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Argonaut Gold says La Colorada on track for 2012 production, PEA gives NPV of $278 mln

Mexico-focused Argonaut Gold (TSE:AR) Monday unveiled an NI 43-101-compliant preliminary economic assessment (PEA) for its 100 percent-owned La Colorada gold-silver project, located 45 kilometres southeast of Hermosillo, Mexico.

The company also said the project is on track for production in the second quarter.

Investors welcomed the news, sending shares up 5.14 percent to $7.78 in the afternoon.

Argonaut said that the pre-tax net present value of the project was estimated at $278 million, using a five percent discount rate. Pre-tax internal rate of return was a whopping 249 percent and average annual pre-tax cash flow was calculated at $40.8 million.

Initial capital expenditure for the project was estimated at $14.5 million with a sustaining capital of $11.7 million, while pre-tax cash flow from operations was calculated at $349 million over the 9-year life of mine (LOM).

The company said the project would yield approximately a one year payback on initial investment, primarily generated by reprocessing 2.7 million tonnes of run of mine (ROM) material grading 0.43 grams per tonne (g/t) gold and 10.2 g/t silver. Average cash cost was seen at $620 per ounce.

Argonaut Gold president and CEO, Peter Dougherty, said: "We are excited to present the La Colorada PEA which shows a very significant return on a minimal initial investment. It demonstrates the strong economic viability of the mine, supporting a pay back of approximately 1 year.

"Development of the project will be fully funded by our internal cash balance and ongoing cash flow from operations. The PEA is inclusive of drilling through September 2011. Further drilling on the property and potential optimization of the project remain important initiatives for the company."

Dougherty added: "The necessary permits are in hand for us to begin production in the second quarter of 2012. The La Colorada mine has robust project economics that will potentially contribute over $300 million in cash flow for Argonaut shareholders."

The updated PEA was completed by SRK Consulting. The PEA used base case prices of $1,500 per ounce gold and $20 per ounce silver.

Argonaut acquired the La Colorada project, along with the San Antonio Gold project, through the acquisition of Pediment Gold in February of 2011.

The past-producing La Colorada gold-silver mine property is located approximately 40 kilometres southeast of Hermosillo, in Sonora State, Mexico. La Colorada originally operated as a high-grade underground mine, which closed at the start of the Mexican Revolution in 1914.

La Colorada's total processed indicated and inferred resource includes 35.5 million tonnes containing 796,000 ounces of gold and 11.6 million ounces of silver, at average grades of 0.69 g/t gold and 10.2 g/t silver.

Recovered ounces from production include 438,000 ounces of gold and 3.1 million ounces of silver, for a total of 480,000 gold equivalent ounces, utilizing expected average metallurgical recoveries of 55 percent for gold and 27 percent for silver.

LOM gold production is estimated at an average of 53,000 gold equivalent ounces per year over a 9-year mine life, Argonaut Gold said.

Throughput is estimated at four million tonnes per year from an open-pit mine, with a recovery process using cyanide heap leaching, followed by carbon adsorption/stripping and electrowinning to produce dore bars.

Argonaut is a Canadian gold company engaged in exploration, mine development and production activities.

Its primary assets are the production-stage El Castillo Mine in the State of Durango, Mexico, the development stage and past producing La Colorada project, the advanced exploration San Antonio project, as well as several exploration-stage projects.