July 20, 2010 / 12:59 PM / in 7 years

UPDATE 2-Argonaut Gold Q2 production jumps; backs FY10 view

* Says Q2 gold production rises 57 pct

* Says on target to produce 47,000 ounces in 2010

* Sees mining rate of 1.5 mln tons per month in Q3 (Adds details, analyst comments, share movement)

By Gowri Jayakumar

July 20 (Reuters) - Argonaut Gold Inc (AR.TO) posted a 57 percent jump in quarterly gold production at its El Castillo mine in Durango, Mexico, and said it was on target to achieve its full-year production outlook.

While second-quarter gold production was almost flat sequentially at 10,062 ounces, the Canadian gold producer said it placed 20,245 ounces on the heap leach pad where gold is extracted, representing a 23 percent increase over the first quarter.

“There is a backlog between the time that you put the actual gold on the pad and the time that it actually comes out,” said analyst John McClintock of Research Capital Corp. Analysts anticipate a significant jump in production numbers for the third quarter, spurred by the backlog at leach pads and mining fleet expansion activities.

“They are moving from a relatively small type of truck that moves the ore, to a larger truck. Not only will you be able to move more dirt, but also (at) lower costs,” analyst McClintock said.

Argonaut said it was on target to achieve its full-year production outlook of 47,000 ounces of gold in 2010, and a mining rate of 1.5 million tons per month in the third quarter.

Analysts say Argonaut -- a recent venture by former members of Meridian Gold Inc -- has the potential to beat that target.

“Given the resource potential, they are really setting themselves to produce something closer to 90,000 ounces within 18 months from now,” McClintock said.

In April the company said it expected production to rise to a run rate of 75,000 ounces of gold per year at the end of 2011.

The gold producer, which also operates the exploration-stage La Fortuna Project in Durango, said the $15 million to $20 million capital expansion program at El Castillo was on track.

Shares of Argonaut were up 2 Canadian cents at C$2.52 Tuesday afternoon on the Toronto Stock Exchange. (Reporting by Gowri Jayakumar in Bangalore; Editing by Don Sebastian)

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