Argonaut Gold Inc. (TSX:AR) ("Argonaut Gold") and Prodigy Gold
Incorporated (TSX VENTURE:PDG) ("Prodigy ") are pleased to announce
that they have entered into an agreement (the "Arrangement
Agreement") pursuant to which Argonaut Gold has agreed to acquire
all of the issued and outstanding common shares of Prodigy by way
of a Plan of Arrangement (the "Arrangement"). The combined entity
will benefit from the strong operating experience and cash flow of
Argonaut Gold and its ability to successfully advance Prodigy's
Magino gold project, which has an indicated resource of more than 6
million ounces (223 million tonnes at 0.87 g/t using a cut-off
grade of 0.35 g/t).
Pursuant to the terms of the Arrangement announced today,
Prodigy shareholders will receive 0.1042 of an Argonaut Gold share
and C$0.00001 in cash per Prodigy share, representing C$1.08 per
share based on Argonaut Gold's 20-day volume-weighted average price
("VWAP") and a premium of 54% based on both companies' 20-day VWAPs
as at October 12, 2012, the last trading day prior to this
announcement. The transaction values Prodigy's equity at
approximately C$341 million on a fully diluted in-the-money basis
and implies an enterprise value of approximately C$277 million.
Pro forma the transaction, Argonaut Gold will be owned
approximately 78% by current Argonaut Gold shareholders and 22% by
current Prodigy shareholders (based on fully diluted in-the-money
shares outstanding). The terms of the transaction have been
unanimously approved by both companies' Boards of Directors, with
the commitment of votes from all directors and officers of Prodigy,
representing approximately 3.9% of Prodigy's shares, having been
secured.
Highlights of the Combined Entity:
-- Current production from two mines in Mexico and a strong pipeline of two
developments projects in Canada and Mexico, representing a diversified
asset portfolio in two premier jurisdictions for mine development and
operation
-- If both development projects are advanced to production, Argonaut Gold
is expected to enter the ranks of the intermediate producers and fulfill
its stated goal of 300,000 - 500,000 ounces of gold production per year
-- In excess of 12 million ounces of measured and indicated gold resource
including 1.2 million ounces of proven and probable gold reserve (fully
broken out by category and property as described below)
-- Strong balance sheet with no debt
-- Current and projected future cash flow generation expected to self-fund
future development, mitigating future financing risk
-- Strong management team and experienced Board of Directors with proven
development and operating track record
Pete Dougherty, President and CEO of Argonaut Gold said, "We are
very pleased to announce this transaction with Prodigy today.
Magino is a highly attractive asset which has shown continued
resource growth, and which we believe will provide a longer term
production opportunity for Argonaut Gold shareholders. The Magino
resource provides substantial flexibility for maximizing value
creation using a higher grade cut-off. We believe the project can
be "right-sized" for a company like Argonaut Gold to deliver the
best returns to our shareholders, while providing further upside
should the gold price maintain its strong performance. This
transaction is both highly attractive to Prodigy shareholders as
well as significantly accretive to Argonaut Gold shareholders on
all key financial and operational metrics."
Brian J. Maher, President and CEO of Prodigy said, "The
transaction announcement today is the culmination of the success we
have had growing and advancing the Magino project. We believe the
price offered by Argonaut Gold is highly attractive for our
shareholders, and that in addition to the premium our shareholders
receive today, our shareholders now have the opportunity to
participate in a company that has current production exposure and
can both finance and develop Magino."
Transaction Benefits for Argonaut Gold Shareholders
-- Magino represents a significant scale asset in the Argonaut Gold
portfolio, and has the potential to allow Argonaut Gold to achieve or
exceed its stated goal of 300,000 - 500,000 ounces of gold production
-- Magino is a multi-million ounce deposit which provides tremendous grade
flexibility when considering development alternatives while pursuing the
highest returns for Argonaut Gold shareholders
-- Timeline for Magino development provides for continued growth beyond
Argonaut Gold's existing organic growth projects with anticipated start-
up well timed after San Antonio is targeted to start production
-- Provides geopolitical and asset diversification, and entry into another
of the world's most supportive mining jurisdictions
-- Fairness opinion received from the financial advisor to Argonaut Gold
indicating that the transaction is fair from a financial point of view
to Argonaut Gold
-- Transaction significantly accretive to all of Argonaut Gold's per share
metrics, including net asset value per share, resources per share,
longer term cash flow per share, and longer term production per share
-- In addition to Magino, Argonaut Gold will gain exposure to Prodigy's
portfolio of other exploration stage assets
Transaction Benefits for Prodigy Shareholders
-- Significant premium of 54% to Prodigy shareholders based on both
companies' 20-day VWAPs as at October 12, 2012
-- All-share transaction provides Prodigy shareholders with exposure to
current production and cash flow in a strong gold price environment and
continuing exposure to the advancement of Magino as well as Argonaut
Gold's existing organic growth profile
-- Substantially decreases the financing risk for the project
-- Leverages Argonaut Gold's highly experienced and successful management
team
-- Argonaut Gold's shares provide improved trading liquidity for Prodigy
shareholders
-- Fairness opinion received from Prodigy's financial advisor indicating
that the transaction is fair, from a financial point of view, to Prodigy
shareholders
Arrangement Agreement Summary
The Arrangement includes, among other things, certain standard
conditions including receipt of approval of the shareholders of
Prodigy and Argonaut Gold by the affirmative vote of no less than
66 2/3% and 50.1% of the shares voted, respectively, and receipt of
court and stock exchange approvals. Special shareholder meetings
for each company to vote on the transaction are expected to be held
in December, 2012 with closing expected shortly thereafter.
The Arrangement Agreement is subject to customary
non-solicitation provisions, subject to Prodigy's right to consider
and accept superior proposals. In the event of a superior proposal,
Argonaut Gold will have a five business day right to match the
superior proposal. If the Arrangement is not completed as a result
of a superior proposal or in other certain specified circumstances,
a termination fee equal to C$10.25 million will be paid to Argonaut
Gold. The Arrangement Agreement also provides for reciprocal
expense reimbursement under certain specific circumstances. After
closing of the transaction, Prodigy will have the right to appoint
one Director to the Argonaut Gold Board of Directors.
The terms and conditions of the Arrangement will be disclosed in
more detail in the management information circulars which will be
filed and mailed to Argonaut Gold and Prodigy shareholders in
November 2012.
Advisors and Legal Counsel
BMO Capital Markets is acting as financial advisor and Fraser
Milner Casgrain LLP is acting as legal counsel to Argonaut Gold and
its Board of Directors. BMO Capital Markets has provided an opinion
that, based upon and subject to the assumptions, limitations, and
qualifications in such opinion, the consideration to be received by
Prodigy's shareholders is fair, from a financial point of view, to
Argonaut Gold.
National Bank Financial Inc. is acting as financial advisor and
DuMoulin Black LLP is acting as legal counsel to Prodigy. National
Bank Financial Inc. has provided an opinion that, based upon and
subject to the assumptions, limitations, and qualifications in such
opinion, the consideration to be received by Prodigy's shareholders
is fair, from a financial point of view, to Prodigy
shareholders.
Conference Call Details
Argonaut Gold and Prodigy will host a conference call to
investors and analysts to discuss the transaction on October 15,
2012 at 9:00 a.m. EDT (6:00 a.m. PDT).
You will be able to participate in this call using the following
details:
Conference Call Information:
Toll Free (North America) 1-877-440-9795
Toronto Local and International 1-416-340-8527
Webcast http://www.gowebcasting.com/3937
Conference Call Replay:
Toll Free Replay Call (North America) 1-800-408-3053
Replay Call 1-905-694-9451
Passcode 3150074
The conference call replay will be available from 12:00 p.m. ET
on October 15, 2012 until October 29, 2012. The webcast archive
will be available from 11:00 a.m. ET on October 15, 2012 for one
year.
About Argonaut Gold
Argonaut Gold 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 La Colorada Mine in the State of Sonora, Mexico, the
advanced exploration stage San Antonio project in the State of Baja
California Sur, Mexico, and several exploration stage projects, all
of which are located in Mexico.
Creating Value Beyond Gold
Argonaut Gold Technical Information
----------------------------------------------------------------------------
Resource Tonnes Au Ounces Ag Ounces
Category Grade Grade
(g/t) (g/t)
----------------------------------------------------------------------------
Mineral
Reserves
----------------------------------------------------------------------------
Castillo -
Oxide Proven 84,470,000 0.36 994,000
----------------------------------------------------------------------------
Castillo -
Transition Proven 19,180,000 0.37 228,000
----------------------------------------------------------------------------
Sub Total
Proven -
Oxide &
Transition 104,650,000 0.36 1,222,000
----------------------------------------------------------------------------
Castillo -
Oxide Probable 772,000 0.33 8,000
----------------------------------------------------------------------------
Castillo -
Transition Probable 73,000 0.35 1,000
----------------------------------------------------------------------------
Sub Total
Probable -
Oxide &
Transition 844,000 0.33 9,000
----------------------------------------------------------------------------
Total Proven
and Probable
Reserves 105,495,000 0.36 1,231,000
----------------------------------------------------------------------------
Measured and
Indicated
Mineral
Resources
(Including
P&P
Reserves)
---------------------------------------------------------------
----------------------------------------------------------------------------
Castillo -
Oxide in Pit Measured 114,300,000 0.293 1,220,100
----------------------------------------------------------------------------
Castillo -
Oxide in Pit Indicated 4,900,000 0.293 45,700
----------------------------------------------------------------------------
Castillo -
Oxide in Pit M&I 119,200,000 0.331 1,268,000
----------------------------------------------------------------------------
Castillo -
Transition
in Pit Measured 44,600,000 0.295 423,200
----------------------------------------------------------------------------
Castillo -
Transition
in Pit Indicated 1,900,000 0.278 17,100
----------------------------------------------------------------------------
Castillo -
Transition
in Pit M&I 46,500,000 0.294 439,900
----------------------------------------------------------------------------
Total
Castillo
Oxide and
Transition
in Pit Measured 158,900,000 0.322 1,645,300
----------------------------------------------------------------------------
Total
Castillo
Oxide and
Transition
in Pit Indicated 6,800,000 0.289 62,900
----------------------------------------------------------------------------
Total
Castillo
Oxide and
Transition
in Pit M&I 165,700,000 0.32 1,704,700
----------------------------------------------------------------------------
Castillo
Sulphide
(Global) Measured 70,600 0.328 744,800
----------------------------------------------------------------------------
Castillo
Sulphide
(Global) Indicated 91,200 0.272 797,500
----------------------------------------------------------------------------
Total
Castillo
Sulphide
(Global) M&I 161,800,000 0.296 1,540,000
----------------------------------------------------------------------------
San Antonio,
Las Colinas
- Oxide &
Transition Indicated 1,910,000 0.62 38,000
----------------------------------------------------------------------------
San Antonio,
Las Colinas
- Sulphide Indicated 8,103 0.69 179,000
----------------------------------------------------------------------------
San Antonio,
Los Planes -
Oxide &
Transition Measured 12,351,000 0.76 303,000
----------------------------------------------------------------------------
San Antonio,
Los Planes -
Oxide &
Transition Indicated 8,408,000 0.67 181,000
----------------------------------------------------------------------------
San Antonio,
Los Planes -
Sulphide Measured 6,649,000 1.17 250
----------------------------------------------------------------------------
San Antonio,
Los Planes -
Sulphide Indicated 22,065,000 0.92 653,000
----------------------------------------------------------------------------
San Antonio,
Intermediate
- Oxide &
Transition Indicated 643,000 0.39 8,000
----------------------------------------------------------------------------
San Antonio,
Intermediate
- Sulphide Indicated 4,961,000 0.77 123,000
----------------------------------------------------------------------------
All San
Antonio
Deposits -
Oxide &
Transition M&I 23,312,000 0.71 530,000
----------------------------------------------------------------------------
All San
Antonio
Deposits -
Sulphide M&I 41,778,000 0.90 1,205,000
----------------------------------------------------------------------------
Total San
Antonio
Deposits -
Oxide /
Transition /
Sulphide M&I 65,089,000 0.83 1,735,000
----------------------------------------------------------------------------
La Colorada,
Gran Central
- La
Colorada Indicated 29,915,053 0.724 696,336 5.1 4,905,135
----------------------------------------------------------------------------
La Colorada,
Gran Central
- La
Colorada Inferred 2,500,000 1.204 95,149 8.4 661,000
----------------------------------------------------------------------------
La Colorada,
El Creston
Deposit Indicated 14,438,662 0.618 286,658 12.1 5,635,385
----------------------------------------------------------------------------
La Colorada,
El Creston
Deposit Inferred 2,199,713 0.88 62,703 13.3 943,734
----------------------------------------------------------------------------
La Colorada,
Veta Madre Indicated 2,900,000 0.491 46,261 3.3 307,155
----------------------------------------------------------------------------
La Colorada,
Veta Madre Inferred 8,799 0.665 200 2.4 700
----------------------------------------------------------------------------
La Colorada,
ROM Pad Indicated 2,700,000 0.429 38,000 36.5 3,200,000
----------------------------------------------------------------------------
Total La
Colorada
Deposits M&I 50,000,000 0.664 1,067,255 8.7 14,047,675
----------------------------------------------------------------------------
La Fortuna Measured 1,538,000 2.956
----------------------------------------------------------------------------
La Fortuna Indicated 3,287,000 1.533
----------------------------------------------------------------------------
Total La
Fortuna M&I 4,800,000 1.98 308,000
----------------------------------------------------------------------------
Inferred
Mineral
Resources
----------------------------------------------------------------------------
San Antonio Inferred 6,215,000 0.34 67,000
----------------------------------------------------------------------------
La Colorada Inferred 4,700,000 1.04 158,000 10.6 1,605,000
----------------------------------------------------------------------------
Total
Inferred
Resources 10,915,000 225,000 1,605,000
----------------------------------------------------------------------------
Total
Measured and
Indicated
Resources 447,389,000 6,354,955 14,047,675
----------------------------------------------------------------------------
The technical information contained in this document regarding
Argonaut Gold has been prepared under supervision of, and reviewed
and approved by Mr. Thomas H. Burkhart, Argonaut Gold's Vice
President of Exploration, and a qualified person as defined by
National Instrument 43-101 ("NI 43-101"). For further information
on Argonaut Gold's properties please see the reports as listed
below on Argonaut Gold's website or on www.sedar.com:
----------------------------------------------------------------------------
El Castillo NI 43-101 Technical Report on Resources and Reserves, Argonaut
Mine Gold Inc., El Castillo Mine, Durango State, Mexico dated
November 6, 2010
----------------------------------------------------------------------------
La Colorada NI 43-101 Preliminary Economic Assessment La Colorada Project,
Property Sonora, Mexico dated December 30, 2011
----------------------------------------------------------------------------
San Antonio Technical Report and Mineral Resource Estimate on the San
Gold Project Antonio Gold Project, Baja California Sur, Mexico dated June
30, 2011
----------------------------------------------------------------------------
La Fortuna La Fortuna, Durango, Mexico, Technical Report dated October
Property 21, 2008
----------------------------------------------------------------------------
(Argonaut Gold will shortly be filing its previously announced updated
preliminary economic assessment in relation to its San Antonio Gold
Project.)
The preliminary economic assessment is preliminary in nature,
includes inferred mineral resources that are considered too
speculative geologically to have the economic considerations
applied to them that would enable them to be categorizes as mineral
reserves, and that there is no certainty that the preliminary
economic assessment will be realized.
Mineral resources are not mineral reserves and do not have
demonstrated economic viability. There is no certainty that all or
any part of the mineral resource will be converted into mineral
reserves.
About Prodigy
Prodigy is currently evaluating the development of the Magino
mine gold project in Ontario as an open-pit mining opportunity with
the potential for deeper, higher grade gold production. The Magino
project contains Indicated gold resources of 6,250,990 ounces
grading 0.87 g/t gold (223.5 million tonnes), and 355,190 ounces of
Inferred gold resources grading 0.80 g/t gold (13.8 million tonnes)
at a cut-off grade of 0.35 g/t gold. For more information please
refer to the "Technical Report on the Magino Property, Wawa,
Ontario dated October 4, 2012 available on SEDAR or Prodigy's
website.
Mineral resources are not mineral reserves and do not have
demonstrated economic viability. There is no certainty that all or
any part of the mineral resource will be converted into mineral
reserves.
The technical information contained in this document regarding
Prodigy has been prepared under supervision of, and reviewed and
approved by Tom Pollock, P.Geo., Prodigy Gold's Vice President -
Exploration, who is a qualified person under the definitions
established by NI 43-101.
Forward-Looking Statements
This press release contains certain "forward-looking statements"
and "forward-looking information" under applicable Canadian
securities laws concerning the proposed transaction and the
business, operations and financial performance and condition of
each of Argonaut Gold Inc. ("Argonaut Gold") and Prodigy Gold
Incorporated ("Prodigy"). Forward-looking statements and
forward-looking information include, but are not limited to,
statements with respect to the Arrangement, development and
estimated production and mine life of the various mineral projects
of Argonaut Gold and Prodigy; synergies and financial impact of the
Arrangement; the benefits of the development potential of the
properties of Argonaut Gold and Prodigy; the future price of gold,
copper, and silver; the estimation of mineral reserves and
resources; the realization of mineral reserve estimates; the timing
and amount of estimated future production; costs of production;
success of exploration activities; and currency exchange rate
fluctuations. Except for statements of historical fact relating to
Argonaut Gold and Prodigy, certain information contained herein
constitutes forward-looking statements. Forward-looking statements
are frequently characterized by words such as "plan," "expect,"
"project," "intend," "believe," "anticipate", "estimate" and other
similar words, or statements that certain events or conditions
"may" or "will" occur. Forward-looking statements are based on the
opinions and estimates of management at the date the statements are
made, and are based on a number of assumptions and subject to a
variety of risks and uncertainties and other factors that could
cause actual events or results to differ materially from those
projected in the forward-looking statements. Assumptions upon which
such forward-looking statements are based include that all required
third party, court, regulatory and governmental approvals to the
Arrangement will be obtained and all other conditions to completion
of the transaction will be satisfied or waived, that actual results
of exploration activities will be as expected, that proposed mine
plans and recoveries will be achieved, that capital costs and
sustaining costs will be as estimated, that the assumptions
underlying mineral resource estimates are valid, that Argonaut Gold
and Prodigy will not experience unforeseen accident, fire, ground
instability, flooding, labor disruption, equipment failure, or
adverse metallurgical or environmental events, and that supplies,
equipment, personnel, permits and other approvals required to
conduct planned activities will be available on reasonable terms.
Many of these assumptions are based on factors and events that are
not within the control of Argonaut Gold or Prodigy and there is no
assurance they will prove to be correct.
Factors that could cause actual results to vary materially from
results anticipated by such forward-looking statements include
non-completion of the Arrangement, changes in market conditions,
variations in ore grade or recovery rates, risks relating to
international operations, fluctuating metal prices and currency
exchange rates, changes in project parameters, the possibility of
project cost overruns or unanticipated costs and expenses, labour
disputes and other risks of the mining industry, failure of plant,
equipment or processes to operate as anticipated. Although Argonaut
Gold and Prodigy have each attempted to identify important factors
that could cause actual actions, events or results to differ
materially from those described in forward-looking statements,
there may be other factors that cause actions, events or results
not to be anticipated, estimated or intended. There can be no
assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements. Argonaut Gold
and Prodigy undertake no obligation to update forward-looking
statements if circumstances or management's estimates or opinions
should change except as required by applicable securities laws. The
reader is cautioned not to place undue reliance on forward-looking
statements. Statements concerning mineral reserve and resource
estimates may also be deemed to constitute forward-looking
statements to the extent they involve estimates of the
mineralization that will be encountered if the property is
developed. Comparative market information is as of a date prior to
the date of this document.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Contacts: Argonaut Gold Inc. Nichole Cowles Investor Relations
Manager (775) 284-4422 x 101nichole.cowles@argonautgold.com
www.argonautgold.com Contacts: Prodigy Gold Incorporated Brian J.
Maher President and Chief Executive Officer (604)
688-9006ir@prodigygold.com www.prodigygold.com
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