Argonaut Gold wraps up Magino study

Argonaut Gold (TSX: AR; US-OTC: ARNGF) has completed a prefeasibility study (PFS) based on 40% of a 2013 resource estimate for its Magino property, 40 km northeast of Wawa, Ont. The PFS excludes underground and surface drilling data prior to 1997, which was included in a previous resource estimate.  

The study outlines strong economics, the company’s president and CEO, Peter Dougherty says, with total after-tax cash flow of US$350 million, an after-tax net present value of US$199 million and an after-tax internal rate of return of 18%, based on a 5% discount rate and a US$1,250 per oz. gold price.

The Magino mine property is a past-producing underground mine, 14 km southeast of the town of Dubreuilville, with a deposit that holds broad zones of disseminated mineralization and pockets of higher-grade material.

The prefeasibility results includes a 4.2-year after-tax payback period and US$693 per oz. in cash costs, including leasing costs.

Pre-production capital costs are estimated at US$356 million, with sustaining and closure costs adding another US$58 million, bringing total capex to US$414 million.

The study envisions a conventional open-pit mine and gold-leaching processing circuit, with 13.2-year mine life and a 2.6-to-1 strip ratio.

The study did not consider the potential land expansion and mineral-rights acquisition that is pending from Richmont Mines (TSX: RIC; NYSE-MKT: RIC). In October, Argonaut signed an agreement with Richmont in which it received exploration and mining rights from surface to a maximum depth of 400 metres on Richmont claims that border the Magino project.

The design pit upon which the prefeasibility was based represents 40% of a larger, defined resource of 127.7 million tonnes grading 1.01 grams gold per tonne for 4.16 million contained oz. gold in the indicated category, and 30.1 million tonnes grading 1.08 grams gold per tonne for 1.04 million contained oz. gold in the inferred category.

The resource estimate was based on a cut-off grade of 0.35 gram gold per tonne.

The economics of the project are strongest during the first seven years of mine life because Argonaut plans to process the higher-grade material first and stockpile the lower-grade material for later processing. The mined and stockpiled lower-grade ore will be processed after the open pit is exhausted in year eight.

Probable reserves stand at 60.2 million tonnes grading 0.90 gram gold for 1.75 million oz. gold, but exclude any drilling within the adjacent Richmont lands or resources below Webb Lake, which lies along strike on the southern side of the pit. As a result, Argonaut believes a larger pit could enhance the economics of the project, if land ownership and lake constraints are dealt with.

Processing will involve primary crushing, a grinding circuit, gravity-recovery unit, leach circuit, carbon-in-pulp circuit, electro-winning and smelting to produce gold doré. The flow sheet includes cyanide destruction and a conventional wet-tailings pond. The processing facility has been designed for a daily 12,500-tonne feed, and gold recoveries could reach 95%, based on metallurgical test work.

At press time, Argonaut was trading at $5.47 per share within a 52-week range of $5.03 to $10.21. The company has 149 million shares outstanding.

Rahul Paul and Gabriel Gonzalez of Canaccord Genuity have a “hold” rating on the stock and a $6.75-per-share price target.

“Management continues to evaluate opportunities to improve project economics, including reserve expansion potential from a larger pit and incremental reserve tonnage from recently acquired land,” the analysts wrote in a Dec. 18 research note following the results of the prefeasibility study on Dec. 17. “However, we expect that commencement of construction could be a few years away, as a result of which the project remains vulnerable to inflationary pressures, which in our opinion could impact economics [unless the gold price moves meaningfully higher].”