Unwavering Commitment of Gold Producers

Q: What have been the major changes Argonaut Gold has implemented in response to the current market situation?

A: We are fully committed to all of our projects, from our operating mines to those in development. Our ambition remains unchanged, as we want to grow into an intermediate, mid-tier producer, and to achieve this we had to make some changes to our business model, given the current market conditions. The focus has been to reduce costs following the drop in gold prices and to increase efficiency across all of our processes. Naturally, our exploration budget has been reduced and this is one of the first things to occur during times of hardship. However, we have not stopped all of our key activities and we are sustaining all operations while keeping costs low and evaluating the possibilities for three key development projects. These are San Agustín in Durango, San Antonio in Baja California Sur, and Magino Gold in Ontario, Canada.

Q: How can joint ventures and exploration agreements help to expand Argonaut’s reach in the market?

A: Argonaut Gold’s historic growth strategy has been formed surrounding acquisitions, and during difficult times, we also carry out option agreements to explore certain sites. While the industry is troubled, there are many opportunities that will arise. Projects will become available, and companies will be more willing to consider favorable agreements in order to move forward. We treat JVs on a case by case basis using our in-depth evaluations. All companies are struggling since there are fewer resources and share prices are lower, so it would have to make a lot of sense for us to acquire something. If we were to acquire a project it would have to be ready for production and at the moment the company is not as prepared as it was in the past to grasp these opportunities. The Magino Gold project is of a larger scale and now we are looking for something smaller.

Q: What key decisions have you made to optimize costs in El Castillo and La Colorada?

A: In general terms, we have been reviewing our purchasing contracts and, while the industry finds itself in a precarious position we continue to increase our production. Capital expenditures are being evaluated in order to keep what is truly necessary, and through this endeavor we also help our suppliers. The new taxes that were implemented in 2013 are high, and while I doubt they will be eliminated some fiscal incentives should be implemented in order to help companies survive these market conditions. A major obstacle is the non-deductibility of exploration expenses, as these can only be deducted over a 10-year period. This inhibits exploration, which is a critical concern because if companies do not invest in exploration then it will be difficult for mining to continue at the same pace as it has in the past.

Q: What has been the progress of your other exploration stage projects, and what is needed for these to take off and begin the next stage?

A: Argonaut Gold is relatively traditional in its mining methods and we are highly diligent in the hydrological, metallurgical, and environmental studies we carry out. We have been lucky to find quality deposits that are well tailored to open pit heap leaching, and the same applies to projects like La Colorada, San Antonio, and El Castillo. Those that have potential to grow in the future are in our hands and the remainder we will auction, JV, or divest. Because of the difficult times, we will begin to see more land and concessions opening up. This happened in the early 2000s during a crisis and a great deal of ground became available. As time progresses we will see attractive projects that have drilling and studies becoming available.

Q: What main strategies have enabled the company to maintain its active exploration program?

A: Our exploration projects will continue and we will develop our networks in the country even further. Mexico is a country worth investing in, and it has yet to be fully explored. Argonaut Gold goes a step beyond the traditional and brings added value to the communities in which it is present. For example, our San Antonio project has some interesting hydrological benefits, and by relocating the water rights when it begins production it will benefit the water basin in the region. Given the proximity to the sea, there is a saline intrusion that will be mitigated to help the area suffering from water scarcity.