Land deal with Richmont brings Argonaut drill success

About 2 km away from where Richmont Mines (TSX: RIC; NYSE-MKT: RIC) is producing gold from its Island gold mine, and exploring for more at its Island gold deep development project, Argonaut Gold (TSX: AR; US-OTC: ARNGF) is advancing its open-pit Magino gold project.

The two properties, 40 km northeast of the town of Wawa, Ont., are so close together that the companies struck a mutually beneficial deal.

Under an agreement from October 2013, Argonaut extended its Magino land holdings by 250 metres east of its property boundary with Richmont, and secure rights to surface mineable mineralization down to  400 metres deep.

In exchange, Richmont was given the right to extend the boundary of its Island gold underground mining project, 585 metres west of its property boundary. This gives Richmont the right to mine any economic mineralization below 400 metres.

The agreement was called a “win-win,” as Argonaut mines the open-pit Magino part of the mineral system and Richmont follows any extension of their vein system under Argonaut’s ground.

“There are two geologic environments occurring along the same district-level mineral trend,” Argonaut’s vice-president of exploration Thomas Burkhart says. “Magino mineralization is hosted in a granodiorite stock, and much more disseminated, while Richmont’s high-grade ore is vein-hosted and mainly contained within meta-volcanic rocks.”

The benefits of the agreement are trickling in with the June 17 release of the first batch of drill results on Richmont ground. The 12-hole program confirmed that Magino mineralization extends 250 metres east, and is open to the east of Argonaut’s drilling.

“Prior to this, the extension of the Magino mineralization was a good geologic possibility, but was never confirmed,” Burkhart says in a telephone interview from Reno, Nev. “Our drill program did intercept as good or better gold mineralization as we had been expecting, and confirmed the mineral system remains strong and continues east.”

Drilling highlights include intercepts of 45 metres grading 1 gram gold per tonne, including 10 metres of 3.39 grams gold; 100 metres averaging 0.93 gram gold; 98.8 metres of 1.69 grams gold; 67 metres of 1.56 grams gold; and 42 metres of 0.99 gram gold.

The drill results, along with 38 infill drill holes Argonaut finished around the historic Magino underground mine workings that have yet to be released, will be incorporated into an updated resource and preliminary economic assessment later this year.    

The multi-million ounce Magino deposit already has an indicated resource of 127.7 million tonnes grading 1.01 grams gold for 4.16 million contained oz. gold, and another 30.1 million tonnes grading 1.08 grams gold for 1.04 million contained oz. gold in the inferred category. The resource was calculated at a cut-off grade of 0.35 gram gold per tonne.

“We had enough to go forward with the Magino project already,” Burkhart says. “But adding the Richmont ground clearly expands the potential of the project. We look forward to incorporating these new drill results into an updated resource, and expect to finish more drilling on the Richmont ground as we go forward.”

According to a now outdated prefeasibility study from December 2013, the Magino open-pit operation will post an after-tax net present value (NPV) of US$199 million and an 18% after-tax internal rate of return (IRR), based on a 5% discount rate and a US$1,250 per oz. gold price.

Curtis Turner, Argonaut’s corporate development officer, tells The Northern Miner that the company plans to update the prefeasibility study mid-year using current market prices for cyanide, fuel and exchange rates, and “expects the NPV and IRR to improve significantly.”

The prefeasibility study envisioned a conventional open-pit mine and gold-leaching processing circuit, with a 13.2-year mine life and a 2.6-to-1 strip ratio. Preproduction capital costs were pegged at US$356 million, with sustaining and closure costs adding US$58 million, bringing total capex to an estimated US$414 million.

The company hasn’t decided whether it will do more drilling this year on the Richmont ground, Burkhart says, but notes that it’s a good time to drill. He says Argonaut spent just $1 million on its 50-hole drill program.

“Drill costs have come down from just a few years ago, and one of the drilling companies that we used was drilling next door for Richmont, so there were cost reductions based on them already being in the area,” he explains.

Burkhart acknowledges, however, that the 12 drill holes were spaced 50 metres apart, and he prefers to drill at 25-metre spacing, as this generally “gets us into an indicated resource category.”

In addition to its advanced-stage Magino project, Argonaut has two producing mines in Mexico — El Castillo in Durango and La Colorada in Sonora. It is also advancing its San Antonio project in Baja California Sur, and its San Agustin project in Durango, Mexico.

As of March 31 — the company’s latest public filing — Argonaut had US$64 million in cash and equivalents on its balance sheet, and no debt.

At press time Argonaut traded at $1.73 per share, within a 52-week range of $1.24 to $5.28.