Feds approve Argonaut’s environmental assessment for Magino

Canada’s federal government has approved the environmental assessment of Argonaut Gold ’s (TSX: AR) Magino project in Ontario.

The open-pit project must still receive provincial government approval for the EA and other key authorizations including a construction permit and mine closure plan.

A December 2017 feasibility study estimated the open-pit project would produce about 116,000 ounces of gold over a 17-year mine life at cash costs of US$669 per oz. and all-in sustaining costs of US$711 per oz. Initial capex, including contingency, was pegged at US$321 million.

Argonaut Gold acquired 100% of Magino, about 40 km northeast of Wawa, in 2012.

In addition to Magino, Argonaut Gold owns the El Castillo and San Agustin mines, part of the El Castillo complex in Durango, Mexico, and the La Colorada mine in Sonora, Mexico.

Last year the company met its production guidance, churning out 165,111 gold-equivalent ounces. It forecasts production this year will reach 200,000 to 219,000 gold-equivalent ounces at cash costs of US$775-875 per GEO and AISCs of US$875-975.

The company plans to invest US$50 million to US$60 million this year on capital expenditures, including about US$15 million for the expansion of the crushing and leaching facilities at the San Agustin mine to increase capacity from 20,000 tonnes per day to 30,000 tonnes per day. The crusher expansion is expected to be finished in the third quarter of this year.

Argonaut Gold also anticipates completing a prefeasibility study on Cerro del Gallo, an advanced project in Guanajuato, Mexico, in the second half of 2019.

At presstime in Toronto Argonaut was trading at $1.68 per share within a 52-week range of $1.18 and $2.66. The company has 178 million common shares outstanding for a market cap of around $299 million.

Ryan Hanley of Laurentian Bank Securities has a buy rating on the stock with a target price of $2.75 per share.

He estimates that Argonaut will spend about $10 million on Magino this year, and expects the company “will look to JV, spin-out, or even outright sell the project given its ~$321 million initial capex requirement (including contingency).”

The analyst suspects Argonaut “will also look to conduct further optimization work in order to potentially improve the project’s current after-tax IRR of 20% (based on a US$1,250 per oz. gold price and $0.78 exchange rate).”