Argonaut Gold Inc. (TSX: AR) is pleased to announce its operating and financial results for the second quarter ended June 30, 2021.  The Company reports record quarterly production of 63,749 gold equivalent ouncesⁱ, record quarterly revenue of $120.2 million, cash flow from operating activities before changes in non-cash operating working capital of $39.3 million, net income of $21.8 million or earnings per basic share of $0.07 and adjusted net incomeⁱⁱ of $24.4 million or adjusted earnings per basic shareⁱⁱ of $0.08.  All dollar amounts are expressed in United States dollars, unless otherwise specified (C$ refers to Canadian dollars).

Pete Dougherty, President and CEO stated: “It was a tremendous operational and financial quarter for Argonaut Gold.  We set new quarterly records for GEO production and revenue and provided strong cash flow and earnings.  We also continued to advance the construction of the Magino project, which is tracking on schedule for first gold pour during the first quarter of 2023.  In terms of operational improvements, we expect to ramp up the new conveying and stacking system at Florida Canyon to design capacity during the third quarter and to start reaping the benefits of this investment during the fourth quarter.”

Key operating and financial statistics for the three months and six months ended June 30, 2021 are outlined in the following table:

Second Quarter 2021 and Recent Company Highlights:

• Corporate
  • Set a new record for quarterly GEO production – the third consecutive quarter of record quarterly production.
  • Set a new record for quarterly revenue – the second consecutive quarter of record quarterly revenue.
• Social Responsibility
  • Delivered monthly student scholarship in communities near the El Castillo Complex.
  • Continued elementary student support with the Homework Club program, which is part of the Community Development Program in communities near Cerro del Gallo.
  • Continued sanitization campaigns in the community near La Colorada, which included the delivery of supplies to local business owners.
  • Sponsored the Color the Mucc race event hosted by the Humboldt Chamber of Commerce, which helps fund community youth scholarships in the communities near Florida Canyon.
• El Castillo Complex
  • Second quarter production of 32,663 GEOs.
    • El Castillo production of 12,929 GEOs.
    • San Agustin production of 19,734 GEOs.
  • Completed construction of Phase 4 leach pad expansion at San Agustin on schedule and budget.
• La Colorada
  • Second quarter production of 17,288 GEOs.
  • Reduction in cash cost per gold ounce sold of 48% compared to the second quarter of 2020 (see Non-IFRS Measures section).
  • Discovered high-grade gold veins below the El Créston open pit, including 12.2 metres at 98.9 g/t Au and 30.3 g/t Ag and 21.3 metres at 44.6 g/t Au and 274.9 g/t Ag (see press release dated April 26, 2021).
• Florida Canyon
  • Second quarter production of 13,798 GEOs.
  • Reduction in cash cost per gold ounce sold of 24% from the previous quarter.
  • Received Air Quality Permit modification.
  • Completed the construction and installation of a new conveying and stacking system, which is expected to be ramped up to design capacity during the third quarter of 2021.
• Magino
  • Construction
    • Completed critical path 2021 logging activities;
    • Initiated fish capture and relocation program in preparation for construction water treatment system commissioning;
    • Completed reverse circulation (RC) grade control drilling program;
    • Commenced open pit overburden stripping;
    • Mobilized crushing and screening plants;
    • Opened main office hub in Dubreuilville, Ontario;
    • Completed construction of 144-person onsite camp;
    • Completed construction of a 458-person camp;
    • Installed 12-metre communications tower, server and repeater;
    • Mobilized the concrete batch plant;
    • Commenced concrete mixing at the plant site;
    • Completed mobilization and installation of fuel attendant trailer at fuel bay;
    • Installed multiple sump systems at plant site and completed all high density polyethylene piping (HDPE) from plant site to historical tailings pond; and
    • Received the majority of pre-production mining equipment onsite.
  • Community & Permitting
    • Held ground breaking ceremony with members of the Provincial and Municipal governments and local Indigenous communities.
    • Initiated red spruce seedling grow program with Lakehead University Greenhouse;
    • Participated in an Information Session with Métis Nation of Ontario Education and Training Branch;
    • Participated in separate meetings with Missanabie Cree First Nation, Métis Nation of Ontario and Batchewana First Nation to provide project and environmental updates;
    • Participated in a virtual presentation hosted by the Société Économique de l’Ontario et Association Francophone du Nord Ouest de l’Ontario;
    • Hosted a site tour with three members of the Environmental Stewardship for Michipicoten First Nation; and
    • Assisted in community donations to support the Wawa hospital (Lady Dunn Health Centre) and the Town of Dubreuilville for training support.
  • Exploration
    • Continued to have exploration success at targeting high-grade gold mineralization below and adjacent to the planned open pit, including 7.0 metres at 13.3 g/t Au and 8.0 metres at 7.7 g/t Au (see press release dated July 8, 2021).
  • Monthly newsletter
    • Argonaut continues to issue a monthly newsletter to provide its stakeholders with regular Magino project updates. To receive monthly newsletters, please register your email at www.argonautgold.com or to view recently issued newsletters, please visit https://www.argonautgold.com/English/assets/development/magino/default.aspx

Financial Results – Second Quarter 2021

Record quarterly revenue was $120.2 million for the second quarter of 2021, an increase from $58.0 million for the second quarter of 2020.  During the second quarter of 2021, the Company sold 63,000 gold ounces at an average realized price per ounce of $1,812, compared to 32,707 gold ounces sold at an average realized price per ounce of $1,713 during the same period of 2020.  Gold ounces sold for the second quarter of 2021 increased 93% compared to the same period in 2020, primarily due to increased production and gold sales at all Mexican operations due to a temporary two-month suspension of mining, crushing and stacking activities during the onset of the COVID-19 pandemic in response to the Mexican Federal Government decree during the second quarter of 2020 and the acquisition of the Florida Canyon mine on July 1, 2020.

Net income for the second quarter of 2021 was $21.8 million or earnings per basic share of $0.07, an increase from a net loss of $7.7 million or loss per basic share of $0.04 for the second quarter of 2020.

Adjusted net incomeⁱⁱ for the second quarter of 2021 was $24.4 million or $0.08 per basic share, an increase from adjusted net incomeⁱⁱ of $8.5 million or $0.05 per basic share for the second quarter of 2020.

Cash flows from operating activities before changes in non-cash operating working capital totaled $39.3 million during the second quarter of 2021, an increase from $11.8 million in the second quarter of 2020.  The 234% increase in cash flow compared to the same period last year was primarily related to increased production and gold sales from all Mexican operations due to the two month suspension for COVID-19 during the second quarter of 2020, the acquisition of the Florida Canyon mine on July 1, 2020 and a higher average realized gold price.

Financial Results – First Half 2021

Revenue for the six months ended June 30, 2021 was $225.5 million, an increase from $124.5 million for the six months ended June 30, 2020.  During the first half of 2021, gold ounces sold totaled 119,727 at an average realized price per ounce of $1,788, compared to 72,876 gold ounces sold at an average realized price per ounce of $1,642 during the same period of 2020. Gold ounces sold for the six months ended June 30, 2021 increased 64% compared to the same period in 2020 primarily due to increased production and gold sales at all Mexican operations due to the two month suspension for COVID-19 during the second quarter of 2020 and the acquisition of the Florida Canyon mine on July 1, 2020.

Net income for the six months ended June 30, 2021 was $48.8 million or earnings per basic share of $0.16, an increase from a net loss of $17.2 million or loss per basic share of $0.10 for the six months ended June 30, 2020.

Adjusted net incomeⁱⁱ for the six months ended June 30, 2021 was $32.2 million or adjusted earnings per basic shareⁱⁱ of $0.11, an increase from adjusted net incomeⁱⁱ of $16.9 million or adjusted earnings per basic shareⁱⁱ of $0.09 for the six months ended June 30, 2020.

Cash flows from operating activities before changes in non-cash operating working capital totaled $67.0 million in the six months ended June 30, 2021, an increase from $26.5 million in the six months ended June 30, 2020.  The 153% increase in cash flow compared to the same period last year was primarily related to increased production and gold sales from all Mexican operations due to the two month suspension for COVID-19 during the second quarter of 2020, the acquisition of the Florida Canyon mine on July 1, 2020 and a higher average realized gold price.

Operational Results – Second Quarter 2021

During the second quarter 2021, the Company achieved record quarterly production of 63,749 GEOs at a cash cost of $876 per gold ounce sold and all-in sustaining cost of $1,187 per gold ounce sold compared to 31,531 GEOs at a cash cost of $885 per gold ounce sold and AISC of $1,080 per gold ounce sold during the second quarter 2020 (see “Non-IFRS Measures” section).  The 102% increase in GEO production was primarily related to increased production from all Mexican operations due to the two month suspension for COVID-19 during the second quarter of 2020 and the acquisition of the Florida Canyon mine on July 1, 2020.  Cash costs per gold ounce sold were relatively flat compared to the same period in 2020.  The 10% increase in AISC compared to the same period in 2020 is primarily related to the increased sustaining capital spend at the Florida Canyon mine, which was acquired on July 1, 2020.

SECOND QUARTER 2021 EL CASTILLO COMPLEX OPERATING STATISTICS

Summary of Production Results at the El Castillo Complex – Second Quarter 2021

During the second quarter of 2021, the El Castillo Complex produced 38% more GEOs at a cash cost per gold ounce sold 15% higher than during the second quarter of 2020.  GEO production was higher at both the El Castillo and San Agustin mines, primarily related to increased production due to the two month suspension for COVID-19 during the second quarter of 2020.  Cash cost per gold ounce sold were higher, as there were no costs associated with mining, crushing and stacking for two months during the second quarter of 2020 in response to the Mexican Federal Government decree.

SECOND QUARTER 2021 LA COLORADA OPERATING STATISTICS

Summary of Production Results at La Colorada – Second Quarter 2021

During the second quarter of 2021, the La Colorada mine produced 120% more GEOs at a cash cost per gold ounce sold 48% less than during the second quarter of 2020 (see “Non-IFRS Measures” section).  Higher GEO production was primarily due to an 81% increase in gold grade and due to the two month suspension for COVID-19 during the second quarter of 2020.  Lower cash cost per gold ounce sold was primarily due to the increase in gold grade, a 45% reduction in strip ratio and 126% more gold ounces sold.

SECOND QUARTER 2021 FLORIDA CANYON OPERATING STATISTICS

Summary of Production Results at Florida Canyon

As Argonaut did not own nor operate the Florida Canyon mine during the three and six months ended June 30, 2020, it is not making comparisons to the same period last year.  Florida Canyon produced 13,798 GEOS, a 15% increase in GEO production compared to the previous quarter.  Cash cost per gold ounce sold of $1,110 represent a 24% decrease compared to the previous quarter (see “Non-IFRS Measures” section).  Higher GEO production and lower cash cost per gold ounce sold compared to the previous quarter are primarily related to a 13% reduction in strip ratio and higher recoveries partially offset by a 9% reduction in gold grade.

Argonaut has identified potentially significant operating cost savings once it can eliminate the re-handle on the back end of the secondary crushing by switching to a conveying and stacking system to transport crushed ore to the leach pads.  All necessary regulatory approvals, including a modification to the existing Air Quality permit, to allow for the construction, installation and operation of a new conveying and stacking system were received during the second quarter of 2021 (see press release dated April 28, 2021), and the construction and installation of the new conveying and stacking system was completed by the end of July 2021.  It is estimated that the new system will be ramped up to design capacity during the third quarter of 2021.  The capital associated with the convey and stack project was included in Argonaut’s 2021 capital guidance (see press release dated January 19, 2021).

Pete Dougherty commented: “All three mines in Mexico have met or exceeded our expectations over the first half of the year, leading to record quarterly production and revenue, as well as strong cash flow and earnings in the second quarter.  We experienced improvements in both production and operating costs at Florida Canyon quarter-over-quarter and believe these improvements will continue as we ramp up the new conveying and stacking system to design capacity over the next couple months.  We believe this new system will significantly reduce operating costs at Florida Canyon once it is ramped up to design specifications and, given the recovery cycle at Florida Canyon, we should start to see the benefits of this investment during the fourth quarter of this year.  On a consolidated basis, we are well on our way to achieving our production and cost guidance.”

Outlook

Argonaut is on track to achieve its 2021 consolidated production, cost and capital guidance.  The table below outlines the first half of 2021 production and cost actuals compared to full year 2021 guidance:

2021 PRODUCTION AND COST GUIDANCE

The Magino construction project is tracking on schedule.  During the three and six months ended June 30, 2021, the Company incurred $64.0 million and $103.2 million in costs, respectively, related to the construction of the Magino project that were capitalized to assets under construction.  Of this amount incurred, the majority was for securing long lead time components for the mineral processing plant and for site development, camp construction and earthworks.

While the Magino construction project remains on schedule, Argonaut is currently reviewing the impacts of COVID-19, foreign currency exchange rates, contingencies, potential adjustments to the development plans and cost inflation to certain inputs related to the initial capital estimate (excluding ramp-up capital) which it believes will likely exceed the 15% last disclosed in the press release dated May 4, 2021.

Argonaut is currently working to optimize its life-of-mine plans.  Following this work, the Company anticipates publishing updated National Instrument (“NI”) 43-101 Technical Reports for the the El Castillo Complex (El Castillo and San Agustin mines) and the La Colorada mine by the end of 2021.

Argonaut also believes there is a potential opportunity to reduce the near term sustaining capital requirement at its La Colorada mine, primarily by deferring some of the capitalized stripping of the Veta Madre pit.  While this evaluation is ongoing, early indications illustrate a mine plan that is generally neutral in terms of net present value but provides additional cash flow during 2021 and 2022.  More information regarding a new mine plan at La Colorada will be provided concurrent with the publication of an updated NI 43-101 Technical Report, which is expected by the end of 2021.

Full year 2021 capital guidance has not changed.  However, Argonaut now expects to invest approximately an additional $10 million at the Magino construction project and decrease capital spending at La Colorada by approximately $10 million during 2021.  Updated 2021 capital guidance is provided below:

Updated 2021 Capital Guidance

About Argonaut Gold

Argonaut Gold is a Canadian gold company engaged in exploration, mine development and production.  Its primary assets are the El Castillo mine and San Agustin mine, which together form the El Castillo Complex in Durango, Mexico, the La Colorada mine in Sonora, Mexico and the Florida Canyon mine in Nevada, USA.  The Company also holds the construction stage Magino project, the advanced exploration stage Cerro del Gallo project and several other exploration stage projects, all of which are located in North America.