What happened

Shares of Klondex Mines Ltd. (NYSEMKT:KLDX) sold off on Wednesday and were down 11% at 10:45 a.m. EST after it announced an immediate workforce reduction at its True North mine in Manitoba, Canada.

So what

Klondex Mines announced that it would reduce operations and the workforce at its True North mine following an extensive review. Going forward, the company will limit underground mining activity to areas already developed until it depletes those resources. Once that happens, it will suspend operations at the mine and put it on a care and maintenance plan until metal prices are much higher.

Bars of gold next to a price chart.

Image source: Getty Images.

Driving the decision is the mine's underperformance last year after it failed to achieve the company's targets for cash flow. That's because production only came in at around 24,000 to 27,000 ounces of gold last year, which was well below its guidance range of 35,000 to 45,000 ounces.

Klondex initially bought the mine, known then as Rice Lake, in early 2016, paying $32 million to "acquire a production-ready gold asset in a top ranking mining jurisdiction in Canada." However, while it thought that the mine would help it become a next-level mining company, it hasn't quite lived up to that potential.

Now what

By winding down operations at True North in Canada, Klondex will lose not only a cash flow stream but some of its diversification. That's because just its three U.S. mines will remain. That makes an already risky miner even riskier, which is why investors should steer clear of this mining stock since there are better options out there for those seeking exposure to gold.

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.