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Argonaut Gold Announces Pre-Feasibility Study Results for the Magino Project With After-Tax IRR of 18% and Total Cash Flow of US$350 Million
TORONTO, ONTARIO--(Marketwired - Dec. 17, 2013) - Argonaut Gold Inc. (AR.TO) (the "Company", "Argonaut Gold" or "Argonaut") is pleased to announce the results of a prefeasibility study ("PFS") for the Magino property, located 40 kilometers ("km") northeast of Wawa, Ontario. The study was completed by JDS Energy & Mining Inc., Vancouver, Canada and is based on a December 2013 mineral resource estimate. The Magino mine PFS study takes into consideration the PFS design pit, representing 40% of a larger defined resource. It does not include any potential expansion from the land or mineral rights acquisition pending from neighboring landowner Richmont Mines Inc. All amounts are indicated in US dollars.
ECONOMIC HIGHLIGHTS OF PRE-FEASIBILITY STUDY ($1250 per ounce gold price) | |||||
Net Present Value ("NPV" After-Tax at a 5% discount rate) | $199 million | ||||
Cash Flow (Undiscounted, After-Tax) | $350 million | ||||
Internal Rate of Return (After-Tax "IRR") | 18% | ||||
Payback (After-Tax, Years of production) | 4.2 years | ||||
Capital Cost (pre-production) | $356 million | ||||
Sustaining and Closure | $58 million | ||||
Cash Cost (including leasing costs of $78 million) | $693 per ounce Au | ||||
CEO Commentary
Pete Dougherty, President and CEO of Argonaut Gold, stated "Magino is a high quality property that we are very pleased to have in our portfolio. Economics for the project are strong, and are particularly robust during the first seven years, when the Company will be processing higher grade material and stockpiling lower grade material for processing later in the mine life. Potential upside value exists as the study only takes 40% of the current mineral resource estimate into consideration and excludes pre-1997 underground and surface drilling data, included in a previous resource estimate."
Prefeasibility summary
The PFS summarizes financial projections and operational plans for the Magino property, as a conventional open pit mine and gold leaching processing circuit. The following tables summarize the results.
PROJECT LOM PRODUCTION HIGHLIGHTS ($1,250 Gold Price) | |
Mine Life (years) | 13.2 |
Life of Mine Strip Ratio (waste:ore) | 2.6:1 |
Gold Grade (average in g/t) | 0.90 |
Gold Recovery (average) | 95% |
Gold Payable | 99% |
M&I Gold Ounces Recovered (000's) | 1,661 |
Annual Production (average ounces) | 127,000 |
Capital Costs "CAPEX" (millions): | $414 |
Operating Cost/Ore Tonne (average) | $18.94 |
Cash Cost (including leasing costs of $78 million) | $693 per ounce |
PROJECT HIGHLIGHTS (FIRST 7 YEARS) | |
Cash Flow (Undiscounted, After-Tax) | $268 million |
Gold Grade (Average Grams per Tonne "g/t") | 1.33 |
Cash Cost (Including Leasing Costs of $78 million) | $650 per ounce |
Annual Ounces of Production (Average) | 185,000 |
Mineral Resource Estimate
The mineral resource estimate used in the PFS was completed in December 2013 by Garth Kirkham, P.Geo., an independent Qualified Person ("QP") and is summarized below (inclusive of mineral reserves).
Deposit | Resource | Tonnes | Cut-off | Gold | Contained Gold |
Webb Lake | Indicated | 127.7 | 0.35 | 1.01 | 4,161 |
Webb Lake | Inferred | 30.1 | 0.35 | 1.08 | 1,044 |
Mineral resources that are not mineral reserves do not have demonstrated economic viability. Mineral resource estimates do not account for mineability, selectivity, mining loss and dilution. These mineral resource estimates include inferred mineral resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is also no certainty that these inferred mineral resources will be converted to measured and indicated categories through further drilling, or into mineral reserves, once economic considerations are applied.
Mineral Reserve Estimate
The PFS mineral reserve estimate is summarized in the following table.
Deposit | Reserve | Diluted | Cut-off | Gold | Contained Gold |
Webb Lake | Probable | 60.2 | 0.31 | 0.90 | 1,746 |
Total | 60.2 | 0.31 | 0.90 | 1,746 |
The reserve estimate does not include any resources within the adjacent Richmont land even though Argonaut signed a land acquisition agreement with Richmont. The mineral reserves also do not include resources below Webb Lake which lies along strike on the southern side of the PFS pit. The potential for a larger pit exists, which may enhance the overall projects economics, if the land ownership and lake constraints are removed.
2013 JDS pit compared to 2012 Tetra Tech Historical Resource
The 2013 JDS mineral resource estimate and the 2012 Tetra Tech historic mineral resource estimate are contained within the same geologic host environment. The two resources differ, in part, because the JDS resource did not incorporate pre-1997 underground and surface drill holes that were used in the historical 2012 Tetra Tech mineral resource estimate. JDS concluded that this earlier drilling, consisting of approximately 750 holes and totaling nearly 95,000 meters, could not be used for their 2013 mineral resource estimate as it is non-compliant with today's quality assurance and quality control ("QA/QC") requirements. The absence of the underground data reduced the grades and contained gold ounces of the 2013 mineral resource estimate when compared to the historical Tetra Tech estimate.
This can be observed on the attached sections where the limits of the JDS restricted pit are noted. A comparative review of the block models demonstrates a loss of grade when the underground drilling was removed. The Magino deposit is characterized by broad zones of disseminated mineralization hosting pockets of higher grade material. These possible occurrences of the higher grade gold zones reported by the underground drilling were not incorporated in the JDS mineral resource estimate.
The drilling information used in the 2013 JDS and historical 2012 TetraTech mineral resource estimations are shown below:
Mineral Resource Estimate | Cutoff | Contained Au Ounces | No. of Drill Holes Used | Drilled Meters Used |
JDS - Dec., 2013 | 0.35 g/t Au | 4.1 | 652 | 180,000 |
Historic Tetra Tech - Oct., 2012 | 0.35g/t Au | 5.8 | 1,402 | 275,000 |
Tom Burkhart, Vice-President of Exploration, said "Going forward additional drilling could potentially expand the known resource base. Furthermore, a more expanded mining operation is anticipated beyond the current restricted PFS pit that will address the much larger resource potential of the property."
The Company cautions that the October, 2012, Tetra Tech report provides historic information only and does not constitute current mineral resources or current mineral reserves. A qualified person has not done sufficient work to classify the historic estimate as current mineral resources or reserves.The Company believes this information continues to be reliable and is relevant as a basis for a better understanding of the Magino deposit and resources.
To view '2013 JDS Magino Long Section, Block Model', please visit the following link: http://media3.marketwire.com/docs/argofig11217.pdf
To view '2012 Tetratech Magino Long Section, Block Model', please visit the following link: http://media3.marketwire.com/docs/argofig21217.pdf
Metallurgy and Mineral Processing
Based on metallurgical test work results, a flow sheet for the processing facility was developed which includes primary crushing, followed by a grinding circuit, gravity recovery circuit, leach circuit, carbon in pulp circuit, electro-winning and smelting to produce gold doré. The flow sheet also includes cyanide destruction and a conventional wet tailings pond.
The process facility was designed for an average feed of 12,500 tonnes per day ("tpd"). A gold recovery of 95% was estimated based on metallurgical testwork.
Mine Plan and Production Schedule
The Magino deposit is conducive to open pit mining and was planned in the PFS to utilize conventional mining equipment including 240-tonne haul trucks (ramping up to 11 over the mine life), three corresponding shovels and front end loaders and a fleet of standard support equipment such as drills, dozers, graders, water truck, etc.
The production schedule was developed to supply 12,500 tpd of ore to the mill. An important element of the production schedule is the accelerated mining rate in Years 1 to 7 to access the highest grade ore possible to feed the mill early in the project life. Low grade ore mined and stockpiled in the early years is planned to be processed later in the project life after the open pit is exhausted in year 8. The annual production schedule for the project is shown in the following table.
Year | Tonnes Ore | Tonnes Waste | Tonnes Processed | Gold Grade Processed (g/t) | Gold Recovered (000's oz) | |
1 | 2.0 | 10 | 4.6 | 1.13 | 157.1 | |
2 | 6.3 | 14 | 4.6 | 1.43 | 199.7 | |
3 | 10.4 | 27 | 4.6 | 0.95 | 132.9 | |
4 | 4.2 | 33 | 4.6 | 1.40 | 195.0 | |
5 | 9.8 | 27 | 4.6 | 1.46 | 203.5 | |
6 | 10.6 | 26 | 4.6 | 1.76 | 244.7 | |
7 | 13.2 | 17 | 4.6 | 1.16 | 161.9 | |
8 | 3.6 | 4 | 4.6 | 0.51 | 70.8 | |
9 | 4.6 | 0.41 | 56.9 | |||
10 | 4.6 | 0.41 | 56.9 | |||
11 | 4.6 | 0.41 | 56.9 | |||
12 | 4.6 | 0.41 | 56.9 | |||
13 | 4.6 | 0.41 | 56.9 | |||
14 | 0.9 | 0.41 | 10.9 | |||
Total | 60.2 | 157.3 | 60.2 | 0.90 | 1,661.6 |
"M" means millions
Capital Cost Estimate
The capital cost estimate of US$414 million for the project includes all activities from permitting and development through closure. Costs for the project include; capitalized pre-stripping, access road improvements, upgrades to the local power source, sourcing of water for processing, infrastructure for camp facilities, administrative offices, maintenance shops, warehouses, assay laboratories, on site electrical distribution and miscellaneous fire, safety and environmental infrastructure as shown in the following table.
CAPITAL COST DESCRIPTION | ESTIMATE (US$M) |
Site Development | 8 |
Pre-Production Mining Costs and Capitalized leasing | 45 |
Primary Crushing & Stockpile | 12 |
Processing | 105 |
Tailings Management Facility | 14 |
Infrastructure (on and off site) | 52 |
Project Indirects | 35 |
EPCM | 35 |
Owner's Cost | 9 |
Contingency | 41 |
Total Initial Capital | 356 |
Sustaining Capital | 34 |
Closure Cost | 17 |
Contingency | 7 |
Total Capital | 414 |
Capital cost contingency was estimated by area and averaged 13%.
Operating Cost Estimate
Operating costs were estimated using first principles as per the following summary:
UNIT OPERATING COST DESCRIPTION | UNIT | ESTIMATE |
LOM Mining | US$/tonne mined | 1.86 |
US$/tonne milled | 6.35 | |
LOM Processing | US$/tonne milled | 9.55 |
LOM General and Administration | US$/tonne milled | 1.57 |
LOM Re-handle (stockpile to mill) | US$/tonne milled | 0.22 |
LOM Leasing | US$/tonne milled | 1.24 |
Total LOM Unit Operating Cost | US$/tonne milled | 18.94 |
Total LOM Unit Operating Cost | US$/payable Au oz | 693 |
Economic Results
In addition to the production plan, capital cost and operating cost estimates discussed previously, the following assumptions were used in the PFS economic model.
Description | Unit | Value |
ASSUMPTIONS/INPUTS | ||
Au Price | US$/oz | 1,250.00 |
PRODUCTION | ||
Total LOM Ore | M tonnes | 60.2 |
Total LOM Waste | M tonnes | 157.3 |
LOM Strip Ratio | w:o | 2.6 |
LOM Au Head Grade | g/t | 0.90 |
Au Recovery | % | 95% |
Au Payable | % | 99% |
Au Refining Charge | C$/pay oz | 5.00 |
Discount Rate | % | 5% |
F/X Rate | C$:US$ | 0.95 |
Working Capital | No. of months | 1.5 |
Magino Sensitivity Study
Au Price US$/oz Sensitivity | After-Tax NPV5% (US$M) | After-Tax IRR |
$1,620 | $479 | 33.5% |
$1,490 | $381 | 28.2% |
$1,400 | $313 | 24.3% |
$1,300 | $237 | 19.9% |
$1,000 | -$5.3 | 4.6% |
Contribution and Work
The pre-feasibility study was prepared through the collaboration of three consulting firms as shown below.
Responsibility Area | Contributor |
Geology, Resource Estimate, Mine Planning, Infrastructure, Power Supply, Execution Plan, Process flow sheet and Plant Design Financial Modeling | JDS Energy & Mining Inc. |
Geotechnical, Tailings, Hydrogeology, Tailings Management Facility | SLR Consulting |
Metallurgical Test work | LJB Consulting |
Ongoing Development
The Company is working with the community and First Nations groups surrounding the project and will continue to maintain an open dialogue as the project advances. As part of the process of making application for approval of the project, the Magino project description was submitted during mid-year 2013. Argonaut continues to work through the provincial and federal permitting agencies to advance the project. The Company aims to build the asset from internally generated cash flow in an effort to maintain responsible, measured growth and avoid encumbering the asset.
Technical Information and Mineral Properties Reports
For further information on Argonaut Gold's Magino project please see the report as listed below on Argonaut Gold's website or on www.sedar.com:
Magino Gold Project | NI 43-101 Technical Report and Mineral Resource Estimate on the Magino Gold Project, Ontario, Toronto, Canada dated October 4, 2012 |
An updated technical report will be filed within 45 days of the date of this press release.
Historical tetra Tech Resource table below is solely for reference.
Resource | Domain | Tonnes (t) | Au g/t | Au (oz) |
Indicated | Webb Lake Stock | 207,268,820 | 0.87 | 5,797,550 |
Lovell Lake Stock | 1,880,830 | 0.80 | 48,380 | |
South Metavolcanics | 12,514,080 | 0.85 | 341,990 | |
North Metavolcanics | 1,816,060 | 0.92 | 53,720 | |
Total | 223,479,790 | 0.87 | 6,250,990 | |
Inferred | Webb Lake Stock | 7,803,620 | 0.77 | 193,190 |
Lovell Lake Stock | 123,370 | 0.52 | 2,060 | |
South Metavolcanics | 5,757,820 | 0.85 | 157,350 | |
North Metavolcanics | 124,600 | 0.56 | 2,240 | |
Total | 13,809,410 | 0.80 | 355,190 |
Note: In the above mineral resource table there may be inconsistencies due to rounding. Estimates are rounded since the figures are not precise calculations.
About Argonaut Gold
Argonaut Gold is a Canadian gold company engaged in exploration, mine development and production activities. Its primary assets are the production stage El Castillo Mine in Durango, Mexico and the La Colorada Mine in Sonora, Mexico, the advanced exploration stage San Antonio project in Baja California Sur, Mexico, the advanced exploration stage Magino project in Ontario, Canada and several exploration stage projects, all of which are located in North America.
Qualified Persons
The Magino Pre-feasibility Study results were reviewed by JDS under the supervision of Gordon Doerksen, P.Eng., an Independent Qualified Person. The scientific and technical information in this release has been reviewed and approved by Mr. Garth Kirkham, P.Geo., Mr. Dino Pilotto, P.Eng., both of whom are Independent Qualified Persons within the meaning of NI 43-101.
Mr. Thomas Burkhart, Argonaut's Vice President of Exploration is the Company's Qualified Person responsible for the contents of this press release and has reviewed the information in the release and confirmed that it is consistent with that provided by the independent Qualified Person responsible for the Study.
Cautionary Note Regarding Forward-looking Statements
This press release contains certain "forward-looking statements" and "forward-looking information" under applicable Canadian securities laws concerning the proposed transaction and the business, operations and financial performance and condition of Argonaut Gold Inc. ("Argonaut"). Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to estimated production and mine life of the various mineral projects of Argonaut; synergies and financial impact of completed acquisitions; the benefits of the development potential of the properties of Argonaut; the future price of gold, copper, and silver; the estimation of mineral reserves and resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; success of exploration activities; and currency exchange rate fluctuations. Except for statements of historical fact relating to Argonaut, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as "plan," "expect," "project," "intend," "believe," "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Many of these assumptions are based on factors and events that are not within the control of Argonaut and there is no assurance they will prove to be correct.
Factors that could cause actual results to vary materially from results anticipated by such forward-looking statements include changes in market conditions, variations in ore grade or recovery rates, risks relating to international operations, fluctuating metal prices and currency exchange rates, changes in project parameters, the possibility of project cost overruns or unanticipated costs and expenses, labour disputes and other risks of the mining industry, failure of plant, equipment or processes to operate as anticipated. Although Argonaut has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Argonaut undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements. Statements concerning mineral reserve and resource estimates may also be deemed to constitute forward-looking statements to the extent they involve estimates of the mineralization that will be encountered if the property is developed. Comparative market information is as of a date prior to the date of this document.
