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Argonaut Gold Announces Updated Pre-Feasibility Study Results For The Magino Project

76% increase in reserves, a pre-tax Internal Rate of Return “IRR” of 28%, a pre-tax Net Present Value “NPV” of US$610 million, an average annual gold production of nearly 300,000 ounces and a payback period of 2.6 years

Toronto, Ontario – (January 18, 2016) Argonaut Gold Inc. (TSX: AR) (the “Company”, “Argonaut Gold” or “Argonaut”) is pleased to announce the results of an updated pre-feasibility study (“PFS”) for its 100% owned Magino property, located 40 kilometers (“km”) northeast of Wawa, Ontario. The study was completed by JDS Energy & Mining Inc. (“JDS”), Vancouver, Canada and is based on an updated resource estimate with an effective date of December 18, 2015. The Magino project PFS more fully utilizes the resource and builds upon the study completed in January 2014. All amounts are indicated in US dollars unless otherwise stated.

Comparison of 2016 PFS vs 2014 PFS using $1,200 gold price (1)
  2016 2014-Adj.(2) % change
Processing rate (tonnes per day) 30,000 12,500 ↑140%
Ounces to be recovered (000s) 2,823 1,662 ↑70%
Payback period (years) 2.6 4.2 ↓38%
Average gold ounces produced (years 1 -3) 370,000 163,000 ↑127%
Cash cost per ounce $582 $693 ↓16%
Initial Capital Cost $540 $356 ↑52%
Sustaining Capital and Closure Cost $196 $58 ↑238%
Pre-tax NPV @ 5% ($ millions) $610 $241 ↑153%
Pre-tax IRR 27.6% 18.2% ↑52%

(1) In Canadian dollars the PFS gold price is C$1,540
(2) 2014 PFS adjusted to $1200 per ounce gold price, it was originally done at $1,250 per ounce

CEO Commentary
Pete Dougherty, President and CEO of Argonaut Gold, stated “Since increasing our property position and completing additional drilling, we were able to re-assess the deposit in its entirety, including considering many alternative development approaches for the project, such as processing rates ranging from 10,000 tonnes per day (“tpd”) up to 30,000 tpd. We have determined that this PFS presents the best alternative for development. Not only have the NPV and IRR increased since the previous PFS (based on a Canadian dollar denominated gold price of C$1,538/oz., which is below the current spot gold price of C$1,580/oz.), but the ounces to be produced have increased by 70% and the cash costs have decreased by 16%. Magino is a unique project – there are few gold projects of this scale and quality located in Canada, and the project’s economics continue to benefit from a strong Canadian dollar denominated gold price. On an ongoing basis, we will consider alternatives to finance and develop the project in order to efficiently realize the full potential of this asset.”

The sensitivities to gold price on the project are found in the table below, all using a USD:CAD exchange rate (“FX”) of 0.78:

Magino Sensitivity Study

Au Price $/oz
Sensitivity
Pre-Tax NPV5%($M) Pre-Tax IRR After-Tax NPV5%($M) After-Tax IRR
$1,300
$1,250
$1,200
$1,150
$1,100
$1,000
$811
$711
$610
$510
$410
$209
34.4%
31.0%
27.6%
24.2%
20.7%
13.3%
$551
$483
$414
$346
$278
$137
28.4%
25.6%
22.9%
20.1%
17.2%
11.1%

Pre-feasibility Summary
The PFS summarizes financial projections and operational plans for the Magino property, as a conventional open pit mine and gold leaching processing circuit. The following tables summarize the results.

PROJECT LIFE OF MINE (“LOM”) PRODUCTION AND ECONOMIC HIGHLIGHTS ($1,200 gold price, 0.78 FX rate)
MINE HIGHLIGHTS
Mine life (years) 10
LOM strip ratio (waste:ore) 3.8:1
Diluted gold grade (average in g/t) 0.89
Average mining dilution factored (%) 23%
Gold recovery (average) 93.5%
Gold payable 99.9%
M&I gold ounces recovered 2,823,000
Average annual production (ounces, LOM) 295,000
CAPITAL AND OPERATING HIGHLIGHTS
Capital cost – pre-production(millions) $540
Capital cost – sustaining and closure (millions) $196
Total capital cost – LOM(millions) $736
Operating cost/ore tonne (average) $15.44
Cash cost per ounce $582
All-in sustaining cost per ounce $640
All-in cost per ounce $842
ECONOMIC HIGHLIGHTS
Pre-tax cash flow (undiscounted) (millions) $1,016
Pre-tax NPV (at a 5% discount rate) (millions) $610
Pre-tax IRR 27.6%
After-tax cash flow (undiscounted) (millions) $715
After-tax NPV (at a 5% discount rate) $415
After-tax IRR 22.9%

Note: All-in sustaining cost is calculated as cash cost plus sustaining capital (not including closure cost) divided by ounces produced. All-in cost is calculated as cash cost per ounce plus total capital and closure cost divided by ounces produced

The full press release can be found here:

http://www.argonautgold.com/news_events/index.php?&content_id=207

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