Precious Metals

On Monday, Argonaut Gold released the results of a preliminary economic assessment for its San Agustin project in Mexico. The report suggests an after-tax NPV of $70.2 million and an internal rate of return of 22 percent for investors.

On Monday, Argonaut Gold (TSX:AR) released the results of a preliminary economic assessment (PEA) for its San Agustin project in Mexico. The news comes less than a week after Argonaut announced record production at its operating mines in the country.

The San Agustin PEA contemplates a 10.5-year mine life with average yearly production of 50,400 gold equivalent ounces. Based on base-case prices for gold and silver of $1,200 and $17 per ounce, respectively, the project’s after-tax NPV sits at $70.2 million and its after-tax internal rate of return is 22 percent.

Contributing to low development costs for the mine is a low strip ratio of 0.4:1 for mineralized material to waste. Initial capital expenditures are anticipated to come in at $67 million, and the operation is expected to have a cash cost of $670 per gold equivalent ounce.

Notably, no inferred resources were included in the mine’s plan of development, which contemplates total production of 488,000 ounces of gold and 3.8 million ounces of silver from the indicated resource at the project. That means that there’s still potential to expand the resource at San Agustin.

“The continuity of the deposit speaks to the quality of the project as nearly 90% of the mineralization identified was included in the proposed mine plan,” said Argonaut Gold CEO Peter Dougherty in a statement Monday. “Furthermore, we have drilled over 30,000 metres and have only included roughly 22,000 of those metres in this PEA. We continue to test the extent of the deposit and have identified significant expansion potential for nearly 1.5 kilometres to the northwest of the currently recognized resource.”

As mentioned, the PEA was released just a few days after Argonaut reported record quarterly gold production from its El Castillo and La Colorada mines, also located in Mexico. The mines produced 44,312 gold equivalent ounces in the fourth quarter of 2014 and 136,706 ounces for the year, and Argonaut is expecting to produce 135,00 to 145,000 gold equivalent ounces in 2015. San Agustin is in close proximity to El Castillo, and the company hopes that sharing existing infrastructure and personnel will help to reduce operating costs.

“The low proposed strip ratio of the project should allow us to balance fleet requirements and maximize use of existing equipment,” said Dougherty.

Monday’s release also includes an update on activities at Argonaut’s Magino project in Ontario. Results of metallurgical test work at that project indicate a decrease in cyanide consumption by nearly a third, suggesting that plant operating costs could be reduced relative to the prefeasibility study released for the project in June 2014.

In addition to the Magino and San Agustin properties and its operating mines, Argonaut also holds the advanced exploration-stage San Antonio project in Mexico.

At close of day on Monday, shares of Argonaut Gold were up 2.9 percent, trading at $2.84.


Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 


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