Argonaut exceeds expectations

Shares of Argonaut Gold (AR-T) jumped nearly 5% to $10.09 after the company reported production results for the fourth quarter and for all of 2012.

Last year the company produced 108,081 oz. gold in Mexico, a year-on-year increase of 50%. Of those ounces, 87,712 came from its El Castillo mine in Durango, and 20,360 from La Colorada in Sonora.

“The team’s operational track record has been excellent in 2012, highlighted by production results that beat the high end of revised guidance (even after raising guidance twice last year),” Canaccord Genuity mining analyst Rahul Paul writes in a research note. (Argonaut Gold had forecast total gold production of 103,000 oz. gold.)

“Production beat expectations at both El Castillo (better than expected grades and implied recoveries) and at La Colorada (mostly higher recoveries, but also higher grades due to positive grade reconciliation),” Paul elaborates. The analyst holds a “buy” rating on the stock with a 12-month target price of $14.00 per share.

For 2013, Argonaut forecasts lower grades offset by higher volumes at El Castillo for an estimated 5-10% increase over 2012 production, or between 90,000 oz. gold and 95,000 oz. gold. The company did not provide guidance for La Colorada, where the removal of overburden continues in preparation for full-scale mining.

In addition to El Castillo and La Colorada, Argonaut owns the advanced exploration stage San Antonio project in Mexico. The company also recently acquired the Magino project in Ontario.

The company ended 2012 with a cash balance of US$191 million.

Paul notes that Argonaut has an “attractive valuation in the context of one of the best, fully funded growth profiles in the sector” and has a proven management team.

Andrew Kaip of BMO Capital Markets has an outperform rating on the stock and a target price of $13.00 per share.
At presstime Argonaut Gold was trading at $9.91 per share within a 52-week range of $6.44-$11.08. The company has 125 million shares outstanding.