ni 43-101 preliminary economic assessment la colorada ... · the la colorada mine is a historical...

NI 43-101 Preliminary Economic Assessment La Colorada Project Sonora, Mexico Effective Date: October 15, 2011 Report Date: December 30, 2011

Report Prepared for

Argonaut Gold Inc. 77 King Street West Toronto-Dominion Centre, Suite 400 Toronto, ON M4K 0A1 Canada

Report Prepared by

SRK Consulting (U.S.), Inc. 7175 West Jefferson Avenue, Suite 3000 Lakewood, CO 80235 SRK Project Number: 203900.020

Contributors: Bart Stryhas, Ph.D., C.P.G. Bret Swanson, BE Mining, MMSAQP Alberto Orozco, Argonaut Gold, Inc. Richard J. Taylor, P.E., Kappes, Cassiday & Associates

Mark Allan Willow, M.Sc., C.E.M Qualified Persons: Bart Stryhas, Ph.D., C.P.G. Bret Swanson, BE Mining, , MMSA Richard J. Taylor, P.E., Kappes, Cassiday & Associates Mark Allan Willow, M.Sc., C.E.M

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Page i

BAS/SC La Colorada_NI 43-101 PEA_203900.020_14_SC December 30, 2011

Summary (Item 1)

Property Description and Ownership The La Colorada Project (La Colorada or the Project) hosts several gold deposits located near the

historic mining town of La Colorada, Sonora, Mexico. The project consists of approximately 37 titled

concessions in three irregular blocks. The total land package aggregates 21,412.03 ha. The deposit

was exploited during two historic mining phases. The first was an underground operation from 1860

to 1916 and the second was an open pit mine from 1994 through 2000. The mineralization is

centered about UTM coordinates 541,665m E and 3,185,795m N. The property lies about 53 km

southeast of Hermosillo, the State Capital. Compañia Minera Pitalla S.A. de C.V. (Minera Pitalla) is

the owner of the Project. Minera Pitalla is 100% owned by Argonaut Gold Inc. (Argonaut).

Geology and Mineralization The geology of La Colorada consists of Paleozoic to Early Mesozoic metasediments cut by Upper

Cretaceous volcanics. All of these units are intruded by Tertiary intrusives that include granitic to

dioritic phases and andesitic porphyry. Late-Cretaceous to Tertiary volcanic rocks and associated

continental clastic rocks unconformably overlie the Triassic and older rocks. There are two distinct

divisions of the volcanics. A lower 100 to 45 My Lower Volcanic Complex is composed mainly of

andesite with interstratified rhyolitic ignimbrites and minor interstratified basalt. The overlying Upper

Volcanic Complex has been dated at 34 to 27 My and is composed of extensive rhyolite and

rhyodacite ignimbrites with minor interstratified basalt. It constitutes the largest ignimbrite field in the

world. The upper sequence unconformably overlies on the older sequence and infills deeply incised

paleotopography in the older rocks. Late Cretaceous to Early Tertiary plutonic rocks (diorite,

granodiorite to granite) of the Sonoran Batholith outcrop throughout the region and have been dated

from 90 to 40 My.

The La Colorada Gold District has many of the characteristics of a low sulfidization epithermal-vein

type gold-silver deposit. The district underwent a complex hydrothermal history related to

Cretaceous plutonic activity, later higher level plutonic events, and finally a mid-Tertiary vein system

which shares characteristics in common with both a deep epithermal environment and a high-level

mesothermal system. Alteration can be seen in the older metamorphic and intrusive units mostly as

silicification, hematization and argillic alteration. The Tertiary volcanic rocks in the district are clearly

post-mineral and are unaltered.

Exploration The exploration work is composed primarily of the drillhole database which supports the resource

estimation of this report. It consists of two main data sets. The older dataset was generated by

Explorationes Eldorado S.A. de C.V. (EESA) during their work on the project in the late 1990’s. The

more recent dataset was generated by Pediment and Argonaut beginning in 2007.

The resource estimation is supported by 1,319 drillholes, totaling 154,918 m. The drillhole database

has 80,187 samples. The drillholes are generally located in a wide range of spacing and

orientations. The maximum drillhole depth is 479 m and the average is 117 m.

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Page ii


Mineral Resource Estimate The mineral resource estimations are based on geologic models consisting of a single rock type, cut

by numerous fault/vein zones. All model blocks are 5 m x 5 m x 5 m in the x,y,z directions,

respectively. Each model block is assigned a unique specific gravity based on direct measurement

of the various rock types. All block grade estimates were made using 3 m down-hole composites.

An Inverse Distance Weighting to the second power estimation algorithm was used for all gold grade

and silver estimations. The results of the resource estimation provided a CIM classified Indicated

and Inferred Mineral Resource. The mineral resources have been classified as Indicated and

Inferred based primarily on sample support. All resources supported primarily by drilling at 25 m

centers are classified as indicated and all resources supported by wider spaced drilling were

classified as inferred.

The La Colorada Mineral Resource estimate is reported below at a 0.1 ppm cut-off grade. The cut-

off based on a mining cost of US$1.20/t, a processing cost of US$2.70/t, Au and Ag recoveries of

60% and 30% respectively, G&A cost of $0.20/t, a no NSR and Au, Ag prices of US$1,500/oz,

US$20.00/oz respectively. The mineral resources are confined within a conceptual Whittle® pit

design based on the same parameters used for the cut-off grade and a 50° pit slope. The estimates

used in determining the resource cut-off grades do not necessarily conform to those stated in the

economic model.

Table 1: La Colorada Project Resource Statement(1)

Deposit Class Au Cut-off Tonnes(000’s)

Au (g/t) Au oz

(000’s) Ag (g/t)

Ag oz (000’s)

La Colorada Indicated 0.10 29,900 0.724 696 5.1 4,905 Inferred 0.10 2,500 1.204 95 8.4 661

El Crestón Indicated 0.10 14,400 0.618 287 12.1 5,635 Inferred 0.10 2,200 0.887 63 13.3 944

Veta Madre Indicated 0.10 2,900 0.491 46 3.3 307 Inferred 0.10 0 0.665 0.2 2.4 0.7

RoM Pad Indicated 0.10 2,700 0.429 38 36.5 3,200 Inferred 0.10 - - - - -

All Deposits Indicated 0.10 50,000 0.664 1,067 8.7 14,047 Inferred 0.10 4,700 1.044 158 10.6 1,605

Source: SRK Effective Date: October 15, 2011 (1) Rounded to reflect approximation

Mineral Resources that are not mineral reserves do not have demonstrated economic viability.

Mineral resource estimates do not account for mineability, selectivity, mining loss and dilution.

These mineral resource estimates include inferred mineral resources that are normally considered

too speculative geologically to have economic considerations applied to them that would enable

them to be categorized as mineral reserves. There is also no certainty that these inferred mineral

resources will be converted to Measured and Indicated categories through further drilling, or into

mineral reserves, once economic considerations are applied.

Infrastructure The site currently has various mine site buildings, a water supply, heap leach pads, leach ponds,

power supply, access roads and plant foundations. This entire infrastructure is being upgraded and

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Page iii


improved. Due to the site’s extensive mining history and its regional proximity to established cities

and country infrastructure, the mine is unlikely to suffer adverse logistical or consumable supply

constraints.

Development and Mine Operations The La Colorada mine is a historical mining area located in the state of Sonora close to the regional

mining center of Hermosillo. The Project is located in dry desert terrain surrounded by a

combination of flat alluvial plains intersected by steep mountains. The El Crestón, La Colorada and

Gran Central (La Colorada/Gran Central) deposits have been mined by open pit methods. A third

resource area, Veta Madre, has not seen previous development. Open pit mining at the Project is

expected to begin with re-leaching of historical run of mine (RoM) pads. The removal and re-

processing of the RoM pad will provide space for the construction of a new leach-pad. By late 2012,

it is expected that the necessary permits will be in place for open pit mining at the La Colorada/Gran

Central pit followed by El Crestón and Veta Madre.

For the PEA, an ultimate pit for La Colorada was constructed by SRK with three possible phases. El

Crestón and Veta Madre were designed to meet mining width limitations. The resultant pit designs

defined 32.8 Mt of potentially minable resource with an average grade of 0.72 g/t Au and average

strip ratio of 3.7:1 (W:O). At a 4 Mt production rate, it is expected the potential mine life of to be in

excess of 9 years. The production schedule targeted a consistent total mine tonnage of 24 Mt/y from

year 3 onwards and any resources mined above 4 Mt/y is stockpiled for use in years where not

enough direct RoM feed is possible.

Final dimensions of the proposed open pits detail the potential magnitude of operations and have not

been limited to infrastructure restrictions. Potential restrictions may include additional required

permitted space for future heap leach pads and partial relocation of the La Colorada Township. As

detailed engineering continues the effect of these restrictions or the elimination of the restriction

resulting from further land negotiations will be addressed during reserve estimation.

Process and Metallurgy The La Colorada Project is designed as a heap leach operation. Leach grade material is processed

by crushing and heap leaching.

Crushing is accomplished by a two-stage, closed-circuit crushing system. The final product from the

crusher circuit is conveyed directly to the active stacking area on the leach pad by a conveying and

stacking system.

The stacked material is leached using an irrigation system for solution application. Gold and silver

bearing solutions drain to a pregnant pond where it is collected and pumped to an activated carbon

ADR (adsorption-desorption-recovery) plant.

Metallurgical test work has been ongoing with several column tests on various composite samples

and crush sizes from the various deposits have been and are being performed at the Kappes,

Cassiday & Associates (KCA) facility in Reno, Nevada.

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Environmental and Permitting Under the approval and conditions of the Informe Preventivo (IP) issued by SEMARNAT on October

20, 2011, Minera Pitalla has initiated construction of a secondary leach facility (including newly lined

process water ponds and completely new ADR plant) for the existing run-of-mine (RoM) heap.

These facilities were known sources of groundwater contamination, as was indicated historically by

the presence of cyanide in down-gradient monitoring wells. The local agencies are aware of this

issue and agreed to allow Argonaut to proceed based on the elimination of the source of

contamination by reconstruction of the RoM pad and relining the processing ponds. The IP allowed

SEMARNAT to expedite the approval process, since these facilities are all on previously disturbed

areas, and were evaluated by the agency during the original permitting of the project. These new

facilities represent industry best-practice construction to allow for improved control and monitoring of

process solutions.

Once the original RoM heap has been offloaded and relocated onto new liner, the area can be

reconstructed to meet current Mexican and international standards for cyanide heap leaching, and

reloaded with material from the expanded La Colorada/Gran Central open pit. Relocating of the

RoM heap will take approximately ten months, during which time the Manifestación de Impacto

Ambiental (MIA) should be approved by SEMARNAT for the construction of new heap leaching

facilities to receive additional material. The MIA is expected to be submitted to SEMARNAT in early

January 2012, with an anticipated approval during the third quarter of 2012. The as designed

expansion of the La Colorada/Gran Central open pit will require the relocation of several residences

and a community plaza. While Minera Pitalla has developed and implemented a social management

plan and program, a specific plan to deal with possible involuntary resettlement is being prepared

and preliminary discussions have taken place with state and municipal governments. The outcome

of these discussions may impact the development schedule of this expansion phase of the project.

Overall, Argonaut/Minera Pitalla are being proactive in their approach to restart the La Colorada

Mine. Remediation of the existing mine-related contamination issues are being dealt with through

the use of newer equipment and compliance with updated and more comprehensive guidelines and

standards (e.g., NOM-155-SEMARNAT-2007). Expansion of the facilities to incorporate additional

mining and processing appears to be on schedule to receive the necessary permits and

authorization in the timeframe needed.

Project Financials The financial analysis results, shown in Table 2, indicate an NPV5% of US$278 million on a pre-tax

basis. Payback will be the first year of production assuming that permits and land purchases are in

place by mid-2012 allowing for mine production to supplement RoM stockpile processing. The

following provides the basis of the SRK LoM plan and economics:

Measured, Indicated and Inferred resources are included;

A mine operating life of 8 years with 9 years of production;

An overall average metallurgical recovery rate of 55.1% Au and 27.1% Ag over the LoM;

A net operating cost of US$613/Oz.Au on a gold equivalent basis;

Capital costs of US$26million, comprised of initial capital costs of US$14.4 million, and

sustaining capital over the LoM of US$11.7 million;

Mine closure cost, included in the above estimates is US$4 million;

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The analysis does not include provision for salvage value; and

Operating costs are 47% of revenue.

Table 2: Economic Results Pre-Tax as of December 27, 2011

Description Value Units Units Production Summary Waste Mined 121,219 kt Potentially Mineable Resource Mined 32,753 kt Oz-Au Refined 438 koz Estimate of Cash Flow Gross Income $722,668 000’s Refining ($3,505) 000’s Gross Revenue $719,163 000’s Royalty ($10,323) 000’s Net Revenue $708,840 000’s Operating Costs $/t-crushed $/oz-Au Mining $236,371 $7.22 $539.51 Processing $77,288 $2.36 $176.41 G&A $18,000 $0.55 $41.08 Silver Credit ($63,166) ($1.93) ($144.18) Total Operating $268,493 $8.20 $612.83 Operating Margin $440,347 000’s Initial Capital $14,488 000’s LoM Sustaining Capital $11,700 000’s Income Tax $0 Cash Flow Available for Debt Service $414,159 000’s NPV 5% $278,274 000’s

Table 3 illustrates the effect on NPV if a 31% tax is applied to the economic model.

Table 3: Economic Results After-Tax as of December 27, 2011

Description Value

Operating Margin $440,347

Initial Capital $14,488

LoM Sustaining Capital $11,700

Income Tax $93,919

Cash Flow Available for Debt Service $320,240

NPV 5% $200,899

Conclusions and Recommendations – Process and Metallurgy Gold and silver recovery based on an ongoing program of 20 column tests conducted at the KCA

laboratory in Reno, Nevada running from 48 to 72 days resulted in recoveries of 55% for gold and

35% for silver at a 9.5 mm minus crush size. Material will be sourced either from existing RoM leach

pad or by mining from one of four open pits considered in the study. Material will be processed

crushed to 9.5 mm, belt-agglomerated with up to 2.5 kg/t cement as required, and conveyor stacked

on a dedicated leach pad where it will be leached using a diluted cyanide solution. The gold bearing

solution will be pumped to an ADR plant for further processing and production of doré bars. The

plant will initially begin as an adsorption plant only during start-up processing of the RoM-rehandle

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material with carbon stripping conducted off-site, and eventually expanded to the full plant prior to

initiation of mining from the open pits.

Opportunities exist to optimize throughput and recovery of the potentially mineable resource which

will be studied through additional column tests and equipment reviews. Additional column test work

is being completed by KCA at the present time on core material from the Project. Further work is in

progress to define metal recoveries from the El Creston and Veta Madre mining areas as well as

additional agglomeration tests to better define cement addition requirements (if any).

The use of High Pressure Grinding Rolls (HPGR) is being looked at as an option for further finer

crushing by many projects at the present time and is an option that could be examined at La

Colorada with future metallurgical programs.

The recovery curves indicate relatively slow leaching and it is almost certain that several percent

more gold recovery would be realized with a 120 day leach cycle. All future column tests should be

run at this leach cycle as a minimum.

Any additional improvements in recovery may have a significant impact on the economics of the

project.

Conclusions and Recommendations - Environmental Minera Pitalla is currently constructing new liner and leach facilities (including process water ponds

and ADR plant site) for the existing RoM heap that are potential sources of groundwater

contamination. These activities were approved by SEMARNAT through the IP process, as all

facilities are situated on previously disturbed areas that were evaluated by the agency during the

original permitting of the project. These new facilities represent state-of-the-art construction to allow

for control and monitoring of process solutions.

Environmental baseline data collection was initiated in 2011 in support of the MIA application for the

expansion of the La Colorada/Gran Central open pit, and construction of new heap leaching

facilities. The MIA is expected to be submitted to SEMARNAT in early January 2012, with an

anticipated approval during the third quarter of 2012.

Visual inspection of the site suggested that the mine waste materials are benign in nature. However,

preliminary geochemical testing of the spent potentially mineable resource and waste rock materials

indicates the need for longer-term kinetic testing in order to more precisely evaluate these materials

to develop reclamation and closure plans for the site. Minera Pitalla is expected to initiate this

program during 2012.

The expansion of the La Colorada/Gran Central open pit to its full potential will require the relocation

of several residences, businesses and a community plaza. While Minera Pitalla has developed and

implemented a social management plan and program, a specific plan to deal with any involuntary

resettlement has not yet been prepared.

The current accumulations of water in the open pits suggest that lakes will be present subsequent to

mine closure. This is especially true after the pits are expanded and deepened. While the existing

water in the pits appears to be of good quality, additional studies will be necessary to determine if

the deeper pits will have an adverse effect on long-term water quality.

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Conclusions and Recommendations - Mining Mining will be carried out through the use of local contractors well versed in mine operation within

the Sonoran region. Pit optimization and preliminary mine designs indicate a moderately sized

operation is possible given gold price and operating cost assumptions. The sequencing of the

operation will be important to overcome high initial strip ratios for both pits along with limited heap

leach pad space. Through the purchase of additional land positions and relocation of a portion of the

La Colorada Township, the full potential of mineral extraction should be achievable. As the

operation moves towards production in late 2012, additional geological, geotechnical, water and

mine sequencing studies are recommended.

SRK is of the opinion that the drilling has not fully delineated the northeast projection of the El

Crestón deposit. Limited deep drilling in this area has identified potentially economic mineralization

that remains open along strike and to depth. Further drilling is required to establish the extent and

importance of this mineralization. Successful exploration in this area would lower strip ratios and

partially mitigate mining width restrictions related to a required push-back of the north east pit wall.

Additional geotechnical studies should be completed to better establish the effect of groundwater

pore-pressure on pit-wall stability.

Mine sequencing, heap leach phasing and waste dump progressions should be monitored to

anticipate additional land purchases to accommodate new leach pads and/or expanded waste

dumps. This would be especially critical if potential resource expansions are realized.

Underground voids created during past mining will require continued surveying and identification to

better ensure correct potentially mineable resource dilution and hazard identification.

There is an aggressive schedule in place for 2012 with the commencement of in-situ mining and

reprocessing of old RoM stockpiles, it is vital permits and additional land purchases are fast-tracked

to allow for full production.

Financial Conclusions The economic analysis indicates that the profitability of the potential operation will be driven by gold

price, metal recovery and operating cost. Given the high strip ratio and low grade nature of the

deposit, there is 47% of revenue consumed by operating cost. Seventy percent of the operating

costs are mine contractor related so contract negotiations will be vital for the future profitability of the

project. To improve the project economics, increasing the metallurgical recovery, reducing stripping

ratio and continued high gold prices will be of critical importance.

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Table of Contents Summary (Item 1) ......................................................................................................................................... i

Table of Contents ....................................................................................................................................... viii

1 Introduction (Item 2) .................................................................................................... 1

1.1 Terms of Reference and Purpose of the Report ................................................................................. 1

1.2 Qualifications of Consultants (SRK) .................................................................................................... 1

1.2.1 Details of Inspection ................................................................................................................ 2

1.3 Reliance on Other Experts (Item 3) .................................................................................................... 2

1.3.1 Sources of Information and Extent of Reliance ....................................................................... 2

1.4 Effective Date ...................................................................................................................................... 2

1.5 Units of Measure ................................................................................................................................. 3

2 Property Description and Location (Item 4) ............................................................... 4

2.1 Property Description and Location ...................................................................................................... 4

2.2 Mineral Titles ....................................................................................................................................... 4

2.2.1 Nature and Extent of Issuer’s Interest ..................................................................................... 5

2.3 Royalties, Agreements and Encumbrances ........................................................................................ 6

2.4 Environmental Liabilities and Permitting ............................................................................................. 6

2.4.1 Required Permits and Status .................................................................................................. 7

2.5 Other Significant Factors and Risks .................................................................................................... 7

3 Accessibility, Climate, Local Resources, Infrastructure and Physiography (Item 5)15

3.1 Topography, Elevation and Vegetation ............................................................................................. 15

3.2 Climate and Length of Operating Season ......................................................................................... 15

3.3 Sufficiency of Surface Rights ............................................................................................................ 15

3.4 Accessibility and Transportation to the Property .............................................................................. 15

3.5 Infrastructure Availability and Sources.............................................................................................. 15

4 History (Item 6) ........................................................................................................... 16

4.1 Prior Ownership and Ownership Changes ....................................................................................... 16

4.2 Previous Exploration and Development Results ............................................................................... 16

4.3 Historic Mineral Resource and Reserve Estimates .......................................................................... 17

4.4 Historic Production ............................................................................................................................ 17

5 Geological Setting and Mineralization (Item 7) ........................................................ 18

5.1 Regional, Local and Property Geology ............................................................................................. 18

5.2 Significant Mineralized Zones ........................................................................................................... 19

6 Deposit Type (Item 8) ................................................................................................. 26

6.1 Mineral Deposit ................................................................................................................................. 26

6.2 Geological Model Applied ................................................................................................................. 26

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7 Exploration (Item 9) ................................................................................................... 29

7.1 Relevant Exploration Work ............................................................................................................... 29

7.2 Surveys and Investigations ............................................................................................................... 29

7.2.1 Exploration Rock and Soil Sampling ..................................................................................... 29

7.3 Significant Results and Interpretation ............................................................................................... 29

8 Drilling (Item 10) ......................................................................................................... 30

8.1 Type and Extent ................................................................................................................................ 30

8.2 Procedures ........................................................................................................................................ 31

8.2.1 Pediment, Reverse Circulation (RC) Drilling ......................................................................... 31

8.2.2 Pediment Core Drilling. ......................................................................................................... 31

8.2.3 Argonaut Reverse Circulation (RC) Drilling. .......................................................................... 31

8.2.4 Argonaut Core Drilling. .......................................................................................................... 32

8.2.5 Argonaut RoM Pad Drilling .................................................................................................... 32

8.3 Interpretation and Relevant Results .................................................................................................. 32

9 Sample Preparation, Analysis and Security (Item 11) ............................................. 35

9.1 Methods ............................................................................................................................................ 35

9.1.1 Reverse Circulation Drill Samples ......................................................................................... 35

9.1.2 Diamond Drill Core Samples ................................................................................................. 35

9.2 Security Measures ............................................................................................................................ 35

9.3 Sample Preparation .......................................................................................................................... 35

9.4 QA/QC Procedures and Results ....................................................................................................... 36

9.5 Opinion on Adequacy ........................................................................................................................ 37

10 Data Verification (Item 12) ......................................................................................... 43

10.1 Procedures ........................................................................................................................................ 43

10.2 Limitations ......................................................................................................................................... 44

10.3 Data Adequacy .................................................................................................................................. 44

11 Mineral Processing and Metallurgical Testing (Item 13) ......................................... 45

11.1 Testing and Procedures .................................................................................................................... 45

11.2 Relevant Results ............................................................................................................................... 45

11.3 Recovery Estimate Assumptions ...................................................................................................... 48

11.4 Additional Test Work ......................................................................................................................... 50

12 Mineral Resource Estimate (Item 14)........................................................................ 52

12.1 Qualified Persons for the Mineral Resource Estimate ...................................................................... 52

12.2 Drillhole Database ............................................................................................................................. 52

12.3 Geology ............................................................................................................................................. 52

12.4 Block Model ....................................................................................................................................... 52

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12.5 Compositing ...................................................................................................................................... 53

12.6 Density .............................................................................................................................................. 54

12.7 Variogram Analysis ........................................................................................................................... 54

12.8 Grade Estimation .............................................................................................................................. 54

12.8.1 La Colorada ........................................................................................................................... 54

12.8.2 El Crestón .............................................................................................................................. 55

12.8.3 Veta Madre ............................................................................................................................ 56

12.8.4 RoM Pad ............................................................................................................................... 56

12.9 Model Validation ................................................................................................................................ 57

12.10 Resource Classification .................................................................................................................... 59

12.11 Mineral Resource Statement ............................................................................................................ 59

12.12 Mineral Resource Sensitivity ............................................................................................................. 60

13 Mining Methods (Item 16) .......................................................................................... 63

13.1 Pit Optimization ................................................................................................................................. 63

13.1.1 Whittle® Parameters .............................................................................................................. 64

13.1.2 Whittle® Results and Analysis ............................................................................................... 67

13.1.3 La Colorada/Gran Central Whittle® Results .......................................................................... 67

13.1.4 El Crestón Whittle® Results ................................................................................................... 68

13.1.5 Veta Madre Whittle® Results ................................................................................................. 68

13.2 Open Pit Design ................................................................................................................................ 68

13.2.1 Pit Design Parameters and Construction .............................................................................. 68

13.3 Phase Design .................................................................................................................................... 69

13.3.1 Phase Design Criteria ........................................................................................................... 69

13.4 Schedule Inventory Results .............................................................................................................. 70

13.5 Production Schedule ......................................................................................................................... 70

13.5.1 Royalty Schedule .................................................................................................................. 74

13.5.2 Dilution, SMU and Bench Configuration ................................................................................ 74

13.6 Development Requirements ............................................................................................................. 74

13.6.1 Waste dumps ........................................................................................................................ 75

13.6.2 UG Voids ............................................................................................................................... 75

13.7 Mining Fleet and Requirements ........................................................................................................ 75

13.7.1 Expected Mine Fleet .............................................................................................................. 75

13.7.2 Expected Operating Cost ...................................................................................................... 76

13.7.3 Manpower .............................................................................................................................. 76

14 Recovery Methods (Item 17) ..................................................................................... 88

14.1 Processing Methods.......................................................................................................................... 88

14.2 Flowsheet .......................................................................................................................................... 91

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14.3 Plant Design and Equipment Characteristics ................................................................................... 91

14.5 Consumable Requirements .............................................................................................................. 99

15 Project Infrastructure (Item 18) ............................................................................... 102

15.1 Infrastructure and Logistic Requirements ....................................................................................... 102

15.1.1 Port access .......................................................................................................................... 102

15.1.2 Power .................................................................................................................................. 102

15.1.3 Water Supply ....................................................................................................................... 102

15.1.4 Site Structures ..................................................................................................................... 103

15.1.5 Waste Disposal ................................................................................................................... 103

15.1.6 Potential Heap Leach Pad Areas ........................................................................................ 103

16 Market Studies and Contracts (Item 19) ................................................................. 109

16.1 Summary of Information .................................................................................................................. 109

16.2 Commodity Price Projections .......................................................................................................... 109

16.3 Contracts and Status....................................................................................................................... 109

17 Environmental Studies, Permitting and Social or Community Impact (Item 20) 110

17.1 Related Information ......................................................................................................................... 110

17.1.1 Mining Law and Regulations ............................................................................................... 110

17.1.2 General Environmental Laws and Regulations ................................................................... 110

17.1.3 Other Laws and Regulations ............................................................................................... 113

17.1.4 Expropriations ..................................................................................................................... 114

17.1.5 NAFTA ................................................................................................................................. 114

17.2 Operating and Post Closure Requirements and Plans ................................................................... 114

17.2.1 Permitting Process .............................................................................................................. 114

17.2.2 Environmental Impact Permit .............................................................................................. 115

17.2.3 Other Permits and Licenses ................................................................................................ 115

17.2.4 Concession Title for Underground Water Extraction ........................................................... 115

17.3 La Colorada Environmental and Permitting Status ......................................................................... 116

17.3.1 Environmental Baseline Data .............................................................................................. 116

17.3.2 Environmental Permitting .................................................................................................... 117

17.4 Social and Community .................................................................................................................... 118

17.4.1 Social Management Planning ............................................................................................. 118

18 Capital and Operating Costs (Item 21) ................................................................... 121

18.1 Capital Cost Estimates .................................................................................................................... 121

18.1.1 Basis for Capital Cost Estimates ......................................................................................... 122

18.2 Operating Cost Estimates ............................................................................................................... 122

18.2.1 Basis for Operating Cost Estimates .................................................................................... 122

19 Economic Analysis (Item 22) .................................................................................. 123

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19.1 Principal Assumptions ..................................................................................................................... 123

19.2 Project Financials ............................................................................................................................ 123

19.3 Taxes, Royalties and Other Interests .............................................................................................. 124

19.4 Sensitivity Analysis .......................................................................................................................... 124

20 Adjacent Properties (Item 23) ................................................................................. 126

21 Other Relevant Data and Information (Item 24) ..................................................... 127

22 Interpretation and Conclusions (Item 25) .............................................................. 128

22.1 Environmental Conclusions ............................................................................................................ 128

22.2 Mining Conclusions ......................................................................................................................... 128

22.3 Financial Conclusions ..................................................................................................................... 128

22.4 Process and Metallurgy Conclusions .............................................................................................. 128

22.5 Significant Risks and Uncertainties ................................................................................................. 129

22.5.1 Exploration .......................................................................................................................... 130

22.5.2 Mineral Resource Estimate ................................................................................................. 130

22.5.3 Mineral Resource Estimate ................................................................................................. 130

22.5.4 Metallurgy and Processing .................................................................................................. 131

23 Recommendations (Item 26) ................................................................................... 132

23.1 Environmental ................................................................................................................................. 132

23.2 Mining 132

23.2.1 Mining Related Study Costs ................................................................................................ 132

23.3 Metallurgy and Processing .............................................................................................................. 133

24 References (Item 27) ................................................................................................ 134

25 Glossary .................................................................................................................... 135

25.1 Mineral Resources .......................................................................................................................... 135

25.2 Mineral Reserves ............................................................................................................................ 135

25.3 Definition of Terms .......................................................................................................................... 136

25.4 Abbreviations .................................................................................................................................. 137

List of Tables Table 1: La Colorada Project Resource Statement(1) ........................................................................................ ii

Table 2: Economic Results Pre-Tax as of December 27, 2011 ........................................................................ v

Table 3: Economic Results After-Tax as of December 27, 2011 ...................................................................... v

Table 2.2.1: Concession Details ........................................................................................................................ 5

Table 2.2.1.1: Concession Payment Liabilities .................................................................................................. 6

Table 8.1.1: EESA Drilling Summary ............................................................................................................... 30

Table 8.1.2: Pediment Drilling Summary ......................................................................................................... 30

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Page xiii


Table 8.1.3: Argonaut Drilling Summary .......................................................................................................... 31

Table 10.1.1: MacMillian et al (2001) Comparative Sampling Results ............................................................ 43

Table 11.2.1: La Colorada Project Column Test Results on RoM Leach Pad Material .................................. 46

Table 11.2.2: La Colorada Project Column Test Results on Core Material – Gold ......................................... 46

Table 11.2.3: La Colorada Project Column Test Results on Core Material – Silver ....................................... 47

Table 11.3.1: La Colorada Project Estimated Field Recoveries by Crush Size .............................................. 49

Table 11.3.2: La Colorada Estimated Field Recoveries (Gold) at 100% Passing 9.5mm ............................... 49

Table 11.3.3: La Colorada Estimated Field Recoveries (Silver) at 100% Passing 9.5mm ............................. 50

Table 12.4.1: Block Model Limits ..................................................................................................................... 53

Table 12.5.1: Assay Capping Parameters ....................................................................................................... 54

Table 12.8.1.1: La Colorada Indicator Estimation Parameters........................................................................ 55

Table 12.8.1.2: La Colorada Grade Estimation Parameters ........................................................................... 55

Table 12.8.2.1: El Crestón Grade Estimation Parameters .............................................................................. 56

Table 12.8.3.1: Veta Madre Grade Estimation Parameters ............................................................................ 56

Table 12.8.4.1: RoM Pad Grade Estimation Parameters ................................................................................ 56

Table 12.9.1: Grade Estimation Characteristics .............................................................................................. 58

Table 12.9.2: Statistical Model Validation........................................................................................................ 59

Table 12.9.3: Nearest Neighbor Model Validation ........................................................................................... 59

Table 12.11.1: La Colorada Project Resource Statement (1) ........................................................................... 60

Table 12.12.1: Gran Central Grade Tonnage .................................................................................................. 61

Table 12.12.2: El Crestón Grade Tonnage ...................................................................................................... 61

Table 12.12.3: Veta Madre Grade Tonnage .................................................................................................... 62

Table 13.1.1.1: La Colorada/Gran Central Model Parameters ........................................................................ 64

Table 13.1.1.2: La Colorada/Gran Central Financial Assumptions ................................................................. 65

Table 13.1.1.3: El Crestón Model Parameters ................................................................................................ 65

Table 13.1.1.4: El Crestón Financial Assumptions .......................................................................................... 66

Table 13.1.1.5: Veta Madre Model Parameters .............................................................................................. 66

Table 13.1.1.6: Veta Madre Financial Assumptions ........................................................................................ 67

Table 13.2.1.1: La Colorada Project Pit Parameters ....................................................................................... 69

Table 13.4.1: La Colorada/Gran Central Phase Inventory .............................................................................. 70

Table 13.4.2: El Crestón Phase Inventory ....................................................................................................... 70

Table 13.4.3: Veta Madre Phase Inventory ..................................................................................................... 70

Table 13.5.1: La Colorada/Gran Central Production Schedule ....................................................................... 72

Table 13.5.2: Crusher and Heap Leach Schedule .......................................................................................... 73

Table 13.5.1.1: La Colorada/Gran Central Royalty Schedule ......................................................................... 74

Table 13.7.3.1: Projected General and Administration Staff for La Colorada ................................................. 77

Table 14.1.1: La Colorada Metallurgical Recovery – Design Criteria Only ..................................................... 89

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Page xiv


Table 14.1.2: La Colorada Crushing and Processing ...................................................................................... 90

Table 14.3.1: General Design Basis ................................................................................................................ 91

Table 14.3.2: Crushing and Stacking – Design Criteria .................................................................................. 92

Table 14.3.3: Leach Pads and Irrigation – Design Criteria .............................................................................. 92

Table 14.3.4: Absorption – Design Criteria...................................................................................................... 93

Table 14.3.5: Desorption – Design Criteria ..................................................................................................... 93

Table 14.3.6: Electrowinning – Design Criteria ............................................................................................... 93

Table 14.3.7: Smelting – Design Criteria ......................................................................................................... 93

Table 14.4.1: Preliminary Equipment List ........................................................................................................ 94

Table 14.5.1: La Colorada Consumables ........................................................................................................ 99

Table 15.1.6.1: Golder Associates Heap Leach Pad Design Capacity ......................................................... 104

Table 15.1.6.2: Conceptual Pad Space ......................................................................................................... 104

Table 16.2.1: SRK Moving Averages for Gold .............................................................................................. 109

Table 16.3.1: La Colorada Contracts as of November 2011 ......................................................................... 109

Table 18.1.1: LoM Capital Cost Summary ($000’s) as of December 27, 2011 ............................................. 121

Table 18.1.2: Initial Capital Breakdown as of December 27, 2011 ............................................................... 121

Table 18.1.3: Sustaining and Closure Costs as of December 27, 2011 ....................................................... 122

Table 18.2.1: LoM Operating Cost Summary as of December 27, 2011 ...................................................... 122

Table 19.1.1: Market Inputs as of December 27, 2011 ................................................................................. 123

Table 19.2.1: Economic Results Pre-Tax as of December 27, 2011 ............................................................ 124

Table 19.2.2: Economic Results After-Tax as of December 27, 2011 .......................................................... 124

Table 19.4.1: Project Sensitivities as of December 27, 2011 ........................................................................ 125

Table 19.4.2: Project Sensitivities After Tax as of December 27, 2011 ........................................................ 125

Table 23.2.1.1: Mining Cost Studies for 2012 ............................................................................................... 133

Table 26.3.1: Definition of Terms .................................................................................................................. 136

Table 26.4.1: Abbreviations ........................................................................................................................... 137

List of Figures Figure 2-1: Project Location Map ...................................................................................................................... 8

Figure 2-2: Project Site Map .............................................................................................................................. 9

Figure 2-3: Regional Concession Map ............................................................................................................ 10

Figure 2-4: Local Concession Map .................................................................................................................. 11

Figure 2-5: Detailed Concession Map ............................................................................................................. 12

Figure 2-6: Royalty Concession Map .............................................................................................................. 13

Figure 2-7: Surface Ownership Map ................................................................................................................ 14

Figure 5-1: La Colorada Project Regional Geology ......................................................................................... 22

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Page xv


Figure 5-2: La Colorada/Gran Central Pit Area Geology ................................................................................. 23

Figure 5-3: El Crestón Pit Area Geology ......................................................................................................... 24

Figure 5-4: La Colorada/Gran Central Area Cross Section Geology .............................................................. 25

Figure 8-1: 2011 Argonaut Drillhole Location Map .......................................................................................... 34

Figure 9-1: Blank Analyses Performance Chart .............................................................................................. 38

Figure 9-2: Certified Standard OxE86 Performance Chart .............................................................................. 39

Figure 9-3: Certified Standard OxF65 Performance Chart .............................................................................. 40

Figure 9-4: Certified Standard SG40 Performance Chart ............................................................................... 41

Figure 9-5: Field Duplicate Performance Chart ............................................................................................... 42

Figure 11-1: Metallurgical Drillhole Locations ................................................................................................. 51

Figure 13-1: La Colorada Site Overview ......................................................................................................... 78

Figure 13-2: La Colorada/Gran Central Whittle® Results ................................................................................ 79

Figure 13-3: La Colorada/Gran Central Pit Shell Section View ....................................................................... 80

Figure 13-4: El Crestón Pit Graph ................................................................................................................... 81

Figure 13-5: El Crestón Pit Shell Section View ............................................................................................... 82

Figure 13-6: Veta Madre Pit Shells .................................................................................................................. 83

Figure 13-7: Veta Madre Pit Shells .................................................................................................................. 84

Figure 13-8: Location of La Colorada/Gran Central Phase 1 and Phase 2 Designs ...................................... 85

Figure 13-9: Location of El Crestón Phase and Phase 2 Designs .................................................................. 86

Figure 13-10: Current Understanding of UG Workings ................................................................................... 87

Figure 14-1: Process Flow Sheet .................................................................................................................. 100

Figure 14-2: Process Flow Sheet Phase 2 Fine Crushing to 9.5 mm New Potentially Mineable Resource . 101

Figure 15-1: La Colorada 10 MVA Substation ............................................................................................... 105

Figure 15-2: Wyman Shaft and 10” Dewatering Line .................................................................................... 106

Figure 15-3: Mine Site Office Buildings ......................................................................................................... 107

Figure 15-4: Heap Leach Pad Design ........................................................................................................... 108

Figure 17-1: Construction and Start-up Authorization for Industrial Facilities ............................................... 120

Appendices Appendix A: Certificate of Author

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Page 1


1 Introduction (Item 2)

1.1 Terms of Reference and Purpose of the Report SRK Consulting (U.S.), Inc. (SRK) has been retained by Argonaut Gold Inc. (Argonaut), to prepare a

Canadian National Instrument 43-101 (NI 43-101) compliant Technical Report for the La Colorada

Project located in Sonora, Mexico (La Colorada or the Project). The quality of information,

conclusions, and estimates contained herein is consistent with the level of effort involved in SRK’s

services, based on: i) information available at the time of preparation, ii) data supplied by outside

sources, and iii) the assumptions, conditions, and qualifications set forth in this report. This report is

intended for use by Argonaut subject to the terms and conditions of its contract with SRK and

relevant securities legislation. The contract permits Argonaut to file this report as a Technical Report

with Canadian securities regulatory authorities pursuant to NI 43-101, Standards of Disclosure for

Mineral Projects. Except for the purposes legislated under provincial securities law, any other uses

of this report by any third party is at that party’s sole risk. The responsibility for this disclosure

remains with Argonaut. The user of this document should ensure that this is the most recent

Technical Report for the property as it is not valid if a new Technical Report has been issued.

This report provides mineral resource estimates, and a classification of resources in accordance with

the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and

Reserves: Definitions and Guidelines, November 27, 2010 (CIM).

1.2 Qualifications of Consultants (SRK) The Consultants preparing this technical report are specialists in the fields of geology, exploration,

mineral resource and mineral reserve estimation and classification, underground mining,

geotechnical, environmental, permitting, metallurgical testing, mineral processing, processing design,

capital and operating cost estimation, and mineral economics.

None of the Consultants or any associates employed in the preparation of this report has any

beneficial interest in Argonaut. The Consultants are not insiders, associates, or affiliates of

Argonaut. The results of this Technical Report are not dependent upon any prior agreements

concerning the conclusions to be reached, nor are there any undisclosed understandings concerning

any future business dealings between Argonaut and the Consultants. The Consultants are being

paid a fee for their work in accordance with normal professional consulting practice.

The following individuals, by virtue of their education, experience and professional association, are

considered Qualified Persons (QP) as defined in the NI 43-101 standard, for this report, and are

members in good standing of appropriate professional institutions. The QP’s are responsible for

specific sections as follows:

Bart Stryhas Ph.D., CPG, is the QP responsible for Sections 3 through 10 and 20. He is the

QP responsible for the Mineral Resource estimation in Section 12.

Bret Swanson BE (Mining), MMSA is the QP responsible for Sections 13, 15, 16, 18, 19, 21,

22 and 23.

Mark Willow, M.Sc., NV C.E.M., is the QP responsible for Section 17.

Richard J. Taylor, P.E., is the QP responsible for Sections 11 and 14.



1.2.1 Details of Inspection

Bart Stryhas conducted a site visit of the project on June 16, 2011. Dr. Stryhas spent one day on

site reviewing the regional and local geology, drilling, logging and sampling procedures, In addition,

the QA/QC procedures were reviewed and resource estimation strategy was formulated with site

geologist and engineers.

Bret Swanson conducted a site visit to the project on November 14, 2011. Mr. Swanson spent one

day reviewing the potential pit sites, waste dump locations, heap leach pads, crusher, process plant

construction and general site layout.

1.3 Reliance on Other Experts (Item 3) The Consultant’s opinion contained herein is based on information provided to the Consultants by

Argonaut throughout the course of the investigations. SRK has relied upon the work of other

consultants in the project areas in support of this Technical Report. The sources of information

include data and reports supplied by Argonaut personnel as well as documents referenced in Section

24.

Information on mineral titles was provided by Argonaut as compiled by Mr. Alberto Orozco,

Argonaut’s Mexico Exploration Manager. Additionally, a legal opinion on titles was compiled by

Mexico City law firm Vazquez & Associates in 2011. Specifically, Mr. Alberto Orozco and Vazquez &

Associates are responsible for Sections 2.2 and 2.3.

The Consultants used their experience to determine if the information from previous reports was

suitable for inclusion in this technical report and adjusted information that required amending. This

report includes technical information, which required subsequent calculations to derive subtotals,

totals and weighted averages. Such calculations inherently involve a degree of rounding and

consequently introduce a margin of error. Where these occur, the Consultants do not consider them

to be material.

1.3.1 Sources of Information and Extent of Reliance

Mr. Alberto Orozco has contributed the majority of the information contained within Sections 4, 5, 9,

10 and 11.

SRK has worked with Ms. Xochitl Valenzuela Verdugo (the mine planning engineer for Argonaut) on

the development of the pit, phase and production schedule of the Gran Central deposit. Ms.

Valenzuela also designed the waste dumps and potential heap leach expansions within the La

Colorada site. Ms. Valenzuela contributed to Section 13.

Infrastructure, operating and capital cost assumptions (used in the economic model and stated in the

tables) were provided by Mr. Curtis Turner of Argonaut Gold. His contributions were reviewed by

SRK and are pertinent to Sections 15 and 18.

1.4 Effective Date The effective date of this report is October 15, 2011.



1.5 Units of Measure The metric system has been used throughout this report. Tonnes are metric of 1,000 kg, or 2,204.6

lb. All currency is in U.S. dollars (US$) unless otherwise stated.



2 Property Description and Location (Item 4)

2.1 Property Description and Location The Project consists of an historic, open pit, heap leach gold mine. The mine consists of two main

pits, La Colorada/Gran Central and El Crestón, a partially reclaimed heap leach pad and several

office and support buildings. The pits and facilities are located within 37 titled mineral concessions

totaling 21,412.03 ha. The project is located in northwestern Mexico, in the town of La Colorada,

Sonora State, 53 km southeast of the city of Hermosillo, the State Capital. The mineralization is

centered about UTM coordinates 541,665m E and 3,185,795m N. (Figures 2-1 and 2-2)

2.2 Mineral Titles The following information on the mineral titles was provided by Argonaut Gold Inc. as compiled by

Mr. Alberto Orozco, Argonaut’s Mexico Exploration Manager. Additionally, a legal opinion from

Mexico City law firm Vazquez & Associates was compiled in October of 2011 (Vazquez, 2011). The

results of this work conclude that all 37 of Argonaut’s concessions are valid in full force and effect.

The La Colorada property consists of 37 titled concessions in three irregular blocks separated by

ground held by other interests (Figures 2-3 through 2-5). The total land package aggregates

21,412.03 ha. The concession details are listed in Table 2.2.1. The Ext. Sonora IV concession was

one of 19 concessions optioned from Exploraciones La Colorada S.A. de C.V. The option purchase

was subsequently exercised on 18 of these concessions; however, Ext. Sonora IV concession was

cancelled by the Direction of Mines. Exploraciones La Colorada believes it has a case for the

removal of such cancellation and is appealing the decision. For this reason Pediment signed a

second option agreement with Exploraciones La Colorada establishing that, should they win the case

against the Direction of Mines, they would transfer the concession to Compañia Minera Pitalla S.A.

de C.V. for a payment of Pediment stock. This agreement has since expired. As of this moment a

decision by the courts is still pending. Although the concession has been cancelled it has not yet

been declared “free”. Until that time, the concession is not available for others to claim.



Table 2.2.1: Concession Details

Concession Title No.

Surface (ha)

Valid Acquired By

Associated Royalties From To

Sonora II 187663 8.8206 17-Sep-1990 16-Sep-2040 Contract with Exploraciones La Colorada Yes (1) Sonora VI 199425 19.6494 19-Apr-1994 18-Apr-2044 Contract with Exploraciones La Colorada Yes (1) El Crestón 199424 0.1300 19-Apr-1994 18-Apr-2044 Contract with Exploraciones La Colorada Yes (1) Lulu 198975 5.8738 11-Feb-1994 10-Feb-2044 Contract with Exploraciones La Colorada Yes (1) Demasías del Crestón

199929 0.7715 17-Jun-1994 16-Jun-2044 Contract with Exploraciones La Colorada Yes (1)

Sonora V 211758 280.9564 30-Jun-2000 29-Jun-2050 Contract with Exploraciones La Colorada Yes (1) Sonora III 211974 51.0269 18-Aug-2000 17-Aug-2050 Contract with Exploraciones La Colorada Yes (1) Sonora I 211856 157.9862 28-Jul-2000 27-Jul-2050 Contract with Exploraciones La Colorada Yes (1) Fracción Sonora III

211958 37.7795 28-Jul-2000 27-Jul-2050 Contract with Exploraciones La Colorada Yes (1)

La Muculufa 211945 24.0000 28-Jul-2000 27-Jul-2050 Contract with Exploraciones La Colorada Yes (1) Sonora IV 211788 554.4622 28-Jul-2000 27-Jul-2050 Contract with Exploraciones La Colorada Yes (1) Vicenza 211757 1.4686 30-Jun-2000 28-Jun-2050 Contract with Exploraciones La Colorada Yes (1) La Cruz 217502 1.5488 16-Jul-2002 15-Jul-2052 Contract with Exploraciones La Colorada Yes (1) Crestón Dos Fracc.III

218680 109.7378 3-Dec-2002 2-Dec-2052 Contract with Exploraciones La Colorada Yes (1)

Crestón Dos Fracc.II


Crestón Dos Fracc. I


Crestón Tres 218869 466.5758 23-Jan-2003 22-Jan-2053 Contract with Exploraciones La Colorada Yes (1) Neri 232307 0.2275 18-Jul-2008 17-Jul-2058 Contract with Exploraciones La Colorada Yes (1) Ext Sonora IV 207597 443.0047 Pending Pending Pending Pending Sandra Luz 199219 12.9455 16-Mar-1994 15-Mar-2044 Contract with Peñoles No Las Tinajitas 206409 140.0000 16-Jan-1998 15-Jan-2048 Contract with Peñoles No Vicky 206407 24.0000 16-Jan-1998 15-Jan-2048 Contract with Peñoles No Rosalía 213745 7.9760 12-Jun-2001 11-Jun-2051 Contract with Peñoles No Claudia 213214 32.7380 6-Apr-2001 5-Apr-2051 Contract with Peñoles No Sandra Luz Fracc.1 216046 0.3766 2-Apr-2002 1-Apr-2052 Contract with Peñoles No Sandra Luz Fracc.2 216047 0.0173 2-Apr-2002 1-Apr-2052 Contract with Peñoles No Carmelita 214065 150.0000 10-Aug-2001 9-Aug-2051 Contract with Minera Recami, S. A. de C. V. No Los Pilares 214187 249.0328 10-Aug-2001 9-Aug-2051 Contract with Minera Recami, S. A. de C. V. No El Crestoncito 231252 1.1693 25-Jan-2008 24-Jan-2058 Contract with Minera Recami, S. A. de C. V. No LCA 231232 13233.3690 25-Jan-2008 24-Jan-2058 Staking No LCA2 232278 2000.0000 16-Jul-2008 15-Jul-2058 Staking No Dos Fracc.I 231247 117.8470 25-Jan-2008 24-Jan-2058 Staking No Dos Fracc.II 231248 5.2974 25-Jan-2008 24-Jan-2058 Staking No Dos Fracc. III 231249 22.7623 25-Jan-2008 24-Jan-2058 Staking No Noria 235259 18.2630 4-Nov-2009 3-Nov-2059 Staking No Red Norte 1 237088 3325.9782 29-Oct-2010 28-Oct-2060 Staking No Mabelina 237242 0.1600 26-Nov-2010 25-Nov-2060 Staking No

(1) Royalties with Exploraciones La Colorada, S. A. de C. V. a. 2% NSR for underground-mining production b. 3% NSR for open-pit production c. Buy-out clause only exists for underground production royalty. The 2%NSR can be bought out for single cash

payment of USD$300,000.00 d. There is no buy-out clause for open-pit mining royalty.

2.2.1 Nature and Extent of Issuer’s Interest

All mineral titles are held through Argonaut’s wholly owned Mexican subsidiary, Compañiía Minera

Pitalla S.A. de C.V. (Minera Pitalla). Under Mexican mining regulations, it is necessary to pay a tax

for the “Mining Rights” twice annually (first and second semester). This tax is calculated based on

the surface area of a concession and does increase over time. The amounts payable (in Mexican

pesos) for each individual concession are shown in Table 2.2.1.1. The company has informed the

writers that all payments have been made for 2011. The next payments are due before the end of

December 2011. Argonaut holds the surface rights and legal access to 1,048 ha of the concession

package. This is shown in Figure 2-7.



Table 2.2.1.1: Concession Payment Liabilities

Concession Title number 1st Semester

Payment (Pesos) 2nd Semester

Payment (Pesos) 2010 2011

Carmelita 214065 9,483.00 9,483.00 Los Pilares 214187 15,744.00 15,744.00 Crestoncito 231252 9.00 9.00 NeriI 232307 2.00 2.00 Sonora V 211758 31,263.00 31,263.00 Sonora III 211974 3,226.00 5,678.00 Sonora I 211856 9,988.00 17,580.00 Fracc Sonora II 211958 2,389.00 4,204.00 La Muculufa 211945 1,518.00 2,671.00 La Cruz 217502 49.00 98.00 Creston Tres 218869 14,754.00 29,497.00 Creston Dos Fracc. III 218680 3,470.00 6,938.00 Creston Dos Fracc. II 218679 143.00 284.00 Creston Dos Fracc. I 218678 10,896.00 21,785.00 Sonora IV 211788 35,054.00 61,696.00 Vicenza 211757 164.00 164.00 Sonora VI 199425 2,187.00 2,187.00 El Creston 199424 15.00 15.00 Lulu 198975 654.00 654.00 Demasias El Creston 199929 86.00 86.00 Sonora II 187663 982.00 982.00 LCA 231232 100,574.00 100,574.00 LCA2 232278 15,200.00 15,200.00 Dos Fracc I 231247 896.00 896.00 Dos Fracc II 231248 41.00 41.00 Dos Fracc III 231249 173.00 173.00 Las Tinajitas 206409 15,578.00 15,578.00 Vicky 206407 2,671.00 2,671.00 Sandra Luz 199219 1,441.00 1,441.00 Sandra Luz Fracc. 1 216046 24.00 24.00 Sandra Luz Fracc. 2 216047 2.00 2.00 Rosalia 213745 505.00 888.00 Claudia 213214 2,070.00 3,643.00 Noria 235259 - 139.00 Red Norte 1 237088 - 16,896.00 Mabelina 237242 - 1.00

2.3 Royalties, Agreements and Encumbrances Certain claims held by Argonaut have a royalty payment. These claims and the royalty burdens are

listed in Table 2.2.1. The specific concession with royalty burdens are shown in Figure 2-6.

2.4 Environmental Liabilities and Permitting Exploration activities at La Colorada operate under the NORMA-120 issued by the Federal

environmental agency SEMARNAT. The NORMA-120 is not an issued permit, but rather a set of

regulations that allow exploration to take place. To work under the NORMA, a Company can present

a report of initiation of exploration activities and then carry out its exploration staying under a

percentage of affectation and observing a set of rules that include, road and pad dimensions,

disposal of waste, etc.



Much of the exploration activities at La Colorada, however; occur in areas which have already

received a change of use in soils for mining activities.

2.4.1 Required Permits and Status

Exploration activities at La Colorada operate under the NORMA-120 issued by the Federal

environmental agency SEMARNAT. The NORMA-120 is not an issued permit, but rather a set of

regulations that allow exploration to take place. To work under the NORMA, a Company can present

a report of initiation of exploration activities and then carry out its exploration staying under a

percentage of affectation and observing a set of rules that include, road and pad dimensions,

disposal of waste, etc.

Much of the exploration activities at La Colorada, however; occur in areas which have already

received a change of use in soils for mining activities.

Permits relating to the initiation of mining activities are addressed below in Section 17.

2.5 Other Significant Factors and Risks SRK is unaware of any other significant factor or risks to access, title or the right to perform work on

the project.

La Colorada Project

Sonora, Mexico

Figure 2-1

Project Location Map Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 2-2

Project Site Map Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 2-3

Regional Concession Map Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 2-4

Local Concession Map Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 2-5

Detailed Concession Map Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 2-6

Royalty Concession Map Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 2-7

Surface Ownership Map Source: Argonaut Gold Inc., 2011



3 Accessibility, Climate, Local Resources, Infrastructure and Physiography (Item 5)

3.1 Topography, Elevation and Vegetation The project is located in the basin-and-range geological province which is dominated by alternating

ranges and valleys bound by normal faults. This general geomorphology predominates in the district

of La Colorada with the hills being easily identifiable by Tertiary volcanic rocks that have been tilted

about 15° to the west. Elevations at La Colorada range between 400 and 650 meters above sea

level. The pit areas and the current exploration zones of Veta Madre and La Verde at located in

rather smooth-topography zones. Argonaut completed a flight and photogrammetric reconstitution

during 2011 that covers a total area of 3,343 hectares with the main historic production areas at its

center. Vegetation consists of extensive mesquite and paloverde trees, cactus and sparse grass

cover.

3.2 Climate and Length of Operating Season The La Colorada property lies within the Sonora Desert climatic region. It has an arid climate, with

summer temperatures sometimes exceeding 47 °C. Winter temperatures vary from mild to cool in

January and February. Rainfall is affected by the North American Monsoon, with over two-thirds of

the average, 19.3 cm of rain falling between the months of July and September. The weather at the

project allows for operation during the entire year.

3.3 Sufficiency of Surface Rights Since 2008, Pediment Gold Corp. acquired the main surface rights for the La Colorada mine and the

La Primavera Ranch that cover an area of 1,046.8 ha.

The surface rights are adequate for disposal of waste. The full exploitation of the La Colorada/Gran

Central pit and expansion of heap leach pads will require additional surface rights. It is expected that

as studies continue, the location and trade-offs governing the purchase of additional land will

become clearly defined.

3.4 Accessibility and Transportation to the Property The village of La Colorada and the La Colorada Property are located 40 km southeast of Hermosillo

city, in the State of Sonora, Mexico. Access is via paved Highway 16, which continues east to the

town of Yécora and the city of Chihuahua.

3.5 Infrastructure Availability and Sources Please refer to Section 15.



4 History (Item 6)

4.1 Prior Ownership and Ownership Changes The original La Colorada concessions were staked by Jesuit missionaries in 1740. By 1790,

Spanish miners had taken ownership. In 1860, an English company installed pumps and worked the

concessions until 1877 when they sold out to the Creston-Colorado Company. In 1888 the property

was sold to the Pan American Company. In 1895, the London Exploration Company purchased the

concessions. In 1902, the Mines Company of America took ownership. During the Mexican

Revolution in 1916, the mine closed and the facility was eventually dismantled.

In the mid 1980’s Minerales de Sotula S.A. de C.V. and Industrias Peñoles, S.A.B. de C.V. began re-

acquiring the mineral concessions. In 1991 Cia. Minera Las Cuevas S.A. de C.V a Mexican

Subsidiary of Noranda acquired an option on the project. Later that same year, HRC Development

Corp and Rotor International S.A. formed a joint venture ownership of the project called

Explorationes Eldorado S.A. de C.V. (EESA). EESA held the project until 2000 when it sold out to

Grupo Minero FG S.A.de C.V. In 2001, ownership was transferred to Explorations La Colorada, S.A.

de C.V. In 2007, Pediment Gold Corp. optioned and eventually, purchased the key concessions,

surface ownership and infrastructure mine from Exploraciones La Colorada. Further key

concessions were also acquired in 2008 and 2010 by Pediment. In 2010, Argonaut Gold acquired

Pediment Gold Corp. including the La Colorada project held under Pediment’s wholly owned

Mexican subsidiary, Compañia Minera Pitalla S.A. de C.V. (Minera Pitalla).

4.2 Previous Exploration and Development Results In the early nineties, Compañía Minera Las Cuevas invested $350,000.00 in exploration at La

Colorada, including reverse-circulation drilling. Later, EESA carried out systematic exploration on

the Project, focusing mostly in the El Crestón-Minas Prietas zone, but with great detail also in the La

Colorada/Gran Central zones. During the 1990’s, EESA continued its exploration program and

explored other zones such as Veta Madre, La Verde and Los Duendes. EESA conducted geological

mapping, surface sampling of rock and soils, geophysical programs, trenching and core and reverse-

circulation drilling. Other studies were also conducted by request of EESA, such as geotechnical

studies for pit-slope stability, metallurgical tests and mineralogical and petrographical studies. EESA

operated an open-pit, heap-leach operation starting in the El Crestón pit and in later years in the La

Colorada/Gran Central areas. Small-scale production also took place in the Los Duendes area,

southeast of the El Crestón pit.

In 2007, Pediment Gold Corp. optioned the project from Exploraciones La Colorada, S.A. de C.V.

and began compiling the previous work accompanied by an exploration program that included

surface sampling and mapping. A drill program commenced in 2008 focusing in the known

mineralization zones of El Crestón, La Colorada/Gran Central, Veta Madre and La Verde. The

results were followed up by the +10,000 m drill program of 2009 which combined diamond and RC

drilling and had a greater focus on the Veta Madre zone.



4.3 Historic Mineral Resource and Reserve Estimates Various historical resource estimations have been completed on the project including; Nordin 1992,

Giroux and Charbonneau 1992 and Giroux 1999. All of the “historical” estimations are super

seceded by the current NI 43-101 compliant resource estimation discussed in Section 12 of this

report.

4.4 Historic Production Mining activity in the district dates as far back as the mid 1700’s when Jesuit missionaries

discovered and later began mining the Minas Prietas zone. In the mid 1800’s and English company

installed pumps which allowed them to reach deeper levels and expanded the mining capacity at La

Colorada. The Pan American Company of New York began the first cyanidation process at La

Colorada by the late 1800’s. Several foregoing companies conducted underground mining from the

Minas Prietas, La Verde, Gran Central and Amarillas zones from this time until the early 1900’s;

however, political unrest related to the Mexican revolution caused mining to stop as the facilities had

to be evacuated. Only small-scale gambusino activity continued after that until exploration activity

resumed in 1991.

In 1993, Mr. Chester Millar successfully undertook a pilot heap leach test of 30,760 t of run-of mine

(RoM) material, producing approximately 1,500 oz of gold. Following this, a positive feasibility study

resulted in mine construction beginning in the same year. The industrial scale phase started

successfully as a conventional open pit, RoM, cyanide heap leach operation with an activated carbon

recovery process. Mine construction started in September of 1993, with the first gold poured in

January 1994. During the second year of operations the recovery process was replaced with a

conventional Merrill-Crowe (MC) circuit. Next, a two stage crushing circuit was implemented to treat

potentially mineable resource coming from the La Colorada/Gran Central pit – this was required to

achieve economical recovery levels. Construction started during 1996 and the crushing facility

became operational in 1997. Approximately 30% of the ore was treated as RoM and dumped

directly onto the pads, with the rest being crushed in the two stage crushing plant to a size of -3/4”.

The leaching-MC circuit had a processing capacity of approximately 8,000 t of ore daily at its peak

capacity. The mine operated an average of 315 days/yr. During commercial production between

1994 and 2000, EESA produced approximately 290,000 oz of gold and about 1 million oz of silver.

EESA sold the mine and plant to a local Hermosillo mine contractor, Grupo Minero FG S.A. de C.V.

(FG), who continued limited production and decommissioning for a year or so after 2000, and is

estimated to have produced approximately 70,000 additional oz of gold. EESA and FG production

statistics cited from Diaz, 2007 and Herdrick, 2007.



5 Geological Setting and Mineralization (Item 7)

5.1 Regional, Local and Property Geology The following is cited directly from McMillian et al (2009) with minor modifications of text and

formatting.

Physiographically, the La Colorada Property is located in the western foothills of the Sierra Madre

Occidental mountain chain, 110 km east of the Gulf of California. Tectonically the property is located

at the boundary between the Sonoran Basin and Range Province and the Sierra Madre Occidental

Province. These intrusive rocks are contiguous with the broad batholithic belt extending along the

western margin of North America. West-directed folding and thrust faulting occurred during the Late

Cretaceous Laramide Orogeny. Basin and Range faulting, followed in the Tertiary, and constitutes

the dominant structural event in the area.

Bedrock ranges in age from Proterozoic through Cenozoic and includes high-grade metamorphic

gneisses, shelf facies sedimentary strata, extensive andesitic to rhyolitic volcanic deposits and

dioritic to granitic intrusive rocks. Basement rocks consisting of gneisses, schists and quartzites cut

by plutons dated at 1,710 and 1,750 million years are some of the oldest rocks exposed in Mexico

and reach their southernmost limit just north of La Colorada property – these rocks are considered

the cratonic basement of North America (Zawada et al, 2001). Upper Triassic clastic sedimentary

strata (conglomerate, sandstone and siltstone) of the Barranca Group unconformably overlie the

metamorphic basement rocks in scattered locations throughout east-central and southern Sonora.

Late-Cretaceous to Tertiary volcanic rocks and associated continental clastic rocks unconformably

overlie the Triassic and older rocks. These units thicken considerably eastward, where they form

extensive sequences underlying the high plateau of the Sierra Madre Occidental Mountains. There,

two distinct divisions are apparent. A lower 100-45 Ma Lower Volcanic Complex composed mainly

of andesite with interstratified rhyolitic ignimbrites and minor interstratified basalt. The overlying

Upper Volcanic Complex has been dated at 34-27 My and is composed of extensive rhyolite and

rhyodacite ignimbrites with minor interstratified basalt. It constitutes the largest ignimbrite field in the

world. The upper sequence unconformably overlies on the older sequence and infills deeply incised

paleotopography in the older rocks. Late Cretaceous to Early Tertiary plutonic rocks (diorite,

granodiorite to granite) of the Sonoran Batholith outcrop throughout the region and have been dated

from 90-40 Ma.

The area of La Colorada is covered by Mid-Cambrian to lower Ordovician quartzites and

metalimestones; carboniferous limestones and sandstones; Triassic oligomictic conglomerate,

limestones and shales; and Upper Cretaceous volcanic tuffs ranging in composition from andesite to

rhyolite. The previous units are intruded by Paleocene to Oligocene age intrusives that include

granite, granodiorite, diorite and andesitic porphyry. These intrusives are interpreted to be the result

of the active continental margin stage of this region with the subduction of the Farallon Plate beneath

the North American plate. This was followed by a continental extension stage and continental rifting

of the Basin and Range province during the Tertiary which generated the youngest lithological units

represented in the area. The base of this tectonic stage is represented in the area by the Early

Miocene Báucarit formation, which is composed of continental conglomerates and sandstones

interbedded with basaltic to andesitic volcanic rocks. This is overlain by the Late Miocene Lista



Blanca formation composed by bimodal volcanism of rhyolitic tuff and andesite. The youngest unit

during the Tertiary is an extension-related olivine basalt unit.

Alteration can be seen in the older metamorphic and intrusive units mostly as silicification,

hematization and argillic alteration. The Tertiary volcanic rocks in the district are clearly post-mineral

and are unaltered.

On a regional scale, basin and range faults are characterized by north-northwest striking normal

faults. Crustal blocks formed by the Basin and Range faults have moderate to steep regional dips.

Steeply-dipping east-northeast trending regional faults transverse to the main trend are also common

throughout Sonora.

5.2 Significant Mineralized Zones The significant mineralized zone of this Technical Report include the El Crestón, La Colorada/Gran

Central, and Veta Madre Zones. The following descriptions are cited directly from McMillian et al

(2009) with minor modifications of text and formatting.

El Crestón

The El Crestón and Minas Prietas veins constitute the largest vein system on the La Colorada

Property and were originally mined as separate orebodies; however they are now recognized as

being part of the same mineralized zone. El Crestón refers to the current open pit area, while Minas

Prietas is located to the east of the pit. The following description is paraphrased from Ball (1911),

quoted in Lewis (1995): The veins generally strike east to east-northeast, dipping an average of 75°

N. The veins have well-defined walls and below the 100 m level are simple with few “spurs” and

parallel veins. Apparently the best values are found where the veins were thickest. The veins of El

Crestón Mine are from north to south: New Vein, North Vein, Perry Vein, South Middle Vein and

South Vein. Although the veins are separate entities, they coalesce and bifurcate in a subparallel

series of veins. The veins are all fault controlled, with the faulting preceding the veining, but small

post-ore fault offsets of a few meters is common. Again, the following descriptions are paraphrased

from Ball (1911), quoted in Lewis (1995): New Vein apparently averaged 3 to 4 m in thickness,

approximately 250 m in length and more than 225 m deep. Its surface exposure was low grade, and

had “particularly rich” grades at depths of 100 to 225 m. The North Vein was traced for more than

1,100 m. It averages 2.5 m in width, with poor grades except near surface, where it was stoped for a

length of 325 m. Ball (1911), described the South Vein as being 850 m long with an average north

dip of 820, although it locally flattens to about 400 north. The vein averages 2.5 m in width and is

higher grade near surface for a length of 525 m, but only for 170 m in the deeper levels of the mine.

The Perky (or North Middle Vein) is a splay from the west end of the South Vein. It was about 180 m

long, with a maximum width of 1 m. According to Ball (1911) the mineralized zone was wider near

the surface because the veins converge towards each other and because there is a vein stockwork –

these two factors allowed for mining by “open cut methods”. Ball (1911) states that the greater

widths and higher grades near the surface were due to a combination of greater fracturing and

secondary (supergene) enrichment. Lithologies in the El Crestón-Minas Prietas deposit include

siltstone, shale and chert of the Paleozoic Mine Sequence; diorite, monzonite and quartz feldspar

porphyry of the intrusive suite as well as hornfels and skarn derived from the sedimentary sequence

and andesite (Lewis, 1995). Alteration styles include hematization, manganese oxides, silicification,

argillic, potassic, sericitic and chloritic affecting all rock types. Deep red hematite is a prominent and



obvious feature. Manganese oxides are apparently associated with some of the higher gold values.

Structurally, the Colorada Sur Fault is the main controlling feature. It has a variable strike which

averages 60°E and dips vertically to steeply north. Although the underground mines selectively

mined individual veins over narrow widths as described above, EESA’s open pit extracted larger

scale stockwork zones and areas of multiple veining over cumulative thickness of up to 90 m (Lewis,

1995).

Gran Central Deposit

Gran Central is geologically similar to El Crestón-Minas Prietas, and again is composed of quartz

veins and stockworks localized in the Gran Central Fault. It is hosted in a diorite stock which

contains roof pendants of siltstone and lesser calc-silicate hornfels. Quartz feldspar porphyry dykes

up to 2 m in width cut the diorite. The youngest rocks are a few small pre-mineral mafic dikes up to 2

m in thickness. At the eastern end of the deposit, the diorite is in fault contact with and covered by

an andesite “cap”. The andesite is less altered and oxidized than the underlying diorite and devoid

of gold values (Lewis, 1995). EESA tested the zone over a length of 450 m and a depth of 150 m,

but the old underground extends 200 to 300 m further to the west and to a depth of 300 m. The

east-west trending Gran Central Fault is the controlling structure and has a north dip averaging 50°.

The Gran Central Fault consists of a number of sub-parallel splays, where quartz veins, stockworks

and breccias zones are associated with clay-chlorite gouge. Alteration minerals are similar to those

found at El Crestón-Minas Prietas; however calcite is a common gangue mineral, and siderite veins

as well local amethyst are present (Lewis, 1995). Footwall rocks tend to be more heavily altered

than hanging wall rocks. Fine native gold is present in the deposit and some areas with visible gold

posed a minor “nugget effect” problem for EESA at Gran Central (Lewis, 1995). Sulfide minerals

ranging between 1 and 3% by volume are characteristic in the unoxidized portion of the deposit. In

the sulfide portion of the deposit, the minerals include galena, sphalerite, lesser chalcopyrite, minor

tetrahedrite and traces of chalcocite and covellite.

La Colorada Deposit

Gold-bearing quartz veins and stockworks at La Colorada are hosted in an east-west striking fault

with a north dip averaging 45°. It is hosted by rhyolite porphyry and diorite. It is within and adjacent

to the same dioritic stock which hosts the Gran Central Deposit. EESA traced the mineralization for

500 m along strike and for 100 m down dip. The zone is an average of 20 m thick. Lewis (1995)

state that according to historical records, mineralization is terminated at a depth of approximately

200 m by a flat fault, below which non-mineralized granite is present. Mineralogy and alteration are

similar to El Crestón-Minas Prietas.

Veta Madre Zone

Veta Madre is located 1.5 km. east of El Crestón-Minas Prietas Pit. It consists of a zone of extensive

alteration associated with the Colorada Sureste Fault. Historical miners sunk three deep sub-vertical

shafts. Rock types include siltstone, diorite, monzonite, granite, rhyolite feldspar porphyry and

dacite. EESA completed 11 trenches of different lengths and 1,566 samples were taken which

returned gold values of between 0.15 and 0.8 ppm with sporadic higher values of between 1.5 and

5.0 ppm Au. Anomalous zinc values were encountered at one location with one 4 m section grading

1.5% Zn. EESA drilled twenty one reverse-circulation drillholes totaling 2,372 m. A single diamond

hole was drilled in the area (249.9 m). These holes intersected mineralization along an east-



northeast trending structure, with a strike length of close to 500 m. Pediment has since completed

25 RC drillholes (2,098 m) in 2008- 2009, with follow-up drilling.

Regional and local geologic maps complied by Argonaut are presented in Figures 5-1 through 5-3. A

representative, geologic cross section through the La Colorado/Gran Central area is presented in

Figure 5-4.

La Colorada Project

Sonora, Mexico

Figure 5-1

Regional Geology Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 5-2

La Colorada/Gran Central Pit Area Geology Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 5-3

El Crestón Pit Area Geology Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 5-4

La Colorada/Gran Central Area Cross Section Geology Source: Argonaut Gold Inc., 2011



6 Deposit Type (Item 8) The following descriptions of deposit types are cited directly from McMillian et al (2009) with minor

modifications of text and formatting.

6.1 Mineral Deposit La Colorada Gold District has many of the characteristics of a low sulfidization epithermal-vein type

gold-silver deposit. Although there are differences, such as the more sheared and deformed nature

of the La Colorada deposits, the authors (McMillian et al, 2009) believe that La Colorada could be an

outlier of the prolific Sierra Madre Occidental trend of gold-silver deposits that traverses much of

central Mexico. Zawada et al (2001) from fluid inclusion studies, state that “La Colorada district

underwent a complex hydrothermal history related to Cretaceous plutonic activity, later higher level

plutonic events, and finally a mid-Tertiary vein system which shares characteristics in common with

both a deep epithermal environment and a high-level mesothermal system.” Zawada et al (2001) go

on to state that “features indicative of a deep epithermal environment include abundant multistage

coarse and fine grained crystalline quartz bands, with gold deposition more abundant in the finer

grained stages; abundant primary growth zones indicative of open-space filling under hydrostatic

pressure conditions; and the absence of low temperature silica phases such as chalcedony or

recrystallized amorphous silica, which are typically present within the mineralized zones of higher

epithermal systems” .

The current authors (McMillan et al) believe that the deposits are epithermal in nature and of the low-

sulfidization type in particular. The La Colorada deposits however have been subject to burial and

as a consequence to shearing and elevated temperatures prior to being exhumed and re-exposed.

These suppositions are not merely academic, and are believed to have exploration implications – in

particular in tracing the key structural-stratigraphic traps for mineralization down-dip in the relevant

fault blocks generally west from the known mineral deposits below the Tertiary volcanic cover.

6.2 Geological Model Applied Discussion of the general characteristics of epithermal Au-Ag deposits follows and is believed to be

relevant. Recently epithermal-type Au-Ag deposits in the Pacific Rim and in Eurasia have been the

source of much of the world’s new gold supply. This has resulted in an improved understanding of

epithermal-type precious metal deposits and has allowed for construction of models which could be

very useful in future exploration of the La Colorada Property. The following comments are based

largely on recent papers by Hedenquist et al (2000) and Simmons et al (2005).

Epithermal deposits are found in the shallow parts of subaerial high-temperature hydrothermal

systems and are very important in Tertiary to Recent calc-alkaline and alkaline volcanic rocks. They

are particularly important in the Circum Pacific Volcanic Arcs and in the Mediterranean and

Carpathian regions of Europe. Host rocks are variable and include volcanic and sedimentary rocks,

diatremes and domes. Structural controls include dilatant zones related to extensional faulting and

favorable lithologies in permeable and/or brecciated host strata in the near-surface environment.

Although some mineralization can be disseminated, most common mineralization is hosted by

steeply-dipping vein systems. Both open-pit bulk mining and selective underground mining methods

are employed to exploit the deposits, depending upon the nature of the mineralized bodies. Heap-



leach treatment is possible in some oxidized deposits. In contrast some high-sulfidation deposits

can be refractory, with the gold encapsulated by sulf-arsenide minerals.

Mineral textures include banded, crustiform-colliform and lattice textures composed of platey calcite

sometimes pseudo morphed by quartz. An important feature of epithermal deposits is a pronounced

vertical zonation, with quartz veins carrying base metal sulfide mineralization at depth, becoming

silver-rich higher in the system and finally gold-rich near the top. Both low-sulfidation and high-

sulfidation epithermal deposits can be overlain by a discontinuous blanket of kaolinite-smectite,

sometimes with alunite and native sulfur, within an opaline rock that is easily eroded (Hedenquist et

al, 2000). Although some deposits display intermediate characteristics, two end member types of

deposit are generally recognized.

High-sulfidation deposits are characterized by a silicic core of leached residual vuggy silica as the

main host to the mineralization (Hedenquist et al, 2000). Major metallic minerals can include pyrite,

enargite/luzonite and covellite, with lesser quantities of native gold and electrum, chalcopyrite and

tennantite/tetrahedrite. Upward from the silicic core there is generally an upward-flaring advanced

argillic zone consisting of quartz-alunite, barite and kaolinite, and in some cases pyrophyllite, or

zunyite (Hedenquist et al, 2000). High sulfidation deposits are commonly proximal to and in some

cases hosted by a high level subvolcanic intrusive or dome – calderas constitute a particularly

important environment.

Low-sulfidation deposits typically range from veins, through stockworks and breccias to disseminated

zones. Mineralized bodies in low-sulfidation systems are commonly associated with quartz and

adularia, with carbonate minerals or sericite as the major gangue minerals. Major metallic minerals

can include pyrite/marcacite, pyrrhotite, arsenopyrite and high-iron sphalerite. Less abundant

metallic minerals include native gold and electrum, cinnabar, stibnite, Au-Ag selenides, Se sulfosalts,

galena, chalcopyrite and tetrahedrite/tennantite. Hedenquist et al (2000) state that hot spring sinter

can form above a low-sulfidation deposit and that the clay alteration associated with a deposit can

“mushroom” above the deposit towards the surface and have an aerial extent “two orders of

magnitude larger than the actual ore deposit.” In some cases mercury mineralization, and/or

geochemically anomalous As, Sb and Tl, is found near the top of the deposit and in the overlying

siliceous sinter.

According to Herdrick (2007), the La Colorada project area contains at least three parallel vein

trends on which underground and open pit mining has been conducted. Targeting of drillholes is

based on structural analysis and vertical zoning recognized in the district, as well as fluid inclusion

and alteration studies which indicate that gold mineralization exposed in the pits resulted from boiling

in the epithermal system. The upper parts of a boiling system are typically recognized as barren

alteration zones, overlying potentially gold bearing parts of the vein structure at depth. Veins are

focused along east-west and northeast-southwest trending structures that dip moderately to the

north and northwest, and cut across local skarn alteration and intrusive bodies. Surface mining was

focused along three structures, the upper parts of which flare out into stockwork zones. Eight

different structures in the La Colorada mine area appear to have older underground workings in gold

bearing quartz veins.

Age dating was undertaken on three hydrothermal sericite samples. Two are from the La Colorada

Pit and one from the Gran Central Pit (Zawada et al, 2001). The samples were subject to 40Ar/39Ar

analyses at the New Mexico Institute of Science and Technology Geochronology Research Lab in



Socorro, New Mexico, yielding respectively: 27.1 +/- 2.0 Ma, 22.45 +/-0.19 Ma and 23.83 +/- 1.6 Ma.

Two biotite samples collected from dioritic intrusions from the Gran Central Pit yielded ages of 70.4

+/-0.2 Ma and 69.9 +/- 2.2 Ma. These dates suggest that the hydrothermal alteration and associated

gold mineralizing event was Miocene in age and probably related to the Tertiary volcanic event. The

Cretaceous age for the biotite in the diorite suggests the intrusive event for the granitic plutonic rocks

was much earlier and not associated with the hydrothermal gold mineralizing event.



7 Exploration (Item 9)

7.1 Relevant Exploration Work Argonaut has conducted surface exploration consisting of rock chip and soil sampling.

7.2 Surveys and Investigations

7.2.1 Exploration Rock and Soil Sampling

Selected surface rock samples were collected by qualified Mexican geologists together with

appropriate geological-technical data, including UTM coordinates, lithology and mineralization

recorded in field books. The samples are placed in standard plastic rock sample bags, tagged and

the locations recorded in a master database. The plastic bags are sealed using plastic pull ties. All

samples are taken to the office facilities within the La Colorada project.

During 2011, Argonaut’s regional exploration program at La Colorada included soil sampling from the

Sombreretillo and the Los Duendes areas. Sampling was made over a spacing array of 50 m by 100

m, and nearly all samples consisted of material from the B and C horizons, with depths ranging from

20 to 45 cm. Detailed information for all samples was recorded in paper and later included in the

Surface Database. All samples were placed mainly in cloth bags, and were shipped to the laboratory.

So far, Argonaut’s geologists have taken 99 samples in the Los Duendes area, to the south of El

Creston open pit; as well as 61 soil samples from Sombreretillo, located to the Northeast of the Veta

Madre area.

7.3 Significant Results and Interpretation Small outcrops of Qtz+Ox mineralized structures with anomalous Au values were sampled at the

Sombreretillo area, to the northeast of Veta Madre; these structures are hosted by dacitic rocks with

strong presence of Qtz veinlets, and they are parallel to the mineralization trend of the Veta Madre

area. Recently received assay results of around 50 rock samples from the Sombreretillo area, have

helped Argonaut’s exploration personnel to design a new drill program, which is currently under

review and it is programmed to be implemented in the near future.

In addition, a siltstone-hosted mineralized structure trending to the northwest was sampled at the Los

Duendes area, from where several rock samples with anomalous Au assays were found; turning the

area into a possible further exploration target.

General reconnaissance of two new properties, Red Norte and Red Sur, located to the south of the

La Colorada mine, has been carried out; results from that work shows presence of several North-

South trending veins and structures, which are accompanied of anomalous values of Au and Ag that

may lead to more aggressive exploration in the near future.

Soil sampling results in both areas have been positive; and, as mentioned before, a new drilling

program , partially based on surface sampling and intended to expand the resource has been

already made.



8 Drilling (Item 10) The majority of the drilling which supports the current resource estimation was conducted by the

three most recent owners of the project including; EESA, Pediment and Argonaut.

8.1 Type and Extent EESA completed 874 drillholes on the project during their ownership. The details of the EESA

drilling are outlined in Table 8.1.1.

Table 8.1.1: EESA Drilling Summary

Drilling by Area and DH Type: RC/Percussion Diamond Core Total Drilled

Number m Number m Number mEl Crestón Pit 381 42,047.62 26 3,327.85 407 45,375.47Gran Central Pit 150 18,358.70 27 3,400.10 177 21,758.80La Colorada Pit 158 23,254.71 18 3,439.10 176 26,693.81La Verde 33 1,439.00 0 0.00 33 1,439.00NE Extension 28 2,266.00 2 314.00 30 2,580.00Veta Madre 21 2,372.00 0 0.00 21 2,372.00El Represo 1 279.20 3 204.00 4 483.20Los Duendes 24 639.00 32 1,670.00 56 2,309.00Colorada Norte 32 3,526.00 0 0.00 32 3,526.00Colorada Sur 46 4,226.00 0 0.00 46 4,226.00Total 874 98,408.23 108 12,355.05 982 110,763.28

Pediment completed 133 drillholes on the project during their ownership. The details of the

Pediment drilling are outlined in Table 8.1.2.

Table 8.1.2: Pediment Drilling Summary

Total Drilling: 2008 2009 2010 Total

Number m Number m Number m Number mRC 22 4,314.64 105 7,533.86 1 353.57 128 12,202.07DD (with precollar) 0 0.00 5 1,518.70 0 0.00 5 1,518.70Total 22 4,314.64 110 9,052.56 1 353.57 133 13,720.77Drilling By Area: El Crestón Pit 2 358.20 36 2,886.78 1 353.57 39 3,598.55Gran Central Pit 3 580.60 9 1,214.28 0 0.00 12 1,794.88La Colorada Pit 1 341.40 13 1,580.15 0 0.00 14 1,921.55La Verde 7 1,327.60 18 1,109.46 0 0.00 25 2,437.06NE Extension 5 964.70 4 237.75 0 0.00 9 1,202.45Veta Madre 4 742.14 21 1,356.36 0 0.00 25 2,098.50Leach pads 0 0.00 4 60.96 0 0.00 4 60.96Waste Pads 0 0.00 5 606.82 0 0.00 5 606.82Total 22 4,314.64 110 9,052.56 1 353.57 133 13,720.77

Argonaut has completed 245 drillholes on the project to date. The details of the Argonaut drilling are

outlined in Table 8.1.3.



Table 8.1.3: Argonaut Drilling Summary

Total drilling: Number mRC 142 23,810.95DD (with precollar) 76 11,635.07Total 218 35,446.02Drilling by area: El Crestón Pit 12 2,470.40Gran Central Pit 69 12,045.27La Colorada Pit 64 10,451.15La Verde 9 1,908.05NE Extension 0 0.00Veta Madre 64 8,571.15Leach Pads 16 385.55Waste Pads 11 402.33Total 245 36,233.90Source: Minera Pitalla Drilling Summary – 2011

8.2 Procedures

8.2.1 Pediment, Reverse Circulation (RC) Drilling

Pediment used Layne de México and Globexplore Drilling S.A. de C.V., both of Hermosillo, for the

reverse circulation drilling. Drillholes were generally oriented on azimuths 180° and 160° and

inclined with dips between -45° and -90° to the south because of the predominant north dip to the

veins and stockwork zones. Brunton compass was used for marking the direction of drilling on the

pads. All drillholes contained a systematic code numbering, using a prefix indicating the year and

type of drilling and had continues numbering. Initial pads were located by handheld GPS. Upon

completion, further surveying with precision instruments was completed to obtain the exact drillhole

coordinates. RC pipe diameter was 5 1/8 inch for Lyne RC or 5.0 inch for Globexplore RC. RC

cuttings were logged coincidentally with drilling using hand lens and binocular field microscope . RC

samples were taken every 5 ft (1.52 m) regardless of lithology, alteration or mineralization. Chip

trays were set up at this sample interval. After completion of a drillhole, the site was monumented by

a marker composed of down-hole PVC pipe encased in a cement block which was labeled with the

drillhole number.

8.2.2 Pediment Core Drilling.

Pediment used Layne de Mexico of Hermosillo for its core drilling. Layne drilled with a skid mounted

Cummins B-20 diamond drill rig. This equipment was used to drill five new holes, and two existing

holes were re-entered. All holes were drilled using HQ diameter bits. The entire hole was sampled.

In the mineralized zones samples were collected at regular 1.0 m or less, intervals. In zones with no

obvious mineralization, samples were collected at 3.0 m intervals.

8.2.3 Argonaut Reverse Circulation (RC) Drilling.

Argonaut used Layne de México and Major Drilling de Mexico S.A, de C.V., both of Hermosillo, for its

RC drilling. Drillholes were oriented on azimuth 180° and inclined with dips between -45° and -90° to

the south following Pediment´s drill scheme. The drill plan design was to infill at 25 m spacing.

Brunton compass was used for marking the direction of drilling on the pads. All drillholes contained



a systematic code numbering, using a prefix indicating the year and type of drilling and had

continuous numbering follow the system of Pediment. Initial pads were located by handheld GPS.

Upon completion, further surveying with precision instruments was completed to obtain the exact

drillhole coordinates. RC pipe diameter was 5.0 in for Lyne RC or 5 1/8 in for Major RC. RC cuttings

were logged coincidentally with drilling using hand lens and binocular field microscope. RC samples

were taken every 5 ft (1.52 m) regardless of lithology, alteration or mineralization. Chip trays were

set up this sample interval. After completion of a drillhole, the site was monumented by a marker

composed of down-hole PVC pipe encased in a cement block which was labeled with the drillhole

number.

8.2.4 Argonaut Core Drilling.

Argonaut used Landdrill International Mexico S.A. de C.V. and Falcon Perforaciones de Mexico S.A.

de C.V. both of Hermosillo and GDA Servicios Mineros S.A. de C.V. of Chihuahua for its core drilling.

Two drills were skid-mounted and two were buggy-mounted diamond drill rigs. Some of the holes

were drilled using PQ diameter bits in order to obtain metallurgical samples, others used HQ

diameter bits to obtain exploration samples. Sampling procedures followed the protocols established

by Pediment as described above.

8.2.5 Argonaut RoM Pad Drilling

A Becker-Hammer rig contracted from Layne de Mexico was used to drill test the RoM leach pad and

Waste dumps at La Colorada. This type of drilling drives casing with a percussion hammer without

the necessity of rotation. The casing is a double wall drive pipe with a large center opening which

allows even large cobbles to be lifted without prior crushing. Since drilling and casing are combined

in one operation, this method provides a continuous and generally, more accurate sample of the

geological formation being drilled. Since the RoM pad and waste dumps consist of uncrushed rock,

the Becker was chosen to get as much recovery in the coarse size as possible. The Becker hammer

used at La Colorada had a 9-in outer diameter and 6-in inner diameter with dual tube drill pipe.

Layne reported the rig being able to commonly lift 4-in cobbles.

All Becker hammer drillholes were drilled at a -90⁰ angle and were drilled without introducing water.

The sampling procedure on this type of drilling was similar to the one used in RC samples, with the

exception that none of the sample portions were discarded. Routinely, the sample was discharged

and split by half; 50% of the sample was bagged and stored at the storage house and the other 50%

was split again to obtain two 25% portions of the total; one of which was bagged and stored as a lab

sample witness and the other 25% was bagged, marked and shipped to the preparation laboratory.

Whenever a duplicate sample was needed, both 25% portions were split again, so four 12.5% splits

were obtained, two of which were shipped to the preparation lab and the other two were stored at the

storage house.

8.3 Interpretation and Relevant Results Reputable contractors using industry standard techniques and procedures have conducted the La

Colorada drilling. The historic drilling was conducted to the industry best practices of the time. This

work has defined several large zone of anomalous gold mineralization within the El Crestón, La

Colorada/Gran Central, and Veta Madre Zones. Figure 8-1 shows the locations of the Argonaut

drillholes. The drillholes are generally located in a wide range of spacing and orientations. They



typically bear to the south, inclined steep to moderately. This orientation provides an oblique angle

of intersection between the predominate plane of mineralization and the drillhole. Based on the wide

range of drillhole orientations most of the sample lengths do not represent true thickness of

mineralization. In general, the drillhole intercept length is greater than the true thickness of

mineralization.

SRK is of the opinion that the drilling operations were conducted by professionals, the RC chips and

core were handled and logged in an acceptable manner by professional geologists, and the results

are suitable for support of an NI 43-101 compliant resource estimation.

La Colorada Project

Sonora, Mexico

Figure 8-1

Drillhole Location Map Source: Argonaut Gold Inc., 2011



9 Sample Preparation, Analysis and Security (Item 11)

9.1 Methods

9.1.1 Reverse Circulation Drill Samples

RC samples were collected every 5 ft or 1.52 m. The rig is equipped with a cyclone with both a

vertical and a lateral discharge. Material from the vertical discharge passes through a second splitter

to obtain two samples. One of the splits is discarded and the other is split again to obtain two new

samples. These final two samples are bagged in previously-marked plastic (dry material) or

micropore bags (wet material) and sealed with plastic pull ties. One of the bags is weighed and

collected for assay, while the other reject is stored at the La Colorada warehouse as a duplicate in

case further checks are required. QA/QC field duplicates are prepared by splitting the reject once

and keeping one half for storage, the other half is then split again and bagged as a field duplicate to

go for assay. The sampling process is performed by trained local workers under the supervision of

one experienced worker and a project geologist. At the end of the day or shift, all sample bags for

assay are taken to the La Colorada office and organized there, inserting the corresponding QA/QC

samples containing blanks and standards.

9.1.2 Diamond Drill Core Samples

Samples were first marked by the geologist after geological logging, RQD and photography was then

completed. Sample splits were collected dry, using either a manual or a hydraulic core splitter. In

the case of filed duplicates, the samples had to be split twice, making sure representative parts were

used in both sample bags. Weights for all samples were recorded prior to sending to the lab.

Sample splitting was performed by local trained workers under the supervision of Argonaut’s

qualified geologist. Core boxes are stored at a warehouse in La Colorada using plastic boxes which

are properly marked with drillhole number and intervals contained in meters.

9.2 Security Measures All Argonaut drill and surface samples taken at the Project were stored and secured in the Project’s

office. Sample transfer to the assay lab were regularly scheduled three times a week. The samples

were collected by Inspectorate directly at the site. Personnel from the lab would sign off after the

samples were loaded into the truck, then the samples were delivered to the preparation laboratory in

Hermosillo. The laboratory itself would ship processed pulps for assay in their laboratories in the

U.S.

9.3 Sample Preparation All of Argonauts samples were prepared and analyzed by Inspectorate Labs, Hermosillo, Mexico.

Inspectorate is fully independent of Argonaut; it is not an ISO certified laboratory but does follow the

“Bureau Veritas” code of ethics.

All samples were dried, crushed, split and pulverized in Inspectorate’s Hermosillo prep facility. The

pulps were then sent to Inspectorate’s main U.S. facility in Reno Nevada for fire assay gold and

silver analysis.



As part of routine procedures, Inspectorate uses barren wash material between sample preparation

batches and, where necessary, between highly mineralized samples. This cleaning material is

tested before use to ensure no contaminants are present and results are retained for reference.

Inspectorate’s sample preparation and fire assay procedures are as follows:

1. Sample is logged in and weighed.

2. Sample is dried in ovens.

3. Sample is crushed to 80% <2 mm or better.

4. The crusher is cleaned with compressed air after each sample.

5. Sample is split using Jones Riffle until up to 250 g sample remains.

6. Sample is packed and the reject is returned to original bag and stored.

7. Sample from step 5 is pulverized to 85% passing -200 mesh or better.

8. Pulps are shipped to Reno, Nevada.

9. Au and Ag are assayed by fire assay using Atomic Absorption Spectrometry (AAS) finish,

with 50 g nominal sample weight.

10. 30 additional elements are assayed by ICP using aqua regia digestion and read with ICP-

AES.

9.4 QA/QC Procedures and Results Argonaut’s practice is to insert one control sample (standards, blanks and duplicates) at 10-sample

intervals through an entire drillhole. The control sample inserted each time is in sequence as

standard, blank and field duplicate. This repeats for as many QA/QC sample intervals as the

drillhole requires. Standards used are commercially produced by Rocklabs and include different gold

grades and two material types: oxide and sulfide. The material type is selected to match the type of

mineralization being sampled in the drillhole. Commercial blanks are also purchased from Rocklabs.

Field duplicates are prepared during drilling as described in Section 9.1.

After certified assay results are received from Inspectorate labs, statistical and/or graphic QA/QC

analyses are applied to all control samples. Argonaut does not include any analytical batch results in

its final database that have not passed the QA/QC procedure satisfactorily.

Duplicate samples are evaluated mainly using the Spearman Rank’s correlation coefficient (R2),

which considers differences in Au-values sorting-ranks and is calculated to assure a good positive

correlation represented by the proximity of R2 to 1. In addition, the Pearson correlation coefficient is

also calculated for the original data, to verify the direct correlation level.

Figures 9-1 through 9-5 show that all Standards and Blank samples fell within acceptable limits.

Repeatability on duplicate samples results was highly acceptable; requests for several re-assays on

duplicates were triggered by high differences in results, and almost all the issues were attributed to

the presence of a minor nugget effect, seen also in previous drilling programs. Statistically, the

Spearman coefficient demonstrated a very good positive correlation level for the duplicates in the

2011 program (0.8875). The Pearson coefficient value reflects the heterogeneity of the duplicates.

Certificates of results for all reference material are issued by RockLabs, these documents contain

mainly the mean Au values and the Standard Deviation for each standard they manufacture, and this

information is taken into account to establish the tolerance limits which determine if a re-assay is



required. Reference material results that Argonaut receives from Inspectorate are graphically

analyzed as part of the QA/QC procedures.

9.5 Opinion on Adequacy SRK is of the opinion that the analytical work performed by Inspectorate is valid and suitable for use

in resource estimation. The fire assay method is an industry accepted analytical technique to

determine Au and Ag content in exploration samples. The QA/QC program employed by Argonaut

meets current industry standards and the results of this work indicate good precision and accuracy of

the analytical results.

La Colorada Project

Sonora, Mexico

Figure 9-1

Blank Analyses Performance Chart Source: Argonaut Gold Inc, 2011

La Colorada Project

Sonora, Mexico

Figure 9-2

Certified Standard OxE86 Performance Chart Source: Argonaut Gold Inc, 2011

La Colorada Project

Sonora, Mexico

Figure 9-3

Certified Standard OxF65 Performance Chart Source: Argonaut Gold Inc, 2011

La Colorada Project

Sonora, Mexico

Figure 9-4

Certified Standard SG40 Performance Chart Source: Argonaut Gold Inc, 2011

La Colorada Project

Sonora, Mexico

Figure 9-5

Field Duplicate Performance Chart Source: Argonaut Gold Inc, 2011



10 Data Verification (Item 12)

10.1 Procedures Two data verification procedures have been employed to verify the data in this technical report. The

first involves 11 character samples collected by McMillian et al (2009); the second is verification of

the electronic data base completed by SRK.

The following description of data verification by character samples is cited directly from McMillian et

al (2009) with minor modifications of text and formatting.

During the property visit by two of the authors (McMillan and Dawson) on October 3, 2009, eleven

character samples were taken. The samples collected ranged between 0.64 and 6.03 kg., averaging

about 2 kg. They were collected with a geological pick into a plastic sample bag and delivered

personally by McMillan and Dawson on October 3 to the ALS Chemex preparation facility in

Hermosillo. The analytical results and comparative Pediment results are presented in Table 10.1.1.

The riffle split samples of the reverse circulation drill cuttings show good correlation as was

expected. The chip samples show poorer correlation – perhaps reflecting to greater variability and or

more personal bias in chip sampling.

Table 10.1.1: MacMillian et al (2001) Comparative Sampling Results

Duplicate and Character Rock Chip and RC Drill Cutting Samples – La Colorada Mine area

Sample No Easting(1) Northing(1) Description Au ppm

this work(2)

Au ppmPediment

Gold(2)

MD001 54282 3185654

El Crestón pit ramp. 2 m chip sample on bench between Pediment Samples 324282 and 324283. N-trending vuggy quartz veinlets to 1 cm. cutting red weathering hornfelsed argillite. 20 cm. N-trending, steeply-dipping felsic dyke cuts sediments.

0.11 0.014 0.026

MD002 542840 3185640 El Crestón pit ramp. 2 m chip sample on bench between Pediment Samples 324264 and 324265. Quartz vein stockwork cutting altered argillite. ~75 to 80% quartz.

0.53 0.197 0.111

MD003 542920 3185760

El Crestón pit. 2 m chip sample on bench duplicating Pediment Sample 324224. 0.5 to 2 cm. quartz vein swarm trends SW cutting red baked argillite. Broken granodiorite intrusive dykes to 0.5 m.

0.18 0.138

MD004 542920 3185760

El Crestón pit. 2 m chip sample on bench duplicating Pediment Sample 324223. 0.5 to 2 cm. quartz vein swarm trends SW cutting red baked argillite. Broken granodiorite intrusive dykes to 0.5 m.

0.35 0.103

MD005 542920 3185760 El Crestón pit. 10 to 15 cm. gouge zone in same location as MD003. Duplicates Pediment Sample 324222.

2.45 0.485

MD006 541233 3185777

La Colorada pit. 1.5 m sample of La Colorada vein. Vein is intensely oxidized but contains fine pyrite, galena and sphalerite and some vuggy quartz. Vein (which is a stockwork of fine veinlets) dips ~ 500 N. Duplicates Pediment Sample 434696.

0.95 0.164

MD007 541345 3185642

Gran Central pit. 3 m chip sample of 1.4 m highly altered shear zone dipping NE ~450. Drusy quartz, maroon and red Fe oxides and some Mn. Duplicates Pediment Sample 434806.

0.32 4.71

MD008 Duplicate riffle split of RC hole sample 40556. 0.77 0.776MD009 Duplicate riffle split of RC hole sample 40494. 1.77 2.289MD010 Duplicate riffle split of RC hole sample 40492. 1.55 1.472MD011 Duplicate riffle split of RC hole sample 40493. 1.3 0.969

(1) NAD 27 Mexico, Zone 12K (2) All samples assayed by ALS-CHEMEX



SRK verified the electronic database to the original source data to assure validity of the data

supporting the resource estimation of this report. Argonaut supplied SRK with scanned copies of the

original drill logs or assay certificates where possible. SRK then manually compared the collar

locations, orientations/down-hole surveys and assay data within the electronic database to the

original sources. Assay certificates were only available for 67% of the assay data used to support

the current resource estimation. Eleven percent of these were validated by direct checks, no input

errors were found. Drill collar location from the EESA program were located in mine grid coordinates

and then transformed into UTM coordinates. The EESA mine grid is a truncated version of and older

UTM grid. Some of the original EESA collar coordinates are available in drill logs but due to the

transformation, direct comparison to the current coordinates was not possible. All drill collar

locations from the Pediment and Argonaut drilling were verified to the original sources. No errors

were found. Three percent of the hole orientation/down-hole surveys were verified to original data,

no errors were found.

10.2 Limitations SRK was not limited in its access to any of the supporting data used for the resource estimation or

describing the geology and mineralization in this Technical Report.

The database verification is limited to the procedures described above. All mineral resource data

relies on the industry professionalism and integrity of those who collected and handled it. SRK is of

the opinion that appropriate scientific methods and best professional judgment were utilized in the

collection and interpretation of the data used in this report. However, users of this report are

cautioned that the evaluation methods employed herein are subject to inherent uncertainties.

10.3 Data Adequacy It is SRK’s opinion that the drillhole data is adequate to support to resource estimation of this report.



11 Mineral Processing and Metallurgical Testing (Item 13) All information contained within this section was provided by Kappes, Cassiday & Associates (KCA)

in Reno, Nevada.

Metallurgical test work has been completed and ongoing during 2011 on material drilled from the

existing RoM Leach Pad at La Colorada as well as on new PQ and HQ core drilled from the La

Colorada, La Colorada West, Gran Central and Gran Central West pit designations.

The metallurgical drillhole locations are included in the map presented in Figure 11-1.

In both cases, the amount of drilling completed for the test programs completed by KCA in 2011

would appear to be representative of the areas being examined.

11.1 Testing and Procedures For the RoM Leach Pad sample a group of 19 buckets of material were received at KCA in Reno,

Nevada. The received material was stage crushed to 100% passing 25 millimeters and a portion of

this material then crushed to 100% passing 12.5 mm in order to develop crushed material for head

characterization, bottle roll leach test work, agglomeration test work and column leach test work.

For the metallurgical core drillholes developed at La Colorada, KCA received 189 five-gallon buckets

containing HQ and PQ core (1/2 split and whole core was received) and assay control sample pulps

from the La Colorada Project of Argonaut Gold, Inc. located near Hermosillo, Mexico. The core

intervals received were prepared and assayed by Inspectorate in Sparks, Nevada for gold and silver.

An additional group of core samples were received. These core samples were contained in 21

buckets and were intervals of ½ split HQ core previously assayed by La Colorada personnel. These

core intervals were from the Gran Central West area.

A total of 206 intervals were received from four separate areas of the La Colorada project. The

intervals received were representative of 13 drillholes developed from across these areas.

A total of four core composites were developed for head characterization, bottle roll leach test work,

preliminary agglomeration and column leach test work. These composites were representative of

the La Colorada, La Colorada West, Gran Central and Gran Central West areas.

Column leach tests were conducted on each of the four composites utilizing material crushed to

100% passing 25, 16, 12.5, for the La Colorada West and the Gran Central West composites and

material crushed to 100% passing 25, 16, 12.5 and 8.0 mm for the La Colorada and Gran Central

composites. An additional column test of 100% passing 9.5 mm is in progress for La Colorada West,

and core samples are in transit for planned column tests of El Creston and Veta Madre at 100%

passing 9.5 mm crush size.

11.2 Relevant Results The results of the column leach tests conducted on the RoM Leach Pad material are summarized in

Table 11.2.1.



The column leach tests were completed on material crushed to 100% passing 25 and 12.5 mm.

Screen analyses of the column tailings indicated that the two (2) column leach tests conducted had

similar particle sizes with 80% of the material crushed to minus 25 mm being finer than 10.5 mm and

80% of the material crushed to minus 12.5 mm finer than 8.2 mm. Gold recoveries for the two (2)

columns ranged from 43% to 46% after 78 days of leaching. Sodium cyanide consumption averaged

0.34 kg/t NaCN and ranged from 0.30 to 0.38 kg/t NaCN.

The feed material for both column leach tests were agglomerated with cement prior to leaching. The

cement added during agglomeration was approximately 2 kg/t.

Table 11.2.1: La Colorada Project Column Test Results on RoM Leach Pad Material

Source: KCA, 2011

The results of the column leach tests conducted on the core composites are summarized in Tables

11.2.2 and 11.2.3.

Table 11.2.2: La Colorada Project Column Test Results on Core Material – Gold

Source: KCA, 2011



Table 11.2.3: La Colorada Project Column Test Results on Core Material – Silver

Source: KCA, 2011

It should be noted that some degree of variability was noted during the course of the column test

program reported here with regard to head assays and calculated head assays completed for

individual tests. While the exact source of this variability was not determined from the test work the

relative standard deviation for the calculated head gold values for each group were all less than 13%

and this would indicate generally good agreement between column tests.

For this test program the minus 25 mm material was leached for 48 days. The minus 16 and minus

12.5 mm material were crushed for 63 days and the material crushed to minus 8 mm were leached

for 72 days. Examination of the leach curves does indicate that leaching was continuing to some

extent when the column leach tests were ended. Although some additional recovery could possibly

be obtained with longer leaching it is believed that the crushed size of the material is the most

important factor with regard to metal recovery.

For most sets of column leach tests the minus 16 mm crushed material and the minus 12.5 mm

crushed material indicated similar type recoveries and in some cases the recoveries from the minus

12.5 mm material were lower than recoveries obtained at the 16 mm crushed size. This similarity

may be attributed to the screen analyses of these crushed products. The finer size fractions in these

two (2) crushed sizes, in some cases, were not different in weight percent.

The general recovery trend does indicate that both gold and silver recoveries do improve with finer

crushing.

For the Gran Central core composite gold recoveries ranged from 30% for material crushed to minus

25 mm to 55% on material crushed to minus 8 mm. Silver recoveries ranged from 19 to 45%.



The consumption of sodium cyanide ranged from 0.16 to 1.79 kg/t NaCN. Hydrated lime addition

averaged approximately 2 kg/t Ca(OH)2 for the material crushed between 12.5 and 25 mm. The

minus 8 mm crushed material was agglomerated with the addition of 2.01 kg/t cement.

For the Gran Central West core composite gold recoveries ranged from 41% for material crushed to

minus 25 mm to 48% on material crushed to minus 12.5 mm. Silver recoveries ranged from 24 to

40%.


averaged approximately 2 kg/t Ca(OH)2 for the material crushed between 12.5 and 25 mm.

For the La Colorada core composite gold recoveries ranged from 44% for material crushed to minus

25 mm to 70% on material crushed to minus 8 mm. Silver recoveries ranged from 17 to 47%.


averaged approximately 2 kg/t Ca(OH)2 for the material crushed between 12.5 and 25 mm. The

minus 8 mm crushed material was agglomerated with the addition of 2.01 kg/t of cement.

For the La Colorada West core composite gold recoveries ranged from 32% for material crushed to

minus 25 mm to 46% on material crushed to minus 12.5 mm. Silver recoveries ranged from 30 to

47%.


averaged approximately 2 kg/t Ca(OH)2 for the material crushed between 12.5 and 25 mm.

From KCA’s field experience, cyanide consumption in production heaps is usually 25 to 33% of the

laboratory column test consumption. Therefore, at the 9.5 mm crush size, a field cyanide

consumption of 0.38 kg/t can be expected. It should be noted that at the 8 mm crush size there is a

substantial increase in cyanide consumption compared to the coarser crush sizes.

In the fine crushed column tests (9.5 and 8mm) cement was used to agglomerate at 2.5 kg/t, as a

matter of standard practice for first-round fine-crush column tests. It has not been determined that

this cement agglomeration is actually required. Additional testwork is to be conducted to determine

cement requirements (if any) for each of the mining areas. In the case of fine crushing it should be

tentatively assumed that 2 kg/t cement can replace lime.

11.3 Recovery Estimate Assumptions When examining the results from laboratory column test work and projecting this to estimated field

recoveries the recoveries obtained from laboratory columns are typically reduced by 3 percentage

points. In a similar manner, silver recoveries are typically adjusted by up to 5 percentage points.

After review of historical processing data from La Colorada it was determined that no reduction from

laboratory column test work was needed as the recovery curves indicate relatively slow leaching, it is

almost certain that several percent more gold recovery would be realized with a 120 day leach cycle.

Gold recovery in the field from RoM Pad Leach material crushed to 100% passing 25 mm with a p80

size of 10.5 mm would be estimated to be 43%.

Column test recoveries along with estimated field recoveries for the four (4) areas defined by the

core material are presented in Table 11.3.1.



Table 11.3.1: La Colorada Project Estimated Field Recoveries by Crush Size

Source: KCA, 2011

From existing data normalized to a common crushing size of 100% passing 9.5 mm, projected metal

recoveries are presented in tables 11.3.2 and 11.3.3.

Table 11.3.2: La Colorada Estimated Field Recoveries (Gold) at 100% Passing 9.5mm

Sample Material 25 mm 16 mm 12.5 mm 9.5 mm 8.0 mm Gran Central (60501)

Head Grade (g/t) 0.870 0.940 1.179 1.061 0.900 Gold Recovery 29% 35% 38% 47% Interpolated 52%

Gran Central West (60502, 60553)

Head Grade (g/t) 1.294 1.315 1.389 1.126* -- Gold Recovery 38% 44% 45% 49% --

La Colorada (60503)

Head Grade (g/t) 0.802 0.970 1.115 1.275 0.971 Gold Recovery 39% 53% 47% 61% Interpolated 68%

La Colorada West (60504)

Head Grade (g/t) 0.724 0.598 0.744 0.935 In progress -- Gold Recovery 29% 45% 41% 48% Provisional Extrapolated --

Intermediate (60560)

Head Grade (g/t) -- -- 1.011* 1.011* -- Gold Recovery -- -- 42% 49% --

Intermediate West (60561)

Head Grade (g/t) -- -- 1.066* 1.066* -- Gold Recovery -- -- 59% 76% --

Veta Madre Core Samples En Route El Creston Core Samples En Route

*Note: Columns still in progress (minimum 50 days) Head values are estimated from head assays, head screens, and bottle roll leach tests



Table 11.3.3: La Colorada Estimated Field Recoveries (Silver) at 100% Passing 9.5mm

Sample Material 25 mm 16 mm 12.5 mm 9.5 mm 8.0 mm Gran Central (60501)

Head Grade (g/t) 6.50 3.56 5.90 4.85 4.97 Silver Recovery 20% 42% 33% 44% Interpolated 46%

Gran Central West (60502, 60553)

Head Grade (g/t) 46.27 44.46 47.32 15.50* -- Silver Recovery 25% 35% 42% 49% --

La Colorada (60503)

Head Grade (g/t) 10.01 7.97 7.90 7.04 7.29 Silver Recovery 16% 34% 36% 46% Interpolated 50%

La Colorada West (60504)

Head Grade (g/t) 12.93 11.29 14.28 12.11 In progress -- Silver Recovery 31% 48% 41% 48% Provisional Extrapolated --

Intermediate (60560)

Head Grade (g/t) -- -- 4.04* 4.12* -- Silver Recovery -- -- 24% 26% --

Intermediate West (60561)

Head Grade (g/t) -- -- 20.59* 20.74* -- Silver Recovery -- -- 10% 13% --

Veta Madre Core Samples En Route El Creston Core Samples En Route

*Note: Columns still in progress (minimum 50 days) Head values are estimated from head assays, head screens, and bottle roll leach tests

Review of historical reports and production records show that overall gold recovery during operations

achieved a combined recovery of 67.3% between RoM and 25 mm crush size from all mining areas.

It is believed that using a 9.5mm crush size, a scoping-level tentative gold recovery of 60% may be

reasonably assumed for El Creston and Veta Madre mining areas until column testing of these areas

is complete. Similarly, during historical operations the silver recovery achieved was 14%. It should be

noted that the KCA testwork has shown considerably higher silver recovery in La Colorada and Gran

Central. A reasonable scoping-level tentative silver recovery of 28% may be reasonably assumed for

El Creston and Veta Madre mining areas until column testing of these areas is complete.

11.4 Additional Test Work Additional column test work is being completed by KCA at the present time on core material from the

Project. An additional column test of 100% passing 9.5 mm is in progress for La Colorada West, and

core samples are in transit for planned column tests of El Creston and Veta Madre at 100% passing

9.5 mm crush size.

Additional agglomeration tests are planned to thoroughly define cement requirements (if any).

The use of High Pressure Grinding Rolls (HPGR) is being investigated as an option for crushing

material for heap leaching by many projects at the present time and is an option that can be

considered for further downstream finer crushing at La Colorada.

La Colorada Project

Sonora, Mexico

Figure 11-1

Metallurgical Drillhole Locationss Source: Argonaut Gold Inc., 2011



12 Mineral Resource Estimate (Item 14)

12.1 Qualified Persons for the Mineral Resource Estimate Dr. Bart Stryhas constructed the geologic and mineral resource model discussed below. He is

responsible for the resource estimation methodology, mineral resource classification and resource

statement. Dr. Stryhas is independent of the issuer applying all of the tests in Section 1.5 of NI 43-

101.

The resource estimation is based on the current drillhole database, digitized as-built topography of

open pits, interpreted fault structures, geologic controls and current topographic data. The

estimation of mineral resource was completed utilizing a computerized resource block model by

VULCAN® modeling software.

12.2 Drillhole Database The drillhole database was compiled by Argonaut and is determined to be of good quality. The

database consists of four, Microsoft Excel® spreadsheets containing collar locations surveyed in

UTM grid coordinates, drillhole orientations with some down hole deviation surveys, assay intervals

with gold and silver analyses by fire assay and geologic intervals with rock types.



orientations. They typically bear to the south, inclined steep to moderately. This orientation provides

an oblique angle of intersection between the predominate plane of mineralization and the drillhole.

The maximum drillhole depth is 479 m and the average is 117 m. The historic drillholes are generally

short and lack down-hole surveys. Nearly all of the modern, longer holes do have down-hole

surveys. The appropriate codes for missing samples and no recovery were used during the

modeling procedures.

12.3 Geology The resource estimation is based on a generalized geologic model consisting of a single rock type.

The mineralization is hosted all lithologies, primarily controlled by the fault and vein development.

The principal mineralization occurs as quartz veinlets and silica replacement within the La Colorada,

Gran Central, El Crestón and Veta Madre fault/vein zones. The Intermediate Zone is defined as

diffuse zone of mineralization located parallel, and midway between the Gran Central and La

Colorada structures.

Overall, the resource area has a deep level of oxidation controlled primarily by the fault/vein

development. The bedrock is typically well oxidized within the mineralized zones and less oxidized

in the barren zones. To date, Argonaut has been unable to map a discrete oxide/sulfide boundary.

All material within the current resource models is considered oxidized or transitional.

12.4 Block Model Four block models were used to estimate the current resources. Each block model was constructed

within the UTM coordinate limits listed in Table 12.4.1. A 5 m x 5 m x 5 m (x,y,z) block size was

chosen as an appropriate dimension based on the current drillhole spacing and a potential open pit,



smallest mining unit. Two topographic surfaces were used to flag the location of bedrock in the block

model. Within the mined areas, open pit as-built topography was generated from historic mapping.

These were digitized and wire framed into a top of bedrock surface. Outside of the mined areas, the

top of bedrock was defined by the current topographic data. Wire frame solids of the historical

underground workings were provided by Argonaut. These were used to flag the block model so that

no resources could be tabulated from the previously mined blocks. Soil thickness varies slightly over

the deposit and is generally very thin or non-existent.

Table 12.4.1: Block Model Limits

Model Orientation UTM Minimum UTM Maximum Block Size(m)

La Colorada Easting 540,850 541,845 5 Northing 3,185,365 3,186,160 5 Elevation 100 550 5

El Crestón Easting 542,000 543,250 5 Northing 3,185,200 3,186,300 5 Elevation 100 550 5

Veta Madre Easting 543,900 545,000 5 Northing 3,185,325 3,186,075 5 Elevation 220 500 5

RoM Pad Easting 541,725 542,175 5 Northing 3,186,125 3,186,400 5 Elevation 390 430 5

12.5 Compositing The raw assay from each of the resource estimation domains was plotted on histograms and

cumulative distribution plots to assess appropriate capping and compositing parameters. The

original assay sample lengths range from 0.1 to 111 m with an average of 1.8 m. For the modeling,

these were composited into 5.0 m down-hole lengths. This length was chosen mainly so that at least

two average samples would be composited together and the composites would comprise each 5 m

block diameter. The histogram of the drillhole database shows a strongly negative skewed

distribution, typical for most gold deposits. The cumulative distribution curves illustrate a continuous

population set with a distinct break in slope and continuity at the upper levels of mineralization. Each

unique dataset for each resource model domain was capped independently based on the break in

slope and distribution of the cumulative distribution plot. The capping parameters and results are

listed in Table 12.5.1.



Table 12.5.1: Assay Capping Parameters

Model Total Number

of Samples Metal

Capping Level (ppm)

Number ofSamples Capped

Minimum Capped

Maximum Capped

Net Loss ofMetal From

Capping (%)

La Colorada 3,101 Au 50 13 51.7 356 8.4 Ag 200 9 222 1,031 2.2

Intermedia 2,187 Au 27 6 33.1 67 1.8 Ag 150 5 200 420 12.5

Gran Central 4,760 Au 33 12 50 224 4.8 Ag 281 10 288 499 0.2

El Crestón 7,184 Au 13 68 13.2 432 14.7 Ag 140 89 142 1,874 2.3

Veta Madre 1,067 Au 2.1 32 2.1 25 7.2 Ag 15 19 15.2 49 2.6

RoM Pad 270 Au 1.4 15 1.41 17 15.3 Ag 65 32 65.2 155 2.4

12.6 Density Argonaut conducted density testing on the core drilling conducted in 2011. Density determinations

were made on 136 samples collected from a wide range of locations and rock types. The average

density from the Argonaut test work was 2.694 g/cm3. This test work correlates very well to historical

density test work reported by MacMillian et al (2009) who used an average density of 2.62 g/cm3.

The SRK resource models assigned the average density of 2.694 g/cm3 for all bedrock material in

the block models. The RoM pad and all waste dump material was assigned a standard density of

2.0 g/cm3.

12.7 Variogram Analysis Variogram analysis was attempted on the composite samples to quantify the geo-statistical

characteristics of the Au data. The resultant variograms were predominantly of very poor quality

regardless of orientation. For this reason, all grade estimations were made using an Inverse

Distance Squared (ID2) algorithm.

12.8 Grade Estimation Four unique block models were used to generate the total resource estimation of this report. The

grade estimation procedures of each are addressed below.

12.8.1 La Colorada

The La Colorada grade estimation was conducted within four independent estimation domains.

Three of these are wireframe grade shell generated by Argonaut at a 0.1 ppm grade threshold. The

fourth is an indicator domain located external to the wireframes. The wireframe solids are referred to

as La Colorada, Intermediate and Gran Central. Within these wireframes, SRK flagged all blocks

that were located within 60 m along strike or dip and 20 m normal to strike and dip of all samples.

Only these flagged blocks were allowed to be estimated for grade. The indicator blocks were flagged

external to the wireframes in order to pick up any significant mineralized zones which were too small

or discontinuous to wireframe. The indicator flagging was conducted using a three pass search



strategy according to the parameter listed in Table 12.8.1.1. Length weighting was used for all three

passes.

Table 12.8.1.1: La Colorada Indicator Estimation Parameters

Search Rotation (z,y,x)

Estimation Pass

Search Distances (z,y,x) m

Min/Max # Samples

Octant Restriction

355,-46,0 First 5,5,5 ½ None Second 30,30,5 3/5 2/octant Third 60,60,5 3/5 2/octant

The Au and Ag grade estimation was conducted according to the parameter listed in Table 12.8.1.2.

Only indicator blocks with a value of 0.5 and above were selected for grade estimation. This equates

to a 50% probability of being locate within the 0.1 ppm grade shell. All grade estimations used

sample length weighting. As part of the grade estimation, model validation was conducted within

each domain. Certain domains required that higher grade sample distance restrictions be applied so

the model would validate. A high-grade restriction, as listed in Table 12.8.1.2, means that any block

located beyond the distances listed cannot use any composite sample above the listed grade.

Table 12.8.1.2: La Colorada Grade Estimation Parameters

Estimation Domain


Estimation Pass

Search Distances

(z,y,x) m Min/Max #

Samples Octant Restriction

Au High Grade Distance Restriction

Ag High Grade Distance Restriction

La Colorada

355,-46,0

First 5,5,5 1/3 None None None Second 35,35,15 3/8 2/octant Third 85,85,25 3/8 2/octant >35ppm<40m

Intermedia First 5,5,5 1/3 None None Second 35,35,15 3/8 2/octant >20ppm<30m >25ppm<20m Third 85,85,25 3/8 2/octant >25ppm<20m

Gran Central

First 5,5,5 1/3 None None None Second 35,35,15 3/8 2/octant >25ppm<20m Third 85,85,25 3/8 2/octant >25ppm<20m

Indicator Blocks

First 5,5,5 1/3 None None Second 35,35,15 3/8 2/octant Third 85,85,25 3/8 2/octant >8ppm<50m

12.8.2 El Crestón

The El Crestón grade estimation was conducted within a single estimation domain. This was defined

by a wireframe grade shell generated by Argonaut at a 0.1 ppm grade threshold. Within this

wireframe, SRK flagged all blocks that were located within 60 m along strike or dip and 30 m normal

to strike and dip of all samples. Only these flagged blocks were allowed to be estimated for grade.


All grade estimations used sample length weighting. No higher grade sample distance restrictions

were required in order to validate the model.



Table 12.8.2.1: El Crestón Grade Estimation Parameters

Search Rotation (z,y,x) Estimation Pass


Min/Max # Samples Octant Restriction

340,-50,0 First 5,5,5 1/3 None Second 35,35,20 3/8 2/octant Third 85,85,45 3/8 2/octant

12.8.3 Veta Madre

The Veta Madre grade estimation was conducted within a single estimation domain. This was

defined by a wireframe grade shell generated by Argonaut at a 0.1 ppm grade threshold. Within this

wireframe, SRK flagged all blocks that were located within 30 m along strike or dip and 30 m normal

to strike and dip of all samples. Only these flagged blocks were allowed to be estimated for grade.

The Au and Ag grade estimation was conducted according to the parameter listed in Table 12.8.3.1

below. All grade estimations used sample length weighting. No higher grade sample distance

restrictions were required in order to validate the model.

Table 12.8.3.1: Veta Madre Grade Estimation Parameters


Estimation Pass


Min/Max # Samples

Octant Restriction

60,0,0 First 5,5,5 1/3 None Second 50,25,25 3/8 2/octant Third 75,35,35 3/8 2/octant

12.8.4 RoM Pad

The RoM Pad grade estimation was conducted within a single estimation domain. This was defined

by a wireframe solid generated by SRK. The solid is based on surveyed topography of the existing

RoM Pad assuming a planer base. This material represents previously mined and partially leached

RoM potentially mineable resource. All grade estimations are based on the Becker hammer drill

samples discussed in Section 8.2.5.


All grade estimations used sample length weighting. No higher grade sample distance restrictions

were required in order to validate the model. As part of the grade estimation, model validation was

conducted within the estimation domain. Both the Au and Ag estimations required that higher grade

sample distance restrictions be applied so the model would validate. A high-grade restriction, as

listed in Table 12.8.4.1, means that any block located beyond the distances listed cannot use any

composite sample above the listed grade.

Table 12.8.4.1: RoM Pad Grade Estimation Parameters


Estimation Pass

Search Distances

(z,y,x) m Min/Max #

Samples Octant

Restriction

Au High Grade Distance

Restriction

Ag High Grade Distance

Restriction

0,0,0 First 5,5,5 1/3 None None Second 35,35,10 3/5 2/octant Third 100,100,15 2/5 2/octant >1.2ppm<35m >60ppm<50m



12.9 Model Validation Four techniques were used to evaluate the validity of the block model. First, during the ID2 grade

estimation; the estimation pass, the number of samples used, the number of drillholes used and the

average distance to samples was stored. This data was checked to evaluate the performance of the

sample selection parameters discussed above. The results for each estimation are listed are listed

in Table 12.9.1. Second, the interpolated block Au grades were visually checked on sections and

bench plans for comparison to the composite assay grades. Third, statistical analyses were made

comparing the estimated block grades in each domain to the composite sample data supporting the

estimation. The results in Table 12.9.2 show average block grade slightly below the average sample

grades. Fourth, nearest neighbor estimations were run using a single composite to estimate each

block model within the same parameters used for the ID2 grade model. The total contained gold

ounces, at a zero cut-off grade in the nearest neighbor model were compared to the Au ID2 grade

model at the same cut-off. The results are listed in Table 12.9.3. These show that in general, metal

is not being manufactured during the modeling process. All four-model validation tests described

above provided good confidence in the resource estimation.



Table 12.9.1: Grade Estimation Characteristics

Model/Domain Criteria Result

LC-La Colorada

% Blocks Estimated in 1st Pass 11 % Blocks Estimated in 2nd Pass 72 % Blocks Estimated in 3rd Pass 17 Average Number of Samples Used Per Block 5.8 Average Number of Drillholes Used Per Block 2.8 Average Distance to Samples 23

LC Intermedia


LC-Gran Central

% Blocks Estimated in 1st Pass 13 % Blocks Estimated in 2nd Pass 72 % Blocks Estimated in 3rd Pass 15 Average Number of Samples Used Per Block 6 Average Number of Drillholes Used Per Block 2.7 Average Distance to Samples 21

LC-Indicator


El Crestón


Veta Madre


RoM Pad




Table 12.9.2: Statistical Model Validation

Structural Domain

Metal Average Composite Grade

Au (g/t) Average Block Grade

Au (g/t) % Difference Comps to

Blocks

LC_La Colorada Au 1.215 1.210 0.4 Ag 8.072 6.570 18.6

LC- Intermedia Au 0.592 0.585 1.1 Ag 4.579 4.572 0.1

LC- Gran Central

Au 1.139 1.054 7.4 Ag 8.946 8.601 3.9

LC-Indicator Au 0.405 0.402 0.6 Ag 5.154 4.319 16.2

El Crestón Au 0.729 0.674 7.5 Ag 13.991 13.545 3.2

Veta Madre Au 0.402 0.316 21.5 Ag 2.451 2.112 13.8

RoM Pad Au 0.446 0.415 7.0 Ag 36.247 36.177 0.2

Table 12.9.3: Nearest Neighbor Model Validation

Model ID2 Au Grade

ID2 Tonnes (M)

ID2 Au Metal

(M) NN Au Grade

NN Tonnes

(M) NN Au Metal

% Diff Au Metal ID2 to

NN La Colorada 0.026343 1,225.0 32.265 0.026226 1,225.0 32.122 0.44 El Crestón 0.682285 21.081 14.383 0.715987 21.081 15.094 -4.9 Veta Madre 0.315806 5.897 1.862 0.331218 1.862 1.953 -4.9 RoM Pad 0.428428 2.724 1.167 0.421483 2.724 1.148 1.6

12.10 Resource Classification Mineral Resources are classified under the categories of Measured, Indicated and Inferred according

to CIM guidelines. Classification of the mineral resources reflects the relative confidence of the

grade estimates and the continuity of the mineralization. This classification is based on several

factors including; sample spacing relative to geological and geo-statistical observations regarding the

continuity of mineralization, data verification to original sources, specific gravity determinations,

accuracy of drill collar locations, accuracy of topographic surface, quality of the assay data and many

other factors, which influence the confidence of the mineral estimation. No single factor controls the

mineral resource classification rather each factor influences the end result.

The mineral resources have been classified as Indicated and Inferred based primarily on sample

support. Within the La Colorada, El Crestón and Veta Madre resource models, wire frame solids

were constructed about the areas where the majority of drillholes are spaced 25 m apart. The

wireframe was limited to the base of drilling. All resources within the wire frame solids were

classified as indicated. All resources located external to the wireframe solids were classified as

inferred. The RoM Pad is all classified as indicated mineral resource.

12.11 Mineral Resource Statement The La Colorada Mineral Resources are reported below in table 12.11.1 based on a 0.1 g/t Au cut-off

grade. The cut-off is supported by a mining cost of US$1.20/t, a processing cost of US$2.70/t, Au

and Ag recoveries of 60% and 30% respectively, G&A cost of $0.20/t, a no NSR and Au, Ag prices



of US$1,500/oz, US$20.00/oz respectively. The mineral resources are confined within a conceptual

whittle pit design based on the same parameters used for the cut-off grade and a 50° pit slope.

Table 12.11.1: La Colorada Project Resource Statement (1)

Deposit Class Au Cut-off Tonnes

(000s) Au (g/t)

Au oz(000s)

Ag (g/t) Ag oz(000s)

La Colorada Indicated 0.10 29,900 0.724 696 5.1 4,905 Inferred 0.10 2,500 1.204 95 8.4 661

El Crestón Indicated 0.10 14,400 0.618 287 12.1 5,635 Inferred 0.10 2,200 0.887 63 13.3 944

Veta Madre Indicated 0.10 2,900 0.491 46 3.3 307 Inferred 0.10 0 0.665 0.2 2.4 0.7

RoM Pad Indicated 0.10 2,700 0.429 38 36.5 3,200 Inferred 0.10 - - - - -

All Deposits Indicated 0.10 50,000 0.664 1,067 8.7 14,047 Inferred 0.10 4,700 1.044 158 10.6 1,605

Source: SRK Effective Date: October 15, 2011 (1) Rounded to reflect approximation

Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Mineral resource estimates do not account for mineability, selectivity, mining loss and dilution.

These mineral resource estimates include inferred mineral resources that are normally considered

too speculative geologically to have economic considerations applied to them that would enable

them to be categorized as mineral reserves. There is also no certainty that these inferred mineral

resources will be converted to Measured and Indicated categories through further drilling, or into

mineral reserves, once economic considerations are applied.

12.12 Mineral Resource Sensitivity The grade versus tonnage distributions of the Mineral Resources are presented in Table 12.12.1



Table 12.12.1: Gran Central Grade Tonnage

Indicated Inferred Total Ounces

Cut-off Au (g/t) Tonnage Ounces Cut-off Au (g/t) Tonnage Ounces 0 0.22 101,339,238 716,693 0 0.06 49,257,396 95,020 811,713

0.1 (1) 0.72 29,835,081 694,126 0.1 1.21 2,451,354 95,363 789,490 0.2 0.90 22,925,487 662,771 0.2 1.43 2,024,967 93,099 755,870 0.3 1.09 17,745,032 621,167 0.3 1.62 1,739,185 90,584 711,751 0.4 1.28 14,094,104 579,074 0.4 1.79 1,536,588 88,430 667,504 0.5 1.47 11,533,243 543,950 0.5 1.98 1,344,792 85,607 629,557 0.6 1.64 9,633,684 508,632 0.6 2.16 1,194,302 82,939 591,571 0.7 1.83 8,172,323 479,999 0.7 2.34 1,071,583 80,618 560,617 0.8 2.01 6,973,649 451,146 0.8 2.51 965,254 77,894 529,041 0.9 2.20 5,942,912 421,216 0.9 2.71 865,474 75,407 496,624

1 2.40 5,179,647 399,176 1 2.91 773,695 72,386 471,561 1.1 2.58 4,546,734 377,061 1.1 3.01 735,062 71,135 448,196 1.2 2.78 4,001,432 357,861 1.2 3.1 702,874 70,053 427,914 1.3 2.96 3,576,774 340,431 1.3 3.2 667,410 68,665 409,096 1.4 3.13 3,222,616 324,385 1.4 3.27 640,005 67,286 391,671 1.5 3.29 2,945,339 311,675 1.5 3.37 607,610 65,833 377,509 1.6 3.47 2,676,859 298,844 1.6 3.5 569,274 64,059 362,903 1.7 3.61 2,474,382 287,563 1.7 3.57 547,541 62,846 350,409 1.8 3.77 2,290,715 277,821 1.8 3.64 527,736 61,760 339,581 1.9 3.92 2,121,061 267,467 1.9 3.71 507,367 60,518 327,985

2 4.07 1,971,199 257,768 2 3.77 491,054 59,520 317,287 (1) Base Case

Table 12.12.2 illustrates the grade tonnage relationship of gold within pit 36 of the Whittle® analysis

for El Crestón.

Table 12.12.2: El Crestón Grade Tonnage

Indicated Inferred Total Ounces Cutoff Au (g/t) Tonnage Ounces Cutoff Au (g/t) Tonnage Ounces

0 0.17 54,830,616 299,683 0 0.06 33,088,488 63,829 363,513 0.1 (1) 0.62 14,438,662 287,812 0.1 0.89 2,199,713 62,943 350,755

0.2 0.75 11,224,319 270,652 0.2 1.04 1,830,869 61,218 331,871 0.3 0.89 8,875,845 253,975 0.3 1.2 1,518,096 58,569 312,544 0.4 1.03 6,949,397 230,131 0.4 1.36 1,270,077 55,534 285,665 0.5 1.18 5,541,893 210,248 0.5 1.54 1,064,923 52,727 262,974 0.6 1.33 4,483,904 191,734 0.6 1.67 941,923 50,573 242,307 0.7 1.48 3,694,548 175,798 0.7 1.82 824,301 48,233 224,031 0.8 1.63 3,066,198 160,686 0.8 1.95 732,400 45,917 206,603 0.9 1.78 2,578,409 147,558 0.9 2.09 649,313 43,631 191,189

1 1.94 2,155,377 134,436 1 2.25 571,543 41,345 175,781 1.1 2.1 1,836,350 123,984 1.1 2.36 522,598 39,653 163,636 1.2 2.24 1,588,897 114,429 1.2 2.46 481,969 38,119 152,548 1.3 2.38 1,394,817 106,730 1.3 2.56 444,976 36,624 143,354 1.4 2.51 1,248,174 100,726 1.4 2.66 411,685 35,208 135,933 1.5 2.64 1,107,780 94,026 1.5 2.76 379,954 33,716 127,742 1.6 2.76 993,965 88,200 1.6 2.85 352,761 32,323 120,524 1.7 2.89 896,602 83,308 1.7 2.96 323,796 30,814 114,123 1.8 2.99 821,916 79,011 1.8 3.04 304,349 29,746 108,758 1.9 3.11 743,696 74,361 1.9 3.13 281,141 28,292 102,653

2 3.22 679,647 70,361 2 3.22 262,517 27,177 97,538 (1) Base Case



Table 12.12.3 illustrates the grade tonnage relationship of gold within pit 36 of the Whittle® analysis

for Veta Madre.

Table 12.12.3: Veta Madre Grade Tonnage

Inferred Cutoff Au (g/t) Tonnage Ounces

0 0.27 5,264,158 45,697 0.1 (1) 0.45 3,183,008 46,051

0.2 0.52 2,540,084 42,466 0.3 0.64 1,789,691 36,826 0.4 0.74 1,330,645 31,658 0.5 0.83 1,013,543 27,047 0.6 0.92 771,974 22,834 0.7 1.01 574,880 18,668 0.8 1.09 440,856 15,449 0.9 1.16 337,190 12,575

1 1.24 245,491 9,787 1.1 1.32 169,657 7,200 1.2 1.43 104,393 4,800 1.3 1.56 59,942 3,006 1.4 1.67 41,084 2,206 1.5 1.76 29,297 1,658 1.6 1.84 21,552 1,275 1.7 1.94 13,470 840 1.8 2 10,103 650 1.9 2.05 7,745 510

2 2.07 6,398 426

(1) Base Case



13 Mining Methods (Item 16) The La Colorada mine is a historical mining area located in the state of Sonora close to the regional

mining center of Hermosillo. The deposit is located in dry desert terrain surrounded by a

combination of flat alluvial plains intersected by steep sided mountains and both El Crestón and

Gran Central have been mined by open pit methods. The third deposit of Veta Madre has not been

mined.

Historical underground mining operations began in 1704 with the initial placer discovery on the site

followed by more advanced methods in the late 1800’s and early 1900’s when an estimated 3 million

ounces may have been mined from the high grade vein structures within the deposit. In 1994

Eldorado Gold commenced open pit and heap leach operations with the excavation of the El Crestón

and Gran Central Pits. Eldorado ceased mining in 2002 but operations continued through 2004

under the ownership of Minera FG.

Production at the Project is expected to begin with re-leaching of historical RoM pads thus allowing

room for additional heap leach pad space. By mid- to late 2012, it is expected that the necessary

permits will be in place for open pit mining at the Gran Central pit followed by El Crestón and Veta

Madre.

An economic model was constructed to internally test the economics of the complete resource

through achieving a positive NPV. This confirmed Argonaut’s resources detailed in the SRK report

“NI 43-101 Technical Report on Resources La Colorada Project Sonora, Mexico” are valid producing

a NPV 5% of over $120 million. After review by SRK and Argonaut, it was decided that optimization

of the production rate and more detailed phase design would add to project viability. As a result, a

smaller resource quantum was included for analysis in the Preliminary Economic Assessment which

concentrated on lowering the overall strip ratio and utilizing multiple cut-off grades to bring forward

high grade in the production schedule while maintaining a consisted overall mining rate.

For the PEA, an ultimate pit for La Colorada was constructed by SRK with three possible phases. El

Creston and Veta Madre were designed to meet mining width limitations. The resultant pit design

defined 32.8 Mt of potentially minable resource with an average grade of 0.72 g/t Au and average

strip ratio of 3.7:1 (W:O). At a 4 Mt production rate, it is expected the potential mine life of to be in

excess of 9 years. The production schedule targeted a consistent total mine tonnage of 24Mt/y from

year 3 onwards and any resources mined above 4 Mt/y was stockpiled for use in years where not

enough direct RoM feed was possible.

Final dimensions of the proposed open pits detail the potential magnitude of operations and have not

been limited to infrastructure restrictions. Potential restrictions may include additional required

permitted space for future heap leach pads and partial relocation of the La Colorada Township. As

detailed engineering continues the effect of these restrictions or the elimination of the restriction

resulting from further land negotiations will be addressed during reserve estimation.

A site overview is detailed in Figure 13-1.

13.1 Pit Optimization As part of the resource evaluation, Whittle® pit optimizations were carried out on La Colorada mine

region, in particular, areas defined as Gran Central, Veta Madre and El Crestón. As part of the PEA,



the pit optimization results have been used as a guide for pit and waste dump construction. Inputs

used for the optimization do not necessarily conform with those quoted in the final preliminary

economic model. In all cases, measured, indicated and inferred resources have been considered

during pit optimization.

13.1.1 Whittle® Parameters

Both the La Colorada/Gran Central and El Crestón deposits have been previously worked by both

open pit and underground methods. They both contain areas where the pit has been backfilled and,

as such, the slope angles that intersect old waste have been considered during the optimization

process. Underground voids have been depleted from the resource model for both La

Colorada/Gran Central and El Crestón.

The block model parameters used for La Colorada/Gran Central are detailed in Table 13.1.1.1.

Table 13.1.1.1: La Colorada/Gran Central Model Parameters

Whittle® Parameter Type Value Block Model Restriction Gran Central Base Units Measured, Indicated, Inferred Au grams

Ag grams Block Model Dimensions Geological X 5 Y 5 Z 5 No. X 260 No. Y 220 No. Z 90 Re-block in Whittle® Combine 2 2 1 Slope Value Slope Angle Zone 1 – Mix 50 2 –Dump 30

The financial assumptions made at the time of optimization are detailed in Table 13.1.1.2. The initial

capital is used to determine the mining risk associated during the optimization run and was applied to

the deposit as a whole.



Table 13.1.1.2: La Colorada/Gran Central Financial Assumptions

Whittle® Parameter Type Value Mining Cost

Reference Mining Cost 1.2 Processing Cost Rock Type Process Name Heap Rock type 1 Mix Process Cost ($/crushed-t) Ore Selection Method Cash Flow Process Cost ($/crushed-t) 2.70 General and Administration 0.20 Recoveries Au 0.6 Ag 0.3 Revenue and Selling Cost

Au Units t.oz Ag Units t.oz Au Price($/t.oz) $1,500 Ag Price ($/t.oz) $20 Royalty, Refining, Transport etc. Au Selling Cost ($/t.oz) 5 Ag Selling Cost ($/t.oz) 0.20 Optimization Revenue factor range 0.3-2 86 factors Operational Scenario – Time Costs Initial Capital Cost $32,000,000 Discount Rate Per Period 8% Operational Scenario – Limits

Mining Limit - Process Limit (Heap) 3,000,000

The block model parameters used for El Crestón are detailed in table 13.1.1.3.

Table 13.1.1.3: El Crestón Model Parameters

Whittle® Parameter Type Value Block Model Restriction El Crestón Base Units Measured, Indicated, Inferred Au grams Ag grams Block Model Dimensions Geological X 5 Y 5 Z 5 No. X 250 No. Y 220 No. Z 90 Re-block in Whittle® Combine 2 2 1 Slope Value Slope Angle Zone 1 – Mix 50

2 –Dump 30



The financial assumptions made at the time of optimization for El Crestón are detailed in Table

13.1.1.4. The initial capital is used to determine the mining risk associated during the optimization

run and was applied to the deposit as a whole.

Table 13.1.1.4: El Crestón Financial Assumptions


Reference Mining Cost 1.2 Processing Cost Rock Type Process Name Heap Rock type 1 Mix Process Cost ($/crushed-t) Selection Method Cashflow Process Cost ($/ore t) 2.70 General and Administration 0.20 Recoveries Au 0.6 Ag 0.3 Revenue and Selling Cost Au Units t.oz Ag Units t.oz Au Price ($/t.oz) 1,500 Ag Price ($/t.oz) 20 Royalty, Refining, Transport etc. Au Selling Cost ($/t.oz) 5 Ag Selling Cost ($/t.oz) 0.20 Optimization Revenue factor range 0.3-2 86 factors Operational Scenario – Time Costs Initial Capital Cost $32,000,000 Discount Rate Per period 8% Operational Scenario – Limits Mining Limit - Process Limit (Heap) 3,000,000

The block model parameters used for Veta Madre are detailed in table 13.1.1.5.

Table 13.1.1.5: Veta Madre Model Parameters

Whittle® Parameter Type Value Block Model Restriction Veta Madre Base Units Measured, Indicated, Inferred Au grams Ag grams Block Model Dimensions Geological X 5 Y 5 Z 5 No. X 220 No. Y 150 No. Z 56 Re-block in whittle Combine 2 2 1 Slope Value Slope Angle Zone 1 – Mix 50



The financial assumptions made at the time of optimization for Veta Madre are detailed in Table

13.1.1.6. The initial capital was not used for Veta Madre given the small resource.

Table 13.1.1.6: Veta Madre Financial Assumptions


Reference Mining Cost 1.2 Processing Cost Rock Type Process Name Heap Rock type 1 Mix Process Cost ($/crushed-t) Selection Method Cash Flow Process Cost ($/crushed-t) 2.70 General and Administration 0.20 Recoveries Au 0.6 Ag 0.3 Revenue and Selling Cost Au Units t.oz Ag Units t.oz Au Price ($/t.oz) 1,500 Ag Price ($/t.oz) 20 Royalty, Refining, Transport etc. Au Selling Cost ($/t.oz) 5 Ag Selling Cost ($/t.oz) 0.20 Optimization Revenue factor range 0.3-2 86 factors Operational Scenario – Time Costs Initial Capital Cost 0 Discount Rate Per Period 8% Operational Scenario – Limits Mining Limit - Process Limit (Heap) 3,000,000

13.1.2 Whittle® Results and Analysis

As a result of the pit optimization, the relationship of potential pit shells is based on stripping ratio

variability and subject to a revenue of $1,500/oz Au and $20/oz Ag, respectively. By looking at the

relationship of potentially mineable resource to waste and the associated best case (blue line) and

worst case (red line) cash flows (Figure 13-2) generated at each incremental pit, the risk profile and

revenue generating potential of the deposit can be estimated. For illustration purposes, pit 36

represents the maximum possible cash flow at $1,500/oz Au, pit 86 represents a pit constructed

using $3,000/oz Au gold (But dependent on $1,500/oz Au revenue) and pit 1 represents a pit

constructed using $420/oz Au.

13.1.3 La Colorada/Gran Central Whittle® Results

With reference to Figure 13-2, the Whittle® analysis for La Colorada/Gran Central indicated that the

best value within the deposit can be obtained from pit 0 through pit 20. After this time the majority of

resource is depleted and only incremental increase in value can be achieved. SRK would consider

this deposit to be resource limited at $1,500/oz Au.

Figure 13-3 illustrates a cross sectional view of pit 36 when compared to underground workings,

drillholes and current topography.



13.1.4 El Crestón Whittle® Results

With reference to Figure 13-4, the whittle analysis for El Crestón is similar to that for La

Colorada/Gran Central where the best value can be found between pit 0 through pit 25. After this

time the majority of resource is depleted and only incremental increase in value can be achieved.

SRK would also consider the El Crestón deposit to be resource limited at $1500 gold.

Figure 13-5 illustrates a cross sectional view of pit 36 when compared to underground workings,

drillholes and current topography for El Crestón.

13.1.5 Veta Madre Whittle® Results

The Whittle® analysis as detailed in Figure 13-56 illustrates that the Veta Madre is an early stage pit

which is challenged by low grade resource but benefiting from low strip profile. As there is potential

for additional resources above $1500 oz Au and SRK would not consider this pit resource limited.

Figure 13-7 illustrates a cross sectional view of pit 36, drillholes and current topography for Veta

Madre.

13.2 Open Pit Design The El Crestón and La Colorada/Gran Central pit design combine current site access, mining width

requirements and generalized geotechnical parameters to explore the possible extraction of the

resources through open pit techniques in a practical manner. As such, no restrictions were placed

on either pit. However, during the PEA process the following issues were identified and will need to

be resolved moving forward:

La Colorada/Gran Central pit wall may be limited by La Colorada township if land purchases

cannot be made;

Heap leach pad sequencing may be modified to account for overlap between pit crests and

heap footprint;

Geotechnical buffers between pit crest, dump and heap toe must be defined; and

Geotechnical zones updated based on pit depth and ground water level.

There is historical geotechnical information for both La Colorada/Gran Central and El Crestón open

pits. Due to the preliminary nature of this study, a consistent inter-ramp angle of 49.10 was applied

to all designs in a triple bench configuration.

13.2.1 Pit Design Parameters and Construction

For all three pits, the ramp width has been sized at 27 m (truck factor of 4) which can safely support

Cat 777 (or equivalent) sized mining trucks. While this ramp size penalizes the stripping ratio, the

operational savings in using the larger equipment during stripping campaigns will be vital especially

given that El Crestón and Gran Central are both waste bound. One way access of 15 m has been

applied at the pit bottom after stripping requirements have been met.



Table 13.2.1.1: La Colorada Project Pit Parameters

Parameter Unit Value Overall Slope Angle Degrees 49.1 Batter Angle Digress 65 Bench Height m 15 Berm Width m 6 Ramp Width – 2 way m 27 Ramp Width – 1 way m 15 Ramp Gradient (Shortest) % 10

13.3 Phase Design Phase designs for both pits are largely driven by the effective mining widths and its influence on

access to the resource. The same design parameters used in the final pit design have been

incorporated into the phase designs.

13.3.1 Phase Design Criteria

La Colorada/Gran Central Phase Design

La Colorada/Gran Central has been designed with three mining phases (Figure 13-8). Phase 1 and

2 are independent of each other with access for Phase 1 originating on the south wall of the historic

pit and Phase 2 from the current central access. Phase 1 utilizes a full road width to RL 330 before

transitioning to a single access ramp whereas Phase 2 has single access for the entire phase (same

as current ramp system).

The Phase 3 pit expands from Phase 1 ramp access to a pit shell corresponding to pit shell 15 as

defined in Figure 13-2. The main ramp begins on the southern side of the pit and wraps around to

the west as the pit gets deeper. By utilizing the natural geometry of the orebody, ramps are placed

where natural pit shell variation occurs and stays away from sharp mineralization boundaries.

The southern exit of the access ramp is driven by the location of the waste dump and crusher. The

La Primavera waste dump is located to the south with capacity for the 100% of total waste produced

in Gran Central pit.

El Crestón Phase Design

The open pit design at El Crestón is highly sensitive to ramp location and its effect on stripping ratio,

so careful placement of ramps on the southern wall was considered optimal.

The Phase 1 design at El Crestón was focused on diving into the current open pit by moving the

north wall half way to the final pit wall. There is very little opportunity to do the same on the east,

west and south walls due to mining width constraints. As the pit access currently is on the south

wall, it is envisaged that a new access on the north wall will be needed. This will provide a duel

access into and out of the pit.

Phase 2 is a simple design mining to the final pit limits.

Figure13-9 illustrates the location of Phase 1 and phase 2 in relation to the current topography.



13.4 Schedule Inventory Results As a result of pit and phase design, a schedule inventory of resources is detailed in Tables 13.4.1,

13.4.2 and 13.4.3. The phase tonnage and volumes are separated into bench triangulations and

form the basis of the production schedule.

Table 13.4.1: La Colorada/Gran Central Phase Inventory

Gran Central Variables Phase 1 Phase 2 Phase 3 Total

Total Tonnes 15,788,765 7,016,348 52,373,539 75,178,652

Mineable Resource Tonnes 4,856,112 1,751,735 10,927,982 17,535,829

Waste Tonnes 10,932,653 5,264,613 41,445,557 57,642,823

Stripping Ratio (W:O) 2.25 3.01 3.79 3.29

Gold Ounces 116,254 86,711 256,385 459,349

Silver Ounces 882,098 382,528 1,947,112 3,211,738

Gold Grade (0.1<Au) 0.74 1.54 0.73 0.81

Silver Grade (0.1<Au) 5.65 6.79 5.54 5.70

Table 13.4.2: El Crestón Phase Inventory

El Crestón Variables Phase 1 Phase 2 Total Total Tonnes 14,046,258 59,211,668 73,257,926 Mineable Resource Tonnes 1,640,484 10,574,919 12,215,403 Waste Tonnes 12,405,774 48,636,749 61,042,524 Stripping Ratio (W:O) 7.56 4.60 5.00 Gold Ounces 43,626 211,460 255,086 Silver Ounces 783,440 4,168,218 4,951,658 Gold Grade (0.1<Au) 0.83 0.62 0.65 Silver Grade (0.1<Au) 14.85 12.26 12.61

Table 13.4.3: Veta Madre Phase Inventory

Veta Madre Total Total Tonnes 5,535,267 Mineable Resource Tonnes 3,002,090 Waste Tonnes 2,533,177 Stripping Ratio (W:O) 0.84 Gold Ounces 43,841 Silver Ounces 285,387 Gold Grade (0.1<Au) 0.45 Silver Grade (0.1<Au) 2.96

13.5 Production Schedule The production schedule is used as the basis of the economic model and comprises of predicted

waste, resource tonnes, silver and gold grade. The bench scale inventory for each phase design

within each pit was accumulated and the life of mine schedule performed with the Chronos

scheduling package.

Two scheduling passes were performed to ensure the mine will run with a consistent tonnage profile

and manage the variation in stripping ratios from the various phases ensuring a consistent crusher

feed. As such, the first or “RoM” schedule provided the feedstock for a second “Crusher” schedule.



The RoM schedule mined Gran Central followed by El Creston and finally Veta Madre using a total

tonnage limit of 24 Mt from year 3 onwards. When mined resources above 4 Mt/y are excavated, it

is assumed that 4 Mt is fed directly to the crusher and excess is stockpiled. The first schedule

determined the quantity of high grade (Au above 0.4), mid-grade (Au between 0.2 and 0.4) and low

grade (Au between 0.1 and 0.2). The crusher schedule balances material mined in the RoM

schedule to a flat 4 Mt after year 3 using the different grade classifications in the year they were

produced. If there is an excess, high grade is sent to the crusher first, followed by mid-grade and a

proportion of low grade is sent to a stockpile. Where there is not enough mined material, stockpile

material from previous periods is added to the high grade and mid-grade mined in a particular year.

No stockpiled material is added to the crusher schedule before it has been mined as defined in the

RoM schedule.

Comments about the schedule include:

High grade, mid-grade and low grade were split for reporting purposed but are combined to

meet the production limit (crusher) within the economic model;

Only Veta Madre does not experience high initial strip ratios;

When combined, over 9 years of operating life is possible at 4 Mt resource per year; and

All schedules use the 5 m bench/phase volumes and follow precedent relationships.

Table 13.5.1 illustrates the annual RoM schedule for the three pits and mine costs are applied

annually based on this schedule. Table 13.5.2 shows the material fed to the crusher and forms basis

for annual crushing and processing costs.



Table 13.5.1: La Colorada/Gran Central Production Schedule

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Total La Colorada Total Tonnes 6,000,000 12,000,000 24,000,000 23,627,390 7,096,084 2,455,178 75,178,652 Mineable Resource Tonnes 1,152,641 2,663,632 4,018,013 4,947,177 3,064,470 1,689,896 17,535,829 Waste Tonnes 4,847,359 9,336,368 19,981,987 18,680,213 4,031,613 765,283 57,642,823 Stripping Ratio (W:O) 4.21 3.51 4.97 3.78 1.32 0.45 3.29 Gold Ounces 45,047 90,422 89,905 89,257 85,989 58,730 459,349 Silver Ounces 273,835 589,994 853,003 781,109 454,249 259,547 3,211,738 Gold Grade (0.1<Au) 1.22 1.06 0.70 0.56 0.87 1.08 0.81 Silver Grade (0.1<Au) 7.39 6.89 6.60 4.91 4.61 4.78 5.70 El Crestón Total Tonnes 372,610 16,903,916 21,544,822 24,000,000 10,436,578 73,257,926 Mineable Resource Tonnes 0 1,648,022 925,908 5,191,084 4,450,389 12,215,403 Waste Tonnes 372,610 15,255,895 20,618,914 18,808,916 5,986,189 61,042,524 Stripping Ratio (W:O) 9.26 22.27 3.62 1.35 5.00 Gold Ounces 43,673 13,832 99,302 98,279 255,086 Silver Ounces 783,908 235,293 2,259,253 1,673,203 4,951,658 Gold Grade (0.1<Au) 0.82 0.46 0.59 0.69 0.65 Silver Grade (0.1<Au) 14.79 7.90 13.54 11.69 12.61 Veta Madre Total Tonnes 5,535,267 5,535,267 Mineable Resource Tonnes 3,002,090 3,002,090 Waste Tonnes 2,533,177 2,533,177 Stripping Ratio (W:O) 0.84 0.84 Gold Ounces 43,841 43,841 Silver Ounces 285,387 285,387 Gold Grade (0.1<Au) 0.45 0.45 Silver Grade (0.1<Au) 2.96 2.96 Total Tonnes 6,000,000 12,000,000 24,000,000 24,000,000 24,000,000 24,000,000 24,000,000 15,971,845 153,971,845 Mineable Resource Tonnes 1,152,641 2,663,632 4,018,013 4,947,177 4,712,492 2,615,803 5,191,084 7,452,479 32,753,322 Waste Tonnes 4,847,359 9,336,368 19,981,987 19,052,823 19,287,508 21,384,197 18,808,916 8,519,366 121,218,523 Stripping Ratio (W:O) 4.21 3.51 4.97 3.85 4.09 8.18 3.62 1.14 3.70 Gold Ounces 45,047 90,422 89,905 89,257 129,662 72,562 99,302 142,120 758,276 Silver Ounces 273,835 589,994 853,003 781,109 1,238,157 494,841 2,259,253 1,958,590 8,448,782 Gold Grade (0.1<Au) 1.22 1.06 0.70 0.56 0.86 0.86 0.59 0.59 0.72 Silver Grade (0.1<Au) 7.39 6.89 6.60 4.91 8.17 5.88 13.54 8.17 8.02



Table 13.5.2: Crusher and Heap Leach Schedule

Period 1 2 3 4 5 6 7 8 9 TotalCrushed Tonnes From Pits 1,152,641 2,663,632 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,937,049 32,753,322La Colorada Crushed Tonnes 1,152,641 2,663,632 4,000,000 4,000,000 2,640,311 2,968,840 - - 110,406 17,535,829EC & VM Crushed Tonnes - - - - 1,359,689 1,031,160 4,000,000 4,000,000 4,826,644 15,217,493Gold Ounces 45,047 90,422 89,820 84,741 126,252 79,176 93,442 116,767 32,609 758,276Silver Ounces 273,835 589,994 851,257 694,692 1,141,757 639,097 2,008,642 1,393,550 855,958 8,448,782Gold Grade 1.22 1.06 0.70 0.66 0.98 0.62 0.73 0.91 0.21 0.72Silver Grade 7.39 6.89 6.62 5.40 8.88 4.97 15.62 10.84 5.39 8.02Required From Stockpile 1,384,197 4,937,049 6,321,246



13.5.1 Royalty Schedule

Both La Colorada/Gran Central and El Crestón are subject to a 3% NSR royalty on gold and silver

ounces mined on the deposit. As there are multiple royalties and the royalties are not subject to

payment until the resources are mined, a production schedule for royalty obligations is reported in

Tables 13.5.1.1. Royalty ounces are defined within the pit designs and vertical projection from

polygons defining the royalty. Ounces not defined in the schedule below are not subject to royalty

payments.

Table 13.5.1.1: La Colorada/Gran Central Royalty Schedule

Values 1 2 3 4 5 6 7 8 9 10 Total In-situ Royalty Ag Ounces (000’s)

31.0 46.1 47.7 45.4 64.9 48.7 53.5 67.3 29.6 3.9 31.0

In-situ Royalty Au Ounces (000’s)

235.3 238.2 303.6 275.9 399.9 281.0 659.1 576.2 366.1 65.0 235.3

Payable Recovered Ag Ounce (000’s)

0.6 1.2 1.2 1.1 1.2 0.8 0.3 0.3 0.1 0.0 0.6

Payable Recovered Au Ounces (000’s)

2.6 5.6 8.1 6.6 9.0 5.3 9.4 6.5 4.1 0.0 2.6

13.5.2 Dilution, SMU and Bench Configuration

The block model is based on 5 m x 5 m x 5 m blocks and represents the Selective Mining Unit (SMU)

in relation to cut-off grade and subsequent dilution. Where the interpretation of the mineralization

rock intersects a block model block, the percentage of the block within the mineralized shape is

recorded. The estimated Au and Ag grade is then discounted to the SMU creating a “diluted” grade.

In effect, this creates a fuzzy boundary to any geological interpretation. As with the percentage of

mineralization within a block, the percentage of underground workings is used to reduce the density

of a block that contains workings.

13.6 Development Requirements The current development plan (November 2011) calls for in-situ mining to commence late 2012 when

the appropriate permits are in place. Before that time, Argonaut is working under permit which

allows for site disturbance within the current site footprint. The main aim of the development is to

open up heap leach pad space by relocating the old RoM stockpile while generating cash-flow during

this period. The main development programs include:

Development of heap leach pad for placement of relocated RoM;

Relocation of RoM;

Crushing of RoM;

Leaching of RoM;

Construction of new leach ponds;

Construction of Carbon tanks;

Construction of Gold room; and



Continuation of royalty and land purchases.

13.6.1 Waste dumps

Two primary waste dumps have been located to store waste from La Colorada/Gran Central and El

Crestón and are located on land owned by Argonaut.

Dumps are constructed in 15 m lifts with space for a 10 m berm. The resultant overall slope angle is

26 degrees and ramp widths of 25 m have been applied.

The El Crestón dump has been designed to a maximum height 80 m and contains storage for

144,273,860 m3.

The Primavera dump has been designed to a height of 135 m and contains storage for 71,638,642

m3.

Please refer to Figure 13-1 for the location of the waste dumps and relative size.

13.6.2 UG Voids

Underground voids are evident in the highwalls of both La Colorada/Gran Central and El Crestón pits

and SRK understands that there are extensive historical workings.

Eldorado attempted to digitize the underground workings from historical plan maps. For La

Colorada/Gran Central the location of the UG surveys appear reasonably accurate when checked

against exploration drilling and zones of high grade. For the El Crestón pit, the survey does not

appear to be complete or entirely accurate and may have been incorrectly located at the present

time. SRK is of the opinion that a concerted effort should be made to accurately locate and estimate

where potential mining voids exist for both pits. Figure 13-10 illustrates the current understanding of

UG workings.

13.7 Mining Fleet and Requirements A detailed mine fleet estimation has not been completed for La Colorada given the status of potential

development plans, level of study and understanding that owner operations will be unlikely given the

strong contractor base within the town of Hermosillo. SRK is of the opinion that the strength of

contractors within the local area, the ability to raise capital for fleet expansions by potential

contractors should not be a problem going forward.

13.7.1 Expected Mine Fleet

Based on discussions with local Argonaut staff, there are conversations going on with several local

contractors. Based on past performance and common practice for this size of mine, it is likely

Caterpillar 777 (100t or equivalent) size trucks will be used along with Caterpillar 992 (or equivalent)

front end loaders. If it is determined that excavators will be beneficial to operations, the selected

contractor will need to source new equipment and obtain trained operators from other mines. Atlas

Copco Roc 9’s are used in similar operations by contractors for drill and blast operations therefore, it

is likely that a similar sized machine will be employed at La Colorada.



13.7.2 Expected Operating Cost

As mining will be conducted by contractors, the mine operating cost will follow the standard Mexican

model where costs are quoted for drilling, load, haul and ancillary operations. For the purposes of

this PEA and founded on initial contractor discussions, a $1.10/t-mined estimate has been included.

Explosives and diesel are traditionally supplied by the mine owner and are added to the basic

contractor cost. This has been estimated at $0.40/t, giving a total mining cost of $1.50/t.

Costs are linked to haul distance under 1 km and usually a $0.15 c/km hauling costs are added if

hauls are over 1 km.

Mobilization and demobilization are frequently under US$500 k and are not a risk in Mexican mine

operations.

The RoM re-handle cost has been quoted by Sinergia at $0.60/t.

13.7.3 Manpower

Due to the proximity of potential mining operations to the La Colorada village, Argonaut will focus on

hiring as many un-skilled positions locally as possible. For skilled operators, La Colorada is only a

40 min drive from the town of Hermosillo which is generally considered the center for mine personnel

within the Sonoran region. In addition, many operators and mine professionals have either been

employed at La Colorada or would like to relocate back to Hermosillo if the opportunity were to

present itself. Therefore, the hiring and retention of both operational and technical staff is unlikely to

be a limiting feature for further development of the La Colorada operation.

During operations, the projected labor force for general and administration purposes are detailed in

Table 13.7.3.1. Contractors will employ labor at their own discretion.



Table 13.7.3.1: Projected General and Administration Staff for La Colorada

G&A No. of People GM 1 SHE Supervisor 1 Senior Accountant 1 Accounting Clerk 1 HR supervisor 1 Receptionist 1 G&A Subtotal 6 Mine Superintendent 1 Engineer 1 Supervisor 3 Surveyors 2 Geology Supervisor 1 Geology 2 Mine Subtotal 10 Crusher Supervisor 2 Operator 5 Maintenance 4 Crusher Subtotal 11 Plant Superintendent 1 Supervisor 2 Operators – Plant 6 Operators – Pads 4 Maintenance 8 Supervisor 1 Lab Technician 3 Sample Preparation 2 Plant Subtotal 27 Total 54

La Colorada Project

Sonora, Mexico

Figure 13-1

La Colorada Site Layout Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-2

La Colorada/Gran Central Whittle® Results Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-3

La Colorada/Gran Central Pit Shell Section View Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-4

El Crestón Pit Graph Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-5

El Crestón Pit Shell Section View Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-6

Veta Madre Pit Shells Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-7

Veta Madre Pit Section Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-8

Location of La Colorada/Gran Central Phase 1, 2 and Phase 3 Designs Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-9

Location of El Crestón Phase 1 and Phase 2 Designs Source: SRK, 2011

La Colorada Project

Sonora, Mexico

Figure 13-10

Current Understanding of Underground Workings Source: SRK, 2011



14 Recovery Methods (Item 17)

14.1 Processing Methods The first portion of processed potentially mineable resource will consist of previously leached mine

run “ores” currently residing on the leach pad which will be removed, crushed to P100 19 mm, and

placed back on the existing leach pad supplemented with newly constructed leach pads. Once this

reprocessing step is complete (during the first year of operation), new potentially mineable resource

mined from the nearby pits will be treated by crushing to P100 9.5mm, agglomerated with cement as

required, and conveyor stacked on the leach pads. The design criteria are presented in Section

14.3.

Gold recovery predicted from the fresh potentially mineable resource mined from the respective pits

is presented in the following table. The recovery is based on 20 column leach tests which were

conducted at the KCA laboratory in Reno, Nevada. The column leach tests were run from 48 to 72

days before termination. Gold recovery from the column tests was increasing at an average rate of

0.11% per day for the last 10 days prior to termination and it is likely overall recovery will increase

slightly with extended leach times. Based on continued extractions at a low rate with extended

leaching (120 days), KCA feels confident in predicting field extraction equal to column leach test

extraction at a minimum.



Table 14.1.1: La Colorada Metallurgical Recovery – Design Criteria Only

Area Tonnes Au

Grade g/t

Ag Grade

g/t

Au Contained Ounces

Ag Contained Ounces

Au Recovery Estimate @ P100

9.5 mm

Ag Recovery Estimate @ P100

9.5 mm

Au Recovered Ounces

Ag Recovered Ounces

Gran Central 12,351,289 0.809 6.97 321,137 2,767,809 48% 47% 154,146 1,300,870La Colorada 9,398,839 0.855 5.18 258,484 1,565,291 55% 47% 140,874 735,687Intermediate 8,910,673 0.488 3.32 139,804 951,130 63% 20% 87,378 190,226Veta Madre 2,577,878 0.500 3.24 41,440 268,533 60% 28% 24,864 75,189El Creston 12,215,403 0.650 12.61 255,277 4,952,380 60% 28% 153,166 1,386,666Total 45,454,082 0.695 5.24 1,016,143 10,505,143 55% 35% 560,428 3,688,639

Source: KCA Laboratory



During the Phase 1 the RoM potentially mineable resource will be mined and delivered to a centrally

located crushing system and crushed with a primary jaw crusher. The potentially mineable resource

will then be conveyed to a triple deck screen with aperture sizes of 75 mm, 38 mm and 19 mm. All

material not passing the 19 mm aperture will be conveyed to a cone crusher with a closed side

setting of 19 mm and crushed. The material will then be conveyed back to the screen to remove the

P100 19 mm material product. The potentially mineable resource product passing the 19 mm

aperture will be conveyed to the leach pad with portable field conveyors and stacked with a radial

stacker in 8 m lifts. The total crushing and stacking processing rate for the previously leached mine

run potentially mineable resources on the leach pad will be 8,400 t/d.

Before mining fresh ores from the pits, an additional two cone crushers and two triple deck screens

in a closed circuit configuration will be added to the crushing circuit allowing the new potentially

mineable resource to be processed at a rate of 11,206 t/d at a 100% passing 9.5 mm crush size. All

of the triple deck screens will have aperatures of 75 mm, 38 mm and 9.5 mm. The secondary cone

crusher will operate at a 25 mm closed side setting and the tertiary crushers will operate at a 9.5 mm

closed side setting. Lime or cement, as needed, will be added to the potentially mineable resource at

approximately 2 kg/t on a conveyor for binding and protective alkalinity for cyanide leaching.

Conveyor stacking will continue to be used to stack the potentially mineable resource on the leach

pads during new potentially mineable resource processing. The production rate is depicted in the

Table 14.1.2.

Table 14.1.2: La Colorada Crushing and Processing

Unit Phase 1 Phase 2 TPH Nominal 350 467 TPH Design 500 667 Operating Days (24 hr) 360 360 %Availability 70% 70% TPD 8,400 11,206 TPY 3,024,000 4,034,016

After stacking the potentially mineable resource will be irrigated with a dilute cyanide solution. The

solution will be applied utilizing drip tubing to minimize evaporation. Solution will be applied at a rate

of 8-10 l/hr/m2 for 120 days. Gold bearing leach solutions, now “pregnant”, draining from the leach

pad will be directed to the pregnant pond. The pregnant solution will be pumped from the pond to

two 5-column trains of carbon columns, arranged in a cascade fashion, each containing 5 t of

activated 6x12 coconut-shell carbon. The carbon will absorb the gold and silver from the pregnant

solution. The solution will drain from the carbon columns to a barren tank where it will be refortified

with cyanide and pumped back to the leach pad.

Approximately every other day, the carbon will be removed from the first column in series and

pumped to a tank for acid washing with a dilute hydrochloric acid solution. Carbon from the

subsequent columns in series will be advanced to replace the carbon removed. After acid washing

the carbon will be pumped to a pressure vessel with a capacity of 5 t of carbon where the gold and

silver will be stripped from the carbon and placed back into solution. The gold and silver bearing

solutions will be pumped through two electrowinning cells where the precious metals will be

electroplated onto stainless steel-wool cathodes. After stripping, the carbon will be placed back into

the carbon column train in the last column in series. Periodically the carbon will be thermally

regenerated to maintain desired activity levels.



The gold and silver will be removed from the stainless steel cathodes by high pressure washing then

dried, mixed with flux reagents and smelted on-site to doré bullion. The doré bullion will be shipped

off-site for further refinement and sale. The General Project Flowsheet is presented in Section 14.2.

14.2 Flowsheet Flowsheets have been developed for the Phase 1 RoM rehandle using a standard two stage 19mm

crushing and conveyor stacking system, with the solutions processed using conventional carbon

columns. During Phase 1 carbon stripping will be conducted by others offsite. Phase 2 uses an

expanded crushing circuit incorporating three stage crushing to 9.5 mm, conveyor stacking, carbon

adsorption columns, and full carbon stripping (pressure Zadra), acid wash, regeneration, and

electrowinning circuits.and modified Zadra pressure stripping of the loaded carbon, followed by

electrowinning.

Figures 14-1 and 14-2 present the process flow sheets designed by KCA.

14.3 Plant Design and Equipment Characteristics Preliminary designs, equipment characteristics and sizes have been established based upon site

specific metallurgical data from La Colorada and industry norms for typical heap leach circuits of this

size.

Table 14.3.1 lists the global design basis derived from the mining plan and the metallurgical data.

Table 14.3.1: General Design Basis

Design Basis UnitNew Potentially Mineable Resource Delivery to Heap Leach, tonnes/month-year

336,000 / 4,000,000

New Potentially Mineable Resource crush size, mm P100 9.5mm Rehandle and Releach Potentially Mineable Resource crush size, mm P100 19mm Operation, d/y 360 New Potentially Mineable Resource Grade, g Au/t (average) 0.7 g/t New Potentially Mineable Resource Grade, g Ag/t (average) 6 g/t Rehandled Potentially Mineable Resource Grade, g Au/t (average) 0.40 g/t Rehandled Potentially Mineable Resource Grade, g Ag/t (average) 50 g/t New Potentially Mineable Resource Field Recovery, Au 55%@P1009.5mm Rehandled Potentially Mineable Resource Field Recovery, Au % 45%@P10019mm New Potentially Mineable Resource Field Recovery, Ag 35%@P1009.5mm Rehandled Potentially Mineable Resource Field Recovery, Ag % 6%@P10019mm Lift Height, m 8 Total Heap Height Above Plant, m 86 Initial Stacked Density, t/m3 1.55 NaCN Consumption (Overall), kg/t 0.38 Lime or Cement Consumption (Overall), kg/t 2

Tables 14.3.2 through 14.3.7 detail the specific design criteria needed for each major process area

to derive sizings and characteristics for specific equipment selection and cost estimation.



Table 14.3.2: Crushing and Stacking – Design Criteria

New Potentially Mineable Resource Crushing& Stacking UnitAvailability 70% Production Rate Nominal 467 tonne/hr Design 667 tonne/hr Crusher Work Index, kWh/mt 9.00 Abrasion Index, g 0.1973 Operation, d/a 365 Operation, shifts/d 2 Operation, h/shift 12 Crushing Configuration Jaw, Screen and 2 cones recycle to 2 screens Primary Feed Hopper Capacity TBD Method of Feeding Loader/Trucks Oversize Protection Fixed Grizzly Primary Crusher Type Jaw Target Crush Size 5” CSS Secondary Crusher Type Cone Target Crush Size 25mm Tertiary Crusher Type Cone Target Crush Size 9.5mm Screen System 3 each 3 Deck Horizontal Screen Deck Apertures: Upper 38 mm Middle 19 mm Lower 9.5 mm Discharge Conveyor Belt Width, mm 36 inch Automatic Sampler Yes/No No Weigh Scale, Yes/No Yes Bulk Density of Potentially Mineable Resource 1.6 System Type Field Conveyor Stacker Conveyor Belts Size 36 inch Stacker Size 36” x 136’ Method of Stacker Movement Radial – wheel drive

Table 14.3.3: Leach Pads and Irrigation – Design Criteria

Leach Pads Soil Bedding 0.3m clay Liner 1.5mm LLDPE (single) Ponds Pregnant 1.5mm HDPE (double) Barren 1.5mm HDPE (double) Storm 1.5mm HDPE (single) Leak Detection yes/no yes Solution Application Solution Application Method Drip Emitters Solution Application Rate, L/h/m2 8 – 10 Leach Cycle, days 120 Solution Application Flow, m3/h, Nominal 1060 Flow, m3/h, Design 1270 Solution Flow Measurement Magnetic Flowmeter with Totalizer % Availability 97%



Table 14.3.4: Absorption – Design Criteria

Location Open to Atmosphere Solution Processing Method Carbon Adsorption Type Cascade Columns

Specific Flow Rate 61.2m3/h/m2

Quantity of Trains 2

Number of Columns/Train 5

Adsorption Flow,m3/h, Nominal 1060

m3/h, Design 1270

Metal Recovery from Solution 95%

Carbon Loading 5,000 g Au Ag metal

Table 14.3.5: Desorption – Design Criteria

Capacity 5-tonne circuit Location Open to Atmosphere Carbon Desorption Method Pressure Zadra Strip Schedule, Batches 3 to 5/Week Carbon Bulk Density 0.48 t/m3 Strip Solution Rate 2.5by/h Strip Temperature 135°C Strip Pressure 450 kPa

Table 14.3.6: Electrowinning – Design Criteria

Capacity 2 cells in parallel Location Indoors Precious Metal Recovery Method Electrowinning Type SS Anodes Temperature 85 °C

Table 14.3.7: Smelting – Design Criteria

Location Indoors Furnace Type Tilting Smelt Schedule, Batches/Week 3 to 4 max Mercury Retort Assumed Not Required

The above criteria provide sufficient detail to allow for appropriate cost estimations for the processing

plant and equipment to be made.



14.4 Preliminary Equipment List Table 14.4.1: Preliminary Equipment List

Equipment Description Design Parameters Attached

hp Attached

kW 110 Crushing Dump Hopper 200 ton rock box Apron Feeder Pioneer 48”x22’ XHD Apron Feeder w/drive 52 39 Mesabi Screen Pioneer 60”x14’ HD Mesabi screen w/ stand, conveyor 65 48 Under Mesabi Conveyor 21 16 Jaw Crusher Pioneer 3055 jaw plant 240 179 Under Jaw Conveyor 240 179 Secondary Screen Feed conv 48”x60’ secondary screen feed conveyor 40 30 Fines Bypass conv 36”x60’ conveyor 27 20 Fines Transfer conv 36x100 grasshopper to bypass surge 34 25 Fines Collection conv 42”x120’ fines collection conveyor with stands 40 30 Kolberg Radial stacker 125’ conv Kolberg 42”x125 radial stacker 96 72 Stacker Radial Travel 3.4 3 Stacker Hydraulic Pump 11 8 Reclaim Tunnel Belt Conv Goodfellow 80’ reclaim tunnel w/apron feeders, 42” conv. 77 57 Reclaim Tunnel Feeder 14 10 Reclaim Tunnel Feeder 14 10 8x20 OC Screen 8x20 screen 77 57 Open Circuit Cone Crusher JCI Kodiak 400 portable cone plant Open Circuit Cone Motor 1 240 179 Open Circuit Cone Motor 2 240 179 Cone Lubrication 4.8 4 Cone Fan 2.1 2 Cone Hydraulic Pump 21 16 Cone Under Belt 14 10 Kolberg Radial Stacker Kolberg 42”x125 radial stacker 96 72 Stacker Radial Travel 3.4 3 Stacker Hydraulic Pump 11 8 Reclaim Tunnel Belt Conv Goodfellow 80’ reclaim tunnel, aprons, 100’ conv 77 57 Reclaim Tunnel Feeder 14 10 Reclaim Tunnel Feeder 14 10 Screen Feed Conveyor 1 42”x60’ screen feed conveyor w/ supports 27 20 Screen 1 8x20 JCI screen with fines conv., semi-portable 77 57 Screen 1 Under Conveyor 14 10 Screen 1 Cross Conveyor 14 10 Cross Conveyor 36”x20’ cross-conveyor for screen plant 14 10 Cone 1 Feed Belt Conv 36”x80’ cone feed conveyor 34 25 Closed Circuit Cone Crusher 1 JCI Kodiak 400 Portable cone plant Closed Circuit Cone 1 Motor 1 240 179 Closed Circuit Cone 1 Motor 2 240 179 Cone 1 Lubrication 4.8 4 Cone 1 Fan 2.1 2 Cone 1 Hydraulic 21 16 Cone 1 Under Belt Conv 14 10 Screen Feed Conveyor 2 42”x60’ screen feed conveyor w/ supports 27 20 Screen 2 8x20 JCI screen with fines & cross conv., semi-port 77 57 Screen 2 Under Conveyor 14 10 Screen 2 Cross Conveyor 14 10 Cross Conveyor 36”x20’ cross-conveyor for screen plant 14 10 Cone 2 Feed Belt 36”x80’ cone feed conveyor 34 25 Close Circuit Cone Crusher 2 JCI Kodiak 400 Portable cone plant Closed Circuit Cone 2 Motor 1 240 179 Closed Circuit Cone 2 Motor 2 240 179 Cone 2 Lubrication 4.8 4




hp Attached

kW Cone 2 Fan 2.1 2 Cone 2 Hydraulic 21 16 Cone 2 Under Belt 14 10 Jaw Circuit Trio Magnet Trio CR42 self-cleaning magnets with stands 10.8 8.1 Cleaning Belt 7.6 5.7 Circuit 2 Trio Magnet Trio CR42 self-cleaning magnets with stands 10.8 8.1 Cleaning Belt 7.6 5.7 Circuit 3 Trio Magnet Trio CR42 self-cleaning magnets with stands 10.8 8.1 Cleaning Belt 7.6 5.7 Weightometer 0.5 0.4 115 Stacking Grasshopper Conveyor 1 36" x 101' 34 25.4 Grasshopper Conveyor 2 36" x 101' 34 25.4 Grasshopper Conveyor 3 36" x 101' 34 25.4 Grasshopper Conveyor 4 36" x 101' 34 25.4 Grasshopper Conveyor 5 36" x 101' 34 25.4 Grasshopper Conveyor 6 36" x 101' 34 25.4 Grasshopper Conveyor 7 36" x 101' 34 25.4 Grasshopper Conveyor 8 36" x 101' 34 25.4 Grasshopper Conveyor 9 36" x 101' 34 25.4 Grasshopper Conveyor 10 36" x 101' 34 25.4 Grasshopper Conveyor 11 36" x 101' 34 25.4 Grasshopper Conveyor 12 36" x 101' 34 25.4 Grasshopper Conveyor 13 36" x 101' 34 25.4 Grasshopper Conveyor 14 36" x 101' 34 25.4 Superior Stacker Conveyor Superior 36" x 136' incl 66' telescoping conveyor 40 29.8 Superior Stacker Conveyor Stinger

40 29.8

Superior Stacker Hydraulic 14 10.4 122 Solution Handling VFD - 300 HP Barren Booster Pump

xxx pulse, 300HP, 480VAC, amps, with RTD inputs VFD

VFD - 300 HP Barren Booster Pump






Barren Wye Filter Keckley Style A, 150LB Strainer With 80 Mesh Screens NA Barren Wye Filter Keckley Style A, 150LB Strainer With 80 Mesh Screens NA Barren Wye Filter Keckley Style A, 150LB Strainer With 80 Mesh Screens NA Barren Wye Filter Keckley Style A, 150LB Strainer With 80 Mesh Screens NA Barren Wye Filter Keckley Style A, 150LB Strainer With 80 Mesh Screens NA Barren Wye Filter Keckley Style A, 150LB Strainer With 80 Mesh Screens NA Pregnant Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners,

150lb flanges NA

Barren Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners, 150lb flanges

N/A

Pregnant Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners, 150lb flanges

NA

Barren Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners, 150lb flanges

N/A

Adsorption Feed Pumps 372 m3/hr @ 22.2m TDH, Tsurumi pumps, GSZ 237-4 50 37 Adsorption Feed Pumps 372 m3/hr @ 22.2m TDH, Tsurumi pumps, GSZ 237-4 50 37 Adsorption Feed Pumps 373 m3/hr @ 22.2m TDH, Tsurumi pumps, GSZ 237-4 50 37 Adsorption Feed Pumps 374 m3/hr @ 22.2m TDH, Tsurumi pumps, GSZ 237-4 50 37 Submersible Barren Pump 372 m3/hr @ 12m TDH, Tsurumi pumps, GSZ 237-6 50 37 Submersible Barren Pump 372 m3/hr @ 12m TDH, Tsurumi pumps, GSZ 237-6 50 37 Barren Booster Pump 300 224




hp Attached

kW Barren Booster Pump 300 224 Barren Booster Pump 300 224 Barren Booster Pump 300 224 Process Solution Pump 80 m3/hr @ 40 m TDH 25 19 Excess Solution Pump 80 m3/hr @ 10 m TDH 15 11 Pregnant Solution Sampler SS with 1 liter collector N/A Barren Solution Sampler SS with 1 liter collector N/A Pregnant Solution Sampler SS with 1 liter collector N/A Barren Solution Sampler SS with 1 liter collector N/A Pond slides N/A Pond slides N/A Pond slides N/A Pond slides N/A Pond slides N/A Pond slides N/A Pond slides N/A Pond slides N/A Barren Tank 4.5x7 Open Top Tank, N/A Barren Tank 4.5x7 Open Top Tank, N/A Area 128, Adsorption, Acid Wash, RecoveryInstrument Air Receiver 0.2227 m3 volume N/A Press Blowdown Air Receiver 2 m3 volume N/A Hot Water Solution Boiler 2.62 mBTU output fuel oil fired hot water heaters 7.5 Press Blowdown Air Compressor 180 CFM @ 90 PSI 40 30 Instrument Air Compressor 15 CFM @ 90 PSI 5 Instrument Air Dryer Ingersoll Rand D25in Refrigerated Dryer 0.1 Baghouse Air Dryer Ingersoll Rand Dxxxxx Refrigerated Dryer 0.3 Electrolytic cell KCA Model 120, SS, with basket cathodes NA Electrolytic cell KCA Model 120, SS, with basket cathodes NA Acid Area Eye Wash & Shower Safety shower, non-heated N/A Carbon Handling Area Eye Wash & Shower

Safety shower, non-heated N/A

Recovery Area Eye Wash & Shower


Carbon Fines Filter Press 82 m2 filter area, 0.9 m3 cake volume. NA Cathode Sludge Filter Press 30m2 filter area, 0.3 m3 cake volume. NA Ecell exhaust fan 1700 CFM, ss, with explosion proof motor, static grounding 1.5 1.1 Carbon Attritioning Hoist 1 Tonne Hoist 1 0.7 Primary Heat Exchanger (aka. Recovery Heat Exchanger)

SS plates, EPDM seals, Trantor Model NA

Secondary Heat Exchanger (aka. Heat Up Heat Exchanger)


Tertiary Heat Exchanger (aka. Cool Down Heat Exchanger)


Carbon Regeneration Kiln 125 KG/HR KILN 10 Carbon Attritioning Mixer Top mount, fixed speed, Lightnin 14Q1, single axial flow

impeller 1.5 1.1

Eluant Return Pump 20 m3/h @ 10 m TDH 3 2.2 Acid Injection pump 3m3/hr @ 6 m TDH 1 0.7 Carbon Transfer Pump Wemco DK3, 40m3/hr @ 16m TDH 7.5 5.6 Carbon Transfer Pump Wemco DK3, 40m3/hr @ 16m TDH 7.5 5.6 Carbon Transfer Pump Wemco DK3, 40m3/hr @ 16m TDH 7.5 5.6 Carbon Transfer Pump Wemco DK3, 40m3/hr @ 16m TDH 7.5 5.6 Acid Wash Circulation Pump 20m3/hr @ 15m TDH, Teflon lined pump, for 32% HCL

service 7.5 5.6

Acid Area Sump Pump 20m3/hr @ 25m TDH, non metalic pump, for 32% HCL service

7.5 5.6

Carbon Area Sump Pump 20m3/hr @ 25m TDH, metallic pump for 5% carbon solids 10 7.5 Eluant pump Circuit 1 20m3/hr @ 60m TDH, Carbon steel pump 15 11.2




hp Attached

kW Eluant drain pump 20m3/hr @ 10m TDH, Carbon steel pump 3 2.2 Carbon Fines Press Feed Pump 50m3/hr @ 73m TDH, Carbon steel pump 30 22.4 Boiler Hot Water Recirc pump Pending 25 18.6 Elution Vessel ASME vessel 1.524 x 7.8 + heads, 14.4m3 N/A Rectifier 2000 amp, 0-6 VDC 16 Rectifier 2000 amp, 0-6 VDC 16 Barren Solution Sampler SS with 1 liter collector, N/A Pregnant Solution Sampler KCA standard Model, SS with 1 liter collector, N/A Barren Solution Sampler KCA standard Model, SS with 1 liter collector, N/A Adsorption Safety Screen static safety screen, 2mx4m - 24mesh N/A Kiln Feed Hopper Dewater Screen KCA standard screen N/A Carbon Sizing Screen 4x8 Sizetec, dual motors each at 2.8 HP 5.6 4.2 Strip Solution Outlet Screen SS, 3" Johnson screen, 20 mesh, mounted in pipe N/A Strip Solution Outlet Screen SS, 3" Johnson screen, 20 mesh, mounted in pipe N/A Strip Solution Inlet Screen SS, 3" Johnson screen, 20 mesh, mounted in pipe N/A Strip Solution Inlet Screen SS, 3" Johnson screen, 20 mesh, mounted in pipe N/A Strip Solution Inlet Screen SS, 3" Johnson screen, 20 mesh, mounted in pipe N/A Acid Wash Vessel Inlet Screen PVC 3" Johnson screen, 20 mesh, tank mounted N/A Acid Wash Vessel Inlet Screen PVC 3" Johnson screen, 20 mesh, tank mounted N/A Acid Wash Vessel Outlet Screen PVC 3" Johnson screen, 20 mesh, tank mounted N/A Acid Wash Vessel Outlet Screen PVC 3" Johnson screen, 20 mesh, tank mounted N/A Carbon Column #1 Train 1 4.06 X 4 M, With Wear Plates, Dart Valves, Perforated SS

Distribution Plates N/A

Carbon Column #2 Train 1 4.06 X 4 M, With Wear Plates, Dart Valves, Perforated SS Distribution Plates

N/A


N/A


N/A


N/A

Feed Box 1.1x4.95x .75m Open Top Box N/A Carbon Column #1 Train 2 4.06 X 4 M, With Wear Plates, Dart Valves, Perforated SS

Distribution Plates N/A


N/A


N/A


N/A


N/A

Feed Box 1.1x4.95x .75m OPEN TOP BOX N/A Carbon Storage Tank 9 m3 working volume, 1.8m D x 4.0 m cylinderical section

with cone bottom, open top N/A

Stripped carbon tank, 500 kg carbon

1.45x1.45x1.3 Sloped Bottom Tank N/A

Dewatered Carbon Holding Tank Sloped Bottom Tank N/A Eluant Solution Storage Tank 22 m3 working capacity with 50 mm insulation & 29 ga

304SS cladding N/A

Carbon Attritioning Tank 2 m3, with 3 baffles, cone bottom N/A Carbon Fines Tank Carbon steel, xxx m3 working volume N/A Carbon Storage Tank 13 m3 working volume, carbon steel, cone bottom N/A Quench Tank 13 m3 working volume, carbon steel, cone bottom N/A Carbon Regeneration Kiln Feed Tank

13 m3 working volume, carbon steel, sloped bottom N/A

Acid Wash Vessel 14 m3 working volume, rubber or FRP lined N/A Acid Wash/Neutralization Mix Tank

.7 m3 working capacity hdpE N/A




hp Attached

kW Cathode Wash Box Steel box with vapor shield N/A Ecell Discharge Pump Tank 1.5m diameter x 1.5 meter high N/A

Acid Mix sump bucket 0.98m diameter x 0.872 meter high, 6mm rubber indise, painted outside

N/A

Carbon handling sump bucket 0.98m diameter x 0.872 meter high, painted N/A E-Cell sump bucket 0.98m diameter x 0.872 meter high, painted N/A Slag steel trench N/A Area 131, Refinery Baghouse Dust Collector 17000 m/h, 150 C, NOMEX bags, SP = 100 mm H2O, with

HEPA secondary filter NA

Dryer GRIEVE AB 700 OR SIMILAR 9 Refinery Area Eye Wash & Shower


Smelting Furnace Fuel oil fired, 430 HT crucible, with 1/2 hp burner blower 1 0.7 Baghouse Dust Collector Exhaust Fan

pending 30 22.4

Refinery exhaust fan 3600 CFM @ Static Pressure 0.5" Smelting Furnace Fume Hood pending NA Smelting Furnace Hydraulic Power Unit

pending 5 3.7

Cathode hoist 1/2ton hoist 1 0.7 Slag mill QUINN 16 X32 Ball Mill & Charge 3 2.2 Cathode Sludge Filter Feed Pump 10m3/hr @ 73m TDH, Horizontal Centrifugal 15 11.2 Recovery Area Sump Pump 20 m3/h @ 25 m TDH 10 7.5 Slag Sump Pump 150 m3/h @ 10 m TDH 20 14.9 Slag Solution Pump 150 m3/h @ 12 m TDH 15 11.2 Gravity Table Tails Pump Denver Sand Pump 1 0.7 Slag Mill Discharge Pump Denver Sand Pump 1 0.7 Slag Mill Feed Pump Denver Sand Pump 1 0.7 Granulation Water Tank 24M3 Tank NA Slag Holding Tank 1.2M3 Working Capacity NA Platform Scale for Fluxes 0.2 Cathode Spray Washer Pending 1 Gravity Table Diester 2 Vault Door Vault Structures Inc, Thor III Vault Door Class 2

Dore Bar Cleaner: needle Gun Air Flow 26 CFM, Stroke 1-1/16", blow p/min 4000 Ingersoll Rand mod. 182K1

Area 134, Reagents NaCN Mixer Lightnin 15Q2 mixer 2 1.5 NaCN Area Eye Wash & Shower Safety shower, non-heated N/A NaCN Hoist Electric Hoist, 1 NaCN Mix Tank 2.13x2.7 tank with bag ripper (no dust cover), lid over bag

ripper N/A

NaCN Storage Tank 2.8X3.5M CLOSED TOP TANK N/A NaCN Area Sump Pump 5 3.7 NaCN Transfer Pump 3298 1.5x1 x 5, SEAL LESS PUMP, 2 1.5 NaCN Addition Pump WIER RP20 PUMP 1 0.7 NaCN Addition Pump WIER RP20 PUMP 1 0.7 NaOH Pump 20m3/hr @ 12m TDH, Horizontal Centrifugal 3 2.2 Antiscalant pump (Elution Circuit) Vendor Supplied pumps (220 VAC, 1 Ph) 0.2 Antiscalant pump (Barren Circuit) Vendor Supplied pumps (220 VAC, 1 Ph) 0.2 Antiscalant pump (Pregnant Circuit)

Vendor Supplied pumps (220 VAC, 1 Ph) 0.2

Antiscalant pump (Pregnant Circuit)

Vendor Supplied pumps (220 VAC, 1 Ph) 0.2

NaOH Mix Tank 27M3 WORKING CAPACITY N/A Total Attached KW 4281



14.5 Consumable Requirements The consumable requirements are estimated based upon a 4,000,000 t/y operation.

Table 14.5.1: La Colorada Consumables

Item Consumption Unit Consumption Annual Consumption Unit Jaw Liners - Primary kg/t 0.03 121 tonnes/year Cone Liners-Secondary/Tertiary kg/t 0.1 403 tonnes/year Lime or cement kg/t 2 8,064 tonnes/year NaCN (Leaching) kg/t 0.38 1,532 tonnes/year NaCN (Elution) kg/strip 48 193,536 tonnes/year NaOH (Cyanide Mixing) kg/batch 50 201,600 tonnes/year NaOH (Elution) kg/strip 9.8 3 tonnes/year NaOH (Acid Wash)) kg/strip 480 125 tonnes/year HCl L/t Carbon 150 195 m3/year Antiscale Agent ppm 6 41,522 l/year Carbon (loss) kg/strip 150 39 tonnes/year Fluxes kg/troy oz 2 1,018 tonnes/year Diesel – Solution Heating L/strip 1,239 322 m3/year Diesel – Carbon Regeneration L/regen batch 2,891 433 m3/year Diesel - Smelting L/smelt 156 32 m3/year

La Colorada Project

Sonora, Mexico

Figure 14-1

Process Flow Sheet Source: Kappes, Cassiday & Associates, 2011

La Colorada Project

Sonora, Mexico

Figure 14-2

Process Flow Sheet Phase 2 Fine Crushing to 9.5 mm New Ore Source: Kappes, Cassiday & Associates



15 Project Infrastructure (Item 18) Due to the extensive mining history at the site and regional proximity to established cities and

country infrastructure, the mine is unlikely to suffer any adverse logistical or consumable supply

constraints based on mine location.

The site currently (2011) has mine site buildings, water supply, heap pads, leach ponds, power

supply, access roads and plant foundations that are being upgraded and improved.

15.1 Infrastructure and Logistic Requirements Access to the property is good with total driving time from Hermosillo of less than 1 hour. Driving

distance is 53 km from the Center of Hermosillo heading south on Federal Highway 16, all of which

is paved.

The village of La Colorada is located adjacent to the site and contains a small supply of labor (275

inhabitants) and some basic equipment. The city of Hermosillo (900,000 inhabitants) is located 45

km from the site with a large supply of skilled and unskilled labor along with most supplies and

contractors for construction and operations available. There are daily flights to Hermosillo from

Mexico City, Phoenix and Los Angeles. Hermosillo is a major mining center for Northern Mexico with

access to vendors, contractors and consultants for most reagents, supplies, equipment or services

need for exploration, construction, operations and closure.

In addition, equipment and reagents can be sourced through several major cities in the U.S., the

closest of which is through Nogales, Arizona, 177 miles north of Hermosillo via Federal Highway 15,

with an estimated travel time of 3.5 to 4 hours.

15.1.1 Port access

Equipment or reagents that are not available in Hermosillo can be accessed by the port of Guaymas,

an industrial sized port on the located in Sonora on the California Gulf Coast. Travel from Guaymas

to Hermosillo is 138 km on Federal Highway 15, with an approximate travel time of 1.5 to 2 hours.

15.1.2 Power

La Colorada has a dedicated 33 KV power line and 10 MVA substation which were built by Eldorado

in 1997. The main transmission line is 23 km from the community of Estacion Torres to the Mine

site. La Colorada’s operations plan calls for a peak power load of 2.5 MVA for ADR plant, 1000 KVA

for crushing and 1500 KVA for conveying. Therefore, no upgrade to the power infrastructure is

expected at this time.

15.1.3 Water Supply

The water supply used during production by Eldorado Gold Ltd. (1994-2000) and Grupo Minero FG

(2000-2003) came from the dewatering of underground workings, the Wyman shaft and Open pit

dewatering.

With regards to water rights, any water taken from open pit operations either ground water or surface

run-off can be used without a special permit. Water from the underground workings requires a

permit and is defined by the CNA (National Water Commission).



It is estimated that the combined water storage of El Crestón and Gran Central total at least 1 million

cubic meters of water. Dewatering will likely use an 8 inch pipe pumping a head of 150 m when pre-

strip operations encounter the water level.

15.1.4 Site Structures

The mine site structures are composed of:

A main office building built with masonry walls and metal insulated sheet roof which is big

enough for geology and site administration personnel;

A laboratory built with metal sheeting and a three unit office trailer;

A Warehouse comprised of two 48 ft containers;

A Lunch room built with a metal frame and combo sheet walls with capacity for 120 people,

including a cooking area;

A process ADR plant foundation covering 800 m2; and

A 500 m2 metal framework undergoing refurbishment.

15.1.5 Waste Disposal

Domestic waste from offices and lunch rooms is sent to the municipality sanitary landfill located 2 km

from the site. This landfill has enough capacity for both the town La Colorada and waste generated

during mine operations.

15.1.6 Potential Heap Leach Pad Areas

Golder Associates have completed a heap leach design plan within the current site footprint. Table

15.1.6.1 illustrates the sequencing and design capacity of these lifts. Tonnages have been

estimated using a 1.7 density.



Table 15.1.6.1: Golder Associates Heap Leach Pad Design Capacity

Lift Volume Tonnes Accumulated TonnesPad Phases 8, 10, 11 Lift 1 102,368 174,026 174,026 Lift 2 572,953 974,020 1,148,046 Lift 3 738,325 1,255,153 2,403,198 Lift 4 752,258 1,278,839 3,682,037 Lift 5 712,584 1,211,393 4,893,430 Lift 6 678,376 153,239 6,046,669 Lift 7 647,523 1,100,789 7,147,458 Lift 8 615,328 1,046,058 8,193,515 Lift 9 572,741 973,660 9,167,175 Lift 10 516,915 878,756 10,045,931 Lift 10 404,004 686,807 10,732,738 Lift 10 185,617 315,549 11,048,286 Subtotal 11,048,286Pad Phase 9 Lift 1 198,976 338,259 338,259 Lift 2 209,183 355,611 693,870 Lift 3 219,648 373,402 1,067,272 Lift 4 218,189 370,921 1,438,193 Lift 5 211,807 360,072 1,798,265 Lift 6 235,012 399,520 2,197,786 Lift 7 329,658 560,419 2,758,204 Lift 8 327,596 556,913 3,315,117 Lift 9 203,296 345,603 3,660,720 Subtotal 3,660,720Total 14,887,745

As Golder Associates have only a design for 15 Mt of potentially minable resource, the remainder of

pad space required must come from additional land purchases. SRK and Argonaut have located a

Pad to the Northeast which would accommodate the additional pad space but no land purchases

have been made at this time and there is no guarantee that the pad location will be finalized.

Table 15.1.6.2: Conceptual Pad Space

Pad NortheastLift Volume Tonnes Accumulated Tonnes 9 Lifts 21,786,409 37,036,895 37,036,895

Figure 15-4 illustrates the pad sequencing and footprint as designed.

La Colorada Project

Sonora, Mexico

Figure 15-1

La Colorada 10 MVA Substation Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 15-2

Wyman Shaft and 10” Dewatering Line Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 15-3

Mine Site Office Buildings Source: Argonaut Gold Inc., 2011

La Colorada Project

Sonora, Mexico

Figure 15-4

Heap Leach Pad Design Source: Argonaut Gold, Inc., 2011



16 Market Studies and Contracts (Item 19)

16.1 Summary of Information Gold markets are mature, global markets with reputable smelters and refiners located throughout the

world. Demand is presently high with prices for gold showing an increase during the past year.

Markets for doré are readily available. La Colorada will possess a gold room for the production of

doré; the final decision on metal refining has not been made at this time.

16.2 Commodity Price Projections The one year moving average for gold as of October 2011 was close to $1,500 oz Au. As such,

$1,500 oz Au has been used for resources and long term gold price in the economic model. By

estimating gold at $1,700 Oz.Au for the remainder of 2011, the gold price used in the economic

model was raised to $1,575 for 2012.

Table 16.2.1: SRK Moving Averages for Gold

Source: Based on Kitco pricing – Internal SRK document (1) Estimated through the end of 2011

16.3 Contracts and Status Because of the pre-development operations on site, Table 16.3.1 illustrates the contracts Argonaut is

currently committed to. Early discussions for the mine contract are proceeding with local mine

contractors.

Table 16.3.1: La Colorada Contracts as of November 2011

Contract Site Area Amount (US$) SOLMAX Geomembrane 572,228 Goodfellow Crusher and Grasshoppers 1,567,900 Kappes Cassiday Process Plant 2,875,176 Construplan Construction Of Heap Pad 1,013,216 Sinergia RoM Pad Relocation 3,301,991 Degussa Cyanide 945,000 Electrica Bustamante Electrical Installation 229,481 Dicanosa Electrical Installation 143,926

Year Month PM Fix 12 mo Average 24 mo Average 36 mo Average2011 Jan 1,356 1,245 1,120 1,036 Feb 1,373 1,268 1,137 1,049 Mar 1,424 1,294 1,158 1,061 Apr 1,474 1,321 1,183 1,077 May 1,510 1,346 1,207 1,094 Jun 1,529 1,371 1,231 1,112 Jul 1,573 1,402 1,258 1,130 Aug 1,756 1,447 1,291 1,155 Sep 1,772 1,489 1,324 1,181 Oct 1,665 1,516 1,350 1,205 Nov(1) 1,700 1,544 1,373 1,231 Dec(1) 1,700 1,569 1,397 1,256



17 Environmental Studies, Permitting and Social or Community Impact (Item 20)

17.1 Related Information

17.1.1 Mining Law and Regulations

Through the Mining Law, approved on June 26, 1992 and amended by decree on December 24,

1996, Article 27 of the Mexican Constitution was regulated.

Article 6 of the Mining Law states that mining exploration; exploitation and beneficiation are public

utilities and have preference over any other use or utilization of the land, subject to compliance with

laws and regulations.

Article 19 specifies the right to obtain easements, the right to use the water flowing from the mine for

both industrial and domestic use and the right to obtain a preferential right for a concession of the

mine waters.

Articles 27, 37 and 39 rule that exploration; exploitation and beneficiation activities must comply with

environment laws and regulations and should incorporate technical standards in matters such as

mine safety, ecological balance and environmental protection.

The Mining Law Regulation of February 15, 1999 repealed the previous regulation of March 29,

1993. Article 62 of the regulation requires mining projects to comply with the General Environmental

Law, its regulations, and all applicable norms.

17.1.2 General Environmental Laws and Regulations

Mexico’s environmental protection system is based on the General Environmental Law known as Ley

General del Equilibrio Ecológico y la Protección al Ambiente – LGEEPA (General Law of Ecological

Equilibrium and the Protection of the Environment), approved on January 28, 1988 and updated

December 13, 1996.

The Mexican federal authority over the environment is the Secretaría de Medio Ambiente y Recursos

Naturales – SEMARNAT (Secretariat of the Environment and Natural Resources). SEMARNAT,

formerly known as SEDESOL, was formed in 1994, as the Secretaría de Medio Ambiente Recursos

Naturales y Pesca (Secretariat of the Environment and Natural Resources and Fisheries). On

November 30, 2000, the Federal Public Administration Law was amended giving rise to SEMARNAT.

The change in name corresponded to the movement of the fisheries subsector to the Secretaría de

Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación – SAGARPA (Secretariat of

Agriculture, Livestock, Rural Development, Fisheries and Food), through which an increased

emphasis was given to environmental protection and sustainable development.

SEMARNAT is organized into a number of sub-secretariats and the following main divisions:

INE – Instituto Nacional de Ecología (National Institute of Ecology), an entity responsible for

planning, research and development, conservation of national protection areas and approval

of environmental standards and regulations;



PROFEPA – Procuraduría Federal de Protección al Ambiente (Federal Attorney General for

the Protection of the Environment) responsible for law enforcement, public participation and

environmental education;

CONAGUA – Comisión Nacional del Agua (National Water Commission), responsible for

assessing fees related to water use and discharges;

Mexican Institute of Water Technology; and

CONANP – Comisión Nacional de Areas Naturales Protegidas (National Commission of

Natural Protected Areas).

The federal delegation or state agencies of SEMARNAT are known as Consejo Estatal de Ecología

– COEDE (State Council of Ecology).

PROFEPA is the federal entity in charge of carrying out environmental inspections and negotiating

compliance agreements. Voluntary environmental audits, coordinated through PROFEPA, are

encouraged under the LGEEPA.

Under LGEEPA, a number of regulations and standards related to environmental impact

assessment, air and water pollution, solid and hazardous waste management and noise have been

issued. LGEEPA specifies compliance by the states and municipalities, and outlines the

corresponding duties.

Applicable regulations under LGEEPA include:

Regulation to LGEEPA on the Matter of Environmental Impact Evaluations, May 30, 2000;

Regulation to LGEEPA on the Matter of Prevention and Control of Atmospheric

Contamination, November 25, 1988;

Regulation to LGEEPA on the Matter of Environmental Audits, November 29, 2000;

Regulation to LGEEPA on Natural Protected Areas, November 20, 2000;

Regulation to LGEEPA on Protection of the Environment Due to Noise Contamination,

December 6, 1982; and

Regulation to LGEEPA on the Matter of Hazardous Waste, November 25, 1988.

Mine tailings are listed in the Regulation to LGEEPA on the Matter of Hazardous Waste. Noms

include:

Norma Oficial Mexicana (NOM)-CRP-001-ECOL, 1993, which establishes the characteristics

of hazardous wastes, lists the wastes, and provides threshold limits for determining its

toxicity to the environment;

NOM-CRP-002-ECOL, 1993 establishes the test procedure for determining if a waste is

hazardous;

On September 13, 2004, SEMARNAT published the final binding version of its new standard

on mine tailings and mine tailings dams, NOM-141-SEMARNAT-2003. The new rule has

been renamed since the draft version was published in order to better reflect the scope of

the new regulation. This NOM sets out the procedure for characterizing tailings, as well as

the specifications and criteria for characterizing, preparing, building, operating, and closing a

mine tailings dam. This very long (over 50 pages) and detailed standard sets out the new

criteria for characterizing tailings as hazardous or non-hazardous, including new test

methods. A series of technical annexes address everything from waste classification to



construction of the dams. The rule is applicable to all generators of non-radioactive tailings

and to all dams constructed after this NOM goes into effect; and

Existing tailings dams will have to comply with the new standards on post-closure. The

NOM formally went into effect sixty (60) days after its publication date.

This Official Mexican Standard, NOM-155-SEMARNAT-2007, establishes specifications for

characterization of leached or spent potentially mineable resource from heap leach pads, as well as

requirements of environmental protection measures to be employed during site preparation,

construction, operation, and closure. Monitoring requirements are also specified.

PROFEPA “Clean Industry”

The Procuraduría Federal de Protección al Ambiente (the enforcement portion of Mexico’s

Environmental Agency, referred to as PROFEPA), administers a voluntary environmental audit

program and certifies businesses with a “Clean Industry” designation if they successfully complete

the audit process. The voluntary audit program was established by legislative mandate in 1996 with

a directive for businesses to be certified once they meet a list of requirements including the

implementation of international best practices, applicable engineering and preventative corrective

measures.

In the Environmental Audit, firms contract third-party PROFEPA accredited auditors, considered

experts in fields such as risk management and water quality, to conduct the audit process. During

this audit, called Industrial Verification, auditors determine if facilities are in compliance with

applicable environmental laws and regulations. If a site passes, it receives designation as a “Clean

Industry” and is able to utilize the Clean Industry logo as a message to consumers and the

community that it fulfills its legal responsibilities. If a site does not pass, the government can close

part or all of a facility if it deems it necessary. However, PROFEPA wishes to avoid such extreme

actions and instead prefers to work with the business to create an “Action Plan” to correct problem

areas.

The Action Plan is established between the government and the business based on suggestions of

the auditor from the Industrial Verification. It creates a time frame and specific actions a site needs

to take in order to be in compliance and solve existing or potential problems. An agreement is then

signed by both parties to complete the process. When a facility successfully completes the Action

Plan, it is then eligible to receive the Clean Industry designation.

PROFEPA believes this program fosters a better relationship between regulators and industry,

provides a green label for businesses to promote themselves and reduces insurance premiums for

certified facilities. The most important aspect, however, is the assurance of legal compliance

through the use of the Action Plan, a guarantee that ISO 14001 and other Environmental

Management Systems cannot make.

SIGA

Many companies in Mexico adopt the corporate policy, Sistema Integral de Gestión Ambiental

(SIGA) (Integral System of Environmental Management), for the protection of the environmental and

prevention of adverse environmental impacts. SIGA emphasizes a commitment to environmental

protection along with sustainable development, as well as a commitment to strict adherence to

environmental legislation and regulation and a process of continuous review and improvement of

company policies and programs. The companies continue to improve their commitments to



environmental stewardship through the use of the latest technologies that are proven, available, and

economically viable.

17.1.3 Other Laws and Regulations

Water Resources

Water resources are regulated under the National Water Law, December 1, 1992 and its regulation,

January 12, 1994 (amended by decree, December 4, 1997). In Mexico, ecological criteria for water

quality is set forth in the Regulation by which the Ecological Criteria for Water Quality are

Established, CE-CCA-001/89, dated December 2, 1989. These criteria are used to classify bodies of

water for suitable uses including drinking water supply, recreational activities, agricultural irrigation,

livestock use, aquacultural use and for the development and preservation of aquatic life. The quality

standards listed in the regulation indicate the maximum acceptable concentrations of chemical

parameters and are used to establish wastewater effluent limits.

Discharge limits have been established for particular industrial sources, although limits specific to

mining projects have not been developed. NOM-001-ECOL-1996, January 6, 1997, establishes

maximum permissible limits of contaminants in wastewater discharges to surface water and national

“goods” (waters under the jurisdiction of the CONAGUA).

Daily and monthly effluent limits are listed for discharges to rivers used for agricultural irrigation,

urban public use and for protection of aquatic life; for discharges to natural and artificial reservoirs

used for agricultural irrigation and urban public use; for discharges to coastal waters used for

recreation, fishing, navigation and other uses and to estuaries; and discharges to soils and to

wetlands. Effluent limitations for discharges to rivers used for agricultural irrigation, for protection of

aquatic life, and for discharges to reservoirs used for agricultural irrigation have also been

established.

Ecological Resources

In 2000, the National Commission of Natural Protected Areas (CONANP) (formerly CONABIO, the

National Commission for Knowledge and Use of Biodiversity) was created as a decentralized entity

of SEMARNAT. As of November 2001, 127 land and marine Natural Protected Areas had been

proclaimed, including biosphere reserves, national parks, national monuments, flora and fauna

reserves, and natural resource reserves.

Ecological resources are protected under the Ley General de Vida Silvestre (General Wildlife Law).

(NOM)-059-ECOL-2000 specifies protection of native flora and fauna of Mexico. It also includes

conservation policy, measures and actions, and a generalized methodology to determine the risk

category of a species.

Other laws and regulations include:

Forest Law, December 22, 1992, amended November 31, 2001, and the Forest Law

Regulation, September 25, 1998;

Fisheries Law, June 25, 1992, and the Fisheries Law Regulations, September 29, 1999; and

Federal Ocean Law, January 8, 1986.



Regulations Specific to Mining Projects

All aspects related to Mine Safety and Occupational Health are regulated in Mexico by NOM-023-

STPS-2003 issued by the Secretariat of Labor. Appendix D of this regulation refers specifically to

mine ventilation and establishes all the requirement underground mines should comply with, which

are subject of regular inspections.

New tailings dams are subject to the requirements of NOM-141-SEMARNAT-2003, Standard that

Establishes the Requirements for the Design, Construction and Operation of Mine Tailings Dams.

Under this regulation, studies of hydrogeology, hydrology, geology and climate must be completed

for sites considered for new tailings impoundments. If tailings are classified as hazardous under

NOM-CRP-001-ECOL/93, the amount of seepage from the impoundment must be controlled if the

facility has the potential to affect groundwater. Environmental monitoring of groundwater and tailings

pond water quality and revegetation requirements is specified in the regulations. This regulation is

still under review.

NOM-120-ECOL-1997, November 19, 1998 specifies environmental protection measures for mining

explorations activities in temperate and dry climate zones that would affect xerophytic brushwood

(matorral xerofilo), tropical (caducifolio) forests, or conifer or oak (encinos) forests. The regulation

applies to “direct” exploration projects defined as drilling, trenching, and underground excavations. A

permit from SEMARNAT is required prior to initiating activities and SEMARNAT must be notified

when the activities have been completed. Development and implementation of a Supervision

Program for environmental protection and consultation with CONAGUA is required if aquifers may be

affected. Environmental protection measures are specified in the regulations, including materials

management, road construction, reclamation of disturbance and closure of drillholes. Limits on the

areas of disturbance by access roads, camps, equipment areas, drill pads, portals, trenches, etc.,

are specified.

17.1.4 Expropriations

Expropriation of ejido and communal properties is subject to the provisions of agrarian laws.

17.1.5 NAFTA

Canada, the United States and Mexico participate in the North American Free Trade Agreement

(NAFTA). NAFTA addresses the issue of environmental protection, but each country is responsible

for establishing its own environmental rules and regulations. However, the three countries must

comply with the treaties between themselves and the countries must not reduce their environmental

standards as a means of attracting trade

17.2 Operating and Post Closure Requirements and Plans No Detailed post closure and operating plans have been developed for La Colorada at this time. A

$4,000,000 provision has been included in the economic model for rehabilitation and mine closure

expenses starting two years before the mine schedule ends.

17.2.1 Permitting Process

Environmental permits are required from various federal and state agencies. The general process

for obtaining authorization to construct a new industrial facility is shown in Figure 17-1.



Environmental permits are required in Mexico for exploration activities and road construction as well

as mining activities and infrastructure development.

17.2.2 Environmental Impact Permit

The most important environmental permit is the Environmental Impact Permit. The LGEEPA

environmental impact assessment regulation, revised on May 30, 2000, outlines the procedure for

obtaining the permit. All mining projects and certain exploration projects must prepare an

environmental impact assessment. The type of study required – a Risk Study, a Preventive Study or

an Environmental Impact Statement (Manifestación de Impacto Ambiental) (MIA) – depends on the

characteristics of the project. Mining projects would most likely be required to prepare a MIA.

SEMARNAT will provide guidelines for the MIA. The time period for reviewing the MIA is 60 days,

although this period may be extended for complex projects. Three resolutions are possible: 1)

approval of the project; 2) conditional approval of the project, or 3) denial of the project. A bond will

be established based on the type of project and the cost for rehabilitation.

17.2.3 Other Permits and Licenses

Other permits and licenses are listed below. All permits and licenses have annual reporting

requirements and fee schedules.

Operating License (and Air Quality Permit)

Article 18 and 19 of the Regulation of LGEEPA, on the Prevention and Control of Atmospheric

Contamination, requires mining operations to obtain an Operating License. The license largely

addresses air emissions but additional conditions can be included. Additional conditions may

prescribe activities associated with hazardous materials, safety, remediation and reclamation.

Land Use Permit

A land use permit is required before an Operating License can be acquired.

17.2.4 Concession Title for Underground Water Extraction

A permit is required for the extraction and use of groundwater and surface water (e.g., wells to

supply potable water). The use of groundwater is regulated by CONAGUA and mine operators must

pay for the water used. However, mine dewatering is regulated under the Mining Law and no permit

is required to extract mine water.

Wastewater Discharge Permit

Water discharge is regulated by CONAGUA and a permit is required for most industrial discharges.

The quality of the discharge must meet NOMs, although CONAGUA may issue particular limits.

Stream Diversions

An authorization is required for the deviation, extraction or diversion of national waters.

Hazardous Waste Registration

A mine site must submit a Hazardous Waste Notification to SEMARNAT prior to generating the

waste or using a hazardous waste management facility.



Mine Closure Regulations

Currently, there are no legal provisions for mine closure, although regulations issued for the

construction and operation of new mining facilities – such as tailings dams – refer to the need to

implement post-closure measures to ensure the protection of the surrounding environment.

17.3 La Colorada Environmental and Permitting Status

17.3.1 Environmental Baseline Data

Environmental baseline data collection at La Colorada was initiated in 2011 in support of the MIA

application for the expansion of the La Colorada and Gran Central open pits, and construction of new

heap leaching facilities.

Fauna

Wildlife data were collected in April (dry season) and again in September (wet season). Forty-four

species amphibians and reptiles were identified in the study area; 97 species of birds, and 57

species of mammals were also identified. Of these, nine species of birds and three species of

mammals fall under some protective status according to Mexican NOMs.

Flora

Vegetation data collected during the same periods support the classification of the site into forest

and subtropical scrubland and brush zones. The studies identified 49 families, 158 genus, and 210

species of vascular plants.

Surface Water

Surface water in the area is generally of good quality, with minor exceptions. Fluoride is elevated in

both pit lakes (NOM-127-SSA1-1994), as well as Total Dissolved Solids (TDS) for use as agricultural

water (NOM-001-SEMARNAT-1996).

Groundwater

The current campaign of groundwater monitoring includes only three of the many wells installed

during the previous operations. Well MW97-5 continues to be used to monitor the potential release

and flow of process solutions from the existing heap leach facilities and process water ponds. Well

MW95-27 is also located down-gradient of the heap leach facilities, near the project property

boundary with the community. A third groundwater monitoring point being used to establish baseline

data for the current operation is the “Agua de Caseta”, the domestic water well for the town of La

Colorada. Monitoring well samples collected in April 2011 were compared to NOM-001-

SEMARNAT-1996; for the domestic well, it was compared to NOM-127-SSA1-1994. In general, the

monitoring well waters appear similar to the domestic well water, with exceedences in conductivity

and nitrite in the domestic well.

Geochemistry

In accordance with NOM-155-SEMARNAT-2007, the geochemical characteristics of the exposed

waste rock was characterized using Meteoric Water Mobility Procedure (MWMP) and Acid-Base

Accounting (ABA) testing programs. Included in the initial program was spent potentially mineable

resource from the existing heap leach pads as well as waste rock . The leach tests indicate non-



hazardous materials according to Mexican NOMs. The initial ABA testing resulted in overall Acid-

Generating Potential to Acid-Neutralizing Potential (AGP:ANP) of 1.9 suggesting an indeterminate

acid rock drainage (ARD) potential. Minera Pitalla is therefore in the process of developing a kinetic

testing program to include humidity cell testing (HCT). This program has not yet been implemented.

17.3.2 Environmental Permitting

Informe Preventivo

Permitting of La Colorada has essentially been divided into two phases. First, the existing facilities

and operations are being restarted through the expedited Preventative Notice (Informe Preventivo, or

IP). The IP is intended to provide a preliminary presentation of the project, its location and potential

environmental impacts. The purpose of the IP is to provide the SEMARNAT with general information

on the project to determine whether an MIA will be required and on what basis—regional or specific

(particular). In certain instances, projects may be exempted from filing an MIA and may simply file

an IP. The exemption applies to projects for which there are NOMs in place that are implemented in

the context of pre-approved development plans or within industrial parks already approved by

SEMARNAT.

An IP was submitted by Minera Pitalla (pH Consultores Ambientales, 2011) to SEMARNAT in

September 2011 as part of the restart of the La Colorada existing operations on previously disturbed

ground. Approval was issued by SEMARNAT on October 20, 2011 to authorize the construction of

new process water ponds (meeting both Mexican and international standards), a new heap leach

pad onto which the previous RoM leach pad material will be relocated, and new plant site. The

original ponds and pad are known to have leaked in the past, as is demonstrated through

groundwater monitoring and the detection of cyanide in the down-gradient wells. The expedited IP

approval process is allowing Minera Pitalla to proceed with reconstruction of these facilities, including

the complete refurbishment of the ADR Plant site.

Manifestación de Impacto Ambiental

The second phase of the La Colorada restart will involve the mining of additional material of the open

pits. This will result in the construction of new heap leach pads as well as new crushing system and

expanded waste rock disposal areas. In addition, the La Colorada open pit will be expanded. This

action will result in the encroachment of the mine on the town, and the relocation and resettlement of

several residences and public plaza.

These new facilities/activities will require approval by SEMARNAT through the use of the MIA. The

anticipated submittal date of this document is January 2012. Approval is anticipated in four to six

months; approval is need by October 2012 as the activities under the IP will be coming to an end.

Land Use Change

As with the environmental impact assessment, the land use change for the Project was also

separated into two phases. Land use change authorization for the relocated RoM heap leach pad

and new process ponds was granted by SEMARNAT on September 15, 2011.

Environmental Management Plans

Environmental management planning is being integrated into the overall project, primarily through

the IP and MIA processes, in accordance with Mexican NOMs and international standards and best



practices, including, but not necessarily limited to Equator Principles, International Finance

Corporation (IFC) Performance Standards (PS), and World Bank Group Environmental, Health, and

Safety Guidelines (known as the “EHS Guidelines”). The EHS Guidelines are technical reference

documents with general and industry-specific examples of Good International Industry Practice

(GIIP), as defined in IFC’s PS-3 on Pollution Prevention and Abatement. Reference to the EHS

Guidelines by IFC clients is required under PS-3. IFC uses the EHS Guidelines as a technical

source of information during project appraisal activities, as described in IFC’s Environmental and

Social Review Procedure. In addition, the “International Cyanide Management Code For The

Manufacture, Transport and Use of Cyanide In The Production of Gold” (Cyanide Code) will be

voluntarily implemented at La Colorada to promote the responsible management of cyanide,

enhance the protection of human health, and reduce the potential for environmental impacts.

The Minera Pitalla environmental management system will be predicated on International

Standardization Organization (ISO) 14001 type systems, and include:

Surface and groundwater monitoring plan;

Fugitive dust control plan;

Cyanide management plan;

Waste rock management plan;

Accidental spill prevention plan;

Erosion control plan;

Wildlife management plan; and

Reclamation and closure plan.

17.4 Social and Community

17.4.1 Social Management Planning

Minera Pitalla is in the process of implementing a social management plan (SMP) to “identify,

prevent, control and mitigate the possible impacts that might come with the La Colorada project and

could affect the social, economic and environmental dynamics of the project’s area of influence.”

The proposed SMP, prepared by Dinámica S de RL de CV, has been formulated according to the

environmental policies of Argonaut Gold Inc. (AGI), as well as the international guidelines and

standards regarding social impacts management.

In order to comply with the SMP objectives, Minera Pitalla has a Community Relations office located

in the town of La Colorada. This office is in charge of maintaining open dialogue and relations with

the locals while coordinating with the mine environmental and human resources departments. The

current SMP is fairly general is its approach, but does include descriptions of activities to be carried

out in the areas of:

Community communication and dialogue;

Contribution program for financial assistance;

Local labor hiring program;

Community development program; and

Social and environmental programs.



With the expansion of the La Colorada open pit during the next phase of mining at the site, a detailed

resettlement plan will be needed for those residence and businesses impacted. This plan does not

currently exist and will need to be in accordance with IFC Performance Standard 5 – Land

Acquisition and Involuntary Resettlement (January 1, 2011), as well as Mexican regulations

governing forced relocation. Preliminary discussions have taken place with local and state

government officials regarding the relocation.

La Colorada Project

Sonora, Mexico

Figure 17-1

Construction and Start-up Authorization for Industrial Facilities Source: Argonaut Gold, Inc., 2011



18 Capital and Operating Costs (Item 21) PEA-level capital costs are estimated using combination of quotations received by Argonaut and

informed estimates by Minera Pitalla staff currently (2011) involved in site development. The capital

costs presented are to a PEA level of accuracy and are expected to be within ±40%. All costs are in

4thQ 2011 U.S. dollars and based on a 12:1 US$ to Mexican Paso exchange rate.

Table 18.1.1 illustrates the LoM Capital cost estimates with the assumption that mine operations will

be contractor based.

18.1 Capital Cost Estimates Table 18.1.1: LoM Capital Cost Summary ($000’s) as of December 27, 2011

Item LOM Cost (000’s) Primary/Secondary Crushers 3,500 Heap Leach Pad & Ponds 5,444 ADR Plant 3,900 Power System 400 Leach Water System 244 Infrastructure 1,050 Sustaining Capital 1,400 Permitting 200 Pre-feas/Feas - 3rd party 550 Land Acquistion 5,500 Reclamation 4,000 Total Capital 26,188

Table 18.1.2 details the initial capital required for 2012. Sunk costs during 2011 have not been

included in this analysis.

Table 18.1.2: Initial Capital Breakdown as of December 27, 2011

Item Initial Cost (000’s) Primary/Secondary Crushers 3,500 Heap Leach Pad & Ponds 2,444 ADR Plant 3,900 Power System 400 Leach Water System 244 Infrastructure 1,050 Sustaining Capital 200 Permitting 200 Pre-feas/Feas - 3rd party 550 Land Acquisition 2,000 Total Capital 14,488

From 2013 through end of mine life, Table 18.1.3 illustrates the estimated sustaining capital and

closure costs for the operation.



Table 18.1.3: Sustaining and Closure Costs as of December 27, 2011

Item Sustaining Cost (000’s) Heap Leach Pad & Ponds 3,00 Sustaining Capital 1,200 Land Acquisition 3,500 Reclamation 4,000 Total Capital 11,700

18.1.1 Basis for Capital Cost Estimates

The basis for the capital cost estimate is founded on construction estimates and quotations already

received by Argonaut, initial scoping study estimates and discussions with process construction and

heap leach pad contractors. SRK is of the opinion that for a PEA level study, the capital costs are

reasonable but will be subject to change if production profile assumptions are modified in the future.

18.2 Operating Cost Estimates PEA-level capital costs are estimated using combination of quotations received by Argonaut and

informed estimates by Minera Pitalla staff currently (2011) involved in site development. The

operating costs presented are to a PEA level of accuracy and are expected to be within ±40%. All

costs are in 4thQ 2011 US dollars and based on a 12:1 US$ to Mexican Paso exchange rate. LoM

operating costs are shown in Table 18.2.1. Over the LoM, operating costs will be about US$10.13/t

of resource leached/crushed.

Table 18.2.1: LoM Operating Cost Summary as of December 27, 2011

Description LoM Operating (US$000’s) Unit Cost Unit Mining (1) $236,371 $1.54 /t-mined Processing $77,288 $2.36 /t-crushed G&A $18,000 $0.55 /t-crushed Total $331,659 $10.13 /t-crushed

(1) Includes re-handle of resources from stockpile

18.2.1 Basis for Operating Cost Estimates

The basis for the operating cost estimate is founded on construction estimates and quotations

already received by Argonaut, initial scoping study estimates and discussions with process

construction, mining and heap leach pad contractors. SRK is of the opinion that for a PEA level

study, the operating costs are reasonable but will be subject to change if production profile

assumptions are modified in the future.



19 Economic Analysis (Item 22)

19.1 Principal Assumptions Based on a production rate of 4 Mt of potentially minable resource being placed on heap leach pads,

the price assumptions to determine revenue are detailed in Table 19.1.1.

Table 19.1.1: Market Inputs as of December 27, 2011

Parameter US$/oz units Gold Market Price $1,575.00 /oz Silver Market Price $21.00 /oz Gold Refining $8.00 /oz Gold Royalty 3.00% NSR on applicable oz Silver Royalty 3.00% NSR on applicable oz.

19.2 Project Financials The financial analysis results, shown in Table 19.2.1, indicate an NPV5% of US$278 million on a pre-

tax basis. Payback will be the first year of production assuming that permits and land purchases are

in place by mid-2012 allowing for mine production to supplement RoM stockpile processing. The

following provides the basis of the SRK LoM plan and economics:

Measured, Indicated and Inferred resources are included;

A mine operating life of 8 years with 9 years of production;

An overall average metallurgical recovery rate of 55.1% Au and 27.1% Ag over the LoM;

A net operating cost of US$613/Oz.Au on a gold equivalent basis;

Capital costs of US$26million, comprised of initial capital costs of US$14.4 million, and

sustaining capital over the LoM of US$11.7 million;

Mine closure cost, included in the above estimates is US$4 million;

The analysis does not include provision for salvage value; and

Operating costs are 47% of revenue.



Table 19.2.1: Economic Results Pre-Tax as of December 27, 2011

Description Value Units Units

Production Summary

Waste Mined 121,219 kt

Potentially Mineable Resource Mined 32,753 kt

Oz-Au Refined 438 koz

Estimate of Cash Flow

Gross Income $722,668 000’s

Refining ($3,505) 000’s

Gross Revenue $719,163 000’s

Royalty ($10,323) 000’s

Net Revenue $708,840 000’s

Operating Costs $/t-crushed $/oz-Au

Mining $236,371 $7.22 $539.51

Processing $77,288 $2.36 $176.41

G&A $18,000 $0.55 $41.08

Silver Credit ($63,166) ($1.93) ($144.18)

Total Operating $268,493 $8.20 $612.83

Operating Margin $440,347 000’s

Initial Capital $14,488 000’s

LoM Sustaining Capital $11,700 000’s

Income Tax $0

Cash Flow Available for Debt Service $414,159 000’s

NPV 5% $278,274 000’s

Table 19.2.2 illustrates the effect on NPV if a 31% tax is applied to the economic model.

Table 19.2.2: Economic Results After-Tax as of December 27, 2011

Description Value

Operating Margin $440,347

Initial Capital $14,488

LoM Sustaining Capital $11,700

Income Tax $93,919

Cash Flow Available for Debt Service $320,240

NPV 5% $200,899

19.3 Taxes, Royalties and Other Interests The economic model has included $US11.a million for gold and silver royalty payments over the

LoM. Tax has been estimated at 31% as per Mexican norm.

19.4 Sensitivity Analysis Sensitivity analysis for key economic parameters is shown in Table 19.4.1. The Project is nominally

most sensitive to metal prices (revenues). The Project’s sensitivities to capital and operating costs

are quite similar.



Table 19.4.1: Project Sensitivities as of December 27, 2011

Description -10% -5% Base 5% 10%

Revenues 273,000 276,000 278,000 281,000 284,000

Capital Costs 281,000 279,000 278,000 277,000 276,000

Operating Costs 306,000 292,000 278,000 264,000 251,000

Table 19.4.2: Project Sensitivities After Tax as of December 27, 2011

Description -10% -5% Base 5% 10%

Revenues 197,000 199,000 201,000 203,000 205,000

Capital Costs 203,000 202,000 201,000 200,000 199,000

Operating Costs 220,000 210,000 201,000 191,000 182,000



20 Adjacent Properties (Item 23) There are no adjacent properties to the Project.



21 Other Relevant Data and Information (Item 24) There is no other relevant data or information.



22 Interpretation and Conclusions (Item 25)

22.1 Environmental Conclusions Minera Pitalla is currently constructing new liner and leach facilities (including process water ponds

and ADR plant site) for the existing RoM heap that were known to be the sources of groundwater

contamination. These activities were approved by SEMARNAT through the IP process, as these

facilities are all on previously disturbed areas, and were evaluated by the agency during the original

permitting of the project. These new facilities represent state-of-the-art construction to allow for

better control and monitoring of process solutions.

Environmental baseline data collection was initiated in 2011 in support of the MIA application for the

expansion of the La Colorada/Gran Central open pit, and construction of new heap leaching facilities

to receive the potentially mineable resource. The MIA is expected to be submitted to SEMARNAT in

early January 2012, with an anticipated approval during the third quarter of 2012.

22.2 Mining Conclusions Mining will be carried out through the use of local contractors well versed in mine operation within the

Sonoran region. Pit optimization and preliminary mine designs indicate a moderately sized operation

is possible given gold price and operating cost assumptions. The sequencing of the operation will be

important to overcome high initial strip ratios for both pits along with limited heap leach pad space.

Through the purchase of additional land positions and relocation of a portion of the La Colorada

Township, the full potential of mineral extraction should be achievable. As the operation moves

towards production in late 2012, additional geological, geotechnical, water and mine sequencing

studies are recommended.

22.3 Financial Conclusions The economic analysis indicates that the profitability of the potential operation will be driven by gold

price, metal recovery and operating cost. Given the high strip ratio and low grade nature of the

deposit, there is 47% of revenue consumed by operating cost. Seventy percent of the operating

costs are mine contractor related so contract negotiations will be vital for the future profitability of the

project. To improve the project economics, increasing the metallurgical recovery, reducing stripping

ratio and continued high gold prices will be of critical importance.

22.4 Process and Metallurgy Conclusions Gold and silver recovery based on an ongoing program of 20 column tests conducted at the KCA

laboratory in Reno, Nevada running from 48 to 72 days resulted in recoveries of 55% for gold and

35% for silver at a 9.5 mm minus crush size. Potentially mineable resource will be sourced either

from existing RoM leach pad or by mining from one of four open pits considered in the study.

Potentially mineable resource will be processed crushed to 9.5 mm, belt-agglomerated with up to 2.5

kg/t cement as required, and conveyor stacked on a dedicated leach pad where it will be leached

using a diluted cyanide solution. The gold bearing solution will be pumped to an ADR plant for

further processing and production of doré bars. The plant will initially begin as an adsorption plant

only during start-up processing of the RoM-rehandle potentially mineable resource with carbon



stripping conducted off-site, and eventually expanded to the full plant prior to initiation of mining from

the open pits.

22.5 Significant Risks and Uncertainties Risk Area Risk Level Resources Database Low Exploration data Low Quality Low Sufficiency/Adequacy Low Assaying Low Surveying Low Geology Moderate Geology and Resource Modeling Geological modeling Moderate Resource modeling approach Low Geostatistical analysis Low Resource estimate Low Geotechnical Slope Stability Moderate Geotechnical data adequacy Moderate Interpretation Low Design Low Waste Rock Dump Geotechnical data adequacy Low Interpretation Low Design Low Water Management Data Adequacy Low Interpretation Low Ground water management Moderate Surface water management Low Water treatment Low Major event management Low Mining Accuracy of relevant technical design parameters Low Pit optimization Low Conversion of resources to reserves Low Proposed production schedule Moderate Equipment schedule Low Mining unit cost assumptions and reasonableness Low Ramp up schedule Moderate Grade control methodologies Low Metallurgical Test Work/Processing Facilities Metallurgical Test Work Low Potentially mineable resource type definition Low Recovery projections Low Throughput Moderate Process unit assumptions and reasonableness of rates Low

Offtake agreements Low

Environmental and Permitting Status of statutory permits for current and future operations Moderate Compliance of current operations with existing permits Low Risks for future compliance of operations with permits Low Identification of environmental and social risks Low to Moderate Mine reclamation and closure plans and costs Moderate Infrastructure



Risk Area Risk Level Power Low Water Low Access Low Transportation Low Surface facilities Low Capital Costs Capital cost programs Low Sustaining capital Low Operating Costs Forecast costs used in resource determination Low Currency split of domestic to foreign currency Low Financial Model Model verification Moderate Revenue calculations Low Management and Staffing Low Implementation Plan & Schedule Low

22.5.1 Exploration

The exploration work is composed primarily of the drillhole database which supports the resource

estimation of this report. It consists of two main data sets. The older dataset was generated by

EESA during their work on the project in the late 1990’s. The more recent dataset was generated by

Pediment and Argonaut since 2007.



orientations. The maximum drillhole depth is 479 m and the average is 117 m.

22.5.2 Mineral Resource Estimate

The mineral resource estimations are based on geologic models consisting of a single rock type, cut

by numerous fault/vein zones. All model blocks are 5 m x 5 m x 5 m in the x,y,z directions,

respectively. Each model block is assigned a unique specific gravity based on direct measurement

of the various rock types. All block grade estimates were made using 3 m down-hole composites.

An Inverse Distance Weighting to the second power estimation algorithm was used for all gold grade

and silver estimations. The results of the resource estimation provided a CIM classified Indicated

and Inferred Mineral Resource. The mineral resources have been classified as Indicated and

Inferred based primarily on sample support. All resources supported primarily by drilling at 25 m

centers are classified as indicated and all resources supported by wider spaced drilling were

classified as Inferred.

22.5.3 Mineral Resource Estimate

The main risks to the proposed mine schedule relate to adequacy of land position for extraction of

resources, placement of stockpiles and heap leach pads.

SRK is of the opinion that the production schedule is aggressive and close negotiations with potential

contractors will be required to determine the viability of the suggested mining rate.



22.5.4 Metallurgy and Processing

Preliminary indications are that higher metal recovery may be realized through finer crushing. This

should be studied further with additional metallurgical test work. As such, it is expected that

recoveries stated here are achievable at a minimum and the risk of realizing lower recoveries is

considered low.

Risk to plant throughputs using the plant designed here are also considered low, however, if finer

crushing is eventually deemed appropriate, it is possible that further plant upgrades will be needed

than those proposed here to maintain the design throughput.



23 Recommendations (Item 26)

23.1 Environmental Visual inspection of the site suggested that the mine waste materials are relatively benign in

nature. However, inconclusive geochemical testing of the spent potentially mineable

resource and waste rock materials indicates the need for longer-term kinetic testing in order

to more precisely evaluate these materials, and develop adequate reclamation and closure

plans for the site. Minera Pitalla is expected to initiate this program during 2012.

The expansion of the La Colorada/Gran Central open pit to its full potential will require the

relocation of several residences, businesses and a community plaza. While Minera Pitalla

has developed and implemented a social management plan and program, a specific plan to

deal with a possible involuntary resettlement has not yet been prepared.

Water in the open pits suggests that lakes will be present post closure, especially if the pits

are expanded and deepened. While the current water in the existing lakes appears to be of

good quality, additional studies will be necessary to determine if the materials to be exposed

in the deeper portions of the pits will affect the long-term quality of the water.

23.2 Mining SRK is of the opinion that the drilling has not been fully delineated to the north east of the El

Crestón deposit. There is a drillhole at depth which contains good mineralization suggesting

a continuation of grade. If this trend were to theoretically continue there are no deep holes

to prove or disprove additional grade. If exploration drilling were to be successful then the

stripping campaign and mining width restrictions on the north east wall would be alleviated.

Additional geotechnical studies should be completed to better establish the effect of

groundwater pore-pressure on pit-wall stability.

As part of detailed engineering, the sequencing of pit progression, heap leach phasing and

waste dump progression will be important to identify critical stages for additional land

purchases and/or rehandle of leach pads to provide room for potential resources.

The underground voids for El Crestón in particular require re-survey and interpretation to

ensure correct potentially mineable resource dilution and hazard identification associated

with the voids moving forward.

There is an aggressive schedule in place for 2012 with the commencement of in-situ mining

and reprocessing of old RoM stockpiles, it is vital permits and additional land purchases are

fast-tracked to allow for full production.

23.2.1 Mining Related Study Costs

Table 23.2.1.1 illustrates the estimated study price for 2012 estimated by SRK.



Table 23.2.1.1: Mining Cost Studies for 2012

Unit US$Additional Potentially Mineable Resource Expansion (Pit expansion) 100,000 Geotechnical Program 200,000 Underground Voids 50,000 Mine sequencing and Production Rate 200,000 Total Mine Studies 550,000

23.3 Metallurgy and Processing Opportunities exist to optimize throughput and recovery of the potentially mineable resource which

will be studied through additional column tests and equipment reviews. Additional column test work

is being completed by KCA at the present time on core material from the Project. Further work is in

progress to define metal recoveries from the El Creston and Veta Madre mining areas as well as

additional agglomeration tests to better define cement addition requirements (if any).

The use of High Pressure Grinding Rolls (HPGR) is being looked at as an option for further finer

crushing by many projects at the present time and is an option that could be examined at La

Colorada with future metallurgical programs.

The recovery curves indicate relatively slow leaching and it is almost certain that several percent

more gold recovery would be realized with a 120 day leach cycle. All future column tests should be

run at this leach cycle as a minimum.

Any additional improvements in recovery may have a significant impact on the economics of the

project.



24 References (Item 27) Ball, S.H.,1911, Geological Report on the property of the Mines Company of America, 22 p.

Diaz, Jorge, 2007, La Colorada Internal reports written by Interminera, S.A. de C.V. for Pediment

Gold Corp., 23 p.

Giroux, G and Charbonneau, D., 1992, Property and Resource Evaluation of the El Crestón Deposit,

La Colorada Project, Mexico, Unpublished report for Explorations Eldorado, S.A. de C.V.

Hermosillo, Mexico, 36 p.

Giroux, G., 1999, Audit of the Resources contained within the Gran Central and La Colorada Zones,

La Colorada Mine, Mexico, Unpublished report for Explorations Eldorado, S.A. de C.V.

Hermosillo, Mexico, 30 p.

Golder Associates, Reporte De Diseño De Ingeniería De ETAPAS 8, 9, 10 y 11 Del PatIo De

Lixiviación Y Pileta NO. 2 De Contingencia. Appendix “Figuras.pdf”, p.15, Figure 14 “Areas de

recubrimiento en patio de lixiviacion, pieltas de contingencia con volume

Hedenquist, J.W., Arribas, A. and Gonzales-Urien, E., 2000, Exploration for Epithermal Gold

Deposits. Reviews in Economic Geology, vol. 13, p. 245-277.

Herdrick, M. 2007, Mina La Colorada, Sonora, Mexico. Confidential reports to directors of Pediment

Exploration, 11p.

Lewis, P.D., 1995, Structural Evaluation of the La Colorada Project Area, Sonora, Mexico.

Unpublished Report by Lewis Geoscience Services Inc. for Exploraciones Eldorado, S.A. de

C.V., Hermosillo, Mexico, 25 p.

McMillan, R.H., Dawson, J.M. and Giroux, G.H., 2009, Geologic Report on the La Colorada Property

with a resource Estimate on La Colorada and El Crestón Mineralized Zones, Sonora Mexico,

prepared for Pediment Gold Corp, November 30, 2009, 141p.

Nordin, G., 1992, Geologic Report, La Colorada Property, Sonora, Mexico. Unpublished report for

Explorations Eldorado, S.A. de C.V. Hermosillo, Mexico, 76 p.

Simmons, S.F.; White, N.C. and John, D.A., 2005, Geologic Characteristics of Epithermal Precious

and Base Metal Deposits. Economic Geology 100th Anniversary Volume, p. 485-522.

Vazquez, Sierra & Garcia, S.C. 2011, Title Opinion Compania Minera Pitalla, S.A. de C.V. Mining

Concessions, October 12, 2011.

Zawada, Ross, D. Albinson, Tawn and Aneyta, Reyna, 2001, Geology of the El Crestón Gold

Deposit, Sonora State Mexico. Economic Geology Special Publication # 8, New Mines and

Discoveries in Mexico and Central America, p. 187-197.



25 Glossary

25.1 Mineral Resources The mineral resources and mineral reserves have been classified according to the “CIM Standards

on Mineral Resources and Reserves: Definitions and Guidelines” (November 27, 2010).

Accordingly, the Resources have been classified as Measured, Indicated or Inferred, the Reserves

have been classified as Proven, and Probable based on the Measured and Indicated Resources as

defined below.

A Mineral Resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic

material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has

reasonable prospects for economic extraction. The location, quantity, grade, geological

characteristics and continuity of a Mineral Resource are known, estimated or interpreted from

specific geological evidence and knowledge.

An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade or

quality can be estimated on the basis of geological evidence and limited sampling and reasonably

assumed, but not verified, geological and grade continuity. The estimate is based on limited

information and sampling gathered through appropriate techniques from locations such as outcrops,

trenches, pits, workings and drillholes.

An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or

quality, densities, shape and physical characteristics can be estimated with a level of confidence

sufficient to allow the appropriate application of technical and economic parameters, to support mine

planning and evaluation of the economic viability of the deposit. The estimate is based on detailed

and reliable exploration and testing information gathered through appropriate techniques from

locations such as outcrops, trenches, pits, workings and drillholes that are spaced closely enough for

geological and grade continuity to be reasonably assumed.

A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or

quality, densities, shape, physical characteristics are so well established that they can be estimated

with confidence sufficient to allow the appropriate application of technical and economic parameters,

to support production planning and evaluation of the economic viability of the deposit. The estimate

is based on detailed and reliable exploration, sampling and testing information gathered through

appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes that

are spaced closely enough to confirm both geological and grade continuity.

25.2 Mineral Reserves A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource

demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate

information on mining, processing, metallurgical, economic and other relevant factors that

demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve

includes diluting materials and allowances for losses that may occur when the material is mined.

A ‘Probable Mineral Reserve’ is the economically mineable part of an Indicated, and in some

circumstances a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility



Study. This Study must include adequate information on mining, processing, metallurgical,

economic, and other relevant factors that demonstrate, at the time of reporting, that economic

extraction can be justified.

A ‘Proven Mineral Reserve’ is the economically mineable part of a Measured Mineral Resource

demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate

information on mining, processing, metallurgical, economic, and other relevant factors that

demonstrate, at the time of reporting, that economic extraction is justified.

25.3 Definition of Terms The following general mining terms may be used in this report.

Table 26.3.1: Definition of Terms

Term Definition Assay The chemical analysis of mineral samples to determine the metal content. Capital Expenditure All other expenditures not classified as operating costs. Composite Combining more than one sample result to give an average result over a larger

distance. Concentrate A metal-rich product resulting from a mineral enrichment process such as gravity

concentration or flotation, in which most of the desired mineral has been separated from the waste material in the potentially mineable resource.

Crushing Initial process of reducing potentially mineable resource particle size to render it more amenable for further processing.

Cut-off Grade (CoG) The grade of mineralized rock, which determines as to whether or not it is economic to recover its gold content by further concentration.

Dilution Waste, which is unavoidably mined with potentially mineable resource. Dip Angle of inclination of a geological feature/rock from the horizontal. Fault The surface of a fracture along which movement has occurred. Footwall The underlying side of an orebody or stope. Gangue Non-valuable components of the ore. Grade The measure of concentration of gold within mineralized rock. Hangingwall The overlying side of an orebody or slope. Haulage A horizontal underground excavation which is used to transport mined potentially

mineable resource. Hydrocyclone A process whereby material is graded according to size by exploiting centrifugal

forces of particulate materials. Igneous Primary crystalline rock formed by the solidification of magma. Kriging An interpolation method of assigning values from samples to blocks that minimizes

the estimation error. Level Horizontal tunnel the primary purpose is the transportation of personnel and

materials. Lithological Geological description pertaining to different rock types. LoM Plans Life-of-Mine plans. LRP Long Range Plan. Material Properties Mine properties. Milling A general term used to describe the process in which the potentially mineable

resource is crushed and ground and subjected to physical or chemical treatment to extract the valuable metals to a concentrate or finished product.

Mineral/Mining Lease A lease area for which mineral rights are held. Mining Assets The Material Properties and Significant Exploration Properties. Ongoing Capital Capital estimates of a routine nature, which is necessary for sustaining operations. Potentially Mineable Resource Reserve

See Mineral Reserve.

Pillar Rock left behind to help support the excavations in an underground mine. Sedimentary Pertaining to rocks formed by the accumulation of sediments, formed by the erosion

of other rocks. Shaft An opening cut downwards from the surface for transporting personnel, equipment,



Term Definition supplies, ore and waste.

Sill A thin, tabular, horizontal to sub-horizontal body of igneous rock formed by the injection of magma into planar zones of weakness.

Smelting A high temperature pyrometallurgical operation conducted in a furnace, in which the valuable metal is collected to a molten matte or doré phase and separated from the gangue components that accumulate in a less dense molten slag phase.

Stope Underground void created by mining. Stratigraphy The study of stratified rocks in terms of time and space. Strike Direction of line formed by the intersection of strata surfaces with the horizontal

plane, always perpendicular to the dip direction. Sulfide A sulfur bearing mineral. Tailings Finely ground waste rock from which valuable minerals or metals have been

extracted. Thickening The process of concentrating solid particles in suspension. Total Expenditure All expenditures including those of an operating and capital nature. Variogram A statistical representation of the characteristics (usually grade).

25.4 Abbreviations The following abbreviations may be used in this report.

Table 26.4.1: Abbreviations

Abbreviation Unit or TermA ampere AA atomic absorption A/m2 amperes per square meter ANFO ammonium nitrate fuel oil Ag silver Au gold AuEq gold equivalent grade °C degrees Centigrade CCD counter-current decantation CIL carbon-in-leach CoG cut-off grade cm centimeter cm2 square centimeter cm3 cubic centimeter cfm cubic feet per minute ConfC confidence code Crec core recovery CSS closed-side setting CTW calculated true width ° degree (degrees) dia. diameter EIS Environmental Impact Statement EMP Environmental Management Plan FA fire assay ft foot (feet) ft2 square foot (feet) ft3 cubic foot (feet) g gram gal gallon g/L gram per liter g-mol gram-mole gpm gallons per minute g/t grams per tonne



Abbreviation Unit or Termha hectares HDPE Height Density Polyethylene hp horsepower HTW horizontal true width ICP induced couple plasma ID2 inverse-distance squared ID3 inverse-distance cubed IFC International Finance Corporation ILS Intermediate Leach Solution kA kiloamperes kg kilograms km kilometer km2 square kilometer koz thousand troy ounce kt thousand tonnes kt/d thousand tonnes per day kt/y thousand tonnes per year kV kilovolt kW kilowatt kWh kilowatt-hour kWh/t kilowatt-hour per metric tonne L liter L/sec liters per second L/sec/m liters per second per meter lb pound LHD Long-Haul Dump truck LLDDP Linear Low Density Polyethylene Plastic LOI Loss On Ignition LoM Life-of-Mine m meter m2 square meter m3 cubic meter masl meters above sea level MARN Ministry of the Environment and Natural Resources MDA Mine Development Associates mg/L milligrams/liter mm millimeter mm2 square millimeter mm3 cubic millimeter MME Mine & Mill Engineering Moz million troy ounces Mt million tonnes MTW measured true width MW million watts Ma million annum My million years NGO non-governmental organization NI 43-101 Canadian National Instrument 43-101 OSC Ontario Securities Commission oz troy ounce % percent PLC Programmable Logic Controller PLS Pregnant Leach Solution PMF probable maximum flood ppb parts per billion ppm parts per million QA/QC Quality Assurance/Quality Control RC rotary circulation drilling RoM Run-of-Mine



Abbreviation Unit or TermRQD Rock Quality Description SEC U.S. Securities & Exchange Commission sec second SG specific gravity SPT standard penetration testing t tonne (metric ton) (2,204.6 pounds) t/h tonnes per hour t/d tonnes per day t/y tonnes per year TSF tailings storage facility TSP total suspended particulates µm micron or microns V volts VFD variable frequency drive W watt XRD x-ray diffraction y year

SRK Consulting (U.S.), Inc. NI 43-101 Preliminary Economic Assessment – La Colorada Project Appendices


Appendices

Appendix A: Certificate of Author

SRK Denver Suite 3000 7175 West Jefferson Avenue Lakewood, CO 80235

T: 303.985.1333 F: 303.985.9947 [email protected] www.srk.com

U.S. Offices: Anchorage 907.677.3520 Denver 303.985.1333 Elko 775.753.4151 Fort Collins 970.407.8302 Reno 775.828.6800 Tucson 520.544.3688

Mexico Office: Guadalupe, Zacatecas 52.492.927.8982

Canadian Offices: Saskatoon 306.955.4778 Sudbury 705.682.3270 Toronto 416.601.1445 Vancouver 604.681.4196 Yellowknife 867.873.8670

Group Offices: Africa Asia Australia Europe North America South America

QP_Cert_Swanson_Bret_2011

CERTIFICATE OF AUTHOR

I, Bret C. Swanson, BE (Mining), MMSA [#01418QP] do hereby certify that:

1. I am a Senior Mining Engineer of:

SRK Consulting (U.S.), Inc. 7175 W. Jefferson Ave, Suite 3000 Denver, CO, USA, 80235

2. I graduated with a degree in Bachelor of Engineering in Mining Engineering from the University of Wollongong in 1997.

3. I am a current member of the Mining & Metallurgical Society of America.

4. I have worked as a Mining Engineer for a total of 14 years since my graduation from university.

5. I have read the definition of “qualified person” set out in National Instrument 43-101 (NI 43-101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

6. I am responsible for Sections 13, 15, 16, 18 and 19 of the report titled “NI 43-101 Preliminary Economic Assessment, La Colorada Project, Sonora, Mexico” and dated December 30, 2011 (the “Technical Report”) relating to the La Colorada Project.

7. I have not had prior involvement with the property that is the subject of the Technical Report.

8. As of the date of the certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the technical report not misleading

9. I am independent of the issuer applying all of the tests in Section 1.4 of National Instrument 43-101.

10. I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.

11. I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

SRK Consulting Page 2

QP_Cert_Swanson_Bret_2011

Dated this 30th day of December, 2011. “Signed” ________________________________ Bret C. Swanson, MMSA [#01418QP]







QP_Cert_Stryhas_Bart_2011


I, Bart A. Stryhas Ph.D. CPG#11034 do hereby certify that:

1. I am a Principal Resource Geologist of:

SRK Consulting (U.S.), Inc. 7175 W. Jefferson Ave, Suite 3000 Denver, CO, USA, 80235

2. I graduated with a Doctorate degree in structural geology from Washington State University in 1988. In addition, I have obtained a Master of Science degree in structural geology from the University of Idaho in 1985 and a Bachelor of Arts degree in geology from the University of Vermont in 1983.

3. I am a current member of the American Institute of Professional Geologists.

4. I have worked as a Geologist for a total of 22 years since my graduation in minerals exploration, mine geology, project development and resource estimation. I have conducted resource estimations since 1988 and have been involved in technical reports since 2004.

5. I have read the definition of “qualified person” set out in National Instrument 43-101 (NI 43-101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

6. I am responsible for Sections 4 through 10 and 12 of the report titled “NI 43-101 Preliminary Economic Assessment, La Colorada Project, Sonora, Mexico” and dated December 30, 2011 (the “Technical Report”) relating to the La Colorada Project. I have visited the Property on June 16, 2011, for one day.

7. I have not had prior involvement with the property that is the subject of the Technical Report.

8. As of the date of the certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the technical report not misleading.

9. I am independent of the issuer applying all of the tests in Section 1.4 of National Instrument 43-101.

10. I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.


QP_Cert_Stryhas_Bart_2011


Dated this 30th day of December, 2011. “Signed” ________________________________ Dr. Bart A. Stryhas, CPG, PhD







QP_Cert_Willow_Mark_2011


I, Mark Allan Willow, M.Sc., C.E.M., do hereby certify that:

1. I am Principal/Practice Leader of:

SRK Consulting (U.S.), Inc. 5250 Neil Road, Suite 300 Reno, NV, USA, 89502

2. I graduated with a Bachelor's degree in Fisheries and Wildlife Management from the University of Missouri in 1987 and a Master's degree in Environmental Science and Engineering from the Colorado School of Mines in 1995.

3. I am a Certified Environmental Manager (CEM) in the State of Nevada (#1832) in accordance with Nevada Administrative Code NAC 459.970 through 459.9729. Before any person consults for a fee in matters concerning: the management of hazardous waste; the investigation of a release or potential release of a hazardous substance; the sampling of any media to determine the release of a hazardous substance; the response to a release or cleanup of a hazardous substance; or the remediation soil or water contaminated with a hazardous substance, they must be certified by the Nevada Division of Environmental Protection, Bureau of Corrective Action.

4. I have worked as BiologisUEnvironmental Scientist for a total of 18 years since my graduation from university. My relevant experience includes environmental due diligence/competent persons evaluations of developmental phase and operational phase mines through the world, including small gold mining projects in Panama, Senegal, Peru and Colombia; open pit and underground coal mines in Russia; several large copper mines and processing facilities in Mexico; and a mine/coking operation in China. My other international experience has included oversight of work scope implementation and senior review of local consultants performing baseline biological/ecological characterization for a number of projects, including Los Filos Project in Mexico, the Kazan Trona Project in Turkey, the Bellavista Gold Project in Costa Rica, the Pueblo Viejo Project in the Dominican Republic, and the Glamis San Martin Project in Honduras. My Project Manager experience includes several site characterization and mine closure projects. Iwork closely with the U.S. Forest Service and U.S.Bureau of Land Management on several permitting and mine closure projects to develop uniquely successful and cost effective closure alternatives for the abandoned mining operations. Finally, I draw upon this diverse background for knowledge and experience as a human health and ecological risk assessor with respect to potential environmental impacts associated with operating and closing mining properties, and have experienced in the development of Preliminary Remediation Goals and hazard/risk calculations for site remedial action plans under CERCLA activities according to current U.S. EPA risk assessment guidance..

5. I have read the definition of “qualified person” set out in National Instrument 43-101 (NI 43-101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101)


QP_Cert_Willow_Mark_2011

and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

6. 7. I am responsible for Section 17 of the report titled "NI 43-101 Preliminary Economic Assessment, La Colorada Project, Sonora, Mexico" and dated December 30, 2011 (the "Technical Report") relating to the La Colorada Project. I have visited the Property on November 14, 2011, for one day.

7. I have not had prior involvement with the La Colorada property that is the subject of the Technical Report.

8. As of the date of the certificate, to the best of my knowledge, information and belief, the Section 17 contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.

9. I am independent of the issuer applying all of the tests in section 1.5 of National Instrument 43-101.

10. I have read Nl43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form


Dated this 30th Day of December, 2011. “Signed” ________________________________ Mark Allan Willow, CEM Nevada #1832

ni 43-101 preliminary economic assessment la colorada ... · the la colorada mine is a historical...

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