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Press release from Business Wire

Klondex Mines Provides Exploration and Development Update On its Fire Creek Nevada Gold Project

Wednesday, January 16, 2013

Klondex Mines Provides Exploration and Development Update On its Fire Creek Nevada Gold Project08:41 EST Wednesday, January 16, 2013 ELKO, Nev. & VANCOUVER, British Columbia (Business Wire) -- Klondex Mines Ltd. (“Klondex” or the “Company”) (TSX: KDX or OTCQX: KLNDF), a Northern Nevada gold exploration and development company, is pleased to provide an update on progress at its flagship Fire Creek underground gold project in Lander County. Klondex began an underground decline in April 2011 to facilitate exploration and development at Fire Creek. The Company expects to begin bulk sampling in the second half 2013, based on the timely achievement of the milestones discussed below. Paul Huet, CEO of Klondex, commented, “Over the past few months we have addressed key issues required to take Klondex and Fire Creek closer to gold production via bulk sampling. We strengthened the balance sheet, solidified the Nevada team with outstanding new hires, and developed a plan and budget to achieve our objectives, the key components of which are outlined below.” Exploration and Development Milestones:Exploration Activity – American Drilling Company has been contracted to resume underground in-fill drilling of the Main Zone on 23-meter (75 foot) centers. Drilling began in a muck bay between the 5370-ACC and 5400-ACC crosscuts, and will test both A and B veins. In-fill drilling should provide additional data to better define the extent and continuity of veins within the Main Zone. Klondex also continues to sample veins and alteration zones in the underground workings. Data from this effort will guide the planned resource update, as well as development plans for bulk sampling. Core Logging and Resource Update – Klondex's geology team has begun examining, photographing and re-logging approximately 73,000 meters (240,000 feet) of historical drill core. It expects to take 5 months to complete this program, which will provide an enhanced understanding of the Fire Creek deposit, including geology, alteration, structure, gold distribution, metallurgy, waste rock characterization, and rock mechanics. Once this program is complete, Klondex will develop an enhanced resource model. An updated resource estimate in accordance with National Instrument 43-101, prepared by Micon International, is expected during the second half of 2013. The resource update will incorporate data from underground sampling and drilling since the last technical report and resource estimate in May 2011, including 63 surface drill holes totaling 23,704 meters (77,770 feet), and 12,103 meters (39,709 feet) of underground drilling. Klondex plans to complete an additional 3,658 meters (12,000 feet) of underground in-fill drilling during Q1 2013. Milling Agreement – Under the leadership of GM Mike Doolin, Klondex is in advanced discussions on a toll-milling agreement to process its bulk sample. Initial metallurgical work is in progress to assess the compatibility of the mill with Fire Creek mineralization and to ensure that acceptable gold recovery rates are achievable. Klondex expects a final milling agreement as early as Q1 2013. The Company has selected a trucking company to transport the bulk sample to the mill. Vent Raise/Secondary Egress – To meet MSHA safety standards for possible production, Klondex must excavate a vent (or escape) raise to connect the underground workings with the surface. The Company has developed a new plan that substantially reduces total vent raise construction costs by relocating the raise to the west, thereby shortening its vertical length by nearly 200 feet. The raise contractor has been selected, and a final agreement has been signed. Construction of the vent raise is targeted to begin in January 2013 with completion expected by the end of June 2013. Power Line – To date, Fire Creek operated with diesel generator power. Klondex has made substantial progress on the permits and infrastructure needed to bring grid power directly to the project. All the required equipment has been purchased and is on site, and U.S. Bureau of Land Management (BLM) approval was received allowing NV Energy to tie into the offsite substation in December 2012, Permit #N-56088. Work is underway to secure easements required to bring power to the site. Klondex currently expects the power line to be completed and functioning by mid-May 2013. Grid power should reduce costs by as much as 50% per kilowatt-hour, greatly benefiting the potential project economics, and facilitating power distribution and operating flexibility compared with the limitations of diesel electric power. Water Management – As previously reported,Klondex has secured key Federal and State permits required to pursue its bulk-sampling program. In order to manage the volume of underground water at the Fire Creek project, Klondex has proposed to install a rapid infiltration basin (RIB) system. The Company is preparing the permit application documents associated with the design and operation of the RIB. Klondex has begun geotechnical work necessary to complete the final RIB design. Funding in Place - Over the past two months Klondex has raised a total of $C30 million in equity and debt financing, which includes a January 4th placement of C$7 million in 2-year, 9% Senior Unsecured Notes. The proceeds enabled Klondex to retire its former debt with Waterton Global Value, L.P. for a total of US$10.9 million and thus reduced its cash burn from debt service by over US$760,000 per month for the next 14 months. The refinancing also reduced investment risk by eliminating the security lien and other covenants on Fire Creek. The technical information in this news release has been reviewed and approved by Steve McMillin, Chief Geologist of Klondex, a qualified person within the meaning of National Instrument 43-101. About Klondex Mines Ltd. (www.klondexmines.com) Klondex Mines is focused on the exploration and development of its Fire Creek gold deposit in North Central Nevada. Fire Creek is a compelling gold mining prospect located in a region of prolific gold production that is near power, transportation, mining infrastructure and several milling facilities. As of January 15, 2013 Klondex had 64.4 million shares issued and outstanding, and 86.7 million shares on a fully diluted basis. This news release contains forward-looking statements, including about current expectations on the timing of project development and related permitting. These forward-looking statements entail various risks and uncertainties, are based on current expectations, are subject to a number of uncertainties and risks, and actual results may differ materially from those contained in such statements. These uncertainties and risks include, but are not limited to, the strength of the global economy; the price of gold; operational, funding and liquidity risks; the degree to which mineral resource estimates are reflective of actual mineral resources; the degree to which factors which would make a mineral deposit commercially viable are present; the risks and hazards associated with underground operations. Risks and uncertainties about the Company's business are more fully discussed in the Company's disclosure materials filed with the securities regulatory authorities in Canada and available at www.sedar.com. Readers are urged to read these materials. Klondex assumes no obligation to update any forward-looking statement or to update the reasons why actual results could differ from such statements unless required by law. Company:Klondex Mines Ltd.Paul Huet, 807-939-2841President & CEOphuet@klondexmines.comorInvestors & Media:Catalyst Global LLCDavid Collins, Toni Trigiani212-924-9800KDX@catalyst-ir.com