When Peter Dougherty and his team were putting together Argonaut Gold (TSX: AR; US-OTC: ARNGF) in 2009, the San Agustin gold property — near Argonaut’s flagship El Castillo gold mine in Mexico’s Durango state — was one of the assets that management had its eye on.
The Argonaut team visited San Agustin at the time and has followed it closely ever since, as it put El Castillo into production.
In early November Argonaut entered into an agreement with Silver Standard Resources (TSX: SSO; NASDAQ: SSRI) to acquire San Agustin for $75 million in cash (in staggered payments), and $30 million in Argonaut shares.
It’s all part of a corporate strategy to acquire assets “within arm’s-length” of its operations, where it can leverage infrastructure, knowledge and talent, and capitalize on other synergies that can help lower development costs.
“We are a logical developer of this project because as the crow flies, it’s only 10 km away from El Castillo, and all the infrastructure and equipment to develop this property,” Dougherty told analysts and investors on a Nov. 5 conference call.
El Castillo is one of Argonaut’s two operating mines in Mexico. The other is the La Colorada gold-silver mine in Sonora. Argonaut is also developing the advanced exploration San Antonio gold exploration project in the Mexican state of Baja California Sur, and Magino, an advanced gold exploration gold project in Ontario.
Dougherty said on the conference call that advancing San Agustin would “dovetail nicely” with Argonaut’s production schedule outlined for San Antonio, which it expects will enter production by late 2014, or early 2015. After San Antonio moves into production, he says, the company’s operating crew within Mexico will be freed up to take on another project, like San Agustin.
Dougherty and Argonaut’s vice-president of exploration, Tom Burkhart, noted that El Castillo and San Agustin are similar in a number of respects. Both are intrusive-related deposits where gold and silver mineralization are associated with fractures, breccias, stockwork and disseminated material.
At San Agustin, they added, the mineralization appears continuous and there is an overlying gold mineralization zone that comes to surface and lends itself well to a low strip ratio. San Agustin has a thin but significant gold-oxide cap that according to previous test work will leach quite well, Dougherty said. He estimates that the gold-oxide cap contains 400,000 oz. gold, and another 16 million oz. silver.
San Agustin has an indicated resource of 121 million tonnes grading 0.41 gram gold per tonne and 12.3 grams silver per tonne for 1.6 million contained oz. gold and 48 million contained oz. silver. Inferred resources bring 91.2 million tonnes at 0.36 gram gold and 12.6 grams silver for 1.1 million oz. gold and 37 million oz. silver.
“This property hosts great potential and upside, and it doesn’t mean that it will generate the same returns we’ve seen at El Castillo, but we’re excited about what we see . . . and the significant upside within it,” Dougherty says, adding that he envisions a construction time frame for San Agustin of 2015–2016.
“As a geologist this is one of the better projects I’ve had the pleasure to work on, and we’re excited about working on it,” Burkhart added.
On June 30 Argonaut held cash and equivalents of $140 million.
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