"When the feasibility study was done in 2017, at a US$1,250 gold environment, this would have equated to a payback of around three to four years. In today’s market, the payback drops to under two years.”
Can you introduce Argonaut Gold (TSX: AR) and provide an overview of the company’s portfolio of North American assets?
Argonaut Gold is junior gold producer currently running four operations: three in Mexico, and one in Nevada. We have just launched a development campaign to start our next mine build – the Magino mine in Ontario – which we believe will become the cornerstone asset in our portfolio. Today (October 2020), we sit in a unique position, with assets providing substantial cash flow, generating approximately US$25 million per quarter free cash flow (FCF) going on to the balance sheet. This fuels Argonaut’s organic growth pipeline.
In October 2020, Argonaut’s board of directors approved construction of the Magino mine in Ontario. What attracted you to the asset, and what type of mine will you build?
We searched for three years to find this project, looking for an asset that had the requisite size and mineralization, and importantly for Canada – infrastructure. Magino is a past producer of 100,000 oz as an underground operation, which sits right next door to Alamos Gold’s Island Gold mine. There is already power, water and road access, and the site sits 6 km from rail and 15 km from the town of Dubreuilville. The ore body comes to the surface and is very easy to mine, with the deepest spot of overburden to remove being 3 m. Magino will be an open-pit milling operation with about 20 to 40% of the gold coming through gravity, requiring low cyanide consumption as the ore body is clean.
A feasibility study (FS) was done at the end of 2017, which showed that during the first five years we could produce around 150,000 oz/y at an AISC of US$711. Back then, at a US$1,250 gold environment, this would have equated to a pay back of around three to four years. In today’s market, the pay back drops to under two years, and the previous NPV with a 5% discount of US$290 million rises to almost US$900 million. We will start this project at 10,000 tons per day (t/d), and, while we sit with an already-defined endowment of over four million oz in the M&I category and nearly another million oz in the Inferred category, we are also drilling at depth. We see a tremendous opportunity that five years down the road we could be looking at a 20,000 mt/d operation, of which 1,000 mt/d would come from underground, for a LOM of 20 years. Beneath the pit, drilling has showed a 5 to 6-meter wide zone running from 250 m to 900 m down, with an average grade of 6 to 8 g/mt Au.
How are you financing the build, and what is the timeline for development?
The green light has already been given to the financing package for Magino. This will come through Argonaut’s current cash balance that sits at US$180 million, and financing of up to US$175 million by way of a US$50 million bought deal and a revolving credit facility of US$125 million. The FS showed a capex range of between US$360 million and US$380 million, which we have adequately protected.
We have partnered with Ausenco Engineering Canada Inc. to build the Magino processing plant on a fixed-bid price. The mine will take two years to construct, during which we will do a study to show how we intend to go from 10,000 mt/d to 20,000 mt/d, and will put out a maiden underground mineralized inventory.
In addition to bringing Magino online, what is the company’s growth strategy for the next two years?
We are currently drilling Florida Canyon. We completed 10,000 feet of drilling in 2020 and are expecting to drill at least 50,000 feet in 2021. 2 million oz have already been found, and we see potential to expand this significantly. In January 2021, we will start drilling at the past-producing Standard Mine next to Florida Canyon, which could lead to our second mine in Nevada.
Argonaut also has the Cerro Del Gallo development project in Mexico, which we hope to have permitted in the first half of 2021, and we would like to move the construction team that built our San Agustin to Cerro del Gallo