NI 43-101 Preliminary Economic Assessment La Colorada Project ...

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


NI 43-101 Preliminary Economic Assessment – La Colorada Project 

Page i 

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. 

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



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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 cutoff 

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 

Au oz 

Ag oz 

Au (g/t) 

Ag (g/t) 

(000’s) 

(000’s) 

(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 


(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 




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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 reprocessing 

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 NPV 5% 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 




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 




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 




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 



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 Surface 

Valid 

Associated 

Acquired By 

No. (ha) From To 

Royalties 

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 

Yes (1) 

199929 0.7715 17-Jun-1994 16-Jun-2044 Contract with Exploraciones La Colorada 

Crestón 

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 

Yes (1) 

211958 37.7795 28-Jul-2000 27-Jul-2050 Contract with Exploraciones La Colorada 

Sonora III 

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 

Yes (1) 

218680 109.7378 3-Dec-2002 2-Dec-2052 Contract with Exploraciones La Colorada 

Fracc.III 

Crestón Dos 

Yes (1) 


Fracc.II 

Crestón Dos 

Yes (1) 


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 

1 st Semester 

Payment (Pesos) 

2 nd 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. 




Source: Argonaut Gold Inc., 2011 

Figure 2-1 

Project Location Map




Figure 2-2 

Project Site Map




Figure 2-3 

Regional Concession Map




Figure 2-4 

Local Concession Map




Figure 2-5 

Detailed Concession Map




Figure 2-6 

Royalty Concession Map




Figure 2-7 

Surface Ownership Map



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 reacquiring 

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 reversecirculation 

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. 





Figure 5-1 

Regional Geology




Figure 5-2 

La Colorada/Gran Central Pit Area Geology




Figure 5-3 

El Crestón Pit Area Geology




Figure 5-4 

La Colorada/Gran Central Area 

Cross Section Geology



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 lowsulfidization 

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 highsulfidation 

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 m 

El Crestón Pit 381 42,047.62 26 3,327.85 407 45,375.47 

Gran Central Pit 150 18,358.70 27 3,400.10 177 21,758.80 

La Colorada Pit 158 23,254.71 18 3,439.10 176 26,693.81 

La Verde 33 1,439.00 0 0.00 33 1,439.00 

NE Extension 28 2,266.00 2 314.00 30 2,580.00 

Veta Madre 21 2,372.00 0 0.00 21 2,372.00 

El Represo 1 279.20 3 204.00 4 483.20 

Los Duendes 24 639.00 32 1,670.00 56 2,309.00 

Colorada Norte 32 3,526.00 0 0.00 32 3,526.00 

Colorada Sur 46 4,226.00 0 0.00 46 4,226.00 

Total 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 m 

RC 22 4,314.64 105 7,533.86 1 353.57 128 12,202.07 

DD (with precollar) 0 0.00 5 1,518.70 0 0.00 5 1,518.70 

Total 22 4,314.64 110 9,052.56 1 353.57 133 13,720.77 

Drilling By Area: 

El Crestón Pit 2 358.20 36 2,886.78 1 353.57 39 3,598.55 

Gran Central Pit 3 580.60 9 1,214.28 0 0.00 12 1,794.88 

La Colorada Pit 1 341.40 13 1,580.15 0 0.00 14 1,921.55 

La Verde 7 1,327.60 18 1,109.46 0 0.00 25 2,437.06 

NE Extension 5 964.70 4 237.75 0 0.00 9 1,202.45 

Veta Madre 4 742.14 21 1,356.36 0 0.00 25 2,098.50 

Leach pads 0 0.00 4 60.96 0 0.00 4 60.96 

Waste Pads 0 0.00 5 606.82 0 0.00 5 606.82 

Total 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 m 

RC 142 23,810.95 

DD (with precollar) 76 11,635.07 

Total 218 35,446.02 

Drilling by area: 

El Crestón Pit 12 2,470.40 

Gran Central Pit 69 12,045.27 

La Colorada Pit 64 10,451.15 

La Verde 9 1,908.05 

NE Extension 0 0.00 

Veta Madre 64 8,571.15 

Leach Pads 16 385.55 

Waste Pads 11 402.33 

Total 245 36,233.90 

Source: 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. 





Figure 8-1 

Drillhole Location Map



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%



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. 




Source: Argonaut Gold Inc, 2011 

Figure 9-1 

Blank Analyses Performance Chart




Figure 9-2 

Certified Standard OxE86 Performance Chart




Figure 9-3 

Certified Standard OxF65 Performance Chart




Figure 9-4 

Certified Standard SG40 Performance Chart




Figure 9-5 

Field Duplicate Performance Chart


NI 43-101 Preliminary Economic Assessment – La Colorada Project Page 43 

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) Au ppm 

Description 

this work (2) 

Au ppm 

Pediment 

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 

0.11 0.014 0.026 

hornfelsed argillite. 20 cm. N-trending, steeply-dipping 

felsic dyke cuts sediments. 

MD002 542840 3185640 

El Crestón pit ramp. 2 m chip sample on bench between 

Pediment Samples 324264 and 324265. Quartz vein 

0.53 0.197 0.111 

stockwork cutting altered argillite. ~75 to 80% quartz. 

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 

0.18 0.138 

intrusive dykes to 0.5 m. 

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 

0.35 0.103 

intrusive dykes to 0.5 m. 

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 

0.95 0.164 

stockwork of fine veinlets) dips ~ 500 N. Duplicates 

Pediment Sample 434696. 

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 

0.32 4.71 

Sample 434806. 

MD008 Duplicate riffle split of RC hole sample 40556. 0.77 0.776 




(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 





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


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 


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 Head Grade (g/t) 0.870 0.940 1.179 1.061 0.900 

(60501) 

Gold Recovery 29% 35% 38% 47% Interpolated 52% 

Gran Central West Head Grade (g/t) 1.294 1.315 1.389 1.126* -- 

(60502, 60553) Gold Recovery 38% 44% 45% 49% -- 

La Colorada Head Grade (g/t) 0.802 0.970 1.115 1.275 0.971 

(60503) 

Gold Recovery 39% 53% 47% 61% Interpolated 68% 

La Colorada West Head Grade (g/t) 0.724 0.598 0.744 0.935 In progress -- 

(60504) 

Gold Recovery 29% 45% 41% 48% Provisional Extrapolated -- 

Intermediate Head Grade (g/t) -- -- 1.011* 1.011* -- 

(60560) 

Gold Recovery -- -- 42% 49% -- 

Intermediate West Head Grade (g/t) -- -- 1.066* 1.066* -- 

(60561) 

Gold Recovery -- -- 59% 76% -- 

Veta Madre 

Core Samples En Route 

El Creston 


*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 Head Grade (g/t) 6.50 3.56 5.90 4.85 4.97 

(60501) 

Silver Recovery 20% 42% 33% 44% Interpolated 46% 

Gran Central West Head Grade (g/t) 46.27 44.46 47.32 15.50* -- 

(60502, 60553) Silver Recovery 25% 35% 42% 49% -- 

La Colorada Head Grade (g/t) 10.01 7.97 7.90 7.04 7.29 

(60503) 

Silver Recovery 16% 34% 36% 46% Interpolated 50% 

La Colorada West Head Grade (g/t) 12.93 11.29 14.28 12.11 In progress -- 

(60504) 

Silver Recovery 31% 48% 41% 48% Provisional Extrapolated -- 

Intermediate Head Grade (g/t) -- -- 4.04* 4.12* -- 

(60560) 

Silver Recovery -- -- 24% 26% -- 

Intermediate West Head Grade (g/t) -- -- 20.59* 20.74* -- 

(60561) 

Silver Recovery -- -- 10% 13% -- 

Veta Madre 


El Creston 


*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. 





Figure 11-1 

Metallurgical Drillhole Locationss



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) 

Easting 540,850 541,845 5 

La Colorada Northing 3,185,365 3,186,160 5 

Elevation 100 550 5 

Easting 542,000 543,250 5 

El Crestón 

Northing 3,185,200 3,186,300 5 


Easting 543,900 545,000 5 

Veta Madre 

Northing 3,185,325 3,186,075 5 


Easting 541,725 542,175 5 

RoM Pad 

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 

La Colorada 3,101 

Intermedia 2,187 

Gran Central 4,760 

El Crestón 7,184 

Veta Madre 1,067 

RoM Pad 270 

Metal 

Capping 

Level (ppm) 

Number of 

Samples 

Capped 

Minimum 

Capped 

Maximum 

Capped 

Net Loss of 

Metal From 

Capping (%) 

Au 50 13 51.7 356 8.4 

Ag 200 9 222 1,031 2.2 

Au 27 6 33.1 67 1.8 

Ag 150 5 200 420 12.5 

Au 33 12 50 224 4.8 

Ag 281 10 288 499 0.2 

Au 13 68 13.2 432 14.7 

Ag 140 89 142 1,874 2.3 

Au 2.1 32 2.1 25 7.2 

Ag 15 19 15.2 49 2.6 

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/cm 3 . 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/cm 3 . 

The SRK resource models assigned the average density of 2.694 g/cm 3 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/cm 3 . 

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 (ID 2 ) 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) 

355,-46,0 

Estimation 

Pass 

Search Distances 

(z,y,x) m 

Min/Max # 

Samples 

Octant 

Restriction 

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 


Intermedia 

Gran 

Central 

Indicator 

Blocks 

Search 

Rotation 

(z,y,x) 

355,-46,0 

Search 

Distances 

(z,y,x) m 

Au High 

Grade 

Distance 

Restriction 

Ag High 

Grade 

Distance 

Restriction 

Estimation 

Pass 

Min/Max # 

Samples 

Octant 

Restriction 

First 5,5,5 1/3 None None None 


Third 85,85,25 3/8 2/octant >35ppm20ppm25ppm25ppm25ppm25ppm8ppm



Table 12.8.2.1: El Crestón Grade Estimation Parameters 


(z,y,x) 

340,-50,0 

Estimation Pass 


(z,y,x) m 

Min/Max # 

Samples Octant Restriction 

First 5,5,5 1/3 None 


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 


(z,y,x) 

60,0,0 

Estimation 

Pass 


(z,y,x) m 

Min/Max # 

Samples 

Octant 

Restriction 

First 5,5,5 1/3 None 


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. 

The Au and Ag grade estimation was conducted according to the parameter listed in Table 12.8.4.1. 

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 

Search 

Rotation 

(z,y,x) 

0,0,0 

Search 

Distances 

(z,y,x) m 

Au High Grade 

Distance 

Restriction 

Ag High Grade 

Distance 

Restriction 

Estimation 

Pass 

Min/Max # 

Samples 

Octant 

Restriction 

First 5,5,5 1/3 None None 


Third 100,100,15 2/5 2/octant >1.2ppm60ppm



12.9 Model Validation 

Four techniques were used to evaluate the validity of the block model. First, during the ID 2 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 ID 2 grade model. The total contained gold 

ounces, at a zero cut-off grade in the nearest neighbor model were compared to the Au ID 2 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 

% Blocks Estimated in 1 st Pass 11 

% Blocks Estimated in 2 nd Pass 72 

LC-La Colorada 

% Blocks Estimated in 3 rd 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 


Average Number of Samples Used Per Block 6 





LC-Indicator 







El Crestón 







Veta Madre 







RoM Pad 








Table 12.9.2: Statistical Model Validation 

Structural 

Domain 

LC_La Colorada 

LC- Intermedia 

LC- Gran 

Central 

LC-Indicator 

El Crestón 

Veta Madre 

RoM Pad 

Metal 

Average Composite Grade Average Block Grade % Difference Comps to 

Au (g/t) 

Au (g/t) 

Blocks 

Au 1.215 1.210 0.4 

Ag 8.072 6.570 18.6 

Au 0.592 0.585 1.1 

Ag 4.579 4.572 0.1 

Au 1.139 1.054 7.4 

Ag 8.946 8.601 3.9 

Au 0.405 0.402 0.6 

Ag 5.154 4.319 16.2 

Au 0.729 0.674 7.5 

Ag 13.991 13.545 3.2 

Au 0.402 0.316 21.5 

Ag 2.451 2.112 13.8 

Au 0.446 0.415 7.0 

Ag 36.247 36.177 0.2 

Table 12.9.3: Nearest Neighbor Model Validation 

ID 2 Au 

NN 

% Diff Au 

Model 

ID 2 Au 

Grade 

ID 2 Tonnes 

(M) 

Metal 

(M) 

NN Au 

Grade 

Tonnes 

(M) 

NN Au 

Metal 

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 

Au oz 

Ag oz 

Au (g/t) 

Ag (g/t) 

(000s) 

(000s) 

(000s) 


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 


(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 

Cut-off Au (g/t) Tonnage Ounces Cut-off Au (g/t) Tonnage Ounces 

Total 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 

Cutoff Au (g/t) Tonnage Ounces Cutoff Au (g/t) Tonnage Ounces 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 


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 


Block Model Restriction 

El Crestón 

Base Units 


Ag 

grams 


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 


Mining Cost 




Rock type 1 

Mix 

Process Cost ($/crushed-t) Selection Method Cashflow 

Process Cost ($/ore t) 2.70 



Ag 0.3 


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 


Optimization 

Revenue factor range 

0.3-2 86 factors 


Initial Capital Cost $32,000,000 

Discount Rate Per period 8% 




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 


Block Model Restriction 

Veta Madre 

Base Units 


Ag 

grams 


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 


Mining Cost 




Rock type 1 

Mix 

Process Cost ($/crushed-t) Selection Method Cash Flow 

Process Cost ($/crushed-t) 2.70 



Ag 0.3 


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 


Optimization 

Revenue factor range 

0.3-2 86 factors 


Initial Capital Cost 0 

Discount Rate Per Period 8% 




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 49.1 0 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



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 


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



Table 13.5.2: Crusher and Heap Leach Schedule 

Period 1 2 3 4 5 6 7 8 9 Total 

Crushed 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 32,753,322 

La Colorada Crushed Tonnes 1,152,641 2,663,632 4,000,000 4,000,000 2,640,311 2,968,840 - - 110,406 17,535,829 

EC & VM Crushed Tonnes - - - - 1,359,689 1,031,160 4,000,000 4,000,000 4,826,644 15,217,493 

Gold Ounces 45,047 90,422 89,820 84,741 126,252 79,176 93,442 116,767 32,609 758,276 

Silver Ounces 273,835 589,994 851,257 694,692 1,141,757 639,097 2,008,642 1,393,550 855,958 8,448,782 

Gold Grade 1.22 1.06 0.70 0.66 0.98 0.62 0.73 0.91 0.21 0.72 

Silver Grade 7.39 6.89 6.62 5.40 8.88 4.97 15.62 10.84 5.39 8.02 

Required 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 

31.0 46.1 47.7 45.4 64.9 48.7 53.5 67.3 29.6 3.9 31.0 

(000’s) 

In-situ Royalty 

Au Ounces 235.3 238.2 303.6 275.9 399.9 281.0 659.1 576.2 366.1 65.0 235.3 

(000’s) 

Payable Recovered 

Ag Ounce 

0.6 1.2 1.2 1.1 1.2 0.8 0.3 0.3 0.1 0.0 0.6 

(000’s) 

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 m 3 . 

The Primavera dump has been designed to a height of 135 m and contains storage for 71,638,642 

m 3 . 

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 




Source: SRK, 2011 

Figure 13-1 

La Colorada Site Layout




Figure 13-2 

La Colorada/Gran Central Whittle® Results




Figure 13-3 

La Colorada/Gran Central Pit Shell Section View




Figure 13-4 

El Crestón Pit Graph




Figure 13-5 

El Crestón Pit Shell Section View




Figure 13-6 

Veta Madre Pit Shells




Figure 13-7 

Veta Madre Pit Section




Figure 13-8 

Location of La Colorada/Gran Central 

Phase 1, 2 and Phase 3 Designs




Figure 13-9 

Location of El Crestón 

Phase 1 and Phase 2 Designs




Figure 13-10 

Current Understanding of 

Underground Workings



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 P 100 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. 




Area 

Table 14.1.1: La Colorada Metallurgical Recovery – Design Criteria Only 

Tonnes 

Au 

Grade 

g/t 

Ag 

Grade 

g/t 

Au Contained 

Ounces 

Ag Contained 

Ounces 

Au Recovery 

Estimate @ P 100 

9.5 mm 

Ag Recovery 

Estimate @ P 100 

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 1,300,870 

La Colorada 9,398,839 0.855 5.18 258,484 1,565,291 55% 47% 140,874 735,687 

Intermediate 8,910,673 0.488 3.32 139,804 951,130 63% 20% 87,378 190,226 

Veta Madre 2,577,878 0.500 3.24 41,440 268,533 60% 28% 24,864 75,189 

El Creston 12,215,403 0.650 12.61 255,277 4,952,380 60% 28% 153,166 1,386,666 

Total 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 

P 100 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/m 2 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 

Unit 

New Potentially Mineable Resource Delivery to Heap Leach, tonnes/monthyear 

336,000 / 4,000,000 

New Potentially Mineable Resource crush size, mm 

P 100 9.5mm 

Rehandle and Releach Potentially Mineable Resource crush size, mm 

P 100 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%@P 100 9.5mm 

Rehandled Potentially Mineable Resource Field Recovery, Au % 

45%@P 100 19mm 

New Potentially Mineable Resource Field Recovery, Ag 

35%@P 100 9.5mm 

Rehandled Potentially Mineable Resource Field Recovery, Ag % 

6%@P 100 19mm 

Lift Height, m 8 

Total Heap Height Above Plant, m 86 

Initial Stacked Density, t/m 3 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 Unit 

Availability 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 


25mm 

Tertiary Crusher Type 

Cone 


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/m 2 8 – 10 

Leach Cycle, days 120 

Solution Application Flow, m 3 /h, Nominal 1060 

Flow, m 3 /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,m 3 /h, Nominal 1060 

m 3 /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/m 3 

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 

Furnace Type 

Smelt Schedule, Batches/Week 

Mercury Retort 

Indoors 

Tilting 

3 to 4 max 

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 


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 



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 


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 



Cone 2 Lubrication 4.8 4 






Attached Attached 

hp 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 


Circuit 3 Trio Magnet Trio CR42 self-cleaning magnets with stands 10.8 8.1 


Weightometer 0.5 0.4 

115 Stacking 

Grasshopper Conveyor 1 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 xxx pulse, 300HP, 480VAC, amps, with RTD inputs VFD 

Pump 


Pump 


Pump 


Pump 

Barren Wye Filter Keckley Style A, 150LB Strainer With 80 Mesh Screens NA 






Pregnant Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners, 

NA 

150lb flanges 

Barren Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners, 

N/A 

150lb flanges 

Pregnant Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners, 

NA 

150lb flanges 

Barren Solution Flowmeter 12" Endress Hauser, 10W3H, with polyurethane liners, 

N/A 

150lb flanges 

Adsorption Feed Pumps 372 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 kW 




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, Recovery 

Instrument 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 Safety shower, non-heated 

N/A 

& Shower 

Recovery Area Eye Wash & Safety shower, non-heated 

N/A 

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. SS plates, EPDM seals, Trantor Model 

NA 

Recovery Heat Exchanger) 

Secondary Heat Exchanger (aka. SS plates, EPDM seals, Trantor Model 

NA 

Heat Up Heat Exchanger) 

Tertiary Heat Exchanger (aka. SS plates, EPDM seals, Trantor Model 

NA 

Cool Down Heat Exchanger) 

Carbon Regeneration Kiln 125 KG/HR KILN 10 

Carbon Attritioning Mixer 

Top mount, fixed speed, Lightnin 14Q1, single axial flow 

1.5 1.1 

impeller 

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 




Acid Wash Circulation Pump 20m3/hr @ 15m TDH, Teflon lined pump, for 32% HCL 

7.5 5.6 

service 

Acid Area Sump Pump 

20m3/hr @ 25m TDH, non metalic pump, for 32% HCL 

7.5 5.6 

service 

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 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 



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 N/A 

Distribution Plates 









Feed Box 1.1x4.95x .75m Open Top Box 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 N/A 

with cone bottom, open top 

Stripped carbon tank, 500 kg 1.45x1.45x1.3 Sloped Bottom Tank 

N/A 

carbon 

Dewatered Carbon Holding Tank Sloped Bottom Tank N/A 

Eluant Solution Storage Tank 22 m3 working capacity with 50 mm insulation & 29 ga 

N/A 

304SS cladding 

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 13 m3 working volume, carbon steel, sloped bottom N/A 

Tank 

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 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, 

N/A 

painted outside 

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 NA 

HEPA secondary filter 

Dryer GRIEVE AB 700 OR SIMILAR 9 

Refinery Area Eye Wash & Safety shower, non-heated 

N/A 

Shower 

Smelting Furnace Fuel oil fired, 430 HT crucible, with 1/2 hp burner blower 1 0.7 

Baghouse Dust Collector Exhaust pending 30 22.4 

Fan 

Refinery exhaust fan 3600 CFM @ Static Pressure 0.5" 

Smelting Furnace Fume Hood pending NA 

Smelting Furnace Hydraulic pending 5 3.7 

Power Unit 

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 N/A 

ripper 

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 Vendor Supplied pumps (220 VAC, 1 Ph) 0.2 

Circuit) 

Antiscalant pump (Pregnant Vendor Supplied pumps (220 VAC, 1 Ph) 0.2 

Circuit) 

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 m 3 /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 m 3 /year 

Diesel – Carbon Regeneration L/regen batch 2,891 433 m 3 /year 

Diesel - Smelting L/smelt 156 32 m 3 /year 




Source: Kappes, Cassiday & Associates, 2011 

Figure 14-1 

Process Flow Sheet



Source: Kappes, Cassiday & Associates 

Figure 14-2 

Process Flow Sheet Phase 2 Fine Crushing to 9.5 mm New Ore



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 prestrip 

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 m 2 ; and 

A 500 m 2 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 Tonnes 

Pad 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 11,048,286 

Pad 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 3,660,720 

Total 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 Northeast 

Lift 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. 





Figure 15-1 

La Colorada 10 MVA Substation




Figure 15-2 

Wyman Shaft and 10” Dewatering Line




Figure 15-3 

Mine Site Office Buildings



Source: Argonaut Gold, Inc., 2011 

Figure 15-4 

Heap Leach Pad Design



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 

Year Month PM Fix 12 mo Average 24 mo Average 36 mo Average 

2011 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 

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 




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. 




Source: Argonaut Gold, Inc., 2011 

Figure 17-1 

Construction and Start-up Authorization for Industrial Facilities



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 


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 


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) 


Sustaining Capital 1,200 

Land Acquisition 3,500 

Reclamation 4,000 


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 NPV 5% of US$278 million on a pretax 

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 

Resources 

Database 

Exploration data 

Quality 

Sufficiency/Adequacy 

Assaying 

Surveying 

Geology 

Geology and Resource Modeling 

Geological modeling 

Resource modeling approach 

Geostatistical analysis 

Resource estimate 

Geotechnical 

Slope Stability 

Geotechnical data adequacy 

Interpretation 

Design 

Waste Rock Dump 

Geotechnical data adequacy 


Design 

Water Management 

Data Adequacy 


Ground water management 

Surface water management 

Water treatment 

Major event management 

Mining 

Accuracy of relevant technical design parameters 

Pit optimization 

Conversion of resources to reserves 

Proposed production schedule 

Equipment schedule 

Mining unit cost assumptions and reasonableness 

Ramp up schedule 

Grade control methodologies 

Metallurgical Test Work/Processing Facilities 

Metallurgical Test Work 

Potentially mineable resource type definition 

Recovery projections 

Throughput 

Process unit assumptions and reasonableness of rates 

Offtake agreements 

Environmental and Permitting 

Status of statutory permits for current and future operations 

Compliance of current operations with existing permits 

Risks for future compliance of operations with permits 

Identification of environmental and social risks 

Mine reclamation and closure plans and costs 

Infrastructure 

Risk Level 

Low 

Low 

Low 

Low 

Low 

Low 

Moderate 

Moderate 

Low 

Low 

Low 

Moderate 

Moderate 

Low 

Low 

Low 

Low 

Low 

Low 

Low 

Moderate 

Low 

Low 

Low 

Low 

Low 

Low 

Moderate 

Low 

Low 

Moderate 

Low 

Low 

Low 

Low 

Moderate 

Low 

Low 

Moderate 

Low 

Low 

Low to Moderate 

Moderate 




Risk Area 

Power 

Water 

Access 

Transportation 

Surface facilities 

Capital Costs 

Capital cost programs 

Sustaining capital 

Operating Costs 

Forecast costs used in resource determination 

Currency split of domestic to foreign currency 

Financial Model 

Model verification 

Revenue calculations 

Management and Staffing 

Implementation Plan & Schedule 

Risk Level 

Low 

Low 

Low 

Low 

Low 

Low 

Low 

Low 

Low 

Moderate 

Low 

Low 

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 100 th 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 

Assay 

Capital Expenditure 

Composite 

Concentrate 

Crushing 

Cut-off Grade (CoG) 

Dilution 

Dip 

Fault 

Footwall 

Gangue 

Grade 

Hangingwall 

Haulage 

Hydrocyclone 

Igneous 

Kriging 

Level 

Lithological 

LoM Plans 

LRP 

Material Properties 

Milling 

Mineral/Mining Lease 

Mining Assets 

Ongoing Capital 

Potentially Mineable 

Resource Reserve 

Pillar 

Sedimentary 

Shaft 

Definition 

The chemical analysis of mineral samples to determine the metal content. 

All other expenditures not classified as operating costs. 

Combining more than one sample result to give an average result over a larger 

distance. 

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. 

Initial process of reducing potentially mineable resource particle size to render it 

more amenable for further processing. 

The grade of mineralized rock, which determines as to whether or not it is economic 

to recover its gold content by further concentration. 

Waste, which is unavoidably mined with potentially mineable resource. 

Angle of inclination of a geological feature/rock from the horizontal. 

The surface of a fracture along which movement has occurred. 

The underlying side of an orebody or stope. 

Non-valuable components of the ore. 

The measure of concentration of gold within mineralized rock. 

The overlying side of an orebody or slope. 

A horizontal underground excavation which is used to transport mined potentially 

mineable resource. 

A process whereby material is graded according to size by exploiting centrifugal 

forces of particulate materials. 

Primary crystalline rock formed by the solidification of magma. 

An interpolation method of assigning values from samples to blocks that minimizes 

the estimation error. 

Horizontal tunnel the primary purpose is the transportation of personnel and 

materials. 

Geological description pertaining to different rock types. 

Life-of-Mine plans. 

Long Range Plan. 

Mine properties. 

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. 

A lease area for which mineral rights are held. 

The Material Properties and Significant Exploration Properties. 

Capital estimates of a routine nature, which is necessary for sustaining operations. 

See Mineral Reserve. 

Rock left behind to help support the excavations in an underground mine. 

Pertaining to rocks formed by the accumulation of sediments, formed by the erosion 

of other rocks. 

An opening cut downwards from the surface for transporting personnel, equipment, 




Term 

Sill 

Smelting 

Stope 

Stratigraphy 

Strike 

Sulfide 

Tailings 

Thickening 

Total Expenditure 

Variogram 

Definition 

supplies, ore and waste. 

A thin, tabular, horizontal to sub-horizontal body of igneous rock formed by the 

injection of magma into planar zones of weakness. 

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. 

Underground void created by mining. 

The study of stratified rocks in terms of time and space. 

Direction of line formed by the intersection of strata surfaces with the horizontal 

plane, always perpendicular to the dip direction. 

A sulfur bearing mineral. 

Finely ground waste rock from which valuable minerals or metals have been 

extracted. 

The process of concentrating solid particles in suspension. 

All expenditures including those of an operating and capital nature. 

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 Term 

A 

ampere 

AA 

atomic absorption 

A/m 2 

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 

cm 2 

square centimeter 

cm 3 

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) 

ft 2 

square foot (feet) 

ft 3 

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 Term 

ha 

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 

km 2 

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 

m 2 

square meter 

m 3 

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 

mm 2 

square millimeter 

mm 3 

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 Term 

RQD 

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 




Appendices 

Appendices 


Appendix A: Certificate of Author

SRK Denver 

Suite 3000 

7175 West Jefferson Avenue 


T: 303.985.1333 

F: 303.985.9947 

denver@srk.com 

www.srk.com 

CERTIFICATE OF AUTHOR 

I, Bret C. Swanson, BE (Mining), MMSA [#01418QP] do hereby certify that: 

1. I am a Senior Mining Engineer of: 


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. 

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

SRK Consulting Page 2 

Dated this 30 th day of December, 2011. 

“Signed” 

________________________________ 

Bret C. Swanson, MMSA [#01418QP] 

QP_Cert_Swanson_Bret_2011

SRK Denver 

Suite 3000 



T: 303.985.1333 

F: 303.985.9947 


www.srk.com 


I, Bart A. Stryhas Ph.D. CPG#11034 do hereby certify that: 

1. I am a Principal Resource Geologist of: 


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. 





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. 

U.S. Offices: 

Anchorage 907.677.3520 

Denver 303.985.1333 

Elko 775.753.4151 


Reno 775.828.6800 

Tucson 520.544.3688 



52.492.927.8982 


Saskatoon 306.955.4778 

Sudbury 705.682.3270 

Toronto 416.601.1445 

Vancouver 604.681.4196 



Africa 

Asia 

Australia 

Europe 

North America 

South America 

QP_Cert_Stryhas_Bart_2011



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. 

Dated this 30 th day of December, 2011. 

“Signed” 

________________________________ 

Dr. Bart A. Stryhas, CPG, PhD 

QP_Cert_Stryhas_Bart_2011

SRK Denver 

Suite 3000 



T: 303.985.1333 

F: 303.985.9947 


www.srk.com 


I, Mark Allan Willow, M.Sc., C.E.M., do hereby certify that: 

1. I am Principal/Practice Leader of: 


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.. 



U.S. Offices: 

Anchorage 907.677.3520 

Denver 303.985.1333 

Elko 775.753.4151 


Reno 775.828.6800 

Tucson 520.544.3688 



52.492.927.8982 


Saskatoon 306.955.4778 

Sudbury 705.682.3270 

Toronto 416.601.1445 

Vancouver 604.681.4196 



Africa 

Asia 

Australia 

Europe 

North America 

South America 

QP_Cert_Willow_Mark_2011




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 


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. 

Dated this 30th Day of December, 2011. 

“Signed” 

________________________________ 

Mark Allan Willow, CEM Nevada #1832 

QP_Cert_Willow_Mark_2011

NI 43-101 Preliminary Economic Assessment La Colorada Project ...

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