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Why Klondex Mines Ltd Stock Is Soaring Today

Matthew DiLallo, The Motley Fool

What happened

Shares of Klondex Mines Ltd (NYSEMKT: KLDX) skyrocketed on Monday, up nearly 58% as of 10:45 a.m. EDT. Driving the surge was the announcement of a transaction with fellow gold miner Hecla Mining (NYSE: HL), whose stock tumbled more than 10% on the news.

So what

Klondex Mines announced that it has agreed to be acquired by Hecla Mining for $462 million in cash and shares, representing a 59% premium to its trading price over the past 30 days. Under the terms of the deal, Klondex investors may elect to receive either $2.47 per share in cash or 0.6272 of a share of Hecla, subject to proration. In addition to that, Klondex investors will also receive shares of a newly formed company, Klondex Canada, which will hold the company's Canadian assets, including the True North and Bison Gold Resources properties.

A big gold nugget sitting on top of hundred-dollar bills.

Image source: Getty Images.

In essence, Hecla Mining is acquiring Klondex for its three U.S. gold mines, which currently supply the bulk of the company's production and cash flow. That's due in part to the fact that True North has underperformed to such an extent that Klondex announced an immediate workforce reduction at the mine earlier this year to limit its activities as a result of higher costs. That mine, however, will become one of the foundational assets of Klondex Canada, which is a new company formed by certain members of Klondex's board and management team to create additional value out of the Canadian assets.

Now what

Klondex investors now have two options in front of them. They can elect to sell now and cash in on the merger announcement, though they'd likely leave some money on the table given that shares currently trade at around $2.25 apiece after today's pop. Or they could consider holding, likely receiving a combination of cash and stock in both Hecla and Klondex Canada when the deal closes, which the companies anticipate will happen in the second quarter of this year. While holding on could net more upside in the long term, both Hecla and the new Klondex Canada are higher-risk gold stocks, which might not be the best to own for the long haul.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.