TORONTO (miningweekly.com) – Canadian gold miner Argonaut Gold on Monday released the results of an updated prefeasibility study (PFS) on its Magino project, located in Ontario, demonstrating significantly improved financial parameters over the initial 2014 study, even in a depressed commodity price environment.

The updated PFS assumed a near-spot gold price of $1 100/oz and a C$:$ exchange rate of C$1.28, calculating an after-tax net present value (NPV) at a 5% discount of $278-million and an internal rate of return (IRR) of 17.2%.

Argonaut stated that the ounces to be produced had increased by about 70% and that the cash costs had decreased by 16%.

The updated PFS envisioned a significantly larger-scale operation, which would see a processing rate of 30 000 t/d, as opposed to 12 500 t/d in 2014; total recovered gold ounces of 2.8-million ounces, compared with 1.7-million ounces previously; and average cash costs of $582/oz, compared with $693/oz previously. All-in sustaining costs would come in at about $842/oz.

The project would cost about $540-million to build – $184-million more than previously predicted.

"Since increasing our property position and completing additional drilling, we were able to reassess the deposit in its entirety, including considering many alternative development approaches for the project, such as processing rates ranging from 10 000 t/d up to 30 000 t/d,” commented Argonaut president and CEO Pete Dougherty.

He added that there were few gold projects of this scale and quality located in Canada and that the project's economics continued 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 realise the full potential of this asset," he said.

Magino was now expected to produce 370 000 oz/y over the first three years of its ten-year mine life, a 127% improvement over the 2014 PFS. The capital payback period also came down from 4.2 years to only 2.6 years.

The Magino project currently holds probable reserves of 105.4-million tonnes, grading 0.89 g/t (at a 0.34 g/t cutoff) for 3.02-million ounces of gold. The indicated resource comprises 143.8-million tonnes grading 0.88 g/t (at a 0.25 g/t cutoff) for 4.01-million ounces of gold, and the inferred resource stands at 43.3-million tonnes grading 0.76 g/t for 1.06-million ounces of gold.

Desjardins Capital Markets analyst Michael Parkin said in a note to clients that he believed the updated PFS improved the option value of the company in a rising gold price environment.

“We believe the company will refrain from a development decision in the current metals price environment despite the favourable Canadian dollar tailwind, due to the significant initial capital budget of $540-million. We believe the company will focus on the less capital-intensive San Agustin project [in Mexico], where we estimate initial capex of $60-million and an IRR of 27.8%,” he stated.