NI 43 101 2011 Technical Report on the La Colorada Project Hermosillo Mexico2

8/21/2019 NI 43 101 2011 Technical Report on the La Colorada Project Hermosillo Mexico2

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NI 43-101 Preliminary Economic AssessmentLa Colorada Project

Sonora, MexicoEffective Date: October 15, 2011Report Date: December 30, 2011

Report Prepared for

Argonaut Gold Inc.

77 King Street WestToronto-Dominion Centre, Suite 400

Toronto, ON M4K 0A1

Canada

Report Prepared by

SRK Consulting (U.S.), Inc.

7175 West Jefferson Avenue, Suite 3000Lakewood, 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


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

Summary (Item 1)

Property Description and Ownership

The La Colorada Project (La Colorada or the Project) hosts several gold deposits located near thehistoric 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 resourceestimation 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.


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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 cut-

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

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

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

®

pitdesign 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-offTonnes(000’s)

Au (g/t ) Au oz(000’s)

Ag (g/t ) Ag oz(000’s)

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

El CrestónIndicated 0.10 14,400 0.618 287 12.1 5,635Inferred 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 PadIndicated 0.10 2,700 0.429 38 36.5 3,200Inferred 0.10 - - - - -

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

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

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

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

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

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

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

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

mineral reserves, once economic considerations are applied.

Infrastructure

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

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


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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 re-

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

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

Central pit followed by El Crestón and Veta Madre.

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

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

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

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

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

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

enough direct RoM feed is possible.

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

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

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

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

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

Process and Metallurgy

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

by crushing and heap leaching.

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

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

stacking system.

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

bearing solutions drain to a pregnant pond where it is collected and pumped to an activated carbon ADR (adsorption-desorption-recovery) plant.

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

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

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


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Environmental and Permitting

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

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

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

These facilities were known sources of groundwater contamination, as was indicated historically bythe 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 theRoM heap will take approximately ten months, during which time the Manifestación de Impacto

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

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

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

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

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

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

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

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

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

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

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

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

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

authorization in the timeframe needed.

Project Financials

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

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

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

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

Measured, Indicated and Inferred resources are included;

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

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

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

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

sustaining capital over the LoM of US$11.7 million;

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


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The analysis does not include provision for salvage value; and

Operating costs are 47% of revenue.

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

Description Value Units Units

Production Summary

Waste Mined 121,219 ktPotentially Mineable Resource Mined 32,753 ktOz-Au Refined 438 kozEstimate of Cash Flow

Gross Income $722,668 000’sRefining ($3,505) 000’sGross Revenue $719,163 000’sRoyalty ($10,323) 000’sNet Revenue $708,840 000’sOperating Costs $/t-crushed $/oz-Au

Mining $236,371 $7.22 $539.51

Processing $77,288 $2.36 $176.41G&A $18,000 $0.55 $41.08Silver Credit ($63,166) ($1.93) ($144.18)Total Operating $268,493 $8.20 $612.83

Operating Margin $440,347 000’sInitial Capital $14,488 000’sLoM Sustaining Capital $11,700 000’sIncome Tax $0Cash 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 Af ter-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 MetallurgyGold 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 inprogress 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 theexpansion 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 andimplemented 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 heapleach 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 groundwaterpore-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 Descript ion and Locat ion (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 Accessibi li ty, 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 Est imate (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, Permitt ing and Social or Communi ty 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 Proper ties (Item 23) ................................................................................. 126

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

22 Interpretation and Conclus ions (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 TablesTable 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


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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


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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 FiguresFigure 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


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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


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


1 Introduction (Item 2)

1.1 Terms of Reference and Purpose of the Report

SRK Consulting (U.S.), Inc. (SRK) has been retained by Argonaut Gold Inc. (Argonaut), to prepare aCanadian 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 recentTechnical 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 Consul tants (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.


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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.


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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.


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2 Property Descript ion 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 mainpits, 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.


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Table 2.2.1: Concession Details

ConcessionTitleNo.

Surface(ha)

Valid Acquired By

Ass ociatedRoyaltiesFrom To

Sonora II 187663 8.8206 17-Sep-1990 16-Sep-2040 Contract with Exploraciones La Colorada Yes (1) Sonora VI 199425 19.6494 19-Apr-1994 18-Apr-2044 Contract with Exploraciones La Colorada Yes (1) El Crestón 199424 0.1300 19-Apr-1994 18-Apr-2044 Contract with Exploraciones La Colorada Yes

(1)

Lulu 198975 5.8738 11-Feb-1994 10-Feb-2044 Contract with Exploraciones La Colorada Yes(1)

Demasías delCrestón

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

Sonora V 211758 280.9564 30-Jun-2000 29-Jun-2050 Contract with Exploraciones La Colorada Yes(1)

Sonora III 211974 51.0269 18-Aug-2000 17-Aug-2050 Contract with Exploraciones La Colorada Yes (1) Sonora I 211856 157.9862 28-Jul-2000 27-Jul-2050 Contract with Exploraciones La Colorada Yes (1) FracciónSonora III

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

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 DosFracc.III

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

Crestón DosFracc.II

218679 4.4918 3-Dec-2002 2-Dec-2052 Contract with Exploraciones La ColoradaYes (1)

Crestón DosFracc. I 218678 344.5873 3-Dec-2002 2-Dec-2052 Contract with Exploraciones La Colorada

Yes (1)

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 PendingSandra Luz 199219 12.9455 16-Mar-1994 15-Mar-2044 Contract with Peñoles NoLas Tinajitas 206409 140.0000 16-Jan-1998 15-Jan-2048 Contract with Peñoles NoVicky 206407 24.0000 16-Jan-1998 15-Jan-2048 Contract with Peñoles NoRosalía 213745 7.9760 12-Jun-2001 11-Jun-2051 Contract with Peñoles NoClaudia 213214 32.7380 6-Apr-2001 5-Apr-2051 Contract with Peñoles NoSandra Luz Fracc.1 216046 0.3766 2-Apr-2002 1-Apr-2052 Contract with Peñoles NoSandra Luz Fracc.2 216047 0.0173 2-Apr-2002 1-Apr-2052 Contract with Peñoles NoCarmelita 214065 150.0000 10-Aug-2001 9-Aug-2051 Contract with Minera Recami, S. A. de C. V. NoLos Pilares 214187 249.0328 10-Aug-2001 9-Aug-2051 Contract with Minera Recami, S. A. de C. V. NoEl Crestoncito 231252 1.1693 25-Jan-2008 24-Jan-2058 Contract with Minera Recami, S. A. de C. V. NoLCA 231232 13233.3690 25-Jan-2008 24-Jan-2058 Staking NoLCA2 232278 2000.0000 16-Jul-2008 15-Jul-2058 Staking No

Dos Fracc.I 231247 117.8470 25-Jan-2008 24-Jan-2058 Staking NoDos Fracc.II 231248 5.2974 25-Jan-2008 24-Jan-2058 Staking NoDos Fracc. III 231249 22.7623 25-Jan-2008 24-Jan-2058 Staking NoNoria 235259 18.2630 4-Nov-2009 3-Nov-2059 Staking NoRed Norte 1 237088 3325.9782 29-Oct-2010 28-Oct-2060 Staking NoMabelina 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 productionb. 3% NSR for open-pit productionc. Buy-out clause only exists for underground production royalty. The 2%NSR can be bought out for single cash

payment of USD$300,000.00d. 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.


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Table 2.2.1.1: Concession Payment Liabi lities

Concession Title number 1

stSemester

Payment (Pesos)2

nSemester

Payment (Pesos)2010 2011

Carmelita 214065 9,483.00 9,483.00Los Pilares 214187 15,744.00 15,744.00Crestoncito 231252 9.00 9.00NeriI 232307 2.00 2.00Sonora V 211758 31,263.00 31,263.00Sonora III 211974 3,226.00 5,678.00Sonora I 211856 9,988.00 17,580.00Fracc Sonora II 211958 2,389.00 4,204.00La Muculufa 211945 1,518.00 2,671.00La Cruz 217502 49.00 98.00Creston Tres 218869 14,754.00 29,497.00Creston Dos Fracc. III 218680 3,470.00 6,938.00Creston Dos Fracc. II 218679 143.00 284.00Creston Dos Fracc. I 218678 10,896.00 21,785.00Sonora IV 211788 35,054.00 61,696.00Vicenza 211757 164.00 164.00Sonora VI 199425 2,187.00 2,187.00El Creston 199424 15.00 15.00Lulu 198975 654.00 654.00Demasias El Creston 199929 86.00 86.00Sonora II 187663 982.00 982.00LCA 231232 100,574.00 100,574.00LCA2 232278 15,200.00 15,200.00Dos Fracc I 231247 896.00 896.00

Dos Fracc II 231248 41.00 41.00Dos Fracc III 231249 173.00 173.00Las Tinajitas 206409 15,578.00 15,578.00Vicky 206407 2,671.00 2,671.00Sandra Luz 199219 1,441.00 1,441.00Sandra Luz Fracc. 1 216046 24.00 24.00Sandra Luz Fracc. 2 216047 2.00 2.00Rosalia 213745 505.00 888.00Claudia 213214 2,070.00 3,643.00Noria 235259 - 139.00Red Norte 1 237088 - 16,896.00Mabelina 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 Liabilit ies and Permit ting

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.


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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 Federalenvironmental 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 RisksSRK is unaware of any other significant factor or risks to access, title or the right to perform work on

the project.


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La Colorada Project

Sonora, Mexico

Figure 2-1

Project Location MapSource: Argonaut Gold Inc., 2011


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La Colorada Project

Sonora, Mexico

Figure 2-2

Project Site MapSource: Argon aut Gold Inc., 2011


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La Colorada Project

Sonora, Mexico

Figure 2-3

Regional Concession MapSource: Argonaut Gold Inc., 2011


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La Colorada Project

Sonora, Mexico

Figure 2-4

Local Concession MapSource: Argonaut Gold Inc., 2011


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La Colorada Project

Sonora, Mexico

Figure 2-5

Detailed Concession MapSource: Argonaut Gold Inc., 2011


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La Colorada Project

Sonora, Mexico

Figure 2-6

Royalty Concession MapSource: Argonaut Gold Inc., 2011


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La Colorada Project

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NI 43 101 2011 Technical Report on the La Colorada Project Hermosillo Mexico2

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