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Argonaut Gold Inc
Symbol AR
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Close 2014-08-22 C$ 4.03
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Argonaut releases San Agustin 43-101 resource estimate

2014-08-22 07:36 ET - News Release

Mr. Pete Dougherty reports

ARGONAUT GOLD ANNOUNCES SAN AGUSTIN RESOURCE OF 845,000 GOLD OUNCES AND 28.3 MILLION SILVER OUNCES (1,280,000 GOLD EQUIVALENT OUNCES)

Argonaut Gold Inc. has a resource estimate resulting from the first phase of a multiple-phase drill program at its 100-per-cent-owned San Agustin project located 10 kilometres from Argonaut's El Castillo mine located in Durango, Mexico.

The San Agustin pit constrained indicated resource now stands at 845,000 gold ounces and 28,263,000 silver ounces contained in 82.2 million tonnes of material at a grade of 0.32 gram per tonne gold and 10.7 grams per tonne silver for a total of 1.28 million gold equivalent ounces. The constrained pit resource has an additional inferred resource category of mineralization of 103,000 gold equivalent ounces including 65,000 contained gold ounces and 2,459,000 contained silver ounces within seven million tonnes of material at a grade of 0.29 gram per tonne gold and 11.0 grams per tonne silver. The resource only includes oxide material and minimal transition material. The gold equivalent ounces are calculated utilizing a 65:1 gold price to silver price ratio, which does not incorporate the recovery differential between gold and silver.

                                    Gold                                    
                       Tonnes equivalent                      Gold    Silver
                           of      grade    Gold  Silver    ounces    ounces
Material             material      (g/t)   grade   grade contained contained
type           Class    (000)  (1, 2, 3)   (g/t)   (g/t)     (000)     (000)

Oxide      Indicated   79,373       0.37    0.32    10.6       817    27,050
Transition Indicated    2,837       0.37    0.31    13.3        28     1,213
Total      Indicated   82,210       0.37    0.32    10.7       845    28,263
Oxide       Inferred    6,800       0.34    0.29    10.6        63     2,317
Transition  Inferred      164       0.35    0.23    26.9         1       142
Total       Inferred    6,964       0.34    0.29    11.0        65     2,459

(1) G/t is grams per tonne.                                                   
(2) New resource based on a 0.18 g/t gold equivalent cut-off grade.           
(3) The gold equivalent grade for the conceptual pit uses a 65:1 gold       
equivalent ounce ratio along with the metal recovery ratios achieved in the
preliminary metallurgical test work.                                                                         
1. Mineral resources are not mineral reserves and do not have demonstrated  
economic viability.                                                        
2. Inferred mineral resources have a high degree of uncertainty as to their 
existence and great uncertainty as to their economic and legal            
feasibility.                                                               
3. Mineral resources are reported as undiluted.                             
4. Mineral resources are reported within a conceptual pit shell.            
5. The resources are contained within a Lerchs-Grossmann pit shell based on 
a $1,300-per-ounce gold price; $20-per-ounce silver price; mining cost of 
$1.00 per tonne of material mined; and process, general and administrative 
expense costs of $4.22 per tonne, with gold recoveries of 68 per cent and 
silver recoveries of 21 per cent.  
6. Tonnes, grade values and contained metal quantities may differ due to   
rounding.                                                                  
7. Gold equivalent grade for conceptual pit used gold and silver price and  
recovery ratios.                                                           

A phase II drill program, totalling 16,000 metres, will continue on the property with the objective of further expanding the resource area and testing additional targets within the company's concession block.

Chief executive officer commentary

Pete Dougherty, president and chief executive officer of Argonaut Gold, said: "The San Agustin project is a very exciting opportunity for Argonaut. San Agustin is located approximately 10 kilometres from our main operating El Castillo mine; as such, there are many potential operational synergies between the two projects in terms of overlapping infrastructure and personnel.

"We are very pleased with the work done on the San Agustin project to date. The phase I drill program was completed ahead of schedule and under budget. This resource is only composed of oxide and transition material. Conceptually, the planned preliminary economic assessment is intended to evaluate the San Agustin property as a heap leach operation. The upside potential to add mineralization by expanding the current resource area and assessing other defined targets immediately surrounding the resource is the primary focus for our ongoing drilling activities.

"The new San Agustin resource represents an increase of more than 200 per cent in indicated contained gold ounces in the oxides compared to the historic understanding of the property. The results from preliminary metallurgical work at San Agustin support recoveries similar to operational results experienced at our El Castillo mine, with overall gold recovery of 65 per cent to 70 per cent and silver recovery of 16 per cent to 24 per cent, depending on crush size.

"A high proportion of the global block model inventory was captured by the constrained resource pit. The near-surface mineralization and continuity of material in the resource suggest a low strip ratio and the potential for robust economics for the project.

"All of the necessary engineering work, baseline permitting studies, land acquisition and other activities are well under way. We anticipate that a PEA for the project will be completed by year-end."

2014 San Agustin drill program summary

The results from phase I of the multiple-phase drill program were incorporated into the resource block model for San Agustin with an effective date of July 8, 2014. Phase I drilling consisted of more than 22,000 metres at San Agustin. Reverse circulation drilling includes 21,115 metres in 217 holes that were used to estimate resources; PQ core drilling includes nearly 1,000 metres in 13 holes used for metallurgical test work.


                                   PHASE I    
                                            RC           Core   RC plus core

Completed drill holes                      217             13            230
Completed metres                        21,115            999         22,114

The company has planned for additional work and drilling to be conducted on the property. Currently, a phase II drill program of 16,000 metres to expand the mineralization on the northwest portion of the company's current concessions has been approved. The drilling will continue after securing expanded exploration permits.

Tom Burkhart, vice-president of exploration for the company, said: "The San Agustin project remains the core focus for the Argonaut Gold exploration team during 2014. The potential for expanding the resource is a high priority for the company. While only the phase I drilling is being incorporated into this resource estimate, targets of interest exist on our current concession, as well as the concessions recently acquired from Geologix Explorations Inc. If our ongoing drilling campaign directed at resource expansion and additional target assessment is successful, an increase in the drilling budget will be warranted."

For complete results from the phase I drilling campaign, please see the news release dated July 15, 2014. In addition, the results from the drilling campaign are posted on the company's website.

San Agustin National Instrument 43-101 resources

In connection with this announcement, Argonaut plans to file a technical report for the San Agustin project, pursuant to National Instrument 43-101 of the Canadian Securities Administrators. The report is being prepared by Resource Modeling Inc., based out of Stites, Idaho.


       SAN AGUSTIN BLOCK MODEL INVENTORY, EFFECTIVE DATE JULY 8, 2014               

                       Tonnes       Gold                      Gold    Silver
                           of equivalent    Gold  Silver    ounces    ounces
Material             material      grade   grade   grade contained contained
type           Class    (000)      (g/t)   (g/t)   (g/t)     (000)     (000)

Oxide      Indicated   79,783       0.37    0.32    10.5       821    26,933
Transition Indicated    3,136       0.36    0.30    12.6        30     1,270
Total                                                                       
resource   Indicated   82,919       0.37    0.32    10.6       851    28,204
Oxide       Inferred   11,072       0.31    0.26     9.6        93     3,417
Transition  Inferred      710       0.27    0.20    13.7         5       313
Total                                                                       
resource    Inferred   11,782       0.31    0.26     9.8        97     3,730

Summary of estimation methodology

The new San Agustin mineral resource is based on 520 drill holes totalling approximately 80,760 metres of drilling, which includes results from Argonaut's 2014 phase I drilling program. Approximately one-third of the drill hole data were obtained by core drilling methods, and the remainder was generated by reverse circulation methods. The drill hole spacing within the mineral resource area is approximately 40 metres.

Argonaut's geologic staff generated three-dimensional lithologic and oxidation wire frames using Leapfrog software. Those shapes were reviewed by RMI and used to code six-metre-by-six-metre-by-six-metre blocks using MineSight software. In addition to lithologic and oxidation shapes, two distinct structural domains were identified by Argonaut and utilized by RMI in the grade estimation plan. High-grade gold and silver outliers were identified for each primary lithologic unit using cumulative probability plots. The high-grade outlier assay values were capped prior to creating six-metre-long drill hole composites that were used to estimate block grades.

Gold and silver block grades were estimated using a two-pass inverse-distance-squared method. Northwest- and northeast-trending search ellipses were used for the western and eastern structural domains, respectively. The block grades were validated using visual and statistical methods. It is RMI's opinion that the grade models are globally unbiased.

A three-dimensional wire frame based on mineralized continuity was used to classify a portion of the estimated blocks as indicated resources. The remainder of the estimated blocks were classified as inferred resources, provided the distance to the closest drill hole was less than 60 metres. Mineral resources were constrained by a conceptual Lerchs-Grossmann pit that used reasonable metal prices, costs, recoveries and pit slopes. The table summarizes results from a series of conceptual pits that were generated using different gold and silver prices.


CONCEPTUAL PIT RESOURCE QUANTITIES BASED ON DIFFERENT GOLD AND SILVER PRICES

                              Total indicated resources (oxide + transition)

                                                                Contained oz
Au and Ag
prices for        AuEq
conceptual     cut-off   Tonnes     AuEq
pits (1)     (g/t) (2)    (000)    (g/t) Au (g/t) Ag (g/t)    Au oz    Ag oz

$1,500 Au
$23.00 Ag         0.16   89,734     0.35     0.31     10.2      892   29,382
$1,400 Au
$21.50 Ag         0.17   86,156     0.36     0.31     10.4      858   28,780
$1,300 Au
$20.00 Ag         0.18   82,210     0.37     0.32     10.7      845   28,263
$1,200 Au
$18.50 Ag         0.20   75,118     0.39     0.33     11.1      796   26,827
$1,100 Au
$17.00 Ag         0.22   67,078     0.40     0.35     11.6      753   25,061

                               Total inferred resources (oxide + transition)

                                                                Contained oz
Au and Ag
prices for        AuEq
conceptual     cut-off   Tonnes     AuEq
pits (1)         (g/t)    (000)    (g/t) Au (g/t) Ag (g/t)    Au oz    Ag oz

$1,500 Au
$23.00 Ag         0.16   10,261     0.30     0.25      9.9       82    3,259
$1,400 Au
$21.50 Ag         0.17    8,633     0.32     0.27     10.5       75    2,922
$1,300 Au
$20.00 Ag         0.18    6,964     0.34     0.29     11.0       65    2,459
$1,200 Au
$18.50 Ag         0.20    5,261     0.36     0.31     12.3       52    2,080
$1,100 Au
$17.00 Ag         0.22    3,740     0.40     0.34     13.9       41    1,672

(1) Au means gold and Ag means silver. The same costs and recoveries were
applied to all material.
(2) Calculated break-even Au equivalent cut-off grade based on costs,
prices and recoveries.

Preliminary metallurgical test results from the San Agustin project

Preliminary metallurgical test work was conducted by Kappes, Cassiday & Associates, based out of Reno, Nev. Metallurgical recoveries indicate an overall gold recovery ranging between 65 per cent to 70 per cent and overall silver recovery ranging between 16 per cent to 24 per cent, depending on crush size.

A summary of the preliminary metallurgical test work parameters is included below:

  • Column tests run at a crush size of 50 millimetres and 12.5 millimetres.
  • The total test leach cycle is 73 days.
  • The preliminary results indicate that gold recoveries are impacted by crush size, with a smaller crush size of 12.5 millimetres providing an average recovery of 70 per cent, compared with 50-millimetre crush sizes providing an average recovery of 65 per cent.
  • Preliminary metallurgical work will continue with the expectation that the final results to be included in the preliminary economic assessment are estimated to be completed by the end of the year.

                             
                                                         Recovery percentage     
Sample                          Crush size, mm
description                       100% passing             Au             Ag

Average -- all                              50            65%            16%
Average -- all                            12.5            70%            24%

KCA estimates that field heap cyanide consumption will be approximately 30
per cent of the lab test consumptions.                                              

A full table of preliminary KCA metallurgical work results is provided.

                                                                                                          
                Crush                  Recovery
             size, mm     Head grade percentage  Leach        Lime     Cyanide
Sample           100%                             time consumption consumption
description   passing  Au g/t Ag g/t    Au   Ag   days        kg/t        kg/t

SA 1 --
dacite             50   0.301  13.26   46%  12%     73         4.1        0.17
SA 2 --
dacite             50   0.508  19.67   81%  12%     73         4.1        0.31
SA 3 --
sediments          50   0.612   8.68   66%  19%     73         4.2        0.70
SA 4 --
dacite             50   0.492   5.95   70%  18%     73         4.2        0.54
SA 5 --
dacite             50   0.385   5.71   56%  17%     73         4.1        0.68
SA 6 --
dacite high
grade              50   4.179  39.85   72%  17%     73         4.3        0.65
Average --
all                50                  65%  16%                4.2        0.51
                                                
KCA estimates that field heap cyanide consumption will be approximately 
30 per cent of the lab test consumptions.                                              

                Crush                  Recovery
             size, mm     Head grade percentage  Leach        Lime     Cyanide
Sample           100%                             time consumption consumption
description   passing  Au g/t Ag g/t    Au   Ag   days        kg/t        kg/t

SA 1 --                                                                      
dacite           12.5   0.344  11.59   50%  24%     73         4.1        0.34
SA 2 --                                                                      
dacite           12.5   0.516  16.84   84%  18%     73         4.1        0.43
SA 3 --                                                                      
sediments        12.5   0.632   8.57   74%  28%     73         4.2        0.75
SA 4 --                                                                      
dacite           12.5   0.512   5.39   75%  25%     73         4.1        0.64
SA 5 --                                                                      
dacite           12.5   0.363   4.75   68%  24%     73         4.1        0.80
SA 6 --                                                                      
dacite high                                                                
grade            12.5   4.609  45.50   71%  22%     73         4.2        0.80
Average --                                                                    
all              12.5                  70%  24%                4.1        0.63

KCA estimates that field heap cyanide consumption will be approximately 
30 per cent of the lab test consumptions.                                              

Qualified person comments/quality control procedures

The preparation of this news release was supervised and approved by Thomas Burkhart, Argonaut Gold's vice-president of exploration and a qualified person under National Instrument 43-101. Mr. Burkhart also reviewed the reverse circulation and core drilling programs and on-site sample preparation procedures at San Agustin.

Mike Lechner of RMI, located in Stites, Idaho, who is an independent qualified person as defined by NI 43-101 and the lead person responsible for completing the new San Agustin resource, has reviewed this news release as it relates to the San Agustin project.

Carl Defilippi of KCA, located in Reno, Nev., who is an independent qualified person as defined by NI 43-101 and the lead person responsible for completing the metallurgical work for the new San Agustin resource, has reviewed this news release as it relates to the San Agustin project.

For sample analysis the company utilizes a system of quality assurance/quality control that includes insertion and verification of standards, blanks and duplicates consistent with industry standards.

Samples from the San Agustin project are collected at site by Argonaut's personnel and transported to ALS-Chemex preparation laboratory in Zacatecas, where samples are prepared and pulps sent for assay in ALS-Chemex's Vancouver, B.C., laboratory. Samples are analyzed for gold by fire assay and atomic absorption finish (Au-AA23 assay code; 0.005-part-per-million to 10-part-per-million detection limit) plus silver by aqua regia and atomic absorption finish (0.1-part-per-million to 200-part-per-million detection limit). Samples over 10 grams per tonne gold are assayed with gravimetric finish (assay code Au-GRA21). All samples are also assayed by ICP-AES (code ME-ICP41) for a suite of 35 elements.

Argonaut is not aware of any legal, political, environmental or other risks that could materially affect the potential development of the mineral resource other than those set out in its annual information form filed on SEDAR.

We seek Safe Harbor.

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