When considering a company’s fundamentals, management is always a key factor. At Argonaut Gold Inc. fundamentals, management is always a key factor. At Argonaut Gold Inc. (TSX: AR & AR.WT) -- www.argonautgoldinc.com, the company’s leaders are first and foremost business people who are tightly focused on creating sustainable revenues and maximizing return on investment.
Argonaut management’s first key decision was to pick the world’s premier investment market for the resource sector – the Toronto Stock Exchange. That move was ratified last spring and again in September, when Standard & Poor’s Index Operations added Argonaut Gold it to S&P/TSX SmallCap index. Last March, the company was added to both the S&P/TSX Global Gold Index and the Global Mining Index. The latter two indices are the leading benchmarks of the global gold and mining industry sectors.
The next key factor is a company’s product – Argonaut’s acquisition of the El Castillo Mine in Durango, Mexico in 2009 enabled the company to immediately jump into the ranks of gold producers and subsequently generate the significant revenues needed for reinvestment and growth. Since 2009, Argonaut improved production output at El Castillo and built a solid financial position. In January, Argonaut added a long list of future exploration and development-stage projects to its portfolio with its acquisition of Pediment Gold Corp.
Today, Argonaut has more than $35 million in cash in the bank, a producing gold mine that added revenues of $22.7 million in the second quarter, and a growing measured and indicated resource asset base that today has reached 6.2 million ounces of gold.
Producing El Castillo Gold Mine
Yielding Record Amounts of Gold
Argonaut Gold’s flagship, 100%-owned El Castillo Mine is an open pit, heap leach operation that is currently producing gold at a record annual rate of 70,000-75,000 ounces of gold at a production cost of between $575 and $600 per ounce.
Argonaut Gold updated El Castillo’s resource in January, pegging proven and probable gold ounces at 1.23 million ounces of gold in oxide and transition material (for a total 1.73 million measured and indicated gold ounces) and another 1.54 million ounces of gold in sulphides.
El Castillo is located in Mexico’s Durango State about 100 km north of the city of Durango. Access is afforded by paved roads. The landscape is relatively flat, semi-dry with limited rainfall and a temperate climate. The 1,400-hectare property was initially explored by Battle Mountain Gold in the 1990s and later brought into production by Castle Gold, which was acquired by Argonaut Gold in 2009. The company now has over 400 contract employees working at the mine.
Argonaut Gold spent $15 million in 2010 improving the mine infrastructure, increasing the mine’s production run rate to a 72,000-ounce annual level, and increasing the project gold reserves from less than 600,000 ounces to 1.2 million ounces. Improvements contributing to increased production rates include a new contractor mining fleet, additional leach pad capacity, a new crushing circuit and two new processing plants. Currently, production is coming from the West Side plant. A centralized crushing circuit will now run at an designed annualized rate of 6,000,000 tonnes. A duplicate East Side processing facility was constructed this year.
Advanced Projects Lead
Extensive Property Portfolio
.jpg) In addition to the producing El Castillo Mine, Argonaut Gold’s Mexico-based property holdings include the San Antonio development-stage project, the former producing La Colorada mine and 11 exploration-stage projects. Here is a brief overview of the most advanced of these properties:
• La Colorada (Sonora) – The Company reported on October 24th, that the Measured & Indicated gold resource at its 100% owned La Colorada project has increased from 605,000 oz. to 1,067,000 oz. Argonaut has received an updated NI-43-101 compliant mineral resource estimation from SRK Consulting in Denver, CO for the project. The updated resource is based on historical drilling plus an additional 206 drill holes totaling 31,744 meters completed this year. The resource is contained within 50 million tones of mineralized material at an average grade of 0.664 grams/tonne gold and 8.7 grams/tonne silver. This is a 76% increase over the previous (pre-Argonaut) technical report that identified an M&I resource of 605,000 oz.
Given the significantly expanded resource base, the Company has embarked on a multi-phased development approach to the La Colorada project. Permits are in hand to initiate the first stage, which includes the construction of new leach pads, a crushing circuit and a processing plant within the existing footprint of the previous mining operation. Stage one will also involve processing material from the existing run of mine leach pad, 2.7 million tonnes with a grade of 0.43 grams/tonne of gold. The Company expects the Stage 1 budget to be less than $10 million.
vThe second, and more comprehensive stage of the project, includes the full-scale mining of the La Colorada pit. Permit applications are being prepared to expand the existing mine footprint, which requires extra overburden storage, the expansion of the pit limits and additional heap-leach pad construction. Currently we believe these permits will be submitted in Q1 of 2012, and received in the normal course of business.
• San Antonio (Baja Sur California) – An NI 43-101 resource update released earlier this year puts the project resource at 1.6 million ounces of gold, a 33% increase over the previous NI 43-101 estimate. A prior preliminary economic assessment indicates the project could produce 82,500 ounces of gold a year for eight years at a cash cost of $513. The increased resource estimate could change the property’s profile.
“The preliminary results continue to support the economics of San Antonio as an open pit heap leach operations,” says Argonaut President and CEO Peter Dougherty. ”The project continues to advance as the company works on the engineering, permitting, water acquisition and land purchases necessary to move the project into production.”
• La Fortuna (Durango) – A 2008 NI 43-101 estimate put the project’s measured and indicated resource at 308,000 ounces of gold. Argonaut is considering six distinct areas for future drilling.
La Colorada and San Antonio were both added to Argonaut Gold’s portfolio in February 2011 with the Pediment Gold acquisition.
“The merger with Pediment provided Argonaut with an early stage development project, an advance stage exploration project and several exploration holdings in the prolific Sonora Mojave megashear” says Dougherty.
. Exploration programs at La Colorada and San Antonio continue.
Management Team Has Strong Track Record
 Argonaut Gold was created by an experienced executive management team led by President and CEO Peter Dougherty, COO Edgar Smith and Chairman Brian Kennedy. Tom Burkhart, the company’s V.P. of Exploration, contributes vital exploration and mining experience to a team that has a strong history of creating shareholder value.
Dougherty, Smith and Kennedy all previously served as Meridian Gold’s top management team. That company was bought out in 2007 by Yamana Gold for C$3.8 billion. Before joining Argonaut Gold, Burkhart served as vice president for both New Dimensions and Pegasus Gold. He has nearly 30 years experience in exploration and project management in Mexico, South and Central America, Canada, Alaska, Australia and the Western U.S.
Third Quarter Results Set Production, Revenue Records
Argonaut Gold recently announced revenues of $22.7 million in its third quarter ending September 30, 2011. Net income for that period was $6.0 million or $0.07 per basic share. Gold production totaled 29,997ounces of gold loaded onto the pad, a 24% increase from the previous year, and 16,884 ounces produced, a 33% increase over Q2 2010 – at a cash cost of $628 per ounce sold.
Production at the El Castillo mine hit a trifecta of strong performance– 4.84 million tonnes mined (2% increase), 2.9 million ore tonnes mined (44% increase), and 612,548 tonnes crushed (a 66% increase).
“This quarter marks the third consecutive quarter of consistent gold production, as we continue to meet our guidance of 70-75,000 ounces of production in 2011,” says Dougherty. “Our drilling programs continue with six drill rigs currently operating across our properties. San Antonio drill results are pending, while updated NI 43-101 technical reports for El Castillo and La Colorada will be completed by year end and released in early 2012.”
Investment Considerations
 Argonaut Gold is unabashed about its goal of becoming the America’s next quality mid-tier gold producer. The company’s game plan includes both internal growth to fund development of additional advanced and grass roots projects, and external acquisition of projects and operations that offer clear upside potential.
Last year, Argonaut Gold increased its resources and reserves by 110%. That trend continues this year with updates to resource totals at El Castillo, La Colorada, and San Antonio. Today, the company’s fully diluted market cap currently stands at more than $750 million. Its shareholder base is primarily institutional with less than 20% of stock held by retail investors.
Since Argonaut Gold’s acquisition of Pediment Gold in early 2011, the company’s average trade volume increased from about 150,000 shares daily to over 500,000 shares a day.
“These company milestones are recognition of our continued efforts to create value for the company and our shareholders,” says Dougherty. “Argonaut Gold is focused on expanding our resources, increasing annual gold production rates, decreasing cash costs and increasing cash flow. Our ultimate goal is to produce between 300,000 and 500,000 ounces of gold a year.”
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