Cerro del Gallo

Key Facts
Location Guanajuato, Mexico
Ownership 100%
Status Advanced Exploration
Mine Type Open pit, heap leach
Metals Gold, Silver, Copper
Acquisition November 2017

Cerro del Gallo Gold Reserve (at $1,200 gold) and Resource (at $1,400 gold) Estimates:

Category K tonnes g Au/t K ounces
Au
Proven & Probable 32,219 0.69 712
Measured & Indicated(1) 47,878 0.60 923
(1)

Excludes Proven and Probable Reserves

(2)

For further information on the Cerro del Gallo project, please see historical estimates disclosed in the technical report titled “First Stage Heap Leach Feasibility Study Cerro del Gallo Gold Silver Project Guanajuato, Mexico” dated June 29, 2012 and available Primero Mining Corp. (“Primero”) at www.sedar.com. Per Primero, the historical Mineral Reserves estimate was completed by Thomas Dyer, P.E., a Qualified Person and the historical Mineral Resources estimate was completed by by Timothy Carew, P. Geo, a Qualified Person pursuant to National Instrument (“NI”) 43-101, in a technical report completed by Sedgman Ltd, Reserva International and Mine Development Associates. The report was reviewed by Brian Arkell on behalf of Argonaut Gold Inc. (“Argonaut”), who has concluded that it continues to be relevant and reliable as a basis for understanding the potential Mineral Reserves and Resources at the property. To the best of Argonaut’s knowledge, information and belief, there is no new material, scientific or technical information that would make the disclosure of the Mineral Reserves and Resources inaccurate or misleading. Argonaut has not done sufficient work to classify the historical estimate as current Mineral Reserves and Resources and is not treating the historical estimate as current Mineral Reserves and Resources. Argonaut plans to complete metallurgical test work and re-log the available drill core to update the Mineral Resource model and verify or update the historical work to support the development of a current estimate.

Overview

The Cerro del Gallo deposit sits within the San Antón property, which covers an area of 20,270.17 hectares and consists of 13 granted, contiguous mining concessions. The concessions include areas of historical mines formerly worked for high grade vein-hosted gold and silver.

The Cerro del Gallo deposit is located in the state of Guanajuato in central Mexico, approximately 30 kilometres west of the Guanajuato International Airport, 55 kilometres west of the city of Leon and major facilities and in an active mining district. The property is accessible by road, rail and air services. Additionally, there is availability of a skilled local workforce, grid power, water, sealed roads, equipment suppliers and established transport routes.

Previous project owners completed a Definitive Feasibility Study (DFS) for the Cerro del Gallo project in May 2012. The DFS outlines an initial 7.2 year mine life heap leach operation, which would produce an average of 95,000 gold equivalent ounces annually at estimated cash costs of $700/oz.

Geology

Cerro del Gallo is located in central Mexico, in the Mesa Central physiographic province in the intersection of two geological provinces; the Sierra Madre Oriental and the Trans-Mexican Volcanic Belt.

The oldest rocks in the Cerro del Gallo area are a deformed and regionally metamorphosed volcano-sedimentary sequence of Triassic to Cretaceous age (Randall et al 1994; Consejo de Recursos Minerales 1992). Consejo de Recursos Minerales referred to these rocks as the Esperanza Formation. The Esperanza Formation takes its name from the type sequence of sedimentary rocks at Esperanza Dam, 3km from Guanajuato and was described as carbonaceous and calcareous shale interbedded with arenite, limestone and andesite to basaltic flows, all weakly metamorphosed to phyllites, slates and marble. The thickness of this unit exceeds 600m and its age has been assigned to the Cretaceous based on recognition of radiolaria (Dávila-A, 1987). The Esperanza Formation is correlated with Jurassic rocks corresponding to Zacatecas Formation in Peñon Blanco mining district in Zacatecas and Charcas mining district in San Luis Potosí (Consejo de Recursos Minerales, 1992).

Around Cerro del Gallo the Esperanza Formation consists of layered sediments of argillaceous, silty argillaceous and arenaceous composition, and fragmental volcanic rocks of broadly intermediate composition, all the deposits has been affected by lower greenschist facies regional metamorphism. The sedimentary and volcanic rocks around Cerro del Gallo form an inlier referred to in this report as the Esperanza Inlier (informal name) which is surrounded by Tertiary age rhyolitic flows, rhyolitic tuffs, trachyte andesite and andesites.

Phyllite rocks at several localities near San Antón de las Minas are currently mined for clay for use in the local ceramic industry at Dolores Hidalgo. The phyllitic rocks have a characteristic red colour. Vitromex S.A. de C.V. 29 is presently operating a large quarry at their Cerrito Colorado phyllite deposit 2.5km southeast of Cerro del Gallo.

History

The Consejo de Recursos Minerales, the Mexican equivalent of a Department of Mines, commenced an assessment of the San Antón de las Minas area as part of a combined federal and state government program to encourage new investment in the mining industry. This activity followed on from the declaration of the national mining reserve “Villalpando” covering the Carmen-Providencia vein system in the mid-1970’s (Bravo 1979). The mining reserve covers an area of 3,850ha. Work by the Consejo de Recursos Minerales consisted mainly of regional geological mapping and stream sediment geochemistry, prospect evaluation, and airborne magnetics.

The Cooperativa was the first company to explore the area. The Cooperativa concentrated their work on the Carmen-Providencia vein system where they rehabilitated the Dolores shaft, reopened the La Mora adit, and commenced development of the Carmen adit along a section of the Carmen vein near the Dolores shaft. The company also completed a regional geological mapping program covering the Carmen-Providencia vein system and Cerro del Gallo. Trenching was completed along the Carmen-Providencia vein system and at Cerro del Gallo. The Cooperativa drilled 6 diamond core holes for a total of 1,571.10m and excavated 2 shallow trenches at Cerro del Gallo. The first hole, Bno 251, was drilled in late 1983 on the outer western flank of Cerro del Gallo and intersected 24.55m grading 0.22g/t Au and 21g/t Ag from 3.6m. Only select intervals where quartz veins were recognized were assayed for gold and silver, and while chalcopyrite was recorded in the drill logs, copper was not assayed.

The Consejo de Recursos Minerales reported disseminated copper mineralization averaging 0.4% in a quartz monzonite stock at Cerro del Gallo.

Luismin commenced exploration at San Antón in about 1994 on 2 small contiguous claim blocks totaling 110ha surrounded entirely by tenure owned by the Cooperativa. The claims covered half of Cerro del Gallo and the Ave de Gracia epithermal vein system. Most of their work was completed between 1996 and 2000 and all work was focused on Cerro del Gallo.

The Cooperativa sold the project to Luismin S.A. de C.V. (Luismin).

The operating company San Antón de las Minas S.A. de C.V. (SAM) was formed with the signing of a joint venture agreement between Kings Minerals and Luismin.

Acquired by Argonaut.

“Argonaut acquired the Cerro del Gallo project for US$15 million in November of 2017. It is the type of project that we have historically done very well with and it right down the middle of the fairway in terms of our team’s skillset. The known mineral reserves and resources only account for a very small amount of the controlled mineral tenure with numerous exploration targets on the greater San Antón property.”

Bob Rose, VP Technical Services