Argonaut Gold (TSX: AR; US-OTC: ARNGF) has doubled the oxide resource at its San Agustin gold–silver project, which could become the junior producer’s third heap-leach mine in Mexico.
The new indicated resource — which is pit-constrained and includes only oxide and transitional material — totals 845,000 oz. gold and 28.3 million oz. silver (or 1.3 million equivalent oz. gold) in 82.2 million tonnes grading 0.32 gram gold per tonne and 10.7 grams silver.
The estimate uses a gold-equivalent cut-off grade of 0.18 gram per tonne, metal prices of US$1,300 per oz. gold and US$20 per oz. silver, and assumes recoveries of 68% for gold and 21% for silver.
Inferred resources add 65,000 oz. gold and 2.5 million oz. silver in 7 million tonnes at 0.29 gram gold and 11 grams silver.
Argonaut acquired the project, which is 10 km away from its El Castillo mine in Durango state, late last year from Silver Standard Resources (TSX: SSO; NASDAQ: SSRI).
At the time of the purchase, the oxide cap on the deposit was estimated to hold 400,000 oz. gold and 16 million oz. silver.
Overall indicated resources, including oxides and sulphides, were pegged at 1.6 million oz. gold and 48 million oz. silver in 121 million tonnes grading 0.41 gram gold per tonne and 12.3 gram silver. Inferred resources added another 91.2 million tonnes at slightly lower grades.
With mineralization open in all directions, Argonaut set to work with a 22,000-metre drill program, resulting in the updated oxide resource.
In a release, president and CEO Peter Dougherty said he is pleased with the company’s progress at San Agustin, which could be developed using shared infrastructure and personnel with its nearby El Castillo mine.
“The new San Agustin resource represents an increase of more than 200% in indicated contained gold ounces in the oxides compared to the historic understanding of the property,” he said.
“The near-surface mineralization and continuity of material in the resource suggest a low strip ratio and the potential for robust economics for the project.”
Dougherty noted that preliminary metallurgical work at San Agustin suggests recoveries similar to those at El Castillo. Tests have shown overall gold recoveries of 65–70%, and silver recoveries of 16–24%, depending on crush size.
Argonaut is awaiting permits to start a second-phase, 16,000-metre drill program that will test a large area to the north and west of the current resource. A preliminary economic assessment for San Augustin should be complete before year-end.
San Agustin is an intrusive gold–silver–lead–zinc deposit characterized by stockwork-hosted and disseminated mineralization.
Rahul Paul, a mining analyst at Canaccord Genuity, sees further upside to the resource with the next phase of drilling. Paul rates Argonaut as a “buy” with a price target of $5.50.
In its second quarter, Argonaut reported earnings of $2 million, or 1¢ per share, on revenues of $40.1 million. Compared to the comparable quarter of 2013, revenues were down 9% and earnings down 69% on a lower gold price and an increase in operating costs.
The company expects a stronger performance in the second half of the year, with operational improvements made in the first half kicking in.
For 2014, Argonaut expects to meet the lower end of its production guidance of 135,000 to 150,000 equivalent oz. gold at cash costs of US$740 to US$750 per oz., net of silver credits. The company has two producing heap-leap mines in Mexico: El Castillo (90,000 to 100,000 oz. gold equivalent this year) and the La Colorada gold–silver mine (45,000 to 50,000 oz.) in Sonora state.
Argonaut also owns the San Antonio gold project in Baja Sur, Calif., and the Magino gold project in Ontario.
San Antonio has been in permitting limbo since 2012, after an environmental-impact assessment, or MIA, was rejected due to zoning issues. Mexico’s federal court denied Argonaut’s appeal of the decision in April this year, but the company plans to file another appeal.
Argonaut shares climbed as much as 18¢, or 4.6%, on its updated resource to $4.06. The stock has traded in a 52-week window of $3.42 to $8.25. The company has 154.1 million shares outstanding.
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