BMO Nesbitt Lowers Target to $3Argonaut Gold (AR-TSX) Rating: Outperform Target Price: $3.00 Total Return: 121% Price (14-Aug): $1.36 August 16, 2015 Research Comment Summary Brian Quast, P.Eng., JD. 416-359-6824 BMO Nesbitt Burns Inc. brian.quast@bmo.com Ryan Thompson 416-359-6814 BMO Nesbitt Burns Inc. ryan1.thompson@bmo.com Q2/15 Earnings Miss Transfer of Coverage Event Argonaut Gold reported Q2/15 earnings. Coverage of Argonaut Gold is being transferred to Brian Quast from Andrew Kaip. Impact & Analysis Slightly Negative. Adjusted EPS was a miss at $0.00 (vs. BMO Research at $0.03 and consensus of $0.01) and CFFOPS was a slight miss at $0.07 (BMO $0.08). The company reported an inventory writedown, which was a result of lower expected recovery from the WIP inventory at El Castillo for $13.6M, which is included in the adjusted EPS. Production was pre-released on July 15. Cash costs were higher than expected at both El Castillo and La Colorada, resulting in company-wide cash costs of $779/oz. El Castillo cash costs were $907/oz (BMO: $799/oz) and La Colorada was $598/oz (BMO: $551/oz). Higher cash costs at El Castillo are due primarily to higher reagent consumption and a decrease in gold delivered to the leach pad. At La Colorada, the overland conveyor and heap leach pads 6a and 9a were completed. Construction permits for San Agustin have been submitted and a construction decision is expected to be made at the end of the year. Production guidance of 135-145koz Au at cash costs of $700-750/oz was maintained for the year, although the company is expecting to come in at the higher end of cost guidance. Capex and exploration guidance for 2015 remains $37M ($22M spent as at June 30). The site visits have had a slight effect on the valuation for Argonaut, but the largest change has been in the valuation methodology, which now reflects 2016E CFPS and NPV (5% discount rate at BMO Research commodity price estimates). Valuation & Recommendation BMO Research is maintaining the Outperform rating for Argonaut Gold, but lowering the target price to C$3 from C$4. The C$3 target price is based on a 50% weighting assigned to the 5% $2.19/sh NPV estimate and a 50% weighting given to an 8x 2016E CFPS multiple. AR is trading at ~0.5x P/NPV and 3.0x 2016E P/CF, a discount to peers, which trade at 0.8x P/NPV and 4.3x 2016E CFPS. (Full comment 6 pages)r />