Argonaut Gold

Diverse North American gold intermediate continues to exceed expectations



On August 10, 2021, Argonaut Gold announced record quarterly production, record quarterly revenue and a 234% year-on-year increase in cash flow, in the best operational and financial quarter the intermediate producer has produced to date. In the second quarter, Argonaut produced 63,749 gold equivalent ounces from its operational mines in the US and Mexico, with the increased gold sales contributing to a US$120.2 million revenue return – compared with $58 million in the corresponding COVID-impaired quarter last year. In addition, cash costs per ounce of gold sold were 48% lower than a year ago at its La Colorada mine in Northern Mexico, and 24% down quarter-on-quarter at Florida Canyon in Nevada, where TSX-listed Argonaut is expecting further savings in conjunction with a new conveying and stacking system in the coming months. “All of the projects that we are running today are starting to hit on all cylinders,” Argonaut’s president and CEO Pete Dougherty tells RGN. “And with the nice change in the gold price environment, that’s leading to record overall cashflow from the operations as we continue to ramp up production. We’re quite excited about the second half of the year as we think that the fourth quarter will be our best yet for the company.” 


Nowadays, a company’s sustainability performance is just as important as its operational and financial performance, and Argonaut has certainly acknowledged this with annual sustainability reporting going back to 2014. 


The development of the overarching ESG concept in the last five years or so has helped the company formulate a more cogent and comprehensive sustainability strategy, which is evident in its latest report, published in April 2021. 


Argonaut continued to action on ideas for reducing its overall impact on the environment, including: Installing solar panels on-site in Mexico, reducing water consumption via a new irrigation system at San Augustin in Mexico and undertaking rescue campaigns for various flora and fauna in the local vicinity of its operations in Mexico and the US. 


The new conveyance stacks system at Florida Canyon is also set to significantly reduce the company’s greenhouse gas emissions by eliminating the need to run diesel haul trucks from the crusher to the leach pads. 


Part of the community 


Despite being a diverse, multi-jurisdictional operator across North America, Argonaut is guided by a distinct community-based approach, whether this is through ensuring a majority of each workforce is locally sourced, or by playing an active role in the communities and positively contributing to the unique civic culture in each setting. 


This was evident none more so than last year, when the company demonstrated real corporate leadership during the pandemic with community sanitising programmes at La Colorada and El Castillo in Mexico, amongst other COVID-19 response initiatives. 


“When it comes to the communities, that is the heart and blood of this company,” says Dougherty. “Because we are so ingrained in these small communities, they become part of the project. They own the project just as much as we do.  


“So there’s an interlinking between the company and those communities, whether it be for local celebrations or the other education and health initiatives that we are pressing. We are bringing doctors in and pushing our scholarship fund to try and improve not only the current generation, but generations to come.” 


Speaking of interlinking, Argonaut’s corporate head office in Reno provides a centrally positioned hub with good connections to the company’s core production coming out of Mexico and Nevada, as well as its exciting exploration plays slightly further afield in Canada and central Mexico. 


The Magino pendant 


Dougherty and his team believe the Magino project in Ontario is going to eventually become the ‘pendant’ in the Argonaut ‘necklace of assets’, due to the long-life potential of the mine. Already, there is about 5 million ounces of gold in the resource base, and that’s just in the open pit.  


“We have been drilling for the last two years on the underground potential of this project and been getting tremendous grades and nice widths, just like our next door neighbour project Island Gold,” says Argonaut’s boss. 


“We think there exists underneath the open pit the potential to have an underground resource to go along with the open pit mine, which could lead to potentially a 300,000 ounces per annum type producer over a 20-year mine life, as we expand the process facility and hopefully bring up to 1,000 tonnes per day (tpd) from the underground, coupled with about 19,000 tpd tonnes from the open pit. That could lead to a really substantial overall production profile under this project.” 


After securing an operating permit last year, Argonaut commenced construction of the mine site at Magino at the beginning of the year. The two-year building process is well underway ahead of that transformative first gold pour in Q1 of 2023. 


“It’s heartening to see concrete going down and structures starting to be built because that’s really the formation of this mine. Next year as we start to see metal buildings go up and equipment being moulded together, that really brings it all home. But we are quite excited by what’s already been achieved at the project.” 


The only minor downside of the development is the likely cost increase of around 15% that the company flagged in its recent quarterly update. Initial capex had been put at $321 million in a 2017 feasibility study, however Argonaut secured finance of $400+ million in October after receiving total cost estimates between $360-380 million, including contingency and inflation. 


While rising construction costs are not to be unexpected in the current economic climate, Argonaut has not changed its full-year capital guidance. Instead it will shift $10 million of capital spending planned for the La Colorada mine over to the Magino construction project, which demonstrates another benefit in having multiple projects across a broader regional portfolio. 


Exceeding expectations 


After a remarkable operational performance in the first half of the year, Argonaut is in a prime position to hit the top end of its annual guidance for both gold production and free cash flow. Underpinned by the imminent advancements at Florida Canyon, Dougherty expects the company to reach the upper end of its 200-250,000 ounces production target, as well as the upper portion of the $100-140 million free cash flow generation guidance. 


“We had a tremendous spike in production in the first quarter to second quarter and we think there’s another step change that’s going to happen between the third and fourth quarter as we get this conveyed stack system up and can push tonnage that we can bring to the leach pad up one more step level. We think that those kind of items will help push that production profile and we are really counting on that fourth quarter being our best quarter of the entire year.” 


With the Magino project set to come online in under two years – adding 150,000 ounces of gold production per annum – and further ounces to be added from the current exploration activity at La Colorada, Argonaut could easily be looking at annual production exceeding 400,000 ounces by 2023. 


In addition, there is the 4.7 million ounces gold equivalent Cerro del Gallo development project being advanced down in the Mexican state of Guanajuato. With all these internal growth opportunities, one would forgive Argonaut for momentarily closing the door to any potential merger/acquisition (M&A) propositions.  


However, Dougherty is a firm believer in the notion that a company should never say no to a value-accretive opportunity when it arises. “Right now, it’s [M&A] probably not the first and foremost plan, but if something comes along that is very attractive and could be beneficial to our shareholders, we will certainly be engaged in that.”  


In the last 12 months, Argonaut has consistently shown itself to be a flourishing gold company with a strong focus on sustainably operated mines across Mexico and in the US. But this really is just the tip of the iceberg when you look at the potential for organic growth within the current portfolio, matched with a keen eye for developments in the North American gold market.