AR/SSO – Argonaut to Acquire Silver Standard’s San Agustin for $75 Million

El Castillo aerial shot (Company)

Cashed up Latin American silver producer and developer, Silver Standard (SSO:TSX) has agreed to divest one of its non-core assets to Argonaut Gold (AR:TSX) for $75 million. The asset is the advanced-exploration stage San Agustin project located in Durango state, Mexico. According to a 2009 resource estimate prepared for Silver Standard, the project hosts 1.6 million ounces of gold, 47.8 million ounces of silver and 1.31 billion pounds of zinc. Argonaut will an initial cash payment of $15 million, then will issue $30 million in Argonaut shares (roughly 5.1 million), $10 million six months after signing and the final $20 million in cash paid 18 months after signing. Silver Standard will also retain a 2% NSR.

Peter Dougherty, President & CEO of Argonaut

Peter Dougherty, President and CEO of Argonaut Gold said “Argonaut is very pleased to add this project to our portfolio. The San Agustín project is 10 kilometers from our operating El Castillo mine in Durango, Mexico and the mineralization is hosted on the same geologic setting. We anticipate that proximity of the two projects will allow for operational synergies and in addition to sharing resources and infrastructure, operational and geological knowledge acquired at El Castillo will be utilized in the development of San Agustín.”

El Castillo is Argonaut’s flagship producer and is set to produce 100,000 ounces this year after producing 87,000 ounces of gold in 2012. The project is an open-pit heap leach project and the company has been investing there, recently adding the West Side crusher as well as on land conveying. The company had a slower than expected quarter in Q3 given heavy rainfall dampened their production and their heap leach mines. Costs went up, but are still on the low end in the $600 to $700 per ounce cash cost range.

On a gold equivalent basis (using 60:1 ratio) Argonaut is paying $32 per gold equivalent ounce (2.4Moz AuEq). This is roughly in line with other recent exploration-stage gold transactions.

Clearly, Argonaut is not phased by the recently passed overhaul of the Mexican mining tax and royalty regime which is now slated to be 7.5% royalty on pre-tax earnings as well as an additional 0.05% for precious metals production. Goldcorp and others have recently come out stating that if this royalty is passed, then they will likely reduce their investments in Mexico. According to Goldcorp, their effective tax rate would increase to the mid-40% range.

Argonaut intends to complete an initial exploration program on San Agustin which will focus on the 400,000 ounces gold oxide cap which is located near surface. They will complete infill and step out drilling of the known oxide resource, which is currently open in all directions. This is a smart acquisition for AR given the proximity to El Castillo, the fact that the geologic settings are identical and that, ultimately, $30 per gold equivalent ounce in the ground is the right price.

Silver Standard has approximately $460 million in cash on hand as well as 19 million Pretium shares worth an additional $65 million.

Read: Argonaut Gold Announces Purchase of San Agustin Project from Silver Standard Resources

Argonaut is down nearly 50% from its 52-week high of $11.04:

Travis McPherson

trav@ceo.ca

Travis McPherson

trav@ceo.ca

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