability plans or programs as in effect for employees of Klondex G&S from time to time) after a written demand for substantial performance is delivered to the Employee that specifically identifies the manner in which Klondex G&S believes that the Employee has not substantially performed the Employee's duties, and the Employee has failed to resume on a continuous basis substantial performance of the Employee's duties (as determined by Klondex G&S) within 30 days of such written demand;



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  (iii)

Employee's disregard of or failure to comply with any lawful directive or instruction, written or otherwise, from the Board of Directors of Klondex G&S or any other person to whom Employee reports if such failure or disregard has a material adverse effect upon Klondex G&S or Affiliates;

     
  (iv)

negligence by Employee which causes, or which would reasonably be expected to cause, Klondex G&S or Affiliates material harm;

     
  (v)

Employee's material violation of applicable state, provincial or federal law relating to the business of Klondex G&S and Affiliates;

     
  (vi)

Employee's commission during the course of employment of any act of dishonesty, theft, fraud, embezzlement. misappropriation, assault, battery, malicious destruction of property, arson, sabotage, harassment, acts or omissions which violate the rules or policies (such as breaches of confidentiality) of Klondex G&S (or an Affiliate, to the extent applicable), or other conduct which demonstrates a disregard of the interests of Klondex G&S and Affiliates (regardless of whether the misconduct occurs on the premises of Klondex G&S); or

     
  (vii)

Employee's conviction of a crime (including, without limitation, a misdemeanor offense) which impairs Employee's ability substantially to perform Employee's duties under this Agreement.


  (b)

If the Employee's employment and this Agreement are terminated under this section, the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary and vacation pay, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date. All unexercised stock options, whether vested or unvested, in Klondex Mines held by the Employee shall be forfeited without any consideration or damages of any kind on the Termination Date.


5.4

Termination without Cause


  (a)

If the Employee experiences an involuntary termination of employment by Klondex G&S (or any successor) for any reason other than for just cause, then Klondex G&S (or its successor) shall provide the Employee with written notice specifying the Termination Date. Klondex G&S shall pay the Employee for all accrued but unpaid wages and vacation entitlements up to the Termination Date (net of applicable withholdings). In addition, provided that the Release under Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, Klondex G&S shall provide to the Employee a lump sum separation payment, net of applicable withholdings and less any amounts owing by the Employee to Klondex G&S, (the " Separation Payment ") equal to:



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  (i)

the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's date of hire on July 31, 2015 (the “Employee’s Date of Hire” ), an additional amount equal to one month's base salary will be added to a maximum of eighteen (18) months; plus

     
  (ii)

the monthly premium cost of coverage described in Section 2.3 multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire an additional amount equal to one month's premium cost will be added; plus

     
  (iii)

an amount equal to the Employee's then current target bonus amount pursuant to Section 2.2 for the year in which the Termination Date occurs (or if the target bonus amount for the year in which the Termination Date occurs has not been determined as of the Termination Date, the target bonus amount for the year prior to the Termination Date) plus an additional amount equal to 1/12th of such bonus amount for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire; plus

     
  (iv)

An amount equal to 4% of the Employee's monthly Base Salary (determined as of the Termination Date) multiplied by 12, provided that for each completed year of service (but not to exceed six years) measured from the Employee's Date of Hire, an additional amount equal to 4% of one month's base salary will be added.

For greater certainty, in no circumstances shall the Employee be entitled to a Separation Payment that is more than the equivalent of a total of 18 months of the payments in paragraphs 5.4(a)(i),(ii),(iii) and (iv) above (i.e., 12 months plus an additional month for each of the first six years of completed of service from Employee's Date of Hire, up to a maximum of an additional 6 months). With respect to the calculation in paragraph 5.4(a)(iii), the target annual bonus amount shall be used without regard to the achievement of any corporate and personal targets established in connection with such target bonus amount.

  (b)

The Separation Payment described in this Section 5.4 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), unless the Employee has failed to execute a Release as described in Section 5.4(c), in which case Employee shall forfeit any Separation Payment. The Separation Payment is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and therefore will be paid by March 15 th of the calendar year following the calendar year in which the notice of termination is given, provided that if the notice of termination specifies a termination date that will occur in a subsequent calendar year and further specifies that the Employee is required to continue providing service through that later termination date, then such payment will be paid by March 15 th of the calendar year following the Employee's termination date (such date, in either case, referred to herein as the "latest payment date").



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  (c)

In order for the Employee to receive the Separation Payment, the Employee must sign a release of claims ("Release") in substantially the form set forth in Attachment A to this Agreement on or prior to the date of the expiration of the consideration period (not less than 21 days) set forth in the Release. The Company agrees to provide the Employee with the Release within 10 days of the Termination Date, and in all cases no later than a date such that the last day of any revocation period described in the Release will occur on or before February 28 of the year in which the latest payment date occurs. If the Employee fails to sign the release within the time frame specified therein, the Employee will forfeit any right to the Separation Pay and the Employee shall not be entitled to any payments replacing the Separation Payment.

     
  (d)

In the event the Company terminates the Agreement and the Employee's employment under this section, all outstanding equity awards granted under compensatory plans shall vest 100%; provided however, if an outstanding equity award is subject to Section 409A, the acceleration of vesting will not change the time or form of payment in a manner that would violate Section 409A; if an outstanding equity award is exempt from Section 409A, the award will be administered in a manner that retains such exemption or otherwise complies with Section 409A.

     
  (e)

In the event the Company terminates the Agreement and the Employee's employment under this section, the Employee shall have ninety (90) days from the Termination Date to exercise any stock options to acquire shares of Klondex Mines (or any successor) that he holds that have vested and are unexercised on or before the Termination Date. The Employee shall not be entitled to be awarded or have any right to receive, after the Termination Date, any further stock options or damages in lieu of receipt of further stock options, which would have vested after the Termination Date. Except as otherwise provided in this Section 5.4 or as otherwise provided under minimum employment standards legislation, the Employee shall not be entitled to any further termination payments, damages or compensation whatsoever.

     
  (f)

The Separation Payment is attributable to services performed in the United States.


5.5

Termination in the Event of a Change of Control



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  (a)

For the purposes of this Agreement, a " Change of Control " means:


  (i)

the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Klondex Mines to any person or entity or group of persons or entities, but not including the entering into of an option, joint venture or other arrangement whereby Klondex Mines transfers, or has the right to transfer, an interest in its mineral properties yet maintains control, majority ownership or an operating interest in the mineral properties, resulting entity or new arrangement;

     
  (ii)

the amalgamation, merger or arrangement of Klondex Mines with or into another entity where the shareholders of Klondex Mines immediately prior to the transaction will hold less than 50% of the voting securities of the resulting entity upon completion of the transaction;

     
  (iii)

any person or combination of persons acting jointly or in concert, acquiring or becoming the beneficial owner of, directly or indirectly, of more than 50% of the voting securities of Klondex Mines whether through the acquisition of previously issued and outstanding voting securities of Klondex Mines or of voting securities of Klondex Mines that have not previously been issued or any combination thereof or any other transaction with similar effect; or

     
  (iv)

the Board of Directors of Klondex Mines adopting a resolution to the effect that, for purposes of the Agreement, a Change of Control has occurred, or that such a Change of Control is imminent, in which case, the date of the Change of Control shall be deemed to be the date of such resolution.


  (b)

For the purposes of this Agreement, " Good Reason " means the continued occurrence of any of the following conditions without Employee's consent after the Employee has given Klondex G&S written notice of such condition within thirty days following the initial existence of the condition, and Klondex G&S has failed to cure such condition within 30 days of the date it received notice of the condition:


  (i)

Klondex G&S assigning to the Employee duties materially inconsistent with the Employee's duties and responsibilities under this Agreement, including those management duties performed by Employee, as an employee of Klondex G&S, for Klondex Mines or an Affiliate;

     
  (ii)

a unilateral reduction by Klondex G&S of the Employee's Base Salary, or any unilateral change in the basis upon which the Employee's Base Salary is determined or paid if the change is or will be materially adverse to the Employee, except where (x) such reduction or change is part of a general reduction in the base salary of all or substantially all of the members of management of Klondex G&S and which affects the Employee in substantially the same manner as the other members of the management of Klondex G&S who are also affected by such general reduction and (y) such change does not constitute more than ten percent (10%) of the Employee's Base Salary;



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  (iii)

Klondex G&S unilaterally relocating the Employee's principal location more than 100 miles from the Employee's current work location ( i.e., Klondex G&S's Reno, Nevada office); or

     
  (iv)

any material breach by Klondex G&S of any provision of this Agreement, which is not cured by Klondex G&S within thirty (30) days following written notice from the Employee.


  (c)

Notwithstanding Section 5.4, if, within one hundred and eighty (180) days following a Change of Control, the Employee experiences an involuntary termination of employment by Klondex G&S or any successor entity without just cause or if the Employee terminates employment for Good Reason, provided that a Release as described in Section 5.4(c) has been executed and becomes enforceable in accordance with its terms following the expiration of the applicable revocation period, then:


  (i)

all unvested stock options to acquire shares of Klondex Mines (or any successor) held by the Employee shall immediately vest on the Termination Date and the Employee shall have one (1) year after the date of the Change of Control to exercise the vested stock options;

     
  (ii)

Klondex G&S shall provide the Employee with a lump-sum payment equal to the Separation Payment the Employee would have received under Sections 5.4(a);

     
  (iii)

the Employee shall not be entitled to receive any further pay or compensation (except for Base Salary, if any, accrued and owing under this Agreement up to the Termination Date), severance pay, notice, payment in lieu of notice, benefits or damages of any kind, and for clarity, without limiting the foregoing, the Employee shall not be entitled to any bonus or pro-rata bonus payment that has not already been paid to the Employee on or before the Termination Date; and

     
  (iv)

The lump sum payment described in this Section 5.5 will be paid within 10 days following the expiration of the revocation period applicable to the Release (as described in Section 5.4(c)), and in all cases by March 15 th of the calendar year following the calendar year in which the Employee's Termination Date occurs (in the case of an involuntary termination by the Company) or the calendar year in which the Employee's notice to the Company of termination for Good Reason occurs (in the case of Employee's termination for Good Reason).



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For greater certainty, if the Employee's employment is terminated without Cause one hundred and eighty-one (181) days or more after the Change of Control the Employee's entitlements will be as per Section 5.4 above.

  (d)

The lump sum payment is attributable to services performed in the United States.


5.6

Return of Property

In the event that the Employee's employment terminates for any reason, the Employee agrees to deliver to a nominated employee of Klondex G&S on the Termination Date all property of Klondex G&S and Affiliates and Related Entities, and other property for which Klondex G&S is liable to others, in the Employee's possession, charge or control (and any copies thereof) wherever situated including, without limiting the generality of the foregoing, any Confidential Information and all notes, memoranda and other documents concerning any of the business, personnel or affairs of Klondex G&S, Affiliates and Related Entities, whether in written or electronic form, all books, effects, money, securities, keys, pass cards, credit cards, laptops or vehicles.

5.7

Stock Options

Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement shall extend the term of any stock option past the expiration date of the option in accordance with the terms of such option agreement and/or option plan governing such option.

SECTION 6. MISCELLANEOUS

6.1

Headings

The headings of the Sections and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof.

6.2

Applicable Law

This Agreement will be governed by and be construed in accordance with the Laws of the State of Nevada. Venue for any action brought by the parties to this Agreement will be in the courts of the State of Nevada.

6.3

Arbitration

The parties agree that any dispute relating to the terms of this Agreement or the Employee's employment with Klondex G&S will be determined by arbitration in accordance with the then-current JAMS employment arbitration rules and procedures, except as modified herein. The arbitration will be conducted by a sole neutral arbitrator who has had both training and experience as an arbitrator of general employment and commercial matters and who is and for at least ten (10) years has been, a partner, a shareholder, or a member in a law firm. If Klondex G&S and Employee cannot agree on an arbitrator, then the arbitrator will be selected by JAMS in accordance with Rule 15 of the JAMS employment arbitration rules and procedures. No person who has served as a mediator under the mediation provision, however, may be selected as the arbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide any issue as to discovery. The arbitrator may decide any issue as to whether or as to the extent to which any dispute is subject to the dispute resolution provisions in this Agreement and the arbitrator may award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of this Section 6.3 and applicable law and must render the award in writing, including an explanation of the reasons for the award. Judgment upon the award may be entered by any court having jurisdiction of the matter, and the decision of the arbitrator will be final and binding. The statute of limitations applicable to the commencement of a lawsuit will apply to the commencement of an arbitration under this Section. The arbitrator's fees will be paid in equal portions by Klondex G&S and Employee, unless Klondex G&S agrees to pay all such fees.


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6.4

Severability

Each provision of this Agreement is intended to be severable; if any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal, void or invalid for any reason whatsoever, such provision shall be severed from this Agreement and the remaining terms and provisions shall remain in full force and effect.

6.5

Survivability

The provisions of Section 4, Section 5 and Section 6.3 shall survive the termination of this Agreement.

6.6

Pre-Contractual Representations

The Employee hereby waives any right to assert any claim based on any pre-contractual representations, negligent or otherwise, made by Klondex G&S, Klondex Mines or any Affiliates.

6.7

Assignability

This Agreement may not be assigned by the Employee. Without in any way limiting the rights of Klondex G&S to assign this Agreement, it is expressly understood and agreed that Klondex G&S shall have the right to assign this Agreement to any other entity to which the business of Klondex G&S is transferred, in whole or in part, which thereafter carries on the business of Klondex G&S.

6.8

Successors

This Agreement and all rights of the Employee hereunder will be binding upon and shall enure to the benefit and be binding upon Klondex G&S and its successors and assigns and the Employee and his heirs, representatives and administrators.

6.9

Waiver of Breach

The waiver by either the Employee or Klondex G&S of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that party.


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6.10

Modification of Agreement

Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void.

6.11

Entire Agreement

This Agreement reflects the entire agreement of the parties and supersedes and replaces all prior letters of intent, agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, between all or any of the parties with respect to the subject matter of this Agreement, including without limitation, the employment agreement between Employee, Klondex G&S and Klondex Mines effective as of July 31, 2015. The recitals and any schedules form a part of and are incorporated by reference into this Agreement.

6.12

Further Acts

The Employee agrees that on the request of Klondex G&S, he will execute, acknowledge, perform and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the better carrying out and performance of the terms of this Agreement.

6.13

Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

6.14

Independent Legal Advice

The Employee acknowledges that this Agreement has been prepared by Klondex G&S and that he has had sufficient time to review this Agreement thoroughly, that he has read and understood the terms of this Agreement and that he has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.

6.15

Compliance with Section 409A of the Internal Revenue Code

Payments and benefits provided under this Agreement as a result of Employee's termination of employment are intended to fall within the exception in U.S. Treasury Regulation 1.409A -1(b)(4) for short term deferrals or other applicable exceptions and will be interpreted and administered accordingly. However, to the extent that any payment under this Agreement is subject to Section 409A of the Code, it is intended to comply with Section 409A and this Agreement shall be interpreted and construed accordingly and in a manner that avoids the imposition of taxes and other penalties under Section 409A (such taxes and other penalties referred to collectively as "409A Penalties"). In the event that Klondex G&S determines that the terms of this Agreement would subject the Employee to 409A Penalties, Klondex G&S and the Employee shall cooperate diligently to amend the terms of this Agreement to avoid such 409A Penalties, to the extent possible; provided , however , that this Section 6.15 shall not create any obligation on the part of Klondex G&S to adopt any such amendment or take any such other action. All references in this Agreement to the Employee's termination of employment shall mean a "separation from service" within the meaning of Section 409A of the Code, to the extent required to comply with Section 409A of the Code. Any payment that is "deferred compensation" within the meaning of and subject to Section 409A of the Code that becomes payable as a result of the Employee's separation from service and that is conditioned upon the Employee's execution of a Release will be paid within 90 days following the Employee's separation from service and if such period begins in one taxable year and carries over into a second taxable year, payment shall be made in the second taxable year, and in no event shall the Employee have the ability to influence the year in which payment will occur. Notwithstanding any other provision in this Agreement, if on the date of the Employee's "separation from service" the Employee is a "specified employee," as defined in Section 409A of the Code, then to the extent any amount payable under this Agreement upon the Employee's separation from service would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such payment shall be delayed until the earlier to occur of (x) the first day of the seventh month following the Employee's separation from service or (y) the date of the Employee's death.


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6.16

Taxes; Parachute Payment


  (a)

Withholding. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as Klondex G&S may reasonably determine should be withheld pursuant to any applicable law or regulation.

     
  (b)

Parachute Payment. Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by Klondex G&S to or for the Employee's benefit (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (a "Parachute Payment"), would result in an "excess parachute payment" within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Parachute Payments, net of all taxes imposed on the Employee (the "Net After-Tax Amount") that the Employee would receive would be increased if the Parachute Payments were reduced, then the Parachute Payments shall be reduced by an amount (the "Reduction Amount") so that the Net After-Tax Amount after such reduction is greatest. For purposes of determining the Net After-Tax Amount, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Parachute Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Parachute Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Subject to the provisions of this Section 6.16, all determinations required to be made under this Section 6.16, including the Net After-Tax Amount, the Reduction Amount and the Parachute Payments that are to be reduced pursuant to this Section 6.16 and the assumptions to be utilized in arriving at such determinations, shall be made by independent public accounting firm selected by Employee (the "Accounting Firm"), which shall provide detailed supporting calculations both to Klondex G&S and the Employee within fifteen (15) business days of the receipt of notice from the Employee that there has been a Parachute Payment, or such earlier time as is requested by the Employee. The Accounting Firm's decision as to which Parachute Payments are to be reduced shall be made (a) only from Parachute Payments that the Accounting Firm determines reasonably may be characterized as "parachute payments" under Section 280G of the Code; (b) only from Parachute Payments that are required to be made in cash; (c) only with respect to any amounts that are not payable pursuant to a "nonqualified deferred compensation plan" subject to Section 409A of the Code, until those payments have been reduced to zero; and (d) in reverse chronological order, to the extent that any Parachute Payments subject to reduction are made over time (e.g., in installments). In no event, however, shall any Parachute Payments be reduced if and to the extent such reduction would cause a violation of Section 409A of the Code or other applicable law. All fees and expenses of the Accounting Firm shall be borne solely by Klondex G&S. Any determination by the Accounting Firm shall be binding upon Klondex G&S and the Employee.



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6.17

Copy of Agreement

The Employee hereby acknowledges receipt of a copy of this Agreement duly executed by Klondex G&S.

[Remainder of page intentionally left blank. Signature page follows.]

 


IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on January 2, 2016.

KLONDEX GOLD & SILVER MINING COMPANY

PAUL HUET, President

ACCEPTED:

/s/ John Antwi   /s/ Barry Dahl
JOHN ANTWI   Witness Signature
     
May 2, 2016   Barry Dahl
Date Signed   Witness Name
     
     
    [REDACTED]
    Witness Address


ATTACHMENT A

RELEASE OF CLAIMS

This Agreement and General Release of all Claims (this " Release ") is entered into by _________________ (the " Employee ") and Klondex Gold & Silver Mining Co. (the "Company"), effective as of ___________________. In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the " Employment Agreement "), the Employee and the Company agree as set forth in this Release. Capitalized terms not defined in this Release shall have the meaning ascribed to them in the Employment Agreement.

The form of this Release is being provided to the Employee on _______________, 20__ and the Employee will have ________ days from such date [a minimum of 21 days must be given] to consider whether to sign this Release (the "Consideration Period") and return it to the Company. If this Release is not executed and delivered to the Company by __________________, 20__, or if so delivered by the Employee but it is nevertheless revoked by the Employee within the applicable Revocation Period, then the Employee will forfeit all rights to any Separation Payment and other benefits to which the Employee may otherwise have been entitled pursuant to Section 5.4 or Section 5.5 of the Employment Agreement . The Employee may choose to sign and deliver this Release to the Company before the end of the Consideration Period. The Employee will have ____ days [must be at least 7 days and could be longer depending on employee's age and other factors. Consult U.S. counsel before completing this section] following the date of delivery to the Company of the executed Release to revoke the Release (the "Revocation Period") by delivery to the Company of written notice of such revocation within such Revocation Period.

In consideration of the promises set forth in the Employment Agreement between the Employee and the Company, effective March 1, 2015 (the "Employment Agreement"), the Employee and the Company agree as follows:

1.     Return of Property . All files, access keys, desk keys, ID badges, computers, electronic devices, telephones and credit cards, and such other property of the Company, Affiliates and Related Parties as the Company may reasonably request, in the Employee's possession must be returned no later than the date of the Employee's termination from the Company.


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2.     General Release and Waiver of Claims .

(a)     Release . In consideration of the payments and benefits provided to the Employee under the Employment Agreement and after consultation with counsel, the Employee, his marital community, and each of the Employee's respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the " Releasors ") hereby irrevocably and unconditionally release and forever discharge the Company, Affiliates and Related Parties and each of their respective officers, employees, directors, shareholders and agents (" Releasees ") from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, " Claims "), including, without limitation, any Claims under any federal, state, local, provincial or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) the Employee's employment relationship with and service as an employee, officer or director of the Company, Affiliates of Related Parties, and the termination of such relationship or service, and (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that the Employee does not release, discharge or waive (i) the Employee's rights to payments and benefits provided under the Employment Agreement that are contingent upon the execution by the Employee of this Release, or rights to enforce the performance by the Company of its obligations under the Employment Agreement, (ii) any employee benefits payable pursuant to the terms of the applicable plans of the Company or any of its affiliates, which benefits shall be paid or provided in accordance with the terms of such plans, or (iii) any right of indemnification or contribution that the Employee may have under the organizational documents of the Company or from any other source, including, any directors' or officers' insurance policy maintained by the Company.

(b)     Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to the Employee under the Employment Agreement, the Releasors hereby unconditionally release and forever discharge the Releasees from any and all Claims that the Releasors may have as of the date the Employee signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (" ADEA "). By signing this Release, the Employee hereby acknowledges and confirms the following: (i) the Employee was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to the Employee the terms of this Release, including, without limitation, the terms relating to the Employee's release of claims arising under; (ii) the Employee was given a period of not fewer than [21]/[45] days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) the Employee knowingly and voluntarily accepts the terms of this Release; [and (iv) in accordance with the requirements of ADEA regarding an "employment termination program", the Employee was provided with the information appended hereto as Schedule 1]. The Employee also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph.


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(c)     No Assignment . The Employee represents and warrants that he has not assigned any of the Claims being released under this Release.

3.      Proceedings . The Employee has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Releasees before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Employee under the Employment Agreement (each, individually, a " Proceeding "), and agrees not to participate voluntarily in any Proceeding. The Employee waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.

4.     Remedies . In the event the Employee initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Release or his post-termination obligations contained in the Employment Agreement, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein. The Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Employee acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Employee from breaching his post-termination obligations under the Employment Agreement or his obligations under Paragraphs 2 and 3 of this Release. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

The Employee understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.

5.     Survival of Certain Terms of Employment Agreement . The Employee acknowledges and affirms that the Employee has previously executed the Employment Agreement (Attached hereto as Attachment A), and that the terms and conditions of the Employment Agreement that survive the employment relationship, including but not limited to the Employee's continuing confidentiality, non-competition and non-solicitation obligations, survive and are not affected by this Release.

6.     Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

7.     EEOC . Nothing in this Agreement shall be construed to prohibit the Employee from filing a charge or complaint, including a challenge to the validity of the waiver provision of this Agreement, with the Equal Employment Opportunity Commission. However, Employee has waived any right to monetary relief.


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8.     Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company.

9.     Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of Nevada applicable to contracts executed in and to be performed in that State.

10.    Arbitration . Any dispute or controversy arising under or in connection with this Release or otherwise in connection with the Employee's employment by the Company that cannot be mutually resolved by the parties to this Release and their respective advisors and representatives shall be settled exclusively by arbitration in accordance with the provisions of Section 6.3 of the Employment Agreement.

11.    Counterparts . This Release may be executed via facsimile or electronic mail and in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument, binding on the parties.

12.    Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:
____________________

____________________
Attn : _______________

To the Employee:

The address most recently on file in the payroll records of the Company.

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission.

[Signature Page Follows]


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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.

Klondex Gold & Silver Mining Co.

By:  
   
Its:  

Employee:

   
Name:  
   
Address:  
   
Date:  



 



Page ii Summary Klondex Mines
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Klondex Mines Technical Report for the Fire Creek Project, Lander Page iii
Ltd County, Nevada  

Date and Signature Page

The undersigned prepared this Technical Report (Technical Report) report, titled: Technical Report for the Fire Creek Project, Lander County, Nevada, dated the 28th day of March 2016, with an effective date of June 30, 2015, in support of the public disclosure of Mineral Resource and Mineral Reserve estimates for the Fire Creek Project. The format and content of the Technical Report have been prepared in accordance with Form 43-101F1 of National Instrument 43-101 – Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators.

Dated this 28th day of March 2016

Signed “Mark Odell” No. 13708, Nevada
Mark Odell, P.E SME No. 2402150
Practical Mining LLC (Sealed)
495 Idaho Street, Suite 205  
Elko, Nevada 89815, USA  
(775) 345-3718 ext. 101  
Email: markodell@practicalmining.com  
   
Signed “Laura Symmes” SME No. 4196936
Laura Symmes (Sealed)
Practical Mining LLC  
495 Idaho Street, Suite 205  
Elko, Nevada 89815, USA  
(775) 345-3718 ext. 102  
Email: laurasymmes@practicalmining.com  
   
Signed “Sarah Bull” No. 22797, Nevada
Sarah Bull, P.E (Sealed)
Practical Mining LLC  
495 Idaho Street, Suite 205  
Elko, Nevada 89815, USA  
775-345-3718 ext. 502  
Email: sarahbull@practicalmining.com  

Practical Mining LLC March 28, 2016



Page iv Summary Klondex Mines
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Table of ContentsDate and Signature Page iii
       
List of Tables x
       
List of Figures xii
       
List of Abbreviations xvi
       
1. Summary 17
       
1.1. Property Description 17
       
1.2. Geology 18
       
1.3. History 18
       
1.4. Mineral Resource Estimate 19
       
1.5. Mineral Reserve Estimate 24
       
1.6.   Cash Flow Analysis and Economics 25
       
1.7. Conclusions 26
       
1.8. Recommendations 27
       
2. Introduction 28
       
2.1. Terms of Reference and Purpose of this Technical Report 28
       
2.2. Qualification of the Authors 28
       
2.3. Sources of Information 29
       
2.4. Units of Measure 29
       
2.5. Coordinate Datum 30
       
3. Reliance on Other Experts 31
       
4. Property Description and Location 32
       
4.1. Property Description 32
       
4.2. Property Location 32
       
4.3. Status of Mineral Titles 34
       
4.4. Location of Mineralization 41
       
5. Accessibility, Climate, Vegetation, Physiography, Local Resources and Infrastructure 44
       
5.1. Access to Project 44
       
5.2. Climate 44
       
5.3. Vegetation 44
       
5.4. Physiography 44

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Klondex Mines Technical Report for the Fire Creek Project, Lander Page x
Ltd County, Nevada  

  5.5. Local Resources and Infrastructure 45
         
6. History 46
         
  6.1. Exploration History 46
         
  6.2. Production History 47
         
7. Geological Setting and Mineralization 49
         
  7.1. Regional Geology 49
         
  7.2. Local Geology 54
         
  7.2.1. Rock Units 54
         
  7.2.2. Structure 59
         
  7.2.3. Veins 63
         
  7.2.4. Alteration 64
         
  7.2.5. Mineralization 67
         
8. Deposit Types 70
         
9. Exploration 72
         
  9.1. Historical Exploration 72
         
  9.2. 2011 Drilling 72
         
  9.3. 2012 Drilling 74
         
  9.4. 2013 Drilling 76
         
  9.5. 2014 Drilling 78
         
  9.6. 2015 Drilling Through June 81
         
10. Drilling and Sampling Methodology 83
         
  10.1. Collar Surveying 85
         
  10.1.1   Surveying Surface Drill Collar Locations 86
         
  10.1.2. Surveying Underground Drill Collar Locations 89
         
  10.1.3. Locating Channel Samples 89
         
  10.2. Downhole Surveying 90
         
  10.3. Core Recovery 90
         
  10.4. Security Procedures 91
         
  10.5. Logging Drilled Core Observations 91
         
  10.5.1. Current Logging Protocol 91

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  10.5.2. Historic Logging Protocol 92
         
  10.5.3. Re-logging Protocol for 2012-2013 94
         
  10.6 Core Sampling Methodology 95
         
  10.7. RC Sampling Methodology 96
         
  10.8. Channel Sampling Methodology 97
         
  10.8.1 Channel Sampling 97
         
11. Sample Preparation, Analysis, and Security 99
         
  11.1. Historic Sample Preparation 99
         
  11.2. Current Sample Preparation 100
         
    11.2.1. Core Sample Preparation 100
         
    11.2.2. Channel Sample Preparation 101
         
  11.3. Sample Analysis Protocol 101
         
    11.3.1. Historic Drill Sample Analysis 101
         
  11.3.2. Drill Sample Analysis from 2012 througgh April 30, 2014 102
         
  11.3.3. Current Drill Sample Analysis 102
         
  11.3.4. Channel Sample Analysis 104
         
  11.3.5. Handling Analyses Results 105
         
11.4. Sample Security Measures 106
         
11.5. Quality Control Measures 106
         
  11.5.1.   QAQC Prior to 2012 107
         
  11.5.2. Current QAQC Procedures 109
         
11.6. QAQC Analysis 110
         
  11.6.1. Duplicates Performance 110
         
  11.6.2. Blank Assay Performance 112
         
  11.6.3. Standards Performance 122
         
11.7. Opinion on the Adequacy of the Sampling Methodologies 134
         
  11.7.1. Sampling Protocol Issues 134
         
  11.7.2. Standards and Blanks Performance Issues 134
         
12. Data Verification 136
         
12.1. Results of Drill Data Review 136

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12.1.1. Collar Location Checks 137
         
12.1.2. Downhole Survey Checks 137
         
12.1.3. Geology Checks 138
         
12.2 Results of Channel Sample Data Review 138
         
12.2.1. Location Measurement Check 138
         
12.2.2. Geology Check 138
         
12.2.3. Assay Check 139
         
12.3 Summary of Database Verification 139
         
13. Mineral Processing and Metallurgical Testing 140
         
13.1. Early Test Work 140
         
13.2. 2013 Test Work 140
         
13.3. 2014 Test Work 141
         
14. Mineral Resource Estimates 144
         
14.1. Introduction 144
         
14.2. Database and Compositing 144
         
14.2.1. Assays 145
         
14.2.2. Lithology 147
         
14.2.3. Compositing 149
         
14.3. Geology and Vein Modelling 149
         
14.4. Density 156
         
14.5. Statistics 156
         
14.6. Grade Capping 163
         
14.7. Variography 169
         
14.8. Block Model 170
         
14.9. Grade Estimation 172
         
14.9.1. Minability Index 173
         
14.10. Mined Depletion and Sterilization 176
         
14.11. Model Validation 178
         
14.12. Mineral Resource Statement 195
         
15. Mineral Reserve Estimates 199

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16. Mining Methods 202
         
  16.1. Mine Development 202
         
  16.1.1. Access Development 202
         
  16.1.2. Ground Support 202
         
  16.1.3. Ventilation and Secondary Egress 203
         
  16.2. Mining Methods 203
         
  16.2.1. End Slice Stoping 203
         
  16.2.2. Drift and Fill Stoping 206
         
  16.3. Underground Labor 206
         
  16.4. Mobile Equipment Fleet 206
         
  16.5. Mine Plan 207
         
17. Recovery Methods 211
         
  17.1. Mill Capacity and Process Facility Flow Diagram 211
         
  17.2. Physical Mill Equipment 215
         
  17.3. Operation and Recoveries 218
         
  17.4. Tailings Storage Capacity 218
         
  17.5. Processing Costs 219
         
  17.6. Production 219
         
  17.7. Midas Mill Operating Permits 220
         
18. Project Infrastructure 221
         
18.1. Road Access 221
         
  18.2. Power and Electrical Infrastructure 221
         
18.3. Water Management and Water Treatment 221
         
18.4. Communication Infrastructure 222
         
18.5. Site Infrastructure 222
         
19. Market Studies and Contracts 224
         
19.1. Precious Metal Markets 224
         
19.2. Contracts 224
         
19.3. Project Financing 225
         

20

Environmental Studies, Permitting and Social or Community Impact 226

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  20.1. Environmental Compliance and Monitoring 226
         
  20.1.1. Waste Rock Disposal Facility 226
         
  20.1.2. Other Environmental Issues 226
         
  20.2. Reclamation Bond Estimate 226
         
  20.3. Major Permitting and Approvals 227
         
  20.4. Future Permitting 228
         
21. Capital and Operating Costs 230
         
  21.1. Capital Costs 230
         
  21.2.   Operating Costs and Cutoff Grade 230
         
22. Economic Analysis 233
         
  22.1. Life of Mine Plan and Economics 233
         
  22.2. Sensitivity Analysis 235
         
23. Other Relevant Data and Information 238
         
24. Interpretation and Conclusions 239
         
  24.1. Conclusions 239
         
  24.2. Project Risks 239
         
25. Recommendations 241
         
26. Bibliography 243
         
27. Glossary 247
         
28. Appendix A: Certification of Authors and Consent Forms 254

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List of Tables

Table 1-1 Chronology of Ownership of the Fire Creek Project 18
Table 1-2 Mineral Resource Statement as of June 30, 2015 20
Table 1-3 Fire Creek Mineral Reserves as of June 30, 2015 25
Table 1-4 Key Operating and After Tax Financial Statistics 26
Table 2-1 Qualified Professionals 29
Table 2-2 Units of Measure 30
Table 4-1 Summary of Klondex Owned Unpatented Mining Claims 36
Table 4-2 Summary of Fee Land Holdings 38
Table 4-3 Summary of Leased Fee Land Holdings 39
Table 4-4 Summary of Fire Creek Project Holding Costs 40
Table 6-1 Exploration History 46
Table 10-1 Surface Drill Collars Re-surveyed by Klondex 88
Table 11-1 ALS In-house QAQC Datasets Reviewed 107
Table 11-2 Blank Assay Set Performance 112
Table 11-3 Standard Assay Performance 122
Table 12-1 Data Review Summary Drilled Material 137
Table 13-1 Summary of Cyanidation Test Results from 2011 Technical Report 140
Table 13-2 Combined Metallurgical Results, Gravity/Cyanidation Tests, 80% -212 υm Feed (Grav.), Reground to 80% -75 υm (CN) 141
Table 13-3 Summary Metallurgical Results, Bottle Roll Tests, Fire Creek West Zone Drill Core Composites 142
Table 13-4 Gold Metallurgical Results, Whole Mineralized Material Gravity Concentration with Cyanidation of the Gravity Cleaner and Rougher Tailings 143
Table 13-5 Silver Metallurgical Results, Whole Mineralized Material Gravity Concentration with Cyanidation of the Gravity Cleaner and Rougher Tailings 143
Table 14-1 Summary of Drill Hole and Channel Samples 145
Table 14-2 Lithology Codes 148
Table 14-3 Vein Orientation and Clipping Priorities 154
Table 14-4 Vein Gold Drill Hole Composite Statistics 156
Table 14-5 Vein Gold Channel Composite Statistics 158
Table 14-6 Vein Silver Drill Hole Composite Statistics 158
Table 14-7 Vein Silver Channel Composite Statistics 159
Table 14-8 Capping Methods 164
Table 14-9 Grade Capping Values for Ore shoots 166
Table 14-10 Block Model Variables 171
Table 14-11 Estimation Search Parameters by Resource Category 172
Table 14-12 Estimate Comparison for Gold versus a Nearest Neighbor at 0 Cutoff 179

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Table 14-13 Estimate Comparison for Silver Versus a Nearest Neighbor at 0 Cutoff 181
Table 14-14 Mineral Resource Cutoff Grade Parameters 195
Table 14-15 Mineral Resource Statement as of June 30, 2015 196
Table 15-1 Mineral Reserves Cut Off Grade Calculation 199
Table 15-2 Fire Creek Mineral Reserves as of June 30, 2015 200
Table 16-1 Underground Workforce 2015 and 2016 206
Table 16-2 Underground Mobile Equipment 207
Table 16-3 Heading Productivity 207
Table 16-4 Annual Production and Development Plan 209
Table 17-1 Process Equipment Itemization by Area 215
Table 17-2 Midas Mill Operating Costs 219
Table 17-3 2014 Fire Creek Mineralized Material Processed at the Midas Mill 220
Table 17-4 2015 Fire Creek Mineralized Material Processed at the Midas Mill 220
Table 19-1 FNC Gold Delivery Schedule 225
Table 20-1 Fire Creek Project Significant Permits 228
Table 21-1 Capital Costs 230
Table 21-2 Underground Development Unit Costs 230
Table 21-3 Operating Costs 230
Table 21-4 Cut-off Grade Calculation 231
Table 22-1 Income Statement 2015 – 2018 ($000’s) 234
Table 22-2 Cash Flow Statement 2015 – 2019 ($000’s) 234
Table 22-3 Key Operating and After Tax Financial Statistics 235
Table 24-1 Potential Project Risks 240
Table 25-1 Recommendation Estimated Costs 242

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List of Figures

Figure 1-1 Fire Creek Project Overview Showing Vein Locations, Underground Development and Resource Zones 24
Figure 4-1 Project Location Map 33
Figure 4-2 Klondex Land Position 35
Figure 4-3 Location of Fire Creek Project Relative to the Northern Nevada Rift System 42
Figure 7-1 Northern Nevada Rift in North-Central Nevada 51
Figure 7-2 Regional Geologic Map of the Northern Shoshone Range with the Project Underground Workings (purple) 52
Figure 7-3 Stratigraphic Sections for the Project and the Mule Canyon Mine with Tie Lines for Volcanic Packages 53
Figure 7-4 Geologic Map of the Fire Creek District 54
Figure 7-5 Example of Tbeq Basalt 56
Figure 7-6 Example of Tbma/Tlat Lithological Contact 57
Figure 7-7 Example of Tim Lithology 59
Figure 7-8 Fault Locations 61
Figure 7-9 Fault Block Model 62
Figure 7-10 Alteration Progression 66
Figure 7-11 Typical Argillic to Propylitic Alteration Progression Adjacent to the Karen Vein 67
Figure 7-12 Banded Vein Sample from the Vonnie Vein that Contains Large Clots of Native Gold 68
Figure 7-13 Picture of Split Core Sample Containing Dendritic Gold 69
Figure 8-1 Schematic Diagram of Low-Sulfidation Au, Ag Solutions in Relationship with Magma at Depth 71
Figure 9-1 Surface and Underground Holes Completed in 2011 73
Figure 9-2 Surface and Underground Holes Completed in 2012 75
Figure 9-3 Drill Holes Completed During the First Half of 2015 82
Figure 10-1 Placing Core (January 2013) 85
Figure 10-2 Core Logging Facility, (January 2013) 92
Figure 11-1 Core Logging Facility (January 2013) 106
Figure 11-2 ALS Au Duplicates 111
Figure 11-3 AAL Au Duplicates 111
Figure 11-4 AAL Ag Duplicates 112
Figure 11-5 ALS AuBlank54 113
Figure 11-6 AAL AuBlank54 114
Figure 11-7 ALS FCBlank02 Au 114
Figure 11-8 AAL FCBlank02 Au 115
Figure 11-9 ALS FCBlank02 Ag 115

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Figure 11-10 AAL FCBlank02 Ag 116
Figure 11-11 AAL FCBlank03 Au 116
Figure 11-12 AAL FCBlank03 Ag 117
Figure 11-13 AAL FCBlank04 Au 117
Figure 11-14 AAL FCBlank04 Ag 118
Figure 11-15 ALS FCRDBLNK01 Au 118
Figure 11-16 ALS FCRDBLNK01 Ag 119
Figure 11-17 ALS FCOXBLNK01Au 119
Figure 11-18 ALS FCOXBLNK01 Ag 120
Figure 11-19 AAL FCBLANK05 Au 120
Figure 11-20 AAL FCBLANK05 Ag 121
Figure 11-21 AAL FCBLANK06 Au 121
Figure 11-22 AAL FCBLANK06 Ag 122
Figure 11-23 ALS FCRDLOW01 123
Figure 11-24 AAL FCRDLOW01 124
Figure 11-25 ALS OXN92 124
Figure 11-26 AAL OXN92 125
Figure 11-27 ALS OXP91 125
Figure 11-28 ALS OXQ90 126
Figure 11-29 AAL OXQ90 126
Figure 11-30 ALS SG56 127
Figure 11-31 ALS SN60 127
Figure 11-32 AAL SN60 128
Figure 11-33 ALS SP59 128
Figure 11-34 AAL SP59 129
Figure 11-35 ALS SQ48 129
Figure 11-36 ALS SQ70 Au 130
Figure 11-37 AAL SQ70 Au 130
Figure 11-38 ALS SQ70 Ag 131
Figure 11-39 AAL SQ70 Ag 131
Figure 11-40 ALS SQ83 132
Figure 11-41 AAL SQ83 132
Figure 11-42 AAL SP72 Au 133
Figure 11-43 AAL SP72 Ag 133
Figure 14-1 Drill Hole and Vein Locations 146
Figure 14-2 Channel Sample Locations Relative to the Veins 147
Figure 14-3 Long Section with Lithology 148
Figure 14-4 Long Section with Lithology and Tuff Models 149

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Figure 14-5 Long Section with Lithology and Vein Models 149
Figure 14-6 Structural Framework 150
Figure 14-7 Vein Modelling Workflow 151
Figure 14-8 HW (Red) and FW (Yellow) Data Points Extracted from Sample and Survey Data Sets 152
Figure 14-9 Triangulated HW and FW Surfaces 153
Figure 14-10 HW and FW Surfaces are Combined to Generate a Valid Solid Triangulation 154
Figure 14-11 Gold Boxplot for Vein Drill Hole Composites 160
Figure 14-12 Silver Boxplot for Vein Drill Hole Composites 161
Figure 14-13 Gold Boxplot for Vein Channel Sample Composites 162
Figure 14-14 Silver Boxplot for Vein Channel Sample Composites 163
Figure 14-15 Ore shoot Indicator Model on the Joyce Vein 165
Figure 14-16 Vonnie Vein Gold Grade Distribution Curve 167
Figure 14-17 Vonnie Vein Gold Grade Distribution Curve 167
Figure 14-18 Vonnie Vein Silver Grade Distribution Curve 168
Figure 14-19 Vonnie Vein Silver Grade Distribution Curve 168
Figure 14-20 Joyce Vein Major and Semi-major Experimental Variogram and Modelled Variogram for Gold Grade 169
Figure 14-21 Vonnie Vein Major and Semi-major Experimental Variogram and Modelled Variogram for Gold Grade 170
Figure 14-22 Karen Vein Major and Semi-major Experimental Variogram and Modelled Variogram for Gold Grade 170
Figure 14-23 Minability Code Overview 174
Figure 14-24 Minability Index Legend for Gold and Silver Grade 175
Figure 14-25 Vonnie Vein Assigned Minability Index 175
Figure 14-26 Joyce Vein Assigned Minability Index 175
Figure 14-27 Karen Vein Assigned Minability Index 176
Figure 14-28 Vonnie Vein Mining Extent 177
Figure 14-29 Joyce Vein Mining Extent 177
Figure 14-30 Karen Vein Mining Extent 178
Figure 14-31 Hui Wu Vein Mining Extent 178
Figure 14-32 Legend Gold or Silver Grade 183
Figure 14-33 Vonnie Vein Comparison of Composite and Estimated Block Gold Grades 184
Figure 14-34 Vonnie Vein Comparison of Composite and Estimated Block Silver Grades 184
Figure 14-35 Joyce Vein Comparison of Composite and Estimated Block Gold Grades 185
Figure 14-36 Joyce Vein Comparison of Composite and Estimated Block Silver Grades 185
Figure 14-37 Karen Vein Comparison of Composite and Estimated Block Gold Grades 186
Figure 14-38 Karen Vein Comparison of Composite and Estimated Block Silver Grades 186

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Figure 14-39 Gold Swath Plot of the Vonnie Vein along the North Axis 187
Figure 14-40 Gold Swath Plot of the Vonnie Vein along the Z Axis 187
Figure 14-41 Silver Swath Plot of the Vonnie Vein along the North Axis 188
Figure 14-42 Silver Swath Plot of the Vonnie Vein along the Z Axis 188
Figure 14-43 Gold Swath Plot of the Joyce Vein along the North Axis 189
Figure 14-44 Gold Swath Plot of the Joyce Vein along the Z Axis 189
Figure 14-45 Silver Swath Plot of the Joyce Vein along the North Axis 190
Figure 14-46 Silver Swath Plot of the Joyce Vein along the Z Axis 190
Figure 14-47 Gold Swath Plot of the Karen Vein along the North Axis 191
Figure 14-48 Gold Swath Plot of the Karen Vein along the Z Axis 191
Figure 14-49 Silver Swath Plot of the Karen Vein along the North Axis 192
Figure 14-50 Silver Swath Plot of the Karen Vein along the Z Axis 192
Figure 14-51 Smoothing Checks for the Vonnie Vein 194
Figure 14-52 Smoothing Checks for the Joyce Vein 194
Figure 14-53 Smoothing Checks for the Karen Vein 195
Figure 15-1 Existing Workings, Reserve Excavations and Joyce, Vonnie and Karen Veins 201
Figure 16-1 Existing Development and Vein Traces at the 5400 Elevation 202
Figure 16-2 Long Section View of a Typical End Slice Stope 204
Figure 16-3 Cross Section Looking North Through the Joyce Vein and Vonnie Vein Showing Drift and Fill Mining, Stope Development Drifting and Designed Stopes 205
Figure 16-4 Joyce Vein Long Section Looking West Showing Existing Mine Workings and Reserves Mine Plan 208
Figure 16-5 Vonnie Vein Long Section Looking West Showing Existing Mine Workings and Reserves Mine Plan 208
Figure 16-6 Karen Vein Long Section Looking West Showing Existing Mine Workings and Reserves Mine Plan 209
Figure 17-1 Process Facility Flow Sheet (Klondex, 2015) 214
Figure 18-1 Site Facilities 223
Figure 19-1 Historical Monthly Average Gold and Silver Prices and 36 Month Trailing Average 224
Figure 21-1 Cutoff Grade Sensitivity to Gold Price 232
Figure 22-1 5% NPV Sensitivity 236
Figure 22-2 10% NPV Sensitivity 237
Figure 22-3 Profitability Index Sensitivity 237

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List of Abbreviations

A Ampere kA kiloamperes
AA atomic absorption kCFM thousand cubic feet per minute
A/m 2 amperes per square meter Kg Kilograms
AGP Acid Generation Potential km kilometer
Ag Silver km2 square kilometer
ANFO ammonium nitrate fuel oil kWh/t kilowatt-hour per ton
ANP Acid Neutralization Potential LOI Loss On Ignition
Au Gold LoM Life-of-Mine
AuEq gold equivalent m meter
btu British Thermal Unit m 2 square meter
°C degrees Celsius m 3 cubic meter
CCD counter-current decantation masl meters above sea level
CIL carbon-in-leach mg/L milligrams/liter
CoG cut-off grade mm millimeter
cm centimeter mm 2 square millimeter
cm 2 square centimeter mm 3 cubic millimeter
cm 3 cubic centimeter MME Mine & Mill Engineering
cfm cubic feet per minute Moz million troy ounces
ConfC confidence code Mt million tonnes
CRec core recovery MTW measured true width
CSS closed-side setting MW million watts
CTW calculated true width m.y. million years
° degree (degrees) NGO non-governmental organization
dia. diameter NI 43-101 Canadian National Instrument 43-101
EIS Environmental Impact Statement oz Troy Ounce
EMP Environmental Management Plan opt Troy Ounce per short ton
FA fire assay % percent
Ft Foot PLC Programmable Logic Controller
Ft 2 Square foot PLS Pregnant Leach Solution
Ft 3 Cubic foot PMF probable maximum flood
g Gram POO Plan of Operations
g/L gram per liter ppb parts per billion
g-mol gram-mole ppm parts per million
g/t grams per tonne QAQC Quality Assurance/Quality Control
ha hectares RC reverse circulation drilling
HDPE Height Density Polyethylene ROM Run-of-Mine
HTW horizontal true width RQD Rock Quality Description
ICP induced couple plasma SEC U.S. Securities & Exchange Commission
ID2 inverse-distance squared Sec second
ID3 inverse-distance cubed SG specific gravity
ILS Intermediate Leach Solution SPT Standard penetration test

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1.     Summary

Practical Mining LLC was engaged by Klondex Gold & Silver Mining Company (KGS or Klondex), U.S. subsidiary of Canadian based Klondex Mines Ltd. (Klondex or the Company), to prepare an updated Technical Report (TR) in accordance with National Instrument 43-101 (NI 43-101) of the Canadian Securities Administrators. Practical Mining’s evaluation of the Fire Creek Project (Fire Creek or the Project), located in Lander County, Nevada, is presented herein. This TR, dated the 28th day of March 2016, with an effective date of June 30, 2015, updates the previous mineral resource and mineral reserve estimates effective December 31, 2014. (Odell et al. 2015).

The lineage of technical reports on Fire Creek as is continued in this Technical Report includes:

1.        2006 NI 43-101 Technical Report: Ullmer, Edwin, and Hawthorn, Gary W., 2006: Fire Creek Gold Property, Lander Co., Nevada, September 15, 2006;

2.        2009 NI 43-101 Technical Report: Updated Report on the Fire Creek Gold Property, Lander Co., Nevada, March 30, 2009;

3.        2011 NI 43-101 Technical Report: Raven, Wesley, Ullmer, Edwin, Hawthorn, Gary W., 2011: Updated Technical Report and Resource Estimation on the Fire Creek Gold Property, Lander County, Nevada;

4.        2013 NI 43-101 Technical Report: Odell, Mark, Swanson, Karl and White, Michele, 2013: Technical Report (Amended), Fire Creek Exploration Project, Lander County, Nevada;

5.        2014 NI 43-101 Technical Report: Odell, Mark, Swanson, Karl, Symmes, Laura and Bull, Sarah, 2014: Preliminary Economic Assessment of the Fire Creek Project, Lander County, Nevada, Amended; and

6.        2014 NI 43-101 Technical Report: Odell, Mark, Swanson, Karl, Symmes, Laura and Bull, Sarah, 2015: Preliminary Feasibility Study for the Fire Creek Project, Lander County, Nevada.

1.1. Property Description

The Project is located primarily in Lander County, Nevada with a small portion of the Project boundary in Eureka County, Nevada, approximately 63 miles west of Elko, Nevada. The Project comprises private fee lands (both leased and owned) and unpatented lode mining claims. The land position includes approximately 15,421 acres of unpatented federal lode mining claims, 1,155 acres of private fee land and 230 acres of mineral leases. Overall, the Fire Creek land package is approximately 17,000 acres.


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1.2. Geology

The deposit is an epithermal deposit vertically-zoned within high-angle northwest striking structures, low-sulfidation, hosted in a mid-Miocene basalt package. Gold mineralization occurs in two habits: shallow structurally-controlled gold in variably altered Tertiary basalt and primarily native gold in steeply dipping quartz-calcite veins or structures. A package of middle-Miocene basalt and basaltic andesite flows has been cut by high-angle normal faults related to both Northern Nevada Rift (NNR) and Basin and Range extension that form grabens and half-grabens which are the structural controls in the district.

High-grade gold mineralization has been delineated between approximately 4,900 feet and 5,700 feet above mean sea level (AMSL) and is open up and down dip as well as on strike. Lower-grade gold mineralization occurs from the surface, and mineralization is open at depth. Vein textures, gangue minerals, and alteration are typical of low-sulfidation systems. Widespread propylitic alteration grades to argillic alteration proximal to veins and/or other structural fluid conduits. Elevated mineralization is often spatially associated with the argillic alteration zone. Gold mineralization often occurs along discrete horizons within veins. An opaline silica cap is discontinuously preserved above the deeper mineralization. Mineralized faults near the opaline silica were targeted by early prospecting and later shallow drilling by previous operators in the 1980’s.

1.3. History

Table 1-1 Chronology of Ownership of the Fire Creek Project

Dates Company

Details

1967 Union Pacific Resources

Drilled two core holes.

1974 to 1975 Placer Development Ltd.

Drilled 22 rotary holes.

1975 Klondex Mines Ltd.

Acquired the property. 1980-1983 drilled 64 rotary holes. 1981 gold test production.

1984 Minex Resources, Inc.

Leased the property from Klondex, drilled 13 rotary holes.

1986 to 1987 Alma American Mining Company (“Alma”)

Leased the property from Klondex, drilled 64 rotary holes.

1988 Aurenco Joint Venture ("Aurenco JV”)

Aurenco JV formed between Black Beauty Mining and Covenanter Mining.

1988 to 1990 Aurenco JV

Leased the property from Klondex.

1990 to 1995 Klondex Mines Ltd.

No activity.


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Dates Company

Details

1995 to 1996 North Mining Inc. (“North Mining”)

Leased the property from Klondex. Drilled 67 holes, performed IP and HEM surveys.

1996 to 2004 Klondex Mines Ltd.

No activity.

2004 to 2012 Klondex Mines Ltd.

Began a deep exploration program. Development commenced in 2011.

2012 to 2015 Klondex Mines Ltd.

New Management and Board of Directors in 2012, ongoing exploration, development and bulk sampling

2016 to Present Klondex Mines Ltd.

Received Record of Decision for the Environmental Assessment from the Bureau of Land Management in February 2016, began commercial production

Recent drill programs conducted by Klondex have defined two major north-northwest striking vein arrays, each comprised of several en echelon veins. Several new target areas outside of the known vein arrays have been defined by both gradient-array and dipole-dipole induced polarization surveys.

This TR updates the Project mineral resource estimate and mineral reserves estimate. The TR incorporates the technical information available through June 30, 2015, which is the effective date of the TR.

1.4. Mineral Resource Estimate

The mineral resource estimate is based on data from 836 surface and underground drill holes, completed through June 30, 2015. This estimate also includes 2,322 channel samples from underground drifting on the Joyce, Vonnie, Karen, and Hui Wu veins.

Wire frame models were constructed for 48 vein sets that strike approximately N15°W and dip steeply to both the east and west. The vein models were constructed by digitally contouring surfaces along planes of data points defined by drill hole intercepts and underground surveys. Each data point is identified as a particular side of a particular vein (hanging wall or footwall), and software is used to contour surfaces between corresponding points. Hanging wall and footwall surfaces are then combined to form a solid wire frame. Assay values were composited into 10-foot lengths and truncated at the vein hanging wall and footwall. Only composites flagged as representing vein material were used in the grade estimation. A grade capping scheme based on resource category and vein was employed. Grades were assigned to individual blocks using the Inverse Distance Cubed method (ID3).

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The 48 veins were each assigned a specific search orientation based on their respective approximate dip and dip direction. Measured blocks require a minimum of four channel samples within an average anisotropic search radius of 40 feet. Indicated blocks required three drill hole intercepts within 100 feet. Inferred blocks required two drill intercepts within 300 feet. Grades were estimated only for blocks contained within the modeled veins. Block extents are five feet along along strike and vertically. Perpendicular to strike, the block extents were limited to the width of the vein with 0.2 to five-foot resolution. This method allows veins as narrow as 0.2 foot to be modeled precisely.

Mineral resources were estimated for only blocks within the modeled vein wireframes. Low grade mineralization immediately adjacent to the veins was also modeled from the vein hanging wall or footwall out to the margin of the breccia zone or distinct grade change for some veins. In all cases, the vein boundary with the low grade mineralization was treated as a “hard” boundary, and composite assay data from the vein was not used to estimate the low grade breccia mineralization.

The mineralized vein arrays extend over 5,000 feet along strike and from near surface to 1,000 feet in depth. These vein arrays are open both along strike and down dip.

A density of 0.0774 tons per cubic foot was used for all veins. This value was derived from 15 samples collected from the Joyce and Vonnie veins and analyzed by SGS North America, Inc. (SGS) of Elko, Nevada; an independent laboratory. The SGS (Elko) laboratory forms part of the SGS Minerals' global group of laboratories. The SGS (Elko) laboratory is not independently certified by a standards association but is associated with the SGS (Vancouver) laboratory, which is an ISO 9001:2008 accredited facility.

Table 1-2 Mineral Resource Statement as of June 30, 2015

        AuEq     AuEq
Vein Name kton Au opt  Ag opt opt Au koz Ag koz koz
   Measured      
Joyce 47.6  1.885 1.241  1.904 89.8 59.1 90.7
Vonnie 10.3  4.030 3.056  4.077 41.7 31.6 42.2
Karen 55.6  2.018 1.590  2.042 112.2 88.4 113.6
Honey Runner 1.5  3.566 0.323  3.571 5.2 0.5 5.2
Hui Wu 10.9  1.257 0.862  1.270 13.8 9.4 13.9
05 0.4  4.164 0.049  4.165 1.7 0.0 1.7
08 0.1  0.736 0.170  0.738 0.0 0.0 0.0
13 0.8  2.139 0.089  2.140 1.8 0.1 1.8
14 3.1  1.008 0.602  1.018 3.1 1.8 3.1


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        AuEq     AuEq
Vein Name kton Au opt  Ag opt opt Au koz Ag koz koz
18 0.2  0.330 0.179  0.333 0.1 0.0 0.1
31 0.1  0.344 0.647  0.354 0.0 0.1 0.1
37 0.5  0.565 0.149  0.567 0.3 0.1 0.3
39 0.2  0.393 0.377  0.398 0.1 0.1 0.1
40 0.3  2.960 1.268  2.980 1.0 0.4 1.0
44 0.4  0.353 0.199  0.356 0.1 0.1 0.1
Total Measured 132.2  2.049 1.451  2.072 271.0 191.8 273.9
               
   Indicated      
Joyce 130.6  0.684 0.630  0.694 89.4 82.3 90.7
Vonnie 65.9  0.661 0.565  0.670 43.6 37.2 44.1
Karen 35.4  0.651 0.720  0.662 23.1 25.5 23.4
Honey Runner 22.0  0.473 0.300  0.478 10.4 6.6 10.5
Hui Wu 14.9  0.542 0.284  0.546 8.1 4.2 8.1
05 0.8  0.438 0.039  0.439 0.4 0.0 0.4
06 2.0  0.265 0.648  0.275 0.5 1.3 0.6
08 3.5  0.267 0.263  0.271 0.9 0.9 1.0
12 4.6  0.586 0.289  0.591 2.7 1.3 2.7
13 4.2  0.307 0.050  0.308 1.3 0.2 1.3
14 2.2  0.422 0.105  0.424 0.9 0.2 0.9
18 6.0  0.379 0.196  0.382 2.3 1.2 2.3
21 4.6  0.340 0.357  0.346 1.6 1.7 1.6
22 0.5  0.561 0.374  0.566 0.3 0.2 0.3
28 0.7  0.268 0.052  0.269 0.2 0.0 0.2
30 12.2  0.260 0.181  0.263 3.2 2.2 3.2
31 9.4  0.437 0.255  0.441 4.1 2.4 4.2
37 3.3  0.303 0.223  0.307 1.0 0.7 1.0
39 4.5  0.339 0.349  0.344 1.5 1.6 1.5
40 0.1  0.328 0.168  0.330 0.0 0.0 0.0
41 0.9  0.214 0.211  0.217 0.2 0.2 0.2
44 2.0  0.531 0.242  0.535 1.1 0.5 1.1
46 0.3  0.424 0.324  0.429 0.1 0.1 0.1
Total Indicated 330.6  0.595 0.516  0.603 196.7 170.6 199.4
               
  Measured and Indicated     
Joyce 178.3  1.005 0.793  1.017 179.2 141.4 181.4
Vonnie 76.2  1.118 0.903  1.132 85.3 68.9 86.3
Karen 91.0  1.486 1.251  1.505 135.2 113.9 137.0
Honey Runner 23.5  0.666 0.302  0.670 15.6 7.1 15.8
Hui Wu 25.9  0.844 0.528  0.853 21.8 13.7 22.1


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        AuEq     AuEq
Vein Name kton Au opt  Ag opt opt Au koz Ag koz koz
05 1.2  1.716 0.043  1.717 2.1 0.1 2.1
06 2.0  0.265 0.648  0.275 0.5 1.3 0.6
08 3.6  0.274 0.262  0.278 1.0 0.9 1.0
12 4.6  0.586 0.289  0.591 2.7 1.3 2.7
13 5.0  0.608 0.056  0.609 3.1 0.3 3.1
14 5.3  0.763 0.394  0.769 4.0 2.1 4.1
18 6.2  0.377 0.195  0.380 2.3 1.2 2.3
21 4.6  0.340 0.357  0.346 1.6 1.7 1.6
22 0.5  0.561 0.374  0.566 0.3 0.2 0.3
28 0.7  0.268 0.052  0.269 0.2 0.0 0.2
30 12.2  0.260 0.181  0.263 3.2 2.2 3.2
31 9.6  0.435 0.261  0.439 4.2 2.5 4.2
37 3.7  0.336 0.214  0.340 1.3 0.8 1.3
39 4.7  0.342 0.350  0.347 1.6 1.6 1.6
41 0.5  2.293 0.989  2.308 1.1 0.5 1.1
44 0.9  0.214 0.211  0.217 0.2 0.2 0.2
46 2.4  0.500 0.235  0.504 1.2 0.6 1.2
Total Meas. and Ind. 462.8  1.011 0.783  1.023 467.7 362.4 473.3
               
   Inferred      
Joyce 242.8  0.582 0.367  0.587 141.2 89.0 142.6
Vonnie 18.0  0.302 0.393  0.308 5.5 7.1 5.6
Karen 73.3  0.363 0.345  0.368 26.6 25.3 27.0
Honey Runner 17.1  0.342 0.188  0.345 5.8 3.2 5.9
Hui Wu 4.2  0.613 0.312  0.618 2.6 1.3 2.6
06 14.1  0.316 0.432  0.323 4.5 6.1 4.6
08 5.4  0.272 0.431  0.278 1.5 2.3 1.5
09 79.3  0.565 0.190  0.568 44.8 15.1 45.0
12 9.6  0.196 0.270  0.200 1.9 2.6 1.9
14 0.1  0.334 0.090  0.335 0.0 0.0 0.0
15 37.9  0.440 0.507  0.448 16.7 19.2 17.0
18 19.1  0.367 0.124  0.369 7.0 2.4 7.0
21 25.5  0.387 0.225  0.390 9.9 5.7 10.0
22 66.1  0.230 0.214  0.234 15.2 14.1 15.4
24 172.6  0.374 0.565  0.383 64.5 97.5 66.1
25 73.7  0.301 0.126  0.303 22.2 9.3 22.3
28 91.8  0.347 0.194  0.350 31.8 17.8 32.1
30 85.0  0.302 0.215  0.305 25.6 18.3 25.9
31 1.8  0.300 0.169  0.303 0.6 0.3 0.6
37 0.1  0.321 0.156  0.323 0.0 0.0 0.0


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        AuEq     AuEq
Vein Name kton Au opt Ag opt opt Au koz Ag koz koz
39 0.2 0.457    0.460  0.464 0.1 0.1 0.1
41 17.2 0.263    0.004  0.263 4.5 0.1 4.5
44 10.0 0.378    0.279  0.382 3.8 2.8 3.8
Total Inferred 1,064.9 0.410    0.319  0.415 436.2 339.5 441.5

Notes:

  1.

Mineral resources have been calculated at a gold price of $1,200/troy ounce and a silver price of $19.00 per troy ounce;

  2.

Mineral resources are calculated at a grade thickness cut-off grade of 1.256 Au equivalent opt-feet and a diluted Au equivalent cut-off grade of 0.256 opt;

  3.

Gold equivalent ounces were calculated based on one ounce of gold being equivalent to 64.53 ounces of silver;

  4.

The minimum mining width is defined as four feet or the vein true thickness plus one foot, whichever is greater;

  5.

Mineral resources include dilution to achieve mining widths and an additional 10% unplanned dilution;

  6.

Mineral resources include allowance for 5% mining losses;

  7.

Mineral resources are inclusive of mineral reserves;

  8.

Mineral resources, which are not mineral reserves, do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, socio-political, marketing, or other relevant factors;and

  9.

The quantity and grade of reported inferred mineral resources in this estimation are uncertain in nature and there is insufficient exploration to define these inferred mineral resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category.


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1.5. Mineral Reserve Estimate

Excavation designs for stopes, stope development drifting, and access development were created using Vulcan software. Stope designs were aided by the Vulcan Stope Optimizer Module. The stope optimizer produces the stope cross section which maximizes value within given geometric and design constraints.

Design constraints included a four-foot minimum mining width for long-hole stopes with development drifts spaced at 40-foot vertical intervals. Stope development drift dimensions maintained a constant height of 10 feet and a minimum width of six feet. Drift and fill dimensions are the same as those for stope development.

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Table 1-3 Fire Creek Mineral Reserves as of June 30, 2015

          Au Ag Au Equiv.
  Tons     Au Eq Ounces Ounces Ounces
Vein Designation (000's) Au opt Ag opt opt (000's) (000's) (000's)
Proven Reserves              
    Joyce 36 1.95 1.31 1.97 70.6 47.5 71.3
    Vonni e 5 6.21 4.67 6.28 33.5 25.2 33.9
    Karen 53 1.77 1.40 1.80 74.9 74.9 96.0
      20 1 5.02 0.113 5.02 6.1 0.1 6.1
      36 8 1.37 0.957 1.39 11.1 7.7 11.2
Proven Reserves 105 2.07 1.49 2.10 216.1 155.5 218.5
               
Probable Reserves              
    Joyce 71 0.768 0.653 0.778 54.2 46.1 55.0
    Vonni e 31 0.730 0.518 0.738 22.6 16.0 22.9
    Karen 17 0.797 0.678 0.808 13.5 11.5 13.7
      7 0.3 0.347 0.332 0.352 0.1 0.1 0.1
      12 2.6 0.729 0.361 0.734 1.9 0.9 1.9
      20 2.8 0.284 0.132 0.286 0.8 0.4 0.8
      31 0.7 0.566 0.182 0.569 0.4 0.1 0.4
      36 10.8 0.455 0.242 0.459 4.9 2.6 5.0
Probable Reserves 136 0.725 0.573 0 734 98.5 77.8 99.7
               
Proven + Probable Reserves              
    Joyce 107 1.17 0.877 1.18 124.8 93.7 126.3
    Vonni e 36 1.54 1.13 1.56 56.1 41.2 56.7
    Karen 70 1.54 1.23 1.56 408.3 86.5 109.7
            7 0.3 0.347 0.332 0.352 0.1 0.1 0.1
            12 2.6 0.729 0.361 0.734 1.8 0.9 1.9
            20 4.0 1.73 0.127 1.73 6.9 0.5 6.9
            31 0.7 0.566 0.182 0.569 0.4 0.1 0.4
            36 19 0.848 0.548 0.857 16.0 10.4 16.2
Proven + Probable Reserves 240 1.31 0.972 1.34 314.6 233.4 318.2

Notes:

  1.

Reserves ha v e been estim a ted with a gol d price of $1,0 0 0/ounce and a silver price o f $15.83/ounce;

  2.

Metallurgic a l recoveries f o r gold and sil v er are 94% a n d 92% respe c tively;

  3.

Gold equiv a lent ounces a r e calculated based on one o unce of gold b eing equivale n t to 64.53 ou n ces of silver;

  4.

Mineral Re s erves are esti m ated at a cu t off grade of 0 .311 Au opt a nd an increm e ntal cutoff g r ade of 0.115 Au op t , and;

  5.

Mine losses of 5% and unplanned min i ng dilution o f 10% have b een applied t o the designe d mine excavations.

1.6. Cash Flow Analysis and Economics

The reserves mine plan was evaluated using constant dollar cash flow analysis, and the results are summarized in Table 1-4. The high grade of the Mineral Reserves and the low capital requirements facilitated by the addition of the Midas Mine and Mill to Klondex’s project portfolio, combine to produce a 9.9 profitability index (PI) calculated at a 10% discount rate and a 5% NPV of $178M.

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Table 1-4 Key Operating and After Tax Financial Statisti c s

Material Mined and Processed (kt) 240
Avg. Gold Grade (opt) 1.31
Avg. Silver Grade (opt) 0.972
Contained Gold (koz) 315
Contained Silver (koz) 233
Avg. Gold Metallurgical Recovery 94%
Avg. Silver Metallurgical Recovery 92%
Recovered Gold (koz) 296
Recovered Silver (koz) 215
Reserve Life (years) 4.0
Operating Cost ($/ton) $290
Cash Cost ($/oz) 1. $273
Total Cost ($/oz) 1. $339
Gold Price ($/oz) $1,000.00
Silver Price ($/oz) $15.83
Capital Costs ($ Millions) $19.6
Payback Period (Years)          0
Cash Flow ($ Millions) $191
5% Discounted Cash Flow ($ Millions) $178
10% Discounted Cash Flow ($ Millions) $167
Profitability Index (10%) 2. 9.9
Internal Rate of Return NA

Notes:

  1.

Net of Bypr o duct Sales, a n d;

  2.

Profitability index (PI), is the ratio of p a yoff to invest m ent of a pro p osed project. I t is a useful t o ol for ranking pro j ects because it allows you t o quantify the a mount of val u e created per unit of invest m ent. A profitability index of 1 ind i cates break e v en.

1.7. Conclusions

The Project is a modern, mechanized narrow vein mine. Only the mineralized veins accessible from main development have been defined to a sufficient level of detail to categorize as mineral reserves. In the opinion of the authors of this TR, additional potential exists to extend mineral reserves along strike in both directions as underground access is developed. As the footprint of the mine grows and the number of available mining areas grows with it, the mining rate can be increased, and cost reductions may be realized through economies of scale.

The conventional Merrill Crowe mill facility of the Midas Mine is an efficient well maintained modern mineral processing plant capable of processing 1,200 tons per day (tpd). The plant is able to operate with a minimum crew which results in cost reductions when operated at capacity.

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The underutilized processing capacity can accept increased mine production from the Project or the Midas Mine as well as third party processing agreements.

Capital requirements for the Project are minimal. Ongoing mine development comprises the majority of capital costs, and the ability to access multiple veins from common development greatly reduces the unit cost per ounce.

In the opinion of the authors of this TR, the high grade reserves in the mine plan provide a high return and will sustain profitable operations with up to 40% adverse variations in metal prices, operating or capital costs. The total cost per ounce, including capital expenditures and net of byproduct sales, is less than $350 per ounce.

1.8. Recommendations

Exploration: Underground drilling should continue in the veins identified near the current development workings to increase the level of confidence in these veins to an indicated classification. The decline should be advanced to provide an underground drill platform from which to drill the veins in the North and Far North Zones. While the decline is being advanced, additional drilling in this area can be completed from surface to refine the vein targets.

Delineation: Rib sampling has limited value and should continue to be supplemented by drilling shallow ten to 20-foot deep holes into the rib with the “Termite” drill or hand held drills and sample the drill cuttings. This sampling method will add a third dimension to the potential wall rock mineralization.

Stope Planning: Complete the drift and fill stopes currently underway. Set up new areas for longhole stoping. The use of short probe holes (i.e. “Termite” holes) discussed above should provide the planning engineers enough detail to efficiently design stopes with minimal loss of mineralization.

Rapid Infiltration Basin Commissioning:  In order to reduce delays caused by intercepting perched water, the Rapid Infiltration Basins (RIBs) and water handling and water treatment systems need to be functioning at capacity.

Quality Assurance and Quality Control: Timely follow-up of QAQC assay deviations and re-assay requests needs to be aggressively pursued and should become an automated process once the database software is fully implemented.

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2.    Introduction

2.1. Terms of Reference and Purpose of this Technical Report

This TR provides a statement of Mineral Resources and Mineral Reserves for the Project. This evaluation includes measured, indicated, and inferred mineral resources, as well as proven and probable mineral reserves. This TR was prepared in accordance with the requirements of NI 43-101 and Form 43-101F1 (43-101F1) for technical reports.

Mineral resource and mineral reserve definitions are set forth in Section 27 of this TR in accordance with the companion policy to NI 43-101 (43-101CP) of the Canadian Securities Administrators and “ Canadian In stitute of M ining, Metallurgy and P etroleum (C IM) – Defin ition Standard s for Miner al Resource s and Mine ral Reserve s adopted b y CIM Cou ncil on May 10, 2014 .”

2.2. Qualification of the Authors

This TR includes technical evaluations from three independent consultants. The consultants are specialists in the fields of geology, exploration, and open pit and underground mining.

None of the authors has any beneficial interest in Klondex or any of its subsidiaries or in the assets of Klondex or any of its subsidiaries. The authors will be paid a fee for this work in accordance with normal professional consulting practices.

The individuals who have provided input to the current TR are cited as “author” and are listed below with the dates on which they visited the Project. These authors have extensive experience in the mining industry and are members in good standing of appropriate professional institutions.

Mr. Odell has visited the Project on several occasions, the most recent on January 12, 2015; Ms. Symmes visited the Project on several occasions, the most recent on September 18, 2014; and Ms. Bull visited the Project on September 18, 2014.

Mr. Odell is the qualified person (QP) for this TR and is cited as “primary author.”

Mr. Odell and Ms. Symmes inspected the underground mining operations and reviewed the site geology. Ms. Symmes was responsible for reviewing the core drilling and sampling procedures, core handling and security procedures, data management, and the geology. Ms. Bull was responsible for reviewing the underground mine design. In addition, Ms. Symmes and Mr. Odell reviewed reports detailing the Company’s land position at the Project. The key personnel contributing to this report are listed in Table 2-1. The Certificate and Consent Forms are provided in Appendix A: Certification of Authors and Consent Forms.

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Table 2-1 Qualified Professionals

Company Name Title Discipline
Practical Mining, LLC Mark Odell Primary Author & Mining Engineer Mining and mineral resources
Practical Mining, LLC Laura Symmes Sr. Geologist Geology
Practical Mining, LLC Sarah Bull Mining Engineer Mining

2.3. Sources of Information

The sources of information include data and reports supplied by Klondex staff.

Additional information is included in the TR which is based on discussions with Klondex staff as it relates to their field of expertise at the Project. The required financial data and operating statistics were also provided by Klondex staff.

Information sources are documented either within the text and cited in references, or are cited in references only. The primary author believes the information provided by Klondex staff to be accurate based on their work at the Project. The authors asked detailed questions of specific Klondex staff to help verify contributions included in this document. These contributions are clearly stated within the text.

2.4. Units of Measure

The units of measure used in this report are shown in Table 2-2 below. U.S. Imperial units of measure are used throughout this document unless otherwise noted. The glossary of geological and mining related terms is also provided in Section 27 of this TR.

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Table 2-2 Units of Measure

  US Imperial to Metric conversions
Linear Measure
1 inch = 2.54 cm
1 foot = 0.3048 m
1 yard = 0.9144 m
1 mile = 1.6 km
Area Measure
1 acre = 0.4047 ha
1 square mile = 640 acres = 259 ha
Weight
1 short ton (st) = 2,000 lbs = 0.9071 metric tons
1 lb = 0.454 kg = 14.5833 troy oz
Assay Values
1 oz per short ton = 34.2857 g/t
1 troy oz = 31.1036 g
1 part per billion = 0.0000292 oz/ton
1 part per million = 0.0292 oz/ton = 1g/t

2.5. Coordinate Datum

Spatial data utilized in analysis presented in this TR are projected to Nevada State Plane Central Zone North American Datum 1983 (NV SPCS) feet truncated to the last six digits. All spatial measurement units used in the mineral resource estimate are U.S. Imperial feet, and currency is expressed in United States dollars unless stated otherwise.

Survey data was collected and reported using several coordinate systems. Historically, survey data was originally collected in North American Datum of 1983 (NAD83) meters as a default in the instrumentation settings, and then the data was converted to NAD83 feet for reports as requested by Klondex staff in Nevada. Klondex’s Nevada staff further converted the data from NAD83 feet to UTM NAD27 Zone 11N feet. Early in 2014, all the Project data was again converted to NV SPCS NAD83 coordinates.

In addition, downhole surveys were collected without compensating for magnetic declination. Klondex staff applied corrections to raw downhole survey data to compensate for the local declination at the Project, which is 13.35 degrees according to the National Oceanic and Atmospheric Administration (NOAA) calculator.

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3.     Reliance on Other Experts

The technical status for the claims and land holding is reliant on information provided by Klondex’s legal counsel. The status of the Klondex environmental program and the permitting process were provided by Ms. Lucy Hill, Klondex Environmental Manager. The geologic model and block model were completed by Mr. Anthony Bottrill, Klondex Senior Resource Geologist. Mr. John Rust, Klondex Manager of Metallurgy, provided information regarding metallurgical testing and process operating statistics. These contributions have been reviewed by the Authors and they are accurate portrayals of the Project at the time of writing this TR.

Observations made at the Project by the authors include overseeing all aspects of mining activities including: underground core drilling, labeling core boxes, moving core, splitting core, safety procedures, haulage and equipment maintenance, water treatment, security, road maintenance, general geology, and character of mineralization. A review of historical databases and sampling protocol was performed by author Laura Symmes for the purpose of validating data integrity.

The authors reviewed land tenure to verify the nature of the good standing with regulatory authorities and the Bureau of Land Management (BLM) of Klondex’s unpatented lode mining claims and a title opinion report dated July 30, 2014, written by Erwin & Thompson LLP. The legal status or ownership of the fee properties and/or any agreements that pertain to the Fire Creek mineral deposit as described in Section 4 were provided by Klondex legal counsel for all relevant mining claims. Assumptions made as to accuracy of land tenure are based on the Erwin & Thompson LLP legal opinion.

The opinions expressed in this Report are based on the authors’ field observations and assessment of the technical data supplied by Klondex.

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4.     Property Description and Location

4.1. Property Description

The Project is located primarily in Lander County, Nevada with a small portion of the Project boundary in Eureka County, Nevada. The project lies approximately 63 miles west of the major city of Elko, Nevada, USA in a sage and grass covered weathered basalt hillside overlooking Crescent Valley. There are multiple small towns along paved highways within a short commute of the Project, and the northern edge of the residential area of the town of Crescent Valley abuts the main access road. The Project’s land coverage is approximately 17,000 acres.

4.2. Property Location

The Project is located in Lander County, Nevada, approximately 34 miles west of Carlin (63 miles west of Elko) and 16 miles south of Interstate Highway I-80. Figure 4-1 shows the location of the Project. The closest town to the Project is Crescent Valley on Nevada State Highway 306. Access from Elko takes approximately one hour.

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4.3. Status of Mineral Titles

The Project comprises private fee lands (both leased and owned) and unpatented lode mining claims. Figure 4-2 depicts the current land status. The land position shown on Figure 4-2 includes approximately 15,421 acres of unpatented federal lode mining claims, 1,155 acres of private fee land, and 230 acres of mineral leases. Overall, the Fire Creek land package is approximately 17,000 acres.

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Table 4-1 lists the 831 unpatented lode mining claims held by Klondex for the Project. Table 4-2 itemizes fee lands owned by KGS, and Table 4-3 itemizes fee lands leased by KGS. Unpatented claims are in current good standing through September 1, 2016. Leases are in good standing until the lease payment is due.

Table 4-1 Summary of Klondex Owned Unpatented Mining Claims

Claim Name Section Township Range Location
Date
Number
of
Claims
Wood Tick 2, 4, 6, 8, 10, 12, 14, 16, 18, 20, 22 2 30N 47E 18-Jul-87 11
Wood Tick 24, 26, 28, 30, 32, 34, 36 2 30N 47E 18-Jul-87 7
Wood Tick 38, 40, 42, 44, 46, 48, 50, 52 36 31N 47E 21-Jul-87 8
G 1 - G 16 26 30N 47E 23-Jan-90 16
Deb #2, #4 34 30N 47E 13-Dec-91 2
Revenge 2, 20 34 30N 47E 16-Dec-91 2
Revenge 4, 6, 8 34 30N 47E 17-Dec-91 3
Revenge 10, 12, 14 34 30N 47E 18-Dec-91 3
Revenge 22 34 30N 47E 9-Jan-92 1
Revenge 28 34 30N 47E 26-Jan-92 1
Revenge 16, 18 34 30N 47E 6-Feb-92 2
Revenge 24, 26 34 30N 47E 13-Feb-92 2
K 1 - 20 1 16 30N 47E 25-Jun-92 20
K 21 - 27 2 16 30N 47E 26-Jun-92 7
Alan 1-14 31 30N 47E 15-Feb-93 14
N 2, 4, 6, 8, 10,12, 14, 16, 18 32 30N 47E 17-Nov-93 9
N 20, 22, 24, 26, 28, 30 32 30N 47E 18-Nov-93 6
TL 2, 4, 6 20 30N 47E 8-Nov-93 3
TL 8, 10, 12, 14, 16, 18 20 30N 47E 10-Nov-93 6
TL 20, 22, 24, 26 20 30N 47E 21-Jun-94 4
FCRA 1 - 20 26 30N 47E 28-Sep-95 20
T 1 - 10 14 30N 47E 13-Oct-91 10
T 11 - 18, 27 - 36 14 30N 47E 24-Sep-03 18
T 19, 21 - 26 14 30N 47E 23-Sep-03 7
T 20 10, 14 30N 47E 23-Sep-03 1
Hondo, 1, 3, 5, 7, 9, 11, 13, 15, 18, 20, 22, 24, 26, 28, 30, 32, 157, 158 24 30N 47E 20-Sep-03 18
Deb 1, 3, 5 34 30N 47E 22-Sep-03 3
Revenge 1, 11, 13, 15, 17, 19, 21, 23, 25, 27 34 30N 47E 22-Sep-03 10
Revenge 3, 5, 7, 9, 29, 30, 31 34 30N 47E 23-Sep-03 7
FC 1-16, 18 36 30N 47E 21-Sep-03 17
FC 17 26, 36 30N 47E 21-Sep-03 1
What If 29 - 37 36 30N 47E 21-Sep-03 9
FC 38 - 46 3 36 30N 47E 21-Sep-03 9
T 38 - 60 10 30N 47E 5-Oct-06 23

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Claim Name Section Township Range Location
Date
Number
of
Claims
T 61 - 71 10 30N 47E 6-Oct-06 11
T 72 2, 10 30N 47E 6-Oct-03 1
FCXX 1, 2 15, 22 30N 47E 24-Nov-03 2
FCXX 3- 40 22 30N 47E 24-Nov-03 38
CH 1 - 18 30 30N 47E 19-Sep-06 18
Hondo 2, 4, 6, 8, 10, 12, 14, 16, 17, 19, 21, 23, 25, 27, 29, 31, 156 24 30N 47E 4-Oct-06 17
Hondo 155 24 30N 47E 4-Oct-06 1
N 1, 3, 11, 13, 19, 21, 23, 25, 27 32 30N 47E 11-Sep-06 9
N 5, 7, 9, 15,17, 29, 31 32 30N 47E 12-Sep-06 7
TL 1, 3, 5, 7, 9, 11, 13, 15, 17 20 30N 47E 13-Sep-06 9
TL 19, 21, 23, 25, 27, 28, 29, 30, 31 20 30N 47E 14-Sep-06 9
TWE 1 - 16, 18 28 30N 47E 10-Oct-06 17
TWE 17 22, 28 30N 47E 10-Oct-06 1
TWE 19 - 36 28 30N 47E 20-Sep-06 18
WT 1, 3, 5, 7, 9, 11, 13, 15, 17, 29, 31, 33, 35 2 30N 47E 31-Oct-06 13
WT 19, 21, 23, 25, 27 2 30N 47E 7-Nov-06 5
WT 37, 39, 41, 43, 45, 47, 49, 51, 53 - 55 36 31N 47E 1-Nov-06 11
WT 56 - 72 36 31N 47E 8-Nov-06 17
MALPAIS 1-24 4 29N 47E 4-Oct-14 24
MALPAIS 25-30 16 29N 47E 4-Oct-14 6
MALPAIS 210-220 18 30N 47E 4-Oct-14 11
MALPAIS 221-260 30 30N 47E 4-Oct-14 40
MALPAIS 261-265 31 30N 47E 4-Oct-14 5
MALPAIS 31-48 4 30N 47E 5-Oct-14 18
MALPAIS 87-92, 111-128 6 30N 47E 5-Oct-14 24
MALPAIS 129-164 8 30N 47E 5-Oct-14 36
MALPAIS 201-209 16 30N 47E 5-Oct-14 9
MALPAIS 316-347 32 31N 47E 5-Oct-14 32
MALPAIS 49-66 4 30N 47E 6-Oct-14 18
MALPAIS 67-86, 93-110 6 30N 47E 6-Oct-14 38
MALPAIS 302-315 18 31N 47E 6-Oct-14 14
MALPAIS 165-200 12 30N 47E 7-Oct-14 36
MALPAIS 266-301 16 31N 48E 7-Oct-14 36
Unpatented Mining Claims         831
Notes          
   1. Amended K17 17-Aug-1992, K 18, K20 14-Aug- 1992   
   2. Amended K22, K 24, K25, K26, K 27 17-Aug-1992          
   3. Amended map 8/31/2006          

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Table 4-2 Summary of Fee Land Holdings

APN Legal Description Royalty Acres
Section 9 T30N R47E MDB&M      
007-110-01 NW1/4 N/A 160
007-110-13 E1/2 NE 1/4 NE1/4, SE1/4 NE1/4, SE1/4 SW1/4 NE 1/4 N/A 70
       
Section 15 T30N R47E MDB&M      
007-140-01 N1/2 NW1/4 N/A 80
007-140-03 SW1/4 NW1/4 N/A 40
007-140-05 SW1/4 NE1/4 N/A 40
007-140-12 SE1/4 SW1/4 N/A 40
007-140-14 Lots 1 & 2 N/A 65.39
007-140-15 SE1/4 NE1/4 SW1/4 N/A 10
007-140-19 S1/2 NW1/4 NE 1/4 N/A 20
007-140-20 N1/2 NW1/4 NE1/4 N/A 20
007-140-21 NW1/4 NE1/4 SW1/4 N/A 10
007-140-22 NE1/4 NE 1/4 SW1/4 N/A 10
007-140-23 SW1/4 NE1/4 SW1/4 N/A 10
007-140-25 NW1/4 NE1/4 NE1/4 N/A 10
       
Section 23 T30N R47E MDB&M      
007-160-02 NE ¼ NE ¼ N/A 40
007-160-06 E1/2 SE1/4 NE1/2 N/A 20
007-160-08 N1/2 NE1/4 SE1/4 N/A 20
007-160-09 SE1/4 NE1/4 SE1/4 N/A 10
007-160-16 N1/2 SE1/4 NW1/4 5% NSR 20
007-160-17 N1/2 NW1/4 SW1/4 N/A 20
007-160-18 NW1/4 NW1/4 N/A 40
007-160-19 NE1/4 NW1/4 N/A 40
007-160-20 NE1/4 SW1/4 NW1/4 N/A 10
007-160-21 S1/2 SE1/4 NW1/4 N/A 20
007-160-22 NE1/4 NE/1/4 SW1/4 N/A 10
007-160-25 W1/2 SW1/4 NW1/4, SE1/4 SW1/4 NW1/4 5% NSR 30
007-160-26 NW1/4 NE1/4 SW1/4 N/A 10
007-160-27 NE1/4, SW1/4 SE1/4, SE1/4 NW1/4SE1/4 N/A 20
007-160-28 SW1/4 NE1/4 SE1/4, NW1/4 SE1/4 SE1/4 N/A 20
       
Section 21 T30N R47E MDB&M      
007-610-01 NW1/4 N/A 160
       
Section 33 T30N R47E MDB&M      
007-640-06 S1/2 NW1/4 N/A 80
31      Fee Parcels   1155.39

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Table 4-3 Summary of Leased Fee Land Holdings

APN Legal Description Lessor Royalty Expiration Acres
Section 15 T30N R47E MDB&M          
007-140-04 SE1/4 NW1/4 Third Party Lessor 4% NSR (2) 40
007-140-06 SE1/4 NE1/4 Third Party Lessor 4% NSR (2) 40
007-140-010 NE1/4 SE1/4, E1/2 NW1/4 SE1/4 Third Party Lessor 2.5% NSR (2) 60
007-140-07 N2NW4SW4 Third Party Lessor 3% NSR & 0.5% wheelage royalty (1) 31-July-33 20
007-140-09 W2NW4SE4 Third Party Lessor 3% NSR & 0.5% wheelage royalty (1) 31-July-33 20
Section 23 T30N R47E MDB&M          
007-160-04 SW4NE4 Third Party Lessor 3% NSR & 0.5% wheelage royalty (1) 31-July-33 40
007-160-24 NE4NW4SE4 Third Party Lessor 3% NSR & 0.5% wheelage royalty (1) 31-July-33 10
Section 19 T30N R48E MDB&M          
007-060-69 Parcel 1 of the Sharp Hospital Map recorded in the Office of the Lander County Recorder in Book 375, Official Records, Page 170 Third Party Lessor 3% NSR & 0.5% wheelage royalty (1) 31-July-33 9.28
  8 Leased Fee Parcels       239.28

Notes:

  1.

Wheelage royalty is calculated on mineralization mined from other properties which is transported underground through the leased property, and;

  2.

The lease agreement remains in full force and effect for so long as any mining operations (as defined in the lease agreement) are being conducted on the relevant property on a continuing basis.

Unpatented lode mining claims grant mineral rights and access to the surface within the boundaries of the claim. These rights are maintained by paying a maintenance fee of $155 per claim to the BLM prior to September 1 st of each year. Failure to timely pay the maintenance fees will deem the claims “closed” by the BLM. The unpatented lode mining claims held by Klondex are currently in good standing through September 1, 2016. In addition to BLM maintenance fees, Klondex must record a Notice of Intent to Hold and pay a fee to the county in which the unpatented lode mining claims are situated. The claims held by Klondex in Lander and Eureka counties are currently in good standing with the counties through November 1, 2016.

The private fee lands and leases are subject to differing cash payments, net smelter return royalties (NSR), and wheelage royalties.

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Royalties affect the following parcels owned and / or leased by Klondex, as listed in Table 4-2 and Table 4-3. Property agreement obligations are listed in Table 4-4.

Table 4-4 Summary of Fire Creek Project Holding Costs

Due Date Proj # File # Commitment/Obligation $ Oblig Payable/Due to Notes
9/1/2005 L1010 2.4-6 3 Leased Parcels - Extended Term Third Party Lessors 1. 1987 Leases extended for 10 years from 9/1/2005
8/18/2015 L1010 2.4-6 Property Taxes - 3 Leased Parcels $        146.78 Lander County Treasurer Lessee to pay property taxes
8/18/2015 L1010 8.3 Property Taxes 29 - Klondex Owned Parcels $     1,032.33 Lander County Treasurer Real Property Taxes Due 3rd Monday of August annually
8/18/2015 L1010 8.3 Property Taxes 2 - Klondex Owned Parcels $          84.08 Eureka County Treasurer Real Property Taxes Due 3rd Monday of August annually
8/31/2015 L1010 10 BLM Claim Fees - 831 Claims $ 128,805.00 Bureau of Land Management 831 Klondex Owned Claims x $155/Claim
9/1/2015 L1010 2.4-6 3 Leased Parcels - Annual AMR Payment $   24,000.00 7 Third Party Lessors Annual AMR payment due on lease anniversary
9/1/2015 L1010 2.4-6 Insurance Certificates 7 Third Party Lessors Insurance certificates required under terms of leases
11/1/2015 L1010 10 Lander County NOI to hold - 795 Claims $      8,351.50 Lander County Recorder 795 Klondex Owned Claims x $10.50/claim + $4
11/1/2015 L1010 Eureka County NOI to hold - 36 Claims $         382.00 Eureka County Recorder 36 Klondex Owned Claims x $10.50/claim + $4
9/1/2015 L1010 2.4-6 3 Leased Parcels - Expire   7 Third Party Lessors Leases expire - Renew
      Total $ 162,801.69    

Notes:

  1.

The lease agreement remains in full force and effect for so long as any mining operations (as defined in the lease agreement) are being conducted on the relevant property on a continuing basis.

Source:

  Erwin and Thompson Title Report

  In addition, pursuant to a mining lease agreement effective July 31, 2013, with respect to five leased fee parcels, Klondex is required to pay minimum rental payments of $50,000 per year for the first ten years of the lease, which increase by $10,000 for each subsequent ten year period (including any renewal period). This lease also includes provisions that subject Klondex to an additional increase under certain circumstances.

On February 12, 2014, the Company entered into a royalty agreement (the “FC Royalty Agreement”) between Franco-Nevada US, a subsidiary of FNC, and KGS. Pursuant to the FC Royalty Agreement, KGS raised proceeds of US $1,018,050 from the grant to Franco-Nevada US of a 2.5% NSR royalty for Fire Creek. The royalty applies to all production from Fire Creek beginning in 2019.

KGS entered into a gold supply agreement with Waterton Global Value, L.P. (Waterton) dated March 31, 2011, as amended and restated October 4, 2011 (the Gold Supply Agreement).

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Pursuant to the Gold Supply Agreement, the Company granted Waterton the right to purchase refined bullion (as defined in the Gold Supply Agreement) produced from the Project for the period commencing February 28, 2013 and ending February 28, 2018, subject to adjustment (the Term). If the Company has not delivered an aggregate minimum of 150,000 ounces of refined bullion during the first four years prior to the end of the Term, the Term will be extended until an aggregate of 185,000 ounces of refined bullion has been delivered (including any refined bullion delivered during the original Term) to Waterton. Under the Gold Supply Agreement, in the event that Waterton exercised its right to purchase refined bullion during the period of February 28, 2013 to May 31, 2013, the purchase price per ounce payable by Waterton was to be the purchase price per ounce of the last settlement price of gold on the London Bullion Market Association (the LMBA) PM Fix on the last trading day prior to the date Waterton provides notice to the Company that it intended to exercise its purchase right (the Pricing Date) less a 1% discount (which discount is only applicable if such price is more than US$900 per ounce). In the event that Waterton exercises its right to purchase refined bullion during the period following May 31, 2013 and before February 28, 2016, the purchase price per ounce payable by Waterton is the average settlement price of gold on the LMBA PM Fix for the 30 trading days immediately preceding the applicable Pricing Date (the Average Price) less a 1% discount; provided that in each case, if such price per ounce is less than US$900 the discount will be nil. In addition, in the event that Waterton exercises its right to purchase refined bullion after February 28, 2016, the purchase price per ounce will be the Average Price immediately preceding the applicable Pricing Date, without any discount.

Land information regarding fee lands and mining claims was provided by Klondex. The authors are not aware of any conflicting surface rights in this area. Mining claims are staked by physically placing visible location monuments and corner markers on-location in the field. Location maps of the claims are filed with the BLM and County Recorder’s office.

Klondex’s claims are active and uncontested. To the authors’ knowledge there are no environmental or social factors that would affect access. Grazing rights may exist in the area, but conflicts with local ranchers are not common in this region. Protected habitat for sage grouse has not been defined in this area. There are archaeological considerations in the immediate area of the Project; however, all new surface disturbance proposed by KGS is reviewed and permitted by the BLM prior to construction.

4.4. Location of Mineralization

Gold mineralization at the Project occurs in steeply dipping epithermal veins within Tertiary basalt flows and intrusive rocks. The mineralized basalt rocks are a suite of mafic, extrusive rocks associated with the regional north-northwest-trending NNR structural zone. The NNR system has been documented in multiple geophysical and geological studies (e.g. John et al., 2000; Ponce, D.A. et al., 2008; Watt, J.T. et al., 2007) and is distinguished as a linear magnetic anomaly approximately 30 miles wide that extends 190 miles south-southeast from the Oregon-Nevada border to central Nevada. The NNR originates from the McDermitt Caldera in northwest Nevada and is likely related to impingement of the Yellowstone hot-spot on continental crust (Zoback et al., 1994). Figure 4-3 shows the location of the Project relative to the NNR.


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Klondex has an approved plan of operations with the BLM covering the current exploration and mining activities at the Project as well as an approved bulk sampling permit from the State of Nevada. There are no environmental permitting issues known to the authors which are related to proposed Project activities.

Subsequent to the effective date of this TR, Klondex received a Record of Decision from the BLM approving the Environmental Assesment and allowing commercial production to commence.

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Local Resources and Infrastructure

Ltd.

5.     Accessibility, Climate, Vegetation, Physiography, Local Resources and Infrastructure

5.1. Access to Project

The Project is easily reached from the town of Elko by driving west on Highway I-80 for 40 miles to the Beowawe and Crescent Valley Exit #261. From Exit #261, proceed south on Nevada State Highway 306 for 16 miles (passing through Beowawe) to 10 th Street (there is a sign on the right). On 10 th Street, there is a Company sign at the turn that indicates, “Klondex Gold & Silver Mines, Limited”. 10t h Street is the Project access road. The Project is located five miles west on 10 th Street in Lander County, Nevada.

The state and county roads leading to the Project are mostly paved and maintained in order to service the ranches and mines in Crescent Valley such as Barrick Gold Corporation’s Cortez Mine. In this part of Nevada, it is common practice for mine staff to commute long distances for work on a daily basis. The average commute for Klondex staff is one hour each way.

5.2. Climate

Project climate is typical for northern Nevada with hot, dry summers and cold winters. Average daily summer temperatures range from 80° Fahrenheit (°F) to 90°F, and average winter low temperatures range from the low 40s°F to 20°F. Summer temperature extremes may reach 100°F for short periods, and winter extreme temperatures may drop below 0°F for short periods. Fieldwork, including exploration drilling, is commonly conducted throughout the year in this area. Mines in the Crescent Valley typically operate all year without experiencing any major weather-related problems.

5.3. Vegetation

Fire Creek vegetation is mainly limited to sagebrush, other species of low vegetation and some grasses. There are no trees at the Project. Due to the low amount of rainfall, the vegetation is low and sparse. There is a small marsh associated with the Fire Creek drainage that provides some wetland vegetation.

5.4. Physiography

The Project lies in elevation between 4,900 feet and 7,200 feet. The United States Geological Survey (USGS) published a base-relief map, which covers the Project area titled, “Mud Spring Gulch Quadrangle Nevada-Lander Co. 7.5 Minute Series (Topographic)”. The topographic relief is moderate with mature topography consisting mostly of rounded hills with steeper grades along more competent strata. The streams down-gradient from the Project are ephemeral and are sourced by up-gradient springs.


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5.5. Local Resources and Infrastructure

The nearest rail siding is located in the town of Beowawe, a small community of about 50 people, approximately 15 miles north of the Project. Crescent Valley, a small town with a population of approximately 200 people, is about seven miles south of the Project.

The towns of Battle Mountain and Elko, about 52 miles northwest and 63 miles northeast of the Project, respectively, are the nearest larger towns and supply most of the labor force. These towns are the only locations with amenities and services such as motels, fuel, grocery stores, and restaurants. The nearest commercial retail stores for fuel and groceries are located in Battle Mountain, 52 miles to the northwest.

Klondex’s land holdings at Fire Creek have adequate acreage to support future exploration and mining activities. Fire Creek mineralization will be transported to the Company’s Midas Mill for processing.

Electrical power is provided to the Project by NV Energy, Inc. (“NV Energy”) through a transmission line and substation located near the eastern Project boundary. The substation was connected to the NV Energy electrical grid in 2013.

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6.     History

6.1. Exploration History

The first recorded lode claim dates to 1933, but no other activity is known prior to 1967. Table 6-1 below itemizes exploration performed since 1967.

Table 6-1 Exploration History

Dates Company

Details

1967 Union Pacific Resources

Drilled two core holes.

1974 to 1975 Placer Development Ltd.

Drilled 22 rotary holes.

1975 Klondex Mines Ltd.

Acquired the Project. 1980-1983 drilled 64 rotary holes. 1981 gold test production.

1984 Minex Resources, Inc.

Leased the Project from Klondex, drilled 13 rotary holes.

1986 to 1987 Alma American Mining Company (“Alma”)

Leased the Project from Klondex, drilled 64 rotary holes.

1988 Aurenco Joint Venture (“Aurenco JV”)

Aurenco JV formed between Black Beauty Mining and Covenanter Mining.

1988 to 1990 Aurenco JV

Leased the Project from Klondex.

1990 to 1995 Klondex Mines Ltd.

No activity.

1995 to 1996 North Mining Inc. (“North Mining”)

Leased the Project from Klondex. Drilled 67 holes, performed IP and HEM surveys.

1996 to 2004 Klondex Mines Ltd.

No activity.

2004 to 2012 Klondex Mines Ltd.

Began a deep exploration program. Development commenced in 2011.

2012 to2015 Klondex Mines Ltd.

New Management and Board of Directors in 2012, ongoing exploration, development and bulk sampling.

2016 to Present Klondex Mines Ltd.

Received Record of Decision for the Environmental Assessment from the Bureau of Land Management in February 2016, began commercial production

Prior to 1994, exploration focused on near-surface oxide mineralization, most likely for bulk-mineable targets. Klondex acquired Fire Creek in 1975 and subsequently performed rotary drilling and a small test heap leach operation that produced 67 oz Au. Minex leased the Project in 1984-1985, performed a small amount of drilling and conducted a larger test heap leach operation using approximately 30,000 tons of material. The material tested was chosen based only on exploration drilling without grade control, was primarily waste, and ultimately produced less than 1,000 oz Au. Alma American Mining Company, a division of Coors Brewery, leased the Project from 1986-1987 and performed rotary drilling and other exploration work. The Aurenco Joint Venture, formed between Black Beauty Mining and Covenanter Mining, leased the Project from 1988-1999. From 1988 to 1990, the Aurenco JV completed 51,476 feet of rotary drilling, 500 soil samples, and 750 surface rock chip samples. The Project was ventured with Coeur Mining from 1993 to 1994. The Fire Creek Joint Venture was formed between Aurenco and North Mining in 1995. During 1995 and 1996, North Mining commenced the first technical exploration drilling program to examine deeper targets. North Mining drilled 67 rotary and core holes for a total of 39,570 feet. This program successfully drilled the first high-grade gold intercept at depth at Fire Creek. In 1995, North Mining conducted an IP-Resistivity survey along ten east-west lines. Much of North Mining’s drill locations from 1995 and 1996 targeted results from these geophysical tests; however, the wide point and line spacing did not detect the narrow vein anomalies. Details of this earlier geophysical survey were itemized in the Fritz Geophysics report for Klondex (Fritz, 2006) and in an unpublished report for North Mining (Edmondo, 1996). North Mining dropped the Project in 1996 after determining that the Project was not likely to meet their minimum contained gold requirement for continued exploration. Aurenco dropped the Project in 1999 without conducting further work, and the Project reverted to 100% Klondex control.

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No work took place until 2004, when Klondex began systematically and aggressively drilling deep targets to define the mineralization potential recognized by North Mining. In 2004, Klondex based its initial drilling targets on the results of North Mining’s drilling program carried out from 1995 to 1996 in combination with information including integrated geologic mapping, surface geochemistry, airborne helicopter electromagnetic (HEM) surveys and IP dipole-dipole surveys. Klondex focused its exploration drilling on targets ranging from 500 to 1,700 feet below the surface, yielding grades up to 1.0 opt.

Klondex conducted another IP survey in 2004 that used tighter line spacing and dipole points, which identified north-northwest trending alteration zones, coincident with the general strike of veins identified by Klondex drilling and coincident with the general trend of NNR faults (see Regional Geology, Section 7.1 of this Report). From 2004 to 2010, Klondex drilled 231 surface holes for a total of 297,586 feet.

6.2. Production History

Historic production, as itemized previously (Raven et al., 2011), is limited to marginal mining of oxidized siliceous cap material from a pit and the construction of a small test heap leach operation from 1988 to 1990. A summary of the Raven report follows:

“In the early 1980’s a joint venture with Aurenco/Black Beauty Coal mined a small amount of material from a pit and constructed a small test heap leach operation. This work focused on the siliceous cap material that overlies the deeper, epithermal vein systems; mining of the siliceous cap did not prove to be economic as the grades were too erratic and high clay content hampered the heap leaching.” (Page 11)


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With the exception of current operations, there has been no other production at the Project since 1990.

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7.     Geological Setting and Mineralization

7.1. Regional Geology

The Project is located on the northeast flank of the Shoshone Range in Lander County Nevada, and in the western half of the NNR (Figure 7-1). The surface and near-surface NNR is composed of an alignment of middle-Miocene basaltic (and lesser rhyolitic) dikes and up to 42,000 feet of basin-filling lava flows, pyroclastic units and lacustrine sedimentary units (Zoback et al., 1994; John et al., 2000) that are distinguishable regionally as a prominent, north-northwest trending aeromagnetic anomaly that extends some 300 miles south-southeastward from the Oregon-Nevada border. The NNR is likely related to a pre-Cenozoic, deep-crustal fault reactivated between 16.5 and 14.7 million annum (Ma) (Zoback et al., 1994; Theodore et al., 1998; John et al., 2000) and reflects west-southwest – east-northeast regional extension (Wallace & John, 1998; John & Wallace, 2000). Some workers (Zoback & Thompson, 1978; Pierce & Morgan, 1992) postulate that impingement of the Yellowstone hot spot on this area at approximately 17 Ma is related to Cenozoic NNR activity.

Basement rocks of the northern Shoshone Range are comprised of lower Paleozoic primarily siliciclastic sedimentary units of the Roberts Mountain Allochthon upper plate (John & Wrucke, 2003; Figures 7-2 and 7-3). In this area, the upper plate is 1,000 to 2,000 feet thick, and the Roberts Mountain Thrust dips west-northwest (Kiska Metals Corp., 2014). The primary upper plate units in the Fire Creek area are imbricate thrust stacks of Ordovician Valmy Formation, which is comprised of sandstone, shale, chert, and quartzite and the Devonian Slaven Chert (Gilluly & Gates, 1965; John & Wrucke, 2003).

Overlying the Paleozoic sedimentary rocks is a discontinuous tuff layer. John et al. (2003) and John & Wrucke (2003) assigned this unit as the Caetano Tuff (33.87 Ma) in the vicinity of Mule Canyon. However, Colgan et al. (2014) documents the tuff of Cove Mine (34.4 Ma) and the Nine Hill Tuff (25.4 Ma) in the northern Shoshone Range in this stratigraphic position. The origin and continuity of this unit remains enigmatic.

A middle-Miocene package of intercalated basalt and basaltic andesite flows and associated pyroclastic units intrudes and unconformably overlies the lower sedimentary and tuffaceous rocks. As these rocks represent local paleotopography, their presence and thickness are highly variable. Competent flow units in this package form the dominant host for gold mineralization both at Fire Creek and the nearby Mule Canyon Mine. As such, local expressions of this package have been informally named the Mule Canyon Sequence (John et al., 2003 and references therein) and the Fire Creek Sequence (McMillin & Milliard, 2013).

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The Andesite of Horse Heaven, a sparsely porphyritic andesite to basaltic andesite, conformably overlies the basalt flow package (John & Wrucke, 2003). This unit covers an extensive area of the Northern Shoshone Range (Gilluly & Gates, 1965) and ranges from less than 130 feet to greater than 800 feet thick (John & Wrucke, 2003). Samples from this unit collected near the Mule Canyon Mine yielded whole-rock ages of 15.86±0.12 Ma and 15.2±0.8 Ma (John & Wrucke, 2003). Another sample collected near Corral Canyon, south of the Project, yielded a whole-rock age of 15.76±0.80 Ma (John et al., 2000). The Andesite of Horse Heaven is currently recognized as the youngest unit preserved at the Project.

Thick flows of dacite and trachydacite unconformably overly younger mafic units. John & Wrucke (2003) describe these as occurring mainly to the east of the Muleshoe Fault and represent rift-filling lavas that were sourced from the Sheep Creek Range. They report 40 Ar/ 39 Ar plagioclase age dates of 15.33±0.09 Ma and 15.34±0.10 Ma for samples collected near the Mule Canyon Mine and in the Sheep Creek Range, respectively.

Numerous steeply dipping, north-northwest- to north-striking mafic dikes are evident at the Project from drill data and mining operations (Edmondo, 1996; McMillin & Milliard, 2013) and are exposed in the open pits at the Mule Canyon Mine (John et al., 2003 and references therein), however, few mafic dikes have been mapped at the surface. These are interpreted as feeder dikes for the upper Mule Canyon Sequence and lower Andesite of Horse Heaven (Edmondo, 1996; John & Wrucke, 2003). Field and core observations at the Project support this interpretation.

The western margin of the NNR in the Northern Shoshone Range is marked by two high-angle fault sets. The dominant set is parallel to the rift axis striking north-northwest (N15-30°W) and exhibits dip-slip movement. The most prominent of these is the Muleshoe Fault, which is less than a mile east of both the Mule Canyon Mine and the Fire Creek Project (John et al., 2003). Faults in this orientation commonly host mafic dikes and provided structural control on eruption and volcanic rock deposition. A second high-angle fault set oriented east-northeast (N60-80°E) was active during NNR formation, most notably the Malpais and Argenta Faults (John et al., 2000; John et al., 2003). These display left-lateral oblique-slip, however, some of these were reactivated in the late Miocene after a clockwise rotation of extension direction (Zoback et al., 1981, 1994).

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7.2. Local Geology

7.2.1. Rock Units

Basement rocks beneath the Fire Creek deposit have not been drilled sufficiently for positive unit identification. Imbricate stacks of Ordovician Valmy Fm. and Devonian Slaven Chert, part of the Roberts Mountain Thrust upper plate, are mapped to the west of the deposit and are presumed to lie beneath the local Miocene volcanic package (Figures 7-2 and 7-3). Thickness of the upper plate rocks in this region is unconstrained. Lower plate rocks are thought to be Roberts Mountain Formation, but this has not been drill-tested, and no outcrops of this unit occur nearby.

Overlying the Paleozoic sedimentary package is a 0 to 300-foot thick, discontinuous tuff unit, tentatively identified as the tuff of Cove Mine (C. Henry, pers. comm., 2013; D. John, pers. comm., 2014). The discontinuous nature of this unit is thought to be a function of paleo-topography.


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Progressing upwards, unconformably overlying the tuff of Cove Mine, is approximately 500-foot thick section of interbedded lithic tuff beds, basalt flows and sills, and thin, laminated lacustrine sedimentary beds. These are grouped together under the Ttb ( T ertiary t uff and b asalt) moniker. Tuff layers are commonly intensely argillically altered. Alteration in basalts varies from unaltered to moderate propylitization.

The informal Fire Creek Sequence comprises three volcanic/volcaniclastic units that overlie the Ttb series. These are presented in ascending order. Descriptions are after Edmondo (1996), Anderson (2013), and Milliard et al. (in prep).

Tbeq ( T ertiary b asalt eq uigranular; Figure 7-5) is a 400- to 700-foot thick, black to dark green, aphanitic and equigranular basalt flow package. The dominant textural characteristic of this unit are randomly oriented, curvilinear, interconnected hackly or tortoise-shell joints that develop in response to cooling and are thus a primary textural feature (McPhie et al., 1993). Poorly-formed columnar jointing is also present locally. Hyaloclastite is common at the unit base. Thin, discontinuous, and volumetrically minor tuff layers can be present. This unit is the primary ore host. It is thought that Tbeq possessed the bulk strength to hold open space during faulting/fracturing and was present at the correct elevation with respect to the paleo-water table to allow fluid boiling and vein deposition. In the vicinity of the Fire Creek deposit, a large percentage of this unit is altered. Propylitic alteration volumetrically dominates the alteration package and ranges from thin selvages along tortoise-shell joints to pervasive. Argillic alteration is proximal to veins and dikes. Silicification is intermittent and, when present, is immediately adjacent to veins and dikes.


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Tbma (Figure 7-6) discontinuously overlies Tbeq and is a 0 to 500-foot thick series of black, aphanitic, vitreous, and peperitic basalt flows that may be intercalated with thin tuff layers of the overlying Tlat. No gold mineralization is known in this unit. Alteration is non-existent to weakly propylitic.


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Tlat ( T ertiary l apilli a sh t uff; Figure 7-6) also discontinuously overlies Tbeq, at the same or higher stratigraphic level as Tbma. Commonly, the contact between Tlat and Tbma, when both are present, is difficult to determine. Tlat is a 0 to 200-foot thick, tan to buff, non-welded lithic lapilli tuff with 10 to 40% heterolithic basalt and scoria fragments. Groundmass comprises shard and pumice fragments with 10 to 15% lapilli component. Although discontinuous, it is regionally extensive. In the vicinity of the Fire Creek deposit, this unit is commonly intensely argillized.

The Andesite of Horse Heaven is the youngest package preserved at the Project. Locally, this package is broken into five units. Tb1, Tb2, and Tb3 directly overlie the Fire Creek Sequence and the Fire Creek deposit. Tb4 and Tb5 are only present to the east and northeast of the current mine area and may reflect compartmentalized lava fill into a fault-bounded basin. Descriptions are after Edmondo (1996).

Tb3 is the youngest unit present at the Fire Creek deposit. It consists of interbedded andesite and basalt flows. Typically very fine grained with rare plagioclase and biotite phenocrysts up to 0.1 millimeters in diameter. Individual flows display features characteristic of subaerial emplacement including autobreccia at flow tops and bases, pahoehoe textures, dense flow interiors and increasing vesiculation density near flow tops. Above the known deposit, Tb3 is argillized and hosts gold mineralization.


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Tb2 is a black, aphanitic to sugary, weakly glassy basalt that contains trace to 10% plagioclase phenocrysts and five to seven percent magnetite as needles. Emplacement as subaerial flows, similar to Tb3, is indicated by autobrecciation along flow tops and bottoms, dense flow interiors, and strong vesiculation. Thicker flows may weather spheroidally. The base of Tb2 is weakly altered, and this alteration rapidly decreases to zero vertically.

Tb1 shares many similarities to Tb2, specifically that it is a black, aphanitic to sugary, weakly glassy basalt with trace to 10% plagioclase phenocrysts. However, instead of magnetite needles this unit can be distinguished by the presence of three to five percent magnetite as crystals. The sugary groundmass is slightly coarser grained than Tb2. Flow textures are the same as Tb2. Tb1, and Tb2 are commonly separated by a thin volcaniclastic unit and, in outcrop, may be marked by an angular flow foliation discordance of less than 10 degrees. Hypogene alteration in this unit has not been observed.

Tb4 is light red-grey to grey, platy to massive andesite interbedded with black, glassy, perlitic, porphyritic andesite. Phenocrysts of plagioclase and pyroxene volumetrically compose up to 25% and range from two to five millimeters in length. In contrast to the consistent foliation displayed by Tb1, 2, and 3, Tb4 has highly variable flow foliations and forms gently rolling antiforms and synforms with an overall west dip. In the Project area, Tb4 is present to the east of a range-front-parallel fault located to the east of the deposit. Here, it underlies Tb3 and is in fault contact with Tb1 and 2.

Tb5 is a series of fine grained to aphanitic, brown to black basalt flows with one to three percent magnetite and pyroxene phenocrysts. Individual flows have flaggy to platy bases and highly vesicular tops. It appears to underlie Tb4 although exposure is limited to the northeast corner of the Project area.

Units underlying Tb1 are cut by numerous black to dark green mafic dikes referred to as Tim (Figure 7-7). Textures include aphanitic, fine-grained phaneritic and weakly porphyritic. Dikes generally strike north-northeast and many exploited north-northeast-striking (Muleshoe-parallel, see below) faults. Contacts between dikes and wall rocks range from knife-edge sharp to brecciated zones up to one foot. Both acted as conduits for mineralizing fluids, and vein emplacement occurred along these contacts (e.g. Vonnie Vein). Dikes can be altered along with wall rock, but often comparatively pristine dikes cut through intensely argillized wall rock, suggesting dikes were emplaced late relative to the bulk of fluid migration.


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7.2.2. Structure

The current Fire Creek deposit is fault-bounded to the north, east, and south. The west remains structurally open, although data for this area is sparse. Drilling from underground has roughly defined the Alimak Fault, a north-northwest striking structure that intersects the westernmost extent of the underground workings. It is unknown if this is a system-bounding fault; however, ground conditions change sharply across it. The bounding structures are described below.

North: John et al. (2000) documents the northeast to east-northeast striking Malpais and Argenta Rims (Figure 7-1), the result of late Miocene to Quaternary (i.e. post-mineralization), north-down normal faulting and associated sets of steeply north-dipping normal faults clustered in the north sides of the respective fault blocks. Geophysical and drill data indicate these subsidiary north-dipping normal faults truncate and may offset the Fire Creek deposit to the north.

East: The Muleshoe Fault is a regionally important structure, forming, along with the Dunphy Pass Fault, a graben with over 1,200 feet of volcanic fill and forming the eastern edge of the Mule Canyon deposit (John et al., 2000; John et al., 2003). The Fire Creek deposit is bound to the east by a N15°W, steeply east-dipping fault interpreted as a paleo-scarp. Volcanic rock texture and composition changes abruptly across an undeformed flow contact. Gold assay values also abruptly change from an average of 0.0X opt to below detection limit across this contact. 3D modeling of these criteria supports the hypothesis that this is a high-angle fault plane. Throughout the Project history, this fault surface has been referred to as the Muleshoe Fault, and this report will continue to do so. It should be noted that this fault has never been positively linked to the Muleshoe Fault proper documented at Mule Canyon, and geophysical evidence suggest that the true Muleshoe Fault lies farther to the east.


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South: Fire Creek itself runs east-west and lies just south of the known deposit. Surface mapping indicates that the Tb2 unit on the south side of the creek is significantly thicker than Tb2 on the north side. This relationship suggests that Fire Creek follows the surface trace of a south-block-down normal fault (the Fire Creek Fault) that either predated emplacement of Tb2 or was synchronous with Tb2 emplacement, forming a volcanic growth fault. Geophysics and limited drill data support the hypothesis that volcanic stratigraphy is displaced across the Fire Creek Fault.

There are currently three known fault sets within the area described above (Figure 7-8). The most recent set comprises the NE1 and NE2 faults. Both are northeast-striking and dip steeply to the north, sub-parallel to the Malpais Rim and subsidiary structures. Apparent displacement across the NE1 and NE2 faults is small and of variable motion sense, probably more reflective of local perturbations in the volcanic stratigraphy than of true offset. These are interpreted to be a continuation of the late Miocene to Quaternary Malpais Rim structure set and thus postdate and offset mineralization. Displacement across these structures likely increases with proximity towards the Malpais Rim.

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The other two fault sets are cut by and thus predate the NE1 and NE2 faults. The N15°W set comprises the vertical to steeply east-dipping Muleshoe Fault and Alimak Fault and several other parallel, smaller-displacement faults (not shown for clarity) that dip steeply to the east and west. All show apparent normal displacement. Displacement across the Muleshoe Fault and Alimak Fault is east-block-down based on offset volcanic stratigraphy. Direct evidence for an oblique component does not exist, but these are thought to contain a subordinate right-lateral component based on overall NNR development patterns. North of Fire Creek proper, where Tb2 is very thin and Tb1 is either thin or eroded, the N15°W fault orientation is strongly reflected in current topography. South of Fire Creek, Tb2 is significantly thicker, and the N15°W fault set is not topographically expressed. This implies that the relative age of Muleshoe-parallel faulting can be bracketed between Tb1 and Tb2 emplacement. The N45°W fault set comprises the NW1 and NW2 faults. These represent breached relay ramps (Crider, 2001; Trudgill & Cartwright, 1994; Figure 7-9) and formed contemporaneously with Muleshoe-parallel faults. Both of these fault sets are thought to result from NNR development.


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7.2.3. Veins

The vein system reflects extensional structural fabrics generated during NNR development. Veins were emplaced primarily along faults and dike contacts, both striking approximately N15°W and with variable but steep dips, and north-south-striking, moderately east-dipping extensional structures. North-northwest-striking veins are typically thin, less than three feet, subvertical and are parallel to the Muleshoe Fault set. North-south striking veins are thicker, approximately 10 feet, than north-northeast striking veins. Host rocks are usually restricted to the more competent members of the volcanic sequence; in the known deposit this is primarily Tbeq. Tuffaceous units are less favorable for vein formation due to poor fracturing characteristics.

The following description of Fire Creek veins is abstracted from Raven et al. (2011) and includes relevant updates.

The veins consist of colloidal silica, crystallize chalcedony and coarser crystallize quartz, calcite, pyrite, chlorite, arsenopyrite, adularia, and clays including kaolinite, smectite and illite. Crustiform/colloform-banded and brecciated quartz, stockwork texture and calcite-replacement textures including bladed quartz are common. Drusy and cockscomb calcite and quartz often coat open spaces. Vein composition ranges from quartz-dominant to calcite-dominant, even within the same vein.

As of this writing, 48 individual veins or mineralized structures have been identified. Of these, five have been sufficiently characterized to warrant individual descriptions.

Joyce Ve in

The Joyce Vein has been defined for 1,750 feet along strike and 1,135 feet of dip extent. It is dominated by coarse, bladed calcite (60 to 70%) with quartz as the remainder.

Vonnie V ein

The Vonnie Vein has been defined for 1,910 feet along strike and 550 feet of dip extent. Textures are dominantly crustiform/colloform quartz banding with lesser carbonate. This vein formed predominately along a dike contact.

Karen Ve in

The Karen Vein has been defined for 1,035 feet along strike and 450 feet of dip extent. Average vein width is approximately 0.5 foot although mineralized widths can reach up to approximately 12 feet and can include fault-related breccias and discrete veins. The vein is predominately calcite with lesser quartz and commonly has open space vugs. The Karen Vein exploited a north-south striking extensional linking structure rather than a Muleshoe-parallel fault or dike contact.


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Hui Wu V ein

The Hui Wu (pronounced Whey-Woo) structure has been defined for 650 feet along strike and 500 feet of dip extent. This structure is primarily mineralized tectonic breccia that is punctuated by a moderately developed discrete vein system.

Honeyrun ner Structu re

The Honeyrunner structure has been defined for 1,515 feet along strike and 525 feet of dip extent. Geologic data suggest this structure may be a locally important fault parallel to the Muleshoe Fault system. Instead of a typical vein, this structure is a combination of tectonic breccias and a large basalt dike; however, current drill piercements do not preclude the presence of a vein either along strike or at depth.

7.2.4. Alteration

Alteration is zoned laterally and vertically with respect to paleo-fluid conduits and is dependent on rock type. Conduits include high-angle structures such as faults (either with or without vein fill) and dike contacts and to a lesser extent low-angle structures such as lithologic contacts and highly vesiculated flow tops. Zonation is well-developed in Tbeq basalt. Alteration in tuffaceous units tends to be pervasive rather than zoned.

Idealized lateral distal-to-proximal alteration zonation around a single fluid conduit or vein within Tbeq or Ttb basalt typically follows the progression outlined below (Figures 7-10 and 7-11). Not all stages may be present and overprinting is common.

  1.

Distal, widespread, propylitic alteration characterized by pyritiferous and chloritic selvages along hackly or tortoise-shell joints;

  2.

Pervasive propylitic alteration characterized by chlorite ± calcite replacement of plagioclase and pyroxene and abundant formation of both disseminated and selvage pyrite and

  3.

Pervasive argillic alteration characterized by montmorillonite ± nontronite ± illite replacement of plagioclase and pyroxene (or their chloritized equivalents).

  4.

Selvage and/or pervasive silicification through addition of silica.

  5.

Acid-leach silicification resulting from preferential removal of mobile, non-silica constituents. This alteration style is more common in the upper portion of the hydrothermal system.


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Argillic alteration in tuffaceous units and interbeds is characterized by near-complete replacement by illite ± kaolinite ± smectite ± montmorillonite ± nontronite. It is widespread and is not zoned. The typical propylitic outer halo is either non-existent or has been completely overprinted.

Alteration in Ttb basalt units is generally weak to moderate, pervasive propylitic alteration characterized by chlorite replacement of plagioclase and pyroxene.

A discontinuous, 15 to 65 feet thick, white to reddish-brown, amorphous to opaline silica cap is present between Tb1 and Tb2. Although specific fluid pathways have not been identified in Tb1, an elongate zone of moderate to intense, vertically zoned argillic alteration directly overlies the Joyce Vein in Tb1 and is exposed at the surface. This alteration is characterized by alunite + kaolinite beneath the silica cap and gives way to smectite + kaolinite with depth. Nontronite-alteration as vein, vug-fill and pervasive basalt alteration appears to overprint other alteration events.

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7.2.5. Mineralization

Gold is primarily present in its native state along discrete layers within veins. Native gold can occur as large clots or bands (Figure 7-12), dendritic growths (Figure 7-13), and fine-grained disseminations. Other less common habits include encapsulations in quartz, pyrite replacements and coatings on pyrite or arsenopyrite (Thompson, 2014). Silver occurs encapsulated in quartz and locally in naumannite or ruby silver encapsulations in quartz (Thompson, 2014). Dark grey ginguro bands of an unidentified silver-bearing mineral are present along vein banding as well. The silver:gold ratio is approximately one to one.


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8.     Deposit Types

The Fire Creek deposit is considered to be a low-sulfidation, epithermal deposit.

A composite description for low-sulfidation epithermal deposits, abstracted from Simmons et al. (2005), Cooke & Simmons (2000), White & Hedenquist (1995), Kamenov et al. (2007), and Hedenquist et al. (2000) is shown below in Figure 8-1.

Low-sulfidation epithermal systems are also referred to as quartz ± calcite ± adularia ± illite or adularia-sericite epithermal systems. These nomenclatures refer to the oxidation state of the ore fluid sulfur component, gangue mineralogy and hydrothermal fluid pH, respectively. Ore-fluids in a low-sulfidation hydrothermal system are reduced, have a near-neutral pH and are dominated by deeply-circulated meteoric water. These deposits form in the shallow crust, 0.5 to 1.5 miles at temperatures of greater than 300°C in subaerial volcanic settings. Steeply-dipping, open-space veins are common. Quartz is the principal gangue mineral and can be accompanied by chalcedony, adularia, illite, pyrite, calcite, and rhodochrosite. Boiling is the dominant metal deposition mechanism and commonly results in vein textures including crustiform-colloform bands and platy calcite and/or quartz-after-calcite pseudomorphs. Ore metals are usually Au-Ag, Ag-Au or Ag-Pb-Zn and, contrary to the ore-fluid source, metals in NNR-related epithermal deposits are sourced from mantle-derived basaltic magmas (Kamenov et al., 2007).

Zoned hydrothermal alteration comprises widespread and deep propylitization that grades upwards to clay, carbonate and zeolite formation. Proximal alteration comprises quartz, adularia, and pyrite. High-level advanced argillic alteration characterized by clay-carbonate-pyrite or kaolinite-alunite-opal ± pyrite alteration can be present above the ore-grade zone and is the result of steam-heated, acidic, ascending fluids generated during boiling.

Features that classify the Project as a low-sulfidation epithermal deposit include:

  • Precious metal mineralization occurs primarily within steeply dipping veins;
  • Extensional, open-space forming tectonic environment active during vein emplacement;
  • Vein gangue is composed of quartz and calcite and exhibits boiling textures;
  • Mineralization is gold-silver;
  • Alteration halo comprises distal propylitization that grades to argillic and proximal silicification;
  • Presence of a high-level, advanced argillic alteration zone capped with opaline silica; and
  • Altered host rock indicates a reduced ore fluid.

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9.    Exploration

9.1. Historical Exploration

An itemized summary of exploration activities at the Project is below.

  • 1933: First recorded lode claim at Fire Creek;
  • 1967: Union Pacific drilled two diamond holes;
  • 1974 – 1975: Placer Development Ltd. acquired an exploration lease and drilled 22 rotary holes;
  • 1980: Klondex acquired the Project from Placer Development, Ltd;
  • 1981/1982: Klondex conducted a 2,000-ton test heap leach that produced 67 ounces of gold;
  • 1980 – 1983: Klondex drilled 64 rotary holes;
  • 1984: Klondex leased the Project to Minex Resources, Inc. who drilled 13 holes and heap leached approximately 30,000 tons of mixed ore and waste which produced approximately 1,000 ounces of gold;
  • 1986 – 1987: Klondex leased the Project to Alma American Mining Co. who drilled 64 holes;
  • 1988 – 1999: Klondex leased the Project to the Aurenco Joint Venture which was composed of Black Beauty Gold Co. and Covenanter Mining, who drilled 51,463 feet of reverse circulation;
  • 1993 – 1994: The Aurenco JV ventured the Project with Coeur Exploration. Coeur conducted a gradient-array resistivity survey and drilled seven reverse circulation and two diamond holes;
  • 1995 – 1996: The Aurenco JV and North Mining form the Fire Creek Joint Venture. North Mining conducted a dipole-dipole IP/Resistivity survey and drilled 39,593 feet of reverse circulation and diamond core;
  • 1999: The Aurenco JV relinquished their lease;
  • 2004: Klondex began an exploration program for deep vein-hosted gold mineralization;
  • 2005: Newmont Mining Corp. performed a gravity survey;
  • 2006: Klondex conducted a gradient-array IP/Resistivity survey; and
  • 2004 – 2010: Klondex drilled 231 holes, primarily core with RC pre-collars, for a total length of 297,586 feet.

9.2. 2011 Drilling

Fifty-five drill holes comprising 37 surface holes and 18 underground holes with a length of 65,225 feet were completed (Figure 9-1). Surface drilling focused on identifying mineralization on the north end of defined veins. Underground drilling focused on identifying mineralization on the southern extent.


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9.3. 2012 Drilling

Sixty-one drill holes comprising of 25 surface holes and 36 underground holes with a total length of 54,969 feet were completed (Figure 9-2). Four of the surface holes were geotechnical holes drilled to gather data near the planned vent raise. Three holes were drilled to test IP anomalies south of the Project. These did not encounter significant gold mineralization; however, the holes were terminated prior to encountering the target horizon and may have been located too far to the east. The remainder were drilled to define a bulk sample area that encompassed the Joyce Vein and the Vonnie Vein between the 5370 and 5400 crosscuts. One of these holes (FC1211) returned a result of 2,910 parts per million (ppm) Au (85 opt Au) assay from the Vonnie Vein.

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9.4. 2013 Drilling

Sixty-one drill holes comprising five surface holes and 56 underground holes with a total length of 33,501 feet were completed in 2013 (Figure 9-3). This drilling identified several new veins west of the decline and identified probable southern extensions of the Joyce Vein and the Vonnie Vein.

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9.5. 2014 Drilling

Two hundred eighty-three holes comprising nine reverse-circulation surface holes with a total length of 2,385 feet (Figure 9-4), two HQ diamond surface holes with a total length of 2,943 feet (Figure 9-4) and 272 AQ, BQ and HQ diamond underground holes with a total length of 73,339 feet (Figure 9-5) were completed in 2014. Five of the surface reverse circulation (RC) holes were converted into groundwater monitoring wells GW-4 through GW-8. The remaining five surface RC holes had piezometers installed. Two HQ diamond holes were drilled for condemnation purposes. Underground drilling in 2014 primarily focused on infilling and extending the Joyce Vein, Vonnie Vein, Karen Vein, and Hui Wu Vein. Underground exploration targeted zones to the east and west of the decline and yielded positive results including discovery of the ore-grade Honeyrunner structure.

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9.6. 2015 Drilling Through June

One hundred and forty-seven drill holes comprising six surface holes and one hundred and forty-one underground holes were completed in the first half of 2015 (Figure 9-4). Surface drilling was completed using HQ core and totaled 5,503.5 ft. Surface drilling tested the southern and western extents of known mineralization. Underground drilling was completed using AQ, BQ and HQ core totaling 43,871.5 ft. Underground drilling tested several targets including several new veins west of the decline identified by 2014 drilling, defined up-dip extensions of the Joyce Vein and Vonnie Vein, explored down-dip extensions of the Joyce Vein and Vonnie Vein, and identified probable southern extensions of the Joyce Vein and the Vonnie Vein.

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10.     Drilling and Sampling Methodology

Drilling protocols from 2004 through 2010 are documented in Raven et al. (2011):

“Most core holes were pre-collared with a reverse circulation rotary (RC) drill that advanced to a planned depth well short of the intended target intercept. The RC holes were then cased and core drilled to completion with HQ (2.5 inch diameter core)-sized core. Two of the borings, 410 and 411, were only rotary holes drilled to completion. RC drilling was done by O’Keefe Drilling of Butte, Montana. Core drilling was carried out primarily by Boart-Longyear out of their Salt Lake office, Ruen Drilling from Clark Fork, Idaho and Major Drilling from Salt Lake City.”

“The directions and angles of the drill holes were spotted to intercept the veins as close to perpendicular as practicable within the limitations of the equipment. Most holes were drilled at azimuths of 75° or 255° and located as close as practical on the surveyed grid lines with azimuths of 75° … The line spacings are 50 metres. The deep holes have established that veins or vein systems have a general azimuth strike of 345° with varying dips ranging from steep westward dips of about 75° to steep eastward dips of about 80°. Most holes were inclined at an angle of -45°. Holes were drilled both ENE and WSW; sometimes the ideal direction/declination had to be compromised because of drill location setup problems.”

“The Klondex holes are all surveyed for vertical and horizontal deviation by International Directional Services LLC, whose local office is in Elko, Nevada. Plotting the boring deviations permit accurate vein and other gold anomaly intercept locations leading to reliable geologic mineralization locations, interpretations of vein trends, structure dips, zone widths, reserve estimates, and polygon locations.” (Page 21)

The 2013 surface drilling procedures for RC are summarized below:

  1.

Klondex contracted Rimrock Drilling Services from Elko, Nevada to drill 15, 600-foot RC pre-collar holes;

  2.

Surface collar locations were based on the location of previously drilled and surveyed geotechnical holes. The azimuth and dip were set using a Brunton compass and measured with a tape, the designations were written on a flagged lathe;

  3.

The drill rig set up to drill a fan pattern, the mast was checked for correct azimuth and dip prior to drilling;

  4.

Five-inch surface casing was installed for the upper 20 feet;

  5.

Drilling advances were paused at the end of each sample run to flush out the cuttings;


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  6.

Upon completion of the hole, International Directional Services (IDS) of Elko surveyed the collar azimuth, dip, and downhole inclinations using a gyroscopic downhole survey tool;

  7.

The completed RC hole was cased to 600-foot with five-inch casing; and

  8.

Variations of azimuth and dip for subsequent drilling within the fan array were based on the results of the pre-collar survey and adjusted to account for any deviation, which may have occurred.

The 2013 surface drilling procedures for core are as summarized below:

  1.

Klondex contracted American Drilling Corporation from Winnemucca, Nevada to drill surface core holes;

  2.

Prior to drilling, the pre-collars were cemented at the bottom of the casing to seal the core hole;

  3.

HQ diameter core was drilled with five-foot core barrels and ten-foot rod lengths;

  4.

Core material was retrieved using a triple-tube and placed in cardboard boxes;

  5.

Downhole surveys of the entire hole (RC and core-tail) were taken by IDS. A digital copy of the IDS report was emailed to Klondex;

  6.

Boxes of core were transported to the logging facility for photography and collecting geological observations before being sent to the splitter for sample preparation; and

  7.

Surface drill collar surveys were taken by Alidade, Inc. (“Alidade”) when drilling the fan was completed.

In January 2013, authors of the TR observed a sequence of handling underground drilled core as follows:

  1)

Drill hole status is tracked on a dry erase board as well as in MS Excel spreadsheets for the following information: (drilled status, logging status, sampling status, dispatching a hole, and receiving assay results);

  2)

Handling of the drilled core from the station includes: drilling with a Diamec U8 core rig (other types of drill rigs have been used in the past for drilling both surface and underground). Drillers label core box lids with a unique Bore Hole Identification number (BHID), which includes the year), box number, and drilled interval, drillers put the core in boxes (Figure 10-1) with top of drilled sequence leading the run in the box and end of drilled interval ending the run in the box. Drillers label the end of the run to the nearest one tenth of a foot and measure and record the recovery in feet on wooden blocks, which are put at the end of the drilled interval;


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  3)

Note: In 2014, the hole naming convention was changed. The final hole with the old naming convention was FC14125U. The first hole with the new naming convention was FCU-0001;


  4)

Drillers stack full core boxes on a pallet in numerical order;

  5)

Drillers or drill helpers either deliver the pallet to surface or take a partial delivery of core boxes in the back of their motorized underground personnel vehicle. They leave the pallet of core boxes (or individual core boxes on a spare pallet) at the core logging facility; and

  6)

Current surface drilling protocols remain similar to the Raven summary, but the protocol has evolved somewhat to allow for more precise drill targeting and data tracking. The 2014 drilling program focused primarily on additional delineation of targets and expanding the resource. These targets are more accessible and more efficiently drilled from underground drill platforms.

10.1. Collar Surveying

Currently, surface hole collars are surveyed by Alidade following completion of the hole. Underground hole collars are surveyed by the mine surveyor after the drill has been removed from the drill station. When an underground collar survey is required and the surveyor is not available, the geologist triangulates the collar location using distance measurements between surveyed reference points in the drill station relative to the drill rig.

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The channel sample locations are stored as “synthetic drill holes” in the database in order to utilize them spatially with software (northings, eastings, elevations, azimuth, dip, and length). The northing, easting, and elevation of the samples are derived from geologists’ face distance measurements in relation to underground survey mapping (asbuilt).

10.1.1. Surveying Surface Drill Collar Locations

Historic surface drill collar survey data was kept in Reno, Nevada by Mr. Richard Kern of MinQuest, Inc. (“MinQuest”), as he was the Project Manager and responsible person for the database on behalf of Klondex. Klondex received the historic data in spreadsheets from Mr. Kern in May 2012. All collar northings and eastings drilled prior to 2012 came from MinQuest at that time. The elevation of the drill hole locations in the MinQuest dataset were adjusted by Mr. Steve McMillin, former Chief Geologist for Klondex, by assigning elevations from topographic contours generated from 2012 photogrammetry.

Methods used to locate collars drilled from March 2004 through December 2010 were inadequately documented, and raw data were not archived. The (non-documented) method for locating early collars was to locate the drill pad along a surveyed grid of lines (lines spaced 50 feet apart) to intercept veins as close to perpendicular as possible within the limitations of the equipment and topography.

In August of 2008, Alidade surveyed and located some of the drill pads and collars for Small Mine Development, LLC. (“SMD”). Historical survey reports for that period have not survived though Alidade’s methodology for ground control is documented in a Company memo from Alidade (Klondex, 2006):

“On our first day on the project we set a 5/8 rebar with a plastic “Alidade Control” cap on a hillside above and about a 1,000 feet north of the Project. We set up our GPS receiver on this point called “AL1”, and recorded two plus hours of static GPS data at one second intervals. This data was subsequently sent to the National Geodetic Survey (NGS) Online User Positioning Service (OPUS) and processed”.

“OPUS provided both the NAD83 Nevada Central Zone and UTM Zone 11 North coordinate values for the new point. The grid coordinates provided were expressed in meters for both systems as is standard for OPUS. We (Alidade) converted the NAD83 coordinates from meters to US Survey feet and established a coordinate system and projection for our GPS software”.

From 2010 to the beginning 2012 (up to drill hole FC1207S), surface collar survey information was recorded by the site geologist reading a hand-held GPS device on the drill rig. Using a hand held device requires the geologist to allow the device to sit for approximately 20 minutes before a reading can be taken. The coordinates were hand-entered on a log form. The original datum is unknown. It is also not known if any conversion between datum was made as a part of this process.


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All surface holes drilled since January 2012 have been surveyed by Alidade with a Trimble Real Time Kinematic (“RTK”) unit in conjunction with Global Positioning System (GPS) with a base station of a known survey point and rover unit. There are no early surviving survey reports from this methodology. The original datum is not known. It is also not known if any conversion between datum was made as a part of this process.

In June 2013, Klondex undertook to re-survey all locatable surface collar locations drilled prior to January 2012. Mr. McMillin located historically drilled holes using a ground magnetometer and a track excavator to search for buried collar casing. A total of 29 surface holes (approximately 10% of the surface drill hole population from that era) were located and resurveyed by Alidade using the current protocols. Average northing and easting errors were 5.39 and 5.71 feet, respectively. Table 10-1 contains the collar location data obtained in the re-survey.

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Table 10-1 Surface Drill Collars Re-surveyed by Klondex

BHID Eastings Northings Elevation PROJECTION SYSTEM
FC1207S 14696485.18 1737337.22 6055.043 NAD 83
FC1208S 14696484.23 1737332.01 6055.256 NAD 83
FC1209S 14696489.35 1737337.59 6055.136 NAD 83
FC1210S 14696480.66 1737331.12 6054.994 NAD 83
FC1211S 14696478.28 1737335.75 6055.341 NAD 83
FC1212S 14696478.45 1737331.66 6055.134 NAD 83
FC1213S 14696470.69 1737334.5 6054.263 NAD 83
FC1214S 14696471.37 1737331.63 6054.913 NAD 83
FC1215S 14696472.21 1737327.84 6055.272 NAD 83
FC1216S 14696465.29 1737334.07 6054.913 NAD 83
FC1217S 14696467.25 1737329.53 6054.438 NAD 83
FC1218S 14696464.22 1737333.05 6054.379 NAD 83
FC1219S 14696457.89 1737328.95 6054.24 NAD 83
FC1220S 14696460.78 1737325.61 6055.07 NAD 83
FC1221S 14696463.23 1737322.85 6054.835 NAD 83
FC1207S 14695832.79 1737596.9 6055.043 NAD27
FC1208S 14695831.84 1737591.69 6055.256 NAD27
FC1209S 14695836.96 1737597.27 6055.136 NAD27
FC1210S 14695828.27 1737590.8 6054.994 NAD27
FC1211S 14695825.89 1737595.43 6055.341 NAD27
FC1212S 14695826.06 1737591.34 6055.134 NAD27
FC1213S 14695818.3 1737594.18 6054.263 NAD27
FC1214S 14695818.98 1737591.31 6054.913 NAD27
FC1215S 14695819.82 1737587.52 6055.272 NAD27
FC1216S 14695812.9 1737593.75 6054.913 NAD27
FC1217S 14695814.86 1737589.21 6054.438 NAD27
FC1218S 14695811.83 1737592.73 6054.379 NAD27
FC1219S 14695805.5 1737588.63 6054.24 NAD27
FC1220S 14695808.39 1737585.29 6055.07 NAD27
FC1221S 14695810.84 1737582.53 6054.835 NAD27

Additionally, surface drill hole FC1222S, drilled in late November 2012, was surveyed by Mr. McMillin using this same methodology. Currently, surface collar surveys are taken by Carl C. de Baca, of Alidade, using a Trimble RTK roving unit and base-station set on a known survey point based on projections described above.

The result of locating the 29 drill hole collars verified the historic collar coordinates for the surface holes as being accurate and within acceptable means. The authors consider the results of this study as validating the historic surface collar locations.

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10.1.2. Surveying Underground Drill Collar Locations

Underground drill hole collars are surveyed by the mine surveyor. The first phase of underground drilling began in September 2011 and continued into August 2012. Fifty-two holes were drilled during this period, all but two of from Drill Station 1. Drill collar locations were originally derived from drill station planned coordinates. Collar surveys for phase one holes were finalized in August 2012 when the drill was moved and collars were accessible to the surveyor. SMD engineer Paul Joggerst surveyed the collars (2012 Joggerst), utilizing North American Datum (NAD) 27 UTM US feet. A geologist assisted in locating each collar and identifying the borehole ID.

The 2012 Joggerst methodology included use of a robotic total station set by plumb-bob using a known survey location as datum. A survey prism was used to define each drill collar location to be recorded by the total station. 2012 Joggerst provided survey reports to Klondex in the form of electronic spreadsheets. All underground surveys were conducted in NAD 27 UTM, US feet.

Since drilling resumed in 2013, collar locations have been surveyed by the Klondex mine surveyor using Company-owned survey equipment. The Project survey equipment is a Trimble S6 DR Plus total station device used in conjunction with Leica prisms. The 2013 surveys were in NAD27 UTM US feet, and in 2014 Klondex began using NV SPCS feet.

When an underground collar survey is required and the surveyor is not available, the geologist triangulates the collar location using string and surveyed reference points. This method requires the drill rig to be in the station. The geologist ties and pulls the string between the surveyed spad points so that the string crosses the drill rig twice. The string is then measured, and the lengths are recorded relative to the drill steel. The measurements are then n plotted in Vulcan using the same survey spad points. A line is drawn between the two generated points and produces an azimuth. The inclination is measured by the geologist with a Brunton compass.

In addition, the location of the collar is calculated by measuring the distances on the face or rib from the front site spad to where the drill steel enters the ground. Those measurements are also plotted into Vulcan and the easting, northing, and elevation are recorded.

10.1.3. Locating Channel Samples

The coordinates of the channel samples are calculated using measurements taken by geologists. For each mining face, the geologist measures the distance along the left rib from a known reference point to the face. This distance is recorded on a daily face sheet. The channel sample is collected across the face from left to right, so the measured distance corresponds with the start of the channel. The distance recorded on the face sheet is measured on the asbuilt to find the X and Y coordinates of the sample. Because the channel samples are collected at chest height, the elevation of the channel is calculated by adding five feet to the sill elevation of the asbuilt.


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10.2. Downhole Surveying

Downhole surveys were performed for all holes drilled from 2004 to 2011 as noted by Raven et al., 2011:

“The Klondex holes are all surveyed for vertical and horizontal deviation by International Directional Services LLC, whose local office is in Elko, Nevada”. (Page 21)

IDS has continued to survey all surface holes at the Project from 2011 to present. IDS is a reputable borehole survey company with a well-established history of performing downhole surveys in accordance with industry standards.

When underground drilling began at the Project in the fourth quarter of 2011, Klondex leased a PeeWee downhole survey tool from Minex in Minnesota. The PeeWee has the option of being manually set for local declination or collecting data relative to magnetic north. Klondex collected raw uncorrected data and then applied corrections to compensate for the local declination of 13.35 degrees according to the NOAA calculator. Readings were taken by the PeeWee every 50 feet. Occasionally the raw data reflected excessive fluctuation between adjacent points, and the unreasonable point was deleted before finalizing the survey. In that case, reliable points above and below the erroneous point are used for projecting the drill hole, which is acceptable industry practice. Occasionally, the surveyor will collect “collar and quill” surveys by positioning the survey rod in the collar and recording multiple survey shots along the survey rod to measure azimuth and dip. The results can be compared to the data collected by the downhole survey tool as a rough check of the tool’s accuracy.

Since the beginning of 2014, all underground downhole surveys have been performed by International Directional Services (IDS) using a Maxibor tool.

10.3. Core Recovery

Core recovery has previously been described (Raven et al., 2011) and is summarized below:

“Core recovery was excellent; 100% in most instances. The high-grade intervals were logged as having near or 100% recovery in nearly all cases, whether the intercept was a vein or a breccia zone. Core recovery was typically very good throughout the Klondex program.” (Page 21)

Since 2012, the percent core recovery has been calculated by measuring the material between blocks per drilled interval, then dividing the measured recovery by the run footage and multiplying that value by one hundred. The average current recovery for underground core at the Project is 95%. Drilling from underground is a more cost effective and efficient way to drill high angle veins and faults. Drill intercepts of these zones are designed to be as orthogonal as possible to best reflect the true thickness of the zones. The costs attributable to a given hole are also reduced because a single hole can be utilized to test multiple targets at a preferred elevation.


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10.4. Security Procedures

From early 2004 until March 2012, material from split core, rejects, RC chips, and pulps were stored in multiple storage units at the business of Security Storage, 355 East Greg Street, Sparks, Nevada. RC chip and rejects were transported directly to these storage units either from the Project or from the ALS Minerals (ALS) Lab in Sparks, Nevada. Core material was first logged at the Project by a MinQuest geologist and then transported to Sparks for cutting and sampling by a MinQuest geotechnician. After cutting and sampling, the remaining core was archived in one of the storage units.

For the 2013 core re-logging program, core was retrieved from storage units in the Sparks warehouse and moved down the street to a rented logging warehouse. Once the re-logging was complete, the core was palletized, banded, wrapped, and transported back to the Project. All rejects, RC chips, and pulps were also removed from the storage units and transported to the Project. Since March 2012, sampled materials have been handled and stored on site. Rejects and pulps are periodically returned to the Project from assay labs.

Currently, all archived sampled material is stored at the Project in a fenced area at the Rapid Infiltration Basin (RIB) yard.

10.5. Logging Drilled Core Observations

Drill sample logging codes at the Project have evolved over time with an increased understanding of the geology. Interpretive codes were updated, most recently in early 2014, to more accurately describe the lithology, veins, and particularly the alteration typical of an epithermal system. The new codes were adapted from similar observations at the Company’s Midas Mine and exemplify direct observations of the Project’s geology. The new codes allow for Company uniformity at similar deposits.

10.5.1. Current Logging Protocol

Beginning June 2013, Klondex geologists began a quick log assessment prior to the detailed logging in order to quickly identify important contacts and to verify intersections or expected horizons in the core. The advantage of this additional step is an updated geologic model as soon as the core is available for preliminary review as opposed to waiting until all the logged data is collected. The quick update to the geologic model allows for modifying the drill plan in order to better intersect mineralization and to refine the mine plan.


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Detailed log data is entered into an Excel spreadsheet using standardized interpretive codes to record data such as lithology, alteration, and structure. The interpretive codes were updated in 2012. Data collected prior to the update were manually converted to match the current codes. Records of the conversion were kept.

Core is logged in the Project’s logging facility (Figure 10-2). Core is categorized as Produ ction or Explor ation .

  Production core only receives gold-silver assay analysis; and
  48-element ICP analysis is performed on each Exploration core sample.

10.5.2. Historic Logging Protocol

Klondex’s historical lithology database, acquired from MinQuest in 2012, contained simplified data hand-entered into RockWare LogPlot software from detailed paper drill hole data logs. The digital version of the logs lumped the tuffs and basalts into two generalized unit codes, which comprised the lithology portion of the database. The RC pre-collar and core-tail portions of the holes had separate logs.


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Klondex’s logging format was revised in 2012 with a new code system. The new codes allowed tuff and basalt lithologies to be separated into specific units to allow more detailed modeling. The 2013 re-logging program mentioned in Section 10.4 captured the new codes for historically drilled holes. Klondex re-logged approximately 240,000 feet of core to document the details of tuff and basalt units according to the new coding system and to obtain better assay resolution on mineralized intervals. Previous sampling was based strictly on five-foot sample intervals regardless of geology. This was an issue at the Project because mineralized veins typically occur within a restricted portion of a five-foot interval, and samples did not accurately reflect either the size of the vein or the distribution of gold. On occasion, veins were also misrepresented during core splitting, and the result was loss of assay opportunity. In 2013, re-logging included re-sampling of several mineralized intervals that were diluted by either being divided across intervals or represented a fraction of a five-foot interval. New sample interval footages were selected to blend into the previous sample numbering sequence without gaps or overlaps. The new sampling intervals were determined using geological observations. Better density information, multi-element analytical data and core photos were also collected.

The lithological units at the Project which contain the mineralized veins include interbedded basalt and tuff units and dikes. Klondex’s lithology database used for the resource model utilizes the new, more detailed 2014 interpretive lithological codes for these units. The unit codes used in the model were derived from current logging procedures, data converted from 2013 codes, and interpretation of the older RC Log Plot descriptive data for holes which could not be re-logged in 2013.

A direct correlation between the original logs and the current Klondex geology database is complex since the data evolves over time. The current database was converted from the 2013 codes to the 2014 codes. The 2013 codes were either logged directly as part of the re-logging program, converted from historic logging codes or derived from reading the geologists’ detailed descriptions in the comments field rather than from the lithological code.

Each of these geological logging systems was reviewed by the authors, and the results validate the geology in the Klondex database. Lithological source data for a subset of channel samples were also reviewed by the authors and found to correlate well with the database.

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10.5.3. Re-logging Protocol for 2012-2013

In January 2012, inadequacies in historic logging procedures became apparent. Specifically, sampling intervals were strictly five-foot regardless of interval of mineralization, observations of lithology and alteration were broadly generalized, and no core had been photographed.

Until April 2012, core was logged at the Project and then shipped to Sparks, Nevada for processing. Split core was shelved in 23 storage units at Secure Storage in Sparks, Nevada.

In October 2012, Klondex began to re-log the core stored in Sparks before relocating it to the Project, the objectives being to:

 

Improve grade definition on veins that were diluted within a five-foot interval or divided by overlapping intervals; and

 

Improve detailed observations of alteration, lithology, and the stratigraphic sequence at Fire Creek.

Two new 4,500 square foot warehouse units were rented within two miles of Secure Storage. One unit was equipped with eight roller-conveyor tables 70-foot long and two camera stands. Suspended fluorescent lighting was added to provide better lighting to compensate for ceilings 20-foot in height. The other unit was used to store the core in progress.

Twelve contract geologists and eight geotechnicians worked the re-logging program to complete the following tasks:

  Moving core;
  Washing core;
  Photographing core;
  Logging core;
  Sampling core;
  Measuring density and magnetic susceptibility of the core; and
  Palletizing core for long-term storage.

Logging core included collection of geotechnical data, such as strength, approximate Rock Quality Data (RQD) from split core, lithology, alteration, structure, mineralization, and vein density. Density measurements were taken using a water-immersion densi-meter after sealing samples in wax.

Core selection for re-sampling focused on localized alteration and vein material which were originally poorly represented by the five-foot sampling, as discussed previously. Intervals selected for re-assay were sampled by removing the remainder of the historically split core sample from the core box to be submitted for assay. Lathes marked with the interval information were left in the core box.


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Additionally, composite chip samples were collected for 48-element Inductively Coupled Plasma (ICP) analysis throughout the core on 20-foot intervals. Samples were sent to ALS in Reno and Inspectorate in Sparks for analysis.

In total, 228,814 feet of core was re-logged out of an estimated 240,000 feet. The estimated footage was based on the footage totals in the Klondex database. The difference in footages is a result of discarding core from the upper portions of the holes drilled in unaltered basalt. A Micon International Limited inventory list indicates 14,400 feet of core from 29 holes was discarded. Some of this discarded material was used for blank reference material. There are no surviving records citing how much core was used for this purpose.

10.6. Core Sampling Methodology

Once geotechnical and geological data has been logged, sample intervals are determined based on geology. Minimum sample interval is approximately one foot, dependent on core diameter and whether the core is split or whole core samples. Maximum sample interval is five feet. Alteration and lithologic boundaries are not crossed. Sample breaks are marked on the core, tagged on the core boxes and entered into the logging spreadsheet.

  1)

Core is quick-logged in the yard to identify expected intercepts and to update the working model for ore control geologists;

  2)

Geologists or geotechnicians set the core boxes on rolling racks in an illuminated, heated, covered plasticized canvas logging facility;

  3)

Core is washed and verified for completeness and correct labeling of boxes and core blocks. If errors are found, they are addressed to the drilling company foreman and corrected before proceeding;

  4)

Geotechnical data including Recovery (all holes) and RQD (even-numbered Production holes and all Exploration holes) is logged;

  5)

Geological data is logged;

  6)

Sample breaks are marked on the core, tagged on the core boxes and entered into the logging spreadsheet;

  7)

The core is photographed. Core is positioned so that sample break markings, geologic features and vein/structure orientations are optimally captured in the photograph;

  8)

After completion of all logging activities, the core is sampled as follows:

  a.

‘Termite’ holes (AQ or BQ diameter) are whole- core sampled due to limited material with small diameter core;

  b.

HQ-diameter core is palletized and queued to be split and sampled in the splitting facility adjacent to the core shed;


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  c.

The geotech moves the core box into the splitting facility and splits the core in half. One half is returned to the core box, and the other half is placed in a sample bag according to the sample interval specified by the geologist;

  d.

The core boxes are palletized, shrink-wrapped and transported to the core storage area;

  e.

The sampled core is prepared for shipment to the assay lab. QAQC inserts are selected by the geologist. The geologist then selects the appropriate number of sample IDs from a list. Core samples are assigned sample ID of type FCD123456. The sample bags and QAQC inserts are labeled with the sample IDs and stored until they can be transferred to the assay lab; and

  9)

A lab submittal form is filled out by the geologist. When enough samples have accumulated for a shipment, the assay lab driver is summoned to site. Samples are loaded on the lab truck, and the submittal and QAQC samples are handed to the driver.

10.7. RC Sampling Methodology

RC samples are taken on five-foot intervals using a rotating wet splitter. Water-flow and sample size are controlled by adding or removing splitter slot covers. The number of covers is tracked for each sample.

  1.

Sample bags are placed in a five-gallon bucket under the wet splitter;

  2.

Sample buckets are placed inside a 20-inch diameter by six-inch deep rubber pan;

  3.

If the sample bag in the bucket overflows into the pan before completion of a five-foot sample run, then the run-off is re-poured into the sample bucket to recover any fine material;

  4.

A population of reference chips are collected in a sieve from each sample run and placed in 20-compartment sample trays;

  5.

Buckets and pans are washed after each run, and the wet splitter is washed after each rod change; and

  6.

A sample cut-sheet is populated with sample ID numbers and intervals, including sample IDs for QAQC samples as well. The cut-sheet tracks sample numbers on bags and intervals in the rock chip trays;

Note: Standards, blanks, and duplicates are inserted every 20 samples. The optimum sample size collected is approximately one quarter to one half of a 17-inch by 22-inch sample bag (about 20 to 30 pounds.)

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10.8. Channel Sampling Methodology

Channel sampling began in 2013 as underground development progressed. The dataset used for the current mineral resource estimate contains 10,407 samples collected in 2,322 channels. Channel sampling procedures are summarized below.

10.8.1. Channel Sampling

An ore control geologist checks the face at each round of advancement. The geologist measures the distance to the face along the left rib from a known reference point. This distance is recorded on a daily face sheet along with the geologist’s name, date and time, location, and heading dimensions. The geologist then sketches the face and records sample ID numbers in a column on the face sheet. Each sample ID has a row where sample length, rock type, unit, alteration and vein characteristics can be recorded. The geologist puts a sample bag labeled with the first sample ID in a bucket. Material is chipped from the face into the bucket, working at chest height. The channel is collected across the face from left to right. Material is collected with the goal of realistically representing mineralogy, alteration, and width of the vein. Typically, the first sample starts in waste at the intersection of the left rib and the face, then progresses from left to right towards the vein. The first sample ends near the vein margin, the sample bag is tied and set aside, and the second sample bag is placed in the bucket. The second sample is taken from the vein material. The third sample is collected from beyond the right margin of the vein to the right rib. In the case of multiple veins or otherwise complex geology, the geologist collects as many samples as necessary to characterize the face.

The channel sampling procedure has evolved over time, but the large majority of samples were collected using the current protocol. Ribs and backs may be channel sampled at the geologist’s discretion, but these samples are not included in the data set used for resource estimation.

All samples have a three letter prefix followed by a six digit number: FCF000000 = face or rib samples; FCM000000 = muck samples; FCG000000 = miscellaneous underground grab samples; muck and grab samples are not used in the resource estimation.

Once the channel samples have been collected, the geologist completes the following tasks:

  1.

The geologist marks the vein margins, structures, face heading, and distance with spray paint on the rock;

  2.

The geologist photographs the face;

  3.

The geologist takes the bagged samples to the staging area outside the geology office and hand enters data into a central Excel spreadsheet;


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NOTE: The locations of the channels are measured from drift entrance points and recorded on face sheets and plan maps. Face sheets are scanned and filed. Channel locations are digitized with Vulcan Software. Channel collar eastings, northings, and elevations are then exported from Vulcan into CSV (comma-separated values) formatted collar files. Individual sample widths are recorded at the time of sampling. Sample width values are hand entered into CSV formatted sample files with assay results posted from laboratory reports. The channel sample files are then imported into Vulcan Software and modeled as synthetic drill holes using the eastings, northings, elevation, width, and assay values.

  1.

QAQC materials are inserted into the sample batch;

     
  2.

NOTE: QAQC samples were not utilized in the channel sample stream until June of 2013, after which blanks and standard reference material were added to each sample batch. As of January 1, 2014, standard material was no longer inserted into the sample stream, but several blank material samples are submitted per sample batch submitted. The samples are sent to the assay lab after every 12-hour shift.

     
  3.

All samples collected within a 12-hour shift are entered into a sample submittal form, which is saved on the company server and transported to the lab; and

     
  4.

The Klondex lab provides a three- to four-day turn-around time between receipt of sample and assay results. If there is a delay, Klondex holds advancing the heading pending the assay results. In this event, Klondex will identify the missing sample by using an Excel sample tracker spreadsheet maintained by production geologists.

     
  5.

Data is provided to Mr. Jesse Gauthier, Klondex Database Administrator. Mr. Gauthier maintains the data using AcQuire software. Data generated prior to 2015 is maintained in a Microsoft Access database.

Project staff demonstrate adequate knowledge of sampling procedures and the corresponding handling of digital data. Data handling methods implemented at the Project to manage sample data are adequate; the authors have reviewed the data and find that it is sufficiently accurate to be used in the mineral resource estimate.

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11.     Sample Preparation, Analysis, and Security

11.1. Historic Sample Preparation

Historical sampling methodology was previously documented (Raven et al., 2011), and is summarized below.

“Rotary cuttings are analyzed in 10-foot (3.05 meters) increments over the entire drilled interval including unmineralized rock above the vein zones. Samples in the rotary holes are collected at 5-foot (1.52 meters) intervals but assayed as 10-foot (3.05 meters) composites. The hole was blown clean between the sample intervals to avoid sample contamination. During the 2004 drilling period, cuttings were collected via a cyclone that dumped into a rotating splitter mounted on the drill. The baffles were adjusted to recover a one-quarter split of the total recovered sample. More recently, the 10-foot (3.05 meters) runs of cuttings have been caught in a large bucket and thoroughly mixed by hand before collecting a sample. The approximately 20-pound (9.1 kilograms) samples are placed in canvas bags and labeled with the hole number and footage. A backup sample remains at the Project until assaying is complete and is then discarded. The samples are picked up by ALS/Chemex for preparation at their Elko facility.”

“Below the RC precollar boring, HQ size core is drilled and collected in 10-foot (3.05 meters) paper core boxes. Intervals are marked with wooden blocks every two to three feet (0.6 to 0.9 meters). The core is logged on site by a MinQuest geologist who marks sample intervals not to exceed five feet (1.52 meters). In some vein areas, where possible visible gold is observed, the sample interval is reduced to two feet (0.6 meter). The logged and marked core is transported from the Project by the geologist, to secure storage in Battle Mountain. Under the supervision of a Project geologist, the core is transported to Elko and split in half using a core saw by Klondex employees. One-half of the core is sampled on the intervals marked by the geologist, placed in canvas bags, labeled with the hole number and footage and sent to the lab for preparation and analysis as described below. The remaining one-half core is transported to Klondex’s secure storage in Reno. The sample intervals are listed on the drill logs and assay sheets. Author Raven observed numerous intervals of split core, all of which were cleanly sawn in half and appear to evenly represent the vein systems and the sample intervals are clearly marked within the core boxes. The sample quality is of industry standard, and the methods should not introduce any bias into the results. The sampling intervals are determined mainly by the presence/absence of quartz-calcite-pyrite veins or vein stockworks. The barren, upper portions of many holes are not sampled. When veining is encountered a broad interval above and below the veins is sampled and the vein zone itself is sampled at intervals of two to five feet (0.6 -1.52 meters); discrete veins of reasonable size are sampled over the length of the vein while stockwork zones are generally sampled at five-foot (1.52 meters) core lengths.” (Page 23)

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11.2. Current Sample Preparation

11.2.1. Core Sample Preparation

The core sampling facility is set up in a shipping container adjacent to the core logging facility. It is furnished with industry typical sampling apparatus including roller tables and a hydraulic splitter. The following outlines core sample preparation:

1)

A geotechnician positions the pallet containing the core to be sampled near the shipping container and obtains a copy of the sample intervals from the geologist. The geotechnician labels cloth sample bags according to the sample interval sheet;

2)

The core boxes are lifted onto a rolling counter to the left of the splitter. A sample bag is placed on the floor at the feet of the geotechnician to hold the sample material;

NOTE: It is possible for empty pre-labeled sample bags to be out of order prior to being filled or a numeric value to be omitted during hand-writing.

3)

The geotechnician splits core to approximate 50% of the sample bisecting veins equally. Geologists supervise the splitting of samples that contain visible gold (VG);

4)

The left half of the split is returned to the core box, the right is placed into the sample bag;

5)

When the sample interval has been bagged, the sample bag is stacked in numeric order on the floor by the door;

6)

QAQC samples are bagged and labeled by geologists from standards kept in a locked cabinet in the Geology office. The geologists assemble the standards and blanks into corresponding sample bags which are hand-labeled according to the cut sheet;

7)

When an entire drill hole has been completely split, the bags of sample are stacked inside a large, open, plastic bin outside the core facility;

8)

The geotechnician notifies the geologist when a hole is ready to be sent to AAL (as defined below). An electronic sample submittal sheet is entered into the computer. Two copies are made, one is the original hand-entered submittal, and the other is a scan of the completed submittal. One copy is filed in a core library, and the other is given to the truck driver for AAL;

9)

The entire bin of samples is picked up and delivered to AAL by the AAL driver; When the driver from AAL arrives at the core logging facility, he is given the QAQC samples to accompany the samples from the corresponding drill hole; and

10)

The reserved halves of core are returned to their core boxes and are stored outside on shrink wrapped pallets in a fenced lay down area referred to as the ‘RIB Yard’.


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11.2.2. Channel Sample Preparation

The following outlines the channel and sample preparation methodology.

  1)

Channel samples are bagged on site at the face as described in Section 10.8;

  2)

Bags are brought to the Geology office;

  3)

QAQC materials are inserted into the channel sample stream; and

  4)

Channel samples are delivered to the Klondex assay lab every 12-hour shift.

11.3. Sample Analysis Protocol

11.3.1. Historic Drill Sample Analysis

The sample analysis methods used from 2004 through 2011, as previously described in Raven et al., 2011:

“ALS/Chemex does all sample preparation, including crushing, grinding and preparation of the assay pulps, at the Elko facility. The pulp samples are then shipped to the ALS/Chemex facility in Reno for analysis. The samples are never left unattended or insecure by geologic, drilling, or laboratory staff nor are they handled by officers, directors or associates of Klondex. For the RC pre-collar holes ALS/Chemex picks up the samples at the Project and delivers them to Elko for sample prep and to Reno for analysis. After the core samples are cut and labeled for analysis they are delivered to the lab by Klondex employees”. (Page 25)

“Sample preparation involves crushing the entire sample to minus 10 mesh, splitting, then pulverizing 1,000 grams to 80% passing minus 200 mesh (75 microns). These pulps are shipped to the Reno facility of ALS/Chemex for analysis. Analyses for gold were done using a 50-gram charge through to the end of 2009. In 2010 Klondex changed to a 30-gram charge for gold analysis after reviewing the data. Both gold and silver analyses are determined by fire assay with an AA finish. The ALS/Chemex analyses codes are AA23 for gold values under 10 grams per ton (g/t) and GRA (gravimetric) for gold assays over 10 g/t; silver codes are AA61 with over limits run using AA62”. (Page 25)

“The assay laboratory automatically repeated all gold assays that by fire assay with AA finishing reported under one g/t, using 50 grams prior to late 2010, then 30 grams fire assaying subsequently. Any samples reporting under 10 g/t gold by fire assay with AA finish are automatically subjected to gravimetric analysis.” (Page 25)

“When the lab work is complete, the pulps are stored briefly at the lab then transferred to Klondex’s secure storage facility, the same facility that houses the drill core. Coarse rejects that reported significant gold are stored with the pulps, those reporting minimal gold are stored until check assays can be completed and are then discarded and those reporting insignificant gold are discarded.”


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“Until late 2010, Klondex did not employ a QA/QC program. Prior to that time, the only QA reporting was derived from the commercial laboratory’s internal QA programs that included internal blanks and standards, and automatic re-assays of pulps in which the gold grades exceeded one g/t. In addition a significant number of samples were sent to a different laboratory for check analysis. Subsequently Klondex has initiated its own internal quality control procedures. Presently Klondex has prepared blank samples using post-mineral basalt core from well above the mineralized zones. In addition two standards were prepared (low and medium grade) by ALS from assay rejects and there have now been enough analyses of the standards to determine their average grade and standard deviation. Since these “standards” were not subjected to multiple assaying by ALS to report the laboratory’s mean and standard deviations, the determination of the statistical quality of these standards has derived solely from a modest population of standards that have been submitted by Klondex in the ongoing drilling program.” (Page 25)

11.3.2. Drill Sample Analysis from 2012 through April 30, 2014

From 2012 until April 30, 2014, Klondex specified that ALS follow sets of assay procedures based on ranges of assay values. For samples with visible gold, Klondex submitted samples to ALS for a metallic screen fire assay. All other samples were initially run with Atomic Absorption fire assay fusion analytical method (AA23). Samples with AA23 results between one ppm Au and 10 ppm Au were re-run as an AA23 duplicate. Samples with an initial result greater than 10 ppm Au up to 20 ppm Au were re-assayed with gravimetric finish. If the assay results were very high grade (greater than 20 ppm Au), then ALS would re-assay the coarse rejects of the high grade sample and the two samples on either side by metallic screen fire assay.

11.3.3. Current Drill Sample Analysis

The drill sample analysis protocol was amended as of May 1, 2014. Drill samples are currently submitted to American Assay Laboratories Inc. (AAL) of Sparks, Nevada. AAL is an ISO/IEC 17025:2005 accredited laboratory which is independent of Klondex. Assay procedures have been established based on sample type (core or RC). Assay procedures for core samples are further determined according to the designated purpose of the drill hole (exploration or production) and grade of the sample. The drill sample analysis protocols are as follows:

RC samp le analysis pr ocedure:

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Samples are received and dried in-bag at 85° C. The dry sample is crushed to 70% passing minus 10 mesh. The crusher is cleaned with compressed air between each sample. A 1,000 gram pulp is collected from the crushed sample using a rotary splitter. The remainder of the sample is stored and returned to Klondex. The pulp is then pulverized to 85% passing minus 200 mesh. The pulverizer is cleaned with compressed air between each sample. Thirty grams (g) of pulverized sample is used to perform fire assay with ICP finish for gold, and 0.5 g of sample is used to perform analysis for silver with ICP finish. If the result is greater than 10 ppm Au or greater than 100 ppm Ag, then 50 grams of the pulverized pulp is used to run a fire assay for Au and Ag with gravimetric finish. If the gravimetric result is greater than 10 opt Au, then the remaining pulp is screened at 150 mesh for a metallic screen fire assay for Ag and Au with a gravimetric finish. Pulps are stored and returned to Klondex.

Core sample analysis procedure:

All core samples are received and dried in-bag at 85° C. Samples are crushed to 80% passing minus 10 mesh with a crusher clean-out between each sample. A 1,000 g pulp is taken from the crushed sample using a rotary splitter. The pulp is pulverized to 85% passing minus 200 mesh with a pulverizer clean-out between each sample. The pulps are then assayed according to the designated purpose of the drill hole (exploration or production) and whether a high grade result (Au greater than 10 opt) is anticipated. All pulps and rejects are returned to Klondex.

Production core samples:

For production hole samples which are not anticipated to be high grade, 50 g of the pulp is used for a fire assay for silver and gold with a gravimetric finish. For any sample with a result less than 10 opt Au or Ag, the remaining pulp is re-run as metallic screen fire assay for silver and gold with a gravimetric finish.

Production core samples, high grade:

For production hole samples with visible gold or other high grade characteristics, the entire pulp is screened at 150 mesh and analyzed with metallic screen fire assay for silver and gold with gravimetric finish.

Exploration core samples:

For exploration hole samples which are not anticipated to be high grade, 50 g of the pulp is used for a fire assay for gold with ICP finish, and 0.5 g of sample is used to perform analysis for silver with ICP finish. Any sample with a result of less than 10 ppm Au or less than 100 ppm Ag is rerun using 50 g of pulp with fire assay for silver and gold with a gravimetric finish. For a gravimetric result of less than 10 opt Au, the remaining pulp is used for a metallic screen fire assay for silver and gold with gravimetric finish.


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For any sample with a result less than 10 opt Au, the remaining pulp is re-run as metallic screen fire assay for silver and gold with a gravimetric finish.

Exploration core sam ples, high g rade :

The procedure for high grade exploration samples is similar to the procedure for other exploration samples, except when more than trace amounts of gold and silver are expected, the fire assay with ICP finish is skipped and the process starts with a 50 g fire assay for gold and silver.

11.3.4. Channel Sample Analysis

Channel samples were sent to SGS North America, Inc. in Elko, Nevada from June 16, 2013 to April 30, 2014. Analysis followed the following protocol:

 

Sample material is dried. Samples weighing more than three kilograms (kg) are split down to three kg then crushed to 75% passing through a two mm screen. Material is split down to 250 g, pulverized to 85% passing through a 75 micron screen;

 

QC is performed at the crush and pulverization stages;

 

Silver is analyzed by AA methods after a multi-acid digest at a weight of two grams;

 

Gold is analyzed by FA with gravimetric finish at a weight of 30 g (the reported code is F 152); and

 

Gold is analyzed by FA and gravimetric finish at a weight of 50 g (the reported code is F 133).

In June 2013, the split was increased to 1,000 g, and the initial fire assay aliquot was increased to 500 g. Rejects for April through June 2013 were sent to SGS’s Vancouver office for metallic screen assays. Results for these assays were incomplete and are not used in the mineral resource model.

Between May 1, 2014 and July 16, 2014, samples were sent to Dave Francisco lab in Fallon, Nevada. Between July 17, 2014, and February 1, 2015, samples were sent to the Klondex lab at Pinson. Dave Francisco lab and Klondex lab followed the same procedures. Both labs followed the 17025 Standard, but neither had official lab certifications. QAQC samples support the results from both labs. Analysis followed the following protocol:

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Samples were dried in pans at 250° F. The dried samples were crushed to 80% passing 10 mesh, with a crusher clean-out between each sample. The crusher was cleaned twice following high grade samples. The crushed sample was homogenized. 500 g was collected with a riffle splitter then pulverized to 85% passing 200 mesh. The pulverizer was cleaned after every sample, twice after high-grade samples. For 10% of samples, a second pulp was prepared as a preparation duplicate. Remaining coarse rejects were retained and stored by Klondex.

Fifty grams of the pulverized pulp was used to run a fire assay for gold and silver with gravimetric finish. In each batch of assays, the lab inserted a standard and blank. The lab also ran five percent of samples as analytical duplicates. Samples with result more than 2.92 opt Au were run with metallic screen fire assay with gravimetric finish.

Currently, the Project sends channel samples to ALS in Elko, NV, an ISO 17025:2005 accredited independent lab. Samples are dried, crushed to >80% passing 10 mesh, split to 1,000 g using a rotary splitter, and pulverized to >85% passing 200 mesh. The crusher and splitter are cleaned with barren material between each sample. 30 g of the pulp is used for fire assay with gravimetric finish (ALS code ME-GRA21) for Au and Ag. If the Au assay result is >10 opt, 30 g of the pulp is screened to 100 microns and fire assay is performed separately on the undersize and oversize fractions (ALS code Me-SCR21). High grade samples are flagged by geologists and receive extra cleaning in the prep circuit. Rejects and pulps are returned to Klondex.

11.3.5. Handling Analyses Results

  1)

AAL sends the assay results and certificates by email to three people: Chief Geologist, Senior Geologist, and Geology Database Administrator. For channel samples, ALS emails results to these people as well as the ore control geologists;

  2)

Assay results are stored as portable document formats (PDF) and MS Excel files on the

 

Klondex server in a hierarchy of folders with a naming convention based on designation of sampled material. Folders include channel samples, UG core, surface core, surface RC, screen filter sampling, truck load samples, rib sampling, muck piles, waste piles, and resamples of these same sources. This folder system is rudimentary and not user- protected;

  3)

The PDF and Excel files from AAL are renamed to add the BHID for identification and for ease in referencing: and

  4)

The Database Administrator imports the data into AcQuire. For use in the Project modeling software, the Database Administrator occasionally exports the AcQuire data as CSV files and provides them to the Resource Geologist.


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11.4. Sample Security Measures

Drilled materials are stored under a moderate level of security during the multiple stages of sample handling. Core is handled and stored at the Project, which is staffed by security personnel. Core boxes are stored in the vicinity of the logging facility during the logging and sampling process. The logging facility is not fenced, but geology staff is present on-site during most shifts and are frequently within view of the core facility. Sampling of core with visible gold is supervised by geologists. When sampling is complete, retained core samples are returned to boxes, stacked on pallets and shrink wrapped. The wrapped pallets are moved to a fenced facility at the “RIB yard”. Coarse rejects and pulps returned by the laboratories are also shrink wrapped on pallets and stored at the RIB yard. The authors conclude that sample security measures at the Project are adequate.


11.5. Quality Control Measures

Historically, QAQC measures used to check the consistency in assay reporting were either lacking or not included in any surviving reports. Beginning in March 2004 through the second quarter of 2012, Klondex samples were submitted to ALS and were reliant solely on the laboratory’s in-house QAQC to monitor the sampling results. The current practice of inserting blanks and standards and specifying prep duplicates began in the second quarter of 2013 when Klondex began processing core on site. Prior to this time, core was transported to Reno for cutting and sampling, and any QAQC measures were directed by MinQuest in Reno.

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From March 2004 through February 2012, ALS’s QAQC checks on the Project samples included 12,465 in-house standard samples inserted into the Klondex sample runs and 11,201 re-assays of the immediately previous sample as part of their protocols. Also, beginning in August 2010 through February 2013, ALS completed 1,264 in-house check duplicates derived from pulp of the sample prepared for Project sample runs. Recently, ALS sent a summary of their in-house QAQC sample results to Klondex as part of recording QAQC documentation. Their report combines sample results from both surface and underground drilling.

The populations of datasets for ALS in-house QAQC sampling are itemized in Table 11-1 below.

Table 11-1 ALS In-house QAQC Datasets Reviewed

Datasets: ALS internal
QC
standards
(March 2004
- Feb. 2013)
ALS
internal QC
dups (March
2004 - Feb.
2013)
ALS internal
QC prep-
dups (Aug.
2010 - Feb.
2013)
SRM Au
and Ag
standards
(Nov.
2010)
Klondex
standards*1
Klondex
duplicates*2
UG Core mixed surf+ug mixed surf+ug mixed surf+ug 0 193 77
Surface RC/core mixed surf+ug mixed surf+ug mixed surf+ug 94 152 39
Totals 12465 11201 1264 94 345 116
*Surface standards and dups dates: June 2012 - Jan. 2013
*UG standards and dups dates: August 2012 - May 2013

11.5.1. QAQC Prior to 2012

Historic data validation has previously been addressed (Raven et al., 2011). A summary of their work includes:

“…Until late 2010 Klondex did not employ any submitted sample based QAQC program. Prior to that time, the only QA reporting was derived from the commercial laboratory’s internal QA programs that included internal blanks and standards, and automatic re-assays of pulps in which the gold grades exceeded one g/t. In addition a significant number of samples were sent to a different laboratory for check analysis. Subsequently Klondex has initiated its own internal quality control procedures. Presently (2011) Klondex has prepared blank samples using post-mineral basalt core from well above the mineralized zones. In addition two standards were prepared (low and medium grade) by ALS from Fire Creek assay rejects and there have now been enough analyses of the standards to determine their average grade and standard deviation.” (Page 25)


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“…A blank and two standards are now included in each drill hole as standard practice.” (Page 25)

“… A review of the data from the 2010 drilling campaign that made use of the new QAQC procedures did not outline any difficulties with the new standards and blanks that would indicate an error at the lab. The check assays performed on drill core samples that assayed under one g/t gold show good agreement between the original assay and the check assay.” (Page 27)

“…The ALS/Chemex facility at Elko is certified to ISO 9001:2008 standards and only handles sample receiving and preparation. The ALS/Chemex facility in Reno provides a broader range of analytical services and is also certified to ISO 9001:2008 Standards; in addition it has received accreditation to ISO/IEC 17025:2005 from the Standards Council of Canada (SSC) for Fire Assay gold by Atomic Absorption, which is the analytical method Klondex utilizes for its gold analyses.” (Page 27)

“…All gold assays in excess of one g/t are rerun at least once. A large number of gold reruns are also carried out where values are less than one g/t. These were either on samples adjacent to intervals with elevated gold assays, on samples with elevated silver values and low gold, or at the discretion of the geologist when lithologic characteristics were suspect.” (Page 29)

“…samples with greater than 10 g/t gold were rerun using a 50 g fire assay with gravimetric finish (ALS-Chemex Au-GRA22 procedure) to late 2010 then a 30 g charge subsequently.” (Page 29)

“…The checked assays are usually in good agreement with the original assay indicating no significant nugget effect.” (Page 29)

“…Additional check assays have been received from the 2009 and 2010 drilling campaigns and they show a similarly good correlation between the original assay and the duplicate, or check assays.” (Page 29)

“…There have been approximately 4,000 duplicate samples submitted for check analyses as part of the QAQC program.” (Page 31)

“…Klondex undertook some umpire assays at different laboratories to verify a portion of the higher grade results and compared analytical methods for gold by fire assay with an AA finish vs. a gravimetric finish. Silver was also included in the analysis between the two labs.” (Page 32)

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“…The authors (Raven et al., 2011) verified a portion of the drill core data by re-assaying sample pulps sent to SGS Mineral Services in Vancouver, British Columbia. The SGS laboratory is an ISO 9001:2008 accredited facility. Coarse reject material for all the samples selected was not available so sample pulps were chosen over splitting the remaining core. The samples selected for verification were from a broad range of drill holes and designed to test various grades of mineralization from low- to high-grade.” (Page 34)

“…There is a good agreement between the original values vs. the check assays as noted in the charts above for nearly 4,000 check samples and it is felt that this correlation is sufficient and demonstrates that while there are spurious values indicating some nugget effect, in most cases the nugget effect is minimal.” (Page 36)

“…Author Raven did note in the drill core and corresponding assay results for those intervals that the better gold grades are confined to intervals containing quartz +/- carbonate veining, either larger (less than 1.5 feet) discrete veins or stockwork systems of veining. Klondex has assayed numerous intervals of visually barren mafic volcanics (no veining, fracturing or faulting) and those intervals do not return anomalous gold assay.” (Page 36)

11.5.2. Current QAQC Procedures

From 2012 through March 2014, Klondex’s QAQC protocol at the Project was to submit a blank as the first sample of each drill hole, followed by one of three types of QAQC standards every 20 th sample in the sample stream. Beginning April 2014, geologists insert QAQC standards as five percent of the sample stream. The type and location of each standard is at the geologist’s discretion. At least one QAQC sample is inserted per hole. The three standard types are 1) blank, 2) standard, or 3) duplicate;

  1)

Blanks are crushed, homogenous barren material. Their IDs and values are as follows:

FCRDBLNK01= <0.005 ppm Au (reduced);
FCOXBLNK01= <0.005 ppm Au (oxidized) and;
AUBLANK54 = <0.002 ppm Au;
FCBLANK02 through FCBLANK06 = <0.005 ppm Au

  2)

Klondex uses several QAQC standards. Some were produced in-house from locally derived low-grade basalt. Others were purchased from ROCKLABS, a reputable supplier of reference material. Standard IDs and values are as follows:

FCRDLOW01 1.246 ppm Au

OXQ90 24.88 ppm Au

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OXP91 14.82 ppm Au

OXN92 7.643 ppm Au

SG56 1.027 ppm Au

SN60 8.596 ppm Au

SP59 18.12 ppm Au

SQ48 30.25 ppm Au

SQ83 30.64 ppm Au

SQ70 39.62 ppm Au, 159.5 ppm Ag

SP72 18.16 ppm Au, 83 ppm Ag

  3)

For duplicate sampling, Klondex submits an empty bag labeled with the required sample ID in sequence. The lab takes a split from the pulp of the previous sample to run as a duplicate.

11.6. QAQC Analysis

11.6.1. Duplicates Performance

Three sets of duplicate assays are available for review. The first set is Au assays from ALS and is shown in Figure 11-2. These values agree quite well with the 95% confidence intervals bracketing the ideal one to one trend line.

The second and third set of duplicate assays are gold and silver values from AAL. The gold assays exhibit a slightly low bias with the upper 95% CI plotting below the ideal trend (Figure 11-2. The silver assays show a larger high bias with the lower 95% confidence limit plotting above the ideal trend line (Figure 11-3). The single outlier Ag value was excluded from the statistical analysis of the data set.

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11.6.2. Blank Assay Performance

Table 11-2 shows the results from both ALS and AAL of blank assays from July 2012 to June 2015. These results are displayed graphically in Figure 11-5 through Figure 11-22. Most of the values reported are at one half the detection limit for the method used, and sample contamination or assay errors at either lab occur infrequently.

Table 11-2 Blank Assay Set Performance

Designation Count Mean Std. dev.
ALS-AUBlank54 67 0.009 0.011
AAL-AUBlank54 28 0.052 0
ALS-FCBlank02 Au 10 0.038 0.029
AAL-FCBlank02 Au 144 0.022 0.061
ALS-FCBlank02 Ag 10 1.185 1.137
AAL-FCBlank02 Ag 144 3.344 0.525
AAL FCBlank03 Au 117 0.034 0.025
AAL FCBlank03 Ag 116 2.403 1.537
AAL FCBlank04 Au 109 0.018 0.012
AAL FCBlank04 Ag 109 2.514 1.533
AAL FCBlank05 Au 23 0.015 0.010


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Designation Count Mean Std. dev.
AAL FCBlank05 Ag 23 1.692 1.700
AAL FCBlank06 Au 27 0.007 0.003
AAL FCBlank06 Ag 27 1.210 1.599
ALS FCRDBLNK01 Au 144 0.037 0.145
ALS FCRDBLNK01 Ag 140 0.296 0.287
ALS FCOXBLNK01 Au 55 0.007 0.01
ALS FCOXBLNK01 Ag 55 0.271 0.089

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11.6.3. Standards Performance

Table 11-3 shows the results of standard assay sets analyzed from July 2012 through June 2015. Results from AAL were slightly better than ALS with AAL test groups returning lower standard deviations. The results of standard assays are presented in Figure 11-23 through Figure 11-43. Failure of the t-test to accept the hypothesis does not always indicate the negative, but rather that the results are inconclusive one way or the other.

Table 11-3 Standard Assay Performance

Standard Standard
Value
Count Mean Std. dev. T-
statistic
T 0.95 Comment
ALS-FCRDLOW1 1.246 100 1.285 0.127 3.095 -1.984 Reject
AAL-FCRDLOW1 1.243 109 1.234 0.069 -1.742 -1.982 Accept
ALS-OXN92 7.643 28 7.517 0.215 -3.105 -2.052 Reject
AAL-OXN92 7.643 21 7.619 0.156 -0.709 -2.086 Accept
ALS-OXP91 14.82 18 14.622 0.332 -2.525 -2.110 Reject
AAL-OXP91   2          
ALS-OXQ90 24.88 16 24.825 0.326 -0.676 -2.131 Accept
AAL OXQ90 24.88 4 24.949 0.477 0.288 -3.182 Accept
ALS-SG56 1.027 41 1.018 0.032 -1.764 -2.021 Accept

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Standard Standard
Value
Count Mean Std. dev. T-
statistic
T 0.95 Comment
ALS-SN60 8.596 55 8.419 0.222 -5.900 -2.005 Reject
AAL-SN60 8.596 169 8.630 0.175 2.562 -1.974 Reject
ALS SP59 18.12 38 17.646 0.468 -6.238 -2.026 Reject
AAL-SP59 18.12 12 18.117 0.266 -0.042 -2.201 Accept
ALS-SQ48 30.25 16 29.963 0.401 -2.865 -2.131 Reject
ALS-SQ70 Au 39.62 9 41.378 6.693 0.788 -2.306 Accept (one outlier)
ALS-SQ70 Ag 159.5 10 160.2 4.59 0.482 -2.262 Accept
AAL-SQ70 Au 39.62 12 38.62 3.006 -1.150 -2.201 Accept
AAL-SQ70 Ag 159.5 11 157.21 3.741 -2.027 0 Reject (one outlier)
AAL-SP72 Au 18.16 10 18.10 0.196 -0.981 -2.262 Accept
AAL-SP72 Ag 83.01 10 81.34 1.262 -4.191 -2.262 Reject
AAL-SQ83 30.64 5 29.46 0.631 -4.117 -2.776 Reject
ALS-SQ83 30.64 15 29.947 0.426 -6.308 -2.145 Reject

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11.7. Opinion on the Adequacy of the Sampling Methodologies

Project staff have shown a solid understanding with regard to management of the sampled material and associated digital data. The methods of handling the drilled material, both physically and electronically, are acceptable for use in an analysis of the potential mineral resource.

11.7.1. Sampling Protocol Issues

Prior to 2015, electronic data was rudimentarily compiled in a series of Excel spreadsheets. This method of storing and editing data is susceptible to multiple errors throughout the data management process. Some minor errors were identified during the data verification process, such as occasional overlaps in the FROM-TO intervals. Errors that were identified were subsequently corrected manually in the spreadsheets. Beginning in 2015, AcQuire database software was implemented for data management. AcQuire is less susceptible to human error, contains robust data validation capabilities, and maintains the data in a more archival format. Klondex intends to import historic data into AcQuire. The Authors have verified both the AcQuire and historic data sets.

There are Systems Administrators currently planning and implementing an enterprise system solution for data management linking servers through VPN connection and implementing a user-protected access to folders.

As of the date of this Report, a direct assay certificate-to-database-values audit has upheld the integrity of the data for this Report.

11.7.2. Standards and Blanks Performance Issues

Duplicate assay checks performed by AAL showed no bias, while those of ALS had minor biasing. This may be the result of too few duplicate check assays available for review, and the database needs to be enlarged. Additionally, the samples chosen for duplicates are all below the cutoff grade for the deposit, and this program should be expanded to include higher grade samples as well. A third lab should be engaged to perform duplicate assays on samples originally assayed at one of the other labs as another means of quality assurance.

The blank data collected and used by Klondex does not present any underlying problems with sample handling, assay methods or laboratories. As a matter of routine, whenever a blank assay outside of acceptable limits is received, the entire assay set should be re-assayed, and the initial results replaced with the succeeding results.

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Review of assay standards sets shows AAL to have smaller deviations than ALS, however, the results do not show any problems with the underlying data.

The authors’ opinion is that Klondex’s current QAQC program, for sampling protocols, is managed in an acceptable manner. QAQC verification does not indicate any underlying deficiencies in the database.

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12.     Data Verification

The authors analyzed the sample data used in the mineral resource estimation to verify its suitability for use in this TR. The dataset includes records of drilled and channel-sampled material collected from 2004 through June 2015. Beginning in 2015, Klondex implemented its new AcQuire database. Data collected prior to 2015 is maintained in Microsoft Access. Mr. Jesse Gauthier, Klondex Database Administrator, merges the Access and AcQuire data into csv files for import into Maptek Vulcan ISIS databases by Mr. Anthony Bottrill, Klondex Senior Resource Geologist. Mr. Bottrill provided the authors with a copy of the ISIS databases for drill samples and channel samples. The authors chose a representative subset of at least five percent of the ISIS data, and requested the corresponding raw data source files from Klondex. The accuracy of the data was verified by comparing the values in the ISIS databases to the values in the original source files. The raw assay data contained in the source files has been determined adequate for use in the mineral resource estimation as discussed in Section 11.5.

Two ISIS databases were used to estimate the mineral resource: one database was compiled from drilled material and the other from channel-sampled material. The drilled material dataset contains data from surface holes drilled from March 2004 through June 2015 and from underground holes drilled from September 2011 through June 2015. The channel sample dataset contains data collected from April 2013 through June 2015.

12.1. Results of Drill Data Review

The four categories of data reviewed for the drill dataset are collar location surveys, down-hole surveys, assays and geology.

Collar location surveys reviewed: 76 surveys of underground hole collars and one surface collar survey were reviewed, representing about 9% of the holes in the dataset;

   

Downhole surveys reviewed: 50 downhole surveys of underground holes and 24 downhole surveys of surface holes were reviewed, representing about nine percent of the holes in the dataset;

   

Geology review: geology logs were checked for 88 underground holes and 212 surface holes, representing about 36% of the holes in the dataset; and

   

Assay review: original assay result certificates were reviewed for 117 underground holes and 149 surface holes, representing about 32% of the holes in the database.

Table 12-1, below, summarizes the numbers and percent of drill holes reviewed for this report:

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Table 12-1 Data Review Summary Drilled Material

Datasets for:


Total drill
holes

Holes:
Collar
Survey
reviewed
Holes:
Downhole
Survey
reviewed
Holes:
Geology
reviewed
Holes: Assay
certificates
reviewed
UG Core 523 76 50 88 117
Surface Core/RC 313 1 24 212 149
Totals 836 77 74 300 266
Percent of population reviewed:    9% 9% 36% 32%

12.1.1. Collar Location Checks

The authors compared 21 underground collar survey reports to collar easting, northing, elevation and TD values in the database and found 100% correlation for holes drilled since August 2012. Collar locations of underground holes drilled prior to August 2012 are considered reliable as discussed in Section 10.1.2.

The authors compared one surface collar survey report to the collar easting, northing, elevation, and TD values in the database and found 100% correlation for holes drilled since 2012. A majority of the surface holes were drilled prior to the 2013 surface collar re-survey; surface collar locations for holes drilled before 2012 are considered reliable as discussed in Section 10.1.1.

12.1.2. Downhole Survey Checks

The authors compared 50 downhole survey reports for underground holes with the depth, azimuth and dip values in the database. Some data mismatches exist between the raw azimuth data and the azimuth column of the database because the downhole survey apparatus used prior to 2014 did not automatically adjust for local declination. Geologists adjusted the declination before entering the data in the master spreadsheet. Declination was adjusted correctly for all reviewed holes, yielding a 100% correlation.

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The authors compared 24 downhole survey reports for surface holes with the depth, azimuth and dip values in the database. A total of 595 records were checked and 24 mismatches were found, yielding a 96% correlation. The authors consider the data to be reliable.

12.1.3. Geology Checks

The authors compared geology logs for 88 underground holes and 212 surface holes to the database. A direct correlation between the original logs and the current Klondex database is complex because geology codes were updated in 2014 and codes for holes logged prior to 2014 were updated in multiple ways. Some codes were converted through data correlation, some were re-assigned new codes based on the geologists’ detailed descriptions in the comments field, and some holes were manually re-logged using the new codes. Each of these geological logging systems was reviewed by the authors, and the results validate the geology in the Klondex database. The vein flag, which is the component of the database which directly affects the resource model, was found to have 100% correlation for holes reviewed.

12.2. Results of Channel Sample Data Review

The authors reviewed 238 channels, representing about 10% of the 2,322 channels in the ISIS channel sample database. The channels were chosen at random while generally attempting to select a representative subset. The authors requested the raw data, which is in the form of the geologist’s daily face sheets, for the 238 selected channel samples. Mr. Ben Hinkle, Klondex Senior Production Geologist, provided scans of the face sheets. The three categories of data reviewed for the channel sample dataset are location, assays, and geology.

12.2.1. Location Measurement Check

The authors compared the location of the channel in Vulcan software with the distance measured by the geologist in the mine heading and recorded on the face sheet. No channels were found out of place. The authors also viewed all channels relative to the asbuilt in 3-D in Vulcan as described in Section 10.1.3 to check for consistency. The authors consider the channel locations to be acceptable for use in the mineral resource estimation.

12.2.2. Geology Check

The authors compared geology data recorded on the face sheets to geology data in the ISIS database and found the data to be congruent. No errors were found in the vein flag portion of the data. The authors consider the geology data in the channel database to be acceptable for use in the mineral resource estimation.

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12.2.3. Assay Check

The authors reviewed assays for 238 channels, about 10% of the channels in the channel database.

A total of 874 samples in the channel database, comprising about eight percent of the samples, lack silver values. Samples with missing silver values are from the earlier part of the channel sampling program and are generally restricted to the first cuts on the Joyce Vein and Vonnie Vein. The effect of the missing data on the resource estimation is largely restricted to depleted material. The volume and spacing of data, coupled with the fact that the silver-gold ratio is less than one, minimizes the effect of the missing silver values.

Table 12-2, below, summarizes the numbers of channels reviewed for this report:

Table 12-2 Data Review Summary Channel Sampled Material

Datasets for: Total
channels
Channels:
Location
measurements
reviewed
Channels:
Geology
reviewed
Channels:
Assay
certifficates
reviewed
         
Channels 2,322 238 238 238
         
Percent of population reviewed:    10% 10% 10%

The authors consider the assay data in the channel database to be acceptable for use in the mineral resource estimation.

12.3. Summary of Database Verification

For each data set used in the mineral resource estimation, at least five percent of the data was verified against original source data. The data review verified that historic and current drill, channel and control samples are acceptable. In particular, the accuracy of the assay data has been quantified by independent review of 32% of drill holes and 10% of channels by direct correlation with assay certificates from accredited laboratories (drill samples) and accredited and local production laboratories (channel samples).

The drilling (fc_resource_20150708. dhd.isis) and sampling (fc_20150710_combined.chn.isis) ISIS databases, which contain data compiled by Klondex between March 2004 and June 2015, comply with standards prescribed by CIM protocol for use in mineral reserve estimates.

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13.     Mineral Processing and Metallurgical Testing

13.1. Early Test Work

A summary of the cyanidation test work conducted on twelve samples discussed in the 2011 NI 43-101 Technical Report by W. Raven, E. Ullmer, and G. Hawthorn is shown below in Table 13-1.

Table 13-1 Summary of Cyanidation Test Results from 2011 Technical Report

Sample   Drill   Head Grade   Test Grind Duration Au
ID Zone Hole   Interval Au (g/t) Au (opt) Type    Size (hrs) Recovery
1 North Main FC0401   2.0 0.058 CIL     75.9%
2 North Main FC0403   14.5 0.423 CIL     80.0%
3 North Main FC0405   34.6 1.009 CIL     60.1%
5 North Main FC0402 905-910 37.1 1.082 STD 25%-200M   33.2%
5 North Main FC0402 905-910 37.1 1.082 STD 90%-200M   81.6%
C4 North Main FC0528 1450-1470 7.8 0.227 STD 80%-60M 48 72.6%
                   
7 Main FC0413 850-855 109.0 3.178 STD 25%-200M   74.4%
7 Main FC0413 850-855 109.0 3.178 STD 90%-200M   98.7%
C1 Main FC0419 777-780 37.4 1.091 STD 80%-70M 48 88.2%
                   
C3 West Main FC0515 925-935 116.4 3.394 STD 80%-65M 48 86.8%
                   
4 Far North-New North FC0415 850-855 10.0 0.292 STD 25%-200M   14.0%
4 Far North-New North FC0415 850-855 10.0 0.292 STD 90%-200M   15.8%
6 Far North-New North FC0415 830-835 10.8 0.315 STD 25%-200M   29.5%
6 Far North-New North FC0415 830-835 10.8 0.315 STD 90%-200M   54.5%
C5 Far North-New North FC0418 895-915 6.1 0.178 STD 80%-65M 48 45.4%
C6 Far North-New North FC0522 1040-1050 20.1 0.586 STD 80%-80M 48 77.2%

13.2. 2013 Test Work

Metallurgical test work was conducted by McClelland Laboratories (MLI Job #3834) on two samples taken from the underground development to determine the amenability of the Project material to gravity and/or cyanidation treatment. Composite sample FCM1 was taken from material stockpiled during the development of the 5400 and 5370 crosscuts. Sample 3834-01 was generated by compositing coarse assay rejects from the face sampling on the Joyce 5400 N.

Each sample was milled to 80% minus 212 micrometers (µm) and processed through a laboratory Knelson concentrator to determine precious metal recovery via gravity concentration. The tailings from the Knelson concentrator were reground to 80% minus 75µm. Direct cyanidation tests (96-hour bottle roll tests) were then conducted on the gravity tailings to determine precious metal recovery and reagent consumption. Results of the test work are shown in the Table 13-2 below.


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Table 13-2 Combined Metallurgical Results, Gravity/Cyanidation Tests, 80% -212 υm Feed (Grav.), Reground to 80% -75 υm (CN)

           g/tonne Reagent Consumption
    Recovery % of Total Extracted   Head Grade kg / tonne
    Grav. CN (Grav.   Grav. CN          
Composite   Conc. Tail) Combined Conc. Leach Tail Calculated Assayed    NaCN Lime
3771 Composite FCM1 Au 19.6% 75.3% 94.8% 2.24 8.61 0.59 11.44 15.00            0.16 5.0
Sample 3834-91 Au 54.4% 44.7% 99.0% 80.80 66.33 1.42 148.55 157.07            0.24 3.1
3771 Composite FCM1 Ag 14.4% 67.8% 82.2% 1.30 6.100 1.60 9.00 6.00    
Sample 3834-91 Ag 44.6% 44.8% 89.4% 44.40 44.600 10.5 99.50 115.00    

Results indicate that both samples were readily amenable to gravity and/or cyanidation treatment. Gold and silver recoveries achieved from composite sample FCM1 were 94.8% and 82.2%, respectively. Gold and silver recoveries achieved from sample 3834-01 were 99.0% and 89.4%, respectively. Cyanide consumptions were low, averaging 0.20 kg/million tons (Mt) material.

13.3. 2014 Test Work

In early 2014, nine drill core composite samples from the West Zone were submitted to McClelland Laboratories (MLI Job #3870) for metallurgical testing to determine the amenability of the Fire Creek West Zone material to direct cyanidation and gravity/cyanidation treatment.

Each composite was milled to 80% minus 75µm, and direct cyanidation tests (bottle roll tests) were then conducted to determine precious metal recovery and reagent consumption. Results from the test work are shown in the Table 13-3 below.

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Table 13-3 Summary Metallurgical Results, Bottle Roll Tests, Fire Creek West Zone Drill Core Composites

    Au  g Au/mt ore Ag g Ag/mt ore Reagent Requirements
Test   Recovery,     Calculated Head Recovery,     Calculated Head   kg/mt mineralized material  
Number Composite   % Extracted Tail   Head Assay % Extracted Tail   Head Assay  NaCN Cons.  Lime Added
CY-1 3870-1 96.0 34.88 1.46 36.34 46.10 94.1 17.4 1.1 18.5 30.3 0.17 0.8
CY-2 3870-2 94.9 20.23 1.08 21.31 26.18 74.9 12.8 4.3 17.1 26.2 0.39 5.6
CY-3 3870-3 89.8 6.66 0.76 7.42 10.28 67.4 6.4 3.1 9.5 15.3 0.33 6.9
CY-4 3870-4 96.9 14.51 0.46 14.97 12.51 76.9 1.0 0.3 1.3 1.9 0.17 7.6
CY-5 3870-5 93.2 38.28 2.80 41.08 30.30 56.3 57.4 44.6 102.0 92.5 0.28 3.7
CY-6 3870-6 1) 66.9 3.92 1.94 5.86 7.67 81.2 22.9 5.3 28.2 36.8 12.16 20.5
CY-7 3870-7 84.0 22.32 4.24 26.56 30.33 57.8 17.0 12.4 29.4 35.7 0.38 3.6
CY-8 3870-8 82.1 60.94 13.30 74.24 63.33 71.7 34.0 13.4 47.4 36.9 0.31 2.4
CY-9 3870-9 98.7 48.41 0.62 49.03 73.87 83.5 27.8 5.5 33.3 50.3 0.34 4.2

Notes:

  1.

Problems encountered with high viscosity, low D.O. and low free cyanide levels. Switched to mechanically agitated leach @ 2.0 g NaCN/L, 25% Solids at 20 hours, initiated are sparge at 24 hours.

Results indicate that all but one (Composite #3870-6) of the samples were readily amenable to direct cyanidation treatment. Gold recoveries achieved from the eight composite samples ranged from 82.1% to 98.7% . Silver recoveries achieved from the eight composite samples ranged from 56.3% to 94.1% . Cyanide consumptions were low, averaging 0.30 kg/Mt material.

Problems were encountered during direct cyanidation testing of composite #3870-6 due to high viscosity, low dissolved oxygen content and low free cyanide levels. This composite was transferred to a mechanically agitated leach apparatus to complete the test. Gold and silver recoveries achieved from composite #3870-6 were 66.9% and 81.2%, respectively. Cyanide and lime requirements for this sample were very high.

After direct cyanidation testing was complete, two master composites were prepared for gravity/cyanidation testing. A high-grade master composite (HG master comp) was prepared by combining the coarse rejects from Composites 3870-5 and 3879-6. A mid-grade master composite (MG master comp) was prepared by combining coarse rejects from Composites 3870-2, 3870-3 and 3870-4.

Each master composite was milled to 80% minus 300µm and processed through a laboratory Knelson concentrator to determine precious metal recovery via gravity concentration. The tailings from the Knelson concentrator were reground to 80% minus 75µm. Direct cyanidation tests (96-hour bottle roll tests), with and without lead nitrate addition, were then conducted on the gravity tailings to determine precious metal recovery and reagent consumption. Results of the test work are shown in Table 13-4 and Table 13-5 below.

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Table 13-4 Gold Metallurgical Results, Whole Mineralized Material Gravity Concentration with Cyanidation of the Gravity Cleaner and Rougher Tailings

   Weight , % of Total   g Au/mt mineralized material  
  Lead   Combined              
  Nitrate   Gravity  Cl. & Ro.   Ball Mill  Gravity  Extracted   Calc. Predicted  
Composite Added  Cl. Conc Tail Total Clean Out Cl. Conc   (CN) Tail  Head   Head
3870-29 (HG Master Comp.) No 0.21 99.79 100.0 0.14 10.416 19.79 2.70 33.05 30.32.
  Yes 0.21 99.79 100.0 0.14 10.416 17.60 2.54 30.70  
                     
3879-30 (MG Master Comp.) No 0.26 99.74 100.0 0.02 4.68 10.45 0.69 15.84 12.54
  Yes 0.26 99.74 100.0 0.02 4.68 8.50 0.73 13.93  
                     
        Au Distribution % of Total   kg/mt ore  
      Ball Mill Cl. Extracted       NaCN Lime
Composite     Clean Out  Conc  (CN) Combined Tail Total Cons.  Added
3870-29 (HG Master Comp.)     0.4 31.5 59.9 91.4 8.2 100.0 0.31 3.5
      0.5 33.9 57.3 91.2 8.3 100.0 0.31 3.5
                     
3879-30 (MG Master Comp.)     0.1 29.5 66.0 95.5 4.4 100.0 0.09 6.5
      0.1 33.6 61.0 94.6 5.3 100.0 0.15 6.7

Table 13-5 Silver Metallurgical Results, Whole Mineralized Material Gravity Concentration with Cyanidation of the Gravity Cleaner and Rougher Tailings

     Weight , % of Total   g Ag/mt mineralized material  
  Lead   Combined              
  Nitrate  Gravity  Cl. & Ro.   Ball Mill Gravity Cl.    Extracted   Calc. Predicted
Composite Added Cl. Conc   Tail Total Clean Out Conc (CN) Tail Head Head
3870-29 (HG Master Comp.) No 0.21 99.79 100.0 0.12 7.056 31.43 25.45 64.06  
  Yes 0.21 99.79 100.0 0.12 7.056 48.00 11.28 66.45  
                     
3879-30 (MG Master Comp.) No 0.26 99.74 100.0 0.06 2.184 7.48 3.29 13.02  
  Yes 0.26 99.74 100.0 0.06 2.184 6.48 3.39 12.12  
                     
        Au Distribution % of Total  
        Ball Mill      Cl.    Extracted           
Composite     Clean Out Conc   (CN) Combined Tail Total    
3870-29 (HG Master Comp.)     0.2 11.0 49.1 60.1 39.7 100.0    
      0.2 10.6 72.2 82.8 17.0 100.0    
                     
3879-30 (MG Master Comp.)     0.5 16.8 57.5 74.3 25.3 100.0    
      0.5 18.0 53.5 71.5 28.0 100.0    

Results indicate that both master composites were readily amenable to gravity/cyanidation treatment. Gold and silver recoveries achieved from the HG master composite were 91.4% and 60.0%, respectively, without lead nitrate, and 91.2% and 82.8% with lead nitrate addition. Gold and silver recoveries achieved from the MG master composite were 95.5% and 74.3%, respectively, without lead nitrate, and 94.6% and 71.3% with lead nitrate addition.

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14.     Mineral Resource Estimates

14.1. Introduction

The Fire Creek mineral resource was estimated in accordance with The Canadian Institute of Mining, Metallurgy and Petroleum’s CIM Definitions Standards for Mineral Resources and Mineral Reserves, adopted by CIM Council on May 10, 2014 (CIM 2014). This estimate updates the previous Mineral Resource Estimate effective December 31, 2014 (Odell et al, 2015) and includes all of the new drilling, channel sampling, and underground geological mapping completed since that date. This estimate and depletion is effective June 30, 2015.

All data coordinates are measured in the Nevada State Plane Central Zone, NAD83 feet truncated to the last six whole digits. All quantities are given in imperial units unless indicated otherwise.

The gold and silver mineralization at the Project was estimated using the Vulcan modeling software. The estimate was performed by Anthony Bottrill, Senior Resource Geologist for Klondex and reviewed by the authors of this TR. The vein solid models were interpreted from core photo review, assay data, underground mapping, and lithology logging from drilling and channel samples. No strict grade cutoff was honored, but care was taken to ensure that only vein material was modeled regardless of the grade.

Vulcan Version 9.1 software was used in all aspects of the modeling process. The Inverse Distance Cubed (ID 3 ) estimation method was used, with validations making use of the Nearest Neighbor (polygonal) method and Discrete Gaussian change of support method for comparison purposes. Future resource updates plan to incorporate Ordinary Kriging (OK) estimation methods of individual veins where sufficient close spaced channel samples have been taken through previous mining to calculate robust variograms.

14.2. Database and Compositing

During 2015, Klondex began managing their drillhole and channel data in an AcQuire database. At the time of the resource update, only holes drilled in 2015 were managed by AcQuire. Pre-2015 holes were still managed within a Vulcan ISIS database. CSV format files were exported from the AcQuire database for collar, survey, lithology, and assay tables of the 2015 holes. These were imported into a Vulcan ISIS database using a LAVA script. The Lava script ensured the database was loaded consistently each time. The pre-2015 and post-2015 databases were merged into a single Vulcan ISIS drillhole database for use in the resource update. Subsequent to the resource update, all pre-2015 holes will be loaded into, and validated in AcQuire so that future updates will consist of a single export and import of the entire drillhole dataset from AcQuire. The gold and silver assays are converted from g/t to opt in the AcQuire database by multiplying by 34.2857.


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Assay intervals were “flagged” to their interpreted vein using a coding system in the assay table. These vein codes were used in both building the initial vein solid, and in subsequent grade estimation. Samples were composited into a single weighted average value spanning the width of the vein or ten feet, whichever was less. Ten-foot composites were generally only created when a drillhole was drilled sub-parallel to the vein orientation. Where possible, holes are drilled perpendicular to the vein orientation.

14.2.1. Assays

This analysis used 836 surface and underground drill holes and 2,322 channel sample sets. The composites of all flagged assays were used for statistical analysis and estimation. No channels were eliminated for any reason. Drillhole intercepts were only ignored in the case where a drillhole intersecting a vein proximal to subsequent silled channel samples was shown to be inaccurate. In this case the vein coding of the drillhole sample was preceded by the letter “O” so that the vein intercept was acknowledged as existing, but designated to be ignored due to replacement by underground channel data (for example DH_K would become ODH_K). Table 14-1 summarizes the overall quantity of data available by type and the quantity flagged that could be used in the estimation.

Table 14-1 Summary of Drill Hole and Channel Samples

  Not Flagged by Veins Flagged by Vein Models Total
  No. Length Length No.  Length Length Length No. Length Length
Type Holes Drilled Sampled Holes  Drilled Sampled Flagged Holes Drilled Sampled
Drill 174 182,304 175,047 662 398,187 395,336 12,731 836 580,491 570,383
Channel 76 470 470 2,246  17,265 17,265 5,281 2,322 17,735 17,735

Drill hole and channel sample locations relative to the vein models are shown in Figure 14-1 and Figure 14-2.

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14.2.2. Lithology

The rock types identified in the lithology logging are shown in Table 14-2. In addition to core photos, intervals logged as vein or structure along with assay values were used to identify veins.

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Table 14-2 Lithology Codes

Lithology Code Description
OVB overburden
SEDS sedimentary
OPAL opalized sinter
INT intrusive
STR structure
FLT fault
VN vein
BAS basalt
BX breccia
TUFF tuff
ND no data

The core logging shows that there is an upper and lower tuff unit within the basalt. Figure 14-3 is a long section through the deposit showing the tuff in blue and the basalt in light green. Figure 14-4 and Figure 14-5 show the same section with the tuff and previous vein models.


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14.2.3. Compositing

The assays were composited on ten-foot downhole interval lengths honoring the vein intersections. Therefore, the assays within the veins were separated from the lower grade values outside of the veins. This compositing method usually calculated a single composite across the vein interval as most vein intercepts are less than ten feet in length. Where the interval within the vein was longer than ten feet, more than one composite was created.

14.3. Geology and Vein Modelling

The basalt and tuff units were modeled but not used in the block model. These rock units do not seem to impact vein location or mineralization as the veins cross through basalt and tuff. Displacement of the rock units indicates faulting, both pre and post mineralization, which helps in understanding local geology and guiding exploration.

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Forty eight vein sets were modeled on two main northwest linear trends separated approximately 1,300 feet east to west. Figure 14-6 below shows the simplified structural framework relating to the major orientations seen in the mine. These orientations and the overall structural setting guide the vein interpretations and understanding of the controls on ore shoot formation. A number of the vein sets are made up of numerous (two or three) splay veins that split and merge along strike. They were modelled to reflect this as it relates to cymoid looping and the competency of the main basalt host. The main vein orientations recognized represent extension and shear orientations of the overall structural framework for the area. These include:

330° type structures, which include the Joyce Vein and have dominant extension components, and

010° type structures, which include the Karen Vein and Vonnie Vein and have dominant shear orientations.

This structural fabric represents fractals that are seen on all scales from the mining face, to mine site, to regional structures. Mining and channel sampling has occurred on the Joyce Vein, Vonnie Vein, Karen Vein and Hui Wu Vein at the center of the east trend.


A LAVA scripted grid modelling workflow was used to model the Fire Creek vein sets. Grid modelling is applicable to modelling narrow, continuous geological features such as precious metal veins and coal seams. Grid modelling creates a surface by interpolating a regular grid of points over a modelling area. These grid points are combined with the input intercepts to create output triangulation models that represent the vein hanging wall and footwall contacts. The contacts are combined to create a valid solid triangulation for use in building the resource block model. Figure 14-7 outlines the vein modelling process.


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The data processing steps automated by the scripted process can be summarized as follows:

  1.

Set the vein to be modelled, its overall dip and dip direction, and the drillhole and channel databases to be used;

  2.

Extract the hanging wall (HW) and footwall (FW) vein intercepts from the drillhole and channel databases;

  3.

Combine interpreted or surveyed HW and FW points to control the vein model interpretation where required. Figure 14-8 shows HW points in red and FW points in yellow;


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  4.

Use the dip and dip direction settings to rotate the intercepts to a semi-flat plane (grid modelling works in plan view);

  5.

Use inverse distance to model HW and FW grid surfaces from the input data and perform grid mathematics to ensure HW grid points are always above FW grid points (i.e. there are no overlaps);

  6.

Create a triangulation of the HW contact that combines the grid model points with the input intercepts to ensure the final surface is snapped to the input data. Repeat this process for the FW contact. Modelling specific settings are attached as attributes to the triangulations and also written to a text file for future auditing. Figure 14-9 shows the triangulated HW and FW surfaces;


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  7.

Produce boundary polygons of the vein contact surfaces to create a boundary triangulation that can then be appended to the vein contacts to create a valid solid triangulation. In Figure 14-10, the surfaces have been combined to form a solid;


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  8.

Un-rotate the triangulations and intercepts back to their true spatial location; and

  9.

Clip the solid vein triangulation to the topography and other vein surfaces as required.

Clipping priorities and overall orientations for all veins are listed in Table 14-3.

Table 14-3 Vein Orientation and Clipping Priorities

Vein Nomenclature Orientation  
Vein Name Vein Code Dip Dip Direction  
 
Clipping Surfaces
Vonnie VV 80 263 topo+vj3.hw
Joyce VJ 86 65 topo
Karen VK 80 85 topo+vj1.fw
Karen9 VK9 80 85 vk1.fw
Hui Wu V36 73 79 topo+vk3.hw+vj1.fw
Honeyrunner V20 85 85 topo+v18.fw
Vein3 and low grade halo V03 80 261 topo+vj1.fw
Vein4 and low grade halo V04 70 255 topo+lv03.hw
Vein5 V05 80 85 v20b.hw+v18a.fw
Vein6 V06 80 247  


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Vein Nomenclature Orientation


Clipping Surfaces
Vein Name Vein
Code
Dip Dip
Direction
Vein7 V07 80 256 topo+vj3.hw
Vein8 V08 80 253 topo+vv3.fw
Vein9 V09 84 60  
Vein10 V10 50 257  
Vein11 V11 75 264 vk3.hw+v38a.hw+v36a.fw
Vein12 V12 85 255 v39a.hw
Vein13 V13 90 70 topo+vj1.fw+v40b.hw
Vein14 V14 90 61 topo+vj1.fw
Vein15 V15 90 75  
Vein16 V16 87 227  
Vein18 V18 75 75 topo+vk1.fw
Vein19 V19 90 70  
Vein21 V21 85 75  
Vein22 V22 86 65  
Vein23 V23 80 260  
Vein24 V24 80 258  
Vein25 V25 77 248  
Vein26 V26 75 253  
Vein27 V27 81 253 topo+v26.fw
Vein28 V28 74 65  
Vein29 V29 70 75  
Vein30 V30 72 70  
Vein31 V31 80 75 topo+v18a.fw+v20a.fw
Vein32 V32 90 96  
Vein33 V33 67 240 vv1.fw+vv2.hw
Vein35 V35 70 253  
Vein37 V37 80 85 vk1.fw+v18b.hw
Vein38 V38 85 264 vk3.hw+v36a.fw
Vein39 V39 87 257 topo+vj1.fw+v14a.fw+v36b.hw
Vein40 V40 77 79 topo+vj1.fw+v14a.fw+v36b.hw
Vein41 V41 85 75  
Vein42 V42 84 89  
Vein43 V43 85 270 v05.+v18a.fw+v05.hw
Vein44 V44 80 271 vv1.hw+vj3.hw+v18a.fw
Vein45 V45 75 73  
Vein46 V46 85 270 v43.fw+vk9+v18a.fw+v05.hw+v43.fw+v42.fw
Vein51 V51 80 267 topo+v22b.hw
Vein53 V53 85 295 vv1.hw+vj3.hw


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A low grade halo is present immediately adjacent to the veins in some areas. This material is usually represented as a stock work of quartz veining, breccia, or porous basalt or intrusive rock. Adjacent to Vein 3 and Vein 4, this low grade mineralization represents a continuous breccia zone present in holes along strike and down dip. In this area the low grade halo was interpreted using core photos and grade variation. The thickness of this low grade material around the vein structure varies and can occur either on the footwall, hanging wall, or both. The higher grade vein structure was modelled separately to the lower grade halo.

Where channel samples are present, channel samples may replace drillhole samples in generating the vein model as drillhole intercepts may be found to be locally inaccurate. Drillholes to be ignored are designated with an “O” prefix and in this way channel samples will take precedence over drilling.

14.4. Density

A density value of 0.0774 tons per cubic foot was assigned to all vein and low grade mineralization. This value is supported by 15 samples collected on the Joyce Vein and Vonnie Vein and analyzed by SGS Laboratories in Elko, Nevada. Density sampling was routinely being taken as part of the bulk sampling program, future updates will incorporate this additional density data for determining the representative densities to be applied to the model.

14.5. Statistics

Drill hole and channel composite samples were grouped according to vein and univariate statistics calculated for each sample type and group. The summary statistics are shown in Table 14-4 through Table 14-7. Boxplots are shown in Figure 14-11 through Figure 14-14.

Table 14-4 Vein Gold Drill Hole Composite Statistics

  Min Q1   Q3   Mean    
  (Au (Au Median (Au Max (Au St No.
Vein opt) opt) (Au opt) opt) (Au opt) opt) Dev. Samples
Vonnie 0.000 0.002 0.024 0.141 41.113 0.531 2.658 458
Joyce 0.000 0.004 0.031 0.201 108.221 0.813 4.957 764
Karen 0.000 0.002 0.017 0.192 16.941 0.432 1.295 468
Karen9 0.000 0.002 0.008 0.039 1.130 0.088 0.207 69
Hui Wu (V36) 0.000 0.004 0.020 0.173 30.605 0.421 2.178 373
V20 0.000 0.002 0.013 0.153 63.712 0.650 5.180 152
V03 0.001 0.069 0.127 0.190 1.429 0.168 0.186 145
V04 0.000 0.004 0.036 0.097 0.199 0.055 0.058 28
V05 0.000 0.002 0.006 0.021 16.099 0.244 1.742 86
V06 0.006 0.008 0.202 1.044 1.598 0.527 0.609 10


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  Min Q1   Q3   Mean    
  (Au (Au Median (Au   Max (Au St No.
Vein opt) opt) (Au opt) opt) (Au opt) opt) Dev. Samples
V07 0.000 0.002 0.002 0.018 2.633 0.098 0.450 33
V08 0.000 0.001 0.004 0.026 1.683 0.053 0.167 195
V09 0.012 0.034 0.198 0.634 1.732 0.435 0.579 8
V10 0.000 0.000 0.002 0.103 0.205 0.046 0.065 27
V11 0.001 0.004 0.011 0.197 1.425 0.169 0.319 42
V12 0.000 0.002 0.006 0.133 1.505 0.132 0.331 20
V13 0.000 0.009 0.076 0.178 25.349 0.456 2.650 91
V14 0.000 0.003 0.010 0.060 27.433 0.451 2.531 123
V15 0.215 0.218 0.274 1.033 1.739 0.625 0.644 4
V16 0.135 0.135 0.212 0.288 0.288 0.212 0.076 2
V18 0.000 0.004 0.015 0.088 3.763 0.144 0.434 202
V19 0.001 0.015 0.033 0.111 1.307 0.116 0.242 30
V21 0.000 0.002 0.005 0.024 3.617 0.125 0.467 83
V22 0.000 0.001 0.019 0.203 2.269 0.170 0.378 43
V23 0.000 0.000 0.137 0.161 1.383 0.162 0.286 23
V24 0.000 0.111 0.283 0.597 7.030 0.863 1.747 15
V25 0.001 0.028 0.113 0.295 4.930 0.576 1.382 11
V26 0.000 0.002 0.083 0.231 1.167 0.160 0.259 20
V27 0.000 0.004 0.039 0.222 0.735 0.141 0.197 14
V28 0.000 0.005 0.104 0.211 1.175 0.204 0.307 13
V29 0.000 0.023 0.147 0.249 0.303 0.142 0.112 11
V30 0.000 0.002 0.132 0.229 1.281 0.291 0.444 12
V31 0.000 0.003 0.011 0.072 3.209 0.141 0.419 132
V32 0.000 0.042 0.102 0.257 0.578 0.177 0.206 5
V33 0.000 0.003 0.056 0.106 0.489 0.109 0.161 7
V35 0.000 0.001 0.018 0.110 0.180 0.048 0.064 14
V37 0.000 0.003 0.010 0.065 6.463 0.150 0.624 137
V38 0.000 0.004 0.010 0.044 5.196 0.103 0.510 125
V39 0.000 0.002 0.009 0.035 3.103 0.080 0.312 338
V40 0.000 0.003 0.011 0.029 17.439 0.148 1.359 164
V41 0.000 0.002 0.006 0.056 0.828 0.068 0.146 70
V42 0.000 0.002 0.008 0.050 0.922 0.060 0.138 76
V43 0.001 0.002 0.005 0.018 0.403 0.031 0.074 48
V44 0.000 0.002 0.007 0.021 1.784 0.054 0.210 89
V45 0.134 0.174 0.292 0.373 0.400 0.275 0.109 3
V46 0.001 0.002 0.007 0.019 2.347 0.081 0.379 37
V51 0.000 0.001 0.099 0.785 1.894 0.467 0.663 12
V53 0.000 0.006 0.011 0.020 0.170 0.026 0.041 29
Totals           0.355   4,861


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Table 14-5 Vein Gold Channel Composite Statistics

  Min Q1   Q3   Mean    
  (Au (Au Median    (Au Max    (Au St No.
Vein opt) opt) (Au opt)  opt) (Au opt)  opt) Dev. Samples
Vonnie 0.001 0.119 1.548 15.805 653.136 23.581 65.667 642
Joyce 0.001 0.260 1.306  4.010 471.000 6.357 26.350 1,259
Karen 0.001 0.224 1.730  4.890 68.636 4.282 7.324 902
Hui Wu (V36) 0.001 0.036 0.352  1.895 35.400 1.850 4.015 250
Totals           8.997   3,053

Table 14-6 Vein Silver Drill Hole Composite Statistics

  Min Q1   Q3   Max Mean    
  (Ag (Ag Median (Ag (Ag (Ag St No.
Vein opt) opt) (Ag opt) opt)  opt) opt) Dev. Samples
Vonnie 0.001 0.026 0.100 0.292 84.293 0.685 4.565 458
Joyce 0.001 0.008 0.118 0.396 91.839 0.887 5.249 764
Karen 0.001 0.033 0.100 0.300 6.761 0.349 0.827 468
Karen9 0.001 0.022 0.100 0.100 0.408 0.101 0.089 69
Hui Wu (V36) 0.001 0.100 0.100 0.267 20.000 0.406 1.732 373
V20 0.001 0.100 0.100 0.232 14.800 0.312 1.234 152
V03 0.007 0.083 0.242 0.462 6.563 0.405 0.670 145
V04 0.007 0.007 0.015 0.083 0.502 0.102 0.163 28
V05 0.001 0.088 0.100 0.100 0.400 0.099 0.071 86
V06 0.020 0.068 0.627 1.240 1.622 0.687 0.619 10
V07 0.007 0.100 0.100 0.100 1.900 0.150 0.316 33
V08 0.001 0.007 0.035 0.100 1.900 0.107 0.256 195
V09 0.007 0.028 0.114 0.386 0.521 0.198 0.190 8
V10 0.007 0.007 0.007 0.062 1.843 0.137 0.358 27
V11 0.001 0.074 0.100 0.193 0.600 0.154 0.146 42
V12 0.007 0.044 0.100 0.319 0.753 0.193 0.194 20
V13 0.001 0.028 0.100 0.200 1.432 0.162 0.234 91
V14 0.007 0.100 0.100 0.282 14.860 0.361 1.355 123
V15 0.111 0.166 0.413 5.712 10.821 2.939 4.554 4
V16 0.025 0.025 0.091 0.158 0.158 0.091 0.066 2
V18 0.001 0.100 0.100 0.184 3.600 0.177 0.302 202
V19 0.007 0.007 0.007 0.021 0.607 0.047 0.115 30
V21 0.001 0.007 0.057 0.123 3.792 0.148 0.426 83
V22 0.001 0.011 0.100 0.274 1.744 0.220 0.350 43
V23 0.007 0.007 0.053 0.216 0.894 0.148 0.209 23


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  Min Q1   Q3 Max Mean    
  (Ag (Ag Median (Ag (Ag (Ag St No.
Vein opt) opt) (Ag opt) opt) opt) opt) Dev. Samples
V24 0.007 0.199 0.548 1.059 3.996 0.907 1.045 15
V25 0.007 0.007 0.193 0.339 0.380 0.175 0.154 11
V26 0.007 0.007 0.007 0.102 0.560 0.090 0.151 20
V27 0.007 0.007 0.036 0.070 0.671 0.111 0.182 14
V28 0.007 0.007 0.076 0.192 0.781 0.181 0.253 13
V29 0.007 0.105 0.228 0.475 0.585 0.276 0.205 11
V30 0.007 0.007 0.137 0.292 0.753 0.218 0.248 12
V31 0.001 0.100 0.100 0.241 5.837 0.240 0.639 132
V32 0.007 0.007 0.120 0.394 0.648 0.218 0.241 5
V33 0.007 0.018 0.100 0.257 0.300 0.132 0.117 7
V35 0.007 0.007 0.026 0.125 1.027 0.143 0.270 14
V37 0.001 0.100 0.100 0.200 1.500 0.165 0.176 137
V38 0.001 0.027 0.100 0.104 1.500 0.119 0.161 125
V39 0.001 0.100 0.100 0.150 9.000 0.181 0.520 338
V40 0.007 0.079 0.100 0.239 7.563 0.275 0.815 164
V41 0.001 0.007 0.031 0.183 0.825 0.154 0.232 70
V42 0.001 0.070 0.100 0.100 0.300 0.093 0.062 76
V43 0.001 0.100 0.100 0.100 0.187 0.093 0.042 48
V44 0.007 0.019 0.100 0.100 0.900 0.111 0.135 89
V45 0.200 0.262 0.446 0.676 0.753 0.466 0.226 3
V46 0.001 0.099 0.100 0.100 1.500 0.129 0.232 37
V51 0.001 0.007 0.133 0.716 5.163 0.710 1.410 12
V53 0.007 0.030 0.100 0.259 0.600 0.150 0.140 29
Totals           0.385   4,861

Table 14-7 Vein Silver Channel Composite Statistics

  Min Q1   Q3   Mean    
  (Ag (Ag Median (Ag Max (Ag St No.
Vein opt) opt) (Ag opt) opt) (Ag opt)  opt) Dev. Samples
Vonnie 0.001 0.050 0.308 5.900 509.000 13.397 42.744 642
Joyce 0.001 0.200 0.800 2.394 185.000 3.727 11.986 1,259
Karen 0.001 0.200 0.979 3.507 57.192 3.323 5.891 902
Hui Wu (V36) 0.001 0.050 0.257 1.200 59.300 1.591 4.934 250
Totals           5.466   3,053


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14.6. Grade Capping

Grade capping for gold and silver was determined individually for the main veins using grade distribution curves and the spatial configuration of high grades within the vein (i.e. where high grades are distributed within cohesive ore shoots, the risk of overestimating mineralization is reduced versus high grades located randomly throughout the vein where risk of overestimation resulting from an isolated high grade sample is considered to be higher).

Grade capping was applied through two methods, dependent on the data spacing and type of sample being used in the estimate. The methods, high yield and top cut, are listed in Table 14-8.

  1.

In Measured spacing, both drillhole and channel composites were used in the estimation. The capping method applied was a high yield method, where composites that had a grade above a specified threshold were only used in the estimation if they were within a restricted distance of the block to be estimated. This maintains the grade profile locally (typically in silled areas), but restricts the potential of smearing of metal away from the local area; and

  2.

In Indicated and Inferred spacings, only drillhole composites were used in the estimation. The capping method applied was a topcut method, where composites that had a grade above a specified threshold were capped at that threshold but used in estimation to the full extents of the search ellipse. This removes metal from the grade profile locally, but enables the use of that sample in wider spaced drilling to represent the metal of the broader ore shoot. The local metal profile will be refined as infill drilling and eventual silling are undertaken.


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Table 14-8 Capping Methods

Estimation
Pass
Data Used Capping Method Extent of
Influence
Measured Drillholes + Channels High Yield 25x25
Indicated Drillholes Only Top Cut Search Ellipse
Inferred Drillholes Only Top Cut Search Ellipse

In addition to grade capping, the influence of high grades was restricted by the identification of ore shoots on the vein prior to estimation (using on-vein domains). Within the vein, high grade ore shoots often have sharp structural contacts with adjacent poorly mineralized parts of the vein. An indicator estimation method was used to assign the ore shoot extents to the block model so that these could be estimated separately from the poorly mineralized parts of the vein. In Figure 14-15, the Joyce Vein is shown color coded according to its ore shoot indicator estimation. Blocks defined by the estimation as part of an ore shoot are colored red, unmineralized areas are colored blue. The estimation is based on composite grades, which are displayed as dots on Figure 14-15 for reference. Composites are colored red if their gold value is above 0.08 opt, blue if their value is below.

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The ore shoot indicator method was assigned to the block model as follows:

  1.

For gold, a mineralized composite for underground mining purposes was defined as a sample having a grade greater than 0.08 opt. The threshold for silver was also set at 0.08 opt;

  2.

Each vein composite was assigned a “1” if its grade was above the specified threshold, or a “0” if its grade was below;

  3.

These one and zero values were estimated into the vein blocks, resulting in an estimated value between “0” and “1” being assigned to the block – this value represents the probability that the block is part of an ore shoot;

  4.

If a block had a probability of greater than 40% (or 0.4) then it was determined to be part of an ore shoot. If the value was less than 0.4, the block was assigned as an unmineralized block; and

  5.

Blocks defined as part of the ore shoot were estimated for grade separately from blocks defined as unmineralized, using a separate set of composites (the ore shoot estimate may use any sample within the vein, the unmineralized estimate may only use samples within the unmineralized zone). This ensured high grades from an ore shoot could not be used to estimate adjacent unmineralized areas.

The use of an ore shoot indicator complements the capping thresholds used in the grade estimation since high grades are only used to estimate mineralized ore shoot areas of the vein.

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Grade capping values used for the grade estimates of the ore shoots are outlined below in Table 14-9.

Table 14-9 Grade Capping Values for Ore shoots

  Gold Thresholds Silver Thresholds
  High   High  
Vein Yield Topcut Yield Topcut
VJ1 60 10 60 10
VJ2 20 5 15 5
VJ3 2 1 5 1.5
VV1 100 5 100 5
VV2 25 1.5 25 1.5
VV3 10 1 10 2
VK1 32.5 4 30 4
VK2 15 3.5 15 1
VK3 5 1 3.5 1
LV03 0.1 0.1 0.46 0.46
V03A 0.4 0.4 0.8 0.8
V03B 0.5 0.5 1 1
LV04 0.05 0.05 0.06 0.06
V04A 0.2 0.2 0.2 0.2
V04B 0.2 0.2 0.2 0.2
V13A 4 4 1 1
V13B 0.5 1 1 1
V14A 7.5 5 5 2
V14B 7.5 5 5 1
V18B 1.5 1.5 1 1
V20A 6 2 2 2
V20B 1 1 1 1
V36A 10 5 15 2
V36B 4 1.5 4.5 1.5
V39A 1 1 1 1
V39B 1 1 1 1
V40A 1 1 1 1
V40B 1 1 1 1
All Other Veins 2 2 2 2
Un-Mineralized Vein N/A 0.2 N/A 0.2

Figure 14-16 through Figure 14-19 are example grade distribution curves for the Vonnie Vein (VV1) as an example of the capping thresholds chosen.

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14.7. Variography

Variograms were calculated using Vulcan software for the gold composites within each of the Vonnie, Joyce, and Karen veins. The closely spaced underground channel samples allow for construction of a meaningful variogram. The variogram gives an indication of the continuity of grade seen for a vein. On each vein, the major direction was modelled as the strike direction, whilst the semi-major direction was modelled as the down dip direction. The minor direction was across the thickness of the vein where one composite exists and therefore is not displayed. The final major and semi-major variogram distances modelled support this approach.

The Karen variogram indicates greater continuity than the Joyce and Vonnie variograms. In addition, the Joyce variogram shows a higher nugget than both the Karen and Vonnie variograms. This is consistent with the results of mining seen to date. The Karen Vein ore shoot has been noticeably more continuous along strike for high grade mineralization. The Joyce Vein, whilst having a significant ore shoot along strike, to date has shown higher variability of grade rapidly changing between high and low grades.

Further development of the variograms through ongoing closely spaced channel sampling will lead to future resource model updates incorporating Ordinary Kriging for grade estimation.


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14.8. Block Model

The block model was constructed using a 3,500-foot by five-foot by five-foot parent block size (XYZ), with sub-blocking in the veins as small as 0.2 feet by five feet by five feet. This modeling method creates a single block across the vein thickness with a tolerance of 0.2 feet (the block model is rotated such that the thickness of the vein represents the Z direction). Therefore, the block width across the vein is within 0.2 feet of the actual width of the vein solid.

The model is rotated with a bearing/dip/plunge of 75/0/270. The block model origin (lower left corner) is 643000E, 763200N, 6500EL. The X length is 1,900 feet, Y length is 7,500 feet and the Z length is 3,500 feet.

Each unique vein name is assigned to a block variable called “structure”. The block model variables are defined in Table 14-10.

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Table 14-10 Block Model Variables

Variables Default   Type Description
structure none   name structure name
thickness 0   float thickness
density 0   float density
au_opt -99   float Gold - Grade Estimate (Ounces per Ton)
au_flag 0   byte Gold - Estimation Flag
au_ndh 0   byte Gold - Number Drill Holes
au_dist 0   float Gold - Average Distance to Samples
au_ns 0   byte Gold - Number of Samples
au_opt_nn -99   float Gold - Nearest Neighbor (Ounces per Ton)
ag_opt -99   float Silver - Grade Estimate (Ounces per Ton)
ag_flag 0   byte Silver - Estimation Flag
ag_ndh 0   byte Silver - Number Drill Holes
ag_dist 0   float Silver - Average Distance to Samples
ag_ns 0   byte Silver - Number of Samples
ag_opt_nn -99   float Silver - Nearest Neighbor (Ounces per Ton)
aueq -99   double Gold Equivalence (Ounces per Ton)
agau -99   double Silver:Gold Ratio
au_ind -99   float Gold Indicator (Probability)
au_ind_flag 0   byte Gold Indicator - Estimation Flag
au_ore shoot waste   name Gold Ore shoot (ore/waste)
ag_ind -99   float Silver Indicator (Probability)
ag_ind_flag 0   byte Silver Indicator - Estimation Flag
ag_ore shoot waste   name Silver Ore shoot (ore/waste)
minability_index -99   float Minability Index (3,2,1,0)
mined insitu   name Block Status (insitu, sterile, mined)
aueqgt -99   float AuEq Grade Thickness (opt per ft)
classname none   name Classification (meas, ind, inf)
aueng 0   float Au Engineering
ageng 0   float Ag Engineering
aueqeng 0   float AuEq Engineering
plan_dil 0   float Planned Dilution
thick 0   float Vein Thickness
mine_thick 0   float Mining Thickness
gradethick 0   float Grade Thickness
mine_tons 0   float Mined Tons
aueq_dil 0   float Diluted AuEq
matl none   name Material Type
depth 0   float Depth from Topography Surface (ft)
hole_type -99   float Hole Type (rc=0,diamond/channel=1)
volume -   predefined  


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Variables Default   Type Description
xlength -   predefined  
ylength -   predefined  
zlength -   predefined  
xcentre -   predefined  
ycentre -   predefined  
zcentre -   predefined  
xworld -   predefined  
yworld -   predefined  
zworld -   predefined  

14.9. Grade Estimation

Gold and silver values were estimated using the ID 3 method. The ID 3 method was applied in multiple passes defining the extents of the measured, indicated and inferred classifications.

The channel composites were only used for the measured pass, which has a search ellipsoid of 40 feet by 40 feet by 20 feet. This was done to ensure that high grade was not extended further than is supported by the data. This along with the capping strategy limits the range of influence of the high grade channel sample composites.

Anisotropic search parameters for gold were set to the average orientation of the individual veins. Search distances were tailored to the expected spacing of sample composites intercepting the vein models for each estimation pass. The vein’s gold and silver grades were estimated only using composites from within the vein, and low grade blocks were estimated using only low grade composites. The boundary separating the veins and low grade blocks is regarded as a hard boundary with the data in each isolated from the other. Only Vein 3 and Vein 4 were estimated for low grade halo zones.

The estimation search parameters are shown in

Table 14-11. The search ellipse orientations were orientated to the vein orientations outlined in Table 14-3.

Table 14-11 Estimation Search Parameters by Resource Category

  Parent     Major Semi Minor Min Max Sample Spacing
Pass X Y Z (ft) (ft) (ft) Samp Samp  
Measured 5 5 5 40 40 20 4 12 Underground channels typically 10’ x 50’
Indicated 20 20 20 100 100 50 3 12 Infill Drilling typically 50’ x 50’
Inferred 50 50 50 300 300 150 2 12 Exploration Drilling typically 150’ x 150’


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Significant parameters used in the gold and silver estimations included:

  1.

Assigning of parent block values to sub-blocks. This ensures the grade tonnage curve of the material estimated matches the support of the drill spacing informing the estimate;

  2.

Only composites with a value greater than zero were used;

  3.

A minimum of four and maximum of 12 samples were used to estimate measured blocks, a minimum of three and maximum of 12 to estimate indicated blocks, and minimum of two and maximum of 12 to estimate inferred blocks;

  4.

Composites were selected using anisotropic distances;

  5.

Only composites within the veins were used to estimate blocks within the veins. Estimation of ore shoot identified blocks could use samples on the vein both within the ore shoot and outside of the ore shoot. Estimation of the blocks identified as being outside an ore shoot could only use samples identified as outside the ore shoot.

  6.

Grades were capped (high yield search restriction) for measured material;

  7.

Grades were capped with a top cut for indicated and inferred material; and

  8.

Gold and silver for blocks outside vein solids were not estimated.

14.9.1. Minability Index

To aid mine grade control, a “minability index” was assigned to vein intercepts in core holes. The minability index represents a vein quality designation to identify better quality vein intersections that represent reduced risk for mining. The actual grade of the intercepts do not impact the assignment of the minability index value, only vein quality as determined from the core photos impact it. No minability index was assigned to channel samples. Quality ranks between “0” and “3”, with a 3 being the highest quality designation. In addition to these designations, the code “-99” represents core holes for which no core photos exist or the assignment has not been undertaken to date. In this situation no minability index was definable. Future updates will include a code of “RC” for reverse circulation intercepts where no core photos exist. The minability index was assigned for each vein to the block model through a simple nearest neighbor designation. At the time of this resource update, the minability index had been assigned to underground core holes only. The assignment of this index to all core holes (including surface holes) represents a future improvement.

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Where minability indices are similar, the drillholes indicate that most likely the vein development is consistent. Where the minability indices vary between holes, the drillholes indicate that the vein thickness most likely varies significantly along strike and ore shoot development may be highly variable.

The minability indices for the main veins are shown in Figure 14-25 through Figure 14-27. The Vonnie Vein dominantly displays index values of 1 and 2. The minability index indicates a vein thickness that is typically narrow but continuous. This matches mining that has occurred on the vein to date – Vonnie Vein is a narrow but continuous and high grade vein in which narrow mining techniques are required to maximize the grade mined. Joyce Vein typically displays index values between one and three. The vein thickness varies significantly and rapidly along the vein length. This is consistent with mining to date where the vein varies rapidly coming in and out of high grade ore shoots. Karen Vein represents the best developed vein with index values typically between two and three. This is consistent with mining to date where the vein has generally been relatively wide and continuous.

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14.10. Mined Depletion and Sterilization

The block model was depleted by the as-built survey of the underground workings. Blocks within the survey were flagged as “mined”. The grades and the density within the flagged blocks remain intact in order to reconcile with mining. Remnant blocks within the hanging wall or footwall of the veins which are not inside the mine survey but immediately adjacent to it were also flagged as “mined”. Blocks within 100 ft of the topography surface were deemed sterilized for underground mining purposes and were flagged as “sterile”.

The Joyce Vein, Vonnie Vein, Karen Vein, and Hui Wu Vein are the only veins that have been mined as of the effective date of this report. In Figure 14-28 through Figure 14-31, the estimated grade blocks are shown in blue, depleted blocks are shown in red, and sterilized blocks are shown in orange for each vein.

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14.11. Model Validation

The mean gold grades for each vein were compared against a nearest neighbor (representing declustered composites) in Table 14-12. Individual vein comparisons vary depending on sample support and grade variability. The main contributing veins (Vonnie, Joyce, Karen, and Hui Wu) all contain a slightly lower mean grade in the ID3 estimate, this is consistent with the overall result of the estimates which combined are 6.7% lower in grade than the nearest neighbor at 0.21 opt vs 0.226 opt. This lower overall grade is expected due to grade capping and the effect of the sample sharing at the ore shoot contacts. Most major differences are seen in low grade veins. Table 14-13 represents the same data for silver which shows the same general relationships with a combined 3.5% lower overall grade at 0.229 opt vs 0.237 opt.


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Table 14-12 Estimate Comparison for Gold versus a Nearest Neighbor at 0 Cutoff

    Nearest Neighbor     ID3 Estimate    
            St           St Mean
Vein Min Q1 Q3   Max Mean Dev. Min Q1 Q3   Max Mean Dev. Difference
VJ1 0.001 0.002 0.231 471.000 0.741 5.148 0.001 0.011 0.313 301.653 0.656 3.675 -11.4%
VJ2 0.001 0.001 0.123 144.975 0.213 1.673 0.001 0.006 0.139 130.849 0.202 1.039 -5.5%
VJ3 0.001 0.002 0.069 7.190 0.090 0.210 0.001 0.012 0.108 4.850 0.087 0.157 -3.3%
VV1 0.001 0.002 0.088 653.136 1.043 13.179 0.001 0.004 0.135 609.256 1.029 9.540 -1.3%
VV2 0.001 0.001 0.026 131.609 0.209 3.154 0.001 0.002 0.035 129.036 0.194 2.322 -7.1%
VV3 0.001 0.001 0.049 116.000 0.121 2.063 0.001 0.001 0.070 99.389 0.105 1.311 -12.8%
VK1 0.001 0.001 0.119 68.636 0.470 2.248 0.001 0.006 0.226 53.284 0.464 1.775 -1.3%
VK2 0.001 0.001 0.042 40.900 0.300 1.722 0.001 0.005 0.074 39.895 0.298 1.254 -0.9%
VK3 0.001 0.001 0.069 10.706 0.096 0.557 0.001 0.002 0.058 9.674 0.085 0.408 -11.7%
VK9 0.001 0.001 0.016 15.993 0.055 0.462 0.001 0.004 0.020 15.753 0.053 0.361 -3.4%
LV03 0.001 0.012 0.040 0.154 0.028 0.023 0.001 0.017 0.034 0.141 0.028 0.015 -1.5%
V03A 0.001 0.047 0.162 1.429 0.123 0.100 0.002 0.079 0.153 1.166 0.122 0.069 -0.7%
V03B 0.003 0.026 0.286 0.500 0.178 0.164 0.011 0.095 0.231 0.493 0.174 0.112 -2.0%
LV04 0.001 0.009 0.027 0.072 0.020 0.015 0.002 0.011 0.025 0.071 0.019 0.009 -8.5%
V04A 0.001 0.011 0.090 0.153 0.056 0.047 0.001 0.026 0.082 0.145 0.058 0.036 4.8%
V04B 0.001 0.003 0.104 0.199 0.069 0.066 0.002 0.040 0.120 0.191 0.084 0.053 21.5%
V05 0.001 0.001 0.013 16.099 0.058 0.695 0.001 0.006 0.019 16.080 0.051 0.528 -12.2%
V06A 0.006 0.015 0.685 1.598 0.532 0.644 0.007 0.110 0.650 1.596 0.450 0.480 -15.5%
V06B 0.008 1.044 1.044 1.044 0.965 0.274 0.286 0.848 1.007 1.043 0.899 0.179 -6.9%
V07 0.001 0.002 0.047 2.000 0.109 0.400 0.001 0.004 0.035 1.884 0.092 0.283 -16.0%
V08A 0.001 0.002 0.054 1.683 0.060 0.130 0.001 0.004 0.055 1.506 0.049 0.088 -17.8%
V08B 0.001 0.001 0.010 1.082 0.060 0.205 0.001 0.003 0.020 1.033 0.046 0.145 -24.3%
V09 0.012 0.047 1.027 1.732 0.527 0.650 0.012 0.043 0.951 1.732 0.506 0.522 -3.9%
V10 0.001 0.001 0.019 0.182 0.030 0.052 0.001 0.002 0.066 0.167 0.040 0.038 36.0%
V11 0.001 0.002 0.034 1.425 0.098 0.236 0.001 0.004 0.053 1.379 0.088 0.173 -10.2%
V12 0.001 0.002 0.249 1.505 0.176 0.331 0.001 0.003 0.248 1.468 0.155 0.252 -12.2%
V13A 0.001 0.006 0.141 25.349 0.307 1.894 0.001 0.014 0.187 25.215 0.221 1.029 -28.0%
V13B 0.001 0.003 0.095 1.000 0.082 0.162 0.001 0.011 0.142 0.985 0.089 0.121 8.3%
V14A 0.001 0.003 0.078 78.500 0.235 1.844 0.001 0.006 0.027 29.168 0.167 0.942 -28.9%
V14B 0.001 0.002 0.009 69.800 0.165 2.554 0.001 0.003 0.010 50.398 0.122 1.155 -25.7%
V15 0.215 0.215 0.328 1.739 0.495 0.543 0.222 0.275 0.677 1.736 0.537 0.444 8.5%
V16 0.135 0.135 0.288 0.288 0.212 0.076 0.137 0.156 0.273 0.288 0.212 0.057 0.1%
V18A 0.001 0.003 0.089 2.000 0.080 0.225 0.001 0.009 0.053 1.944 0.067 0.163 -17.2%
V18B 0.001 0.002 1.048 1.500 0.436 0.633 0.001 0.003 0.677 1.467 0.308 0.411 -29.5%


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    Nearest Neighbor     ID3 Estimate    
            St           St Mean
Vein Min Q1 Q3 Max Mean Dev. Min Q1 Q3 Max Mean Dev. Difference
V19 0.001 0.023 0.327 1.307 0.169 0.174 0.002 0.039 0.227 1.279 0.140 0.125 -17.3%
V20A 0.001 0.002 0.191 63.712 0.372 2.474 0.001 0.008 0.320 60.480 0.288 1.652 -22.5%
V20B 0.001 0.002 0.032 0.475 0.070 0.127 0.001 0.008 0.066 0.465 0.063 0.091 -10.5%
V21A 0.001 0.002 0.090 2.000 0.171 0.421 0.001 0.005 0.124 1.874 0.156 0.309 -8.8%
V21B 0.001 0.003 0.188 0.585 0.072 0.102 0.001 0.006 0.173 0.293 0.075 0.088 5.3%
V22A 0.001 0.004 0.279 0.902 0.158 0.192 0.001 0.015 0.227 0.854 0.132 0.128 -16.4%
V22B 0.001 0.001 0.218 2.000 0.120 0.237 0.001 0.012 0.151 1.543 0.107 0.170 -11.2%
V23 0.001 0.001 0.158 1.383 0.147 0.237 0.001 0.045 0.157 1.311 0.149 0.194 1.5%
V24 0.001 0.139 0.615 2.000 0.535 0.633 0.001 0.190 0.662 1.999 0.551 0.500 2.9%
V25 0.001 0.064 0.302 2.000 0.361 0.579 0.001 0.082 0.469 1.820 0.365 0.403 1.1%
V26 0.001 0.002 0.226 1.167 0.166 0.273 0.001 0.008 0.211 1.081 0.157 0.203 -5.4%
V27 0.001 0.004 0.170 0.735 0.116 0.129 0.001 0.012 0.185 0.731 0.105 0.088 -9.5%
V28 0.001 0.005 0.200 1.175 0.191 0.273 0.001 0.071 0.223 1.077 0.183 0.192 -4.1%
V29 0.001 0.056 0.251 0.303 0.162 0.114 0.001 0.089 0.215 0.291 0.149 0.080 -8.0%
V30 0.001 0.003 0.217 1.281 0.332 0.469 0.001 0.074 0.377 1.222 0.310 0.338 -6.7%
V31A 0.001 0.003 0.153 2.000 0.233 0.535 0.001 0.009 0.209 1.964 0.219 0.428 -6.1%
V31B 0.001 0.002 0.101 2.000 0.070 0.152 0.001 0.011 0.103 1.181 0.073 0.125 3.3%
V32 0.001 0.056 0.150 0.578 0.154 0.191 0.002 0.058 0.198 0.550 0.157 0.150 1.4%
V33 0.001 0.007 0.099 0.489 0.090 0.122 0.001 0.035 0.152 0.452 0.108 0.098 21.0%
V35A 0.001 0.004 0.110 0.180 0.055 0.070 0.001 0.023 0.092 0.178 0.059 0.040 6.7%
V35B 0.001 0.001 0.001 0.001 0.001 0.000 0.001 0.001 0.001 0.005 0.001 0.001 44.3%
V36A 0.001 0.002 0.159 35.400 0.281 1.492 0.001 0.012 0.171 30.442 0.270 1.059 -3.7%
V36B 0.001 0.002 0.127 11.205 0.152 0.587 0.001 0.009 0.177 11.189 0.155 0.401 2.2%
V37A 0.001 0.002 0.065 2.975 0.068 0.184 0.001 0.008 0.058 2.749 0.057 0.120 -16.1%
V37B 0.001 0.003 0.123 2.000 0.131 0.359 0.001 0.007 0.097 1.725 0.103 0.244 -21.3%
V38A 0.001 0.006 0.045 0.501 0.061 0.116 0.001 0.009 0.056 0.390 0.052 0.078 -14.8%
V38B 0.001 0.006 0.057 0.481 0.047 0.082 0.001 0.011 0.041 0.473 0.044 0.064 -7.4%
V39A 0.001 0.002 0.055 2.820 0.050 0.126 0.001 0.009 0.052 1.937 0.046 0.082 -9.2%
V39B 0.001 0.002 0.023 3.103 0.062 0.190 0.001 0.006 0.026 3.079 0.052 0.146 -16.1%
V40A 0.001 0.004 0.018 0.836 0.028 0.076 0.001 0.008 0.027 0.778 0.028 0.055 0.8%
V40B 0.001 0.002 0.021 17.439 0.114 0.942 0.001 0.009 0.037 16.932 0.084 0.616 -25.7%
V41A 0.001 0.002 0.111 0.828 0.084 0.157 0.001 0.007 0.089 0.532 0.079 0.126 -6.5%
V41B 0.001 0.002 0.028 0.550 0.033 0.079 0.001 0.008 0.035 0.546 0.030 0.054 -9.8%
V42 0.001 0.001 0.008 0.922 0.018 0.071 0.001 0.002 0.018 0.909 0.020 0.054 11.1%
V43 0.001 0.002 0.028 0.403 0.066 0.131 0.001 0.004 0.023 0.341 0.046 0.084 -30.1%
V44A 0.001 0.002 0.021 1.784 0.063 0.238 0.001 0.006 0.033 1.547 0.049 0.147 -21.3%
V44B 0.001 0.007 0.021 0.658 0.030 0.104 0.001 0.008 0.017 0.638 0.027 0.078 -12.1%
V45 0.134 0.292 0.400 0.400 0.291 0.101 0.141 0.227 0.361 0.400 0.288 0.077 -1.0%
V46 0.001 0.003 0.014 2.347 0.030 0.190 0.001 0.006 0.014 2.037 0.027 0.142 -9.6%


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    Nearest Neighbor     ID3 Estimate      
            St           St Mean
Vein Min Q1 Q3 Max Mean Dev. Min Q1 Q3 Max Mean Dev. Difference
V51A 0.001 0.002 1.122 1.894 0.529 0.755 0.002 0.031 0.651 1.888 0.485 0.567 -8.2%
V51B 0.001 0.001 0.449 1.665 0.341 0.523 0.001 0.034 0.718 1.161 0.349 0.399 2.4%
V53A 0.001 0.006 0.019 0.170 0.028 0.043 0.001 0.011 0.034 0.169 0.029 0.027 2.5%
V53B 0.001 0.006 0.016 0.110 0.023 0.034 0.006 0.011 0.041 0.101 0.028 0.018 24.4%
All Veins         0.226           0.210   -6.7%

Table 14-13 Estimate Comparison for Silver Versus a Nearest Neighbor at 0 Cutoff

    Nearest Neighbor       ID3 Estimate        
            St           St Mean
Vein Min Q1 Q3   Max Mean Dev. Min Q1 Q3   Max Mean Dev. Difference
VJ1 0.001 0.007 0.267 185.000 0.536 2.736 0.001 0.013 0.347 130.043 0.491 1.891 -8.4%
VJ2 0.001 0.007 0.254 94.800 0.251 1.105 0.001 0.013 0.303 84.085 0.251 0.755 -0.1%
VJ3 0.001 0.007 0.167 32.800 0.182 0.612 0.002 0.016 0.219 30.245 0.169 0.403 -7.0%
VV1 0.001 0.018 0.268 509.000 0.784 9.076 0.001 0.052 0.284 502.015 0.782 6.315 -0.2%
VV2 0.001 0.007 0.115 161.500 0.273 3.975 0.001 0.020 0.192 157.725 0.255 2.635 -6.6%
VV3 0.001 0.007 0.100 139.500 0.198 2.590 0.001 0.017 0.181 119.103 0.181 1.570 -8.6%
VK1 0.001 0.007 0.222 57.192 0.447 1.776 0.001 0.018 0.332 44.349 0.446 1.409 -0.1%
VK2 0.001 0.007 0.193 31.626 0.283 1.318 0.001 0.014 0.228 30.855 0.271 0.956 -4.2%
VK3 0.001 0.007 0.114 11.564 0.141 0.597 0.006 0.012 0.168 11.528 0.143 0.399 2.0%
VK9 0.001 0.007 0.100 10.280 0.076 0.306 0.001 0.023 0.098 10.127 0.081 0.240 6.6%
LV03 0.003 0.007 0.127 1.130 0.094 0.116 0.003 0.032 0.136 1.108 0.094 0.078 0.3%
V03A 0.007 0.008 0.354 1.556 0.267 0.267 0.007 0.110 0.339 1.478 0.251 0.188 -6.3%
V03B 0.007 0.037 0.473 1.700 0.303 0.287 0.007 0.195 0.457 1.483 0.344 0.215 13.5%
LV04 0.007 0.007 0.050 0.162 0.031 0.026 0.007 0.012 0.042 0.160 0.029 0.018 -5.8%
V04A 0.007 0.007 0.146 0.200 0.066 0.073 0.007 0.028 0.092 0.199 0.066 0.049 0.2%
V04B 0.007 0.007 0.050 0.200 0.051 0.074 0.008 0.039 0.088 0.200 0.072 0.053 41.0%
V05 0.001 0.007 0.100 0.400 0.077 0.077 0.003 0.040 0.117 0.380 0.085 0.055 10.2%
V06A 0.020 0.068 1.600 1.622 0.768 0.708 0.021 0.343 1.110 1.614 0.699 0.492 -9.0%
V06B 0.079 0.922 0.922 0.922 0.858 0.223 0.305 0.763 0.892 0.921 0.804 0.145 -6.3%
V07 0.007 0.100 0.100 1.900 0.195 0.415 0.007 0.083 0.188 1.794 0.195 0.280 0.0%
V08A 0.003 0.007 0.100 1.900 0.125 0.255 0.003 0.019 0.124 1.830 0.107 0.160 -14.4%
V08B 0.001 0.007 0.100 1.808 0.205 0.465 0.002 0.018 0.103 1.726 0.152 0.287 -26.2%
V09 0.007 0.007 0.435 0.521 0.203 0.201 0.008 0.044 0.379 0.521 0.203 0.174 -0.2%
V10 0.007 0.007 0.018 0.395 0.033 0.081 0.007 0.007 0.029 0.506 0.043 0.093 29.9%
V11 0.001 0.029 0.100 0.600 0.126 0.144 0.007 0.044 0.149 0.532 0.116 0.103 -8.0%
V12 0.007 0.082 0.353 0.753 0.216 0.201 0.007 0.087 0.301 0.734 0.203 0.147 -5.8%
V13A 0.001 0.034 0.178 2.278 0.144 0.214 0.003 0.045 0.160 2.263 0.134 0.151 -7.2%
V13B 0.001 0.012 0.100 1.900 0.127 0.178 0.001 0.027 0.180 1.722 0.124 0.130 -1.7%

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    Nearest Neighbor     ID3 Estimate      
            St           St Mean
Vein Min Q1 Q3 Max Mean Dev. Min Q1 Q3 Max Mean Dev. Difference
V14A 0.001 0.085 0.265 42.800 0.271 1.117 0.001 0.094 0.221 15.924 0.220 0.510 -18.8%
V14B 0.007 0.052 0.265 34.000 0.226 1.256 0.012 0.080 0.208 24.562 0.204 0.589 -9.7%
V15 0.111 0.222 0.604 2.000 0.608 0.634 0.117 0.369 0.761 1.997 0.647 0.500 6.4%
V16 0.025 0.025 0.158 0.158 0.092 0.066 0.026 0.043 0.145 0.157 0.092 0.050 0.3%
V18A 0.001 0.032 0.173 2.000 0.140 0.224 0.001 0.056 0.170 1.563 0.135 0.138 -3.0%
V18B 0.001 0.029 0.300 0.846 0.189 0.216 0.001 0.053 0.196 0.804 0.162 0.136 -14.2%
V19 0.007 0.007 0.074 0.607 0.119 0.208 0.007 0.019 0.047 0.606 0.079 0.129 -33.2%
V20A 0.001 0.011 0.300 14.800 0.261 0.440 0.007 0.087 0.323 9.847 0.236 0.256 -9.6%
V20B 0.003 0.015 0.200 0.400 0.137 0.104 0.007 0.102 0.185 0.394 0.141 0.074 3.3%
V21A 0.001 0.007 0.172 2.000 0.152 0.312 0.007 0.030 0.191 1.801 0.155 0.212 1.6%
V21B 0.001 0.009 0.128 0.478 0.093 0.098 0.007 0.041 0.154 0.317 0.096 0.069 3.7%
V22A 0.001 0.053 0.312 1.744 0.275 0.354 0.007 0.058 0.347 1.653 0.258 0.253 -6.4%
V22B 0.003 0.021 0.296 1.292 0.191 0.212 0.007 0.064 0.261 1.005 0.182 0.151 -5.1%
V23 0.007 0.007 0.251 0.894 0.162 0.213 0.007 0.024 0.219 0.859 0.148 0.169 -8.6%
V24 0.007 0.350 1.084 2.000 0.807 0.643 0.007 0.479 1.069 1.998 0.805 0.488 -0.3%
V25 0.007 0.007 0.350 0.380 0.174 0.152 0.007 0.022 0.281 0.374 0.165 0.123 -5.2%
V26 0.007 0.007 0.095 0.560 0.085 0.147 0.007 0.009 0.098 0.560 0.080 0.122 -5.4%
V27 0.007 0.007 0.061 0.671 0.057 0.102 0.007 0.011 0.058 0.612 0.063 0.091 9.7%
V28 0.007 0.032 0.153 0.781 0.180 0.243 0.007 0.032 0.279 0.716 0.171 0.195 -4.8%
V29 0.007 0.139 0.499 0.585 0.286 0.195 0.007 0.168 0.392 0.576 0.279 0.138 -2.4%
V30 0.007 0.007 0.298 0.753 0.264 0.256 0.008 0.102 0.315 0.732 0.250 0.185 -5.2%
V31A 0.001 0.007 0.300 5.837 0.230 0.371 0.002 0.027 0.285 4.580 0.234 0.297 1.6%
V31B 0.001 0.007 0.289 1.202 0.131 0.139 0.002 0.029 0.222 0.575 0.141 0.112 8.0%
V32 0.007 0.007 0.309 0.648 0.190 0.225 0.007 0.009 0.318 0.626 0.194 0.194 1.8%
V33 0.007 0.018 0.200 0.300 0.136 0.117 0.008 0.019 0.234 0.299 0.136 0.110 0.5%
V35A 0.007 0.007 0.125 1.027 0.184 0.340 0.007 0.016 0.148 1.014 0.150 0.230 -18.2%
V35B 0.007 0.007 0.007 0.015 0.007 0.001 0.007 0.007 0.011 0.022 0.010 0.003 38.3%
V36A 0.001 0.023 0.184 59.300 0.224 1.043 0.004 0.059 0.202 37.328 0.235 0.764 5.3%
V36B 0.001 0.007 0.183 13.000 0.216 0.720 0.004 0.051 0.268 12.980 0.219 0.467 1.5%
V37A 0.001 0.100 0.200 1.506 0.141 0.124 0.007 0.099 0.186 0.931 0.143 0.085 1.6%
V37B 0.001 0.100 0.229 1.500 0.207 0.257 0.008 0.110 0.259 1.306 0.202 0.156 -2.4%
V38A 0.007 0.035 0.200 0.400 0.117 0.104 0.007 0.043 0.153 0.400 0.105 0.076 -9.9%
V38B 0.001 0.087 0.200 0.500 0.127 0.095 0.008 0.087 0.140 0.486 0.116 0.067 -8.6%
V39A 0.001 0.022 0.114 9.000 0.141 0.295 0.006 0.056 0.166 8.775 0.142 0.228 0.3%
V39B 0.003 0.047 0.115 1.000 0.135 0.192 0.003 0.071 0.140 0.999 0.136 0.143 1.0%
V40A 0.001 0.038 0.178 2.600 0.180 0.239 0.001 0.071 0.217 2.132 0.170 0.170 -5.5%
V40B 0.001 0.022 0.362 7.563 0.260 0.488 0.004 0.068 0.331 7.346 0.234 0.328 -10.2%
V41A 0.001 0.007 0.362 0.825 0.166 0.249 0.003 0.011 0.286 0.799 0.154 0.187 -6.8%
V41B 0.003 0.007 0.129 0.500 0.117 0.144 0.003 0.021 0.174 0.487 0.113 0.110 -3.0%


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Klondex Mines Technical Report for the Fire Creek Project, Lander Page 183
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    Nearest Neighbor     ID3 Estimate    
            St           St Mean
Vein Min Q1 Q3 Max Mean Dev. Min Q1 Q3 Max Mean Dev. Difference
V42 0.001 0.007 0.100 0.300 0.049 0.050 0.004 0.027 0.077 0.300 0.054 0.040 10.4%
V43 0.001 0.061 0.100 0.187 0.081 0.041 0.004 0.068 0.100 0.186 0.086 0.025 5.0%
V44A 0.007 0.044 0.181 0.900 0.124 0.130 0.007 0.071 0.131 0.786 0.109 0.081 -12.2%
V44B 0.007 0.058 0.100 0.500 0.100 0.099 0.007 0.062 0.109 0.486 0.099 0.067 -0.5%
V45 0.200 0.200 0.753 0.753 0.453 0.239 0.204 0.298 0.600 0.752 0.456 0.180 0.6%
V46 0.001 0.061 0.100 1.500 0.101 0.146 0.011 0.080 0.108 1.402 0.106 0.108 5.8%
V51A 0.001 0.007 1.397 2.000 0.584 0.713 0.007 0.031 1.026 1.393 0.568 0.522 -2.6%
V51B 0.001 0.007 0.200 1.033 0.215 0.319 0.007 0.024 0.417 0.689 0.221 0.226 2.7%
V53A 0.001 0.099 0.300 0.600 0.170 0.145 0.001 0.076 0.265 0.571 0.162 0.126 -4.4%
V53B 0.007 0.035 0.300 0.327 0.159 0.120 0.011 0.123 0.199 0.323 0.159 0.082 -0.1%
All Veins         0.237           0.229   -3.5%

On a local scale, model validation can be confirmed by the visual comparison of block grades to composite grades. A long section of each main vein showing composites superimposed as dots on block grades is shown in Figure 14-33 through Figure 14-38. The color legend of Figure 14-32 is applied to all block and composite grade values for comparative purposes. The legend applies to both gold and silver. Examination indicates good agreement of block grade estimates with the composite grades.


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Further spatial model validation is provided by the swath plots of individual veins. Vonnie, Joyce, and Karen swath plots are presented in Figure 14-39 through Figure 14-50. These plots compare the average grade from ID3 estimations to the NN from within regularly spaced swaths or slices through the vein (both along strike and down dip). Examination of the swath plots shows a reasonable agreement among the gold and silver estimation values.

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The validations discussed above represent comparisons at a 0 grade cutoff. In reality, mining occurs above a cutoff. The grade tonnage curve is used to describe the tons and grade that may be present above a cutoff for mining. Smoothing in the estimate, the spacing of the informing samples, and the continuity of grades within the vein all affect the shape of the estimated grade tonnage curve. The validations presented below in Figure 14-51 through Figure 14-53 represent smoothing checks to understand how the estimates compare to a theoretical global estimate of the grade tonnage curve (grade tonnage curves are applied to the undiluted insitu vein grades). Note that the theoretical estimates are aspatial in nature and hence the estimates and theoretical are not expected to match exactly – differences however may indicate where significant under or over smoothing is present. The Discrete Gaussian change of support method was used in conjunction with variograms and the nearest neighbor data to derive the theoretical grade tonnage curves. The variograms shown in section 14.7 Variography were used for Vonnie Vein, Joyce Vein, and Karen Vein.

The Vonnie Vein estimates have a very similar volume to the theoretical estimates, with a 10-15% higher grade and hence higher metal above most cutoffs. The Joyce Vein estimates are similar in nature to the Vonnie Vein with similar volumes, however the grades and hence metal above cutoff are consistently 10-15% lower. The Karen Vein estimates are consistently higher grade but lower volume above cutoff. This evens out to similar metal but indicates additional smoothing may be warranted in future estimates. All vein estimates display a consistent grade tonnage curve shape with respect to the theoretical estimates.

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14.12. Mineral Resource Statement

The narrow vein mining methods practiced at the Project require a minimum stope width of four feet. The veins can vary in thickness from a few inches to over ten feet. Potentially economic mineralization must meet standard cut-off grade criteria as well as a grade thickness criterion before it is included in a mineral resource estimate. Grade thickness is calculated by multiplying the block true width by its equivalent grade. The parameters used in determining the cut-off grade and grade thickness cut-off are listed in Table 14-14.

Table 14-14 Mineral Resource Cutoff Grade Parameters

    Gold Silver
Sales Price $/Ounce $1,200 $19.00
    Included in
Refining and Sales Expense $/Ounce   Milling
Royalty   1%  
Metallurgical Recovery   94% 92%
Operating Costs      
     Ore Haulage (Portal to Mill) $/ton $ 32.66
     Direct Processing $/ton $ 47.10
     Administration and Overhead $/ton $ 47.32


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     Mining $/ton   $ 158.75
Total $/ton   $ 285.82
       
Gold Equivalent           1  64.54
Unplanned Dilution     10%
Cut-off Grade Eq. opt   0.256
Minimum Mining Width feet   4
Grade Thickness cut-off Eq. opt-ft.   1.126

Mineral resources meeting the dual constraints of cut-off grade and grade-thickness cut-off for each vein are listed in Table 14-15 below.

Table 14-15 Mineral Resource Statement as of June 30, 2015

        AuEq     AuEq
Vein Name kton Au opt  Ag opt opt Au koz Ag koz koz
   Measured      
Joyce 47.6  1.885 1.241  1.904 89.8 59.1 90.7
Vonnie 10.3  4.030 3.056  4.077 41.7 31.6 42.2
Karen 55.6  2.018 1.590  2.042 112.2 88.4 113.6
Honey Runner 1.5  3.566 0.323  3.571 5.2 0.5 5.2
Hui Wu 10.9  1.257 0.862  1.270 13.8 9.4 13.9
05 0.4  4.164 0.049  4.165 1.7 0.0 1.7
08 0.1  0.736 0.170  0.738 0.0 0.0 0.0
13 0.8  2.139 0.089  2.140 1.8 0.1 1.8
14 3.1  1.008 0.602  1.018 3.1 1.8 3.1
18 0.2  0.330 0.179  0.333 0.1 0.0 0.1
31 0.1  0.344 0.647  0.354 0.0 0.1 0.1
37 0.5  0.565 0.149  0.567 0.3 0.1 0.3
39 0.2  0.393 0.377  0.398 0.1 0.1 0.1
40 0.3  2.960 1.268  2.980 1.0 0.4 1.0
44 0.4  0.353 0.199  0.356 0.1 0.1 0.1
Total Measured 132.2  2.049 1.451  2.072 271.0 191.8 273.9
               
   Indicated      
Joyce 130.6  0.684 0.630  0.694 89.4 82.3 90.7
Vonnie 65.9  0.661 0.565  0.670 43.6 37.2 44.1
Karen 35.4  0.651 0.720  0.662 23.1 25.5 23.4
Honey Runner 22.0  0.473 0.300  0.478 10.4 6.6 10.5
Hui Wu 14.9  0.542 0.284  0.546 8.1 4.2 8.1
05 0.8  0.438 0.039  0.439 0.4 0.0 0.4
06 2.0  0.265 0.648  0.275 0.5 1.3 0.6
08 3.5  0.267 0.263  0.271 0.9 0.9 1.0


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        AuEq     AuEq
Vein Name kton Au opt Ag opt opt Au koz Ag koz koz
12 4.6  0.586 0.289  0.591 2.7 1.3 2.7
13 4.2  0.307 0.050  0.308 1.3 0.2 1.3
14 2.2  0.422 0.105  0.424 0.9 0.2 0.9
18 6.0  0.379 0.196  0.382 2.3 1.2 2.3
21 4.6  0.340 0.357  0.346 1.6 1.7 1.6
22 0.5  0.561 0.374  0.566 0.3 0.2 0.3
28 0.7  0.268 0.052  0.269 0.2 0.0 0.2
30 12.2  0.260 0.181  0.263 3.2 2.2 3.2
31 9.4  0.437 0.255  0.441 4.1 2.4 4.2
37 3.3  0.303 0.223  0.307 1.0 0.7 1.0
39 4.5  0.339 0.349  0.344 1.5 1.6 1.5
40 0.1  0.328 0.168  0.330 0.0 0.0 0.0
41 0.9  0.214 0.211  0.217 0.2 0.2 0.2
44 2.0  0.531 0.242  0.535 1.1 0.5 1.1
46 0.3  0.424 0.324  0.429 0.1 0.1 0.1
Total Indicated 330.6  0.595 0.516  0.603 196.7 170.6 199.4
               
  Measured and Indicated     
Joyce 178.3  1.005 0.793  1.017 179.2 141.4 181.4
Vonnie 76.2  1.118 0.903  1.132 85.3 68.9 86.3
Karen 91.0  1.486 1.251  1.505 135.2 113.9 137.0
Honey Runner 23.5  0.666 0.302  0.670 15.6 7.1 15.8
Hui Wu 25.9  0.844 0.528  0.853 21.8 13.7 22.1
05 1.2  1.716 0.043  1.717 2.1 0.1 2.1
06 2.0  0.265 0.648  0.275 0.5 1.3 0.6
08 3.6  0.274 0.262  0.278 1.0 0.9 1.0
12 4.6  0.586 0.289  0.591 2.7 1.3 2.7
13 5.0  0.608 0.056  0.609 3.1 0.3 3.1
14 5.3  0.763 0.394  0.769 4.0 2.1 4.1
18 6.2  0.377 0.195  0.380 2.3 1.2 2.3
21 4.6  0.340 0.357  0.346 1.6 1.7 1.6
22 0.5  0.561 0.374  0.566 0.3 0.2 0.3
28 0.7  0.268 0.052  0.269 0.2 0.0 0.2
30 12.2  0.260 0.181  0.263 3.2 2.2 3.2
31 9.6  0.435 0.261  0.439 4.2 2.5 4.2
37 3.7  0.336 0.214  0.340 1.3 0.8 1.3
39 4.7  0.342 0.350  0.347 1.6 1.6 1.6
41 0.5  2.293 0.989  2.308 1.1 0.5 1.1
44 0.9  0.214 0.211  0.217 0.2 0.2 0.2
46 2.4  0.500 0.235  0.504 1.2 0.6 1.2
Total Meas. and Ind. 462.8  1.011 0.783  1.023 467.7 362.4 473.3


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        AuEq     AuEq
Vein Name kton Au opt Ag opt opt Au koz Ag koz koz
               
Inferred      
Joyce 242.8  0.582 0.367  0.587 141.2 89.0 142.6
Vonnie 18.0  0.302 0.393  0.308 5.5 7.1 5.6
Karen 73.3  0.363 0.345  0.368 26.6 25.3 27.0
Honey Runner 17.1  0.342 0.188  0.345 5.8 3.2 5.9
Hui Wu 4.2  0.613 0.312  0.618 2.6 1.3 2.6
06 14.1  0.316 0.432  0.323 4.5 6.1 4.6
08 5.4  0.272 0.431  0.278 1.5 2.3 1.5
09 79.3  0.565 0.190  0.568 44.8 15.1 45.0
12 9.6  0.196 0.270  0.200 1.9 2.6 1.9
14 0.1  0.334 0.090  0.335 0.0 0.0 0.0
15 37.9  0.440 0.507  0.448 16.7 19.2 17.0
18 19.1  0.367 0.124  0.369 7.0 2.4 7.0
21 25.5  0.387 0.225  0.390 9.9 5.7 10.0
22 66.1  0.230 0.214  0.234 15.2 14.1 15.4
24 172.6  0.374 0.565  0.383 64.5 97.5 66.1
25 73.7  0.301 0.126  0.303 22.2 9.3 22.3
28 91.8  0.347 0.194  0.350 31.8 17.8 32.1
30 85.0  0.302 0.215  0.305 25.6 18.3 25.9
31 1.8  0.300 0.169  0.303 0.6 0.3 0.6
37 0.1  0.321 0.156  0.323 0.0 0.0 0.0
39 0.2  0.457 0.460  0.464 0.1 0.1 0.1
41 17.2  0.263 0.004  0.263 4.5 0.1 4.5
44 10.0  0.378 0.279  0.382 3.8 2.8 3.8
Total Inferred 1,064.9  0.410 0.319  0.415 436.2 339.5 441.5

Notes:

  1.

Mineral resources have been calculated at a gold price of $1,200/troy ounce and a silver price of $19.00 per troy ounce;

  2.

Mineral resources are calculated at a grade thickness cut-off grade of 1.126 Au equivalent opt-feet and a diluted Au equivalent cut-off grade of 0.256 opt;

  3.

Gold equivalent ounces were calculated based on one ounce of gold being equivalent to 64.53 ounces of silver;

  4.

The minimum mining width is defined as four feet or the vein true thickness plus one foot, whichever is greater;

  5.

Mineral resources include dilution to achieve mining widths and an additional 10% unplanned dilution.

  6.

Mineral resources include allowance for 5% mining losses;

  7.

Mineral resources are inclusive of mineral reserves;

  8.

Mineral resources, which are not mineral reserves, do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, socio-political, marketing, or other relevant factors; and

  9.

The quantity and grade of reported inferred mineral resources in this estimation are uncertain in nature and there is insufficient exploration to define these inferred mineral resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category.


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15.     Mineral Reserve Estimates

Excavation designs for stopes, stope development drifting and access development were created using Vulcan software. Stope designs were aided by the Vulcan Stope Optimizer Module. The stope optimizer produces the stope cross section which maximizes value within given geometric and design constraints.

Design constraints are for minimum cut-and-fill geometries of six feet wide and ten feet high drifts along strike of the vein, with attack ramps breasting down in waste to access each level of development.

Mining and backfill tasks were created from all designed excavations. These tasks were assigned costs and productivities specific to the excavation or backfill task type. Additionally, the undiscounted cash flow for each task was calculated. All tasks were then ordered in the correct sequence for mining and backfilling. Any task sequence or subsequence that did not achieve a positive cumulative undiscounted cash flow was removed from consideration for mineral reserves. Stope development, necessary to reach reserve excavations and exceeding the incremental cut-off grade shown in Table 15-1, are also included in mineral reserves.

Table 15-1 Mineral Reserves Cut Off Grade Calculation

    Gold Silver
Sales Price $/Ounce $1,000 $15.83
Refining and Sales Expense $/Ounce Included in Milling
Royalty   1%  
Metallurgical Recovery   94% 92%
Operating Costs      
   Ore Haulage (Portal to Mill) $/ton $32.66
   Direct Processing $/ton $46.00
     Administration and Overhead $/ton $28.25
   Mining $/ton $183.00
Total $/ton $289.91
       
Gold Equivalent      1 64.53
Unplanned Dilution   10%
Incremental Cut Off Grade   0.115
Cut-off Grade Eq. opt 0.312
Minimum Mining Width feet 4
Grade Thickness cut-off Eq. opt-ft 1.371


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Table 15-2 Fire Creek Mineral Reserves as of June 30, 2015

          Au Ag Au Equiv.
  Tons     Au Eq Ounces Ounces Ounces
Vein Designation (000's) Au opt Ag opt opt (000's) (000's) (000's)
Proven Reserves              
    Joyce 36 1.95 1.31 1.97 70.6 47.5 71.3
    Vonnie 5 6.21 4.67 6.28 33.5 25.2 33.9
    Karen 53 1.77 1.40 1.80 74.9 74.9 96.0
      20 1 5.02 0.113 5.02 6.1 0.1 6.1
      36 8 1.37 0.957 1.39 11.1 7.7 11.2
Proven Reserves 105 2.07 1.49 2.10 216.1 155.5 218.5
               
Probable Reserves              
    Joyce 71 0.768 0.653 0.778 54.2 46.1 55.0
    Vonnie 31 0.730 0.518 0.738 22.6 16.0 22.9
    Karen 17 0.797 0.678 0.808 13.5 11.5 13.7
      7 0.3 0.347 0.332 0.352 0.1 0.1 0.1
      12 2.6 0.729 0.361 0.734 1.9 0.9 1.9
      20 2.8 0.284 0.132 0.286 0.8 0.4 0.8
      31 0.7 0.566 0.182 0.569 0.4 0.1 0.4
      36 10.8 0.455 0.242 0.459 4.9 2.6 5.0
Probable Reserves 136 0.725 0.573 0 734 98.5 77.8 99.7
               
Proven + Probable Reserves              
    Joyce 107 1.17 0.877 1.18 124.8 93.7 126.3
    Vonnie 36 1.54 1.13 1.56 56.1 41.2 56.7
    Karen 70 1.54 1.23 1.56 408.3 86.5 109.7
            7 0.3 0.347 0.332 0.352 0.1 0.1 0.1
            12 2.6 0.729 0.361 0.734 1.8 0.9 1.9
            20 4.0 1.73 0.127 1.73 6.9 0.5 6.9
            31 0.7 0.566 0.182 0.569 0.4 0.1 0.4
            36 19 0.848 0.548 0.857 16.0 10.4 16.2
Proven + Probable Reserves 240 1.31 0.972 1.34 314.6 233.4 318.2

Notes:

  1.

Mineral reserves have been estimated with a gold price of $1,000/ounce and a silver price of $15.83/ounce;

  2.

Metallurgical recoveries for gold and silver are 94% and 92% respectively;

  3.

Gold equivalent ounces are calculated on the basis of one ounce of gold being equivalent to 64.53 ounces of silver;

  4.

Mineral reserves are estimated at a cutoff grade of 0.311 Au opt and an incremental cutoff grade of 0.115 Au opt, and;

  5.

Mine losses of 5% and unplanned mining dilution of 10% have been applied to the designed mine excavations.

Fire Creek mineral reserves could be materially affected by economic, geotechnical, permitting, metallurgical or other relevant factors. Mining and processing costs are sensitive to production rates. A decline in the production rate can cause an increase in costs and cutoff grades resulting in a reduction in mineral reserves. Geotechnical conditions requiring additional ground support or more expensive mining methods will also result in higher cutoff grades and reduced mineral reserves.

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The Project has the necessary permits to continue exploration and current operations. Failure to maintain permit requirements may result in the loss of critical permits necessary for continued operations.

The proximity of designed reserve excavations and existing mine workings is illustrated in Figure 15-1.


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16.     Mining Methods

16.1. Mine Development

16.1.1. Access Development

Access to the mining areas will be from haulage drifts, up to 15 feet wide and between 15 to 17 feet high. Drift gradients will vary from – 15% to + 15% to reach the desired elevation. Secondary drifts, spiral ramps and vertical raises will connect the haulage drifts to provide a pathway for ventilation to the surface and serve as a secondary escape way (Figure 16-1).


16.1.2. Ground Support

The ground conditions at the Project are typical of the northern Nevada extensional tectonic environment. Joint spacing varies from a few inches to a foot or more. To date, split sets and Swellex rock bolts along with welded wire mesh have been successfully employed to control all conditions encountered during decline development and stoping. Shotcrete has also been liberally applied to prevent long-term deterioration of the rock mass.

All major access drifts require a minimum of wire mesh and rock bolts for support. Under more extreme conditions, resin anchor bolts, cable bolts, and shotcrete can be used to supplement the primary support. Steel sets and spiling may also be used to support areas with the most severe ground conditions.

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16.1.3. Ventilation and Secondary Egress

Underground mining relies heavily on diesel equipment to extract the mineralized material and waste rock and to transport backfill to the stopes. Diesel combustion emissions will require large amounts of fresh ventilation air to remove the diesel exhaust and maintain a healthy working environment. A combination of the main access drifts and vertical raises to the surface are arranged in a manner to provide a complete ventilation circuit. The mine portal can be used as either an intake or an exhaust. Air movement will be facilitated by primary ventilation fans placed at the surface or underground in strategic locations. Small auxiliary fans and ducting will draw primary ventilation air directly into the working faces.

The ventilation raise connecting the main decline to the surface is approximately 690 feet in length and is entirely lined with corrugated metal pipe to support the ribs and maintain a uniform cross sectional area. Since the vertical extent of the raise exceeds the maximum 300 feet permitted for a continuous ladder way, it has been equipped with an automatic hoist and personnel capsule for evacuating the mine in the event of an emergency.

16.2. Mining Methods

Mining may be completed using end slice stoping with delayed backfill, also referred to as longhole stoping, and drift and fill stoping. The final choice of mining method will depend upon the geometry of the stope block, proximity to main access ramps, ventilation and escape routes, the relative strength or weakness of the mineralized material and adjacent wall rock, and finally the value or grade of the mineralized material. The choice of mining method will not be made until after the stope delineation and definition drilling is completed. Each method will be discussed briefly in the following paragraphs.

16.2.1. End Slice Stoping

End slice, or longhole, stoping has the highest degree of mechanization of the three expected mining methods at the Project, is the lowest cost method and generally provides the lowest total cost per ounce. End slice stoping requires the greatest amount of waste development and can be mined to a minimum width of four feet. The potential for unplanned wall dilution with this method is the greatest.. Figure 16-2 shows a typical end slice stoping arrangement.

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To prepare an area for end slicing, access for the mobile equipment must be developed to each level. Mine utilities for communication, water, electrical power, and compressed air must also be provided through the access development. Level spacing is limited to 40 feet to control dilution and may be increased if vein geometry, ground conditions, and vein thickness are favorable. The minimum level spacing achievable with this method is 30 to 35 feet and is limited by the stability of the intervening pillar between levels. Mining will progress upwards from the lowest level of the stope block. Drilling and blasting will be carried out from the drift above the active stope while the broken mineralized material will be removed from the bottom drift. The loader used for excavation is equipped with line of sight remote control to allow the removal of all blasted rock without exposing the operator to the open stope and the potential risk of ground falls.

The amount of mineralization that can be removed prior to backfilling will be constrained by the strength of the gangue material and jointing present immediately adjacent to the stope. Backfill, consisting of either waste rock or cemented rock fill, will be transported from the surface using the same haulage equipment used to remove mineralized material and waste rock from the mine. Where possible, waste rock will be retained within the mine and placed directly into a stope requiring backfill. The stope will be backfilled from the drift used for drilling and blasting.

Cemented rock fill (CRF), which consists of screened mine waste,, fly ash, and cement will be mixed on the surface and transported underground in the same trucks used to haul blasted rock to the surface. CRF will be placed to create an artificial pillar where additional mining is planned adjacent to or underneath the stope being filled. Normal backfill unconfined compressive strengths (UCS) of 400 to 600 pounds per square inch (psi) will be achieved by blending a mixture containing up to four percent cement and fly ash. When mining is anticipated to occur below the backfilled stope, the UCS of the fill will be increased up to 1,000 psi by adding up to eight percent cementatious binder.


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A typical end slice stoping arrangement at Fire Creek is presented in Figure 16-2. Stope development drifting is planned at six feet wide and ten feet high to accommodate the production drill. Levels are located at 40-foot vertical intervals to control dilution and may be increased as experience is gained in mining the Fire Creek veins. Stope widths have been designed at either four feet or the horizontal vein thickness plus two feet, whichever is greater.

All stope cross sections were calculated using Vulcan stope optimizer software. This software calculates the optimal stope dimensions and orientation within the dip constraints on the hanging wall and footwall as well as the given level spacing.


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16.2.2. Drift and Fill Stoping

This method can be employed where the wall rock is too weak for end slice stoping, the vein dip is less than 50° or where there is variable vein geometry. Cut and fill stoping is the highest cost mining method of the two considered. A typical cut and fill stope arrangement is shown in Figure 16-3.

A drift and fill stope is initiated by driving a waste crosscut from the access ramp to the vein. The cross cut is driven at a negative gradient up to minus 15% in order to reach the lowest elevation of the stope. Drifting along the vein strike progresses in both directions from the cross cut. Drift dimensions are a minimum of six feet in width and 10 feet high. The width can be increased to accommodate wider sections of the vein.

Once the end of the stope is reached, the drift can be backfilled with CRF if there is unmined ore below or with unconsolidated waste backfill (GOB) if mining below is not planned. Once filled, breasting down the waste above the back of the cross cut begins at a gradient sufficient that the sill of the crosscut is now at the same elevation as the back of the preceding drift. This process will be repeated until all the vein within reach from the cross cut has been mined out, and mining will proceed from the next level above.

16.3. Underground Labor

Peak underground work force requirements for the Project are presented in Table 16-1. This estimate was prepared using productivity rates typical for small-scale mechanized mining in North America. The Project will operate 24 hours per day seven days per week. Project operations workforce will be divided into four crews scheduled to work 14 out of every 28 days.

Table 16-1 Underground Workforce 2015 and 2016

Job Classification Count
Miners 45
Mechanics 15
Supervision 6
Technical Staff 12
Manager 1
     Total 79

16.4. Mobile Equipment Fleet

Development drifting averages 18 feet per day for the remainder of 2015 and decreases to five feet per day in 2016 and 2017. Production rates of 250 tons per day (tpd) are planned in the first two years and will decrease to 180 tpd by 2017 unless reserves are increased. Table 16-2 lists the mining fleet necessary to achieve the development and production goals outlined in the mine plan. The majority of this equipment was surplus equipment from the Midas Mine purchase by Klondex in 2014 and is on site. The stope production drill is the only major piece of equipment that has not yet been acquired.


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Table 16-2 Underground Mobile Equipment

  Units on Additional
Description Site Units Req’d
2 boom jumbo 1  
Single boom jumbo 1  
Bolter 1  
6 Yard LHD 1  
4 Yard LHD 1  
2 Yard LHD 2  
15 - 20 ton trucks 2  
30 Ton Trucks 2  
Stope ring drill   1
Shotcrete pump, robotic spray arm and carrier 1  
Shotcrete remix trucks 2  

16.5. Mine Plan

The productivities of Table 16-3 represent typical values achieved in northern Nevada for the type and size of excavations planned at the Project. These productivities were used to develop the production plan shown in Figure 16-4 through Figure 16-6 and Table 16-4.

The production plan is premised on the number of available stoping areas as of the date of this TR and does not take into account development of additional stoping areas. Increasing the available labor force or the equipment fleet will not have significant impact on the production rate or anticipated mine life of 4.0 years.

Table 16-3 Heading Productivity

Heading Type Units Daily Rate
Capital Development Drift Feet/day 16
Drop Raise Feet/Day 5
Stope Development (6 x 10) Feet/day 21
End Slice (Longhole) Stoping Ton/day 160
Drift and Fill Stoping Ton/Day 100
Backfill Ton/Day 200

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Table 16-4 Annual Production and Development Plan

Calendar Year 2015 1 2016 2017 2018 Total
           
    Reserves Mined          
         Prov e n Ore Mined (000's Tons) 24.9 45.1 35.2 0.0 105.2
         Gold Grade (Ounce/Ton) 1.788 2.057 2.242 0.000 2.055
         Silver Grade (Ounce/Ton) 1.245 1.530 1.580 0.000 1.479
         Contained Gold (000's Ounces) 44.5 92.7 78.9 0.0 216.1
         Contained Silver (000's Ounces) 31.0 69.0 55.6 0.0 155.5
           
         Probable Ore Mined (000's Tons) 26.9 54.2 36.7 17.1 134.8
         Gold Grade (Ounce/Ton) 0.679 0.603 0.686 1.308 0.730
         Silver Grade (Ounce/Ton) 0.518 0.488 0.583 0.942 0.577
         Contained Gold (000's Ounces) 18.3 32.7 25.1 22.4 98.5
         Contained Silver (000's Ounces) 13.9 26.4 21.4 16.1 77.8
           
         Total Reserves Mined (000's Tons) 51.8 99.2 71.8 17.2 240.0
         Gold Grade (Ounce/Ton) 1.212 1.264 1.448 1.307 1.311
         Silver Grade (Ounce/Ton) 0.867 0.961 1.071 0.941 0.972
         Contained Gold (000's Ounces) 62.7 125.4 104.0 22.4 314.6
         Contained Silver (000's Ounces) 44.9 95.4 76.9 16.1 233.4
         Contained Gold Equiv. (000's Ounces) 63.4 126.9 105.2 22.7 318.2
           
Production Mining          
         Stope Development and Cut and Fill Mining (000's Tons) 15.3 7.0 4.6   26.9
         Longhole Stope Mining (000's Tons) 38.4 97.7 69.3 16.2 221.7
         Backfill(000's Tons) 59.2 122.6 119.4 34.2 335.4
Waste Mining          
         Expensed Drift Waste (000's Tons) 4.6 5.1 9.2 3.7 22.5


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Calendar Year 2015 1 2016 2017 2018 Total
         Bench Waste (000's Tons)         -
         Expensed Waste (000's Tons) 4.6 5.1 9.2 3.7 22.5
         Primary Capital Drifting (Feet) 2,814 636 268   3,717
         Secondary Capital Drifting (Feet) 1,110 714 173   1,997
         Capital Raising (Feet) 154 1,310 66   1,530
         Capitalized Mining (000's Tons) 41.0 27.2 8.9   77.1
           
Total Tons Mined (000's Tons) 97.4 131.5 89.9 20.9 339.6
Mining Rate (tpd) 529 359 246 57 248

  1.

The mine plan for 2015 includes only projections for the period from July 1, 2015 to December 31, 2015.


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17.     Recovery Methods

A local contractor transports mineralized material from the bulk sampling program at Fire Creek to the Midas Mill on public roadways which is a distance of approximately 131 miles. Mineralized material from each mine is segregated through the crushing circuit. The mill has two 500-ton fine ore bins located between the secondary crusher and the ball mill and one bin is dedicated to each mine. Head samples are taken on each reclaim conveyor at regular intervals, and tonnage measured by a belt scale prior to comingling the mineralization streams.

The Midas Mill was constructed in 1997 and has a nameplate capacity of 1,200 tpd. The mill uses conventional grind-leach technology with Counter Current Decantation (CCD) followed by Merrill Crowe precipitation. Doré refining is finalized by Asahi refineries in Salt Lake City, Utah. Midas has performed toll milling periodically since 2008.

17.1. Mill Capacity and Process Facility Flow Diagram

A process facility flow sheet is shown in Figure 17-1. Underground mineralized material extracted and delivered from Fire Creek and the Midas Mine to the run of mine (ROM) pad where it is placed on short term ROM mineralized material stockpiles. Typical mineralized material classifications are: low grade less than 0.3 opt Au or less than six opt silver; high grade (0.3 to 0.5 opt gold or six to 20 opt silver); and ultra-high grade less than 0.5 opt gold or less than 20 opt silver). Separate stockpiles are maintained for each mine. Underground mineralized material is hand-picked on the pad for scrap wire mesh and rock bolts before being fed to the crusher.

Mineralized material is crushed in two stages through a 30-inch by 40-inch primary jaw crusher and 53-inch secondary cone crusher. Both jaw and secondary crusher products are fed to a six feet by 20 feet Nordberg double deck vibrating screen fitted with two-inch top deck and one-half inch bottom deck screen panels to produce a 95% passing one-half inch product. Magnetic material is removed from the crusher screen feed by a continuous self-cleaning belt magnet to protect the cone crusher from damage. Screen undersize is conveyed to one of two 500-ton fine mineralized material bins.

Crushed and screened material is transported from the fine material bins by individual belt feeders into the 10.5 feet by 15 feet rubber lined Nordberg ball mill. The ball mill is charged with a blend of three-inch and two-inch grinding balls to maintain an operating power draw of 800 horse power (HP). Mill discharge pulp is pumped to a nest of four ten-inch Krebs cyclones (three duty, one standby) for classification. Cyclone overflow, at 80% passing 200 mesh, reports to the trash screen. Cyclone underflow reports to a two millimeters (mm) aperture scalping screen, with the screen undersize being distributed by three-way splitter to the ball mill, verti-mill, and gravity circuit. Lead nitrate solution is added to the ball mill feed chute to enhance silver leach kinetics.


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A split of the screened cyclone underflow reports to the 250 HP verti-mill for open circuit grinding with the verti-mill discharge overflowing back to the primary ball mill discharge pump box. The verti-mill is charged with one inch grinding balls. A split of the screened cyclone underflow also reports to the 20-inch Knelson concentrator for gravity gold recovery. The Knelson operates on a 30-minute cycle providing concentrate for cyanidation in the CS500 Acacia Leach Reactor which conducts three 750 to 1,000 kg batch leaches each week. Pregnant solution from the leach reactor reports to the CCD circuit pregnant solution tank.

Cyclone overflow is screened to remove any plastic debris before reporting to a 42.5 feet diameter pre-leach thickener. Thickener underflow at 50% solids is pumped to the leach circuit consisting of eight 28 feet by 30 feet air sparged leach tanks, providing a leach residence time of approximately 90 hours at 600 tons per hour (tph) feed rate. The pH in the first leach tank is maintained at 10.4 to 11.0 through the addition of hydrated lime, produced from the on-site slaking of pebble lime. Sodium cyanide concentration in the second leach tank is maintained at 1.25 grams per liter (gpl).

The leach circuit discharge is pumped to the first of five 42.5 feet diameter CCD thickeners, where the pulp is counter-current washed with barren Merrill Crowe liquor at a wash ratio of approximately 3.2:1. CCD thickener underflow at each stage is maintained at between 50 and 54% solids to maximize wash efficiency.

Pregnant CCD solution at a pH of 11.0 and 400 gallons per minute (gpm) flow rate is fed to one of two disc filters operating in duty/standby mode utilizing diatomaceous earth for clarification. The clarified pregnant solution is then pumped to a packed bed vacuum de-aeration tower, prior to the addition of zinc dust and lead nitrate to precipitate precious metals from solution. The Merrill Crowe solution is then pumped to one of two plate and frame filter presses for sludge recovery. The sludge is collected from a filter press weekly and smelted to produce 5,500 ounce silver and gold doré bars.

Tailings pulp from the last CCD thickener is pumped to the Inco SO2/Air circuit for cyanide destruction. Cyanide destruction is performed in a single 20 feet by 20 feet agitated, air sparged tank providing approximately one hour reaction time. Ammonium bi-sulphite, lime, and copper sulphate as a catalyst are added to the tank on a ratio control basis to achieve target weak acid dissociable (WAD) cyanide permitted levels. Routine picric acid analyses are used by operating personnel to maintain WAD cyanide in the INCO cyanide destruction tank discharge pulp at target levels.

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Following cyanide destruction, the plant tailings pulp is discharged to one of two lined tailings storage facility (TSF) for consolidation and water recovery. Clarified decant pond solution is evaporated or returned to the mill process water tank for reuse in the plant.

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17.2. Physical Mill Equipment

The Midas Mill equipment list is shown in Table 17-1.

Table 17-1 Process Equipment Itemization by Area

Description Number Spare Note Description Number Spare Note
AREA 350 GRINDING              
BIN, MILL TROMMEL REJECTS CS Construction, w/lift lugs, 6.5' x 6.5' x 4' 1 HEATER, MILL FEED CONVEYOR GALLERY w/fan 1 5 kW
CHUTE, BALL TRANSFER 1 LAUNDER, MILL DISCHARGE CS, Rubber Lined 1   
CHUTE, FINE ORE BIN DISCHARGE CS Plate Construction, AR Plate Lined 1 PUMP BOX, CYCLONE FEED 6' x 6' x 6'', 1200 gal, CS, Rubber Lined 1   
CHUTE, FINE ORE FEEDER DISCHARGE CS Plate Construction, AR Lined 1 PUMP, CYLCONE FEED 550 gpm, 4 x 3, Centrifugal Slurry, VFD, Rubber Lined CS 1 1 50 HP
CHUTE, MILL FEED Includes ball charge attachment, CS Construction, AR Lined 1 SAMPLER, CYCLONE OVERFLOW 223 gpm, single stage slurry cutter, CS Rubber Lined 1 0.5 HP
CHUTE, BALL DISCHARGE CS Plate Construction, AR Plate Lined 1 BELT SCALE, MILL FEED 30 tph, 24", 4 idler weigh bridge 1   
CHUTE, MILL TROMMEL COVER CS Plate Construction 1 CYCLONE PACKAGE 2 - DS15LB-1826 Cyclones, radial manifold, w/ launders 2   
CHUTE, MILL TROMMEL REJECTS CS Plate Construction 1 DUST COLLECTOR PACKAGE PULSE Air, induction, 5000 cfm, 0.5 psi 1 20 HP
CONVEYOR, MILL FEED 30 tph, troughed rubber type, 36" width, 116' Length, 12' lift, 50 fpm 1 7.5 HP FEEDER, FINE ORE DISCHARGE Rotary Valve 1 5 HP
FAN, FINE ORE LOWER BUILDING VENT 4000 cfm, Wall exhaust 2 1.0 HP LUBE SYSTEM, BALL MILL Air operated, w/heater 2 5 kW
FEEDER, FINE ORE 30 tph, 30" width, 29' length, VFD 1    5.0 HP MILL, BALL 10.5' Diameter, 14' Length, Rubber Lined 1    800 HP



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Description Number Spare Note Description Number Spare Note
AREA 410 LEACH              
Knelson gravity concentrator, 20 inch CS 500 Acacia leach reactor    
AGITATOR, LEACH 109" Diam., Dual Impellers, 8' sch 80 Shaft, 292" Length, CS Construction, Rubber Lined 8   40 HP SAMPLER, LEACH TAILS 330 gpm, Slurry Cutter 1   0.5 HP
FAN, PRE-LEACH THICKENER VENT 3000 CFM @ 0.25 WG 1 0.5 HP SCREEN, TRASH 4' X 5', Vibrating 2 2.5 HP
HEATER, PRE-LEACH THICKENER VENT 40,000 BTU, propane 1 35 HP STANDPIPE, PRE-LEACH THICKENER O/F 2.5' Diam., 20' high, Open Top, CS Construction 1   
LAUNDER, LEACH, INTERTANK CS Construction, w/Gate 8 PUMP BOX, CCD FEED SPLIT TO #1 AND #2 600 gal, 4X4X6' w/weirs, CS Construction, Rubber Lined 1   
LAUNDER, LEACH, INTERTANK bypass CS Construction, w/Gate 7 PUMP, PRE-LEACH THICKENER AREA SUMP 200 gpm, 2.5" Diam. Vertical Slurry, Rubber Lined 1 7.5 HP
PUMP BOX, LEACH TAILS 6' x 6' x 6', 1200 gal, CS, Rubber Lined 1 PUMP, LEACH THICKENER AREA SUMP 200 gpm, 2.5" Diam. Vertical Slurry, Rubber Lined 1 7.5 HP
PUMP, LEACH TAILS 327 gpm, 4X3, Centrifugal, CS Rubber Lined 2 1 7.5 HP TANK, LEACH 28' x 30', Open top, CS Construction 8   
PUMP, PRE-LEACH THICKENER O/F 533 gpm, 3X4, Centrifugal, CS Construction, Packed Seal 1 1 15 HP THICKENER, PRE-LEACH 59.5' Diameter, 19.5' Height, Feed well, All Gear, CS Construction 1 15 HP
PUMP, PRE-LEACH THICKENER U/F 330 gpm, 3X4, Centrifugal, CS Construction, Rubber Lined 1 10 HP   
AREA 430 CCD THICKENING               
FAN, CCD ARE VENT 6000 cfm, Wall Exhaust 4    1 HP PUMP, CCD THICKENER U/F ADVANCE 160 gpm, 3X4, Centrifugal, CS Construction, Packed Seal 5 5 4.5 HP


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Description Number Spare Note Description Number Spare Note
HEATER, CCD ARE VENT 20 MBH, Propane w/motor 4 1 HP SAMPLER, LEACH TAILS 330 gpm, Slurry Cutter 1 0.5 HP
PUMP, LEACH CCD AREA SUMP 200 gpm, 2.5" Diam. Vertical Slurry, Rubber Lined 1 7.5 HP STANDPIPE, CCD thickener 2.5' Diam., 20' high, Open Top, CS Construction 5   
PUMP, CCD THICKENER O/F ADVANCE 300 gpm, 3X4, Centrifugal, CS Construction, Packed Seal 5 1 7.5 HP THICKENER, CCD 42.5' Diam. 19.5' high, feed well, all gear 5   
AREA 450 CYANIDE DESTRUCTION              
AGITATOR, CYANIDE DESTRUCTION 121" Diam., Dual Impellers, 10' sch 160 Shaft, 292" Length, CS Const., Rubber Lined 1 125 HP TANK, CYANIDE DESTRUCTION 20' X 20', Open Top, CS Construction 1   
SAMPLER, CYANIDE DESTRUCTION 200 gpm, Slurry Cutter 1 0.5 HP   
AREA 470 TAILING HANDLING              
PUMP, TAILINGS DISTRUBUTION 420 gpm, 3X4, Centrifugal, CS Construction, Rubber Lined 1 10 HP PIPE, TAILINGS 8" HDPE, SDR 11 800 ft   
PUMP, CCD THICKENER U/F ADVANCE 160 gpm, 3X4, Centrifugal, CS Construction, Rubber Lined 5 1 7.5 HP PIPE, TAILINGS 12" HDPE, SDR 11 800 ft   
AREA 510 MERRILL CROWE              
FILTER, CLARIFYING 400 ft 2 , 210 gpm, 25 ppm solids, 54" diam. X 8', flushing 1 1 HP PUMP, PREGNANT SOLUTION 600 gpm, 3X4, CS Construction 1 1 30 HP
PUMP, BARREN SOLUTION 600 gpm, 4X8, Centrifugal, CS Construction 1 1 15 HP PUMP, FILTER FEED 600 gpm, 3X4, CS Construction, flooded mechanical seal 1 1 15 HP


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Description Number Spare Note Description Number Spare Note
FEEDER, ZINC 50 lb./hr 1 TANK, DEAERATION 3' Diam. X 20' high, 22 in. water vacuum 1   
AREA 550 REAGENTS              
PUMP, FLOCCULANT METERING 2 gpm, Progressive Cavity 1 1.5 HP PUMP, ABS METERING 75 gpm, Metering Type, Mechanical Seal 1 1   
PUMP, FLOCCULANT METERING 0.5 gpm, Progressive Cavity 5 1 HP TANK, COPPER SULFATE STORAGE 2900 gal, 8' Diameter X 9'' high, closed, SS Construction 1   
PUMP, REAGENT METERING 25 gpm, Metering Type 3 1 1 HP FLOCCULANT PACKAGE, SELF COONTAINED Includes Agitator, Blower, Bin Feeder, Mixer, Taanks, SS Construction 1 3 HP
AREA 650 UTILITIES              
PUMP, PROCESS WATER 1200 gpm, 6X8, CS Construction, Packed Seal 1 125 HP BLOWER, CYANIDE DETOXIFICATION 1000 cfm, Rotary, Two Stage, Intercooleer, Filter Intake 1 75 HP
BLOWER, LEACH TANK 320 cfm @ 20 psig, Rotary, Two Stage, Intercooler, Filter Intake 1     30 HP            

17.3. Operation and Recoveries

Fire Creek mineralization performs quite well under direct cyanidation with daily recoveries as high as 95.1% for gold and up to 95% for silver. The process performance is consistent with gold recovery having a standard deviation of less than two percent. Variances in gold recovery are due to the head grade and grind size, and do not appear to be associated with mineralized material type. The standard deviation of silver recovery is less than four percent with variance due to head grade, grind size, and clay content. Clay enriched mineralization often has higher silver to gold ratios and tend to present recovery difficulties. Recoveries occasionally fall outside the expected distribution because of plant or operating issues. The current grind is 80% passing 200 mesh. The feasibility of producing a finer grind product to improve gold and silver recovery is currently under analysis by Klondex.

17.4. Tailings Storage Capacity

Klondex completed an expansion of the current TSF in late 2015. The remaining capacity in the expanded Midas Phase 4/5 TSF is estimated to be 700,000 tons, as of year-end 2015. A raise on the existing embankment of approximately four feet using an engineered retaining wall was completed in 2015. This expansion option had the advantage of staying inside the existing TSF footprint and was permitted with a minor modification to the existing plan of operations.


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The 2015 performance of the TSF included evaporation of over 60 M gallons of water utilizing fourteen evaporator units.

Currently, 14 evaporators operate 24 hours per day, seven days per week during the peak evaporation season to assist in the evaporation of excess water in the TSF.

17.5. Processing Costs

Midas Mill operating costs from 2012 to 2015 are summarized in Table 17-2.

Table 17-2 Midas Mill Operating Costs

  $/ton     Total Tonnage    
Year Budget Actual Variance Budget Actual Variance
2012 $33.12 $35.02 $1.90 373,000 330,000 -43,000
2013 $35.49 $39.05 $3.56 255,600 207,600 -48,000
2014 1 $62.53 $57.49 -$5.04 174,425 171,818 -2,607
2015 $56.83 $48.06 -$8.77 215,870 261,290 45,420

Notes:

  1.

Klondex became the operator of the Midas Mill on February 11, 2014. Newmont was the prior operator.

The elevated cost per ton for 2013 is likely the result of the inflexibility of fixed costs versus diminished throughput. If the total cash costs are divided by the budgeted tonnage, the average cash cost per ton would be US$32 per ton, which is more in line with the projected costs.

Future processing cost projections reflect 2014 consumption rates and pricing levels for reagents, and electrical power. Adequate water is available from onsite supply wells and the Midas Mine.

17.6. Production

Doré is shipped to the refinery as 5,500-ounce bars that average approximately 3.94% gold and 90.1% silver plus minor constituents, including less than two percent selenium. Table 17-3 provides a monthly summary of the processing at the Midas Mill of mineralized material extracted at Fire Creek under the bulk sampling permit.

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Table 17-3 2014 Fire Creek Mineralized Material Processed at the Midas Mill

  Feb. 1 March April May June July Aug Sept. Oct. Nov. Dec. 2014
Tons (000's) 2.3 5.5 2.7 5.7 6.0 5.7 6.1 5.7 6.8 4.6 4.0 55.0
Au grade 0.765 1.512 0.724 1.030 0.959 1.227 2.061 1.566 1.184 1.215 0.789 1.252
Ag grade 0.77 1.51 0.56 0.75 0.69 1.04 1.82 1.77 1.37 1.44 0.95 1.21
feed Au oz (000's) 1.8 8.3 1.9 5.9 5.7 7.0 12.6 8.9 8.0 5.6 3.2 68.8
feed Ag oz (000's) 1.8 8.3 1.5 4.3 4.1 6.0 11.1 10.0 9.3 6.6 3.8 66.7
% Au Rec. 94.7% 94.5% 99.9% 89.9% 92.7% 94.8% 95.7% 93.1% 93.8% 95.1% 91.8% 94.1%
% Ag Rec 95.7% 94.0% 97.6% 95.8% 92.6% 95.4% 94.5% 97.6% 94.8% 96.2% 94.1% 95.4%
Au oz Rec (000's) 1.7 7.8 2.0 5.3 5.3 6.6 12.0 8.3 7.5 5.3 2.9 64.7
Ag oz Rec (000's) 1.7 7.8 1.6 4.1 3.8 5.7 10.5 9.8 8.8 6.4 3.6 63.7

Note:

  1.

Includes only production following the completion of the Midas purchase from Newmont on February 11, 2014.

Table 17-4 2015 Fire Creek Mineralized Material Processed at the Midas Mill

  Jan. Feb. March April May June H1 2015
Tons (000's) 8.1 6.3 6.5 5.2 6.0 8.4 40.5
Au grade 0.888 0.820 1.024 0.796 0.820 1.257 0.9554
Ag grade 0.63 1.01 1.36 1.11 1.34 1.41 1.1335
feed Au oz (000's) 7.2 5.2 6.6 4.1 5 10.5 38.6
feed Ag oz (000's) 5.1 6.4 8.8 5.8 8.1 11.8 46
% Au Rec. 95.0% 92.8% 94.2% 93.5% 95.8% 94.1% 94.6%
% Ag Rec 85.1% 92.8% 93.1% 95% 93.7% 91.6% 92%
Au oz Rec (000's) 6.8 4.8 6.3 3.9 4.8 9.9 36.5
Ag oz Rec (000's) 4.3 5.9 8.2 5.5 7.6 10.8 42.3

Note: Totals may not add due to rounding.

17.7. Midas Mill Operating Permits

The Midas Mill is currently operating under three Air Quality Operating Permits administered by the Nevada Department of Environmental Protection (NDEP) Bureau of Air Pollution Control and one Water Pollution Control Permit administered by the Nevada NDEP Bureau of Water Pollution Control. The permits are discussed in detail in Section 20.

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18.     Project Infrastructure

18.1. Road Access

The Project is easily accessible from paved state highways and from a graded gravel mine access road. The main access passes through a small residential area for about two miles where the speed limit is reduced to minimize any potential impacts on the community. The gravel road can be occasionally impeded by mud in wet or snowy weather.

The state and county roads are well maintained in order to service the ranches and mines in Crescent Valley. Klondex provides some road maintenance assistance to Lander County.

18.2. Power and Electrical Infrastructure

A regional electrical transmission line runs two miles east of the Fire Creek Project. A substation was constructed in 2012 to service the Fire Creek Project. The power line joining the Fire Creek Project to the substation was completed in August 2013, eliminating the need to use generators to supply power for mine operation.

18.3. Water Management and Water Treatment

Klondex manages surface and underground water using a pond system, drainage ditches, and a water treatment plant (WTP). Surface water from precipitation events is diverted away from the Project infrastructure with a series of drainage ditches. Surface water within the disturbance areas is diverted to one of two ponds: the Stormwater Pond and the Dewatering Storage Pond. The ponds have a combined volume of approximately 4.7 million gallons (Figure 18-1). Klondex is commissioning two RIBs, which will also be included in the water management system. When completed, the RIBs are expected to have the capacity to infiltrate up to 3,000 gpm of water meeting the Profile I standard. Permit approval was obtained in June 2014.

Water from underground mining operations that does not meet NDEP Profile I standards (Profile I) is pumped to the Dewatering Storage Pond, which holds a total capacity of approximately 2.8 million gallons. This water is treated through the WTP to meet the Profile I requirement. Brine reject solution from the WTP is stored in the Stormwater Pond, where it is evaporated or shipped off-site for disposal. Treated water from the WTP and water from underground that meets the Profile I standard can be managed in several ways: used for dust suppression on roads and during construction events; infiltrated in the RIBs; or used underground for mining activities.

Klondex has permitted and constructed an artesian well, PW-1, which can provide up to three gpm of fresh water to the Project. Klondex currently holds annual water rights for 283 acre-feet of water. A fire water tank is located above the facilities and gravity flows to hydrants located near the Project buildings.


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18.4. Communication Infrastructure

Internet connectivity is provided by WesNet, via 11GHz licensed Microwave frequency, with a 20Mbps Direct Internet Access (DIA) connection. Cell phone coverage is provided by Verizon Wireless, and the signal is boosted by a Klondex provided network extender.

18.5. Site Infrastructure

Project infrastructure is comprised of two large tented structures, heavy equipment parking areas, several mobile office units, several Conex mobile containers, and lay-down areas. The two-tented structures are used for maintenance of the mobile fleet and other production related equipment. The east bay is designated the mechanical shop. The west bay is divided into an area for lubrication and a wash bay. Several Conex containers and outbuildings are used for storing parts and tools near the maintenance buildings. The electric storage area and diesel storage area are also located near the maintenance building Figure 18-1.

The engineering and geology offices, security, and staff dry area are in mobile office units with light vehicle parking areas in front. These buildings are connected to non-potable water pipelines and septic system. The core logging facility is a 1,000 square foot (sf) plasticized-canvas covered outbuilding with overhead lights and propane heater located beside a core lay down area of about 500 sf. The core splitting facility is housed next to the core logging facility in a mobile Conex container.

In addition to the offices, there are areas designated for septic leach field, waste rock dump, WTP, sediment control ditches, ore storage, and re-vegetated stockpiles.

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19.     Market Studies and Contracts

19.1. Precious Metal Markets

Gold and silver markets are mature with reputable smelters and refiners located throughout the world. Following several years of increases, gold and silver prices began declining in 2012. As of June 2015, the 36-month trailing average gold price was $1,375 per ounce, the 24-month trailing average price was $1,263 while the monthly average had dropped to $1,182. The silver price trend shows similar behavior and both are shown in Figure 19-1.


19.2. Contracts

As part of normal mining activities, Klondex has entered into contracts with several mining industry suppliers and contractors. The terms of these agreements are customary for mines in the area.

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19.3. Project Financing

On February 11, 2014, the Company entered into the Gold Purchase Agreement with Franco-Nevada GLW Holdings Corp., a subsidiary of FNC, pursuant to which the Company raised proceeds of US$33,763,640 in consideration for the delivery of an aggregate of 38,250 ounces of gold on a monthly basis over a five-year period ending on December 31, 2018. Under the terms of the Gold Purchase Agreement, the Company is required to make gold deliveries at the end of each month, with the first delivery due on June 30, 2014. Gold deliveries will cease when the delivery of 38,250 ounces of gold is completed on December 31, 2018. The annualized delivery schedule is shown in Table 19-1.

Table 19-1 FNC Gold Delivery Schedule

Year Gold Ounces
2014 6,750
2015 7,500
2016 8,000
2017 8,000
2018 8,000
Total 38,250

The Company's obligations under the Gold Purchase Arrangement and the Company’s $25.0 million secured revolving facility with Investec Bank PLC (the “2016 Debt Financing”) are secured against all of the assets and property of the Company and its subsidiaries. The security granted for the performance of the Company's obligations under the 2016 Debt Financing and the Gold Purchase Arrangement rank pari-passu.

On February 12, 2014, the Company entered into a royalty agreement (the FC Royalty Agreement) with Franco-Nevada US, a subsidiary of FNC, and KGS, pursuant to which KGS raised proceeds of US$1,018,050 from the grant to Franco-Nevada US of a 2.5% NSR royalty for all Fire Creek production beginning January 1, 2019.

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20.     Environmental Studies, Permitting and Social or Community Impact

Klondex conducts mining activities in compliance with all applicable environmental protection legislation. Klondex is unaware of any existing environmental issues or compliance problems that have the potential to impede production at the Fire Creek Project. Klondex is working closely with both state and federal regulators to ensure that the permitting and compliance strategies are acceptable and will not cause delays in production or mine development. Klondex has a strong cultural resource preservation program, which allows a third party archeologist time to review potential areas of new disturbance. At this time, there are no community or social impact issues regarding work being completed at the Project.

20.1. Environmental Compliance and Monitoring

As required by the environmental operational permits (see Table 19-1), Klondex prepares quarterly and annual reports which are submitted to regulators. Compliance information included in these reports is based primarily on permit requirements and limitations. Permit limits and associated monitoring requirements are specified as a part of each permit.

20.1.1. Waste Rock Disposal Facility

Initial humidity cell test work results indicate that a portion of the waste rock removed from the mine will have the potential to degrade waters of the State of Nevada. As a result of mine expansion, Klondex is constructing a new waste rock disposal facility, and this facility design includes waste rock staging to ensure that any material that has potential to degrade water of the state is segregated from non-acid generating materialls and engineered to alleviate any acid drainage problem.

20.1.2. Other Environmental Issues

At this time, Klondex does not anticipate construction or operation of any processing facilities. Heap leaching, tailings management, or other processing components are not included as part of the permitting strategy and not part of the resource.

20.2. Reclamation Bond Estimate

Klondex’s last amendment to the Reclamation Bond Estimate (RCE) to include construction and operation of the RIBs was received in February 2014. The total of the RCE is calculated using the Standard Reclamation Cost Estimator (SRCE), which is adjusted annually for inflation. The SRCE was developed in a cooperative effort between the NDEP, Bureau of Mining Regulation and Reclamation, BLM, and the Nevada Mining Association to facilitate accuracy, completeness, and consistency in the calculation of costs for mine site reclamation. Klondex is required to update the total RCE for Fire Creek every three years. The next RCE update is scheduled for 2016.


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RCE costs for reclamation currently include the following categories: roads; exploration roads and drill pads; waste rock repository; RIBs; ponds; electrical infrastructure; building and equipment; adit and vent raise plugging; re-vegetation; and contractor management. The total RCE was approved by BLM and NDEP in the first quarter of 2014 for a total cost to construct of approximately $1.7 million dollars.

Klondex also maintains a second statewide bond for archeological conservation. This bond, totaling $119,284, was implemented to facilitate a trea atment plan as required by Nevada State Historic Preservation Office (SHPO) pursuant to 36CFR 800, regulations implementing Section 106 of the National Historic Preservation ACT (NHPA), 16 U.S.C. § 470f. The treatment plan will include, but not be limited to, mitigation of archaeological sites, artifact processing, writing final report of findings, and curation of artifacts.

20.3. Major Permitting and Approvals

The major operational permits and a brief summary of the requirement for each permit are outlined in Table 19-1 below.

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Table 20-1 Fire Creek Project Significant Permits

Permit Permit
Number
Agency Permit Type and Explanation
Environmental Assess ment and Plan of Operations NVN-079769 BLM

Plan of Operations is required for all mining and processing activities and exploration exceeding 5 acres of disturbance. BLM approves plan and determines the required environmental studies, usually an environmental asses sment or an environmental impact study based on the requirementss outline in th e National Environmental Policy Act.

Record of Decision    BLM

A Record of Decision (ROD) in the United States is the formal decision document which is reco rded for the public.

Water Pollution Control Permit (Operations) NEV2007104 NDEP, BMRR

Mines operating in the State o f Nevada are generally required to meet a zero discharge performance standard. A WPCP is required for the extraction of mineralized material. A separate permit may be issued for certain activities at a specific facility, such as rapid infiltration.

Water Pollution Control Permit (Infiltration) NEV2013102 NDEP, BMRR

Water Pollution Co ntrol Permit fo r infiltration of water from the underground mine operations. This permit is still in the approval process.

Water Rights 28637, 77002, 77003, 75129 NDWR

Water rights are iss ued by the Nevada Division of Water Res ources based on Nevada water law which issues permits based on prior appropriation and b eneficial use. Prior appropriation (also known as "first in time, first inn right") allows for the orderly use of the s tate's water resources by granting prio rity to parties with senior water rights . This concep t ensures the s enior uses are protected, even as new uses for water are allocated.

Reclamation Permit #0241 NDEP, BMRR

Summarizes reclamaation activities and associated costs. Ens ures land disturbed by mining activities are reclaimed to safe and s table conditions to promote safe and s table post-mining land use. A permit is required for any disturb ance over 5 acres. The RCE is financially secured with a posted security. The posted surety amount provides as surance that reclamation will be pursuant to the approved reclamation plan.

Air Quality Permit AP1041-2774 NDEP, BAPC

An owner or operat or of any pro posed stationary source mus t submit an application for and obtain an appropriate operating permit before commencing construction or operation. Class II Air Permit - Typically for facilities that emit les s than 100 tons per year for any one regulated pollu tant and emit less than 25 tons per year total HAP and emit less than 10 tons p er year of any one HAP.

Storm Water Permit NVR300000 NDEP, BWPC

General storm water discharges as sociated with activities from metal mining activities. Regulates storm water runoff from waste rock storage piles, roads , and cleared areas. Typical pollutants include suspended solids and minerals eroded from exposed surfaces .

20.4. Future Permitting

Klondex has an approved plan of operations with the BLM covering their current mining activities at the Project. Mining activities are covered under the Plan of Operations and Klondex received approval to an amendment to the Plan of Operations and Reclamation permits (NVN-07976 and Reclamation Permit 0028) which allows Klondex to construct and operate several RIBs. Klondex received approval for the Water Pollution Control Permit for the RIBs (WPCP2013102), issued in February 2014. In addition, Klondex has initiated a baseline data collection program to ensure that enough data is collected to be sufficient for additional permitting necessities.


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On February 1, 2016, Klondex received a Decision Record ("DR") and a Finding of No Significant Impact ("FONSI") for the Environmental Assessment ("EA") completed for the Fire Creek Project. The EA was required to comply with the National Environmental Policy Act ("NEPA") as a portion of the Fire Creek property is located on public land administered by the Bureau of Land Management, Battle Mountain District, Mount Lewis Field Office ("BLM").

The approval of the EA will allow Klondex to advance its mining and exploration activities at the Fire Creek property and allows commercial production.

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21.Capital and Operating Costs

21.1. Capital Costs

Life of Mine (LOM) constant dollar capital expenditures are dettailed in Table 21-1. Project development comprises over 63% of total capital requirements; mine equipment 26%; site facilities seven percent, and environmental projects s four perc cent. Owner operated mine development unit costs, for similarly sized excavation ns in north Nevada, are shown in Table 21-2.

Table 21-1 Capital Costs

      Cost (000's)    
  2015 1 2016 2017 2018 Total
Mine Development $7,244 $4,442 $727   $12,413
Rapid Infiltration Basin $368       $368
Site Facilities $1,277       $1,277
Environmental Assessment $469       $469
Mining Equipment $2,200 $2,000 $932   $5,132
Total $11,558 $6,442 $1,659 $0 $19,660

  1.

2015 includes only July through December estimates .

Table 21-2 Underground Development Unit Costs

      Unit
  Width Height Cost
Description (ft) (ft) ($/ft)
Primary Capital Drifting 14 - 15 15 - 17 $1,350
Secondary Capital Drifting 14 14 $1,350
Raising 10 10 $2,000

21.2. Operating Costs and Cutoff Grade

LOM operating costs are presented in Table 21-3 below. Unit mining costs are based on actual costs incurred at Fire Creek through June 2015. The weighted average cost is based on the LOM quantities by mining method. Haulage costs to Midas are based on actual costs incurred by the Company and paid to a local contractor through June 2015.

Table 21-3 Operating Costs

Description Unit Cost Unit
Mining    
Production Stoping              $110 /ton


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Description Unit Cost Unit
5 x 11 Stope Development Drift $282 /ton
Backfill $30 /ton
Average Mining Cost $183 /ton
Transportation, Processing and G&A    
 Haulage Fire Creek to Midas $33 /ton
 Processing $48 /ton
Site Administration and G&A $26 /ton
Total $290 /ton

Actual processing costs for the first half of 2015 averaged $48.06 per ton. Site administration costs are likewise based on actuals through June 2015.

Using the operating costs and parameters above, cut-off grades were calculated at varying gold prices. These are shown in Table 21-4 and Table 21-1. The incremental cut-off represents the required minimum grade of mineralization to be profitable to process after it has been mined and transported to the surface. Mineralization from development excavations is included in the LOM plan if it exceeds the incremental cut off since processing the incremental material improves the Project cash flow over the alternative of sending this material to the waste dump.

Table 21-4 Cut-off Grade Calculation

    Gold Silver
Metal Sales Price $/Ounce $1,000 $15.83
Refining and Sales Expense $/Ounce Included in Milling
Royalty   1%
Metallurgical Recovery        94% 92%
Total Operating Cost $/ton

$290

       
Gold Equivalent      1 64.53
Unplanned Dilution   10%  
Incremental Cut Off Grade   0.115
Cut-off Grade Eq. opt 0.312
Minimum Mining Width feet 4
Grade Thickness cut-off Eq. opt-ft. 1.37


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22.    Economic Analysis

The LOM plan and technical and economic projections in the LOM plan model include forward looking statements that are not historical facts and are required in accordance with the reporting requirements of the Canadian Securities Administrators. These forward-looking statements are estimates and involve risks and uncertainties that could cause actual results to differ materially.

The estimates of capital and operating costs have been developed specifically for the Project and are summarized in Section 21. These costs are derived from actual mine and process operating experience for the Project during 2014 and 2015, and where appropriate include adjustments applicable to the planned production rates.

The cash flow estimate includes only costs, taxes and other factors applicable to the project and corporate obligations, financing costs, and taxes are excluded. The e cash flow estimate includes 35% Federal income tax after appropriate deductions for depreciation and depletion. No consideration has been given for carry forward losses incurred prior to 2015. Nevada does not impose an income tax but does levy a net proceeds tax equal to five percent of the net operating income with some allowances for depreciation of property plant and equipment. The net proceeds tax does not allow a depletion deduction.

Future reclamation costs have been prepaid through reclamation bonding requirements of the BLM and NDEP. These bonds are considered adequate to fund future reclamation liabilities.

22.1. Life of Mine Plan and Economics

Constant dollar cash flow analysis of the reserves production and development plan shown in Table 16-4 is presented in the income and cash flow statements of Table 22-1 and Table 22-2, respectively. Table 22-3 lists the life of mine key operating and financial indicators. The grade of the Fire Creek resources and the low capital requirements facilitated with the addition of the Midas Mine and Mill to Klondex’s project portfolio combine to produce high 9.9 profitability index (PI) calculated with a 10% discount rate and a 5% NPV of $178M. PI is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment. A profitability index of one indicates break even. Calculation of an internal rate of return (IRR) is indeterminate due to the positive cash flow projected to be achieved in each year of the project.

Royalties incurred during the LOM plan include the adv vance minimum royalty payments to third party lessors and the one percent royalty to Waterton under the Gold Supply Agreement as discussed in Section 4.3. The mine plan ends prior to the 2 ½% royalty taking effect as specified in the FC Royalty Agreement with Franco-Nevada US. None of the planned production is from holdings subject to NSR royalties nor will it transit through holdings subject to wheelage royalties.


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Table 22-1 Income Statement 2015 – 2018 ($000’s )

Year 2015 1 2016 2017 2018 Total
Income Statement (000's)          
Revenue          
Gold Sales $58,965 $117,867 $97,782 $21,077 $295,692
Silver Sales $654 $1,389 $1,121 $235 $3,399
Total Revenue $59,619 $119,256 $98,902 $21,313 $299,091
Operating Costs          
Mining ($9,513) ($18,534) ($13,076) ($2,874) ($43,997)
Surface Ore Haulage Portal to Mill ($1,691) ($3,241) ($2,346) ($560) ($7,838)
Processing ($2,485) ($4,763) ($3,448) ($823) ($11,520)
Site General Administration & Overhead ($1,346) ($2,580) ($1,868) ($446) ($6,240)
Total Operating ($15,035) ($29,118) ($20,738) ($4,704) ($69,595)
           
General & Administrative          
Refining & Sales (Included with Processing Costs) $0.0 $0.0 $0.0 $0.0 $0.0
Royalty ($671) ($1,268) ($1,064) ($288) ($3,291)
Nevada Net Proceeds Tax ($2,167) ($4,398) ($3,806) ($767) ($11,138)
Total Cash Cost ($17,873) ($34,784) ($25,608) ($5,759) ($84,024)
EBITA $41,746 $84,472 $73,295 $15,554 $215,067
Reclamation Accrual $0.0 $0.0 $0.0 $0.0 $0.0
Depreciation ($21,364) ($45,913) ($39,454) ($8,505) ($115,234)
Total Cost ($39,237) ($80,697) ($65,061) ($14,264) ($199,259)
Pre-Tax Income $20,382 $38,559 $33,841 $7,049 $99,832
Income Tax ($1,919) ($1,101) ($350) ($1,336) ($4,707)
Net Income $18,463 $37,458 $33,491 $5,713 $95,125

  1.

2015 includes only July through December estimates.

Table 22-2 Cash Flow Statement 2015 – 2019 ($000’s)

Year 2015 1 2016 2017 2018 2019 Total
Net Income $18,463 $37,458 $33,491 $5,713 $0.0 $95,125
Depreciation $21,364 $45,913 $39,454 $8,505 $0.0 $115,235
Reclamation $0 $0 $0 $0 $0.0 $0
Working Capital (6 weeks) ($2,062) ($1,951) $1,059 $2,290 $664.5 $0
Operating Cash Flow $37,765 $81,420 $74,003 $16,508 $664.5 $210,360
Capital Costs            
 Equipment ($2,200) ($2,000) ($932) $0 $0 ($5,132)
 Capitalized Development ($7,244) ($4,442) ($727) $0 $0 ($12,414)


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Year 2015 1 2 016 2017 2018 2019 Total
 Mine Capital ($2,114) $0 $0 $0 $0 ($2,114)
 Total Capital ($11,558) ($6,442) ($1,659) $0 $0 ($19,660)
Net Cash Flow $26,206 $74,977 $72,344 $16,508 $664.5 $190,700
Cumulative Cash Flow $26,206 $101,184 $173,528 $190,036 $190,700.1  

1.

2015 in c ludes only Ju l y through De c ember estima t es.

Table 22-3 Key Operating and After Tax Financiall Statis t ics

Material Mined and Processed (kt) 240
Avg. Gold Grade (opt) 1.31
Avg. Silver Grade (opt) 0.972
Contained Gold (koz) 315
Contained Silver (koz) 233
Avg. Gold Metallurgical Recovery 94%
Avg. Silver Metallurgical Recovery 92%
Recovered Gold (koz) 296
Recovered Silver (koz) 215
Reserve Life (years) 4.0
Operating Cost ($/ton) $290
Cash Cost ($/oz) 1. $273
Total Cost ($/oz) 1. $339
Gold Price ($/oz) $1,000.00
Silver Price ($/oz) $15.83
Capital Costs ($ Millions) $19.6
Payback Period (Years)          0
Cash Flow ($ Millions) $191
5% Discounted Cash Flow ($ Millions) $178
10% Discounted Cash Flow ($ Millions) $167
Profitability Index (10%) 2. 9.9
Internal Rate of Return NA

Notes:

  1.

Net o f byproduct c r edits;

  2.

Pro f itability inde x (PI) is the r a tio of payoff to investment of a propose d project. It i s useful for r a nking pr oj ect as a meas u re of the amount of value c r eated per unit of investment. A PI of 1 in d icates break e v en.

22.2. Sensitivity Analysis

The Project’s net present value at five percent and 10% (NPV) and profitability index from the cash flow model presented above were analyzed for sensitivity to variations in rev venue, operating and capital cost assumptions. This analysis is presented graphically in Figure 22-1 through Figure 22-3 below. These graphs demonstrate the economic resilience of the Project by maintaining profitability with up to 40% unfavorable variances of any one of the three categories.


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23.     Other Relevant Data and Information

The authors are not aware of any other relevant data and information having bearing on the Fire Creek mineral resource estimate or mineral reserve estimate or ongoing exploration or operations.

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24.     Interpretation and Conclusions

24.1. Conclusions

The Fire Creek Project is a modern, mechanized narrow vein mine. Only the mineralized veins accessible from main development have been defined to a sufficient level of detail to declare reserves. Additional potential exists to extend reserves along strike in both directions as underground access is developed. As the footprint of the e mine grows and the number of available mining areas grows with it, it is expected that the mining rate can be increased and that cost reductions can be realized through economies of scale.

The conventional Merrill Crowe mill facility at Midas is an efficient, well-maintained modern mineral processing plant capable of processing 1,200 tpd. The plant is capable of operating with a minimum crew compliment resulting in cost reductions when operated at capacity. The underutilized capacity can accept increased mine production from Fire Creek or the Midas Mine as well as third party processing agreements.

Capital requirements for the Project are minimal. Ongoing mine development comprises the majority of capital costs and the ability to access multiple veins from common development greatly reduces the unit cost per ounce.

Based on the assumptions described herein, and in the opinion of the authors of this TR, the high grade reserves in the Project mine plan are expected to provide a high return and sustain profitable operations with up to 40% adverse variations in metal prices, operating or capital costs. The total cost per ounce including capital expenditures and net of byproduct sales is expected to be less than $350 per ounce.

24.2. Project Risks

Table 24-1 presents the significant risks identified by the Qualified Person that have potential to impact Fire Creek.

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Table 24-1 Potential Project Risks

Risk Potential Impact Mitigating Measures Opportunities
Mine and/or mill Lower cash flow Convert Inferred Mineral Additional work areas
operating costs greater   Resource to Measured or allow an increase in
than planned   Indicated Mineral Resources near production rate and
    planned mining areas achieves economies of
      scale
Stope dilution greater Production cost increase Employ alternative mining Dilution can contain
than anticipated and loss of resource methods and/or increase cutoff mineralization and
    grade could aid in obtaining
      economies of scale.


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25.     Recommendations

  1.

Exploration: Underground drilling should continue in the veins identified near the current development workings to increase the level of confidence in these veins to an indicated classification. The decline should be advanced to provide an underground drill platform from which to drill the veins in the North and Far North Zones. While the decline is being advanced, additional drilling in this area can be completed from surface to refine the vein targets.

  2.

Definition Drilling: Rib sampling has limited value and should continue to be supplemented by drilling shallow ten to 20-foot deep holes into the rib with the “Termite” drill or hand held drills and sample the drill cuttings. This sampling method will add a third dimension to the potential wall rock mineralization. These costs are included in mine operation costs estimates.

  3.

Stope Planning: Complete the drift and fill stopes currently underway, and new areas should be set up for longhole stoping. The use of short probe holes discussed above should provide the planning engineers enough detail to efficiently design stopes with minimal loss of mineralization.

  4.

Rapid Infiltration Basin Commissioning: In order to reduce delays caused by intercepting perched water, the RIB’s and water handling and water treatment systems need to be functioning at capacity.

  5.

QAQC: Klondex has generated a detailed standard operating procedure (SOP) for QAQC sampling. Management should periodically review QAQC results to ensure that timely follow-up for QAQC assay deviations and re-assay requests are being aggressively pursued.


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Table 25-1 Recommendation Estimated Costs

Description Estimated Costs (000's)
Phase I  
     Rapid infiltration Basin Commissioning                                                    $368
     Definition Drilling Definition and planning
     Stope Planning costs are included in the
  project operating costs.
Phase II  
     Exploration                                            $11,250
     QA/QC Enhanced QA/QC costs
  are included in the
  sample assaying costs for
  exploration

Note:

  1.

Phase II recommendations are not contingent on Phase I recommendations and could occur concurrently with Phase I recommendations.


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26.     Bibliography

Anderson, R., 2013, Stratigraphy of the Fire Creek low sulfidation Au deposit Preliminary Report : Klondex Gold and Silver Mining Company internal document, 39 p.

Canadian Institute of Mining, Metallurgy and Petroleum, May 10, 2014, “CIM Definition Standards – For Mineral Resources and Mineral Reserves” , 9 p.

Colgan, J., Henry, C. & John, D., 2014, Evidence for large-magnitude, post-Eocene extension in the northern Shoshone Range, Nevada, and its implications for the structural setting of Carlin-Type gold deposits in the lower plate of the Roberts Mountains allochthon : Economic Geology, v. 109, p. 1843-1862.

Cooke, D. & Simmons, S., 2000, Characteristics and genesis of epithermal gold deposits : Society of Economic Geologists Reviews, v. 13, p. 221-244.

Crider J., 2001, Oblique slip and the geometry of normal-fault linkage: mechanics and a case study from the Basin and Range in Oregon : Journal of Structural Geology, v. 23, p. 1997-2009.

Crowl, W. J. (2011, May 31). NI 43-101 Technical Report, Pinson Project, Humboldt County, Nevada. Edmondo, G., 1996, Fire Creek Project : North Mining, Inc. internal report, 30 p.

Erwin, T. P. (2013, November 27). Mineral Status Report for Klondex Gold and Silver Mining Company - Project King, File NO. 52591.004.

Gilluly, J. & Gates, O., 1965, Tectonic and igneous geology of the northern Shoshone Range, Nevada : Geological Survey Professional Paper 465, 153 p.

Graf, G. (2013, January 13). Midas 2011 - 2012 Surface Exploration Report. Newmont Internal Memorandum. Hedenquist, J., Arribas, A. & Gonzalez-Urien, E., 2000, Exploration for epithermal gold deposits : Society of Economic Geologists Reviews, v. 13, p. 245-277.

Henry, C., 2013, email to R. Anderson.

Hodenquist, J.W., and Lowenstern, J.B., “The Role of Magmas in the Formation of Hydrothermal Ore Deposits” Nature, v 370, p 519-527.

John, D., 2014, discussion with J. Milliard

John, D. A. (2003). Geologic Setting and Genesis of the Mule Canyon Low-Sulfidation Epithermal Gold-Silver Deposit, North-Central Nevada. Economic Geology, 98, 424-463.

John, D. & Wallace, A., 2000, Epithermal gold-silver deposits related to the Northern Nevada Rift , in: Cluer, J., Price, J., Struhsacker, E., Hardyman, R. & Morris, C., eds., Geology and Ore Deposits 2000: The Great Basin and Beyond: Geological Society of Nevada Symposium Proceedings, May 15-18, 2000 , p. 155-175. John, D., Brunner, J., Saderholm, E. & Fleck, R., 2000a, Geology of the Mule Canyon gold-silver deposit, Lander County, Nevada , in: Cluer, J., Price, J., Struhsacker, E., Hardyman, R. & Morris, C., eds., Geology and Ore Deposits 2000: The Great Basin and Beyond: Geological Society of Nevada Symposium Proceedings, May 15-18, 2000 , p. 119-134.


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John, D., Wallace, A., Ponce, D., Fleck, R. & Conrad, J., 2000b, New perspectives on the geology and origin of the Northern Nevada Rift , in: Cluer, J., Price, J., Struhsacker, E., Hardyman, R. & Morris, C., eds., Geology and Ore Deposits 2000: The Great Basin and Beyond: Geological Society of Nevada Symposium Proceedings, May 15-18, 2000 , p. 127-154.

John, D. & Wrucke, C., 2003, Geologic map of the Mule Canyon Quadrangle, Lander County, Nevada , Nevada Bureau of Mines and Geology Map 144.

Kamenov, G., Saunders, J., Hames, W. & Unger, D., 2007, Mafic magmas as sources for gold in middle Miocene epithermal deposits of the northern Great Basin, United States: Evidence from Pb isotope compositions of native gold : Economic Geology, v. 102, n. 7, p. 1191-1195.

Kassos, G. & Marma, J., in prep., Fire Creek: Nevada’s next high-grade gold project : Geological Society of Nevada 2015 Symposium Program with Abstracts.

Kiska Metals Corporation, 2014, The Colorback and Hilltop Properties: Carlin-style systems in the Battle Mountain-Eureka Trend, Nevada : Executive Summary Report, 19 p.

Klondex Mines Ltd. (2013, December 4). Final Disclosure Schedules to Stock Purchase Agreement.

Leavitt, E. D., Spell, T. L., Goldstrand, P. M., & Arehart, G. B. (2004, December 1). Geochronology of the Midas Low-Sulfidation Epithermal Gold-Silver Deposit, Elko County, Nevada. Economic Geology, 99(8), 1665-1686.

Martini, Josepph, SRK Consulting (2014, February). Midas Mine and Mill Reclamation Cost Adequacy, Report for Klondex Mines Ltd.

McPhie, J., Doyle, M. & Allen, R., 1993, Volcanic Textures: A guide to the interpretation of textures in volcanic rocks : University of Tasmania Center for Ore Deposit and Exploration Studies, 196 p.

McMillin, S. & Milliard, J., 2013, Exploration and geology of the Fire Creek deposit, Lander County, Nevada, presented at the November, 2013 Geological Society of Nevada Elko/Winnemucca joint meeting.

Milliard, J., Marma, J. & Kassos, G., in prep., A field trip guide for the Fire Creek Deposit - Nevada’s new high-grade gold project , in: 2015 Geological Society of Nevada Symposium Pre-Meeting Field Trip: Epithermal deposits of northern Nevada .

Newmont Mining Corporation. (2010). Internal Test Parameters Memorandum.

Newmont Mining Corporation. (2013, December). http://www.newmont.com/our-investors/reserves-and-resources.

Odell, M. A., Symmes, L., Bull, S., and Swanson, K., July 24, 2014, “Preliminary Economic Assessment of the Fire Creek Project, Lander County, Nevada, Amended”, NI 43-101 Technical Report, 218 p.

Odell, M. A. (2013). NI 43-101 Technical Report, Fire Creek Exploration Project, Lander County, Nevada. NI 43-101 Technical Report.

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Pierce, K. & Morgan, L., 1992, The track of the Yellowstone hotspot: Volcanism, faulting and uplift , in: Link, P., Kuntz, M. & Platt, L., eds., Regional geology of eastern Idaho and western Wyoming : Geological Society of America Memoir 179, p. 1-53.

Ponce, D. A. (2008, February). A Prominent Geophysical Feature Along the Northern Nevada Rift and its Geologic Implications, North-Central Nevada. Geosphere, 4(1), 207-217.

Postlethwaite, C. (2011, December 19). Progress Report of The 20011 Midas District Mapping and Structural Analysis. Newmont Internal Report.

Raven, W., Ullmer, E. & Hawthorn, G., 2011, Updated technical report and resource estimation on the Fire Creek gold property, Lander Co., Nevada : NI 43-101 technical report filed on SEDAR Sept. 12, 2011.

Rott, E. H. (1931). Ore Deposits of the Gold Circle Mining District, Elko County, Nevada. Bulletin of the Nevada Bureau of Mines and Mackay School of Mines.

Saunders, J. A. (2006). Geochronology of Volcanic-Hosted Low-Sulfidation Au-Ag Deposits, Winnemucca-Sleeper Mine Area, Northern Great Basin, USA. US Geological Survey.

Simmons, S., White, N. & John, D., 2005, Geological characteristics of epithermal precious and base metal deposits : Economic Geology 100 th Anniversary Volume, p. 485-522.

Theodore, T., Armstrong, A., Harris, A., Stevens, C. & Tosdal, R., 1998, Geology of the terminus of the northern Carlin Trend , in: Tosdal, R., ed., 1998, Contributions to the gold metallogeny of northern Nevada : United States Geological Survey Open-File Report 98-338, p. 69-105.

Thompson, T., 2014, Mineralogy of the MLI3870 composites, Fire Creek, Nevada : McClelland Laboratories, Inc. internal report, 44 p.

Trudgill, B. & Cartwright, J., 1994, Relay-ramp forms and normal-fault linkages, Canyonlands national Park, Utah : Geological Society of America Bulletin, v. 106, p. 1143-1157.

US Department of the Interior (DOI) Bureau of Land Management (BLM). (2013, March). Midas Underground Support Facilities Newmont Mining Corporation, Environmental Assessment.

Wallace, A. & John, D., 1998, New Studies of Tertiary volcanic rocks and mineral deposits, Northern Nevada Rift , in: Tosdal, R., ed., 1998, Contributions to the gold metallogeny of northern Nevada : United States Geological Survey Open-File Report 98-338, p. 264-278.

Watt, J. T., Glen, J. M., John, D. A., & Ponce, D. A. (2007, December). Three-dimensional Geologic Model of the Northern Nevada Rift and the Beowawe Geothermal System, North-Central Nevada. Geosphere, 3(6), 667-682.

White, N. & Hedenquist, J., 1995, Epithermal gold deposits: Styles, characteristics and exploration : Society of Economic Geologists Newsletter, n. 23.

Zoback, M. & Thompson, G., 1978, Basin and Range rifting in northern Nevada: Clues from a mid-Miocene rift and its subsequent offsets : Geology, v. 6, p. 111-116.

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Zoback, M., McKee, E., Blakely, R. & Thompson, G., 1994, The northern Nevada rift: Regional tectono-magmatic relations and middle Miocene stress directions : Geological Society of America Bulletin, v. 106, p. 371-382.

Zoback, M., Anderson, R. & Thompson, G., 1981, Cainozoic evolution of the state of stress and style of tectonism of the Basin and Range Province of the western United States : Philosophical Transactions of the Royal Society of London, v. 300, p. 407-434.

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27.     Glossary

Assay : The chemical analysis of mineral samples to determine the metal content.

Asbuilt : (plural asbuilts), a field survey, construction drawing, 3D model, or other descriptive representation of an engineered design for underground workings.

Composite : Combining more than one sample result to give an average result over a larger distance.

Concentrate : A metal-rich product resulting from a mineral enrichment process such as gravity concentration or flotation, in which most of the desired mineral has been separated from the waste material in the ore.

Crushing : Initial process of reducing material size to render it more amenable for further processing.

Cut-off Grade (CoG) : The grade of mineralized rock, which determines as to whether or not it is economic to recover its gold content by further concentration.

Dilution : Waste, which is unavoidably mined with ore.

Dip : Angle of inclination of a geological feature/rock from the horizontal.

Fault : The surface of a fracture along which movement has occurred.

Footwall : The underlying side of a mineralized body or stope.

Gangue : Non-valuable components of the ore.

Grade : The measure of concentration of valuable minerals within mineralized rock.

Hanging wall : The overlying side of a mineralized body or stope.

Haulage : A horizontal underground excavation which is used to transport mined rock.

Igneous : Primary crystalline rock formed by the solidification of magma.

Kriging : A weighted, moving average interpolation method in which the set of weights assigned to samples minimizes the estimation variance.

Level : A main underground roadway or passage driven along a level course to afford access to stopes or workings and to provide ventilation and a haulage way for the removal of broken rock.

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Lithological : Geological description pertaining to different rock types.

Milling : A general term used to describe the process in which the ore is crushed, ground and subjected to physical or chemical treatment to extract the valuable minerals in a concentrate or finished product.

Mineral/Mining Lease : A lease area for which mineral rights are held.

Mining Assets : The Material Properties and Significant Exploration Properties.

Sedimentary : Pertaining to rocks formed by the accumulation of sediments, formed by the erosion of other rocks.

Sill1 : A thin, tabular, horizontal to sub-horizontal body of igneous rock formed by the injection of magma into planar zones of weakness.

Sill2 : The floor of a mine passage way.

Stope : An underground excavation from which ore has been removed.

Stratigraphy : The study of stratified rocks in terms of time and space.

Strike : Direction of line formed by the intersection of strata surfaces with the horizontal plane, always perpendicular to the dip direction.

Sulfide : A sulfur bearing mineral.

Tailings : Finely ground waste rock from which valuable minerals or metals have been extracted.

Thickening : The process of concentrating solid particles in suspension.

Total Expenditure : All expenditures including those of an operating and capital nature.

Variogram : A plot of the variance of paired sample measurements as a function of distance and/or direction.

Mineral Resources

Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An Inferred Mineral Resource has a lower level of confidence than that applied to an Indicated Mineral Resource. An Indicated Mineral Resource has a higher level of confidence than an Inferred Mineral Resource but has a lower level of confidence than a Measured Mineral Resource.

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A Mineral Resource is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction.

The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.

Material of economic interest refers to diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals.

The term Mineral Resource covers mineralization and natural material of intrinsic economic interest which has been identified and estimated through exploration and sampling and within which Mineral Reserves may subsequently be defined by the consideration and application of Modifying Factors. The phrase ‘reasonable prospects for eventual economic extraction’ implies a judgment by the Qualified Person in respect of the technical and economic factors likely to influence the prospect of economic extraction. The Qualified Person should consider and clearly state the basis for determining that the material has reasonable prospects for eventual economic extraction. Assumptions should include estimates of cutoff grade and geological continuity at the selected cut-off, metallurgical recovery, smelter payments, commodity price or product value, mining and processing method and mining, processing and general and administrative costs. The Qualified Person should state if the assessment is based on any direct evidence and testing.

Interpretation of the word ‘eventual’ in this context may vary depending on the commodity or mineral involved. For example, for some coal, iron, potash deposits and other bulk minerals or commodities, it may be reasonable to envisage ‘eventual economic extraction’ as covering time periods in excess of 50 years. However, for many gold deposits, application of the concept would normally be restricted to perhaps 10 to 15 years, and frequently to much shorter periods of time.

Inferred Mineral Resource

An Inferred Mineral Resource is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity.

An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.

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An Inferred Mineral Resource is based on limited information and sampling gathered through appropriate sampling techniques from locations such as outcrops, trenches, pits, workings and drill holes. Inferred Mineral Resources must not be included in the economic analysis, production schedules, or estimated mine life in publicly disclosed Pre-Feasibility or Feasibility Studies, or in the Life of Mine plans and cash flow models of developed mines. Inferred Mineral Resources can only be used in economic studies as provided under NI 43-101.

There may be circumstances, where appropriate sampling, testing, and other measurements are sufficient to demonstrate data integrity, geological and grade/quality continuity of a Measured or Indicated Mineral Resource, however, quality assurance and quality control, or other information may not meet all industry norms for the disclosure of an Indicated or Measured Mineral Resource. Under these circumstances, it may be reasonable for the Qualified Person to report an Inferred Mineral Resource if the Qualified Person has taken steps to verify the information meets the requirements of an Inferred Mineral Resource

Indicated Mineral Resource

An Indicated Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit.

Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation.

An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.

Mineralization may be classified as an Indicated Mineral Resource by the Qualified Person when the nature, quality, quantity and distribution of data are such as to allow confident interpretation of the geological framework and to reasonably assume the continuity of mineralization. The Qualified Person must recognize the importance of the Indicated Mineral Resource category to the advancement of the feasibility of the project. An Indicated Mineral Resource estimate is of sufficient quality to support a Pre-Feasibility Study which can serve as the basis for major development decisions.

Measured Mineral Resource

A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit.

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Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation.

A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.

Mineralization or other natural material of economic interest may be classified as a Measured Mineral Resource by the Qualified Person when the nature, quality, quantity and distribution of data are such that the tonnage and grade or quality of the mineralization can be estimated to within close limits and that variation from the estimate would not significantly affect potential economic viability of the deposit. This category requires a high level of confidence in, and understanding of, the geology and controls of the mineral deposit.

‘Modifying Factors’ are considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.

Mineral Reserve

Mineral Reserves are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve.

A Mineral Reserve is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.

The reference point at which Mineral Reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported.

The public disclosure of a Mineral Reserve must be demonstrated by a Pre-Feasibility Study or Feasibility Study.

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Mineral Reserves are those parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the Qualified Person(s) making the estimates, is the basis of an economically viable project after taking account of all relevant Modifying Factors. Mineral Reserves are inclusive of diluting material that will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility. The term ‘Mineral Reserve’ need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals.

‘Reference point’ refers to the mining or process point at which the Qualified Person prepares a Mineral Reserve. For example, most metal deposits disclose mineral reserves with a “mill feed” reference point. In these cases, reserves are reported as mined ore delivered to the plant and do not include reductions attributed to anticipated plant losses. In contrast, coal reserves have traditionally been reported as tonnes of “clean coal”. In this coal example, reserves are reported as a “saleable product” reference point and include reductions for plant yield (recovery). The Qualified Person must clearly state the ‘reference point’ used in the Mineral Reserve estimate.

Probable Mineral Reserve

A Probable Mineral Reserve is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.

The Qualified Person(s) may elect, to convert Measured Mineral Resources to Probable Mineral Reserves if the confidence in the Modifying Factors is lower than that applied to a Proven Mineral Reserve. Probable Mineral Reserve estimates must be demonstrated to be economic, at the time of reporting, by at least a Pre-Feasibility Study.

Proven Mineral Reserve (Proved Mineral Reserve)

A Proven Mineral Reserve is the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.

Application of the Proven Mineral Reserve category implies that the Qualified Person has the highest degree of confidence in the estimate with the consequent expectation in the minds of the readers of the report. The term should be restricted to that part of the deposit where production planning is taking place and for which any variation in the estimate would not significantly affect the potential economic viability of the deposit. Proven Mineral Reserve estimates must be demonstrated to be economic, at the time of reporting, by at least a Pre-Feasibility Study. Within the CIM Definition standards the term Proved Mineral Reserve is an equivalent term to a Proven Mineral Reserve.


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Pre-Feasibility Study (Preliminary Feasibility Study)

The CIM Definition Standards requires the completion of a Pre-Feasibility Study as the minimum prerequisite for the conversion of Mineral Resources to Mineral Reserves.

A Pre-Feasibility Study is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the Modifying Factors and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be converted to a Mineral Reserve at the time of reporting. A Pre-Feasibility Study is at a lower confidence level than a Feasibility Study.

Feasibility Study

A Feasibility Study is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate, at the time of reporting, that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre-Feasibility Study.

The term proponent captures issuers who may finance a project without using traditional financial institutions. In these cases, the technical and economic confidence of the Feasibility Study is equivalent to that required by a financial institution.

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28.    Appendix A: Certification of Authors and Consent Forms

Practical Mining LLC March 28, 2016


CERTIFICATE of QUALIFIED PERSON

Re: Technical Report for the Fire Creek Project, Lander County, Nevada, dated the 28th day of March 2016, with an effective date of June 30, 2015 (the "Technical Report"):

I, Mark A. Odell, P.E., do hereby certify that:

As of March 28, 2016, I am a consulting mining engineer at:
Practical Mining LLC
495 Idaho Street, Suite 205
Elko, Nevada 89801
775-345-3718

  1)

I am a Registered Professional Mining Engineer in the State of Nevada (# 13708), and a Registered Member (#2402150) of the Society for Mining, Metallurgy and Exploration (SME).

     
  2)

I graduated from The Colorado School of Mines, Golden, Colorado with a Bachelor of Science Degree in Mining Engineering in 1985. I have practiced my profession continuously since 1985.

     
  3)

Since 1985, I have held the positions of mine engineer, chief engineer, mine superintendent, technical services manager and mine manager at underground and surface metal and coal mines in the western United States. The past 9 years, I have worked as a self-employed mining consultant with clients located in North America, Asia and Africa. My responsibilities have included the preparation of detailed mine plans, geotechnical engineering, reserve and resource estimation, preparation of capital and operating budgets and the economic evaluation of mineral deposits.

     
  4)

I have read the definition of "qualified person" set out in National Instrument 43-101 ("NI 43- 101") and certify that by reason of my experience and qualifications and good standing with proper designation within a recognized professional organization fully meet the criteria as a Qualified Person as defined under NI 43-101.

     
  5)

I am a contract consulting engineer for the issuer and project owner, Klondex Mines Ltd. (the "Issuer"), and last inspected the Fire Creek Project on January 12, 2015.

     
  6)

I am responsible for preparation of all sections of the Technical Report.

     
  7)

I am independent of the Issuer within the meaning of Section 1.5 of NI 43-101.

     
  8)

I was paid a daily rate for consulting services performed in evaluation of the Fire Creek Project for the Issuer and do not have any other interests relating to the Fire Creek Project. I do not have any interest in adjoining properties in the Fire Creek area.

     
  9)

I have read NI 43-101 and Form 43-101F1, and the sections of the Technical Report for which I am responsible have been prepared in accordance with that instrument and form.

 



  10)

I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

     
  11)

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all the scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Dated this28th day of March 2016.

“Signed” Mark A. Odell
____________________________________________________
Mark A. Odell, P.E.
Practical Mining LLC
markodell@practicalmining.com

 


CONSENT OF QUALIFIED PERSON

TO: British Columbia Securities Commission
  Alberta Securities Commission
  Saskatchewan Financial Services Commission
  The Manitoba Securities Commission
  Ontario Securities Commission
  New Brunswick Securities Commission
  Nova Scotia Securities Commission
  Superintendent of Securities, Prince Edward Island Securities Office
Superintendent of Securities, Newfoundland and Labrador

I, Mark Odell, P.E., do hereby consent to the public filing of the technical report titled Technical Report for the Fire Creek Project, Lander County, Nevada, dated the 28th day of March 2016, with an effective date of June 30, 2015 (the "Technical Report") by Klondex Mines Ltd. (the "Company") with the Canadian securities regulatory authorities listed above and on SEDAR.

The undersigned consents to the use of any extracts from or a summary of the Technical Report in the annual information form of the Company dated March , 2016 (the "Written Disclosure").

The undersigned certifies that he has read the Written Disclosure being filed by the Company and that it fairly and accurately represents the information in the sections of the Technical Report for which the undersigned is responsible.

Dated this 28th day of March 2016.

“Signed” Mark A. Odell
____________________________________________________
Mark A, Odell, P.E.
Practical Mining LLC
markodell@practicalmining.com

 


CERTIFICATE OF AUTHOR

Re: Technical Report for the Fire Creek Project, Lander County, Nevada , dated the 28th day of March 2016, with an effective date of June 30, 2015 (the "Technical Report").

I, Laura M. Symmes, SME, do hereby certify that:

As of March 28, 2016, I am a geologist at:

Practical Mining, LLC
495 Idaho Street, Suite 205
Elko, NV 89801

  1)

I graduated with a Bachelor of Science degree in Geology from Utah State University in 2003.

     
  2)

I am a registered member of the Society for Mining, Metallurgy & Exploration (SME) #4196936.

     
  3)

I have worked as a geologist for a total of 12 years since my 2003 graduation from university. My experience has been focused on exploration and production of gold deposits, including planning and supervision of drill projects, generating data from drilled materials and making geologic interpretations, data organization, geologic mapping, building digital models of geologic features and mineral resources, and grade control of deposits in production.

     
  4)

I have read the definition of "qualified person" set out in National Instrument 43-101 ("NI 43- 101") and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a "qualified person" for the purposes of NI 43-101.

     
  5)

I am responsible for sections 4 and 6-12 of the Technical Report.

     
  6)

I last visited the Fire Creek Project on September 18, 2014.

     
  7)

I have not had prior involvement with the property that is the subject of the Technical Report.

     
  8)

I am independent of Klondex Mines Ltd. within the meaning of Section 1.5 of NI 43-101.

     
  9)

I was paid a daily rate for consulting services performed in evaluation of the Fire Creek Project and do not have any other interests relating to the Fire Creek Project. I do not have any interest in adjoining properties in the Fire Creek area.

     
  10)

I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.

     
  11)

I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

 



  12)

As of the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all the scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Dated this 28th day of March 2016.

“Signed” Laura M. Symmes
____________________________________________________
Laura M. Symmes, SME
SME No. 4196936

Practical Mining LLC
495 Idaho Street, Suite 205
Elko, NV 89801
775-345-3718
Fax: (501) 638-9162
laurasymmes@practicalmining.com

 


CONSENT OF QUALIFIED PERSON

TO: British Columbia Securities Commission
  Alberta Securities Commission
  Saskatchewan Financial Services Commission
  The Manitoba Securities Commission
  Ontario Securities Commission
  New Brunswick Securities Commission
  Nova Scotia Securities Commission
  Superintendent of Securities, Prince Edward Island Securities Office
  Superintendent of Securities, Newfoundland and Labrador

I, Laura Symmes, SME., do hereby consent to the public filing of the technical report titled Technical Report for the Fire Creek Project, Lander County, Nevada , dated the 28th day of March 2016, with an effective date of June 30, 2015 (Technical Report) by Klondex Mines Ltd. (the Company) with the Canadian securities regulatory authorities listed above and on SEDAR.

The undersigned consents to the use of any extracts from or a summary of the Technical Report in the annual information form of the Company dated March , 2016 (the "Written Disclosure").

The undersigned certifies that she has read the Written Disclosure filed by the Company and that it fairly and accurately represents the information in the sections of the Technical Report for which the undersigned is responsible.

Dated this 28th day of March 2016.

“Signed” Laura M. Symmes
____________________________________________________
Laura M. Symmes, SME

Practical Mining LLC
495 Idaho Street, Suite 205
Elko, Nevada 89801
775-345-3718
laurasymmes@practicalmining.com

 


CERTIFICATE OF AUTHOR

Re: Technical Report for the Fire Creek Project, Lander County, Nevada , dated the 28th day of March 2016, with an effective date of June 30, 2015 (the "Technical Report").

I, Sarah M Bull, P.E., do hereby certify that:

As of March 28, 2016, I am a consulting mining engineer at:

Practical Mining LLC
495 Idaho Street, Suite 205
Elko, Nevada 89801
775-345-3718

  1)

I am a Registered Professional Mining Engineer in the State of Nevada (# 22797).

     
  2)

I am a graduate of The University of Alaska Fairbanks, Fairbanks, Alaska with a Bachelor of Science Degree in Mining Engineering in 2006.

     
  3)

Since my graduation from university I have been employed as a Mine Engineer at an underground gold mining operation and as Senior Mine Engineer for a consulting engineering firm. My responsibilities have included mine ventilation engineering, stope design and mine planning.

     
  4)

I have read the definition of "qualified person" set out in National Instrument 43-101 ("NI 43- 101") and certify that by reason of my experience and qualifications and good standing with proper designation within a recognized professional organization I fully meet the criteria as a Qualified Person as defined under NI 43-101.

     
  5)

I am a contract consulting engineer for the issuer and project owner: Klondex Mines Ltd.

     
  6)

I am responsible for preparation of section 15 and 16 of the Technical Report.

     
  7)

I last visited the Fire Creek Project on September 18, 2014.

     
  8)

I am independent of Klondex Mines Ltd. within the meaning of Section 1.5 of NI 43-101.

     
  9)

I was paid a daily rate for engineering consulting services performed in evaluation of the Fire Creek Project for Klondex Mines Ltd. and do not have any other interests relating to the Fire Creek Project. I do not have any interest in adjoining properties in the Fire Creek Project area.

     
  10)

I have read NI 43-101 and Form 43-101F1, and the sections of the Technical Report for which I am responsible have been prepared in accordance with that instrument and form.

     
  11)

I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.


 



  12)

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all the scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Dated this 28th day of March 2016.

 

“Signed” Sarah Bull
____________________________________________________
Sarah M Bull, P.E.

Practical Mining LLC
495 Idaho Street, Suite 205
Elko, Nevada 89801
775-304-5836
sarahbull@practicalmining.com

 


CONSENT OF QUALIFIED PERSON

TO: British Columbia Securities Commission
  Alberta Securities Commission
  Saskatchewan Financial Services Commission
  The Manitoba Securities Commission
  Ontario Securities Commission
  New Brunswick Securities Commission
  Nova Scotia Securities Commission
  Superintendent of Securities, Prince Edward Island Securities Office
Superintendent of Securities, Newfoundland and Labrador

I, Sarah Bull, P.E., do hereby consent to the public filing of the technical report titled Technical Report for the Fire Creek Project, Lander County, Nevada , dated the 28th day of March 2016, with an effective date of June 30, 2015 (Technical Report) by Klondex Mines Ltd. (the "Company") with the Canadian securities regulatory authorities listed above and on SEDAR.

The undersigned consents to the use of any extracts from or a summary of the Technical Report in the annual information form of the Company dated March , 2016 (the "Written Disclosure").

The undersigned certifies that she has read the Written Disclosure filed by the Company and that it fairly and accurately represents the information in the sections of the Technical Report for which the undersigned is responsible.

Dated this 28th day of March 2016.

“Signed” Sarah Bull
____________________________________________________

Sarah Bull, P.E.

Practical Mining LLC
495 Idaho Street, Suite 205
Elko, Nevada 89801
775-304-5836
sarahbull@practicalmining.com

 



TECHNICAL REPORT AND PRE-FEASIBILITY STUDY
ON THE
TRUE NORTH GOLD MINE,
BISSETT, MANITOBA, CANADA

FOR

KLONDEX CANADA LTD.

LATITUDE 51 o 01’ 19.6” N LONGITUDE 95 o 40’ 44.9” W
UTM WGS84 Zone 15U 312,110 m E 5,655,700 m N

NI-43-101 & 43-101F1
TECHNICAL REPORT – AMENDED AND RESTATED

Eugene Puritch, P.Eng.
Alexandru Veresezan, P.Eng.
Fred Brown, P.Geo.
William Stone, P.Geo.
Alfred Hayden, P.Eng.
David Orava, P.Eng.
Kirk Rodgers, P.Eng.

P&E Mining Consultants Inc.,
Report 315

Effective Date: June 30, 2016
Signing Date: November 22, 2016


T ABLE OF C ONTENTS

1.0 SUMMARY 1
  1.1 PROJECT HISTORY 1
  1.2 GEOLOGIC SETTING AND MINERALIZATION 1
  1.3 PROJECT STATUS 2
  1.4 MINERAL RESOURCE ESTIMATES 2
  1.5 MINERAL RESERVE ESTIMATES 3
  1.6 MINING 5
  1.7 MINERAL PROCESS AND METALLURGICAL TESTING 5
  1.8 TAILINGS REPROCESSING 6
  1.9 ENVIRONMENTAL AND PERMITTING 6
  1.10 OPERATING AND CAPITAL COST ESTIMATES 6
  1.11 PROJECT ECONOMICS 8
  1.12 RECOMMENDATIONS AND CONCLUSIONS 8
2.0 INTRODUCTION AND TERMS OF REFERENCE 10
  2.1 TERMS OF REFERENCE 10
  2.2 SOURCES OF INFORMATION 10
  2.3 UNITS AND CURRENCY 11
3.0 RELIANCE ON OTHER EXPERTS 14
4.0 PROPERTY DESCRIPTION AND LOCATION 15
  4.1 PROPERTY LOCATION 15
  4.2 PROPERTY DESCRIPTION 16
  4.3 LIABILITIES AND PERMITS 16
5.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY 18
  5.1 ACCESSIBILITY 18
  5.2 CLIMATE AND PHYSIOGRAPHY 18
  5.3 LOCAL RESOURCES AND INFRASTRUCTURE 18
6.0 HISTORY 22
  6.1 PRE 1989 ERA 22
  6.2 POST 1989 ERA 23
  6.3 RICE LAKE GOLD MINE HISTORIC RESOURCE ESTIMATES 29
    6.3.1 Historic Resource Estimates 29
    6.3.2 Most Recent Resource Estimate 29
  6.4 RICE LAKE PROPERTIES FEASIBILITY STUDIES 32
    6.4.1 Historic Feasibility Studies 32
    6.4.2 Existing Feasibility Studies 32
  6.5 PREVIOUS MINERAL PROCESSING & METALLURGICAL TESTING 32
7.0 GEOLOGICAL SETTING AND MINERALIZATION 33
  7.1 REGIONAL GEOLOGICAL SETTING 33
  7.2 LOCAL GEOLOGIC SETTING 35
    7.2.1 Host Rock Units 35
    7.2.2 Structures 37
    7.2.3 Veins 37
    7.2.4 Wall Rock Alteration 40
8.0 DEPOSIT TYPES 43
9.0 EXPLORATION 44
10.0 DRILLING 45
  10.1 DIAMOND CORE DRILLING 45
  10.2 CHANNEL CHIP SAMPLING 46
  10.3 HISTORIC TAILINGS POND DRILLING/SAMPLING 47



11.0 SAMPLE PREPARATION, ANALYSES AND SECURITY 49
  11.1 CORE SAMPLING METHODS 49
    11.1.1 Surface Core Sampling Methods 49
    11.1.2 Underground Core Sampling Methods 49
  11.2 FACE SAMPLING METHODS 51
  11.3 TAILINGS SAMPLING METHODS 51
  11.4 SAMPLE QUALITY, REPRESENTATIVENESS AND SAMPLE BIAS 51
  11.5 SAMPLE PREPARATION, ANALYSIS AND SECURITY 52
    11.5.1 Core Sample Preparation and Analysis 52
    11.5.2 Channel Chip Sample Preparation and Analysis 52
    11.5.3 Tailings Sample Preparation and Analysis 53
  11.6 CORE QUALITY ASSURANCE & QUALITY CONTROL 53
    11.6.1 Sample Standards 53
    11.6.2 Core Sample Blanks and Duplicates 55
  11.7 CHIP QUALITY ASSURANCE & QUALITY CONTROL 57
    11.7.1 Sample Standards 57
    11.7.2 Chip Sample Duplicates 57
  11.8 TAILINGS QUALITY ASSURANCE-QUALITY CONTROL 58
    11.8.1 Sample Standards 58
    11.8.2 Tailings Sample Blanks and Duplicates 58
  11.9 RECOMMENDATIONS AND CONCLUSIONS 60
12.0 DATA VERIFICATION 62
  12.1 DRILL DATA REVIEW 62
    12.1.1 Collar Location Checks 62
    12.1.2 Hole Survey Checks 62
    12.1.3 Core Assay Checks 62
    12.1.4 Geology Checks 62
  12.2 CHANNEL CHIP DATA REVIEW 63
    12.2.1 Collar Location Checks 63
    12.2.2 Down Hole Survey Checks 63
    12.2.3 Assays Checks 63
  12.3 TAILINGS DATA REVIEW 63
    12.3.1 Assays Checks 63
  12.4 DUE DILIGENCE SAMPLING 64
  12.5 CONCLUSIONS TO DATA VERIFICATION 66
13.0 MINERAL PROCESSING AND METALLURGICAL TESTING 67
14.0 MINERAL RESOURCE ESTIMATE 73
  14.1 INTRODUCTION 73
  14.2 PREVIOUS RESOURCE ESTIMATES 74
  14.3 DATA SUPPLIED 74
  14.4 BULK DENSITY 75
  14.5 VEIN MODELLING 75
  14.6 ASSAY DATA 79
  14.7 COMPOSITING 82
  14.8 TREATMENT OF EXTREME VALUES 83
  14.9 AU GRADE ESTIMATION, CLASSIFICATION & MINIMUM WIDTH 84
  14.10 UNDERGROUND MINERAL RESOURCE ESTIMATE 85
  14.11 BLOCK MODEL VALIDATION 87
  14.12 TAILINGS MINERAL RESOURCE ESTIMATE 89
  14.13 PREVIOUS RESOURCE ESTIMATES 89
  14.14 TAILINGS DATA SUPPLIED 89
  14.15 TAILINGS DRY BULK DENSITY 90
  14.16 DEPOSIT MODELLING 90



  14.17 ASSAY DATA 91
  14.18 COMPOSITING 91
  14.19 SPATIAL ANALYSIS 92
  14.20 TREATMENT OF EXTREME VALUES 93
  14.21 BLOCK MODEL EXTENTS 93
  14.22 GOLD TAILINGS GRADE ESTIMATION & CLASSIFICATION 94
  14.23 TAILINGS MINERAL RESOURCE ESTIMATE 94
  14.24 TAILINGS BLOCK MODEL VALIDATION 95
15.0 MINERAL RESERVE ESTIMATES 98
  15.1 UNDERGROUND MINERAL RESERVE ESTIMATES 98
  15.2 TAILINGS MINERAL RESERVE ESTIMATION 102
16.0 MINING METHODS 105
  16.1 MINE DEVELOPMENT 105
    16.1.1 Access Development 105
    16.1.4 Ventilation and Secondary Egress 107
  16.3 MINING METHODS 109
    16.3.1 Long-hole Stoping 109
    16.3.2 Captive Sub Level Long-hole Stoping 112
    16.3.3 Haulage 113
  16.5 EQUIPMENT FLEET UNDERGROUND 115
17.0 PROCESS PLANT AND PROCESS RECOVERY 117
18.0 PROJECT INFRASTRUCTURE 119
  18.1 LOCATION AND ACCESS 119
  18.2 ACCOMMODATIONS AND CAMP FACILTIES 119
  18.3 ELECTRICAL POWER AND ON-SITE DISTRIBUTION 120
  18.4 WATER SUPPLY AND RETICULATION 120
  18.5 AIR COMPRESSORS 120
  18.6 DIESEL FUEL AND ON-SITE STORAGE FACILITY 120
  18.7 WAREHOUSING AND MATERIAL HANDLING 120
  18.8 SITE SECURITY 120
  18.9 COMMUNICATION 120
  18.10 ON SITE TRANSPORT AND INFRASTRUCTURE 121
  18.11 SOLID WASTE DISPOSAL 121
  18.12 PARTS AND MINE SUPPLY FREIGHT 121
  18.13 MOBILE AND FIX EQUIPMENT MAINTENACE FACILITY 121
  18.14 FIRST AID AND AMBULANCE 121
  18.15 OFFICE AND ADMINISTRATION BULDINGS 121
19.0 MARKET STUDIES AND CONTRACTS 123
20.0 ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT 124
  20.1 SUMMARY 124
  20.2 SCOPE OF THE PROJECT 124
  20.3 ONGOING EXPLORATION AND PROJECT DEVELOPMENT 125
  20.4 INFORMATION REVIEW AND ASSESSMENT 125
    20.4.1 Documentation reviewed 125
    20.4.2 Licenses, Permits and Approvals 126
    20.4.3 Revised Environmental License and Minor Alterations 127
    20.4.4 Current Status / Mitigative Measures 130
    20.4.5 Community Engagement 132
    20.4.6 Mine Closure 133
21.0 CAPITAL AND OPERATING COSTS 134
  21.1 CAPITAL COSTS 134
  21.2 OPERATING COSTS 134



  21.3 UNDERGROUND MINING COSTS 135
  21.4 PROCESSING COSTS 135
  21.5 INDIRECT MINING COSTS 136
  21.6 G&A COSTS 136
22.0 ECONOMIC ANALYSIS 138
  22.1 CASHFLOW MODEL INPUT PARAMETERS 138
    22.1.1 Production 138
    22.1.2 Revenue 138
    22.1.3 Royalties and Taxes 138
    22.1.4 Interest, Principal, and Other Payments 138
  22.2 CAPITAL COSTS 138
  22.3 OTHER PARAMETERS 138
  22.4 ECONOMIC ANALYSIS RESULTS 139
23.0 ADJACENT PROPERTIES 140
24.0 OTHER RELEVANT DATA AND INFORMATION 141
25.0 INTERPRETATIONS AND CONCLUSIONS 142
26.0 RECOMMENDATIONS 143
27.0 REFERENCES 144
28.0 CERTIFICATES 145

APPENDIX I. TRUE NORTH CLAIMS INFORMATION 152
APPENDIX II. RESOURCE WIREFRAMES FOR V91, V710 AND V711 VEINS 159
APPENDIX III. CLASSIFICATION 3D MODELS AND CROSS SECTIONS FOR V91, V710 AND V711 VEINS 162
APPENDIX IV. AU GRADE MODELS AND CROSS SECTIONS FOR V91, V710 AND V711 VEINS 166
APPENDIX V. TAILINGS DRILL PLAN, CLASSIFICATION AND AU BLOCKS 170


L IST OF T ABLES

Table 1.1 Underground Mineral Resource 2
Table 1.2 Tailings Mineral Resource 3
Table 1.3 Underground Mineral Reserve 4
Table 1.4 Tailings Mineral Reserve 5
Table 1.5 Sustaining Capital Costs 7
Table 1.6 Underground Ore Operating Cost Summary 7
Table 4.1 Summary of Mineral Property Holdings and Surface Areas 16
Table 6.1 Historic Production at Rice Lake Mine: 1927-1968 26
Table 6.2 Historic Production at Rice Lake Mine: 1980-2001 27
Table 6.3 Historic Production at Rice Lake Mine: 2007-2015 29
Table 6.4 Summary of Mineral Resource (Dec 31, 2012) 30
Table 6.5 Summary of Mineral Resources (Dec 31, 2014) 31
Table 10.1 Summary of Surface Exploration on the True North Gold Mine 46
Table 10.2 Summary of Tailings Drilling at True North Gold Mine 48
Table 11.1 Certified Gold Assay Values for Commercial Standards 53
Table 11.2 Certified Gold Assay Values for Commercial Standards 57
Table 13.1 Harmony Gold – Rice Lake Deposit Metallurgical Results 67
Table 13.2 Hinge Zone Metallurgical Results 67
Table 13.3 007 Zone Metallurgical Results 68
Table 13.4 SGS Lakefield and Starkey Associates SAG Mill Testing Results 68
Table 13.5 JKTech Drop-weight Test Summary 68
Table 13.6 MORE SGS Lakefield and Starkey & Associates SAG Mill Testing Results 69
Table 13.7 Results Leaching Flotation Tails for 24 Hours at 2.5 gpl NaCN Concentration 70
Table 13.8 Results Leaching Flotation Tails for 24 Hours at 0.5 gpl NaCN Concentration 70
Table 13.9 Results from Leaching Samples from Tailings Storage Facility 72
Table 14.1 True North Database Records 74
Table 14.2 Bulk Density Statistics 75
Table 14.3 Modelled Veins 78
Table 14.4 Summary Drillhole Assay Statistics 80
Table 14.5 Summary Chip Assay Statistics 81
Table 14.6 Summary Composite Statistics by Vein 82
Table 14.7 Composite Capping Levels 84
Table 14.8 Total Underground Mineral Resources 85
Table 14.9 Underground Mineral Resource Estimate by Vein 86
Table 14.10 Block Model Validation Grades 87
Table 14.11 Volume Comparison 88
Table 14.12 Tailings Dry Bulk Density Results 90
Table 14.13 Summary Tailings Drillhole Assay Statistics 91
Table 14.14 Summary Composite Statistics for Tailings Assays 92
Table 14.15 Block Model Setup 93
Table 14.16 Tailings Mineral Resource 94
Table 15.1 Total Project Mineral Reserve Estimate 98
Table 15.2 Operating and Revenue Parameters 100
Table 15.3 Parameters Used to Assess Economic Viability of Underground Mineral Reserve 101
Table 15.4 Underground Mineral Reserve Estimate 101
Table 15.5 Underground Mineral Reserve BCOG Calculation Criteria 102
Table 15.6 2016 to 2018 Tailings Reserve BCOG Calculation Criteria 103
Table 15.7 2019 to 2023 Tailings Reserve BCOG Calculation Criteria 103
Table 15.8 Tailings Mineral Reserve Estimate (1-6) 104
Table 16.1 Waste Rock Backfill and Stope Voids 113



Table 16.2 Underground Mining Schedule Summary 114
Table 16.3 Required Mining Equipment 115
Table 16.4 Tailings Reprocessing Schedule 116
Table 17.1 Process Plant Production Schedule 118
Table 20.1 Obtained Licenses and Key Permits and Approvals 126
Table 20.2 Potential Significant Environmental Impacts and Current Status / Mitigative Measures 130
Table 21.1 Sustaining Capital Costs 134
Table 21.2 Underground Operating Cost Summary 135
Table 21.3 Mine Operating Cost 135
Table 21.4 Process Plant Operating Cost 136
Table 21.5 Indirect Underground Mine Operating Cost 136
Table 21.6 G&A Cost (During UG Mining) 136
Table 22.1 Financial Evaluation 139


L IST OF F IGURES

Figure 4.1 Location of the True North Gold Mine, Bissett, Manitoba 15
Figure 4.2 Regional Klondex Mining Claim and Lease Holdings 17
Figure 5.1 Photograph of the True North Gold Mine Looking South 19
Figure 5.2 Plan View of Surface Infrastructure at the True North Gold Mine 20
Figure 5.3 Tailings Pond Facility at the True North Gold Mine 21
Figure 7.1 Regional Geologic Map showing the Location of True North Gold Mine in the Archean Uchi Subprovince, Manitoba 34
Figure 7.2 Geologic Map showing the Location of Gold Deposits and Lithotectonic Assemblages in True North Gold Mine Area 34
Figure 7.3 Local Geology of True North Gold Mine Area 36
Figure 7.4 The Structural Geological Setting of Gold Mineralization at True North Gold Mine 37
Figure 7.5 Shear Zones and Quartz Veins 38
Figure 7.6 Example of 16-Type Shear and 38-Type Breccia Gold Mineralized Quartz Veins in the SAM Unit at True North 39
Figure 7.7 Controls on Gold Mineralization in the 007 Zone 41
Figure 7.8 Interpreted Cross-Sections of 007 and L10 Zones Looking West 41
Figure 7.9 Level Plan of the 710 Zone showing the Location of the 710 and 711 Veins. 42
Figure 8.1 Schematic Cross-Section Representation of the Geometry and Structural Setting of Shear Zone Hosted Gold-Bearing Quartz Vein Networks in Greenstone Belt Terrains like True North Gold Mine 43
Figure 11.1 Flow Chart for Surface and Underground Core Sampling Methods 50
Figure 11.2 Assay Results of Standard CDN-GS-1P5C 54
Figure 11.3 Assay Results for Standard CDN-GS-6B 54
Figure 11.4 Assay Results for Standard CDN-GS-13A 55
Figure 11.5 Assay Results for Standard CDN-GS-22 55
Figure 11.6 Assay Results for Blanks 56
Figure 11.7 Assay Results for Duplicates 56
Figure 11.8 Assay Results for Chip Sample Duplicates 58
Figure 11.9 Tailings Assay Results for Standard GS-1P5C 59
Figure 11.10 Tailings Assay Results for Standard GS-1L 59
Figure 11.11 Tailings Assay Results for Blanks 60
Figure 11.12 Tailings Assay Results for Duplicates 60
Figure 12.1 Due Diligence Sample Pulp Results for Gold 65
Figure 12.2 Due Diligence Sample Core Results for Gold 65
Figure 12.3 Due Diligence Tailings Sample Results for Gold 66
Figure 14.1 Plan View of Modelled Veins 75
Figure 14.2 3D View of Modelled Veins and Drilling 77
Figure 14.3 Nearest Pair Plot of Pit Samples 90
Figure 14.4 Experimental Semi-Variogram 92
Figure 14.5 Histogram and Probability Plots for Uncapped Tailings Composites 93
Figure 14.6 Model and Composite Comparisons 95
Figure 14.7 Comparison of Estimation Results 96
Figure 14.8 Tailings Swath Plot 97
Figure 15.1 Reserve Block X-Section for Economic Viability Analysis (710/710A Veins) 98
Figure 15.2 Created Stope Shapes for Economic Viability Analysis 99
Figure 16.1 Longitudinal Section 106
Figure 16.2 True North Gold Mine 710 Complex Ventilation System 108
Figure 16.3 Long-hole Open Stope Sill Development 109
Figure 16.4 Long-hole Open Stope Raise and Drilling 110
Figure 16.5 Long-hole Open Stope Blasting 110



Figure 16.6 Long-hole Open Stope Backfilling 111
Figure 16.7 Over-cut and Under-cut Plan View 111
Figure 16.8 True North Gold Mine Typical Long-hole Drill Section 112
Figure 16.9 True North Gold Mine Sub-Level Captive Long-hole Stope 113
Figure 16.10 Tailings Recovery Flow Diagram 116
Figure 16.11 Aerial View of Tailings Recovery Site 116
Figure 17.1 True North Gold Mine Process Plant Flow Sheet 118
Figure 18.1 Surface Infrastructure Plan View 119
Figure 20.1 True North Gold Mine Site Plan 128
Figure 20.2 TMA Site Plan 128
Figure 20.3 Aerial View of the Mine, Plant Site and TMA 129
Figure 23.1 Adjacent Properties to the True North Gold Mine 140



1.0

SUMMARY

Klondex Canada Ltd. (“Klondex” or “the Company”), is a subsidiary of Klondex Mines Ltd., which is a Canadian and U.S. listed mining company. Klondex Mines Ltd. also owns and operates additional high grade underground gold mines in north central Nevada. In January 2016, Klondex acquired the Rice Lake Mine through its purchase from 7097914 Manitoba Ltd. (formerly Shoreline Gold Inc.). Rice Lake Mine was previously owned by San Gold Corporation (San Gold). In May 2016, Klondex renamed the Rice Lake Gold Mine to True North Gold Mine.

The mine and processing plant are located approximately 190 miles (250 km) northeast of the city of Winnipeg on the edge of the Bissett township in Manitoba, Canada.

Klondex has engaged the services of Canadian based geology and mining engineering consultants P&E Mining Consultants Inc. (P&E) to complete a National Instrument (NI) 43-101 Technical Report and Pre-Feasibility Study (Technical Report) for the True North Gold Mine (“True North” or “Project”). The purpose of this Technical Report is to provide an independent Mineral Resource and Mineral Reserve estimate of the gold mineralization in conformance with the standards required by NI 43-101 and Form 43-101F1.

1.1

PROJECT HISTORY

Gold was originally discovered on the Project in 1911, however, it was not until the 1920s that the construction of a shaft to a depth of 725 feet (221 metres) and approximately 2,000 feet (600 metres) of underground lateral development confirmed the presence of an economically viable mineral resource.

Small scale production from underground mining commenced in 1932 and production increased to about 500 tons per day (450 tonnes per day) in 1948. A fire destroyed some of the surface facilities in 1968, and as a result production was suspended. Beginning in the late 1990s, production was intermittent under various ownerships, until 2016 when Klondex acquired a 100% interest in True North.

1.2

GEOLOGIC SETTING AND MINERALIZATION

All the major gold occurrences in the True North area occur as quartz veins or quartz vein systems formed during structural deformation of the host rocks. At the Project, gold mineralization is controlled by quartz-carbonate veins and vein systems in brittle-ductile structures with related hydrothermal alteration halos within or at the margin of particular host rock units.

All of the gold mineralized zones at the Project are hosted in rocks of the Bidou Lake Assemblage which forms a north-facing stratigraphic sequence of tholeiitic basalt to intermediate volcanic flows, dacite crystal tuffs and breccias overlain by well stratified felsic epiclastic rock interpreted to be of pyroclastic and sedimentary origin. The stratigraphic sequence is intruded by tholeiitic gabbro sills and dykes and felsic porphyry dykes.

The best-known gabbro sill is the San Antonio Unit, host rock of the gold mineralization at the True North deposit. The Bidou Lake Assemblage is unconformably overlain by feldspathic sandstone of the San Antonio Assemblage.

P&E Mining Consultants Inc., Report No. 315 Page 1 of 171
Klondex Canada Ltd. True North Gold Mine  


The gold mineralized veins show a high degree of structural control and are best developed in competent mafic host rock ranging from intermediate to gabbroic in composition.

1.3

PROJECT STATUS

True North is accessible from Winnipeg via all-weather Provincial highways and is located adjacent to the town of Bissett, a long established mining community with a fluctuating population which is currently approximately 340 people.

Refurbishing existing underground openings as well as test stope mining is underway, as of the effective date of this Technical Report. Process plant testing programs are progressing and a historic tailings re-processing assessment project commenced in August 2016.

1.4

MINERAL RESOURCE ESTIMATES

P&E has produced an NI 43-101 compliant Mineral Resource estimate for True North based primarily on information from exploration and definition drilling, underground chip sampling, and supplemented in part by geophysical data, historical underground and surface mapping which assisted with interpretations.

P&E developed block models constrained within 3D wireframe models of the principal geological domains. Values for bulk density and gold (Au) ounces per ton (opt) were interpolated into the grade model blocks using Inverse Distance Squared (ID 2 ) weighting.

The underground Mineral Resource estimate is based on a gold cut-off grade of 0.09 opt (3.09 grams per tonne), which has been calculated from the following parameters:

  Gold Price: US$ 1,400 per oz
  Exchange Rate: C$ to US$: 0.80
  Mining Cost: C$49.09 per ton
  Process Cost: C$27.77 per ton
  Indirect Mine Cost: C$49.04 per ton
  G&A Cost: C$15.62 per ton
  Process Recovery: 94%

The underground Mineral Resource estimate for the Project is tabulated in Table 1.1.

T ABLE 1.1
U NDERGROUND M INERAL R ESOURCE (1-7)
Class Grade
Au opt
Grade
Au g/t
Tons
(k)
Au
(k) oz
Measured 0.232 7.95 455 106
Indicated 0.202 6.92 931 188
Measured & Indicated 0.212 7.26 1,386 294
Inferred 0.165 5.65 2,793 460

(1)

Mineral Resource is inclusive of Mineral Reserve.

(2)

Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

(3)

Mineral Resource was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.


P&E Mining Consultants Inc., Report No. 315 Page 2 of 171
Klondex Canada Ltd. True North Gold Mine  



(4)

The quantity and grade of reported Inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred resources as an Indicated or Measured mineral resource and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured mineral resource category.

(5)

Contained metal may differ due to rounding.

(6)

Cut-off grade = 0.09 opt Au (3.09 g/t).

(7)

A bulk density of 0.086 tons per cubic foot was utilized in Resource tonnage calculations.

The tailings Mineral Resource estimate for the Project is based on information from auger drilling. A block model constrained within a 3D wireframe model of the geological domain was developed. Values for bulk density and Au/opt were interpolated into the grade model blocks using Inverse Distance Squared weighting.

The tailings Mineral Resource estimate is based on a gold cut-off grade of 0.015 opt Au (0.51 grams per tonne), which has been calculated from the following parameters:

  Gold Price: US$ 1,400 per oz
  Exchange Rate: C$ to US$: 0.80
  Process Cost: C$18.01 per ton
  G&A Cost: C$6.40 per ton
  Process Recovery: 90%

The tailings Mineral Resource estimate for the project is tabulated in Table 1.2.

T ABLE 1.2
T AILINGS M INERAL R ESOURCE (1-7)
Class Grade
Au opt
Grade
Au g/t
Tons
(k)
Au (k)
oz
Indicated 0.024 0.82 2,138 51.0
Inferred 0.022 0.75 47 1.1

(1)

Tailings Mineral Resource is inclusive of tailings Mineral Reserve.

(2)

Mineral Resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

(3)

Mineral Resource was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

(4)

The quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured Mineral Resource category.

(5)

Contained metal may differ due to rounding.

(6)

Cut-off grade = 0.015 opt Au (0.51 g/t Au).

(7)

A dry bulk density of 0.044 tons per cubic foot (pcf) was utilized in the tailings Mineral Resource estimate tonnage calculation.


1.5

MINERAL RESERVE ESTIMATES

P&E have produced a NI-43-101 compliant Mineral Reserve estimate for True North based on the resource block model, achievable mining shapes, mining recovery, mining dilution and stope pre-production development cost considerations.

The underground Mineral Reserve estimate is based on a gold cut-off grade of 0.13 opt (4.46 grams per tonne) which has been calculated from the following parameters:

P&E Mining Consultants Inc., Report No. 315 Page 3 of 171
Klondex Canada Ltd. True North Gold Mine  



  Gold Price: US$ 1,200 per oz
  Exchange Rate: C$ to US$: 0.80
  Mining Cost C$49.09 per ton
  Process Cost: C$27.77 per ton
  Indirect Mine Cost: C$49.04 per ton
  G&A Cost: C$15.62 per ton
  Sustaining Development Cost: C$42.49 per ton
  Recovery: 94%

The underground Mineral Reserve estimate for the Project is tabulated in Table 1.3.

T ABLE 1.3
U NDERGROUND M INERAL R ESERVE (1-6)
Class Grade
Au opt
Grade
Au g/t
Tons
(k)
Au
(k) oz
Proven 0.241 8.26 153 36.8
Probable 0.245 8.40 199 48.7
Proven & Probable 0.243 8.33 352 85.5

(1)

Mineral Resource is inclusive of Mineral Reserve shapes, mining recovery, mining dilution and stope pre- production development costs. Mineral Reserve estimate includes dilution and is constrained to a minimum mining width of 5 feet.

(2)

Mineral Reserve was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

(3)

Mining losses of 2% have been applied to the designed mine excavations and no additional unplanned dilution has been included.

(4)

Contained metal may differ due to rounding.

(5)

Cut-off grade = 0.13 opt Au (4.46 g/t Au).

(6)

A bulk density of 0.086 tons pcf was utilized in Mineral Reserve tonnage calculations.

The tailings Mineral Reserve estimate for the Project is based on the resource block model, achievable recovery shape, mining recovery, reprocessing cost considerations and availability of process plant capacity in conjunction with underground ore mining.

The tailings Mineral Reserve estimate is based on a gold cut-off grades of 0.026 opt Au (0.89 g/t Au) for 2016 to 2018 and 0.020 opt Au (0.69 g/t Au) for 2019 to 2023 which has been calculated from the following parameters:

2016-2018 At 600tpd

  Gold Price: US$ 1,200 per oz
  Exchange Rate: C$ to US$: 0.80
  Process Cost: C$25.06 per ton
  Sustaining Capital Cost C$6.39 per ton
  G&A Cost: C$3.15 per ton
  Recovery: 90%
  Cut-off 0.026 opt Au (0.89 g/t Au)

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2019-2023 at 1200tpd

  Gold Price: US$ 1,200 per oz
  Exchange Rate: C$ to US$: 0.80
  Process Cost: C$18.01 per ton
  Sustaining Capital Cost C$2.56 per ton
  G&A Cost: C$ 6.40 per ton
  Recovery: 90%
  Cut-off 0.020 opt Au (0.69 g/t Au)

The tailings Mineral Reserve estimate for the Project is tabulated in Table 1.4.

T ABLE 1.4
T AILINGS M INERAL R ESERVE (1-6)
Class Grade
Au opt
Grade
Au g/t
Tons
(k)
Au
(k) oz
Probable 0.028   0.96 1,170 32.4

(1)

Tailings Resource is inclusive of Mineral Reserves.

(2)

Tailings Mineral Reserve was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

(3)

No mining losses of have been applied to the designed mine excavations and no additional unplanned dilution has been included.

(4)

Contained metal may differ due to rounding.

(5)

Cut-off grade = 0.026 opt Au (0.89 g/t Au) for 2016 to 2018 and 0.020 opt Au (0.69 g/t Au) for 2019 to 2023

(6)

A dry bulk density of 0.044 tons pcf was utilized in the tailings Mineral Reserve tonnage calculation.


1.6

MINING

The mining of the Mineral Reserve at True North will be using conventional underground mining methods. Extraction of the mineralized ore will be by long-hole stoping methods according to the economic and geometric requirements of the specific ore zones. These mining methods are similar to those previously used and are shown to be effective for mining ore at True North. The primary method will be mechanized long-hole retreat benching, production from with captive sublevel long-hole benching being used in narrow, less accessible, areas.

Mining will commence on the 710 and 711 ore bodies on the 26 Level, supplemented by production from L1020 and 84 Vein.

Mined ore will be transported to chutes for loading onto 5 ton (4.5 tonne) rail cars for transfer to the main ore bins located close to A-shaft. Ore will then be hoisted to surface by a modernized double drum mine hoisting system to bins from where it is transported by truck to the run of mine (ROM) stockpile pad.

1.7

MINERAL PROCESS AND METALLURGICAL TESTING

The ore processing circuit comprises crushing, grinding and gravity concentration and flotation, followed by Carbon-in-Pulp (CIP) processing on the gravity circuit. The process plant will operate on a 24-hour per day 7-day per week schedule. General arrangement of the ROM pad, crushing and processing facilities is shown in Figure 18.1. The nominal production rate is 800 tons (725 tonnes) per day.

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Under the previous San Gold operations the process plant recovery was 93.5% on an ore feed grade of 0.21 opt Au. Process recovery is grade dependent, and test work on the anticipated higher ore feed grades, recoveries will be as high as 96.5% . The economic evaluation presented in this Technical Report is based on a more conservative gold process recovery rate of 94%.

Past and current processing analyses have shown no evidence of any deleterious elements such as arsenic, mercury, or antimony that would otherwise affect gold recovery in the leach circuit, however, copper in the leach circuit solution may occasionally be high.

1.8

TAILINGS REPROCESSING

Under the previous ownership a percentage of the coarse grained free gold was lost to tailings. Trial processing of the reslurried tailings has demonstrated that reprocessing of the existing historic tailings can recover approximately 89% of the contained gold.

P&E have produced a Mineral Resource estimate on the tailings and the Company plans to supplement the mine feed with historic tailings. The tailings reprocessing operation will be carried out concurrently with the underground mining operation until 2018 and will continue for an additional 5 years until 2013 on a stand-alone basis.

1.9

ENVIRONMENTAL AND PERMITTING

Klondex has revised the existing Environmental Act Licence 2628RR (Licence) for True North which includes approvals for minor alternations needed for operation. The San Gold Mine Closure Plan (2012) (Closure Plan) and the pledged fixed-asset financial security for mine closure were transferred to Klondex in January.

Klondex collects all required environmental monitoring data including: water quality sampling, environmental effects monitoring, final effluent release reporting, and is developing procedures for its environmental management system. Klondex is also in the process of re-initiating First Nations and Aboriginal community engagement.

Based on the available information, P&E is of the opinion that there does not appear to be any significant environmental and/or social barriers to the True North operation.

1.10

OPERATING AND CAPITAL COST ESTIMATES

The capital cost estimate for True North was developed by Klondex, and includes all future sustaining capital expenditures to be incurred over the remainder of True North mine life. There are no significant pre-production capital requirements, since the Project will be utilizing existing infrastructure. Sustaining capital costs are scheduled over the life-of-mine (LOM).

The total capital cost for the life-of-mine is summarized in Table 1.5 and totals approximately $32.1 million over the next several years.

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T ABLE 1.5
S USTAINING C APITAL C OSTS
Description
(000's of dollars)
Q4 - 2016 2017 2018 2019-2023 Total
Ramp Development 2,493 6,798 4,079   13,370
Capital Development 553 3,952 2,253   6,758
Capital Drilling 231 1,649 940   2,820
Mobile Fleet 90 641 365   1,096
Site Infrastructure & Processing Plant 297 2,119 1,208   3,624
Underground Services 53 382 217   652
Tailings Reprocessing 0 511 735 2,500 3,746
           
Total 3,717 16,052 9,797 2,500 32,066

Sustaining capital for the five years following mine closure when tailings reprocessing will be continuing in isolation will be approximately $400,000 per year. In addition, an allowance for winterization of the processing plant and reopening in the spring has been included at $100,000 per year.

In addition, the cost of mine closure and remediation is estimated to be $4.4 million (per the existing accepted Closure Plan).

These estimates have an accuracy of ±15% with a base date as of the effective date of this Technical Report.

The operating costs of True North encompass all labour, supervision, and operating consumables required for production, support, and equipment maintenance activities.

The average operating cost estimate for the True North operation over the LOM is summarized in Table 1.6 which is calculated based on the cost per ton of ore mined and processed at the Project.

T ABLE 1.6
U NDERGROUND O RE O PERATING C OST S UMMARY
Description $/ton
Mining 49.09
Processing 27.77
Indirect Mine 49.04
G&A 15.62
   
Total 141.52

The average total operating cost for the Tailings Reserve tonnage during underground mining is $25.06 per ton, which includes the extraction and delivery of the tailings to the processing facility. Sustaining capital costs are included in the capital cost summary.

In 2019, the mining operation will be finished, however, the processing plant will continue to process historic tailings at a rate of 195,000 per annum, as a seasonal operation from May to October. During this period following the closure of the underground mining operation, historic tailings processing costs will average $18.01 per ton. G&A costs will average approximately $6.40 per ton due to the reduced site requirements and the higher historic tailings processing rate of 1,200 tons (1,089 tonnes) per day.

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1.11

PROJECT ECONOMICS

The results of the Project’s economic analysis based on mining the identified underground and tailings Mineral Reserve, indicate a positive net present value (NPV) of $26.3 million (after tax) at a discount rate of 7%, as shown in Table 22.1. Since True North does not include any preproduction cost, the Internal Rate of Return (IRR) and payback period are not pertinent to this analysis.

Taxes are included in the operating cash flow analysis. The analysis conclusively shows that for the purpose of the NI-43-101 assessment, True North will be profitable.

This economic analysis carried out was based on the following parameters:

 

Mine production schedule commencing the fourth quarter of 2016 and continuing through to 2018;

 

Reprocessing of historic tailings during mine operation and continuing for 5 years (2019-2023) following mine closure;

 

An underground Mineral Reserve tonnage of 352,000 tons containing 85,500 oz Au (0.243 opt);

 

Waste dilution of 15.6% was included in the underground Mineral Reserve tonnage;

 

A tailings Mineral Reserve of 1.17 million tons containing 32,400 oz Au (0.028 opt Au) (0.96 g/t Au);

 

Process plant gold recovery of 94% for underground ore and 90% for tailings; and

 

A fixed gold price of $US 1,200/oz.


1.12

RECOMMENDATIONS AND CONCLUSIONS

This Technical Report, as prepared by P&E, describes a viable mining and processing operation at the True North Gold Mine.

As of the effective date of this Technical Report, True North hosts an underground Mineral Reserve of 352,000 tons (319,000 tonnes) at average grade of 0.243 opt Au (8.33 g/t) at a 0.13 opt Au (4.46 g/t Au) cut-off grade. In addition, the historic tailings re-processing project contains 1.17 million tons (1.06 million tonnes) of recoverable tailings Mineral Reserves at an average grade of 0.028 opt Au (0.96 g/t Au) at a cut-off grade of 0.026 opt Au (0.89 g/t Au) for 2016 to 2018 and 0.018 opt Au (0.62 g/t Au) for 2019 to 2023.

Economically, True North appears to be robust, and the risks are low given the Project is an operating mine with significant production history. Capital expenditures for construction will not be required and True North components will require only limited refurbishment.

Based on a cash flow model using estimated cost of production and revenues, True North will generate an undiscounted pre-tax net cash flow of $48.8 million over the LOM. At a discount rate of 7%, this corresponds to an NPV of $26.3 million on an after tax basis.

Technically, True North presents no fatal flaws.

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P&E recommends that True North continue its current production plan with long-hole mining of the underground Mineral Reserve and the reprocessing of the historic tailings. Klondex has advised that they will be spending additional capital on near mine exploration and further resource/reserve definition in order to expand the current LOM. A summary of the interpretations, conclusions, and recommendations to advance True North are provided in Sections 25 and 26 of this Technical Report.

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2.0

INTRODUCTION AND TERMS OF REFERENCE


2.1

TERMS OF REFERENCE

At the request of Mr. Brian W. Morris, CPG, Vice President Exploration of Klondex Mines Ltd. P&E has prepared this National Instrument 43-101 (NI 43-101) technical report for the True North Gold Mine and processing facility.

Klondex Canada Ltd. is the Canadian-based subsidiary of TSX listed Klondex Mines Ltd, a gold mining company that owns and operates three gold and silver mines in north central Nevada.

True North is an existing underground gold mining operation, acquired by Klondex in January 2016, located approximately 250 kilometres northeast of Winnipeg on the edge of the town of Bissett, Manitoba, Canada.

The purpose of this Technical Report is to deliver Mineral Resource and Mineral Reserve estimates for the underground gold mining and tailings reprocessing operations at True North.

The corporate address of Klondex Mines Ltd. is:

1055 West Hastings Street, Suite 2200
Vancouver, BC
V6E 2E9

The effective date for this Mineral Reserve and Mineral Resource estimate Technical Report is June 30, 2016.

Eugene Puritch, P.Eng., William Stone, P.Geo., Alfred Hayden, P.Eng. and Alexandru Veresezan, P.Eng., all of P&E and Qualified Persons (QP) under the terms specified under of NI 43-101. Each of the aforesaid has conducted site visits to the Project during May, June, July, and September, 2016.

In addition to visits to the Project, P&E carried out a study of relevant parts of the available literature on documented results concerning the Project, and held discussions with technical personnel from the Company regarding other pertinent aspects of True North. For additional information, the reader can refer to these data sources which are outlined in Section 27.0, “References” of this Technical Report, for further details on True North.

The purpose of the Technical Report is to provide independent Mineral Resource and Mineral Reserve estimates of the gold mineralization present at the Project, in conformance with the standards required by NI 43-101 and Form 43-101F1.

The authors of this Technical Report (“the Authors”) are listed in Section 28.

2.2

SOURCES OF INFORMATION

This report is based in part on internal Company technical reports and maps, published government technical reports, published scientific papers, company letters and memoranda, and public information listed in Section 27.0 “References” at the conclusion of this Technical Report.

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Sections from reports authored by other consultants have been directly quoted or summarized in this Technical Report and are indicated as such within the appropriate sections. P&E held discussions with technical personnel from the Company regarding pertinent aspects of the Project. P&E has not conducted detailed land status evaluations, and has relied on previous qualified reports, public documents and statements by Klondex management and legal counsel, regarding the status and legal title to True North.

This Technical Report is prepared in accordance with the requirements of NI 43-101 and in compliance with Form NI 43-101 F1 the Canadian Securities Administrators (CSA).

The estimates of Mineral Resource and Mineral Reserve contained in the Technical Report are prepared in conformity to the CIM Mineral Resource and Mineral Reserve definitions referenced in the National Instrument 43-101 Standards of Disclosure for Mineral Projects that are in force as of the effective date of this Technical Report.

2.3

UNITS AND CURRENCY

Unless otherwise stated all units used in this report are imperial. Gold assay values are reported in ounces per short ton (opt Au) unless grams per tonne (g/t Au) are specifically stated. The Canadian dollars ($ or C$) is used throughout this report unless the United States Dollars (US$) is specifically stated. The US$:C$ currency exchange rate utilized in this report is 0.8:1.

The following list shows the meaning of the abbreviations for technical terms used throughout the text of this Technical Report.

Abbreviation Meaning

  ID 3 Inverse distance cubed method
  3D Three dimensional
  AA Atomic absorption
  Ag Silver
  ANFO Ammonium nitrate/fuel oil
  AOI Area of interest
  ARD Acid rock drainage
  ASL Above sea level
  Au Gold
  Au g/t Grams of gold per tonne
  C$ Canadian dollars
  CEAA Canadian Environmental Assessment Agency
  CIM Canadian Institute of Mining, Metallurgy And Petroleum
  cm Centimetre(s)
  CSA Canadian Securities Administrators
  Cum Cumulative
  DCF Discounted cash flow
  DDH Diamond drillhole
  DMT Dry metric tonne
  E East
  EIA Environmental Impact Assessment

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  FAR Fresh Air Raises
  g or gm Gram
  G&A General and Administration
  g/t or gm/t Grams per metric tonne
  ha Hectare(s)
  IP Induced polarization
  IRR Internal rate of return
  ISO International Organization for Standardization
  k Thousands
  kg Kilogram
  kg/t Kilograms per metric tonne
  Klondex Klondex Mines Ltd.
  km Kilometre(s)
  km/h Kilometres per hour
  kt Thousands of tonnes
  LiDAR Light Detection and Ranging
  LOM Life-of-mine
  M Million
  m Metre(s)
  M$ Millions of dollars
  m3 Cubic metres
  Ma Millions of Years
  masl Metres above sea level
  meas. Measured Resources
  mm Millimetres
  Mt Millions of tonnes
  N North
  N/A Not applicable
  NAG Non-potentially acid generating rock
  NE North-East
  NI 43-101 National Instrument 43-101
  NN Nearest neighbour method
  NPV Net Present Value
  NSR Net Smelter Return
  opt Troy ounces of gold per short ton
  OSC Ontario Securities Commission
  oz Troy ounce
  oz/T Au Troy ounces of gold per short ton
  P&E P&E Mining Consultants Inc.
  PAG Potentially acid generating rock
  Q4 Fourth Quarter
  QA/QC Quality Assurance/Quality Control
  QP Qualified Person as defined by NI 43-101

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  RAR

Return air raises

  ROM

Run-Of-Mine: Material produced during mining

  S

South

  SEDAR

Website Developed by the CRA, that provides access to public securities documents and information filed by public Companies and investment funds in Canada

  t

Metric tonne(s)

  t/m 3

Metric tonnes per cubic metre

  tpd

Tonnes per Day

  tph

Tonnes per Hour

  TSF

Tailings Storage Facility

  US$

United States dollars

  WMT

Wet metric tonne


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3.0

RELIANCE ON OTHER EXPERTS

Statements in this Technical Report and Pre-Feasibility Study with regard to the status and legal title of the Project, are reliant on information provided by Klondex legal counsel.

The status of the Klondex environmental program and the permitting process was provided by the Environmental Superintendent for the Project. The corporate Manager of Metallurgy, provided information regarding metallurgical testing and process operating statistics. These contributions have been reviewed, edited and accepted by the Authors of this report and are accurate portrayals of True North, as of the effective date of this Technical Report.

Operating and capital cost projections related to the production and sale of doré gold have been provided by Klondex. This information has been reviewed and accepted by the Authors as being reasonable, as of the effective date of this Technical Report.

Estimates of the taxation rates that will be payable on production from the Project, were provided by D. Scott Farmer, Mining Tax Plan LLC.

A draft copy of this Technical Report has been reviewed for factual errors by Klondex and this Technical Report is based in part on Klondex’s historical and current knowledge of the True North Project.

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4.0

PROPERTY DESCRIPTION AND LOCATION


4.1

PROPERTY LOCATION

The Project is located adjacent to the township of Bissett on the north shore of Rice Lake in southeastern Manitoba, 190 miles (235 km) northeast of the city of Winnipeg (Figure 4.1) . The Project includes the mine, mill, and tailings management area. Klondex’s property holdings in Manitoba, Canada include a larger regional exploration boundary as outlined in Figure 4.2 of this Technical Report.

Bissett can be accessed from Winnipeg via all-weather provincial highways. A small emergency gravel airstrip is located 12 miles (19 km) east of Bissett. Rice Lake serves as a base for float-equipped aircraft during the ice free months.

Geographical co-ordinates are:

latitude 51 o 01’ 19.6” N longitude 95 o 40’ 44.9” W
UTM WGS84 Zone 15U 312,110 m E 5,655,700 m N

Figure 4.1     Location of the True North Gold Mine, Bissett, Manitoba

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The locations of all mineralized zones, mineral resources, mineral reserves, mine workings, tailings management area (TMA), and waste deposits are shown on various figures in other sections of this Technical Report.

The boundaries of the mining lease (ML-063) and of the patented mining claims have been surveyed, whereas the boundaries of other, un-surveyed mining claims, are sourced from government claim maps.

4.2

PROPERTY DESCRIPTION

The Project consists of claims, patents and a mineral lease owned 100% by the Company (Figure 4.2) . The total area covered by the Project is 40,257 ha (Table 4.1) .

T ABLE 4.1
S UMMARY OF M INERAL P ROPERTY H OLDINGS AND S URFACE A REAS
Item Claims/Patents/Leases Hectares
Unpatented Mining Claims 300 39,195
Patented Mining Claims 18 296
Mineral Lease 1 766
     
Total 319 40,257

Klondex retains a 100% recorded interest in mineral lease ML-063 (“ML-063”). This lease covers 766 hectares (ha) and, subject to annual payments, expires April 1, 2034.

In addition to ML-063, Klondex also holds 18 Patented Mining Claims covering an area of 296 ha and 300 Mining Claims covering an area of 39,195 ha. The Company owns 100% of 273 of the Mining Claims.

Klondex owns 50% of the remaining 27 Mining Claims through a Joint Venture Agreement with Greenbelt Gold Mines Inc. (see Appendix I for full listing of claims information).

4.3

LIABILITIES AND PERMITS

All environmental liabilities are disclosed in Section 20, which covers the mine closure plan. All permits required to perform work are also disclosed in Section 20.

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Figure 4.2     Regional Klondex Mining Claim and Lease Holdings

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5.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

5.1

ACCESSIBILITY

Bissett can be accessed from Winnipeg via all-weather provincial highways. A small emergency gravel airstrip is located 12 miles (19 km) east of Bissett. Rice Lake itself serves as a base for float-equipped aircraft during the ice free months.

5.2

CLIMATE AND PHYSIOGRAPHY

Average relief in the Project area is approximately 130 feet to 200 feet (40m to 60m), with elongated outcrop ridges separated by low lying ground with swamps, rivers and lakes.

This area of eastern Manitoba has average annual precipitation of approximately 17 inches (430 mm) of rain. Winter snow accumulations of up to 57 inches (145 cm) occur between October and March. Average winter temperature is 3 o F (-16°C) with extended periods of -4 o F to -13 o F (-20°C to -25 o C). Average summer temperature is 61 o F (16°C).

The vegetation consists of typical Canadian Shield boreal forest. Poplar, balsam, spruce, and pine are the main tree species. Rock outcrop exposure is abundant in most areas, although there is a thin cover of organics and lichen growth that can restrict detailed observation.

5.3

LOCAL RESOURCES AND INFRASTRUCTURE

Bissett is an established mining community, located adjacent to the mine, with a fluctuating population of approximately 340 people. The township was established to service the emerging mines that developed after 1911, but has remained home to permanent residents during periods of mine closure and now provides a healthy recreational sport base as well as servicing the Project.

Mining supplies, equipment, and services and a skilled mining and mineral exploration workforce are readily available in southern Manitoba and across the border to the established mining communities in northeast Ontario. The Project has a long history of mining, which helps to attract employees and contractors from throughout the area.

Manitoba Hydro provides electrical power to site via twin transmission lines. Fuel is trucked in from Winnipeg and the area is well serviced by access roads.

Klondex owns 100% of the mine shaft, declines, mobile and crushing equipment, mineral processing mill, TMA, and storage areas (Figures 5.1, 5.2 and 5.3) .

The process plant is licensed to operate at up to 2,500 tons (2,268 tonnes) per day. The Company has sufficient accommodation on-site for all personnel and provides cafeteria services for employees housed in the Project’s bunkhouse accommodation.

A small school provides education up to grade six. A bar, hotel, restaurant, and convenience store provide services for residents and visitors to the town. The township has recreational infrastructure such as a curling rink, outdoor ice skating rink and a baseball diamond.

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Figure 5.1     Photograph of the True North Gold Mine Looking South

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Figure 5.2      Plan View of Surface Infrastructure at the True North Gold Mine

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Figure 5.3      Tailings Pond Facility at the True North Gold Mine

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6.0

HISTORY

For the historic estimates in this section of the Technical Report, Qualified Persons from either P&E or Klondex have not done sufficient work to classify the historical estimates as a current Mineral Resource or Mineral Reserve, and P&E and Klondex are not treating these historical estimates as current Mineral Resources or Mineral Reserves. The historical estimates cannot be fully verified. These values cannot and should not be relied upon and are only referred to herein as an indication of previously defined gold mineralization. The relevance of the historical estimates is not known. Key assumptions, parameters and methods used to estimate these Mineral Resources and Mineral Reserves are not known. The historical Mineral Resource and Mineral Reserve estimates described in this Technical Report section have been superseded by the Mineral Resource and Mineral Reserve estimates described herein (see Section 14 and 15 of this Technical report).

6.1

PRE 1989 ERA

Gold was originally discovered at the shore of Rice Lake in 1911. The first attempt at underground development was undertaken by a syndicate in 1927, when No.1 exploration shaft was sunk to 164 feet (50 m) and No.2 Shaft was sunk to 300 feet. (91 m). Approximately 2,000 feet (610 m) of lateral development was completed in 1927, but results failed to meet expectations. Nevertheless, during 1928 the syndicate proceeded to deepen the No.2 Shaft to 600 feet (183 m) and the No. 1 Vein was discovered on that level. However, it was not until 1929, with discovery of the No. 9 Vein on the 725-foot (221 m) level, that the deposits became economically viable.

Sufficiently encouraging underground results were obtained by 1931, and the newly formed San Antonio Gold Mines Ltd. (“San Antonio”) commenced construction of a process plant and power line. Production began in May 1932 at a rate of 150 tons (136 tonnes) per day, increasing to 350 tons (318 tonnes) per day in 1935, and subsequently increased to 550 tons (500 tonnes) per day by 1948. Access to the mine was primarily through the No.1 Shaft (now called the A-Shaft) and three internal winzes; 3A, 3B, and 3C (now called B-Shaft, C-Shaft, and D-Shaft).

Underground development was carried out by driving footwall drifts on each level. Flat exploration drill-holes on 50-foot (15 m) centres were used to establish the location of veins on the level prior to establishing drifts along the full length of ore zones. Shrinkage mining was used utilized with a minimum mining width of 4 feet (1.2 m).

The 550-ton (500-tonne) per day process plant consisted of a crushing plant adjacent to the collar of No.1 Shaft with a conveyor to the process plant building. After grinding, concentrating, and blanket tables, an amalgam table recovered approximately 12% of the total gold. Then the material from the gravity circuit passed through a Merrill Crowe cyanide plant to recover the balance of the gold.

The No.1 Shaft surface hoist was destroyed by fire in July 1968 and production ceased. San Antonio declared bankruptcy and the assets were acquired by New Forty Four Mines (“New Forty Four”). In 1980, the process plant was destroyed by fire.

In 1980, Brinco Mining Limited (“Brinco”) entered into a Joint Venture with New Forty Four. Brinco undertook a program of underground exploration drilling during the period 1980 through 1983 and approximately 100,000 ore tons (91,000 tonnes) were mined and trucked to Hudson Bay Mining & Smelting Co Ltd. in Flin Flon, Manitoba, for processing. Brinco earned a 100% interest in the project, however, after 1983 did no significant work.

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In 1987, a subsidiary of Inco Ltd. (“Inco”) entered into an agreement with Brinco and completed over 20,000 feet. (6,096m) of drilling. Inco opted out of the venture in 1988.

6.2

POST 1989 ERA

In 1989, Rea Gold Corp. (“Rea Gold”) acquired the Property from Brinco. Wright Engineers and Dolmage Campbell completed a due diligence study for Rea Gold prior to their acquisition of the Project in 1989. At that time, the historic (non NI 43-101 compliant) Mineral Reserve was estimated to be 1,226,000 tons (1,114,000 tonnes) grading 0.22 opt Au (7.5 g/t Au). A Pre-Feasibility study by Kilborn Engineering Ltd. (Kilborn) in 1993 recommended that the resource base be increased prior to a production decision.

In 1994, Rea Gold undertook a $3.1 million underground rehabilitation and exploration program to gain access to the lower levels of the mine and delineate additional Mineral Resources. This program resulted in an increase in the historic (non NI 43-101 compliant) Mineral Reserves to 1,977,000 tons (1,797,000 tonnes) grading 0.21 opt Au (7.2 g/t Au).

A Feasibility Study was completed by Rea Gold and Simmons Engineering Inc. in 1995, and construction and development of a 1,000 ton (907 tonne) per day mining operation was initiated. Rea Gold established a new mine access system that significantly streamlined the mining operation. Previously, the mine was accessed by A-Shaft and three internal winzes (B-Shaft, C-Shaft, and D-Shaft). Ore from the D-Shaft area had to be trammed and hoisted via four shafts in order to transport it to surface. Rea Gold deepened the principal A-Shaft to link the surface directly with the upper level of the D-Shaft area, thereby eliminating two cycles of tramming and hoisting.

By 1997, Rea Gold had established a modern 1,000 ton (907 tonne) per day gold mining and processing facility at a total cost of approximately $90 million. Prior to the start of production, Rea Gold was placed into receivership and the receiver put the assets up for sale. Harmony Gold (Canada) Inc. (“Harmony”) was the successful bidder and took over the project in 1998.

After acquiring the assets from the receiver, Harmony invested approximately $30 million to build a ramp system in the lower part of the D-Shaft area, in order to establish a long-hole mining operation. Harmony operated the mine for three years, and subsequently put the project on care and maintenance in August, 2001. Compared to the previously employed shrinkage mining operation, the Harmony operation produced fewer ounces of gold from more tons processed per day and failed to achieve the corporate objectives set by Harmony’s parent company, Harmony Gold Mines Limited of South Africa.

In January, 2002, Harmony entered into an option agreement with Wildcat Exploration Ltd. of Winnipeg, Manitoba (“Wildcat”). Wildcat’s objective was to re-establish the mine as a smaller scale shrinkage stope operation delivering ore to a surface stock pile to feed the 1,250 ton (1,136 tonne) process plant which operated on a two week-on two week-off cycle.

In April 2002, A. C. A. Howe International (“Howe”) (Titaro et al 2002) completed a report on the Harmony assets on behalf of Wildcat. The report included an audit of the mineral resources and mineral reserves, a review of the operating and capital costs, and preparation of a financial evaluation of the economic feasibility of reopening the mine. Howe concluded that a viable shrinkage mining operation could be operated at a mining rate of 550 tons (500 tonnes) per day was feasible. Ore was delivered to a surface stockpile to feed the 1,250 ton (1,136 tonne) per day process plant operating on a two week on, two week off cycle. Gold at that time was US$300/oz.

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Howe further concluded that based on well-founded historical estimation practices at the Rice Lake Mine (as it was then called), that as of April 2001, the mine, had a historical (not NI 43-101 compliant) Measured and Indicated Mineral Resource of 1,267,000 tons (1,149,000 tonnes) grading 0.26 opt Au (8.9 g/t Au) plus Inferred Mineral Resource of 735,000 tons (668,000 tonnes) grading 0.31 opt Au (10.6 g/t Au). All of the above mentioned Mineral Resources were situated above the 4,630 Level (5,370 feet or 1,637 m below the collar of A-Shaft) in the C and D-Shaft areas of the Rice Lake Mine.

Within the Measured and Indicated Mineral Resources, Howe concluded that the Rice Lake Mine had Proven and Probable Mineral Reserves of 901,800 tons (820,000 tonnes) with an average grade of 0.27 opt Au (9.3 g/t Au). In determining this reserve, Howe used dilution, cutting, and cut-off practices which were based on over 38 years of mining experience at the Rice Lake Mine (now True North Gold Mine). All of these mineral reserves had existing development drifts and were accessible on levels within the C-Shaft and D-Shaft areas.

Despite this work by Howe, Wildcat was unable to complete the acquisition of the Rice Lake Mine.

On March 5, 2004, San Gold Resources Corporation (“Old San Gold”) and Gold City Industries Ltd. (“Gold City”), entered into a joint venture agreement to acquire 100% of the issued and outstanding shares of Harmony through a newly formed corporation, Rice Lake Joint Venture Inc. (“RLJV”). RLJV was owned and controlled jointly by Gold City (50%) and Old San Gold (50%). Effective March 17, 2004, RLJV acquired the shares of Rice Lake Gold Corporation (formerly Harmony Gold Corporation (Canada) Inc.) from Harmony Gold Mining Company Limited of South Africa. The purchase price was $7,757,961, including $3,632,961 in cash and $4,125,000 in shares and warrants of Gold City and Old San Gold. On June 30, 2005 Old San Gold and Gold City amalgamated to form a new corporation called San Gold Corporation.

The exploration drilling completed between the period from 2005 to 2013, (is summarized below and more fully described in Section 10 of this Technical Report). As part of San Gold’s exploration program, a Light Detection and Ranging (LiDAR) survey was flown over the Rice Lake greenstone belt in 2009. From this a second mining trend called the Shoreline Basalt unit, which hosts the Hinge and 007 Zones, was recognized

A ramp to explore and develop the new, separate SG1 deposit commenced in the winter of 2005. Production from that deposit continued until mid-2008 when workings had reached a depth of 640 feet (195m) below surface. Work was suspended in 2008 due to diminishing economics and the mobile equipment was needed elsewhere to develop the recently discovered Hinge Zone.

A new surface ramp to explore and develop the Hinge Zone commenced in 2008 and reached the deposit in March 2009. Production started almost immediately as definition drilling continued.

In early 2010, a new internal ramp was started from a vertical depth of 800 feet (244m) in the Hinge Zone workings to access the 007 deposit. The ramp reached the 007 deposit in July 2010, and production started while definition drilling continued.

A second surface ramp was started near the old Wingold shaft in the second half of 2010. This ramp was to provide top access to the 007 deposit and provide access to develop the Cohiba deposit. The ramp reached the Cohiba mineralization at a vertical depth of 108 feet (33m) below surface.

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Under the San Gold operations, ore was mined along three active underground mining trends. The Rice Lake Mine (as the Project was previously named), formed the core of mining operations and provided extensive workings that extended deep below the surface to access these deposits situated within the mineralised host system. The A-Shaft head frame and extends 4,060 feet (1,249 m) below surface.

The second mining trend, the Shoreline Basalt mining unit, focused on the 007 deposit, began commercial production in 2010. The 007 mine portal is located 2,000 feet (600 m) from the process plant and provided the main access to San Gold’s operations along the Shoreline Basalt mining unit and the Hinge Zone. The Hinge zone is hosted in intermediate rocks, is the third mining trend host and its portal provides access to the 007 deposit.

After investing approximately C$375 million in capital since 2007, including the extensive underground development and modernising the process plant, San Gold ceased mining in May 2015, and placed operation on care and maintenance. San Gold declared bankruptcy and announced sale of all of its assets to secured creditors in June 2015.

In early 2016, Klondex Mines Ltd. announced acquisition of 100% of the Rice Lake Mine, process plant complex and a 400 km2 exploration land package from the creditors. In the first half of 2016, Klondex commenced refurbishment of the underground infrastructure and commenced trial mining on readily accessible ore.

Following sampling of the historic tailings storage facility, Klondex commenced a tailings reprocessing project. Reprocessing of the tailings will be carried out concurrently with processing of underground ore and when weather permits. Processing of stockpiled ROM ore is expected to commence in fourth quarter 2016.

A name change to True North Gold Mine was announced in May, 2016. In September 2016, Klondex announced the formal decision to resume production at True North.

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T ABLE 6.1
H ISTORIC P RODUCTION AT R ICE L AKE M INE : 1927-1968
YEAR Mill Throughput Ore Reserves Notes

Gold
% Recovery
of
Process
Plant
Feed

Average
Head
Grade

Gold

Reserve

Grade
Head
Grade
Stope
Grade
ozs   tons tons/day opt ozs tons opt
1927 27,008 181% 169% 30,419 83 0.49 34,992 74,450 0.47 Process Plant starts May 1932
1933 22,720 95% 94% 55,677 153 0.43 63,140 154,000 0.41  
1934 21,638 93% 90% 64,294 176 0.36 87,750 225,000 0.39 Gold fixed at $35/oz from $20/oz
1935 32,250 92% 96% 102,712 281 0.34 77,070 226,675 0.34  
1936 29,040 96% 86% 112,416 308 0.27 59,351 197,836 0.30  
1937 30,035 93% 93% 115,765 317 0.28 71,824 256,516 0.28 Discovered 38 vein
1938 31,257 95% 96% 117,376 322 0.28 96,184 343,515 0.28  
1939 34,242 94% 94% 117,787 323 0.31 152,361 491,486 0.31 Start of World War 2
1940 36,745 94% 93% 122,365 335 0.32 242,150 756,718 0.30  
1941 43,121 95% 94% 138,097 378 0.33 312,501 945,609 0.30  
1942 58,869 95% 95% 199,203 546 0.31 285,481 920,908 0.31  
1943 48,568 95% 97% 164,307 450 0.31 256,612 916,471 0.28  
1944 40,669 97% 96% 140,085 384 0.30 256,735 855,784 0.30  
1945 38,326 98% 97% 135,000 370 0.29 213,562 736,419 0.29 End of World War 2
1946 43,819 97% 98% 149,875 411 0.30 214,738 715,794 0.30  
1947 42,326 99% 100% 137,867 378 0.31 215,173 694,105 0.31  
1948 52,764 114% 113% 154,953 425 0.30 214,826 716,087 0.30 Emergency Gold Mining Assistance started
1949 53,201 105% 104% 188,000 515 0.27 193,860 718,000 0.27  
1950 51,822 101% 102% 182,397 500 0.28 198,562 709,151 0.28  
1951 50,735 96% 96% 195,000 534 0.27 174,150 645,000 0.27  
1952 53,120 95% 95% 200,000 548 0.28 168,112 600,400 0.28  
1953 40,993 98% 99% 174,904 479 0.24 102,816 428,400 0.24 Gold free market ends
1954 43,868 97% 98% 180,599 495 0.25 86,900 347,600 0.25  
1955 41,211 98% 99% 174,631 478 0.24 70,800 295,000 0.24 First operating loss
1956 33,462 98% 99% 155,595 426 0.22 54,868 249,400 0.22  
1957 33,339 98% 98% 136,616 374 0.25 48,648 202,700 0.24  
1958 34,300 98% 98% 124,597 341 0.28 56,650 226,600 0.25  
1959 28,570 98% 98% 116,666 320 0.25 47,444 197,683 0.24  
1960 31,136 96% 95% 135,642 372 0.24 47,928 199,700 0.24  
1961 31,009 98% 99% 149,942 411 0.21 36,869 160,300 0.23  
1962 30,339 99% 98% 133,000 364 0.23 23,218 110,560 0.21  

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T ABLE 6.1
H ISTORIC P RODUCTION AT R ICE L AKE M INE : 1927-1968
  Mill Throughput Ore Reserves

Notes



YEAR

Gold
% Recovery
of
Process
Plant
Feed

Average
Head

Grade

Gold

Reserve

Grade
Head
Grade
Stope
Grade
ozs tons tons/day opt ozs tons opt
1963 24,017  94% 94% 127,575 350 0.20 46,886 203,853 0.23  
1964 28,773  98% 98% 133,764 366 0.22 44,989 187,454 0.24  
1965 24,969  98% 97% 111,295 305 0.23 34,966 145,693 0.24  
1966 21,630  98% 97% 85,258 234 0.26 40,241 174,961 0.23  
1967 13,394  98% 98% 71,673 196 0.19 43,240 188,000 0.23  
1968 6,066 87% 93% 30,218 166 0.23 38,769 161,537 0.24 Fire destroys surface hoist; production ends July, 1968.

T ABLE 6.2
H ISTORIC P RODUCTION AT R ICE L AKE M INE : 1980-2001
YEAR Mill Throughput Ore Reserves Notes

Gold
% Recovery of
Process Plant
Feed

Average
Head
Grade

Gold

Reserve

Grade
Head
Grade
Stope
Grade
ozs tons tons/day opt ozs tons opt
1980-83 13,954 100%   104,135   0.13 146,085 664,024 0.22 New Forty Four/Brinco Joint Venture formed.
  Mill destroyed by fire in 1980. Production ends May 227, 1983, drilling continues at depth
1984             111,616 534,504 0.21 Lathwell/Brinco JV conducts limited program
1985 Brinco changes name to Cassiar Mining Corporation
1986             350,196 1,522,591 0.23 Inco subsidiary drills 20,008 ft to test depth
1987 Inco opts out. Cassiar ownership 100%
1988 308,700 1,470,000 0.21 Kilborn reviews reactivation program for Mandor Gold
1989             169,641 1,225,642 0.22 Rea Gold Corp. acquires project from Cassiar.
1990 Wright Engineers and Dolmage Campbell complete due diligence on behalf of Rea Gold
1991  
1992  
1993 Pre-Feasibility of Kilborn and Tonto recommends mineable reserves be increased
1994 415,149 1,976,901 0.21 Rehab, exploration and development in lower levels of mine
1995 540,715 2,216,046 0.24 Feasibility studies by Rea Gold and Simmons completed. Drilling and development underground.
1996             558,213 2,335,621 0.24 Construction and development towards 1,000

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T ABLE 6.2
H ISTORIC P RODUCTION AT R ICE L AKE M INE : 1980-2001
YEAR Mill Throughput Ore Reserves Notes
Gold % Recovery of Process Plant
Feed
Average Head
Grade
Gold Reserve
Grade
Head
Grade
Stope
Grade
ozs tons tons/day opt ozs tons opt
                    tons per day operation
1997 9,000     60,000   0.15 674,951 2,812,297 0.24  
1998 2,875 40,035 0.07 Rea Gold Corp. bankrupt. Receiver puts assets up for sale. Harmony Gold (Canada) Inc. acquires mining assets of Harmony.
1999 33,238     231,898   0.14        
2000 39,476     257,605   0.15        
2001 29,341 85% 79% 203,868 0.17 327,884 1,932,404 0.17 Project placed on care and maintenance August, 2001

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T ABLE 6.3
H ISTORIC P RODUCTION AT R ICE L AKE M INE : 2007-2015

Year

Tons Processed
Head Grade Gold
opt g/t oz
2007 96,653 0.13 4.35 9,193
2008 116,835 0.09 3.20 13,845
2009 164,424 0.23 8.00 35,154
2010 275,860 0.17 5.85 47,082
2011 461,150 0.17 5.93 79,802
2012 629,279 0.15 5.07 93,233
2013 641,711 0.13 4.32 80,828
2014 390,564 0.12 4.03 41,890
2015 (Q1) 81,427 0.11 3.91 9,261

6.3

RICE LAKE GOLD MINE HISTORIC RESOURCE ESTIMATES


6.3.1

Historic Resource Estimates

1989: Rea Gold estimated the historic (not NI 43-101 compliant) Mineral Reserve to be 1,226,000 tons (1,114,000 tonnes) grading 0.22 opt Au (7.5 g/t Au).

1994: Rea Gold increased the historic (not NI 43-101 compliant) mineral reserve to 1,977,000 tons (1,797,000 tonnes) grading 0.21 opt Au (7.2 g/t Au) based on the results of a C$3.1 million underground rehabilitation and exploration program to delineate additional mineral resources.

2002: Howe (Titaro et al 2002) concluded that as of April 2001 the mine had a historic (not NI 43-101 compliant) Measured and Indicated Mineral Resource of 1,267,000 tons (1,152,000 tonnes) grading 0.26 opt Au (8.9 g/t Au) plus an Inferred Mineral Resource of 735,000 tons (668,000 tonnes) grading 0.31 opt Au (10.6 g/t Au).

6.3.2

Most Recent Resource Estimate

2012: A summary of the 2013 Resource Estimate for the Rice Lake Mining Complex is given below in Table 6.4. Information from Table 6.4 was taken from a report completed under NI 43-101 standards and amended and filed on the System for Electronic Document Analysis and Retrieval, “SEDAR”, (www.sedar.com), on February 25, 2013. The authors of the Rice Lake Technical Report, produced for SanGold, were Qualified Persons Dale Ginn, P.Geo. and Michael Michaud, P.Geo. San Gold.

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T ABLE 6.4
S UMMARY OF M INERAL R ESOURCE (D EC 31, 2012)
Description Mineral Resource Gold Grade Total Gold
(tons) (opt) (g/t) (ounces)
  Rice Lake Mine    
Measured Resource 226,000 0.24 8.2 54,000
Indicated Resource 770,000 0.24 8.1 181,000
Measured and Indicated 996,000 0.24 8.1 235,000
Inferred Resource 1,710,000 0.29 9.8 489,000
         
  Hinge Zone District   
Measured Resource 96,000 0.16 5.7 16,000
Indicated Resource 481,000 0.13 4.5 63,000
Measured and Indicated 577,000 0.14 4.7 79,000
Inferred Resource 1,564,000 0.13 4.5 205,000
         
007 Zone        
Measured Resource 225,000 0.24 8.2 54,000
Indicated Resource 869,000 0.15 5.1 130,000
Measured and Indicated 1,094,000 0.17 5.7 183,000
Inferred Resource 8,513,000 0.14 4.9 1,215,000
         
Hanging Wall Zones (Cohiba, Cartwright L13)  
Measured Resource 39,000 0.16 5.6 6,000
Indicated Resource 336,000 0.19 6.6 64,000
Measured and Indicated 375,000 0.19 6.5 71,000
Inferred Resource 3,509,000 0.19 6.6 680,000
         
Normandy Shear (SG1, SG2, SG3)   
Measured Resource 0      
Indicated Resource 387,000 0.22 7.7 87,000
Measured and Indicated 387,000 0.22 7.7 87,000
Inferred Resource 1,221,000 0.22 7.4 265,000
         
  Total Project    
         
Measured and Indicated 3,430,000 0.19 6.5 655,000
         
Inferred Resource 16,517,000 0.17 5.9 2,853,000

(1)

Mineral Resource estimate is based on cut-off grades of 0.09 oz/ton to 0.12 opt and gold price of US$1300- US$1500 /oz

(2)

Some values have been rounded. The totals are accurate summations of the columns and rows of data.

At that time, the total project Proven and Probable Mineral Reserve was estimated at 1,699,000 tons (1,541,000 tonnes) grading 0.15 opt (5.14 g/t) Au.

2014: In a press release dated March 31, 2015, San Gold announced an updated Mineral Reserve and Mineral Resource estimate for the Rice Lake Mining Complex effective December 31, 2014 (Table 6.5). The update was based on mine depletion or previous resources and definition drilling of new resources.

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T ABLE 6.5
S UMMARY OF M INERAL R ESOURCES (D EC 31, 2014)
Description Mineral Resource Gold Grade Total Gold
(tons) (opt) (g/t) (ounces)
  Rice Lake Mine    
Measured Resource 212,000 0.24 8.1 50,000
Indicated Resource 1,111,000 0.23 8.0 260,000
Measured and Indicated 1,323,000 0.23 8.0 310,000
Inferred Resource 2,015,000 0.25 8.4 495,000
         
  Hinge Zone District   
Measured Resource 12,000 0.13 4.3 1,000
Indicated Resource 871,000 0.19 6.5 164,000
Measured and Indicated 883,000 0.19 6.4 165,000
Inferred Resource 1,174,000 0.17 5.9 202,000
         
  007 Deposit    
Measured Resource 0     0
Indicated Resource 305,000 0.14 5.0 44,000
Measured and Indicated 305,000 0.14 5.0 44,000
Inferred Resource 1,000,000 0.15 5.1 150,000
         
  Other Deposits    
Measured Resource 0     0
Indicated Resource 662,000 0.17 5.9 114,000
Measured and Indicated 662,000 0.17 5.9 114,000
Inferred Resource 1,640,000 0.16 5.3 254,000
         
  Total Project    
         
Measured and Indicated 3,173,000 0.20 6.8 633,000
         
Inferred 5,829,000 0.19 6.5 1,101,000

(1)

Mineral Resource estimate is based on cut-off grades of 0.08 opt (2.74 g/t) and 0.10 opt (3.43 g/t) and a gold price of US$1350/oz

(2)

Some values have been rounded. The totals are accurate summations of the columns and rows of data.

At that time, total Project Proven and Probable Reserves were estimated at 2,629,000 tons (2,385,000 tonnes) grading 0.173 opt Au (5.93 g/t Au).

Note: the Resource Estimate above is not current and has since been superseded by the 2016 P&E NI 43-101 compliant Resource Estimate, as described in Section 14 of this Technical Report.

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6.4

RICE LAKE PROPERTIES FEASIBILITY STUDIES

Information in this Section is taken from the February 4, 2013 San Gold report titled “Technical Report on the Rice Lake Mining Complex, Bissett, Manitoba”.

6.4.1

Historic Feasibility Studies

1993: Based on a historic (non NI 43-101 compliant) Mineral Reserve estimated to be 1,226,000 tons (1,114,000 tonnes) grading 0.22 opt Au (7.5 g/t Au), a Pre-Feasibility study by Kilborn Engineering in 1993 for Rea Gold recommended that the Mineral Resource base be increased prior to a production decision.

1995: A Feasibility Study was completed by Rea Gold and Simmons Engineering in 1995 and construction and development of a 1,000 ton (907 tonne) per day operation was initiated.

2002: Howe (Titaro et al 2002) completed a report on the Harmony assets, which included an audit of the mineral resources and mineral reserves, review of the operating and capital costs, and preparation of a financial evaluation of the economic feasibility for reopening the Rice Lake Mine. Howe concluded that a viable shrinkage mining operation could be run at a mining rate of 550 tons (500 tonnes) per day, which delivered ore to a surface stockpile to feed the 1,250 ton (1,136-tonne) per day process plant. The process plant would operate on a two-week on, two-week off cycle. Gold was US$300 per ounce at this time. .

Howe further concluded that based on established estimation practices at the Rice Lake Mine, the mine had a historic (not NI 43-101 compliant) Measured and Indicated Mineral Resource of 1,267,000 tons (1,149,000 tonnes) grading 0.26 opt Au (8.9 g/t Au) plus Inferred Mineral Resources of 735,000 tons (668,000 tonnes) grading 0.31 opt Au (10.6 g/t Au) as of April 2001. All resources were located above the 4,630 Level 5,370 feet (1,637 m) below the collar of A-Shaft) in the C-Shaft and D-Shaft areas of the mine.

Within the Measured and Indicated Mineral Resources, Howe concluded that the Rice Lake Mine had Proven and Probable Mineral Reserves of 901,800 tons (820,000 tonnes) grading 0.27 opt Au (9.3 g/t Au). In determining this Mineral Reserve, Howe used dilution, cutting, and cutoff practices based on more than 38 years of mining at the Rice Lake Mine. All reserves had existing development drifts and were accessible on levels within the C-Shaft and D-Shaft areas.

6.4.2

Existing Feasibility Studies

Technical Reports on NI 43-101 compliant Feasibility Studies have not been completed for True North.

6.5

PREVIOUS MINERAL PROCESSING & METALLURGICAL TESTING

A mineral processing plant has been operated intermittently in conjunction with mining since the 1930s. The details of mineral processing and metallurgical testing are disclosed in Section 13 of this Technical Report.

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7.0

GEOLOGICAL SETTING AND MINERALIZATION


7.1

REGIONAL GEOLOGICAL SETTING

True North is underlain by the Archean Rice Lake greenstone belt located at the west end of the Uchi Volcanic-Plutonic Subprovince of the Superior Province (Figures 7.1 and 7.2) . The Rice Lake greenstone belt is bound to the north and south by the Wanipigow Shear Zone and the Manigotagan Shear Zone, respectively.

The Manigotagan Shear Zone is marked by a regionally continuous zone of faults (Manigotagan-Lake St. Joseph Fault) which separates the volcanic-plutonic terrain of the Uchi Subprovince from the English River (Ontario) - Manigotagan (Manitoba) gneissic belts. The Manigotagan gneissic belt, which occurs immediately south of the Rice Lake greenstone belt, consists of a lithologic gradation from low-grade metavolcanic and metasedimentary rocks, through paragneiss and migmatite, to quartz diorite and granodiorite gneiss.

The Wanipigow Shear Zone is marked at True North by regional-scale fault structures and elsewhere by increasing metamorphic grade into the metamorphic-plutonic terrain of the Wanipigow (Manitoba) Subprovinces and Berens River (Ontario). The Wanipigow River Plutonic Complex, which forms the northern boundary of the Rice Lake greenstone belt, is composed mainly of hornblende and biotite-bearing quartz diorite, granodiorite and locally quartz monzonite intrusions and gneisses. Several large gabbro intrusions are also present.

The rocks in the True North area were affected by at least three and possibly four major periods of deformation (Anderson, 2008). The resulting fold pattern is complex with overturned, doubly-plunging folds in the Rice Lake Group rocks. The late Archean San Antonio Formation sedimentary rocks may have been affected by only the last major period of deformation.

Many major regional fault structures are present in the True North area. The most prominent are the major structures that trend generally east-west. Movement along these structures formed conjugate shear zones which splay off to the north and south. Thrust faulting likely occurred in the early stages of the deformation, but these structures are difficult to identify.

All the major gold occurrences in the Project area occur as quartz veins or quartz vein systems formed during structural deformation of the host rocks. Significant gold production has occurred from the Uchi Subprovince in the Rice Lake area to the west in Manitoba and in the Red Lake, Birch-Uchi Lake and Pickle-Dona Lake areas to the east in Ontario (Figure 7.1) .

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Figure 7.1     Regional Geologic Map showing the Location of True North Gold Mine in the Archean Uchi Subprovince, Manitoba

Figure 7.2     Geologic Map showing the Location of Gold Deposits and Lithotectonic Assemblages in True North Gold Mine Area

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7.2

LOCAL GEOLOGIC SETTING

All of the gold mineralized zones at True North are hosted in rocks of the Bidou Lake Assemblage (Figure 7.3) . The Bidou Lake Assemblage forms a north-facing stratigraphic sequence of tholeiitic basalt to intermediate volcanic flows, dacite crystal tuffs and breccias overlain by well stratified felsic epiclastic rock interpreted to be of pyroclastic and sedimentary origin. The stratigraphic sequence is intruded by tholeiitic gabbro sills and dykes and felsic porphyry dykes.

The best known gabbro sill is the San Antonio Unit, host rock of the gold mineralization at the True North deposit. The Bidou Lake Assemblage is unconformably overlain by feldspathic sandstone of the San Antonio Assemblage.

In the Project area, gold mineralization is controlled by quartz-carbonate veins and vein systems in brittle- ductile structures with related hydrothermal alteration halos within or at the margin of particular host rock units (Figure 7.4).

7.2.1

Host Rock Units

The gold mineralized veins show a high degree of structural control and are best developed in competent host rock units. Since 2009, three main host units have produced the most gold ore at True North (Figures 7.3, 7.4):

  1)

The SAM, a gabbro sill from which gold has been mined for more than 80 years from the True North deposit;

  2)

The Shoreline Basalt unit, which hosts the 007, L10 and SG zones; and

  3)

The Intermediate Volcanic unit, which hosts the Hinge, L13, L08 and Cohiba Zones.

The SAM unit is a layered tholeiitic gabbro sill which intrudes the Bidou Lake Assemblage and dips moderately to the north. The SAM has been interpreted to be a subvolcanic feeder for the overlying mafic volcanic rocks. SAM hosted all the gold mineralization mined prior to 2004 in the True North Mine and the Cartwright zone, for a total of 1.5 million oz.

The Shoreline Basalt is a steeply dipping mafic volcanic rock unit that is geologically similar and subparallel to the SAM unit, and hosts the 007, L10 and possibly the SG gold zones (Figure 7.4) .

The Intermediate Volcanic Unit occurs to the north of the Shoreline Basalt and hosts the Hinge and Cohiba Zones.

In addition to these three rock unit, an unnamed intermediate to mafic volcanic unit situated in the footwall to the Shoreline Basalt unit hosts the 710 Zone which was discovered in 2013.

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Figure 7.3     Local Geology of True North Gold Mine Area

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Figure 7.4     The Structural Geological Setting of Gold Mineralization at True North Gold Mine

7.2.2

Structures

The structures that control the gold mineralization are brittle-ductile shear zones which strike from parallel to transverse to the host rock units and dip steeply northwest or northeast. The shear zones are marked by intensely foliated and lineated interlayered sericite and chlorite schists, which range from <100m to 6 km long and fromm 1m to >10m thick (Figure 7.5A) .

Structures trending east-northeast have kinematic features indicative of sinistral-reverse movement, whereas those trending northwest have kinematic features indicative of dextral-normal movement.

The sinistral and dextral structures are interpreted to have been generated during a single protracted areal deformation event – D3 (Anderson, 2011; SRK, 2013). Stretching lineation and fold plunges tend to be orthogonal to movement on the host shear zone (SRK, 2013). The structures contain a main, banded (laminated) quartz vein and subsidiary veins in the schist on either side (Figure 7.5B) . The main vein can be situated anywhere in the structure.

7.2.3

Veins

According to Anderson (2008), shear-hosted veins include massive, laminated and brecciated varieties, commonly within the same vein, and typically pinch and swell along strike and down-dip. Thicker veins are associated with inflection points in the host shear zones, which suggests hydrothermal infill of dilational jogs.

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Most of the shear zones are associated with fringing arrays of kinematically linked extension and oblique-extension quartz veins, which locally intensify into complex peripheral stockwork-breccia systems. Considered with the geometry of the vein arrays, the vein textures indicate synkinematic emplacement under brittle-ductile conditions. Most deposits are arrays of sub-horizontal extension veins, which suggests emplacement accompanied by transiently supralithostatic fluid pressures.

In the True North deposit, the gold-bearing quartz veins occur mainly as either “16-type” shear zone veins or “38-type” tensional fracture stockwork veins (Figures 7.6, 7.7 and 7.8) or, where they intersect, as a combination of the two vein types. The 16-type appear to be fault fill veins with generally higher grades and more continuity, which are laminated with pressure solution seams (stylolites) and trend north-northeast.

The stylolites consist of intergrown pyrite-chlorite-tourmaline-muscovite. Compared to the 16-type, the 38-type are stockwork breccia veins that are wider and arranged in an en-echelon pattern along the strike and down the dip of the host gabbro unit, but gold mineralization is more irregular and grades difficult to predict. In some deposits, for example SG-1 and SG-3, the gold mineralized veins were intensely transposed during ductile deformation (Anderson, 2008), presumably later in D3.

Figure 7.5     Shear Zones and Quartz Veins

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Figure 7.6     Example of 16-Type Shear and 38-Type Breccia Gold Mineralized Quartz Veins in the SAM Unit at True North

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In addition to quartz, the veins contain subordinate carbonate, minor albite, chlorite and sericite, and rare tourmaline and fuchsite (a.k.a. mariposite). The carbonate is dolomite-ankerite in composition (Ross & Rhys, 2010). Sulphide minerals consist of pyrite with minor chalcopyrite and rare sphalerite, galena and gold-silver telluride minerals. Pyrite generally comprises <5% of individual veins and occurs as scattered grains and irregular blebs within and along vein margins, and is concentrated along planar slip surfaces or stylolites.

Gold typically occurs are free grains associated with or as inclusions in pyrite. Gold grades tend to be highly erratic within individual quartz veins. The gold ores have high Au/Ag ratios of >5:1 and low concentrations of Copper, Lead, Zinc, Arsenic, Bismuth, Boron, Antimony and Tungsten, as is typical for Archean lode-gold deposits.

7.2.4

Wall Rock Alteration

Wall rock alteration spatially associated with the quartz veins varies from minor to intense and is generally zoned outward from proximal albite + ankerite + sericite + quartz +pyrite through medial chlorite + ankerite ± sericite to distal chlorite + calcite (Anderson, 2008). These alteration mineral assemblages overprint the regional greenschist facies metamorphic mineral assemblage (Ames et al., 1991). Many veins show evidence of wall rock sulphidization in the form of coarse euhedral pyrite grains.

In the True North deposit, thick zones of altered and sulphidized wall rock with minor vein quartz contain ore grade gold. Complex and antipathetic distribution patterns of phengitic white mica and muscovite-paragonite are reported by SRK (2013), and appear to be controlled by second order faults and near-mine shear zones.

The True North and SG-1 deposits show close spatial relationship with laterally continuous zones of ankerite-sericite phyllite and phyllonite, which represent reliable guides to ore. Deformation structures in the phyllonite preserve evidence of a complex deformation history, increments of which pre-date and post-date vein formation.

Despite vertical extents of up to >2 km, the True North deposit shows only minor variation in vein mineralogy, texture and structure.

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Figure 7.7     Controls on Gold Mineralization in the 007 Zone

Figure 7.8     Interpreted Cross-Sections of 007 and L10 Zones Looking West

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Figure 7.9     Level Plan of the 710 Zone showing the Location of the 710 and 711 Veins.

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8.0

DEPOSIT TYPES

The association of gold at True North with quartz-carbonate veins in brittle-ductile shear zones and laterally extensive hydrothermal alteration zones indicates that the deposits represent epigenetic mesothermal lode gold-type (Poulsen et al., 2000) or orogenic-type gold mineralization (Groves et al., 1998).

Such gold deposits form from metal-bearing fluids generated during accretionary processes and prograde regional metamorphism at depth in greenstone belt terrains. In this model (Figure 8.1), the resulting fluids migrate and are channelled upward along transcrustal fault systems to subsidiary shear and fracture structures developed in the middle to upper crust. Gold is deposited in quartz carbonate veins as a result of pressure-temperature, pH and other physiochemical changes, phase separation and fluid-rock reactions. The reactions commonly involve sulphidization of precursor oxide, carbonate and silicate minerals and mineral assemblages.

Figure 8.1     Schematic Cross-Section Representation of the Geometry and Structural Setting of Shear Zone Hosted Gold-Bearing Quartz Vein Networks in Greenstone Belt Terrains like True North Gold Mine

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9.0

EXPLORATION

Klondex has yet to commence near mine and regional exploration work at True North. Limited underground diamond drilling exploration, has been completed for ore definition. Most of the exploration work at the Project was completed previously during the San Gold ownership.

Based on the orogenic gold model (Figure 8.1), exploration targets at True North are areas or zones selected based on the criteria listed below:

  Presence of gold
  Favourable structure (shear zones and breccia zones)
  Significant quartz vein material
  Hydrothermal alteration minerals and assemblages
  Proximity to unconformities and disconformities; and
  Proximity to oxidation/reduction boundaries of regional scale

On surface, favourable structures are identified utilizing the 2009 LiDAR survey and the 2011 airborne magnetometer survey. The LiDAR survey products include a high-resolution digital elevation model which has been used to map geological contacts, bedding planes, faults, shears, lineations and joints. Follow-up ground geological mapping is employed to identify fabrics, offsets and abrupt changes in rock types that indicate structure.

Mineral prospecting is used to identify indicative mineral alteration, particularly sericite and carbonate minerals and mineral assemblages. Many surface targets meeting some or all of the relevant criteria remain to be tested by drilling.

Underground exploration has been and continues to be guided by drilling mineralized structures along strike and updip and down-dip from mine workings and development, particularly within the SAM unit, Shoreline Basalt unit, Intermediate Volcanic Unit, and the 710 host mafic unit. At least seven underground targets have been identified by Klondex for exploration drilling.

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10.0

DRILLING

Drilling at True North has been completed both on surface and underground. The majority of the drilling was done previously by San Gold. Klondex commenced drilling underground and sampling the historic tailings in the spring of 2016.

10.1

DIAMOND CORE DRILLING

Underground drillholes are planned by the Geology Department using three- dimensional A-mine software applying length, dip, and anticipated deviation. The front and back sights are setup by the survey department and on completion of the hole, the collar location is surveyed.

Downhole survey measurements are taken at 70 feet (20m) from the collar, and then every 100 feet (30m) for underground drillholes and 200 feet (60m) for surface drillholes. For infill drilling, the typical hole spacing is 50 feet (15m).

Underground air diamond drills produce AQ size core and underground electric diamond drills produce BQ and NQ size core. Surface diamond drills produce NQ size core, except for the first 500 feet (150m) of some of the deeper holes, for which HQ size core is produced to minimize drillhole deviation.

Underground exploration and definition drilling completed, by previous owners, along the SAM unit was for near and mid-term production planning purposes. Definition drilling also continued at the 007 and L10 zones within the Shoreline Basalt unit and at the L13 and Hinge Zones in order to advance Mineral Resources from Inferred to Measured and Indicated categories and to increase the Mineral Reserve.

In 2011, the L08 zone was discovered to the northwest of the Hinge Zone. The L08 zone was traced vertically in drilling from 1,000 feet to 2,300 feet below surface and is in close proximity to the Hinge Zone and True North workings at the 16 Level. In 2013, the 710 Zone was discovered as part of underground drilling of an unnamed intermediate mafic volcanic unit between the SAM unit to the south and the Shoreline Basalt unit to the north. Underground drilling of the 710 Zone and other zones continued in 2014 through the spring of 2015.

Klondex commenced underground diamond drilling which, in early 2016, was focused on the 710 Zone. By the spring of 2016, approximately 5,700 underground exploration holes were drilled collectively by San Gold and Klondex with an approximate total of 2,482,000 feet (756,500 m).

It is important to note that the apparent drop in the Mineral Reserves and Resources from early publicly released numbers (not NI -43-101 compliant) is not the result from drilling, but due to a more conservative approach to resource modelling and categorizing.

Surface diamond drilling has occurred at the Project since 1912, which includes more than 2,190 holes and 2,605,000 feet (794,000 m) (Table 10-1). San Gold’s largest surface drilling exploration program was in 2011-2012 and included drilling approximately 1,024,000 feet (336,000 m) in 602 surface holes. The exploration drill program focused on the SAM unit, Shoreline Basalt unit, and Intermediate Volcanic Rock unit.

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T ABLE 10.1
S UMMARY OF S URFACE E XPLORATION ON THE T RUE N ORTH G OLD M INE

10.2

CHANNEL CHIP SAMPLING

The face sampling procedure described below is used for grade control at the Project is derived from a 2016 document provided by Klondex. The sampling procedure consists of the following steps:

  Ensure that the face to be sampled is secure and safe prior to chipping;
  Wash the face thoroughly to remove loose material and expose rock type boundaries;

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Delineate sample intervals using a measuring stick and paint. The sample line should be perpendicular to the orebody dip and run from left to right;

 

Sample widths should not exceed 3 feet in waste and 2 feet in ore, with a minimum sample width of 0.5foot (0.15m);

 

Sample intervals should not cross lithologic boundaries; and

 

Cumulative sample intervals should encompass the entire width of the face.

Samples are collected by chipping rock from the interval utilizing a sharp rock hammer pick. Rock chips are placed in a clean plastic 12 inch x 12 inch sample bag. The bag is filled to an approximate ¼ capacity. Sample information is recorded on a sample tag and the numbered end placed in the corresponding sample bag.

On a chip sample face sheet, a scaled picture is drawn of the face and the sampled intervals. In addition, the date, sampler, heading, dimension, orientation, position relative to the nearest survey station, samples, sampled intervals, and materials (host rock or vein) are all recorded.

The channel chip sample information is entered into the database and stored as pseudo drillholes with collar, survey and assay values.

10.3

HISTORIC TAILINGS POND DRILLING/SAMPLING

Prior to committing to a trial of the re-processing of the historic tailings an extensive sampling program was undertaken to determine the distribution of recoverable gold within the tailings mass. In the spring and summer of 2016, Klondex drilled 138 holes and hand dug 214 holes on the historic tailings for which is a total of 352 holes with a total footage of 3,714 feet (1,132 m) (Table 10.2) . The holes ranges in depth from <5 feet at the margins up to 35 feet in the centre.

On the historic tailings, two phases of drilling have been completed using a 200-foot by 100-foot grid. Phase 1 drilling was completed using a stem auger. The hollow stem auger sampling method employed by SanGold is not well documented. Brief descriptions indicate that the holes were drilled and sampled in 5-ft (1.5m) increments through a hollow stem auger.

Phase 2 drilling was performed with a percussion probe (Geo Probe). Holes were planned, located, and staked with a differential global positioning system (GPS), and drilled with a dual tube system. An outer tube is pushed down inside the drill rod by percussion, and then an inner tube with a sampling polyvinyl chloride (PVC) cylinder is pushed down inside of the tube. A continuous 5¬foot sample is collected within the PVC cylinder. The inner PVC cylinder and the sample are retrieved through the outer tube, which remains in place. When drilling resumes, the drill pushes down an additional 5-foot section of outer tube, and the processes is repeated in continuous 5- foot intervals until the total depth of the hole is reached.

In addition to the drilling, samples were also collected from hand dug holes. Holes were planned on a grid spacing of 50-foot by 50-foot and staked and located with a differential GPS. The holes were dug to the diameter of the shovel blade and to a depth at which the hole is stable. The geologist logs lithologic units that are >0.5 foot in thickness, based on grain size (sand, clay, or mixed). Hand dug hole collars are imported into the database as pseudo drillholes with an azimuth of 0 degrees and dip of -90 degrees.

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T ABLE 10.2
S UMMARY OF T AILINGS D RILLING AT T RUE N ORTH G OLD M INE

Hole Type Grid Spacing No. Holes Footage Assay Lab
Stem Auger 200 ft x 100 ft 39 818.8 AcmeLabs
Geo Probe 200 ft x 100 ft 99 2351.5 TSL Lab
Hand Dug 50 ft x 50 ft 214 543.5 Site Lab

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11.0

SAMPLE PREPARATION, ANALYSES AND SECURITY

This section of the report summarizes the sampling methods, sample preparation, assay analysis, and security procedures for surface and underground drill core, underground face sampling, and historic tailings sampling.

For core and face sampling, the procedures were developed and documented by the previous operator San Gold have largely been adopted by Klondex. Any changes made by Klondex are noted within this Technical report. The procedures for tailings sampling were developed entirely by Klondex.

11.1

CORE SAMPLING METHODS

Surface and underground drilling at the Project is completed by contractors. Diamond drill core is placed in labelled wooden trays and depth marker blocks are inserted by drilling contractor personnel prior to the removal of the core from the drill site by the project geologist. Upon arrival at the secure core logging facility, the core boxes are sequentially placed in a core rack and the spatial information on each box of core is checked for accuracy and consistency. If necessary, remedial action is undertaken to correct deficiencies and errors in the spatial information prior to entry into the database. The drill core is digitally photographed prior to logging and marked for sampling.

11.1.1

Surface Core Sampling Methods

Exploration geologists log the core and record observations in a digital drill log database prior to sample selection for assay analyses (Figure 11.1) . Core intervals are selected for sampling based on the following presence of mineralization, favourable structure and quartz veining. They are then marked and measured for sampling and identified with one part of a three-part assay tag placed at the end of the sample interval.

Samples are taken by sawing the core perpendicular to the core axis, with one-half of the core returned to the core box and the other half placed in a clean plastic bag along with part two of the three-part assay tag. Information on the third part of the assay tag is entered into the database and the drill log, at which time accuracy and consistency are checked again and corrected for discrepancies.

San Gold submitted core samples for assay analysis to TSL Laboratories Inc. in Saskatoon, Saskatchewan. Check assays were performed at Accurassay Laboratories Ltd. in Thunder Bay, Ontario. As of the publication date of this Technical Report, Klondex has not completed any surface drilling. Both labs are independent of Klondex.

11.1.2

Underground Core Sampling Methods

Drill programs planned by the Projects’s Department are typically underground definition drilling of known zones rather than exploration. The core sampling method differs from that for the surface exploration holes.

The interval to be sampled is determined and marked by the geologist logging the core (Figure 11.1) . Most samples, particularly those from known zones, range between 0.5 foot (0.15m) and 4.0 foot (1.2m) in length. Every sample is bracketed by a minimum of 1.0 ft. (300 mm) for small veins and structures and 6 feet (1.8m) in each of the footwall and hanging wall of known zones.

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The entire core sample is placed in a bag by the geologist and identified with an assay tag, which has a copy that remains in the sample book, and the sample number is recorded in the database. If core is to be cut, the sampling procedure e is the same as the surface exploration procedure. Approximately 10 feet (3.05m) of core above and below the sampled portion is kept to ensure that sufficient material remains if a re-bracket is required. The remainder of the core is stored at the Project.

Underground core samples are submitted to TSL Laboratories Inc. (TSL) in Saskatoon, Saskatchewan. The check assay laboratory was ALS Global (ALS) in Vancouver, British Columbia. San Gold also submitted core samples to the Project’s Assay Lab. In which case, check assays were performed by TSL. Klondex submits underground core samples to TSL. Their check assay lab is ALS. Both labs are independent of Klondex.

Figure 11.1     Flow Chart for Surface and Underground Core Sampling Methods

In general, all sections with quartz veining and/or alteration are sampled. Sample lengths in mineralized core, characterized by silicification, carbonate alteration, sulphide minerals, quartz veins and visible gold, are variable and based on geological considerations.

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Blind standards are routinely inserted into the sample sequence prior to delivery to the assay laboratory. Blanks (also routinely inserted every 50 samples and after all noted visible gold) consist of intervals of un-mineralized core which are identified and flagged prior to shipment to the assay lab.

Sealed sample bags are transported to the assay laboratory in a timely manner. Upon arrival at the assay lab, samples are received by laboratory personnel and transferred to the laboratory’s chain of custody procedures and protocols. (Klondex keeps a chain of custody as well which is updated throughout the process)

11.2

FACE SAMPLING METHODS

The face sample preparation methodology is outlined below:

  Channel chip samples are bagged on-site at the face as described in Section 10.2;
  The samples are delivered to the Project’s assay lab for analysis; and
  The internal lab inserts their own QAQC into the chip sample stream.

11.3

TAILINGS SAMPLING METHODS

Preparation of the tailings drillhole samples is summarized in the following text. The tailings samples and QAQC samples are placed in rice bags and sealed with security tags and zap-straps. Each sample bag has a sample ID and a bag number written on it. There is one sample shipment ID per hole. Each rice bag weighs approximately 30 pounds.

Security tags are recorded in an Excel tracking spreadsheet separate from the Chain of Custody. Phase 1 samples were sent to Acme Analytical Labs Ltd (“Acme”) in Vancouver, British Columbia for assay. Phase 2 samples went to TSL.

The assay lab breaks opens, dries and screens the sample at 80 mesh. Approximately 1,000 grams are riffle split, pulverized to -200 mesh. Thirty grams are taken for fire assay. The reject and pulp portions are returned to the Project and stored in the QAQC compound at the SG1 Zone compressor building or retained at the TSL

Preparation of the hand dug hole samples from the tailings pond is as follows. The samples are delivered to the Project’s Assay Lab where the lab inserts their own QAQC into the tailings sample stream. The samples then are dried are subsequently rolled with a steel rolling pin to break down any lumps. The samples are then split to size in a Jones riffle. After reducing the size of the sample to between 200 and 250 grams, they are pulverized for 30 seconds in a ring pulverizer, rolled and placed in a pulp bag for assaying. Forty grams are taken for fusion.

11.4

SAMPLE QUALITY, REPRESENTATIVENESS AND SAMPLE BIAS


 

The sampling methods used by Klondex are similar to the current industry standards for mineralization of this type. P&E recognizes that there exists serious issues related to gold deposit sampling because of the non-uniform distribution of gold within the vein systems. P&E does not believe this to be the case in this instance.

 

P&E consider that the sampling methods utilized meet NI43-101 standards.


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11.5

SAMPLE PREPARATION, ANALYSIS AND SECURITY


11.5.1

Core Sample Preparation and Analysis

The primary independent assay laboratory used by San Gold and Klondex is TSL. When pulps and rejects are returned by TSL, selected samples are sent by the Company to ALS to cross check the TSL assay results. TSL and ALS are each ISO/IEC 17025 certified laboratories and have long histories within the Canadian mining industry. Each laboratory uses similar sample preparation, analytical methods, and QAQC procedures.

On receipt by TSL, samples are sorted and verified according to the sample submittal form shipped with the samples by the Company. Security ties on the sample bags are checked with records sent electronically to TSL and the shipment is assigned a TSL reference number and worksheet. Sample labels are produced with the client sample number and the TSL reference number. Sample preparation procedures involve oscillating jaw crushing to 75% -10 mesh. A 1,000-gram sub-sample is riffle split from the -10 mesh sample and pulverized to >95% -150 mesh in a ring mill pulverizer. Between each sample, the crushers, rifflers, and pans are cleaned with compressed air. Pulverizing pots and rings are brushed, hand cleaned and air blown.

Samples without visible gold are subject to normal fire assay analytical procedures. The gold concentration is determined for a homogenized 30-gram sample using a fire assay collector and atomic absorption finish. Samples are assayed in batches of 24, comprised of 20 client samples, two duplicate client samples, one TSL standard and one TSL blank.

Each sample with visible gold is subject to total metallic and fire assay procedures. The whole sample is crushed and pulverized to 95% passing 150 mesh. The +150 mesh fraction (including the sieve cloth) is assayed for the coarse gold content and two 30-gram samples of the -150 mesh are assayed. The weighted average of the three assays determines the reported assay grade for the sample.

11.5.2

Channel Chip Sample Preparation and Analysis

Channel chip samples are analyzed by the Project’s Assay Lab at True North. When chip samples are received in the laboratory, they are sorted and placed into numerical order and the sample tag number written on the outside of the plastic bag. Wet samples are dried. All information on the samples received is entered into the logbook.

All dry samples are put through a Rhino Crusher. The crusher reduces the size of the sample to 50% -10 mesh. Crushed samples are reduced in size to approximately 200 grams by splitting, utilizing the sample riffle until one side contains the 200 gram sample to be pulverized. The remaining sample (reject) is returned to the original sample bag and stored for 6 months.

All crushed samples are pulverized for 90 seconds in a ring pulverizer to 90% -150 mesh. The sample pulps are rolled to ensure that they are homogenous and then placed in pulp bags for assay.

Pulp samples are subject to normal lead fire assay analytical procedures. A 20 gram sample is placed with 60 millilitres flux in a 30 gram crucible for fusion and fire assay of gold. Klondex does not insert standards or blanks with the chip samples.

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The past production of greater than 1.5 million oz of gold from the True North Gold Mine supports the validity of the channel sampling and assay procedures. P&E consider the assays to be accurate. The Project’s Assay Lab inserts a standard with every set of samples and the results are checked and tracked internally. The Project’s Assay Lab also runs check assays with each batch of chip samples.

11.5.3

Tailings Sample Preparation and Analysis

The sample cylinders are split by the driller for the geologist. The geologist wearing latex gloves photographs the sample, and then scoops it from the cylinder into a doubled sample bag using a spoon. The sample is tagged, the inner bag is rolled down and the outer bag is sealed. After each hole is completed, the geologist changes gloves and washes the spoon with distilled water.

11.6

CORE QUALITY ASSURANCE & QUALITY CONTROL

A QA/QC program was implemented by San Gold and adopted by Klondex to monitor the contamination, precision and accuracy at the various stages of core sample analysis. Klondex systematically inserts sample standards, blanks and duplicates into its sampling stream.

After every 25 th sample, the company inserts a QA/QC control sample alternating between a standard, a field duplicate and a blank. (Standards are every 25 th sample, Blanks are every 50 th sample or after any noted visual gold, Duplicates are inserted every 20 samples.) When assays are received, the data are plotted to ensure that all the results are within acceptable limits and any remediation, if required, is carried out.

11.6.1

Sample Standards

Under Klondex procedures all exploration core is subject to data verification procedures through the insertion of four blind sample standards at regular intervals in every one hundred samples.

Standards consist of Standard Reference Material (SRM) purchased from CDN Resource Laboratory Ltd. located in British Columbia, Canada. Four different standards are employed with contents of gold ranging from low grade to high grade (Table 11.1) .

Assay results for the standards are illustrated in Figures 11.2 to 11.5. Results are routinely reviewed. If the results plot outside the acceptable limits for standards or blanks, the sample batch is rerun.

T ABLE 11.1
C ERTIFIED G OLD A SSAY V ALUES FOR C OMMERCIAL S TANDARDS

CRM Standard Laboratory Recommended Value (g/t) 2 x StdDev
CDN-GS-1P5C CDN Resource Laboratory Ltd. 1.56 0.13
CDN-GS-6B CDN Resource Laboratory Ltd. 6.45 0.33
CDN-GS-13A CDN Resource Laboratory Ltd. 13.20 0.72
CDN-GS-22 CDN Resource Laboratory Ltd. 22.94 1.12

P&E considers that all potential gold mineralized zones in drill core have been sampled. Security of the samples at the core logging facility and at the analytical lab appear to be adequate to ensure the integrity of the samples and assays.

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Figure 11.2     Assay Results of Standard CDN-GS-1P5C

Figure 11.3     Assay Results for Standard CDN-GS-6B

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Figure 11.4     Assay Results for Standard CDN-GS-13A

Figure 11.5     Assay Results for Standard CDN-GS-22

11.6.2

Core Sample Blanks and Duplicates

Sample blanks consist of un-mineralized, unaltered and un-deformed drill core from True North. Two blanks are inserted at regular intervals for every 100 samples. Additional blanks are inserted after each sample with visible gold. The blanks are employed to monitor contamination during the sample preparation step in the assay lab.

Review of assay results for 4,178 blanks indicates that only 28 (<0.7%) exceed the upper threshold assay value set by San Gold of 0.05 opt Au (Figure 11.6) . An upper threshold assay value of 0.02 opt Au is utilized by Klondex. Otherwise, the core sample blank analysis protocols remain unchanged from those used previously by San Gold.

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Five duplicate samples are inserted by TSL at regular intervals in every 100 samples by cutting un-mineralized intervals of whole drill core in half. The procedure also includes TSL submitting selected sample rejects to ALS for duplicate analysis. The duplicate sample assay results reflect the heterogeneous distribution of gold in the core (Figure 11.7) .

Figure 11.6     Assay Results for Blanks

Figure 11.7     Assay Results for Duplicates

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11.7

CHIP QUALITY ASSURANCE & QUALITY CONTROL


11.7.1

Sample Standards

The standards inserted by the Project’s Assay Lab consist of Certified Reference Materials (SRM) produced by Rocklabs of Auchland, New Zealand and sold in Canada previously by Anachemia Science and currently by VMR’s mining division (Table 11.2) . The standards are ordered with a sulphur matrix and a gold value of approximately 1 part per million (ppm) to 10 ppm.

Results are routinely reviewed by the Project’s Assay Lab.

T ABLE 11.2
C ERTIFIED G OLD A SSAY V ALUES FOR C OMMERCIAL S TANDARD S

CRM Standard Laboratory Recommended Value (ppm) 95% CI
SG31 Rocklabs 0.996 0.011
SG40 Rocklabs 0.976 0.009
SG66 Rocklabs 1.086 0.009
SK52 Rocklabs 4.107 0.029
SK62 Rocklabs 4.075 0.045
SL61 Rocklabs 5.931 0.057
SN38 Rocklabs 8.576 0.061
SN50 Rocklabs 8.685 0.062
SN60 Rocklabs 8.595 0.073
SN74 Rocklabs 8.981 0.065
SN75 Rocklabs 8.671 0.054

11.7.2

Chip Sample Duplicates

Duplicate assays are run with every set of chip samples. Assay results for the original samples versus duplicates are illustrated in Figure 11.8. Results are routinely reviewed by the Projects’s Assay Lab.

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Figure 11.8     Assay Results for Chip Sample Duplicates

11.8

TAILINGS QUALITY ASSURANCE-QUALITY CONTROL


11.8.1

Sample Standards

For QAQC of the historic tailings samples, blind standards are inserted every 25 th sample. The standards utilized are Canadian Research Lab standards GS-1L, GS-1P5C, and GS-P6 on an alternating basis. At this stage, the majority of the data are available for GS-1P5C and GS-1L. Assay results for the standards are illustrated in Figures 11.9 to 11.10. Results are routinely reviewed. If the results plot outside the acceptable limits for standards and for blanks, the sample batch is rerun.

11.8.2

Tailings Sample Blanks and Duplicates

Sand blanks are inserted at the sample numbers ending in 40 and 90. The blanks are composed of beach sand, which has been prepared and assay tested at the Project’s Assay Lab. Assay results for the blank are illustrated in Figure 11.11. Assay results for duplicates are illustrated in Figure 11.12. Blank and duplicate results are routinely reviewed.

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Figure 11.9     Tailings Assay Results for Standard GS-1P5C

Figure 11.10     Tailings Assay Results for Standard GS-1L

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Figure 11.11     Tailings Assay Results for Blanks

Figure 11.12     Tailings Assay Results for Duplicates

11.9

RECOMMENDATIONS AND CONCLUSIONS

P&E is of the opinion that the core, channel chip and tailings sample assay data have been adequately verified for the purposes of a mineral resource estimate. All data included in the resource estimate appear to be of adequate quality.

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Recommendations are as follows:

  4)

Technical Database: All Project data collected needs to be stored and archived in a permanent and reliably retrieval manner. A full-time database administrator is recommended.

  5)

Quality Assurance/Quality Control: Timely follow-up for any and all QA/QC assay deviations and re-assay requests should be performed in a timely manner. The process should be automated when the database is up and running.

  6)

Sample Storage and Retrieval: Half-core remaining from sample assays should be retained for reference and check assay purposes. All assay sample rejects and pulps should be stored in a safe, secure and sheltered manner and properly catalogued to ease retrieval.

  7)

Project Assay Lab: Standard operating procedures should be updated, particularly in regards to assay data generation, storage and retrieval.


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12.0

DATA VERIFICATION

This section of the report summarizes the results of P&E’s due diligence for the data verification for the True North Gold Mine.

12.1

DRILL DATA REVIEW

True North Gold Mine was visited by Dr. Bill Stone, P.Geo., a Qualified Person as defined in National Instrument NI 43-101 Standards of Disclosure for Mineral Projects. Dr. Stone visited the Project of three occasions on May 21-25, June 20-23 and September 20-22, 2016. The categories of data reviewed for the three datasets include collar location surveys, down-hole surveys, assay results and geology.

12.1.1

Collar Location Checks

Comparison of 130 underground collar survey reports to easting, northing, elevation and hole length values in the database revealed no errors. Collar locations of the underground holes are considered to be reliable.

Comparison of 55 surface collar survey reports to easting, northing, elevation and hole length values in the database revealed no errors. Collar locations for the surface holes are considered to be reliable.

12.1.2

Hole Survey Checks

Comparison of 51 underground hole borehole survey reports to azimuth and dip values in the database found no errors. Borehole surveys of the underground holes are considered to be reliable.

Comparison of 13 surface hole borehole survey reports to azimuth and dip values in the database found no errors.

12.1.3

Core Assay Checks

P&E conducted verification of the drillhole assay database by comparison of the database entries with the assay certificates. The assay certificates were obtained in digital format directly from the assay laboratories and compiled.

Assay data ranging from 2009 through 2016 were verified for the True North Gold Mine. Approximately 40% (6,220 out of 15,494) of the constrained drilling assay data were checked for Au against the original laboratory certificates from TSL, ALS, and the Project’s Assay Lab. A very few minor data errors were observed and corrected, with the overall impact to the database considered negligible.

12.1.4

Geology Checks

The digital core logging system developed by San Gold has been adapted by Klondex for True North. In the lithology database, 14,292 intervals logged as 75% or greater quartz were checked for vein codes. As a result, only <1% of the quartz rich intervals were coded as rock types other than quartz veins.

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Many of these intervals are coded as chert or cherty sediments, or structures such as faults and shear zones that are commonly associated with quartz veins. In addition, 6,728 intervals logged as shears or shear zones in the structure database were also checked and only a single error was found.

12.2

CHANNEL CHIP DATA REVIEW


12.2.1

Collar Location Checks

The location of the channels on the original face map sheets and the Klondex database show positive correlation.

12.2.2

Down Hole Survey Checks

The location of the channel chip samples on the face map sheets and the database show positive correlation.

12.2.3

Assays Checks

P&E conducted verification of the channel chip database by comparison of the database entries with the assay certificates. The assay certificates were obtained in digital format directly from the assay laboratories and compiled.

Assay data ranging from 2009 through 2016 were verified for the True North Gold Mine. Approximately 66% (3,739 out of 5,697) of the constrained chip channel assay data were checked for Au against the original laboratory certificates from the Project’s Assay Lab. A very few minor data errors were observed and corrected, with the overall impact to the database considered negligible.

12.3

TAILINGS DATA REVIEW

Tailings sample procedures are described in Section 10.3 of this report. All the holes are located by differential GPS and are vertical. Sand and clay lithological units >0.5 feet thick are logged.

12.3.1

Assays Checks

P&E conducted verification of the tailings assay databases by comparison of the database entries with the assay certificates. The assay certificates were obtained in digital format directly from the assay laboratories and compiled. Approximately 87% (882 out of 1,012) of the tailings assay data were checked for Au against the original laboratory certificates from TSL, ACME and the Projects’s Assay Lab. A very few minor data errors were observed and corrected, with the overall impact to the database considered negligible.

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12.4

DUE DILIGENCE SAMPLING

Data verification assays were carried out for three separate batches of samples:

  Pulp samples of diamond core from 14 drillholes of three mineralized zones;
  Half-core samples of diamond core from 6 drillholes of three mineralized zones; and
  Rejects of 20 samples from the tailings pond.

As part of the due diligence, sampled intervals of a variety of low grade, average grade, and high grade mineralized material. Selected core intervals were sampled by taking the entire pulp sample or the entire half core, whichever was available.

For due diligence of the historic tailings, samples were selected from stored sample bags. The bagged materials were sampled by taking half or the entire sample, whichever was available. Prior to sampling, employees or other associates of Klondex were not informed of the location or identification of any of the samples to be collected. The objective of these check samples was to verify the presence and approximate grades of gold encountered during drilling, rather than to provide exhaustive independent verification of the original assay results.

The samples were collected by Dr. Stone or under his direct supervision. They were placed by Dr. Stone in appropriately numbered sample bags with pre-packaged standards, sealed in rice bags with lock ties and packing tape, and taken by him to Burlington for courier transport to the P&E office in Brampton, Ontario. From there, the samples were sent by courier to AGAT Laboratories Ltd. (AGAT) in Mississauga, Ontario for analysis. Gold was analyzed by fire assay on a 30 gram aliquot with an AAS finish. Samples yielding values >10 g/t Au were re-assayed and quantitatively determined by the gravimetric method.

AGAT employs a quality assurance system to ensure the precision, accuracy and reliability of all results. The best practices have been documented and are consistent with:

 

The International Organization for Standardization’s ISO/IEC 17025, “General Requirements for the Competence of Testing and Calibration Laboratories' and the ISO 9000 series of Quality Management standards”;

 

All principles of Total Quality Management (TQM);

 

All applicable safety, environmental and legal regulations and guidelines;

 

Methodologies published by the American Society for Testing and Materials (ASTM), National Institute for Occupations Safety and Health (NIOSH), United States Environmental Protection Agency (EPA) and other reputable organizations; and

 

The best practices of other industry leaders.


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Figure 12.1     Due Diligence Sample Pulp Results for Gold

P&E’s independent comparisons of the core sample verification results to the original assay results are illustrated in Figures 12.1 and 12.2. The P&E results for the pulps are satisfactory, but those for cores exhibit a low bias consistent with what could be anticipated for different sample volumes of a relatively heterogeneous sample from a high-grade, narrow vein gold deposit like True North.

Figure 12.2     Due Diligence Sample Core Results for Gold

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Comparisons of the P&E independent tailings sample verification results to the original assay results are illustrated in Figure 12.3.

Figure 12.3     Due Diligence Tailings Sample Results for Gold

12.5

CONCLUSIONS TO DATA VERIFICATION

Based on the evaluation of the QA/QC program undertaken by Klondex and the due diligence sampling and assay program performed by P&E, it is P&E’s opinion that the results are suitable for use in the current Mineral Resource estimate.

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13.0

MINERAL PROCESSING AND METALLURGICAL TESTING

Mining and ore processing has been carried out at True North intermittently since the early 1930’s. The original process used a gravity concentration step and whole-ore cyanidation using Merrill Crowe gold precipitation. Recoveries with this original plant and process were generally 96%.

In 1980, the original process plant was destroyed by fire except for the crushing plant and fine ore bin feed conveyor. A new process plant was constructed with the same throughput as the original; however, the process was changed to incorporate gravity concentration and a bulk sulphide flotation process.

It was found that by floating the sulphides, a “throwaway: tail” could be achieved. The concentrate was reground and upgraded through a cleaner circuit and filtered. The high grade concentrate was then shipped to a local smelter. Recovery using this process was generally 93%.

In the mid-1990’s, the mine was restarted and the process plant was expanded by adding a larger 12.5 foot x 14 foot (3.8m x 4.3m) grinding mill and a cyanide leach circuit for concentrate leaching. The operation was short lived.

In 1998, the operation was restarted again and this time ran for three years at a rate of 1,000 tonnes (907 tonnes) per day. The process used two-stage crushing followed by grinding, concentration using a centrifugal concentrator, and a bulk sulphide flotation process. This flotation concentrate was reground and sent to a leach/CIP gold recovery plant. The carbon was eluted using a conventional pressure strip followed by electrowinning and subsequent refining. Recovery for the period was calculated as generally 92%.

T ABLE 13.1
H ARMONY G OLD – R ICE L AKE D EPOSIT M ETALLURGICAL R ESULTS
Tons Milled
1990’s
Gravity
(oz. Au)
EW
(oz. Au)
Gold Prod’n
(oz. Au)
Overall Loss
(oz. Au)
Calc. Grade
(opt Au)
Gravity
Recovery
Overall
Recovery
994,830 58,198 91,297 149,496 13,304 0.164 35.75% 91.83%

When the Hinge Zone was developed, a 3,700 ton (3,357 tonne) bulk sample was treated through the process circuit with no changes having been made to that process. Recovery from this bulk sample was generally 92%. Subsequent samples were processed in May and June of 2009 with recoveries at 96.6% and 97.2% respectively, not shown.

T ABLE 13.2
H INGE Z ONE M ETALLURGICAL R ESULTS
Tons Milled Gravity
(oz. Au)
EW
(oz. Au)
Gold Prod’n
(oz. Au)
Overall Loss
(oz. Au)
Calc. Grade
(opt Au)
Gravity
Recovery
Overall
Recovery
154,229 6,712 16,608 23,320 1,826 .163 27.30% 92.74%
27,543 742 3,385 4,127 348 .162 16.59% 92.23%
258,469 10,462 21,418 31,880 2,605 .133 27.61% 92.45%

In August 2010, the first bulk sample from the 007 Zone ore was processed. This represented 6,245 tons (5,667 tonnes) grading 0.139 opt Au (4.77 g/t Au) gold with a general recovery of 92%. Additional samples in the months of September and October of 2010 yielded recoveries between 95% and 92%, not shown. Current process plant recovery from all ore is 93.3%, not shown.

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T ABLE 13.3
007 Z ONE M ETALLURGICAL R ESULTS
Tons
Processed
Gravity
(oz. Au)
EW
(oz. Au)
Gold Prod’n
(oz. Au)
Overall Loss
(oz. Au)
Calc. Grade
(opt Au)
Gravity
Recovery
Overall
Recovery
24,734 1,015 1,944 2,959 270 0.131 65.78% 91.65%
248,475 17,782 27,716 45,498 3,026 0.195 36.65% 93.76%

Although current operations employ a conventional ball mill as a primary grinding unit, the potential of Semi-Autogenous Grinding (SAG) milling was investigated. Samples of both True North and Hinge Zone mineralized material were sent to both SGS Mineral Services’ Lakefield Laboratory (SGS Lakefield) and Starkey & Associates Inc. (Starkey Associates) for testing. Results are listed below.

T ABLE 13.4
SGS L AKEFIELD AND S TARKEY A SSOCIATES SAG M ILL T ESTING R ESULTS

Sample
Name
Relative
Density
JK
Parameters
MacPherson
Test
Work Indices
(kWh/t)
A x b ta (kg/h) (kWh/t) AWI RWI BWI

Rice Lake Ore

2.77 74.5 0.34 9.7 8.2 13.9 15.7 14.9

Hinge Ore

2.71 64.4 .038 10.9 7.5 14.5 13.2 16.7

T ABLE 13.5
JKT ECH D ROP - WEIGHT T EST S UMMARY
Sample
Name
A b A x b Hardness
Percentile
ta Hardness
Percentile
Relative
Density
Rice Lake Ore 61.7 0.77 47.5 50 0.34 73 2.77
Hinge Ore 91.9 1.04 64.4 30 0.38 65 2.71

Table 13.6 shows additional SGS Lakefield and Starkey & Associates SAG Mill Testing Results.

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        T ABLE 13.6       
   MORE SGS L AKEFIELD AND S TARKEY & A SSOCIATES SAG M ILL T ESTING R ESULTS   
Project
Identification
SAG Mill Data from SAG Design Test Ball Mill Data from SAG Design Test Total
Pinion W
to P80
kWg/t
Project
Sample
No.
Client
Sample
Info
Initial
Weight
grams
No. of
Revs
Bulk
SG
g/cc
SG
Solids
g/cc
Calc
SAG W
to 1.7mm
kWh/t
Initial
Weight
grams
Test
Feed
F80 μ
Test
Product
F80 μ
Gpb
(Avg
last 3
cycles)
SAG
Dis.
Bond
BWI
kWh/t
Macro/
Micro
Ratio
Calc
BMW
to P80
kWh/t
1 Zone 1 - Hinge 7715 1123 1.71 2.71 7.72 1303 1409.7 1163 1.516 16.67 0.46 12.23 19.94
2 Zone 2 Rice 7650 1306 1.70 2.84 9.03 1294 1348.4 112.6 1.705 14.93 0.60 10.95 19.97
Average   7682 1214 1.71 2.78 8.37 1298 1379.0 114.4 1.610 15.80 0.53 11.59 19.96
Std. deviation 46 130 0.01 0.09 0.93 7 43.3 2.7 0.134 1.23 0.10 0.90 .002
Design data 16.67 0.54 12.23 21.25
SAGDesign Equation for Pinion Energy:
W = Revolutions * (grams+16000)/(447.3*grams)
Note: Calc SAG pinion kWh/t equation calibrated
for feed
F80 152mm and transfer size T80 170mm
Bond Equation for Pinion Energy:
W = (10*Wi/P80^0.5)*fines factor
Note: Calc BM pinion kWh/t is based on P80 105 μ m
Fines Factor = (P80 + 10.3)/(1.145*P80) 1.00
Note: Bond BM Wi test closing Screen 150 μ m

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In 2012 several flotation tails samples were leached in cyanide to understand the potential need for building a flotation tails leach circuit at the Project. The samples were tested during two test programs with both programs employing a 24-hour leach on as-received samples at a pH above 10.0. The first program used a cyanide concentration of 2.5 grams per litre cyanide (gpl NaCN) and the second program a concentration of 0.5 gpl NaCN. The results of these two programs are summarized in the tables below:

T ABLE 13.7
R ESULTS L EACHING F LOTATION T AILS FOR 24 H OURS AT 2.5 GPL N A CN C ONCENTRATION
Date Sampled Calc. Head, opt Au % Recovery opt Recoverable Gold
10/09/12 0.0100 90.04% 0.0090
10/10/12 0.0062 84.00% 0.0052
10/11/12 0.0074 86.52% 0.0064
10/12/12 0.0071 85.96% 0.0061
10/13/12 0.0100 90.04% 0.0090
10/14/12 0.0086 88.35% 0.0076
10/15/12 0.0119 66.31% 0.0079
10/16/12 0.0157 55.55% 0.0087
10/17/12 0.0071 85.96% 0.0061
10/18/12 0.0081 75.38% 0.0061
10/19/12 0.0083 87.94% 0.0073
10/20/12 0.0092 89.09% 0.0082
10/21/12 0.0095 89.43% 0.0085
10/22/12 0.0077 87.03% 0.0067
10/23/12 0.0077 87.03% 0.0067
10/24/12 0.0083 87.94% 0.0073
10/25/12 0.0105 85.77% 0.0090
10/26/12 0.0271 87.10% 0.0236
10/27/12 0.0103 90.32% 0.0093
10/28/12 0.0095 94.76% 0.0090
10/30/12 0.0071 85.96% 0.0061
10/31/12 0.0088 82.94% 0.0073
11/01/12 0.0065 76.77% 0.0050
11/02/12 0.0097 89.74% 0.0087
Avg. 0.0097 84.58% 0.0081

T ABLE 13.8
R ESULTS L EACHING F LOTATION T AILS FOR 24 H OURS AT 0.5 GPL N A CN C ONCENTRATION
Date Sampled Calc. Head, opt Au % Recovery opt Recoverable Gold
11/08/12 0.0060 83.22% 0.0050
11/09/12 0.0045 77.78% 0.0035
11/12/12 0.0054 81.39% 0.0044
11/14/12 0.0060 83.22% 0.0050
11/15/12 0.0067 70.00% 0.0047
11/16/12 0.0070 71.25% 0.0050
11/17/12 0.0093 78.47% 0.0073

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T ABLE 13.8
R ESULTS L EACHING F LOTATION T AILS FOR 24 H OURS AT 0.5 GPL N A CN C ONCENTRATION
Date Sampled Calc. Head, opt Au % Recovery opt Recoverable Gold
11/18/12 0.0065 84.71% 0.0055
11/19/12 0.0080 87.50% 0.0070
11/20/12 0.0092 89.09% 0.0082
11/21/12 0.0068 85.36% 0.0058
11/22/12 0.0086 88.35% 0.0076
11/23/12 0.0080 87.50% 0.0070
11/24/12 0.0080 87.50% 0.0070
11/25/12 0.0092 89.09% 0.0082
11/26/12 0.0092 89.09% 0.0082
11/29/12 0.0118 91.52% 0.0108
11/29/12 0.0210 57.05% 0.0120
11/29/12 0.0117 74.47% 0.0087
11/30/12 0.0176 94.33% 0.0166
12/01/12 0.0060 83.22% 0.0050
12/02/12 0.0085 58.62% 0.0050
12/03/12 0.0068 85.36% 0.0058
12/04/12 0.0089 88.73% 0.0079
12/13/12 0.0071 85.96% 0.0061
12/14/12 0.0071 85.96% 0.0061
12/15/12 0.0054 81.39% 0.0044
12/16/12 0.0097 89.74% 0.0087
12/17/12 0.0100 90.04% 0.0090
12/18/12 0.0089 88.73% 0.0079
12/19/12 0.0092 89.09% 0.0082
12/20/12 0.0083 87.94% 0.0073
12/21/12 0.0080 87.50% 0.0070
12/22/12 0.0086 71.01% 0.0061
12/23/12 0.0146 89.74% 0.0131
12/24/12 0.0124 91.92% 0.0114
12/27/12 0.0074 86.52% 0.0064
12/28/12 0.0065 84.71% 0.0055
12/29/12 0.0074 86.52% 0.0064
12/30/12 0.0098 59.32% 0.0058
12/31/12 0.0067 85.05% 0.0057
Avg. 0.0087 82.91% 0.0072

Solid samples have been collected from the tailings storage facility and leached to document potential recoverable gold present. Three as-received samples were leached for 72 hours with 1.0 gpl NaCN concentration at a pH of above 10.0. Results from these three tests are given in the table below:

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T ABLE 13.9
R ESULTS FROM L EACHING S AMPLES FROM T AILINGS S TORAGE F ACILITY
Sample Calc. Head, opt Au % Recovery, 24 hr test % Recovery, 72 hr
1 0.0408 80.1% 85.4%
2 0.0204 67.7% 72.4%
3 0.0408 78.1% 85.8%

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14.0

MINERAL RESOURCE ESTIMATE

   
14.1

INTRODUCTION

The Mineral Resource estimate presented herein has been prepared following the guidelines of the Canadian Securities Administrators’ National Instrument 43-101 and Form 43-101F1 and in conformity with generally accepted “CIM Estimation of Mineral Resource and Mineral Reserves Best Practices” guidelines. Mineral Resources have been classified in accordance with the “CIM Standards on Mineral Resources and Reserves: Definition and Guidelines” adopted by CIM Council on May 10, 2014:

Measured Mineral Resource “A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.”

Indicated Mineral Resource “An Indicated Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.”

Inferred Mineral Resource “An Inferred Mineral Resource is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.”

Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no guarantee that all or any part of the Mineral Resource will be converted into Mineral Reserve. Confidence in the estimate of Inferred Mineral Resources is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure.

All Mineral Resource estimation work reported herein was carried out or reviewed by Fred Brown, P.Geo., an independent Qualified Person as defined by NI 43-101 by reason of education, affiliation with a professional association and past relevant work experience. This Mineral Resource estimate is based on information and data supplied by Klondex.

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Mineral Resource modelling and estimation were carried out using Maptek Vulcan (version 9.1.8) and Snowden Supervisor (version 7.10.11) software programs.

The effective date of this mineral resource estimate is June 30, 2016.

14.2

PREVIOUS RESOURCE ESTIMATES

Previous public Mineral Resource estimates for portions of the True North deposits have been reported in 2010 and 2013. 1 Historically, in excess of 70 mineralized Au bearing veins have been identified, of which only 36 are included in the mineral resource estimates that are the subject of this report. Klondex has identified an additional five veins not included in this report for possible conversion to mineral resources in the near future.

P&E notes that all previous mineral resource estimates for the True North deposits are superseded by this report.

14.3

DATA SUPPLIED

Sample data were provided electronically by Klondex. Distance units are reported in feet, and assay grade units are reported as ounce per short ton. The supplied drilling database contains 7,746 unique collar records and 335,973 assay records (Table 14.1) . A total of 6,526 drillhole assay records are reported at zero grade. The chip sample database contains 28,763 unique collar records and 106,322 assay records. A total of 1,817 chip assay records are reported at zero grade.

T ABLE 14.1
T RUE N ORTH D ATABASE R ECORDS
Data Type Record Count Total Footage Total Metres
Drillhole Samples 335,973 699,496.2 213,206.4
Chips 28,763 243,940.6 74,353.1
       
Total 364,736 943,436.8 287,559.5

Industry standard validation checks were completed on the supplied databases, and minor corrections made where necessary. P&E typically validates a mineral resource database by checking for inconsistencies in naming conventions or analytical units, duplicate entries, interval, length or distance values less than or equal to zero, blank or zero-value assay results, out-of-sequence intervals, intervals or distances greater than the reported drillhole length, inappropriate collar locations, and missing interval and coordinate fields. A small number of trivial errors were noted and corrected, including three drillhole assay overlapping sample intervals and nine duplicate chip sample intervals.

________________________________________

1 George PT (2010). Technical report mineral reserves, mineral resources and economic assessment, Rice Lake Project, Rice Lake Greenstone Belt, Bissett, Manitoba. Technical report for SanGold Corporation released on SEDAR with an effective date of June 30, 2010.

Ginn D and Michaud M (2013). Technical report on the Rice Lake Mining Complex, Bissett, Manitoba. Technical report for SanGold Corporation released on SEDAR with an amended effective date of February 25, 2013.

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No significant discrepancies with the supplied data were noted, and P&E considers that the databases are suitable for mineral resource estimation.

14.4

BULK DENSITY

Klondex supplied a total of 6,193 bulk density measurements, with an average value of 0.086 tons per cubic foot (2.76 tonnes per cubic metre [t/m 3 ]) (Table 14-2). Bulk density was determined by immersion of dried core samples in distilled water.

No correlation between assay grade and bulk density was noted by P&E. The average reported bulk density of 0.086 short tons per cubic foot; 11.7 cubic feet per short ton (2.76 t/m 3 ) was used for Mineral Resource estimation.

TABLE 14.2
B ULK D ENSITY S TATISTICS
  Tonnes per cubic metre tons per cubic foot
Minimum 2.30 0.072
Maximum 4.14 0.129
Average 2.76 0.086
Median 2.75 0.086
Mode 2.74 0.086
Standard Deviation 0.08 0.002
Number of Samples 6,193

14.5

VEIN MODELLING

The updated P&E Mineral Resource estimate is based on 36 modelled veins, with a total volume on the order of 271 million cubic feet. See Figures 14.1 and 14.2.

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Figure 14.1     Plan View of Modelled Veins


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Figure 14.2     3D View of Modelled Veins and Drilling

Vein models were developed by Klondex based on a scripted grid modelling workflow using Maptek Vulcan software. Grid modelling is applicable to modelling narrow, continuous geological features such as precious metal veins and coal seams and creates a surface by interpolating a regular grid of points over a modelling area. These grid points are combined with the input intercepts to create output triangulated surfaces that represent the vein hanging wall and footwall contacts. The contacts are combined to create a valid solid triangulation for use in building the resource block model. See vein modelling cross sections for V91, V710 and V711 in Appendix III.

The modelling methodology as implemented by Klondex can be summarized as follows: 2

Set the vein to be modelled, its overall dip and dip direction, and the drillhole and channel databases to be used.

Extract the hanging wall (HW) and footwall (FW) vein intercepts from the drillhole and channel databases.

Combine interpreted or surveyed HW and FW points to control the vein model interpretation where required.

________________________________________

2 Anthony Bottrill, Klondex Corporate Resources Manager, personal communication August 16, 2016 .

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Use the dip and dip direction settings to rotate the intercepts to a local flat plane.

Use inverse distance to contour HW and FW grid surfaces from the input data and perform grid mathematics to ensure HW grid points are always above FW grid.

Create a triangulation of the HW contact that combines the grid model points with the input intercepts to ensure the final surface is snapped to the input data. Repeat this process for the FW contact. Model specific settings are attached as attributes to the triangulations and also written to a text file for future auditing. Where chip samples are present, chip sampling may override drillhole sampling in generating the vein model as drillhole intercepts may be found to be locally inaccurate. Drillholes to be ignored are flagged to allow chip samples will take precedence over drilling.

Produce boundary polygons of the vein contact surfaces to create a boundary triangulation that can be appended to the vein contacts to create a valid solid triangulation.

Un-rotate the triangulations and intercepts back to their true spatial location.

Clip the solid vein triangulation to the topography and other vein surfaces as required.

Build the vein block model. The block model specifications are read directly from the vein extents and overall dip and dip direction used in the vein model creation process. Block sizes along strike and down dip are set to 5.0 foot by 5.0 foot (1.5m by 1.5m) to represent local variations in orientation of the vein. Block sizes across the thickness of the vein are designated as a single block across the true width of the vein to a minimum thickness resolution of 0.2 foot (0.06m) This ensures the local vein orientations and volumes are representative and also rationalizes the size of the final block model.

The modelling technique as implemented by Klondex produces a series of valid triangulated wireframes oriented to the plane of the vein, as well as a corresponding rotated and plunging block model for each vein. The block model corresponding to the vein has constant strike and dip dimensions of 5.0 foot (1.5m), and a variable vein thickness perpendicular to strike.

P&E has reviewed the 36 resulting wireframes and considers them to be suitable for mineral resource estimation. The vein wireframes were used for sample coding, statistical analysis and compositing limits (Table 14.3) . See resource wireframes for V91, V710 and V711 veins in Appendix II.

P&E recommends that alternative estimation techniques, such as utilizing accumulation with a fixed-height block model, be considered as a check on the seam-based model output.

T ABLE 14.3
M ODELLED V EINS
Vein Wireframe Volume (cubic feet) Wireframe tons
v072 4,388,991 377,453
v1010 14,507,150 1,247,615
v1011 1,547,129 133,053
v1012 1,170,844 100,693
v1020 5,974,179 513,779

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T ABLE 14.3
M ODELLED V EINS
Vein Wireframe Volume (cubic feet) Wireframe tons
v1030 12,788,126 1,099,779
v1040 239,926 20,634
v1300 4,291,264 369,049
v1305 1,115,306 95,916
v1310 2,079,014 178,795
v1320 1,542,305 132,638
v1330 774,116 66,574
v1331 567,757 48,827
v200 25,549,080 2,197,221
v210 11,320,757 973,585
v400 8,079,136 694,806
v62 696,313 59,883
v63 3,425,009 294,551
v700 12,088,160 1,039,582
v710 12,693,819 1,091,668
v711 8,080,407 694,915
v713 2,114,464 181,844
v714 2,082,142 179,064
v730 12,526,653 1,077,292
v731 2,482,616 213,505
v732 1,115,264 95,913
v800 5,977,193 514,039
v810 7,359,619 632,927
v820 2,105,643 181,085
v84 5,863,299 504,244
v86 3,988,093 342,976
v91 3,501,065 301,092
vCW2 6,389,382 549,487
vCW3 7,081,996 609,052
vCW4 11,431,644 983,121
vSG1 64,501,083 5,547,093
TOTAL 271,438,943 23,343,749

14.6

ASSAY DATA

Summary assay statistics were calculated separately by vein for drill-hole assay samples (Table 14.4) and chip assay samples (Table 14.5) . Chip sample strings have been converted to pseudo-drill-holes.

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T ABLE 14.4
S UMMARY D RILLHOLE A SSAY S TATISTICS
Vein No. of Samples Minimum opt Au Maximum opt Au Mean opt Au Std. Deviation CV
v072 426 0.0001 4.051 0.195 0.401 2.062
v1010 1,573 0.0001 49.673 0.268 2.258 8.422
v1011 252 0.0001 4.295 0.180 0.425 2.366
v1012 62 0.0001 2.265 0.252 0.429 1.705
v1020 454 0.0001 3.459 0.139 0.340 2.441
v1030 666 0.0001 35.062 0.179 1.395 7.787
v1040 113 0.001 13.684 0.245 1.294 5.271
v1300 258 0.0001 1.826 0.123 0.191 1.545
v1305 42 0.0001 0.438 0.073 0.082 1.128
v1310 183 0.0001 24.701 0.374 1.880 5.031
v1320 39 0.001 0.450 0.104 0.123 1.185
v1330 16 0.001 2.623 0.282 0.641 2.279
v1331 15 0.001 0.989 0.208 0.295 1.423
v200 192 0.0001 1.569 0.093 0.210 2.260
v210 112 0.0001 1.988 0.084 0.214 2.545
v400 667 0.0001 13.900 0.219 0.988 4.508
v62 69 0.0009 2.760 0.313 0.613 1.956
v63 415 0.0001 2.732 0.174 0.304 1.746
v700 1,986 0.0001 188.785 0.286 4.508 15.754
v710 1,281 0.0001 14.429 0.193 0.620 3.221
v711 521 0.0001 6.391 0.139 0.495 3.568
v713 364 0.0001 3.647 0.125 0.360 2.876
v714 112 0.0001 1.646 0.134 0.337 2.511
v730 2,562 0.0001 47.662 0.223 1.286 5.769
v731 98 0.0001 2.825 0.152 0.414 2.727
v732 127 0.0001 5.229 0.159 0.536 3.364
v800 700 0.0001 2.574 0.145 0.290 2.006
v810 453 0.0001 3.900 0.173 0.433 2.505
v820 81 0.001 2.284 0.132 0.332 2.516
v84 732 0.0001 17.290 0.149 0.699 4.702
v86 338 0.0001 2.220 0.174 0.307 1.763
v91 469 0.0001 6.580 0.168 0.394 2.347
vCW2 262 0.0001 1.356 0.086 0.169 1.968
vCW3 350 0.0001 6.948 0.149 0.558 3.759
vCW4 331 0.0001 1.632 0.103 0.173 1.683
vSG1 1,632 0.0001 1.209 0.061 0.126 2.067
             
Total 17,953 0.0001 188.785 0.187 1.209 5.319

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T ABLE 14.5
S UMMARY C HIP A SSAY S TATISTICS
Vein No. of Samples Minimum opt Au Maximum opt Au Mean opt Au Std. Deviation CV
v064 7 0.260 1.000 0.569 0.293 0.515
v065 10 0.030 0.720 0.250 0.241 0.964
v072 833 0.000 23.020 0.485 1.368 2.822
v1010 1,370 0.000 45.835 0.258 1.427 5.541
v1011 211 0.001 3.477 0.218 0.488 2.242
v1013 17 0.003 0.634 0.103 0.152 1.476
v1020 337 0.001 7.753 0.211 0.538 2.544
v1030 830 0.000 5.188 0.184 0.406 2.208
v1040 12 0.001 0.052 0.008 0.016 2.002
v11020 1 0.067 0.067 0.067 0.000 0.000
v1300 17 0.020 0.510 0.158 0.138 0.870
v1310 468 0.001 48.038 0.754 3.403 4.511
v1331 4 0.011 0.119 0.040 0.053 1.330
v400 1,037 0.000 28.044 0.279 1.311 4.693
v62 5 0.001 0.170 0.046 0.070 1.509
v63 83 0.000 3.780 0.320 0.632 1.971
v700 293 0.001 9.436 0.215 0.774 3.599
v710 566 0.000 15.707 0.261 0.827 3.164
v711 219 0.001 4.107 0.305 0.670 2.199
v713 51 0.001 0.742 0.073 0.142 1.945
v730 201 0.000 25.830 0.254 1.846 7.267
v731 1 0.005 0.005 0.005 0.000 0.000
v732 3 0.017 0.046 0.029 0.015 0.534
v7400 1 0.055 0.055 0.055 0.000 0.000
v800 341 0.001 19.269 0.334 1.243 3.726
v810 257 0.001 7.527 0.286 0.710 2.477
v84 556 0.001 60.500 0.748 4.216 5.632
v86 293 0.001 16.810 0.401 1.056 2.634
v91 255 0.000 2.019 0.144 0.215 1.496
v99 73 0.006 1.358 0.295 0.322 1.093
vSG1 3202 0.000 3.890 0.120 0.207 1.732
             
Total 11,557 0.000 60.500 0.277 1.458 5.261

Of the 14,140 constrained drill-hole assay samples available, only 28 assay samples have a grade higher than 10.0 opt Au (343 g/t Au), and these drillhole assay samples were capped at 10.0 opt Au prior to compositing (Table 14.6) .

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Of 11,557 constrained chip samples available, only 24 assay samples have a grade higher than 10.0 opt Au (343 g/t Au). Chips samples are only utilized during the first estimation pass and their influence is restricted to 50 feet (15m) Chip samples were therefore not capped prior to compositing.

14.7

COMPOSITING

Drillhole assay sample lengths within the defined veins range from 0.10 foot (0.03m) to 15.03 feet (4.58m), with an average sample length of 1.55 feet (0.47m) Chip assay sample lengths within the defined veins range from 0.10 foot (0.03m) to 12.18 feet (3.71m), with an average sample length of 1.95 feet (0.59m) A maximum length of 10.0 feet (3.05m) was selected for compositing in order to generate single intercept composites across the width of the vein.

Klondex geologists identified where drill-holes oriented sub-parallel to the strike of specific veins were not representative of local mineralization, and these were excluded from the compositing process. Klondex geologists also identified a small number of assay intervals that were not captured by the vein modelling process, and these were manually flagged for inclusion in the compositing process.

Length-weighted composites were calculated within the defined vein. Missing sample intervals or zero-grade assay intervals were assigned a value of 0.001 opt Au (0.001 g/t Au) The compositing process started at the first point of intersection between the drillhole and the vein intersected, and halted on exit from the vein wireframe. All residual composites were retained. The wireframes that represent the interpreted veins were also used to back-tag a rock code field into the assay and composite workspaces. The resulting composite data were visually validated against vein wireframes. Summary statistics were calculated separately by vein for the composite samples (Table 14.6) .

P&E notes that the compositing methodology results in composite samples with a variable support length corresponding to the thickness of the vein, producing variable-length single intercept composite samples where the modelled vein thickness is 10.0 feet (3.05m) or less and additional composite samples where the vein thickness is greater than 10.0 feet (3.05m) .

T ABLE 14.6
S UMMARY C OMPOSITE S TATISTICS BY V EIN
Statistic Samples Minimu opt Au Maximum opt Au Mean opt Au Std. Deviation CV
v072 447 0.0003 6.451 0.417 0.640 1.534
v1010 1,067 0.001 22.996 0.199 0.854 4.284
v1011 204 0.0001 2.503 0.144 0.294 2.043
v1012 21 0.00021 0.857 0.189 0.265 1.404
v1020 382 0.0001 2.894 0.119 0.266 2.232
v1030 658 0.001 3.407 0.115 0.271 2.344
v1040 38 0.001 1.600 0.150 0.284 1.894
v1300 163 0.001 0.709 0.078 0.113 1.444
v1305 35 0.00011 0.168 0.040 0.050 1.257

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T ABLE 14.6
S UMMARY C OMPOSITE S TATISTICS BY V EIN
Statistic Samples Minimum opt Au Maximum opt Au Mean opt Au Std. Deviation CV
v1310 457 0.0001 48.038 0.633 2.865 4.524
v1320 14 0.001 0.237 0.086 0.072 0.844
v1330 6 0.001 1.348 0.291 0.526 1.807
v1331 10 0.001 0.532 0.152 0.178 1.173
v200 99 0.0004 0.896 0.053 0.108 2.051
v210 31 0.0001 1.988 0.139 0.357 2.571
v400 551 0.001 17.738 0.246 0.947 3.845
v62 35 0.001 2.760 0.265 0.589 2.225
v63 171 0.001 2.000 0.178 0.239 1.348
v700 646 0.0001 4.719 0.135 0.374 2.767
v710 328 0.0006 4.8058 0.238 0.437 1.839
v711 218 0.001 2.570 0.175 0.312 1.779
v713 118 0.00034 2.516 0.103 0.286 2.788
v714 70 0.001 1.019 0.077 0.200 2.591
v730 634 0.001 25.830 0.218 1.107 5.071
v731 40 0.0001 0.670 0.080 0.145 1.808
v732 30 0.0001 0.721 0.105 0.173 1.651
v800 410 0.00085 19.269 0.236 1.037 4.401
v810 240 0.0001 3.900 0.163 0.390 2.386
v820 56 0.001 0.793 0.054 0.130 2.394
v84 390 .001 10.000 0.357 0.993 2.783
v86 433 0.001 16.810 0.239 0.915 3.824
v91 262 0.001 6.580 0.163 0.431 2.642
vCW2 114 0.0001 0.675 0.070 0.104 1.484
vCW3 162 0.0001 6.948 0.139 0.562 4.059
vCW4 161 0.0001 0.868 0.073 0.118 1.610
vSG1 1,656 0.001 1.639 0.101 0.131 1.302

14.8

TREATMENT OF EXTREME VALUES

Grade capping analysis was conducted on the vein-coded and composited grade data in order to evaluate the potential influence of extreme values during Au grade estimation. The presence of high-grade outliers was identified by examination of histograms and log-probability plots. Composites were capped to the selected value prior to estimation.

In addition, due to the highly channelized nature of the mineralization, a 50.0 feet (15m) range restriction on samples greater than the 97.5 th percentile of the local vein composite data set was used during the second and third Au grade estimation passes (Table 14.7) .

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T ABLE 14.7
C OMPOSITE C APPING L EVELS
Vein Cap (opt)   97.5 th Percentile (opt) Vein Cap (opt) 97.5th Percentile (opt)
v62 NA 0.500 v732 NA 0.650
v63 NA 0.500 v800 3.0 0.991
v072 5.0 1.670 v810 2.0 0.976
v84 7.0 0.889 v820 NA 0.361
v86 5.0 1.350 v1010 5.0 1.184
v91 3.0 0.715 v1011 1.4 0.994
v200 NA 0.304 v1012 NA 0.500
v210 NA 0.600 v1020 2.0 0.600
v400 6.0 1.360 v1030 2.0 0.812
v700 2.4 0.930 v1040 NA 0.600
v710 2.6 1.150 v1300 NA 0.382
v711 1.8 0.928 v1305 NA NA
v713 1.4 0.747 v1310 9.0 3.476
v714 1.0 0.858 v1320 NA NA
v730 4.0 1.254 v1330 NA 0.100
v731 NA 0.667 v1331 NA 0.100

14.9

AU GRADE ESTIMATION, CLASSIFICATION & MINIMUM WIDTH

The mineral resource estimate reported herein was constrained by vein wireframes that form hard boundaries between their respective composite sample extents. All Au block grades were estimated using a triple pass Inverse Distance cubed (“ID 3 ”) weighting of between four and twelve capped composite grades from two or more drillholes. In addition, due to the varying sample support lengths generated by the compositing process, a variable weighting factor defined by the length of the composite samples was also implemented during Au grade estimation. A discretization level of 3 by 3 by 1 was used.

During the first pass, drillhole and chip samples were selected using an isotropic search with a radius of 50.0 feet (15m). All blocks estimated during the first pass were algorithmically assigned a classification of Measured.

During the second pass, drill-hole samples were selected using an isotropic search with a radius of 100.0 feet (30m) For the second pass, estimation was implemented using a 25.0 feet by 25.0 feet by 25.0 ft.(7.6m by 7.6m by 7.6m) parent block size. All blocks estimated during the second pass were algorithmically assigned a classification of Indicated.

During the third pass, drillhole samples were selected using an isotropic search with a radius of 500.0 feet (150m) For the third pass, estimation was implemented using a 50.0 feet by 50.0 feet by 50.0 feet (15m by 15m by 15m) parent block size. All blocks estimated during the third pass were algorithmically assigned a classification of Inferred.

See 3D classification models and cross sections for V91, V710 and V711 veins in Appendix III

Blocks that did not meet the minimum sample requirements were not estimated.

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Klondex has defined a minimum mining width of 4.0 feet (1.2m) For blocks with a width less than 4.0 feet the estimated grade was diluted at zero grade to a 4.0 feet (1.2m) width with an associated increase in tonnage, and the adjusted grade and tonnage used for mineral resource reporting.

See Au grade models and cross sections for V91, V710, and V711 veins in Appendix IV.

A Nearest Neighbour model was also generated simultaneously using the same parameters as the third estimation pass.

14.10

UNDERGROUND MINERAL RESOURCE ESTIMATE

Mineral resources are based on a cut-off grade of 0.09 opt (3.09 g/t) (Table 14-8). The cut-off grade has been calculated from the following parameters:

  Gold Price: US$ 1,400 per oz
  Exchange Rate: C$ to US$: 0.80
  Mine & Process Cost: C$141.53 per ton
  Recovery: 94%
  Cut-off: 0.09 opt Au (3.09 grams per tonne)

T ABLE 14.8
T OTAL U NDERGROUND M INERAL R ESOURCES (1-7)
Class Grade Au opt Grade Au g/t tons Au oz

Measured

0.232 7.95 455,000 105,600

Indicated

0.202 6.92 931,000 187,800

Measured & Indicated

0.212 7.26 1,386,000 293,400

Inferred

0.165 5.65 2,793,000 459,900

(1)

Mineral Resource is inclusive of Mineral Reserve.

(2)

Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

(3)

Mineral Resource was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

(4)

The quantity and grade of reported Inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred resources as an Indicated or Measured mineral resource and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured mineral resource category.

(5)

Contained metal may differ due to rounding.

(6)

Cut-off grade = 0.09 opt Au (3.09 g/t Au).

(7)

A bulk density of 0.086 tons per cubic foot was utilized in Resource tonnage calculations.


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T ABLE 14.9
U NDERGROUND M INERAL R ESOURCE E STIMATE BY V EIN (1-5)
Vein Measured Indicated Meas & Ind Inferred
Au opt tons ozs Au opt tons Au ozs Au opt tons Au ozs Au opt tons Au ozs
v62 0.304 3000 900 0.231 7,000 1,500 0.253 9,000 2,400 0.179 4,000 700
v63 0.191 34,000 6,400 0.211 26,000 5,500 0.200 59,000 11,900 0.167 75,000 12,500
v072 0.238 8,000 2,000 0.185 11,000 2,000 0.208 19,000 4,100 0.130 33,000 4,300
v84 0.181 23,000 4,200 0.155 28,000 4,300 0.167 50,000 8,400 0.139 24,000 3,300
v86 0.189 13,000 2,600 0.186 18,000 3,400 0.187 32,000 5,900 0.204 14,000 2,900
v91 0.199 52,000 10,300 0.194 50,000 9,700 0.197 102,000 20,100 0.156 24,000 3,700
v200 0.301 4,000 1,200 0.252 9,000 2,200 0.268 13,000 3,400 0.138 207,000 28,600
v210 0.147 0 0 0.194 12,000 2,300 0.193 12,000 2,300 0.209 181,000 37,800
v400 0.272 5,000 1,300 0.226 16,000 3,600 0.237 21,000 5,000 0.250 51,000 12,800
v700 0.197 11,000 2,200 0.136 22,000 3,100 0.156 34,000 5,300 0.170 210,000 35,700
v710 0.289 93,000 26,800 0.302 101,000 30,400 0.296 193,000 57,200 0.187 259,000 48,400
v711 0.229 21,000 4,700 0.224 50,000 11,100 0.225 70,000 15,900 0.169 249,000 42,000
v713 0.229 15,000 3,300 0.108 12,000 1,300 0.174 27,000 4,700 0.123 0 0
v714 0.188 8,000 1,500 0.197 26,000 5,200 0.195 35,000 6,700 0.180 2,000 400
v730 0.240 18,000 4,200 0.206 90,000 18,500 0.212 107,000 22,700 0.128 76,000 9,700
v731 0.235 3,000 700 0.217 19,000 4,000 0.219 22,000 4,700 0.151 110,000 16,600
v732 0.279 5,000 1,500 0.183 19,000 3,400 0.204 24,000 4,900 0.137 30,000 4,100
v800 0.222 6,000 1,300 0.154 27,000 4,100 0.166 32,000 5,400 0.129 23,000 3,000
v810 0.250 7,000 1,700 0.215 28,000 6,000 0.222 35,000 7,800 0.185 42,000 7,800
v820 0.197 5,000 1,000 0.179 13,000 2,300 0.184 18,000 3,300 0.135 3,000 400
v1010 0.223 19,000 4,100 0.195 55,000 10,800 0.202 74,000 14,900 0.181 167,000 30,300
v1011 0.256 2,000 600 0.277 1,000 200 0.262 3,000 800 0.133 0 0
v1012 0.327 2,000 500 0.232 14,000 3,200 0.241 15,000 3,700 0.194 26,000 5,000
v1020 0.194 24,000 4,600 0.269 37,000 9,800 0.239 60,000 14,400 0.181 59,000 10,700
v1030 0.260 14,000 3,700 0.174 39,000 6,900 0.197 54,000 10,600 0.190 125,000 23,800
v1040 0.247 1,000 200 0.250 8,000 1,900 0.250 9,000 2,100 0.196 4,000 800
v1300 0.148 13,000 2,000 0.167 28,000 4,800 0.161 42,000 6,700 0.142 33,000 4,700
v1305 0.116 0 0 0.096 2,000 200 0.099 2,000 200 0.000 0 0
v1310 0.390 21,000 8,200 0.153 5,000 700 0.347 26,000 9,000 0.147 37,000 5,500
v1320 0.000 0 0 0.170 4,000 600 0.170 4,000 600 0.103 50,000 5,100
v1330 0.000 0 0 0.198 1,000 200 0.198 1,000 200 0.333 8,000 2,700
v1331 0.267 0 0 0.230 1,000 200 0.231 1,000 200 0.235 12,000 2,900
vcw2 0.126 0 0 0.129 10,000 1,300 0.129 10,000 1,300 0.152 80,000 12,100
vcw3 0.157 4,000 600 0.173 35,000 6,000 0.171 38,000 6,600 0.159 69,000 11,000
vcw4 0.183 1,000 200 0.196 30,000 5,800 0.196 31,000 6,000 0.195 70,000 13,600
vsg1 0.136 21,000 2,800 0.140 81,000 11,300 0.139 102,000 14,200 0.131 438,000 57,400
TOTAL 0.232 455,000 105,600 0.202 931,000 187,800 0.212 1,386,000 293,400 0.165 2,793,000 459,900

(1)

Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

(2)

Mineral resources were estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

(3)

The quantity and grade of reported Inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these inferred resources as an Indicated or Measured mineral resource and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured mineral resource category.

(4)

Contained metal may differ due to rounding.

(5)

Cut-off grade = 0.09 opt Au(3.09 g/t.)


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14.11

BLOCK MODEL VALIDATION

The block models were validated visually by the inspection of successive section lines in order to confirm that the block models correctly reflect the distribution of high-grade and low-grade values. An additional validation check was completed by comparing the average grade of the composites to the model block grade estimates at zero cut-off. Unadjusted block grades were also compared to the de-clustered composite mean as well as to an unadjusted Nearest Neighbour (NN) model generated using the same search criteria as that used for the mineral resource estimate (Table 14.10) .

T ABLE 14.10
B LOCK M ODEL V ALIDATION G RADES
Vein ID 3 Mean Au opt NN Mean Au opt Declustered Mean Au opt
v072 0.152 0.163 0.209
v1010 0.089 0.090 0.148
v1011 0.069 0.067 0.112
v1012 0.125 0.167 0.189
v1020 0.085 0.095 0.082
v1030 0.081 0.079 0.091
v1040 0.222 0.205 0.150
v1300 0.054 0.058 0.067
v1305 0.041 0.040 0.038
v1310 0.176 0.151 0.383
v1320 0.087 0.072 0.086
v1330 0.077 0.234 0.281
v1331 0.224 0.208 0.152
v200 0.048 0.053 0.049
v210 0.083 0.127 0.111
v400 0.103 0.082 0.193
v62 0.090 0.188 0.225
v63 0.129 0.104 0.157
v700 0.074 0.071 0.121
v710 0.163 0.205 0.176
v711 0.115 0.093 0.126
v713 0.046 0.033 0.082
v714 0.053 0.045 0.077
v730 0.066 0.067 0.176
v731 0.122 0.104 0.065
v732 0.112 0.109 0.090
v800 0.089 0.089 0.139
v810 0.071 0.069 0.122
v820 0.042 0.030 0.050
v84 0.072 0.135 0.225

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T ABLE 14.10
B LOCK M ODEL V ALIDATION G RADES
Vein ID 3 Mean Au opt NN Mean Au opt Declustered Mean Au opt
v86 0.075 0.090 0.157
v91 0.114 0.110 0.150
vCW2 0.071 0.061 0.068
vCW3 0.081 0.086 0.109
vCW4 0.061 0.056 0.074
vSG1 0.052 0.049 0.074

Swath plots were generated to check the block model estimates global bias by comparing the (NN) block estimate to the ID 3 estimate for Measured and Indicated Resources (see Appendix).

As a further check of the Mineral Resource model the total volume reported at zero Au cut-off was compared by vein with the calculated volume of the defining mineralization wireframe (Table 14.11) . All reported volumes fall within acceptable tolerances.

T ABLE 14.11
V OLUME C OMPARISON
Vein Resource Volume (cubic ft) Wireframe Volume (cubic ft)
v072 4,388,856 4,388,991
v1010 14,318,142 14,507,150
v1011 1,547,795 1,547,129
v1012 1,170,010 1,170,844
v1020 5,975,060 5,974,179
v1030 11,931,908 12,788,126
v1040 240,220 239,926
v1300 4,288,995 4,291,264
v1305 1,115,260 1,115,306
v1310 2,079,285 2,079,014
v1320 1,539,625 1,542,305
v1330 772,756 774,116
v1331 193,962 567,757
v200 23,078,214 25,549,080
v210 9,920,635 11,320,757
v400 7,896,820 8,079,136
v62 695,815 696,313
v63 3,330,105 3,425,009
v700 12,000,717 12,088,160
v710 9,644,615 12,693,819
v711 8,030,502 8,080,407
v713 2,114,117 2,114,464
v714 2,082,206 2,082,142
v730 12,317,510 12,526,653
v731 2,482,877 2,482,616
v732 1,115,265 1,115,264
v800 5,977,515 5,977,193
v810 7,311,945 7,359,619
v820 2,103,755 2,105,643

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T ABLE 14.11
V OLUME C OMPARISON
Vein Resource Volume (cubic ft) Wireframe Volume (cubic ft)
v84 6,724,538 5,863,299
v86 3,981,750 3,988,093
v91 3,501,150 3,501,065
vCW2 5,575,025 6,389,382
vCW3 6,303,789 7,081,996
vCW4 9,005,981 11,431,644
vSG1 54,522,427 64,501,083
     
TOTAL 249,279,147 271,438,943

14.12

TAILINGS MINERAL RESOURCE ESTIMATE

All mineral resource estimation work reported in this section was carried out or reviewed by Fred Brown, P.Geo., an independent Qualified Person as defined by NI 43-101 by reason of education, affiliation with a professional association and past relevant work experience. This Mineral Resource estimate is based on information and data supplied by Klondex.

Mineral Resource modelling and estimation reported in this section were carried out using Gemcom GEMS (version 5.4.1) and Snowden Supervisor (version 7.10.11) software programs.

14.13

PREVIOUS RESOURCE ESTIMATES

P&E is not aware of a previous public mineral resource estimate for the True North tailings.

14.14

TAILINGS DATA SUPPLIED

Sample data were provided electronically by Klondex. Distance units are reported in feet, and Au assay grade units are reported opt. The supplied drilling database contains records for 138 drillholes, of which 39 are stem auger drillholes and 99 are percussion probe drillholes. The drilling grid as completed is on the order of 200 feet by 100 feet (60m x 30m) (See Appendix V).

The supplied database also included results for 210 pit samples recovered from hand-dug excavations. Pit samples were examined visually during modelling, but were not used for estimation due to differences in support size, sample quality and assay results compared with adjacent drillhole samples (Figure 14.3) .

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Figure 14.3     Nearest Pair Plot of Pit Samples

Industry standard validation checks were completed on the supplied tailings database, and minor corrections made where necessary. P&E typically validates a mineral resource database by checking for inconsistencies in naming conventions or analytical units, duplicate entries, interval, length or distance values less than or equal to zero, blank or zero-value assay results, out-of-sequence intervals, intervals or distances greater than the reported drillhole length, inappropriate collar locations, and missing interval and coordinate fields. No significant discrepancies with the supplied data were noted, and P&E considers that the database is suitable for mineral resource estimation.

14.15

TAILINGS DRY BULK DENSITY

Klondex submitted two samples to ALS Environmental Laboratories for dry bulk density measurements, with an average value of 0.044 tons per cubic foot (1.395 tonnes per cubic metre) (Table 14.12) . The average dry bulk density value of 0.044 tons per cubic foot was used for Mineral Resource estimation.

T ABLE 14.12
T AILINGS D RY B ULK D ENSITY R ESULTS
Test Units Sample 1 Sample 2 Average
% Moisture % 42.0 40.5 41.3
Dry Weight g 427.6 262.1 344.9
Total Sample Weight g 738 440 589.0
Dry Bulk Density t/m 3 1.260 1.530 1.395

14.16

DEPOSIT MODELLING

Klondex supplied a three-dimensional AutoCAD format drawing file of the tailings volume which was reviewed by P&E. The upper surface of the tailings volume was constructed from collar elevations and the lower surface was defined by drillhole intersection of the underlying clay/peat horizon. The modeled tailings volume is on the order of 30 feet (9m) thick.

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14.17

ASSAY DATA

Summary assay statistics were calculated from the drilling assay grades (Table 14.13) . The difference in mean grade between the auger and percussion sample populations is due to the smaller area associated with the auger drilling.

T ABLE 14.13
S UMMARY T AILINGS D RILLHOLE A SSAY
S TATISTICS
STEM AUGER Length (ft) Au (opt)
Mean 4.20 0.029
Median 4.00 0.021
Mode 4.00 0.015
Standard Deviation 0.68 0.032
CV 0.16 1.104
Minimum 2.00 0.0001
Maximum 5.00 0.379
Count 194 194
     
PERCUSSION Length (ft) Au (opt)
Mean 4.94 0.019
Median 5.00 0.016
Mode 5.00 0.013
Standard Deviation 0.41 0.015
CV 0.08 0.782
Minimum 0.50 0.0000
Maximum 5.00 0.211
Count 476 476
     
TOTAL Length (ft) Au (opt)
Mean 4.73 0.022
Median 5.00 0.017
Mode 5.00 0.013
Standard Deviation 0.60 0.022
CV 0.13 0.997
Minimum 0.50 0.0001
Maximum 5.00 0.379
Count 670 670

14.18

COMPOSITING

Drillhole assay sample lengths within the defined tailings volume range from 0.5 feet to 5.0 feet, (0.15m to 1.52m) with an average sample length of 4.73 feet (1.44m) . A compositing length of 10.0 feet (3.05m) was selected for compositing, equivalent to the model block height. Residual sample lengths less than 5.0 feet (1.52m) were merged with the preceding composite interval. The resulting composite lengths range from 5.0 feet to 14.0 feet (1.52m to 4.27m) with an average length of 9.4 feet (2.87m) .

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The resulting composite data were visually validated and summary statistics were calculated for the resulting composite samples (Table 14.14) .

T ABLE 14.14
S UMMARY C OMPOSITE S TATISTICS FOR
T AILINGS A SSAYS
  Length (ft) Au (opt)
Mean 9.37 0.021
Median 10.0 0.018
Mode 10.0 0.018
Standard Deviation 2.02 0.016
CV 0.22 0.747
Minimum 5.00 0.0001
Maximum 14.00 0.206
Count 338 338

14.19

SPATIAL ANALYSIS

A horizontal experimental semi-variogram was modeled from uncapped composite samples. Standardized spherical models were used to model the experimental semi-variogram in normal-score transformed space (Figure 14.3), and the modeled variance contributions were then back-transformed to:

0.17 + 0.30 Spherical50 + 0.60 Spherical750

The resulting semi-variogram suggests a maximum range on the order of 750 feet (230m) (Figure 14.4) .

Figure 14.4     Experimental Semi-Variogram

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14.20

TREATMENT OF EXTREME VALUES

Grade capping analysis was conducted on the composited grade data in order to evaluate the potential influence of extreme values during grade estimation. The presence of high-grade outliers was identified by examination of histograms and log-probability plots (Figure 14.5) . Composites were capped to the selected threshold value prior to estimation:

  Capping Threshold: 0.060 opt (2.06 g/t)
  Average Uncapped Au Grade: 0.021 opt (0.72 g/t)
  Maximum Au Grade: 0.206 opt (7.06 g/t)
  Number Capped: 5
  Average Au Capped Grade: 0.020 opt (0.69 g/t)
  Percent Change: 4.8%

Figure 14.5     Histogram and Probability Plots for Uncapped Tailings Composites

14.21

BLOCK MODEL EXTENTS

A rotated block model was established across the Project with the block model limits selected so as to cover the extent of the defined volume and reflect the generally general dimensions of the drilling grid (Table 14.15) . The block model consists of separate models for estimated grades, rock code, percent, density and classification attributes. A percent block model was used to accurately represent the volume and tonnage contained within the constraining tailings volume.

T ABLE 14.15
B LOCK M ODEL S ETUP
Dimension Origin Count Size (ft)
X 6,800 90 50
Y 9,000 60 50
Z 10,000 6 10
Rotation -20° counter-clockwise from the origin.

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14.22

GOLD TAILINGS GRADE ESTIMATION & CLASSIFICATION

The tailings mineral resource estimate was constrained within the extents of the modeled tailings volume. Au block grades were estimated using a single pass Inverse Distance Cubed (“ID 3 ”) weighting of between three and twelve capped composite grades from two or more drillholes. A NN model was also generated simultaneously using the same search parameters.

Blocks within 250 feet (76m) of a drillhole sample were classified as Inferred, and blocks within 250 feet (76m) of at least three drillhole samples were classified as Indicated. This ensures that blocks classified as Indicated were largely interpolated between drillholes, while Inferred blocks were not extrapolated beyond a reasonable limit (See Appendix V), and that all block estimates are within the spatial range defined by the experimental semi-variogram. Approximately 25% of the blocks contained by the tailings volume are outside these limits and remain un-estimated.

14.23

TAILINGS MINERAL RESOURCE ESTIMATE

The tailings Mineral Resource estimate is based on a gold cut-off grade of 0.015 opt Au (0.51 grams per tonne), which has been calculated from the following parameters:

  Gold Price: US$ 1,400 per oz
  Exchange Rate: C$ to US$: 0.80
  Process Cost: C$18.01 per ton
  G&A Cost: C$6.40 per ton
  Process Recovery: 90%

The tailings Mineral Resource estimate for the project is tabulated in Table 14.16.

T ABLE 14.16
T AILINGS M INERAL R ESOURCE (1-7)
Class Grade Au opt Grade Au g/t Tons (k) Au (k) oz
Indicated 0.024 0.82 2,138 51.0
Inferred 0.022 0.75 47 1.1

(1)

Tailings Mineral Resource is inclusive of Tailings Mineral Reserve.

(2)

Mineral Resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

(3)

Mineral Resource was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

(4)

The quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured Mineral Resource category.

(5)

Contained metal may differ due to rounding.

(6)

Cut-off grade = 0.015 opt Au (0.51 g/t Au).

(7)

A dry bulk density of 0.044 pcf was utilized in the tailings Mineral Resource estimate tonnage calculation.

See tailings Au block model in Appendix V.

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14.24

TAILINGS BLOCK MODEL VALIDATION

The block models were validated visually by the inspection of successive cross sections in order to confirm that the block model correctly reflects the distribution of high-grade and low-grade values (See Appendix IV) and Figure 14.6. An additional validation check was completed by comparing the average grade of the informing composites to the model block grade estimates at zero cut-off. Block grades were also compared to the NN model generated using the same search criteria as that used for the ID 3 Mineral Resource estimate:

  Avg. Capped Au Composite Grade: 0.02 opt Au (0.69 g/t Au);
  Avg. Au ID 3 Block Grade: 0.02 opt Au (0.69 g/t Au); and
  Avg. Au NN Block Grade: 0.02 opt Au (0.69 g/t Au)

Figure 14.6     Model and Composite Comparisons


As a check on the selected methodology, the results were also generated by Ordinary Kriging (OK) and Inverse Distance Squared (ID 2 ) estimation. In both cases, it was noted that the ID 3 estimates compared better with regards to the average block composite grade (Figure 14.7) .

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Figure 14.7     Comparison of Estimation Results


Swath plots were generated to check the block model estimate for global bias by comparing the NN block estimate to the ID 3 estimate (Figure 14.8) .

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Figure 14.8     Tailings Swath Plot


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15.0

MINERAL RESERVE ESTIMATES

Table 15.1 summarizes the True North Mineral Reserve estimate which includes a combination of underground ore and high grade tailings for re-reprocessing. Also in its respective subsections, there is additional explanation about the mineral reserve determination and parameters utilized.

T ABLE 15.1
T OTAL P ROJECT M INERAL R ESERVE E STIMATE
Reserve Area Proven Reserve Probable Reserve Proven & Probable Reserve
District tons Au (opt) Au (Ozs) tons Au (opt) Au (Ozs) tons Au (opt) Au (Ozs)
26L -710
16L 810
16L - L10
26L - SAM
89,000 0.269 23,900 101,000 0.294 29,600 190,000 0.282 53,500
2,000 0.221 500 13,000 0.213 2,800    15,000 0.214 3,300
18,000 0.194 3,500 32,000 0.193 6,100    50,000 0.193 9,600
44,000 0.203 8,900 53,000 0.191 10,200    97,000 0.196 19,100
Subtotal True North Underground 153,000 0.241 36,800 199,000 0.245 48,700 352,000 0.243 85,500
Tailings Reprocessed 0 0.000 0 1,170,000 0.028 32,400 1,170,000 0.028 32,400
Total True North including Tailings 153,000 0.241 36,800 1,369,000 0.059 81,100 1,522,000 0.077 117,900

15.1

UNDERGROUND MINERAL RESERVE ESTIMATES

Mineralization wireframes are cut along level boundaries, and subsequently cut along typical stope dimensions were applicable. This leaves a series of shapes (created with Vulcan Stope Optimizer software) with various dimensions of 60 feet (18m) high access level intervals (access level spacing), various lengths along strike stopes, and then full width of the orebody which varies from 4 feet (1.2m) to 30 feet (9.1m) This is illustrated below in Figure 15.1. The minimum mining width considered when creating stopes shapes is 5 feet (1.5m) . This minimum mining width was introduced due to existing mobile equipment limitations or requirements and previous experience with the proposed mining methods to extract these stopes i.e. long-hole, captive long-hole and retreat uppers without backfill.

Figure 15.1     Reserve Block X-Section for Economic Viability Analysis (710/710A Veins)

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These blocks were reported from the grade model with grade and resource category as outputs. Blocks where the ore was classified as Measured or Indicated were moved to the next phase of assessment. Blocks with Stope dilution and mining recoveries were subsequently applied to each of these shapes. Only blocks that are above BCOG were considered economic.

Subsequently, these blocks were considered only when creating the stopes shapes for further evaluations taking in account the following parameters, level accesses and vertical development or level spacing every 60 feet (18m), stope length varies and is mainly dictated by the positioning of above break-even cut-off grade blocks. Where applicable, captive stopes have been considered with multiple level extraction that can be mined and extracted from one development horizon (access) which makes these stopes dependent on one another.

Figure 15.2     Created Stope Shapes for Economic Viability Analysis

Stopes were subsequently assessed individually or in groups to determine if they were economically mineable. The stopes that passed this test were added to the reserve totals, as shown in the evaluation sample below. The parameters used to assess the economic viability of the reserve shapes are listed below in Table 15.2. These values and parameters were provided by Klondex, reviewed/accepted by P&E, and are understood to be derived from actual operations.

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T ABLE 15.2
O PERATING AND R EVENUE P ARAMETERS

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The main areas at True North where stope shapes were deemed economic after valuation and included in the current reserve statement are distributed across a few mining areas (districts) and lenses in the three main accessible mining districts; the 16L-08/L10, 26L- SAM and the 26L-710/711. Out of the total reserve at True North, 43% Proven and 57% Probable distribution occurs with 62.5% of ounces located in the 710/711 area.

The total dilution shown was modelled into the mining shape as external dilution of 0.5feet (0.15m) over-break on the long-hole stopes which have minimum of 4 feet (1.2m) width and internal dilution in areas where waste or marginal grade blocks along strike must be taken as part of the mining shape.

Additionally, the Mining Recovery was considered at 98% and was also applied to the model with the understanding the stope shapes already include a mining loss which is significant. The mining recovery was considered somewhat high due to the narrow vein nature of the True North Deposit and after review it is considered acceptable for all stopes. See underground mineral reserve estimation parameters in Table 15.3.

T ABLE 15.3
P ARAMETERS U SED TO A SSESS E CONOMIC V IABILITY OF
U NDERGROUND M INERAL R ESERVE
Reserve Parameters UM Value
Break Even Cut-Off Grade (BCOG) opt 0.131
Resource Cut-Off Grade (RCOG) opt 0.090
Au Price US$/Oz 1,200
Au Price C$/Oz 1,500
Exchange Rate USD:CAD US$:C$ 0.80
Total Operating Cost C$/t 184.01
Stope Dilution % 21%
Stope Mining Recovery % 98%

Blocks that are below the BCOG, but above the RCOG are reported as Mineral Resources (see Section 14.10) . The underground Mineral Reserve developed for the Project is summarized in Table 1543.

T ABLE 15.4
U NDERGROUND M INERAL R ESERVE E STIMATE
Reserve
Area
Proven Reserve
Probable Reserve
Proven & Probable Reserve
District tons Au
(opt)
Au
(Ozs)
tons Au
(opt)
Au
(Ozs)
tons Au
(opt)
Au (Ozs)
26L -710
16L 810
16L - L10
26L - SAM
89,000 0.269 23,900 101,000 0.294 29,600 190,000 0.282 53,500
2,000 0.221 500 13,000 0.213 2,800 15,000 0.214 3,300
18,000 0.194 3,500 32,000 0.193 6,100 50,000 0.193 9,600
44,000 0.203 8,900 53,000 0.191 10,200 97,000 0.196 19,100
Total 153,000 0.241 36,800 199,000 0.245 48,700 352,000 0.243 85,500

(1)

Mineral Resource is inclusive of Mineral Reserve shapes, mining recovery, mining dilution and stope pre- production development costs. Mineral Reserve estimate includes dilution and is constrained to a minimum mining width of 5 feet.

(2)

Mineral Reserve was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.


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(3)

Mining losses of 2% have been applied to the designed mine excavations and no additional unplanned dilution has been included.

(4)

Contained metal may differ due to rounding.

(5)

Cut-off grade = 0.13 opt Au (4.46 g/t Au).

(6)

A bulk density of 0.086 tons pcf was utilized in Mineral Reserve tonnage calculations.

The calculation of the underground Mineral Reserve BCOG was based on the parameters provided in Table 15.5.

T ABLE 15.5
U NDERGROUND M INERAL R ESERVE BCOG C ALCULATION C RITERIA
Unit Cost Units BCOG
Metal Price C$/Oz 1,500
Metallurgical Recovery % 94%
Payable Metal % 100%
Conversion Factors   31.1035
True North – Cost Summary    
Mining Operating Cost C$/t 49.09
Sustaining Capital Cost C$/t 42.49
Process Operating Cost C$/t 27.77
Mine Indirect Cost C$/t 49.04
Site G&A Cost C$/t 15.62
Total BCOG Operating Cost C$/t 184.01
Royalty* % 0.00%
True North - LOM BCOG opt 0.131
True North – LOM BCOG g/t 4.49

*Note: True North operation does not pay Royalties

15.2

TAILINGS MINERAL RESERVE ESTIMATION

The tailings Mineral Reserve estimation is based on separate cut-off grades of 0.026 opt Au (0.89 g/t Au) for 2016 to 2018 and 0.020 opt Au (0.69 g/t Au) for 2019 to 2023 as shown in Tables 15.6 and 15.7. The tailings reserve cut-off grade has been calculated from the following parameters:

  Gold Price: US$ 1,200 per oz.
  Exchange Rate: C$ to US$: 0.80:1
  Operating Cost: C$34.60 per ton
  Recovery: 90%
  Cut-off: 0.026 opt Au (0.89 g/t Au)

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T ABLE 15.6
2016 TO 2018 T AILINGS R ESERVE BCOG C ALCULATION C RITERIA
Unit Cost Units BCOG
Metal Price C$/Oz 1,500
Metallurgical Recovery % 90%
Payable Metal % 100%
Conversion Factors   31.1035
True North – Cost Summary    
Process Operating Cost C$/t $ 25.06
Sustaining Capital Cost C$/t    $ 6.39
Site G&A Cost C$/t    $ 3.15
Total BCOG Operating Cost C$/t $ 34.60
Royalty* % 0.00%
True North – Tailings BCOG opt 0.026
True North – Tailings BCOG g/t 0.89

*Note: True North operation does not pay royalties

  Gold Price: US$ 1,200 per oz.
  Exchange Rate: C$ to US$: 0.80:1
  Operating Cost: C$26.97 per ton
  Recovery: 90%
  Cut-off: 0.020 opt Au (0.69 g/t Au)

T ABLE 15.7
2019 TO 2023 T AILINGS R ESERVE BCOG C ALCULATION C RITERIA
Unit Cost Units BCOG
Metal Price C$/Oz 1,500
Metallurgical Recovery % 90%
Payable Metal % 100%
Conversion Factors   31.1035
True North – Cost Summary    
Process Operating Cost C$/t 18.01
Sustaining Capital Cost C$/t 2.56
Site G&A Cost C$/t 6.40
Total BCOG Operating Cost C$/t 26.97
Royalty* % 0.00%
True North –Tailings BCOG opt 0.020
True North –Tailings BCOG g/t 0.69

*Note: True North operation does not pay royalties

In addition to the underground Mineral Reserve estimate, there are 1,278,000 tons (1,159,000 tonnes) of tailings Mineral Resource containing 36,000 Indicated oz of Au that were converted to Mineral Reserves and considered for processing as indicated below in Table 15.8 and described in section 16. The tailings re-processing project will be continued during May to October when outside conditions permits to recovered the material and will be transferred for processing in order to increase True North process plant utilization and generate additional revenue. The tailings Mineral Reserve represents an economic upside to the project.

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T ABLE 15.8
T AILINGS M INERAL R ESERVE E STIMATE (1-6)
Reserve
Area
Proven Reserve Probable Reserve Proven & Probable Reserve
District tons Au
(opt)
Au
(Ozs)
tons Au
(opt)
Au
(Ozs)
tons Au
(opt)
Au (Ozs)
Tailings
Reprocessed
1,170,000 0.028 32,400 1,170,000 0.028 32,400

(1)

Tailings Resource is inclusive of Mineral Reserves.

(2)

Tailings Mineral Reserve was estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

(3)

No mining losses of have been applied to the designed mine excavations and no additional unplanned dilution has been included.

(4)

Contained metal may differ due to rounding.

(5)

Cut-off grade = 0.026 opt Au (0.89 g/t Au) for 2016 to 2018 and 0.020 opt Au (0.69 g/t Au) for 2019 to 2023

(6)

A dry bulk density of 0.044 tons pcf was utilized in the tailings Mineral Reserve tonnage calculation.


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16.0

MINING METHODS


16.1

MINE DEVELOPMENT


16.1.1

Access Development

True North is an underground mining operation that has been in almost continuous operation since the early 20 th century. Over the years, the mine has employed many mining methods including shrinkage, sublevel stoping, cut and fill and panel stoping.

Currently, the Project has two main production levels, namely 16L and 26L, which are accessed via a 4,400 foot (1,341m) two compartment shaft (A-Shaft). The 710 Zone mining complex is the main mining area and is located approximately 6,600 feet (2,000m) from the main shaft along the 26L access level.

The main haulage track drift on 26L is used to access the 710 Vein. In order to access above and below the 26L, the 710 Vein has a 12 foot by 12 foot (3.7m x 3.7m) incline and decline driven at a maximum gradient of +/-15% with access cross-cuts into the ore body every 60 feet (18m) vertically. Additional infrastructure along the incline includes a vertical ventilation and escape raise and an ore and waste pass system.

A longitudinal section through the mine is provided in Figure 16.1.

16.1.2

Geotechnical

Rock characteristics at True North are typical northern Canadian shield conditions with very little water and very competent with RMR ranging from 65% to 85%. In large areas and stopes all necessary joint sets are mapped and a ground support standards are reviewed using Unwedge.

The Uniaxial Compressive Strength (UCS) of the ground is 200 million pascal (MPa), due to the depth of the 710 vertical stress will range from 30MPa to 40MPa with maximum horizontal stress being 1.3*vertical stress.

16.1.3

Ground Support

The ground conditions at True North are typical of those found elsewhere in the northern shield, with typically dry and very competent conditions. The main ground support system is resin encapsulated 6 ft (1.8m) #6 rebar bolted in a 4 foot by 4 foot (1.2m by 1.2m) pattern, supporting 4 inch (0.1m) welded wire mesh. In areas wider than 18 feet (5.5m), 8 feet (2.4m) #6 rebar bolts replace the 6 foot (1.8m) rebar bolts.

Where more adverse conditions are encountered in long-hole stopes, 20 feet (6m) and 30 feet (9m) long grout encapsulated cable bolts are installed as well as in intersections with span between 20 feet and 30 feet (6m to 9m). The cable bolt pattern is determined from the specific conditions and are drilled with a long-hole drill and then fully grouted.

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Figure 16.1     Longitudinal Section

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16.1.4

Ventilation and Secondary Egress

Underground mining relies on diesel equipment in the process to extract the ore and waste rock and to transport backfill to the stopes. The Project is ventilated through an intake connection to surface. This air route includes travel through historic mining areas and from there, it is directed to the 24L and distributed to the main 710 Zone mining horizon via horizontal and vertical openings. All of the air eventually exhausts out through A- shaft. Fans located in development headings ventilate working faces. The surface intake fan is powered by two 150 horsepower (hp) (110 kilo Watt [kW]) fans and the 24L main ventilation fans deliver 75,000 cubic feet per minute (cfm) (5.7 m 3 /sec) to the 710 Zone. A ventilation schematic is provided in Figure 16.2.

Two means of secondary egress are available at the project including a man-way with ladders and landings in A-shaft. A second man-way connection to surface is via a timbered raise from 26L to 16L, which continues on to a man-way up B shaft to 8L and then on to a series of other raises from 8L to surface.

16.2

POWER DISTRIBUTION AND DEWATERING

Electrical power to the mine is provided by a 4,160-volt feeder connection which is stepped down to 480 volts for distribution. Step down transformers and circuit protection are provided by 22 load centers located throughout the mine. Excess mine water is dewatered from 26L to 16L to 10L and then to the process plant where is it sent to tailings. The mine purges water on a weekly basis at approximately 300 gallon (1.36m 3 )/week, however, most water is recycled and inflow from the surrounding rock is minimal.

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Figure 16.2     True North Gold Mine 710 Complex Ventilation System

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16.3

MINING METHODS

The primary mining method at the Project is long-hole stoping which is a cost effective method to mine the complex geology at the Project, and benefits from a quick stope cycle time. In areas where mineralization does not warrant the development of a ramp access system, Klondex employs captive sublevel stoping methods.

16.3.1

Long-hole Stoping

Long-hole stoping is the lowest cost method used at the Project and generally also provides the lowest total cost per ounce of gold produced.

Level accesses are driven perpendicular towards the ore body every 60 feet (18m) vertical. From these access drifts, 8 foot x 9 foot (2.4m x 2.7m) sills are developed along the strike of the mineralized zone (Figure 16.3) .

Figure 16.3     Long-hole Open Stope Sill Development

Once the levels are developed, a slot raise is driven between the levels which provides the free face necessary for long-hole blasting. Subsequently, long-hole drilling is carried out with 2.5 inch (64mm) holes on a 3foot (0.9m) ring burden. The actual drill pattern is determined by the stope shape. (Figure 16.4) .

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Figure 16.4     Long-hole Open Stope Raise and Drilling

Once all long-hole drilling is completed, the stope is loaded with explosives and blasted. A diesel powered load-haul-dump machine (LHD) is used to move the blasted material from the undercut. The LHD is equipped with line-of-sight remote control mechanism to allow the removal of all blasted rock without exposing operating personnel to the open stope and the potential risk of ground falls (Figure 16.5) .

Figure 16.5     Long-hole Open Stope Blasting

After all blasted material has been extracted, the remaining void is backfilled with waste rock (Figure 16.6) .

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Figure 16.6     Long-hole Open Stope Backfilling

Figure 16.7 shows a fairly typical over-cut and undercut access and sill in plan view, and Figure 16.8 shows a typical drill ring section.

Figure 16.7     Over-cut and Under-cut Plan View

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Figure 16.8     True North Gold Mine Typical Long-hole Drill Section

16.3.2

Captive Sub Level Long-hole Stoping

Captive sub level long-hole stoping is used in situations where an up-ramp access cannot be economically justified. This mining method uses three 6 foot by 6 foot (1.8m by 1.8m) raises up to 60 feet (18m) in length. One raise acts as a slot raise for the long-hole blasts to slash into; the second raise acts as a mill-hole for muck from the sublevel where broken ore is slushed into; and the last is a access man-way. At the top of the raises an 8 foot by 9 foot (2.4m by 2.7m) sublevel is driven along the strike of the ore body. An air slusher is used to move the development muck from the sublevel over to and down the mill hole. If the mineralization warrants, another series of raises and a sublevel are developed.

After all of the raises and sublevels are developed, long-hole drilling is carried out with an air drill capable of drilling 2.5 inch (64mm) holes on a 3 foot (0.9m) ring burden. These rings are blasted into the slot raises. The material drops to the bottom level and a remote controlled LHD removes the blasted ore without exposing the operator to the open stope and the potential risk of ground falls.

Figure 16.9 shows an arrangement of two sub-levels of a sub level captive long-hole stope.

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Figure 16.9     True North Gold Mine Sub-Level Captive Long-hole Stope

16.3.3

Haulage

Ore and waste rock generated from the incline of the 710 Zone mining complex is hauled with LHDs to the vertical ore and waste chute system which connects to the 26L haulage drift. The material is then loaded into rail cars and hauled from the rock passes along the haulage drift with a diesel locomotive and 5 ton (4.5 tonne) rail cars. The cars are dumped at a grizzly equipped with a rock breaker and the material is sent to the loading pocket below 26L, from where it is hoisted in the shaft to surface in a 5 ton (4.5 tonne) capacity skip.

In the 710 Zone mining complex decline, ore and waste are hauled to the 26L haulage drift via two 13 ton (12 tonne) rubber tired underground mining haul trucks. These haul trucks deliver the ore and waste rock to the 710 ore and waste bins. From these ore bins, the follows the same route as described in the above paragraph.

16.3.4

Backfilling

Waste rock is moved from development to stoping whenever possible and major fill zones are created in the mining through the down hole long-hole method on the 710 incline. The decline will not create fill void and will require sill pillars at certain level intervals. With the mining in the incline being filled, a percentage of waste rock will need to be removed from the mine but there will be sufficient material to fill the created void as per Table 16.1.

T ABLE 16.1
W ASTE R OCK B ACKFILL AND S TOPE V OIDS
Period Q4 - 2016 2017 2018 Total
Waste Rock Backfill Created - tons 34,000 119,000 70,000 223,000
Stope Voids Created - tons 14,000 98,000 56,000 168,000

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16.4

SCHEDULING

For all waste lateral development and stoping scheduling, the following parameters are utilized.

Waste development:

  Incline Face – 6.5 feet/day
  Incline Auxiliary – 8.5 feet/day
  Decline Face – 6.5 feet/day
  Decline Auxiliary – 8.5 feet/day

Ore development:

  Ore Sills – 14 feet/day

Conventional raising:

  8 feet/day

Backfilling:

  129 tons/day

Long-hole drilling:

  597 feet/day

Total Waste tons:

  594 tons/day

Total Ore Tons:

  604 tons/day

Total tons brought to surface via shaft

  1,070 tons/day

T ABLE 16.2
U NDERGROUND M INING S CHEDULE S UMMARY
Period Q4 - 2016 2017 2018
Tons Mined 29,000 206,000 117,000
Au opt Mined 0.241 0.243 0.244
Au Ounces Mined 7,000 50,000 28,500
Au Oz Recovered 6,600 47,000 26,800

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16.5

EQUIPMENT FLEET UNDERGROUND

A summary of all underground mining equipment requirements are listed in Table 16.3.

T ABLE 16.3
R EQUIRED M INING E QUIPMENT
    Description Quantity   
Development 3.5yd 3 (2.7m 3 ) scoop 4
2.5yd 3 (1.9 m 3 )scoop 1
1 boom jumbo 3
scissor decks 2
13 ton (12 tonne) haul trucks 2
Production Air powered long-hole drill 2
2.5yd 3 (1.9m 3 ) remote controlled scoop
4
Tramming Locomotive 4
5 ton (4.5 tonne) rail cars 20
Ancillary Scissor lift 1
Boom truck 1
grease truck 1
Telehandler 1
Kubota RTV or Toyota Land Cruiser 3

16.6

TAILINGS REPROCESSING

Tailings reprocessing will be carried out from 2016 to 2023, initially during the underground mining operations (2016 to 2018) and subsequently following cessation mining operations (2019 to 2023), as a stand-alone operation. This seasonal reprocessing operation will be conducted at a process plant throughput of 1,200 tpd (1,189 tonnes per day).

Dry tailings material is extracted throughout the historic tailings and moved to the pump station using a dozer. The pump station consists of a 50 HP (37 kW) pump, a reclamation water supply and a water reservoir. During operation, dry material can be moved at a rate of 39 tons (35 tonnes) per hour from the tailings pump. The material is fed into a reservoir and is diluted into slurry with high pressure water jets. The slurry is pumped from the historic tailings pond and into a holding tank located at the tailings substation, on the bank of the historic tailings pond. The tailings substation consists of a holding tank with a 75 HP (56kW) pump inside, valves to direct process water, electrical controls for the pumps and auxiliary equipment and a diesel powered generator.

From the holding tank, the slurry is pumped through a 10 inch (250mm) line to the grinding bay at the process plant. A flow rate is maintained using the pump located in the tank and a 50 HP (37 kW) booster pump located approximately 3,000 feet (1 km) along the reprocessing line. Process water is added to the holding tank as required in order to maintain a consistent suspended solids level, heading to the process plant. Tailings slurry is pumped to the process plant with a flow rate above 600 gallons (2.7m 3 ) per minute maintained and a typical suspended solids rating of 20%. Tailings material is sent to a de-watering cyclone located in the process plant grinding bay where the overflow from the cyclone is returned to the new tailings pond and the underflow is sent into the grinding circuit.

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A schedule for tailings reprocessing is shown in table 16.4.

T ABLE 16.4
T AILINGS R EPROCESSING S CHEDULE
Period 2017 2018 2019-2023*
Tons Reprocessed 80,000 115,000 195,000
Au opt Reprocessed 0.036 0.036 0.026
Au Oz Reprocessed 2,900 4,100 5,100
Au Oz Recovered 2,600 3,700 4,600

* Annual figures for 2019 to 2023

Figures 16.10 and 16.11 respectively depict the tailings recovery flow diagram and an aerial view of the tailings recovery site.

Figure 16.10     Tailings Recovery Flow Diagram

Figure 16.11     Aerial View of Tailings Recovery Site

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17.0

PROCESS PLANT AND PROCESS RECOVERY

In 2011, the process crushing plant was expanded by adding a new primary 30 inch by 42 inch (760mm by 1067mm) jaw crusher, a GP300 gyratory crusher as a secondary breaker and a Barmac B8000 VSI (vertical shaft impact) crusher as a tertiary unit. There units are all in line with a 7 foot by 20 foot(2.1m by 6.1m) triple deck vibrating screen. See Figure 17.1

The process plant feed is ground in an AC 12 ½ foot by 14 foot (3.8m by 4.3m), 1,250 HP (933 kW) ball mill to 67% passing Tyler 200 mesh (74 microns). A portion of the process plant circulating load is passed through one of two 20” (500mm) gravity concentrators. Concentrate from these units s upgraded on an 8 foot (2.4m) shaking table. The table concentrate is direct smelted. Tails from the concentrators and the shaking table are returned to the head end of the grinding mill. The fines from the grinding circuit are fed to one of two rows of 10m3 OUTOTEC tank cells producing both a rougher concentrate grading between 5 and 10 opt (171 and 343 g/t Au) and a scavenger concentrate that is very low grade. The scavenger concentrate is circulated to the main grinding circuit. Rougher concentrate is collected and reground through an 8 foot by 6 foot (2.4m by 1.8m) ball mill to 98% passing Tyler 400 mesh (37 microns), thickened and leached in a three stage leach circuit of 12 foot by 24 foot (3.6m by 7.2 m) tanks. Dissolved gold is recovered using a six stage carbon-in-pulp circuit using 12ft. x 14ft (3.6m x 4.3m) vessels. The carbon is then eluted in a stainless steel pressure strip vessel. The elution liquor is passed through an electrowinning cell fitted with stainless steel anodes and cathodes. Gold sludge from this cell is then smelted in an electric induction furnace.

Current process plant recovery is name plated at 93.5% based on a feed grade of 0.16 opt (5.5 g/t). This recovery is grade dependent and has been as high as 96.5% with higher feed grades.

Past and current processing analyses have shown that the process plant feed is clean displaying no evidence of any deleterious constituents such as arsenic, mercury or antimony that would otherwise affect gold recovery in the leach circuit. Copper in solution is sometimes high.

The process plant operates on a 14 day on, 14 day off, 12 hour per day schedule utilizing four crews. See process plant production schedule in Table 17.1.

An economic assessment is underway looking into leaching the flotation tails and solids from the tailing storage facility. According to the potential future flow sheet the existing flotation concentrate leach circuit would remain intact with flotation tails reporting to a new pre-leach thickener. Slurry would be pumped from the existing tailings storage facility over a new trash screen. The flotation tails and trash screen undersize would be combined and thickened using the new thickener. The thickener underflow would be pumped to a series of six CIL tanks for cyanide leaching. The CIP tails from the flotation concentrate leach circuit will be pumped to the new CIL circuit. Carbon would be transferred counter current from the slurry with the carbon from the first CIL tank being pumped either to the acid wash vessel or to the flotation concentrate CIP circuit depending upon operational conditions. Material from the tailings storage facility would be pumped back to the process plant for processing as weather allows. It is estimated that the tailing pumping would operate approximately six months of the year. During the winter months only the flotation underflow alone would report to the new thickener and then pumped to the new CIL circuit. The CIP tails from the flotation concentrate leach would continue to be pumped to the new CIL circuit.

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Figure 17.1     True North Gold Mine Process Plant Flow Sheet

T ABLE 17.1
P ROCESS P LANT P RODUCTION S CHEDULE
Period Q4 - 2016 2017 2018 2019 – 2023*
Tons Processed 29,000 286,000 232,000 195,000
Au opt Processed 0.241 0.185 0.141 0.026
Au Oz Processed 7,000 52,900 32,600 5,100
Au Oz Recovered 6,600 49,600 30,500 4,600

* Annual figures for 2019 to 2023

In 2019, the underground mining operation will cease. However, the processing plant will continue to take historic tailings for reprocessing for another 5 years until 2023. This material will not require grinding therefore the processing plant will be able to operate at a rate of 1,200 tpd (1,189 tonnes per day) for this period, however, it will only be a seasonal operation, running from May to Oct each year.

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18.0

PROJECT INFRASTRUCTURE

True North has been an active mine for almost 90 years except for some periods of inactivity. During this timeframe the onsite infrastructure has been updated, upgraded and improved continuously by its respective historic owners. Figure 18.1 illustrates the current layout of the surface infrastructure.

Figure 18.1     Surface Infrastructure Plan View

18.1

LOCATION AND ACCESS

The Project is located adjacent to the town of Bissett Manitoba, which is 235km northeast from Winnipeg Manitoba. Bissett and the Project are accessible via provincially maintained public roads connecting to Winnipeg. Bissett provides employee housing and support services to the Project.

18.2

ACCOMMODATIONS AND CAMP FACILTIES

The Project has a 300 room camp facility located near the main administration offices which includes a kitchen and dining facility, and recreation and fitness facilities. The majority of employees and contractors working on site are currently accommodated at this facility during shift rotations. In addition, the town of Bissett offers options for employee room and board.

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18.3

ELECTRICAL POWER AND ON-SITE DISTRIBUTION

The Project is supplied power by Manitoba Hydro grid through two power lines which provides 20MW to the Project transformer station. The twin power line provides a redundancy such that in the event of a single line power outage, the mine, process plant and surface facilities can still function in a limited capacity on 10MW.

18.4

WATER SUPPLY AND RETICULATION

Potable water is supplied from the town of Bissett’s water supply.

Process water for the mine is reclaimed from the tailings pond and water recovered from the underground workings.

18.5

AIR COMPRESSORS

Compressed air for the underground workings is provided by five 300hp (224kW) and two 150hp (122kW) compressors located in a central compressor house. The compressed air is distributed throughout the Project through a network of 10 inch and underground and plant smaller airlines.

18.6

DIESEL FUEL AND ON-SITE STORAGE FACILITY

Diesel fuel is supplied to the onsite storage tanks by commercial road tanker from a major fuel supplier’s central depot in Winnipeg. The diesel fuel for the underground machinery is transported from the onsite storage tanks to the underground SasStat fuel storage facility via fuel cars on the mine cage.

18.7

WAREHOUSING AND MATERIAL HANDLING

The Project is serviced from a two-story, heated, 445m 2 (4,800 ft 2 ) warehouse building, a 223 m 2 (2,400 ft 2 ) cold storage area, as well as three cold storage tents and a 9,290 m 2 (100,000 ft 2 ) secured yard storage. There is also a gravel surfaced storage area that is unsecured.

18.8

SITE SECURITY

The Company employs an external security contractor, who monitors the Project from a central security outpost at the main gate. There are also roaming security personnel. Currently, the Project is surrounded by chain link fencing.

18.9

COMMUNICATION

Voice and data communications are routed through the Bissett Manitoba Telephone System microwave tower. This tower also provides cell phone coverage for the Project and town site. On-site and underground communications is via a radio over leaky feeder network which is maintained and extended as need it by the Project personnel.

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18.10

ON SITE TRANSPORT AND INFRASTRUCTURE

The Company provides bus transportation from Winnipeg to site on scheduled shift rotations. Light vehicles and pickups are provided on-site to transport mine workers from accommodations to their respective work areas.

18.11

SOLID WASTE DISPOSAL

Waste is managed in dumpsters and other appropriate waste containers. Waste and materials for recycling are disposed of off-site by an external contractor located in Pine Falls. Additionally the external contractor removes waste hydrocarbons for disposal or recycling.

18.12

PARTS AND MINE SUPPLY FREIGHT

All supplies and other consumables required to operate the mine, process plant and surface facilities are brought in via all season access road from approximately 235 Km NW of Winnipeg, Manitoba by various freight-forwarding contractors.

18.13

MOBILE AND FIX EQUIPMENT MAINTENACE FACILITY

There are 5 maintenance bays, welding and tire facilities at the Project which have been upgraded by the previous owner to accommodate and provide an enclosed facility for all maintenance activities. This is especially useful during winter season when temperature can plunge as low as -31 o F (-35 o C).

18.14

FIRST AID AND AMBULANCE

The Project has a first-aid clinic, ambulance and trained personnel on stand-by for any medical attention or emergency that may arise. An air ambulance service is readily available from the nearby Winnipeg Emergency Rescue Service.

18.15

OFFICE AND ADMINISTRATION BULDINGS

The Project hosts a recently constructed (by the previous operator) modern office and administration facility that is capable of accommodating the necessary engineering, geological, accounting, safety, environmental, and administrative personnel.

18.16

TAILINGS STORAGE

The Tailings Management Area (TMA) is located approximately 1 mile (1.6 km) north of the process plant in an area naturally defined by bedrock ridges around the perimeter of a previously flat boggy area. The original ground surface of the bog was near elevation 889 feet above sea level (asl) (271 m asl) (geodetic) with bedrock ridges on the south and west sides up to 920 feet asl (280 m asl) and bounded to the north by bedrock up to elevation 985 feet asl (300 m asl).

Since the development of the TMA, tailings have been pumped from the process plant to the TMA via an approximate 1 mile (1.6 km) pipeline. It is understood that during mine operation, the tailings are transported as slurry, with 34% (approx.) solids by weight. The TMA currently consists of 8 dykes with a number of the embankments separated by bedrock outcroppings such that they follow an A/B nomenclature. The embankments have been designed and constructed in various stages and phases from 1997 onwards to the most recent raises and improvements completed from 2012 to 2014. The current configuration of the TMA consists of a tailings pond and polishing pond, separated by dyke 7. The west half (approx.) of the tailings pond has reached its capacity, with tailings placed up to the crest of dykes 1, 2, 8 and a portion of dyke 3, while the east half of the tailings pond contains tailings submerged beneath water ranging in depth from less than 3 feet (1m) to several feet (metres). No spillway or low level outlet structures are present in the TMA. It is understood that the TMA has been designed to safely retain water from the mill discharge, runoff, and storm events.

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In order to increase the capacity to retain tailings beyond the current capacity of the TMA, a new area, termed the East Tailings Management Area (ETMA) was currently undergoing development until the most recent mining operations ceased in 2015. The ETMA is located directly east of the TMA and currently consists of dyke 9 along its south perimeter, with dyke 6 of the TMA forming the containment along the west side. The natural contours to the north and east provide containment of the remainder of the ETMA.

Dyke 9 has an overall length of nearly 5,000 feet (1,500m) and at its current constructed elevation, has a height of 10 feet to 13 feet (3m to 4 m). No spillway or low level outlet structures are present in the ETMA. It is understood that the TMA has been designed to safely retain water from the process plant discharge, runoff, and storm events.

A dam safety review was conducted by Stantec Consulting Ltd. geotechnical engineers in 2015.

18.17

STOCKPILES

The True North site has an existing waste rock stockpile which currently contains approximately 200,000 tons (180,000 tonnes) on an area of 4.6 acres (1.9 ha). This waste material is utilized to construct the tailings containment berms

The site is permitted to stockpile up to 10,000 tons (9,000 tonnes) of ore permanently and 50,000 tons (45,000 tonnes) of ore on surface as outlined in the 2016 temporary permit.

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19.0

MARKET STUDIES AND CONTRACTS

Gold and silver doré bars are the principal commodities produced at the Project. The Project also produces a small amount of certain gold and silver bearing by-products, such as loaded carbon. All gold and silver doré bars and by-products are sent to third parties for refining to produce bullion that meets the required London Bullion Market Association standards of 99.95% pure gold and 99.90% pure silver. Doré bars are transported to a refinery via secure transportation (“armored car”). Under the terms of Klondex’s refining agreements, their share of the refined gold and the separately-recovered silver are credited to their account or delivered to buyers based on instructions provided to the refiner from the Company.

For the purpose of this study, trailing average prices for gold were investigated as possible gold price indicators for future production. Whereas the Mineral Resource estimates were based on a gold selling price of C$1,750 per oz (US$1,400 per oz), the Mineral Reserve Estimates were based on a selling price of C$1,500 per oz (US$1,200 per oz).

Gold and silver has two main categories of use: fabrication and investment. Gold and silver prices are quoted in active world spot markets in US dollars per troy ounce. The prices of gold and silver are variable and sometimes volatile in nature. Prices are affected by many factors beyond Klondex’s control, such as the sale or purchase of gold by central or reserve banks or other monetary authorities and financial institutions such as commercial banks; inflation or deflation and monetary policies; fluctuation in the value of the US dollar and other foreign currencies; global and regional demand; and the political and economic conditions of countries throughout the world.

A description of the Company’s material contracts is as follows:

 

Asahi Refining Canada Ltd. – Refines gold and silver doré bars.

Brinks Canada Limited – Securely transports gold and silver doré bars to the refinery.

 

Auramet International LLC Trading – Purchases gold and silver.

 

Investec Bank plc – Purchases gold and silver.


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20.0 ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT

20.1

SUMMARY

The previous mine operator San Gold held an Environmental Act License covering mining, processing and tailings management area operations for the Project. San Gold also held an accepted Mine Closure Plan and had pledged certain fixed assets to provide financial security for closure. Klondex has since obtained a revised Environmental Act Licence for the Project and approvals of minor alternations required for its Project. The San Gold Mine Closure Plan (2012) and the pledged fixed-asset financial security for the mine closure plan were transferred to Klondex in January 2016.

Klondex has been conducting required environmental monitoring including water quality sampling and environmental effects monitoring work; developing procedures for its environmental management system; and is in the process of re-initiating First Nations and Aboriginal community engagement including final effluent release reporting.

In consideration of the historic activities and planned activities at this Project, the Author has reviewed historic and current information on the Project including: current legislation affecting mine permitting, operations and closure in Manitoba; the revised Environment Act License for mining, processing and tailings management recently issued to Klondex; relevant reports prepared as part of a harmonized federal-provincial environmental assessment for a tailings management expansion project approved in 2013 including public comments and First Nations and Aboriginal community consultation conducted at that time; and other information. The Author also contacted the Author of the metallurgical components of this report in regard to the process plant complex and Klondex’s Environmental Superintendent about the current environmental–social status of the Project.

Based on the available information, P&E is of the opinion that there do not appear to be any insurmountable environmental and/or social barriers to the Project.

20.2

SCOPE OF THE PROJECT

The scope of True North Gold Mine includes:

Underground mine development and production. True North includes six underground mines (i.e. Cohiba Zone, SG-1, 710/711 Zone, 007 Zone, Hinge Zone, Rice Lake), a vertical shaft, two decline ramps, a mill, an ore feed pad, mill feed crushing and conveying, a waste rock management area, and a tailings management area (“TMA”).

Klondex commenced ramp-up activities in early 2016 including test stope mining and stockpiling in advance of a production decision. This underground work has included underground mining using conventional narrow vein long-hole stoping methods at the 710/711 and Cohiba Zones. It is projected that underground mining would produce about 800 tpd using conventional drill and blast methods, rail load and haul technologies, and a vertical shaft and two decline ramps.

The re-processing of historic process plant tailings for gold and silver recovery commenced earlier this year with approval from the Province of Manitoba - historic tailings are being dredged, pumped to the process plant for treatment. The re-processed tailings are re-deposited in another section of the TMA.

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20.3

ONGOING EXPLORATION AND PROJECT DEVELOPMENT

Klondex acquired Mineral Lease ML-63 (formerly known as the Rice Lake Gold Mine) at Bissett, Manitoba in 2015 when the Project was inactive under a temporary suspension of operations. Mineral exploration and mining activities have been undertaken at the Project since about 1932 with ownership having changed numerous times over time.

In the present process plant flowsheet, the comminution stage includes crushing and a closed grinding circuit with hydrocyclones. The hydrocyclone overflow is directed to gravity concentrators and the resulting gravity concentrate is further processed using a shaking table with the table concentrate sent to the smelting furnace. The crushing circuit feeds the flotation circuit. The rougher concentrate is re-ground, dewatered and pumped to the carbon-in-leach (“CIL”) circuit. The rougher cell tailings are pumped to scavenger cells, and the scavenger concentrate is fed back to the grinding circuit. Rougher flotation concentrate is leached in a three tank leach circuit followed by a six stage CIL circuit. Loaded carbon is eluted in a conventional strip circuit and gold is electrowon from the eluate. An Inco SO2-air cyanide destruction process is used to treat CIL circuit wastewater. Natural degradation is used to destroy residual cyanide in the tailings pond water. The six-stage CIL circuit is currently being used as part of Klondex’s tailings re-processing project.

The present TMA includes a designed tailings storage containment area and a water polishing pond. Water quality is monitored through sampling and excess pond water is pumped and released to No Name Creek over a specified effluent release time line. TMA water pond levels, water quality, available water storage capacity and available freeboard are monitored by Klondex’s environmental staff.

20.4

INFORMATION REVIEW AND ASSESSMENT


20.4.1

Documentation reviewed

The documentation reviewed by the Author included:

The regulatory regime affecting mine permitting, operations and mine closure in Manitoba.

Revised Environment Act License 2628 RRR issued to Klondex Canada Ltd. for the “True North Gold Mine” on September 16, 2016, and Klondex’s April 2016 request for a minor alteration to allow early discharge from the East Tailings Pond and tailings re-processing – the latter document provides East Tailings Pond water quality data for a February 18, 2016 water sampling event. The QP also reviewed historical Environment Act License 2628 R which applied to Rice Lake Gold Corporation’s “Bissett Gold Mine” operations in 2004.

Relevant parts of the Environmental Assessment Proposal (EAP) filed in 2012 for a Class 2 development comprised of the expansion and operation of the TMA. That development included the construction of an additional main tailings pond, a polishing pond and three access roads. Treated water from the new polishing pond would be pumped to the existing polishing pond for discharge to No Name Creek from June 15 to November 30. The Author also reviewed comments on the EAP received from:

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Environment Canada, the Canadian Environmental Assessment Agency and Health Canada;

Manitoba departments and branches including Manitoba Conservation & Water Stewardship, Climate change and Environmental Protection Division, Mines Branch, Community Planning Services, Sustainable Resource and Policy management Branch, Aboriginal Relations, Workplace Safety and Health Division;

The Kookum’s of Hollow Water First Nation and a trapper from the Hollow Water First Nation; and

 

The Wanipigow Lake East End Cottager’s Association.

Environmental Act License 2628 RR issued in 2012 allowed for the construction and operation of the East TMA. Stage 1 of the East TMA was completed in November 2014 and provided a year of tailings storage capacity based on a process plant throughput of 2,500 tons per day (2,268 tonnes per day).

A 2010 Notice of Alteration for San Gold’s Cartwright Mine and Hinge Zone Bulk Sample Collection submitted to Manitoba Conservation. It included an assessment of environmental impacts and proposed mitigation measures in regard to air, noise, runoff and wastewater.

Other information describing the existing infrastructure, environment, and the Project.

20.4.2

Licenses, Permits and Approvals

The licenses, permits and approvals obtained to operate the Project are shown in Table 20.1.

T ABLE 20.1
O BTAINED L ICENSES AND K EY P ERMITS AND A PPROVALS
License/Permit/Approval   Act/Regulation Description Issued to
License 2628 RRR.
Minor alteration.
Manitoba
Sustainable
Development
Environmental
Approvals
Environment
Act.
Environmental
Act License –
main license.
Klondex
(September 2016)
Minor alteration. Manitoba
Sustainable
Development
Environmental
Approvals
Environment
Act.
Early
discharge of
the East
Tailings Pond
and tailings
reprocessing.
Klondex
(May 2016)
Minor alteration. Manitoba
Sustainable
Development
Environmental
Approvals
Environment
Act.
Ore stockpile
increase to
50,000 tons.
Klondex
(May 2016)
Minor alteration. Manitoba
Sustainable
Development
Environmental
Approvals
Environment
Act.
Tailings
reprocessing –
trucking tailings.
Klondex
(August 2016)
Water Rights License
2016 – 003.
Manitoba
Sustainable
Development
Water
Licensing
Water Rights
Act, Water
Rights
Regulation.
License to use
water from lake.
Klondex

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T ABLE 20.1
O BTAINED L ICENSES AND K EY P ERMITS AND A PPROVALS
License/Permit/Approval   Act/Regulation Description Issued to
Hazardous Waste
registration.
Manitoba
Sustainable 
Development
Environmental
Services
Hazardous
Waste
Regulation,
Dangerous
Goods Handling
&
Transportation
Regulation.
Hazardous
waste
registration.
Klondex.
Petroleum Storage Facility Permit. Manitoba
Sustainable
Development
Manitoba
Conservation
Environmental
Services
Storage and
Handling of
Petroleum
Products and
Allied Products
Regulation,
Technical
Bulletins.
Above ground
storage tanks
with a capacity
of 5,000 L or
more.
Penner Oil
Crown Lands Permit
GP0003073.
Crown Lands
and Property
Agency
Crown Lands
Act.
Ventilation
raise building
situated within
the Town of
Bissett
Rice Lake
Gold
Corporation*
Crown Lands Permit
GP0005737.
Crown Lands
and Property
Agency
Crown Lands
Act.
TMA Rice Lake
Gold
Corporation*

*Klondex has requested the permit holder name be changed to Klondex Canada Ltd.
Source: Klondex Canada Ltd.

20.4.3

Revised Environmental License and Minor Alterations

Revised Environmental Act License 2628 RRR

The Environmental Stewardship Division, Environmental Approvals Branch of Manitoba Sustainable Development issued revised Environmental Act License No. 2628 RRR to Klondex Canada Ltd. on September 16, 2016 for the operation of the “Development” being a 2,273 tonnes per day (2,500 tons per day) gold and silver mining, processing and refining operation known as the True North Gold Mine and including the existing and expanded TMA. Plans of mine, process plant, and the TMA are shown in Figures 20.1 and 20.2. Figure 20.3 provides an aerial view of the mine, process plant and TMA.

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Figure 20.1     True North Gold Mine Site Plan

Source: Revised Environmental Act License No. 2628 RRR for the True North Gold Mine, Appendix B.

Figure 20.2     TMA Site Plan

Revised Environmental Act License No. 2628 RRR for the True North Gold Mine, Appendix A.

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Figure 20.3     Aerial View of the Mine, Plant Site and TMA

Source: Google Maps

Minor Alterations

Section 14 of The Environment Act requires notification and approval for alterations to a licensed Development. A notice of alteration submitted by a License holder is assessed by the Director as either minor, having insignificant environmental effects, or major, having significant environmental effects. Minor alterations may be approved through a revised Environment Act License or by a letter from the Director for Class 1 and 2 projects. Recent examples of requested alterations and approvals are provided below.

In March 2016, the Director of Manitoba Mineral Resources approved Klondex’s notice to recommence mining and processing operations. Since receiving approval Klondex has undertaken a range of preparatory works such as shaft guide replacement, underground track repair, narrow vein long-hole layout testing, development of a new underground shop and mining gear storage cut-outs, and metallurgical testwork on historical tailings based on using the existing flow sheet.

In April 2016 Klondex issued a notice of alteration to the Development as licensed for early discharge of effluent (to commence on May 9, 2016) from the East TMA and the implementation of a tailings re-processing project. The ETP contained about 780,000 m 3 of water which met effluent discharge criterion. The proposed tailings re-processing alteration included the construction and operation of a tailings dredging system, a pumping station, booster pumps and a pipe line to be used to pump the tailings slurry to the existing process plant for re-processing. It was projected that 80,000 m 3 to 150,000 m 3 of tailings would be dredged in 2016 commencing on June 1 st . The regulator determined that the potential effect of the proposed alteration would be a minor in accordance with the Environment Act and approved the proposed alteration.

In May 2016 Klondex issued a notice of alteration for a one-year temporary increase in the ore stockpile limit from 10,000 tons to 50,000 tons (9,000 tonnes to 45,000 tonnes). The regulator determined that the potential effect request was a minor alteration in accordance with the Environment Act and approved the alteration.

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20.4.4

Current Status / Mitigative Measures

The current status of the Project as well as associated environmental aspects and mitigative measures are summarized in Table 20.2 based on the information obtained and P&E’s experience at other mine properties internationally.

T ABLE 20.2
P OTENTIAL S IGNIFICANT E NVIRONMENTAL I MPACTS AND C URRENT S TATUS / M ITIGATIVE
M EASURES
Area Current Status / Mitigative Measures
Environmental
Management
System

The revised Environmental Act License requires Klondex to establish and implement an Environmental Management System (“EMS”). An EMS is a comprehensive system that would be expected to require without being limited to the development and communication of an environmental policy, the identification of significant environmental aspects, the identification of legal and other requirements, procedures, training, records, change management, consultation and complaint response, monitoring, EMS and compliance reviews, a corrective and preventative measures procedure to deal with a non-conformance, and emergency preparedness and response planning. As part of other conditions of the environmental license it is expected that the EMS would also include solid waste reduction and recycling efforts; contingency plans for spills, ruptures and unexpected TMA seepage losses; and require spill recovery equipment. In addition, solid waste and hazardous wastes are to be disposed of in accordance with regulatory requirements; petroleum products are to be stored in accordance with regulatory requirements; and the sewage management system is subject to the Onsite Wastewater Management Systems Regulation.

Acid Rock
Drainage

Test results included in the documentation reviewed by the Author indicate that waste rock and tailings are not acid generating. The revised environmental license requires ongoing scheduled acid:base account testing.

Final effluent

Klondex is to reclaim as much water as possible from the TMA to supply the process water demands of the mill. Mine water is directed to the TMA. Treated effluent can only be released from the TMA polishing pond to No Name Creek and subsequently to the Wanipigow River between June 15 and November 30 each year at a rate not to exceed 0.20 m 3 /sec. Treated effluent cannot be released if the quality or toxicity of the effluent results in, or is likely to directly or cumulatively results in, a downstream water quality degradation beyond a maximum 10% mixing zone (by volume) within No Name Creek and/or the Wanipigow River relative to the Manitoba Water Quality Standards, Objectives and Guidelines Regulation under the Water Protection Act. Elevated levels of ammonia in mine water / polishing pond water occurred in years past possibly in part as a result of the dissolution of mine explosives and blasting agents. Best practices including improved blasting practices and reducing / avoiding ANFO use are now used to help avoid this potential issue.

Air emissions

Klondex would maintain its diesel-powered equipment and mine air heater. As required by the environmental license: distinct plume forming fugitive emissions are not to exceed 5% opacity whilst non-plume forming fugitive emissions are to be not visible. Downwind off Project, point of impingement suspended particle matter ground level concentrations are not to exceed a 24 hour average of 120 µg/m 3 or an annual geometric mean of 70 µg/m 3 .


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T ABLE 20.2
P OTENTIAL S IGNIFICANT E NVIRONMENTAL I MPACTS AND C URRENT S TATUS / M ITIGATIVE
M EASURES
Area Current Status / Mitigative Measures
Cyanide
transportation
and storage

Cyanide transfer, storage and mixing activities would be conducted in conformance with regulatory requirements and Klondex’s procedures and EMS requirements.

Tailings
management

Tailings from the original San Antonio Gold Mine were discharged into Rice Lake from about 1932 to 1968. Tailings produced when the mine was reopened in 1981 to 1983 were placed in a containment constructed over the previously disposed tailings. The TMA is located north north-east of the mine and plant site and includes a tailings pond and a polishing pond. The final treated effluent is pumped and annually released to No Name Creek which flows to the Wanipigow River. The historic tailings that are being re- processed as part of the Project are located in the TMA. The revised Environmental Act License 2628 RRR requires Klondex to engage the services of licensed professional geotechnical engineers for engineering and quality control during dyke construction and submit a construction performance and quality control report to the Director for approval. Klondex’s Environmental Superintendent would monitor dykes and assess conditions / geotechnical monitoring data with input from competent geotechnical engineers.

Waste rock storage

New waste rock is to be stockpiled in the designated “waste rock stockpile area”. Ore is to be stored in the designated “ore rock stockpile area”. The License also requires the company to conduct acid:base accounting testing as indicated above.

Environmental
monitoring

Klondex uses the existing TMA and the water polishing ponds to manage surface water storage / release. An Inco SO2-air process and natural degradation continue to be used for cyanide destruction. TMA water management controls include polishing pond levels, water quality monitoring and a surface water management program. Surface water samples (i.e. mine water samples to be collected from the tailings ponds, polishing pond, treated effluent, downstream receiving water quality sampling stations) are to be sampled at frequencies and for parameters specified in the License while groundwater quality is to be monitored at specified groundwater wells and at additional wells as may be requested by the Director. Treated effluent toxicity testing is also required. Sediment core samples are to be collected at two downstream water quality sampling station locations and analyzed for total metals, total organic carbon, moisture content and pH. Klondex will continue to conduct scheduled downstream water quality sampling, sediment sampling, and environmental effects monitoring. Klondex has undertaken two environmental effects monitoring studies and has scheduled a third.

Solid waste

Solid non-hazardous waste that is not re-used / recycled would be disposed in an off-site licensed solid waste landfill.

Hazardous waste

Hazardous waste would be disposed of in accordance with regulatory requirements.
Klondex is currently working to confirm that there are no electrical transformers that contain PCB in use or stored on the Project and that asbestos had been removed several years ago from all surface buildings with the exception of one secured unused old building.


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T ABLE 20.2
P OTENTIAL S IGNIFICANT E NVIRONMENTAL I MPACTS AND C URRENT S TATUS / M ITIGATIVE
M EASURES
Area Current Status / Mitigative Measures
Terrestrial and
avian wildlife

Klondex is aware of its responsibilities to protect wildlife. It is expected that this would be reflected in the EMS procedures.

Social
consultation

Klondex has as a priority re-initiated community engagement activities with local First Nations, the Town of Bissett, other interested communities and persons, and regulatory authorities.


20.4.5

Community Engagement

As part of 2012 TMA expansion project EAP, the Manitoba Mines Branch requested that First Nations and Aboriginal communities whose traditional activities could be impacted be identified and engaged and that community issues be incorporated into the environmental assessment for the TMA. Winsor (2013) reported on the outcome of that consultation process and reported that:

Most of the concerns from constituents were a result of misinformation.

The Manitoba Mines Branch had determined that there are three Anishinaabe (Ojibwa) First Nations situated within an 80 mile (130 km) radius of the mine: the Hollow Water First Nation, the Little Black River First Nation, and the Sagkeeng First Nation. The Hollow Water First Nation is situated downstream of the confluence of No Name Creek and the Wanipigow River which flows to Lake Winnipeg.

It was recommended that an Environment Act Licence be issued to San Gold in 2013 for the proposed TMA expansion subject to it accommodating community concerns and issues. As such, the draft License included a clause requiring the operator to submit an environmental monitoring report to the Hollow Water First Nation after each effluent discharge campaign summarizing monitoring data and impacts on the receiving waterways.

The Hollow Water Chief and Council encouraged direct negotiations between San Gold and two trappers. San Gold negotiated a confidential compensation settlement with one of the trappers (Trap Line #11) for loss of opportunity to trap in the proposed TMA expansion area, and at the time of reporting was negotiating a settlement with the second trapper (Trap Line #12).

San Gold had met with Hollow Water First Nation residents in June 2012 and discussed the potential impacts of the proposed TMA expansion. San Gold participated in the Hollow Water First Nation’s Traditional Area Advisory Committee (TAAC). The Kookom’s who opposed the TMA expansion did not have official standing in the community. San Gold had attempted to arrange an information meeting with the Little Black River First Nation situated in the O'Hanley and Black Rivers area on the eastern shore of Lake Winnipeg.

Klondex is in the process of re-initiating community engagement activities and aims to maintain contact and communication with local First Nations and Aboriginal communities, and continue to sponsor community events and undertakings and recruit and train local First Nations and Aboriginal workers. The Town of Bissett is also kept informed of environmental matters that could potentially impact residents or community services. Klondex participates in Town of Bissett council meetings and has held community information sessions.

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20.4.6

Mine Closure

Mine closure planning and financial security provisions that apply to advanced exploration and mining projects are described in the Mine Closure Regulation (MR 67/99) under The Mines and Minerals Act (C.C.S.M. c.M162).

Responsibility for the accepted San Gold Corporation Mine Closure Plan (2012) for Mineral Lease ML-63 which includes pledged fixed assets financial security was transferred to Klondex Canada Ltd. on January 13, 2016 by the Mines Branch Director (Manitoba, 2016). The Author reviewed sections of the Mine Closure Plan (2012) and estimated mine reclamation and rehabilitation costs presented in Gibson (2015). The estimated reclamation and rehabilitation costs amounted to $4.4M. There is a possibility that the Mines Branch may require an alternate form of financial security at some point in the future when the closure plan is updated.

As indicated in Section 10 “Expected Site Conditions” of the closure plan, the Project would be rehabilitated to a predevelopment state as a wilderness area with primarily conservation and recreational value. An additional crown pillar assessment would be completed at close-out to assure surface stability. The surface of the tailings in the TMA would be revegetated at closure. Pond water quality would continue to be monitored and excess water would be pumped / released to No Name Creek until the pond water quality is shown to improve to a level whereby a weir system could be used to direct excess run-off to No Name Creek. Environmental monitoring would continue to be conducted through each stage of closure to ensure that the mine remains compliant with environmental and safety requirements.

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21.0

CAPITAL AND OPERATING COSTS

True North has been in operation continuously from 2007 to 2015 by a previous owner and was restarted in mid-2016 by Klondex. The mine operated intermittently for many years before 2007. The forecasted costs presented in this section are based on both actual cost information from the Project and Klondex’s operating experience at their other operating mines.

All currency units are in Canadian dollars unless otherwise noted.

Where historical operating costs have been provided by Klondex, P&E have not audited the financial records or cost details but consider the costs are acceptable for this type of mining operation.

21.1

CAPITAL COSTS

The capital costs summarized for the project represent the future capital expenditures required to be incurred over the remainder of the project life. Previous development costs are considered to be sunk costs and do not directly impact on the future cash flows.

The ongoing capital costs for the life-of-mine are summarized in Table 21.1 and total $32.1 million until 2023.

T ABLE 21.1
S USTAINING C APITAL C OSTS

Description
(000's of dollars)
Q4 - 2016   2017 2018 2019-2023 Total
Ramp Development 2,493 6,798 4,079   13,370
Capital Development 553 3,952 2,253   6,758
Capital Drilling 231 1,649 940   2,820
Mobile Fleet 90 641 365   1,096
Site Infrastructure & Processing Plant 297 2,119 1,208   3,624
Underground Services 53 382 217   652
Tailings Reprocessing 0 511 735 2,500 3,746
           
Total 3,717 16,052 9,797 2,500 32,066

Sustaining capital for the five years following mine closure when historic tailings reprocessing will be continuing on a stand-alone basis will be approximately $400,000 per year. In addition, an allowance for winterization of the processing plant and reopening in the spring has been included at $100,000 per year. These total annual $500,000 costs are included in Table 21.1.

Mine closure & reclamation costs are not included in Table 21.2 and estimated to be $4.4 million commencing in 2019.

21.2

OPERATING COSTS

The Project operating costs estimates are based on both actual costs and cost projections for the future. Since the project is continuing to ramp up to nameplate production rates, historical operating costs may not be truly representative of future costs. Therefore some costs projections have been used to estimate future unit costs assuming that production rates are achieved at design rates.

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The average total operating cost per underground ore ton during the mining years (2016-2018) is approximately $141.52/ton.

Table 21.2 summarizes the total operating cost per Underground Mineral Reserve ton.

T ABLE 21.2
U NDERGROUND O PERATING C OST S UMMARY
Description $/ton
Mining 49.09
Processing 27.77
Indirect Mine 49.04
G&A 15.62
   
Total 141.52

The average total operating cost during underground mining for the historic Tailings Mineral Reserve tonnage is $25.06 per ton reprocessed. G&A costs during this period are $3.15 per ton in addition to the G&A carried by the underground mining operation. Capital costs are included in the capital cost summary (Section 21.1) .

Following the cessation of the mining operation in 2018, the historic tailings reprocessing program will continue for another five years until 2023. Process plant operating costs during this period will be $18.01 per ton and G&A costs will be $6.40 per ton. Sustaining capital costs are included in the capital cost summary (Section 21.1) .

21.3

UNDERGROUND MINING COSTS

Mining operations are performed by Klondex and its contractors. The mine operating cost shown Table 21.3 is a cost per ton processed and includes the cost for all associate waste rock production. The mine operating cost is $49.09 per ton. This cost is broken down into component costs in Table 21.3.

T ABLE 21.3
M INE O PERATING C OST
Description $/ton
U/G Ore Advance 17.92
U/G Long-hole Stoping 28.56
Material Movement 2.61
   
Total 49.09

21.4

PROCESSING COSTS

The processing cost during underground mining at the Project is $27.77 per ton. This is composed of the costs listed in Table 21.4.

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T ABLE 21.4
P ROCESS P LANT O PERATING C OST
Description $/ton
Operation Administration 14.64
Maintenance Admin 7.23
Consumables 3.16
Circuit Maintenance 2.74
   
Total 27.77

In 2019, the underground mining operation will cease, however, the processing plant will continue to treat tailings at a rate of 195,000 tons (177,000 tonnes) per annum, as a seasonal operation from May to October. The total processing cost during this period will be $18.01/ton.

21.5

INDIRECT MINING COSTS

The indirect mining costs at the Project totals $49.04 per ton processed and includes mine maintenance, support services and hoisting, plus engineering, geology, administration and supervision. This total dollar cost is treated as a fixed cost. A breakdown of the indirect mining costs is provided in Table 21.5.

T ABLE 21.5
I NDIRECT U NDERGROUND M INE O PERATING C OST
Description $/ton
Hoisting 4.14
Underground Support Services 4.59
Mobile Maintenance 7.48
Electrical Maintenance 3.79
Mine Admin and Supervision 12.30
Geology 14.35
Engineering/Survey 2.39
   
Total 49.04

21.6

G&A COSTS

The G&A costs (including salaries, labour costs) during the underground mining as a fixed cost. A breakdown of the G&A costs is provided in Table 21.6.

T ABLE 21.6
G&A C OST (D URING UG M INING )
Description $/ton
Site Administration 10.07
IT 0.70
Surface Support Services 2.10
Health and Safety 2.50
Environmental 0.25
   
Total 15.62

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In 2019, the mining operation will cease, however, the processing plant will continue to treat historic tailings at a rate of 195,000 tons (177,000 tonnes) per annum, as a seasonal operation from May to October until 2023. During 2016 to 2018 there will be a G&A cost of $3.15 per ton incurred. During 2019 to 2023 G&A costs will be $6.40 per ton due to the reduced site requirements and the higher processing rate of 1,200 tpd (1,089 tonnes per day).

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22.0

ECONOMIC ANALYSIS

The True North Gold Mine is currently in production and the objective of this Technical Report is to provide a confirmation of the mineral resource and mineral reserve estimate. A mineral reserve can be declared if the project is deemed economic based on projected future cash flows.

Since this Project has been built and the economics are forward looking, the sunk costs to initially develop the project are not included in this economic analysis.

22.1

CASHFLOW MODEL INPUT PARAMETERS

A simplified cash flow model has been developed to assess the economics of the Project as of the effective date of this Technical Report. The basis for the cash flow analysis is listed below.

22.1.1

Production


Underground mine production schedule commencing the fourth quarter of 2016 and continuing through to 2018;
An combined underground mine and tailings Proven and Probable Mineral Reserve of 1.522 million tons (1.381 million tonnes) containing 117,900 ounces of gold at 0.077 opt Au (2.64 g/t Au);
  Included dilution in underground Mineral Reserve of 21%; and
  Gold process recovery 94% for underground ore and 90% for tailings.

22.1.2

Revenue


  A fixed gold price of C$1,500/oz.;

22.1.3

Royalties and Taxes


  The Project pays no royalties; and
  Taxes are included in the operating cash flow analysis.

22.1.4

Interest, Principal, and Other Payments

Financing charges, land lease payments, interest or price escalation considerations have not been included the operating cash flow analysis.

22.2

CAPITAL COSTS


 

No pre-production capital costs or Project acquisition costs have been included;

Sustaining capital costs of $32.1 million over the life of Project have been included. Included is $500,000 per year that has been included for sustaining capital during the tailings reprocessing that will occur after cessation of the underground mining operation in 2018;

Reclamation and closure cost of $4.4 million after mine closure have been included in 2023.


22.3

OTHER PARAMETERS

Discount rates of 0% and 7% are applied to assess the cash flow results.

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22.4

ECONOMIC ANALYSIS RESULTS

The results of the economic analysis indicate a 7% discounted positive NPV of $26.3 million (after-tax) for the Project, as shown in Table 22.1. Since this economic analysis does not include any pre-production costs, the IRR and payback period are not pertinent to this analysis.

T ABLE 22.1
F INANCIAL E VALUATION

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23.0

ADJACENT PROPERTIES

There are a number of mineral exploration properties adjacent to Klondex’s True North (Figure 23.1), but most appear to be inactive.

Gold Pocket Resources Ltd. owns the Bissett Project exploration property south adjacent to True North. Maps on their website show numerous gold mineralized zones, drillhole collar locations, and historic shafts. In 1998, Golden Pocket drilled 131 diamond holes for a total of (68,652 feet) 20,925 metres. The drilling returned high grade gold intersects, particularly from the Nevada Zone. Currently, Golden Pocket has sufficient assessment credits to keep the Bissett Property in good standing.

Bison Gold Exploration Inc. owns the Cryderman Central property about 15 miles (25 km) to the southeast of True North, but adjacent to Klondex owned ground in that area. An NI 43-101 technical report dated November 15, 2013 for the Ogama-Rockland Mine deposit lists Inferred Mineral resources of 1.28 million tons (1.16 million tonnes) grading 0.24 opt Au (8.17 g/t Au). The style of gold mineralization is dominated by gold-bearing quartz-carbonate veins associated with shear zones in granite host rocks.

Figure 23.1     Adjacent Properties to the True North Gold Mine

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24.0

OTHER RELEVANT DATA AND INFORMATION

P&E is not aware of any other relevant data or information as of the effective date of this Technical Report.

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25.0

INTERPRETATIONS AND CONCLUSIONS

This Technical Report and Pre-Feasibility Study confirms the positive economics of continuing operations at True North. On this basis, the Mineral Reserve estimate is confirmed.

The Project hosts a Proven and Probable underground Mineral Reserve of 352,000 tons (319,000 tonnes) at average grades of 0.243 opt (8.33 g/t), at a 0.13 opt (4.46 g/t) Au cut-off grade. In addition, the tailings reprocessing project contains a Mineral Reserve of 1.17 million tons (1.06 million tonnes) at an average grade of 0.028 opt Au (0.96 g/t Au), with a 0.026 opt Au (0.89 g/t Au) for 2016 to 2018 and 0.018 opt Au (0.62 g/t Au) for 2019 to 2023.

P&E is of the opinion that the core, channel chip and tailings sample assay data have been adequately verified for the purposes of a mineral resource estimate. All data included in the resource estimate appear to be of adequate quality.

The operation of the Project appears to be financially sound. Capital expenditures for construction will not be required and the Project components will require only limited rehabilitation and refurbishment. Based on cash flows using estimated costs of production and revenue factors, the Project will generate a pre-tax net cash flow of $48.8 million over the LOM. At a discount rate of 7%, this corresponds to an NPV of $26.3 million (after tax).

P&E also offers the following interpretation and conclusions:

The Project is situated adjacent to a well-established mining community and has an existing infrastructure of underground openings, operating and maintenance equipment and operations personnel that can be used for future operations.

In future operations, Klondex intends to apply technologies or methods that have already been accepted and previously implemented at the Project.

Klondex intends to continue to investigate extensions to the currently defined resource base.

The pre-existing mine closure plan that estimated closure costs at $4.4 million was transferred to Klondex in January 2016 along with an assignment of fixed-assets as financial security. It may be beneficial for Klondex to review the technical basis of the TMA closure approach presented in the 2012 mine closure plan and update the associated closure costs.

Klondex is aware of the importance of an effective community engagement process to the Project. Klondex is currently in the process of re-initiating community engagement activities with local Aboriginal communities, the Town of Bissett, other interested stakeholders, and regulatory authorities, on a priority basis

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26.0

RECOMMENDATIONS

This Technical Report and Pre-Feasibility Study describes a viable mining and processing operation at the True North Gold Mine.

Technically, the Project presents no fatal flaws.

It is recommended that the Project continue with its current production plan with a combination of long-hole mining methods as detailed in Section 16 and the on-site processing of ore. It is also recommended that Klondex continue with its plans to reprocess of the existing tailings on site.

Specifically, it is recommended that Klondex take the following actions to develop and operate the Project:

Geology

  1)

Technical Database: All True North project data collected need to be stored and archived in a permanent and reliably retrieval manner. A full-time database administrator is recommended.

     
  2)

Quality Assurance/Quality Control: Timely follow-up for any and all QA/QC assay deviations and re-assay requests should be performed in a timely manner. The process should be automated when the database is up and running.

     
  3)

Sample Storage and Retrieval: Half-core remaining from sample assays should be retained for reference and check assay purposes. All assay sample rejects and pulps should be stored in a safe, secure and sheltered manner and properly catalogued to ease retrieval.

     
  4)

Project Assay Lab: Standard operating procedures should be updated, particularly in regards to assay data generation, storage and retrieval.

Environmental and Mine Closure

It is recommended that Klondex review the technical basis of the TMA closure approach presented in the 2012 mine closure plan and update the associated closure costs. A provisional amount for a $250k study that would be carried out over four years commencing in 2016 is recommended. This amount has not been included in the cash flow model presented in this Technical Report. This exercise will review and confirm the technical basis of the proposed TMA closure plan and estimated costs and possibly identify opportunities to improve upon the currently proposed approach.

Other

P&E also recommends that other exploration targets in the area continue to be identified and investigated to provide supplemental process plant feed in the future.

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27.0

REFERENCES

Ames, D. E., Franklin, J.M and Froese, E. 1991. Zonation of hydrothermal alteration at the San Antonio Gold Mine, Bissett, Manitoba, Canada. Economic Geology 86, 600-619.

Anderson, S.D. 2008. Geology of the Rice Lake area, Rice Lake greenstone belt, south-eastern Manitoba (Parts of NTS 52L13, 52M4), Manitoba Science, Technology, Energy and Mines, Manitoba Geological Survey, Geoscientific Report GR2008-1, 97p.

Anderson, S.D. 2011. Geology and structure of the Rice Lake Mine trend, Rice; greenstone belt, south-eastern Manitoba (part of NTS 52M4) Manitoba Innovation, Energy and Mines. Preliminary Map PMAP2011-3, 2011.

CMG Airborne 2011. Report on a Helicopter-Borne Magnetic Gradiometer and Radiometric Survey Bissett Mine; Project 2011-004; for San Gold Corporation; Dec. 21, 2011.

Ginn, D. and Michaud, M. 2013. Technical Report on the Rice Lake Mining complex, Bissett, Manitoba.

Gibson, 2015. Exhibit “J” referred to in an affidavit of Greg Gibson dated January 16, 2015. Available under San Gold Corporation at the MNP Ltd. website – www.mnpdebt.ca. January 16, 2015.

Groves, D.I., Goldfarb, R.J., Gebre-Mariam, M., Hagemann, S.G. and Robert, F. 1998. Orogenic gold deposits: a proposed classification in the context of their crustal distribution and relationship to other gold deposit types. Ore Geology Reviews 13, p. 7–27.

Manitoba Mines Branch, 2016. Consent to Closure Plan, Mineral Lease ML-63. January 13, 2016.

Manitoba Sustainable Development, 2016. Revised Environment Act Licence No. 2628 RRR, revised September 16, 2016. Issued to Klondex Canada Ltd. Available at www. gov.mb.ca. September 16, 2016.

Poulsen, K.H., Robert, F. and Dube, B. 2000. Geological classification of Canadian gold deposits. Geological Survey of Canada Bulletin 540. 106p.

Ravenelle, J.-F. and Fonseca, A. 2013. Structural controls on gold mineralization at the and surrounding area. Unpublished report for San Gold Corporation by SRK Consulting (Canada) Inc., 77p.

Ross, K. and Rhys, D. 2010. Petrographic and SEM study of vein samples from the and Hinge Zone, Bissett, Manitoba. Unpublished report for San Gold Corporation by Panterra Geoservices Inc., 50p.

San Gold Corporation 2015. DRAFT – Rice Lake Mining complex – Summary of Mineral Resource Estimation. April 2015.

Winsor, Jennifer, 2013. Summary of Comments/Recommendations for the San Gold Tailings Management Area Expansion. File No. 2435.40. Available at www.gov.mb.ca. July 9, 2013.

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28.0

CERTIFICATES

CERTIFICATE OF QUALIFIED PERSON

EUGENE J. PURITCH, P. ENG.

I, Eugene J. Puritch, P. Eng., residing at 44 Turtlecreek Blvd., Brampton, Ontario, L6W 3X7, do hereby certify that:

1.

I am an independent mining consultant and President of P&E Mining Consultants Inc.

   
2.

This certificate applies to the technical report titled “Amended and Restated Technical Report and Pre- Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada” (the “Technical Report”), with an effective date of June 30, 2016.

   
3.

I am a graduate of The Haileybury School of Mines, with a Technologist Diploma in Mining, as well as obtaining an additional year of undergraduate education in Mine Engineering at Queen’s University. In addition I have also met the Professional Engineers of Ontario Academic Requirement Committee’s Examination requirement for Bachelor’s Degree in Engineering Equivalency. I am a mining consultant currently licensed by Association of Professional Engineers and Geoscientists New Brunswick (License No. 4778), Association of Professional Engineers and Geoscientists Newfoundland & Labrador (License No. 5998), Association of Professional Engineers and Geoscientists Saskatchewan (License No. 16216) the Professional Engineers of Ontario (License No. 100014010) and Association of Professional Engineers and Geoscientists British Columbia (Licence No. 192893). I am also a member of the National and Toronto Canadian Institute of Mining and Metallurgy.

   
4.

I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that, by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

I have practiced my profession continuously since 1978. My summarized career experience is as follows:

  Mining Technologist - H.B.M.& S. and Inco Ltd., 1978-1980
  Open Pit Mine Engineer – Cassiar Asbestos/Brinco Ltd., 1981-1983
  Pit Engineer/Drill & Blast Supervisor – Detour Lake Mine, 1984-1986
  Self-Employed Mining Consultant – Timmins Area, 1987-1988
  Mine Designer/Resource Estimator – Dynatec/CMD/Bharti, 1989-1995
  Self-Employed Mining Consultant/Resource-Reserve Estimator, 1995-2004
  President – P&E Mining Consultants Inc, 2004-Present

5.

I visited the Property that is the subject of this report on June 23 and July 18, 2016.

   
6.

I am responsible for co-authoring Section 15, 16, 18, 21 and 22 of the Technical Report along with those parts of the Executive Summary, and Sections 25 and 26 pertaining thereto.

   
7.

I am independent of Klondex Mines Ltd. applying the test in Section 1.5 of NI 43-101.

   
8.

I have had no prior involvement with the project that is the subject of this Technical Report.

   
9.

I have read NI 43-101 and Form 43-101F1. This Technical Report has been prepared in compliance therewith.

   
10.

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Effective Date: June 30, 2016
Signed Date: November 22, 2016

{SIGNED AND SEALED}
[Eugene J. Puritch]
 
 
Eugene J. Puritch, P.Eng.

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CERTIFICATE OF QUALIFIED PERSON

ALEXANDRU VERESEZAN, P. ENG.

I, Alexandru Veresezan of 25 Stookes Crescent, Richmond Hill, Ontario, L4E 0J4, and Senior Associate Mining Engineering with P&E Mining Consultants Inc. of Brampton, Ontario., do hereby certify that:

1.

This certificate applies to the technical report titled “Amended and Restated Technical Report and Pre- Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada” (the “Technical Report”), with an effective date of June 30, 2016.

   
2.

I am a graduate of Mining Engineering with a Master of Engineering, Honors Underground Mining degree from the University of Petrosani in 1993. I have practiced my profession as a Professional Engineer since graduation. I am a Registered Professional Engineer in good standing with the Professional Engineers Ontario (License No. 100078587).

   
3.

I have read the definition of “qualified person” set out in NI 43-101 and certify that, by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purpose of NI 43- 101.

   

My summarized career experience is as follows:


  P&E Mining Consultants Inc.: (Sr. Associate Mining Engineer) 2016-Present
  Barrick Gold Corp, Copper Division: (Mine Manager/ Alternate GM) 2012-2015
  Barrick Gold Corp. (Manager, Underground Mining, Corporate Office) 2008-2012
  Wardrop Engineering Inc.: (Sr. Mining Engineer) 2006-2008
  Cementation SKANSKA Canada Inc.: (Mining Eng/Estimator/ Pro Cost Control) 2002-2006
  Dynatec Corp: (Estimator / EIT) 2001-2002
  S.C. Grandemar S.A.: (Open Pit Manager) 1999-2000
  Cluj, Romania Various: (Junior-Senior Project Engineer) 1993-1999

4.

I am responsible for co-authoring Sections 15, 16 and 18 of the Technical Report along with those parts of the Executive Summary, and Sections 25 and 26 pertaining thereto.

   
5.

I am not aware of any material fact or material change with respect to the subject matter of this technical report which is not reflected in the technical report.

   
6.

I am independent of Klondex Mines Ltd. applying the test in Section 1.5 of NI 43-101.

   
7.

I visited the Property that is the subject of this report from July 18 to 21, 2016.

   
8.

I have had no prior involvement with the project that is the subject of this Technical Report.

   
9.

I have read National Instrument 43-101 and the Technical Report has been prepared in compliance with National Instrument 43-101 and Form 43- 101F1.

   
10.

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Effective Date: June 30, 2016
Signed Date: November 22, 2016

{SIGNED AND SEALED}
[Alexandru Veresezan]
 
Alexandru Veresezan, P.Eng.

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CERTIFICATE OF QUALIFIED PERSON

FRED H. BROWN, P.GEO.

I, Fred H. Brown, residing at Suite B-10, 1610 Grover St., Lynden WA, 98264 USA, do hereby certify that:

1.

I am an independent geological consultant and have worked as a geologist continuously since my graduation from university in 1987.

   
2.

This certificate applies to the technical report titled “Amended and Restated Technical Report and Pre- Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada” (the “Technical Report”), with an effective date of June 30, 2016.

   
3.

I graduated with a Bachelor of Science degree in Geology from New Mexico State University in 1987. I obtained a Graduate Diploma in Engineering (Mining) in 1997 from the University of the Witwatersrand and a Master of Science in Engineering (Civil) from the University of the Witwatersrand in 2005. I am registered with the South African Council for Natural Scientific Professions as a Professional Geological Scientist (registration number 400008/04), the American Institute of Professional Geologists as a Certified Professional Geologist (certificate number 11015) and the Society for Mining, Metallurgy and Exploration as a Registered Member (#4152172).

   
4.

I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101

   

This report is based on my personal review of information provided by Klondex Canada Ltd. and on discussions with its representatives. My relevant experience for the purpose of the Technical Report is:


  Underground Mine Geologist, Freegold Mine, AAC 1987-1995
  Mineral Resource Manager, Vaal Reefs Mine, Anglogold 1995-1997
  Resident Geologist, Venetia Mine, De Beers 1997-2000
  Chief Geologist, De Beers Consolidated Mines 2000-2004
  Consulting Geologist 2004-Present

5.

I have not visited the Property that is the subject of this Technical Report.

   
6.

I am responsible for authoring Section 14 of this Technical Report along with those parts of the Executive Summary, and Sections 25 and 26 pertaining thereto.

   
7.

I am independent of Klondex Mines Ltd. applying the test in Section 1.5 of NI 43-101.

   
8.

I have had no prior involvement with the project that is the subject of this Technical Report.

   
9.

I have read NI 43-101 and Form 43-101F1 and the Technical Report has been prepared in compliance therewith.

   
10.

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Effective Date: June 30, 2016
Signed Date: November 22, 2016

{SIGNED AND SEALED}
[Fred H. Brown]
 
Fred H. Brown, P.Geo

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CERTIFICATE OF QUALIFIED PERSON

WILLIAM STONE, Ph.D., P.Geo.

I, William Stone, Ph.D., P.Geo, residing at 4361 Latimer Crescent, Burlington, Ontario, do hereby certify that:

1.

I am an independent geological consultant

   
2.

This certificate applies to the technical report titled “Amended and Restated Technical Report and Pre- Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada” (the “Technical Report”), with an effective date of June 30, 2016.

   
3.

I am a graduate of Dalhousie University with a Bachelor of Science (Honours) degree in Geology (1983). In addition, I have a Master of Science in Geology (1985) and a Ph.D. in Geology (1988) from the University of Western Ontario. I have worked as a geologist for a total of 31 years since obtaining my M.Sc. degree. I am a geological consultant currently licensed by the Association of professional Geoscientists of Ontario (License No 1569).

   
4.

I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify, by reason of my education, affiliation with a professional organization (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101. My relevant experience for the purpose of the Technical Report is:


  Contract Senior Geologist, LAC Minerals Exploration Ltd 1985-1988
  •  Post-Doctoral Fellow, McMaster University 1988-1992
  •  Contract Senior Geologist, Outokumpu Mines and Metals Ltd 1993-1996
  •  Senior Research Geologist, WMC Resources Ltd 1996-2001
  •  Senior Lecturer, University of Western Australia 2001-2003
  •  Principal Geologist, Geoinformatics Exploration Ltd 2003-2004
  •  Vice President Exploration, Nevada Star Resources Inc 2005-2006
  •  Vice President Exploration, Goldbrook Ventures Inc 2006-2008
  •  Vice President Exploration, North American Palladium Ltd 2008-2009
  •  Vice President Exploration, Magma Metals Ltd. 2010-2011
  •  President & COO, Pacific North West Capital Corp 2011-2014
  •  Consulting Geologist 2013-Present •

5.

I visited the Property that is the subject of this report from May 21-25, June 20-23 and September 20-22, 2016.

   
6.

I am responsible for authoring Sections 4-12 and 23 of this Technical Report along with those parts of the Executive Summary, and Sections 25 and 26 pertaining thereto.

   
7.

I am independent of Klondex Mines Ltd. applying the test in Section 1.5 of NI 43-101.

   
8.

I have had no prior involvement with the project that is the subject of this Technical Report.

   
9.

I have read NI 43-101 and Form 43-101F1 and this Technical Report has been prepared in compliance therewith

   
10.

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Effective Date: June 30, 2016
Signed Date: November 22, 2016

(SIGNED AND SEALED)
[William Stone]
 
Dr. William E. Stone, P.Geo.

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CERTIFICATE OF QUALIFIED PERSON

ALFRED S. HAYDEN, P. ENG

I, Alfred S. Hayden, P. Eng., residing at 284 Rushbrook Drive, Ontario, L3X 2C9, do hereby certify that:

1.  

I am currently President of:
EHA Engineering Ltd.,
Consulting Metallurgical Engineers
Box 2711, Postal Stn. B.
Richmond Hill, Ontario, L4E 1A7


2.

This certificate applies to the technical report titled “Amended and Restated Technical Report and Pre- Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada” (the “Technical Report”), with an effective date of June 30, 2016.

   
3.

I graduated from the University of British Columbia, Vancouver, B.C. in 1967 with a Bachelor of Applied Science in Metallurgical Engineering. I am a member of the Canadian Institute of Mining, Metallurgy and Petroleum and a Professional Engineer and Designated Consulting Engineer registered with Professional Engineers Ontario. I have worked as a metallurgical engineer for over 40 years since my graduation from university.

   
4.

I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

   

My summarized career experience is as follows:


  EHA Engineering Ltd: ( President ) 1990-Present
  EH Associates: ( Partner ) 1985-1990
  A.H. Ross & Associates Ltd. ( Senior Associate ) 1976-1985
  Eldorado Nuclear Limited ( Chief Metallurgist/Mill Engineer ) 1966-1976

5.

I visited the Property that is the subject of this report on September 20 and 21, 2016.

   
6.

I am responsible for authoring Sections 13 and 17 of this Technical Report along with those parts of the Executive Summary, and Sections 25 and 26 pertaining thereto.

   
7.

I am independent of Klondex Mines Ltd. applying the test in Section 1.5 of NI 43-101.

   
8.

I have had no prior involvement with the Property that is the subject of this Technical Report.

   
9.

I have read NI 43-101 and Form 43-101F1 and the Technical Report has been prepared in compliance therewith.

   
10.

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Effective Date: June 30, 2016
Signed Date: November 22, 2016

{SIGNED AND SEALED}
[Alfred Hayden]
 
Alfred S. Hayden, P.Eng.

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CERTIFICATE OF QUALIFIED PERSON

DAVID A. ORAVA, P. ENG.

I, David A. Orava, M. Eng., P. Eng., residing at 19 Boulding Drive, Aurora, Ontario, L4G 2V9, do hereby certify that:

1.

I am an Associate Mining Engineer at P&E Mining Consultants Inc. and President of Orava Mine Projects Ltd.

   
2.

This certificate applies to the technical report titled “Amended and Restated Technical Report and Pre- Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada” (the “Technical Report”), with an effective date of June 30, 2016.

   
3.

I am a graduate of McGill University located in Montreal, Quebec, Canada at which I earned my Bachelor Degree in Mining Engineering (B.Eng. 1979) and Masters in Engineering (Mining - Mineral Economics Option B) in 1981. I have practiced my profession continuously since graduation. I am licensed by the Professional Engineers of Ontario (License No. 34834119).

   
4.

I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

   

My summarized career experience is as follows:


  Mining Engineer – Iron Ore Company of Canada 1979-1980
  Mining Engineer – J.S Redpath Limited / J.S. Redpath Engineering 1981-1986
  Mining Engineer & Manager Contract Development – Dynatec Mining Ltd. 1986-1990
  Vice President – Eagle Mine Contractors 1990
  Senior Mining Engineer – UMA Engineering Ltd. 1991
  General Manager - Dennis Netherton Engineering 1992-1993
  Senior Mining Engineer – SENES Consultants Ltd 1993-2003
  President – Orava Mine Projects Ltd. 2003 to present
  Associate Mining Engineer – P&E Mining Consultants Inc. 2006 to present

5.

I have not visited the Property that is the subject of this report.

   
6.

I am responsible for authoring Section 20 of the Technical Report along with those parts of the Executive Summary, and Sections 25 and 26 pertaining thereto.

   
7.

I am independent of Klondex Mines Ltd. applying all of the tests in Section 1.5 of NI 43-101.

   
8.

I have had no prior involvement with the project that is the subject of this Technical Report.

   
9.

I have read NI 43-101 and Form 43-101F1 and the Technical Report has been prepared in compliance therewith.

   
10.

As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Effective Date: June 30, 2016
Signed Date: November 22, 2016

{SIGNED AND SEALED}
[David Orava]
 
David Orava, M. Eng., P. Eng.

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KIRK RODGERS, P.ENG.

CERTIFICATE OF AUTHOR

I, Kirk H. Rodgers, P. Eng., residing at 146 Royal Beech Drive, Wasaga Beach, Ontario, do hereby certify that:

1.

I am an independent mining consultant, contracted as Vice President, Engineering by P&E Mining Consultants Inc.

   
2.

This certificate applies to the Technical Report titled “Amended and Restated Technical Report and Pre- Feasibility Study on the True North Gold Mine, Bissett, Manitoba, Canada” (the “Technical Report”), with an effective date of June 30, 2016.

   
3.

I am a graduate of The Haileybury School of Mines, with a Technologist Diploma in Mining. I subsequently attended the mining engineering programs at Laurentian University and Queen’s University for a total of two years. I have met the Professional Engineers of Ontario Academic Requirement Committee’s Examination requirement for Bachelor’s Degree in Engineering Equivalency. I have been licensed by the Professional Engineers of Ontario (License No. 39427505), from 1986 to the present. I am also a member of the National and Toronto Canadian Institute of Mining and Metallurgy.

   
4.

I have read the definition of “Qualified Person” set out in National Instrument 43-101 (“NI 43-101”) and certify that, by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “Qualified Person” for the purposes of NI 43-101.

   

My relevant experience for the purpose of the Technical Report is:


  Underground Hard Rock Miner, Denison Mines, Elliot Lake Ontario 1977-1979
  Mine Planner, Cost Estimator, J.S Redpath Ltd., North Bay Ontario 1981-1987
  Chief Engineer, Placer Dome Dona Lake Mine, Pickle Lake Ontario 1987-1988
  Project Coordinator, Mine Captain, Falconbridge Kidd Creek Mine, Timmins, Ontario 1988-1990
  Manager of Contract Development, Dynatec Mining, Richmond Hill, Ontario 1990-1992
  General Manager, Moran Mining and Tunnelling, Sudbury, Ontario 1992-1993
  Independent Mining Engineer 1993
  Project Manager - Mining, Micon International, Toronto, Ontario 1994 - 2004
  Principal, Senior Consultant, Golder Associates, Toronto, Ontario 2004 – 2010
  Independent Consultant, VP Engineering to P&E Mining Consultants Inc, Brampton ON 2011 – present

5.

I am responsible for authoring Sections 1, 2, 3, 19 and co-authoring sections 21 and 22 of the Technical Report along with those parts of the Executive Summary, and Sections 25 and 26 pertaining thereto.

   
6.

I have not visited the Property that is the subject of this report.

   
7.

I am independent of Klondex Mines Ltd. applying the test in Section 1.5 of NI 43-101.

   
8.

I have had no prior involvement with the Property that is the subject of this Technical Report.

   
9.

I have read NI 43-101 and Form 43-101F1 and this Technical Report has been prepared in compliance therewith.

   
10.

As As at the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

Effective Date: June 30, 2016
Signed Date: November 22, 2016

{SIGNED AND SEALED}
{Kirk Rodgers}
 
 
Kirk Rodgers, P.Eng

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APPENDIX I.      TRUE NORTH CLAIMS INFORMATION


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APPENDIX II.     RESOURCE WIREFRAMES FOR V91, V710 AND V711 VEINS


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APPENDIX III.      CLASSIFICATION 3D MODELS AND CROSS SECTIONS FOR V91, V710 AND V711 VEINS


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APPENDIX IV.       AU GRADE MODELS AND CROSS SECTIONS FOR V91, V710 AND V711 VEINS


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APPENDIX V.      TAILINGS DRILL PLAN, CLASSIFICATION AND AU BLOCKS


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