Argonaut Gold Inc. Target $ 14

Argonaut Gold Inc.

AR : TSX : C$10.09
BUY Target: C$14.00

BEATS GUIDANCE AFTER RAISING IT TWICE IN 2012
Investment recommendation
BUY rating on Argonaut Gold following the release of Q4/12 and 2012 production results that were ahead of guidance and our estimates.

The team’s operational track record has been excellent in 2012, highlighted by production results that beat the high end of revised guidance
(even after raising guidance twice last year). Argonaut Gold remains a Canaccord Pick based on attractive valuation in the
context of one of the best, fully funded growth profiles in the sector. With a proven management team at the helm and expected continued strong
operational momentum over the next 12 months, substantial re-rating potential follows execution on the ramp-ups at El Castillo and La Colorada,
in addition to the advancement of the San Antonio and Magino projects.
Investment highlights
 Despite raising guidance twice during the year, 2012 production of 108,081 still beat the high end of revised guidance (101,000 to 103,000
oz) by 5%. Production beat expectations at both El Castillo (better than expected grades and implied recoveries) and at La Colorada (mostly
higher recoveries, but also higher grades due to positive grade reconciliation). While actual cash costs were not provided, we estimate cash costs of $605/oz for the full year 2012, which would be below the low end of official guidance of $625- $650/oz.
 Only partial guidance was provided for 2013, with El Castillo expected to produce between 5-10% more gold than in 2012, implying production
of 92,000 to 96,000 oz (our previous estimate was 92,000 oz).  Our Q4/12 EPS estimate has increased to $0.14 (from $0.12) based on better than expected gold sales. Our 2013 production estimate has been revised to 131,000 oz at cash costs of $647/oz (from 136,000 oz at $637/oz) explained by high gold production at El Castillo offset by lower estimated production at La Colorada (no guidance provided but slower ramp-up assumed). Our 2013 EPS estimate is now $0.56 (previously $0.59).

Valuation

Our 12-month target remains unchanged at C$14.00 based on 1.0x our 5%/peak NAVPS estimate of US$13.95 assuming US$/C$ parity.