Argonaut Gold’s La Colorada Project on Track for Production in 2012

PEA shows NPV of $278 Million, Projected Gold Equivalent Production of 480,000 Ounces

Toronto, Ontario (January 9, 2012) – Argonaut Gold Inc. (TSX: AR) (“Argonaut Gold”, “Argonaut” or the “Company”) is pleased to announce the results from a new National Instrument 43-101 compliant (“N.I. 43-101”), Preliminary Economic Assessment (“PEA”) for the100% owned La Colorada gold-silver project, located 45 km southeast of Hermosillo, Mexico. The updated PEA was completed by SRK Consulting Inc. of Denver, CO. Argonaut acquired the La Colorada project (along with the San Antonio Gold Project) through the acquisition of Pediment Gold Corp. in February of 2011. (All dollar values in this release are expressed in $US).

La Colorada PEA Specifications (base case $1,500/oz gold and $20/oz silver):

Project Highlights

    • Initial Capital Expenditure for the project is estimated at $14.5 million with a Sustaining Capital of $11.7 million.
    • Pre-tax cash flow from operations estimated at $381 million over the Life of Mine (“LOM”).
    • Approximately a one year payback on initial investment, primarily generated by reprocessing 2.7 million tonnes of run of mine (“ROM”) material grading 0.43 grams per tonne gold (“Au g/t”) and 10.2 grams per tonne silver (“Ag g/t”).

Specifics
Mining costs                                                                 $1.50/tonne
Processing costs                                                           $2.36/tonne
Site G&A                                                                       $0.55/tonne
Initial capital                                                                $14.5 million
Sustaining capital                                                         $11.7 million
Average cash cost                                                        $620/ounce

Financial Details

    • Pre-tax Net Present Value (“NPV”) of $278 million using a 5% discount rate.
    • Pre-tax Internal Rate of Return (“IRR”) of 249% calculated by Argonaut Gold.
    • Average annual pre-tax cash flow of $40.8 million.

Production Specifications

    • Average LOM cash operating costs are estimated to be $620 per ounce based on silver noted as a byproduct credit.
    • Total processed indicated and inferred resource includes 35.5 million tonnes containing 796,000 ounces of gold and 11.6 million ounces of silver (average grades are 0.69g/t gold and 10.2g/t silver).
    • Recovered ounces from production include 438,000 ounces of gold and 3.1 million ounces of silver (For a total of 480,000 gold equivalent ounces) utilizing expected metallurgical recoveries of 55% for gold and 27% for silver.
    • LOM gold production is estimated at an average of 53,000 gold equivalent ounces per year over a 9 year mine life.
    • Throughput estimate of 4 million tonnes per year from an open-pit mine, with a recovery process using cyanide heap leaching, followed by carbon adsorption/stripping and electrowinning to produce dore bars.

Specifics
Total resource processed:                                            35.5 million tonnes
LOM strip ratio:                                                            3.4:1 (waste:ore)
Average grade:                                                             0.69 g/t Au and 10.2 g/t Ag
Total recovered gold equivalent ounces:                     480,000 ounces
Estimated gold recovery:                                             55% gold and 27% silver
Life Of Mine:                                                                9 years
Average annual production:                                         53,000 gold equivalent ounces

Peter Dougherty, President and CEO of Argonaut Gold stated:

“We are excited to present the La Colorada PEA which shows a very significant return on a minimal initial investment. It demonstrates the strong economic viability of the mine, supporting a pay back of approximately 1 year. Development of the project will be fully funded by our internal cash balance and ongoing cash flow from operations. The PEA is inclusive of drilling thru September 2011. Further drilling on the property and potential optimization of the project remain important initiatives for the company.”

Mr. Dougherty added:

“The necessary permits are in hand for us to begin production in the second quarter of 2012. The La Colorada mine has robust project economics that will potentially contribute over $300 million in cash flow for Argonaut shareholders. The Pediment acquisition is a prime example of how Argonaut can Create Value Beyond Gold.”

Project Economics and Production Schedule

The mining plan developed for the La Colorada project by SRK Consulting provides for a production profile which will involve the processing of approximately 35.5 million tonnes of total potential mineable material set out in the PEA. Over a 9 year project life a total of 480,000 gold equivalent ounces is expected to be recovered, providing an average production of approximately 53,000 gold equivalent ounces per year. The LOM average strip ratio for processed material is estimated to be approximately 3.4 to 1. A summary of the annual mine production is outlined below.

Argonaut Gold has calculated the gold equivalent ounces using a $20/ounce silver price and a $1500/ounce gold price, providing a 75:1 gold equivalent ratio. The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would categorize them as mineral reserves. There is no certainty that the PEA will be realized.

La Colorada National Instrument 43-101 Technical Report Resources

The La Colorada resources disclosed as part of the updated PEA were reported in a N.I. 43-101 compliant Technical Report filed on www.sedar.com on December 8, 2011. The 1,067,000 gold ounces grading 0.64 g/t gold is contained within 50 million tonnes; this was calculated using a 0.10 g/t gold cut-off grade. The complete resource estimate table is included below:

For further information on the La Colorada project please see the N.I. 43-101 compliant technical report entitled “Technical Report on Resources La Colorada Property Sonora, Mexico dated December 8, 2011 and available on www.sedar.com and under the company’s profile as well as the company’s website, www.argonautgoldinc.com.

About Argonaut Gold Inc.

Argonaut is a Canadian gold company engaged in exploration, mine development and production activities. Its primary assets are the production-stage El Castillo Mine in the State of Durango, Mexico, the development stage and past producing La Colorada project, the advanced exploration San Antonio project, and several exploration stage projects, all of which are located in Mexico.

Creating Value Beyond Gold

 

Cautionary Language Regarding Forward-Looking Information

This news release contains and refers to forward-looking information based on current expectations. All other statements other than statements of historical fact included in this release are forward-looking statements (or forward-looking information). The Company’s plans involve various estimates and assumptions and its business and operations are subject to various risks and uncertainties. For more details on these estimates, assumptions, risks and uncertainties, see the Company’s most recent Annual Information Form and most recent Management Discussion and Analysis on file with the Canadian securities regulatory authorities on SEDAR at www.sedar.com. These forward-looking statements are made as of the date hereof and there can be no assurance that such statements will prove to be accurate, such statements are subject to significant risks and uncertainties, and actual results and future events could differ materially from those anticipated in such statements. The Company assumes no obligation to update the forward-looking information contained in this news release.  Accordingly, readers should not place undue reliance on forward-looking statements that are included herein.

The potential quantities and grades disclosed herein in connection with the drilling results at La Colorada have been presented in an updated resource prepared by SRK Consulting of Denver, CO.

Non-IFRS Measures

The Company believes that in addition to conventional measures prepared in accordance with IFRS, the Company and certain investors and analysts use certain other non-IFRS financial measures to evaluate the Company’s performance including its ability to generate cash flow and profits from its operations. The Company has included certain non-IFRS measures in this document. Non-IFRS measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Readers are advised to read all IFRS accounting disclosures presented in the Company’s Financial Statements for more detail.

 

Qualified Persons

Preparation of this press release was supervised by Mr. Thomas Burkhart, Argonaut’s Vice President of Exploration and, a “Qualified Persons” as defined by NI 43-101. Mr. Alberto Orozco, Argonaut’s Mexico Exploration Manager also supervised the drill programs and on-site sample preparation procedures at La Colorada. Bret Swanson of SRK of Denver, CO, who is an “Independent Qualified Person” as defined by NI 43-101 and the lead person responsible for completing the updated La Colorada pea has reviewed this press release as it relates to the La Colorada project.

For sample analysis the Company utilizes a system of Quality Assurance/Quality Control that includes insertion and verification of standards, blanks and duplicates consistent with industry standards. Samples from the La Colorada project are collected at site by personnel of Inspectorate’s preparation laboratory in Hermosillo where samples are prepared and pulps sent for assay in Inspectorate’s Sparks, NV laboratory. Samples are analyzed for gold by Fire Assay and Atomic absorption finish (PKG-AuAg assay code; 0.005 to 10ppm detection limit) plus Silver by Aqua Regia and Atomic Absorption finish (0.1 to 200 ppm detection limit). Samples over 10 g/t Au are assayed with gravimetric finish (Assay code Au-1AT-GV). All samples are also assayed by ICP-AES (code GENX-30) for a suite of 30 elements.

An updated N.I. 43-101 compliant technical report will be filed within 45 days of the date of this press release.

For more information, contact:

Argonaut Gold Inc.

Nichole Cowles

Investor Relations Manager

Tel:  (775) 284-4422 x 101

Email: nichole.cowles@argonautgoldinc.com

www.argonautgoldinc.com