Argonaut Gold advancing multiple Mexican projects

Vancouver – Less than two years after going public, Argonaut Gold (AR-T) has established itself as a competent gold producer in Mexico with a pipeline of prospective gold projects.

Along the way, the company has largely bucked the rollercoaster trend of the markets, climbing relatively steadily from around $3.50 a year ago to today’s price of about $6.30.  

President and CEO Peter Dougherty attributes the rise to setting reasonable expectations and executing on them.

“We’re ‘show me’ kind of people,” said Dougherty during a recent meeting with The Miner, emphasizing the need to deliver on promises.

For Argonaut, that has meant achieving a steady ramp-up of production at its El Castillo gold mine, the diversification and addition of assets through the merger with Pediment Gold earlier this year, and continuing with exploration and development work to eventually deliver on its goal of being a multi-hundred-ounce gold producer.

Dougherty, along with chairman Brian Kennedy and COO Edgar Smith, got Argonaut moving in 2009 after taking a careful look around for projects with the right potential. The three had just been freed of a two-year non-competition clause after Yamana Gold (YRI-T, AUY-N) bought out Meridian Gold for $3.7 billion, where all three had been in management positions.

Privately-held Argonaut then burst onto the public trading scene in late 2009 after taking over Castle Gold and its producing assets for about $112 million, paid for through a $150-million private equity raise. Argonaut got full-control of the producing El Castillo mine in Mexico and a 50% interest in a Guatamalan gold mine it later sold for $1.3 million. The company then went on to significantly increase its Mexican property portfolio earlier this year by acquiring Pediment in an all-share deal worth about $137 million.

Much of Argonaut’s work since going public has gone to significantly improving production at El Castillo. The company expects to produce 70-75,000 oz. gold this year from the open-pit, heap leach operation, compared with 25,000 oz. in 2009. Production increases have come a new fleet of contractor trucks, a new processing plant, added crushing and leaching capacity, and a new mindset at the mine, says Dougherty.

Along with improving production, the company increased the mine life by adding about 1.1 million oz. gold to the existing resource. Castillo now has reserves of 105.5 million proven and probable tonnes grading 0.36 gram gold per tonne for 1.2 million tonnes. Including reserves, measured and indicated resources stand at 165.7 million tonnes grading 0.32 gram gold for 1.7 million oz. of what Dougherty refers to as “whisper gold”. The company also added 161.8 million measured and indicated tonnes of sulphide material for a further 1.5 million oz. gold. Work is ongoing to evaluate development possibilities for the sulphides, with results expected later this year.

Meanwhile, with the addition of the advanced stage San Antonio project through the Pediment merger, Argonaut is working to become a multi-mine company. Located on the southern end of Mexico’s Baja peninsula, San Antonio has already been the subject of a preliminary assessment, which outlined an 82,500-oz.-per-year mine with an internal rate of return of 33% and a pre-tax net present value of US$79 million using an 8% discount rate.

Since the study was completed in August 2010, Argonaut has increased the resource by roughly 35% thanks to a 36,000-metre drill program last year. The project is now estimated to contain 51.2 million indicated tonnes grading 0.98 gram gold for 1.6 million oz., plus 2.8 million inferred tonnes grading 0.62 gram gold for a further 55,000 oz. gold. The company also recently completed a 10,000-metre drill program further exploring the project.

The company is now working through various baseline studies and permitting to get the project up and running. Dougherty did not want to make firm assurances about the permitting process, though he also said he never does. There is more room for doubt at San Antonio though, as it was threatened by proposed environmental legislation last year. The merger with Pediment was delayed as Argonaut looking into the matter, though it concluded there was broad opposition to the legislation and support for the mine, and obviously went through with the merger.

Elsewhere in Mexico, the company is working through an extensive drill program on the past-producing La Colorada project, with well over 30,000-metres of a 52,000-metre program completed. Argonaut is looking to upgrade the 20.1 million inferred tonnes grading 0.9 gram gold for 582,000 oz. at Colorado, while measured and indicated resources stand at 19 million tonnes grading 0.98 gram gold for 605,000 oz. gold.  The company expects an updated resource later this year.

Overall, Argonaut is spending roughly $27 million in 2011, including $17 million on capital expenditures such as adding to the east side processing facility at El Castillo, and continuing to advance studies and permitting at San Antonio, while $10 million is going to exploration programs.

Argonaut had $32-million on hand at the end of June, and saw net income of US$5.2 million in the quarter. The company has about 89 million shares out, plus roughly 25.6 million warrants in the money, worth a total of $122 million. The company plans to pay for San Antonio’s US$71-million in capital costs internally.