Apollo Gold Corp. Talks Finance for Black Fox

Apollo Gold Corp.
David Russell, CEO

Apollo Gold Corporation is engaged in gold mining, including extraction, processing, refining and the production of by-product metals, as well as related activities, including exploration and development. The Company is the operator of the Montana Tunnels mine (Mine), which is a 50% joint venture with Elkhorn Tunnels, LLC (Elkhorn). The Montana Tunnels mine is an open pit mine and mill producing gold dore and lead-gold and zinc-gold concentrates. The Company has a development project, the Black Fox project, which is located near the Matheson in the Province of Ontario, Canada. The Black Fox project consists of mining operations located seven miles east of Matheson and the Black Fox mill complex located 12 miles west of Matheson. Apollo also owns Mexican subsidiaries, which own concessions at the Huizopa exploration project, located in the Sierra Madres in Chihuahua, Mexico.


WSR: Good day from Wall Street. This is Juan Costello, Senior Analyst with The Wall Street Reporter. Joining us today is David Russell, CEO of Apollo Gold. The company trades on the New York Stock Exchange, ticker symbol; AGT. Always great to have you on here David.

David Russell: It’s pleasure to be back with you again. It’s been over a year and it’s a pleasure to talk with you again on Apollo Gold.

WSR: Bring us up to the speed on your key projects, Black Fox and Grey Fox?

David Russell: The biggest change from about a year-ago is that we brought the Black Fox project located near Timmins, Ontario through bankable feasibility level. This targeted an open pit and an underground mine in refurbishing a mill. We started the actual development of this project with bank financing last October 2008. This project was in a development mode, pre-stripping the pit, refurbishing the mill through April of 2009. In June, we actually declared commercial production on the mine. During May and June, we poured about 11,650 ounces of gold and that was a pretty good start for a brand new gold mine. This mine as we ramp it up in production through the mill, we started at a 1,000 metric tons a day moved into 1,200, moved into 1,500, now we’re at 1,800. Our next target will be 2,000 metrics tons a day and full stop, say for the year 2010, we’re targeting a 120,000 ounces of production in cash cost of between 350 and 450 per ounce. This has to do with the great variations within the open pit.

All in all, say this year, for 2009, we’ll produce probably in the 55,000 to 60,000 ounce range, because it’s about a half year of production. Of that, you’ll net most likely about $28 million to $30 million free cash flow. So, that gives the company, being a junior exploration development company, a good start going from the junior to the mid-tier base. And then at the same time, we’ve got the Grey Fox project that’s located 3.5 kilometers to the Southeast along the same trend as Black Fox. Last year, we announced to the market that we had roughly about 16 really good core holes. One of them had over 450 gram gold in it, which if you want it in ounces per ton, it’s about 13.5 ounces per ton, over about 3.5 meters. It was a major discovery within the area. We’re actually just starting the drilling program in August, what we call the second phase. We’re going to a resource drill-off area and then we’ll let the market know how we did, probably late fall this year.

WSR: You also recently completed the private placement, refinancing early in the month, correct?

David Russell: Yes, that’s correct. If we back up a bit, we did a little bit of equity about a year-ago to actually purchase the Stock Mill, which we rebuilt 2,000 metric tons a day and that was roughly about $25 million in equity and then we borrowed $70 million in bank financing, and that’s what we are using for the Black Fox project.

But now for other projects, as we move ahead, we were looking at financing, really, the Great Fox project and other drilling and exploration within the area. So, what we did is, a little bit of equity, but mainly flow through financing, we just finished that about three weeks ago. And what that does is, cash company ought to allow us to move ahead with these exploration projects and drill it off to a resource phase.

WSR: Talk about some of the recent trends right now in the market and how well positioned the company is to capitalize on some of the emerging trends?

David Russell: The main key is the investors, if you really watch the markets, they are waffling all over the place. The market is a little afraid of putting their money in anywhere. One of the things that I am seeing coming through loud and clear in the trend is, if you are an exploration development company and you’ve gone through feasibility and you’re going into construction on a project or like Black Fox, you come into production, that’s what the market is looking for. They’re looking for the new gold production, the new cash flow, the cash flow that can actually sustain a company.

That’s the way I see the market going right now and we have positioned Apollo Gold to meet the expectations in the market to where we’ll be able to basically stand on your own two feet, generate your own cash flow for the shareholder and actually report positive earnings. We won’t in the second quarter, but third quarter and fourth quarter, we should have a pretty good run as we get Black Fox really up and running full speed. In 2010, we are positioned to do very, very well for the investor in the market. So, I think what we have — the key point is the new gold mine is actually going to generate positive cash flow, but we’ve also got an enticing new project on a block called Grey Fox that I think they’d be interested in following.

WSR: Has the company made any changes to management since last year? If not, can you walk us through the background experience for the listeners that didn’t see the interview last year?

David Russell: The main key is we have the same primary corporate officers, there is myself as CEO and Mel Williams, he is our Chief Financial Officer, a finance guru is I call him. He’s got well over 35 years experience. We’ve got Dick Nanna, he is our Exploration Vice President that actually handles all the development of the gold assets and he’s got over 35 years experience also and found over 20 million ounces of gold. So, the three key officers have always been in place.

The other one is, we had a General Manager at Montana Tunnels that ran that operation. He came out of the Red Dog or Teck Cominco group about 3.5 years and he did a spectacular job for almost 3.5 years, redeveloping our Montana Tunnels mine, it was very profitable. We just put it on care and maintenance in April, but we asked him to step into the role as Vice President, US and Canadian Operations. He took on the role of actually developing the Black Fox project with all his knowledge and he’s got roughly about 30 years experience in the mining operation, the metallurgical fields. So, he was the shoo-in to actually place himself at the Black Fox project and develop that all the way from the actual pre-stripping redevelopment and into the first mine and he has done an excellent job and that was Tim Smith. So, in the future watch Tim Smith, he is going to have a great career with us.

WSR: What specific goals does the management have set forth for the next year, what do you have to accomplish?

David Russell: In the year 2009, our primary goal was to bring Black Fox into full production by May to June. We met that goal. Our next goal is to get the actual mill up to 2,000 metrics tons a day, steady state by year’s-end. So, we’ll enter 2010 running 2,000 metrics tons a day. Grade in the mill, we’re targeting about 5 grams per tonne gold. We’re targeting roughly 120,000 ounces of production under $400 per ounce for 2010. I think, that’s a pretty aggressive goal but it’s definitely a goal that we can meet as a company. And then the next big goal is the Grey Fox project, is to actually get it drilled off to resources. Our reserve set at 1.33 million ounces of Black Fox, the resource, reserves roughly about another 750,000 ounces. So, we’re pushing over the 2 million ounce mark. What we’d like to do is, get Grey Fox up to the million ounce resource mark and that’s going to take a lot of drilling through 2009 and early 2010 and then we’ll tell the market what we’ve discovered there. So, what our production profile is right now, is say, if we’ve got 2 million ounces, we’re saying we’d like to increase that at least 30% to 35% between now and mid-2010.

WSR: How about Chihuahua, Mexico?

David Russell: Glad you brought that one up. That’s the one that has not been in the limelight, but it’s a great exploration play. Where it’s located is — Huizopa is located between the Minefinders Dolores Project on the East and then the Alamos Mulatos Project on the West. We’re kind of straddled in between and we have a 170 square kilometer land package. It’s an 80-20 joint venture with Minera Coronado, great partner to have, more of a quiet partner, we’re the operator. We’ve gone through the first drill program in 2008. We had some pretty good results. We had up to 42 gram gold and roughly about 60 to 80 gram silver, so we’re in the right neighborhood. We had what I’d call a good discovery of a sheer zone. We’ve yet to got to put a road into there. That’s what we’re going to target toward the year’s end, is coming from Sonora into Chihuahua side of Mexico, bringing in a gradual dirt road for the Mulatos River area and bringing it into, what we call, the target area where the sheer is roughly running about 4 kilometers long.

Now we stepped out on 300-meter centers and used a helicopter to airlift our drill rig last year and all we’re looking for is, should we be in this area and can we develop a data base that says there’s gold and silver and we were positive in 2008 doing that. So, we’ll further that with a road in 2009 and be drilling by late 2009 or early 2010 on the next phase of exploration on that project. In our structure of timing, we brought the Black Fox mine on line, we’re drilling to a resource phase on Grey Fox. And then our third light to the puzzle here is, Chihuahua, Mexico, which is the Huizopa project. I think we’ve got a lot of exploration, development phases, as well as production to interest the investor.

WSR: Will the company be looking for any strategic alliances or joint ventures in the next coming — few years?

David Russell: That’s probably the several billion-dollar question. Valuation wise, we’re doing very well, developing our own assets, but we never say, we won’t look at something else. Dick Nanna, our Vice President of Exploration, he is very good at evaluating other companies’ projects that may be undervalued and that’s what we’ve also been good at is taking a undervalued situation, flushing the true value out for the shareholder. So, between say now and 2010, will we look at other opportunities, we most definitely will look at other opportunities.

WSR: In terms of the investor, which you’d kind of refer to earlier, do you think that investors right now understand the general direction of the company?

David Russell: I think it’s early in the stages, but we’re just starting to go to the market, talk to the investors, the shareholders to really reintroduce ourselves and say, hey, we’ve got the new project on the block, it came on line, it’s producing gold. Where is your valuation, our valuation roughly about $0.44 a share, it’s about $103 million market cap. We’ve got roughly $100 million into the Black Fox project alone. Obviously, the valuation is low right now and what we’ve got to do is sell ourselves to the market, the retail investors, the institutional that we are one of the better investments on the block.

So, I think over the next, probably, three to six months as we retell the story in the market and say, look investors we’re here, we’re in undervalued situation, a great investment, get into the stock right now, and you can expect factors hopefully of three to four times what we see today. So, we’re expecting the stock to start rising with production information that will come out on the second quarter and the third quarter respectively, then obviously by year’s end, we’ll have set the stage for what kind of cash flow are we going to see in 2010 and what kind of earnings could we see at that point in time. I think the investor, if he starts in early now, he is going to be very happy with an investment in Apollo Gold.

WSR: Joining us today is David Russel, CEO of Apollo Gold, which trades on the New Stock Exchange, ticker symbol is AGT and trades on the Toronto Stock Exchange, ticker symbol is APG, and is currently trading at $0.45 a share. Before we conclude David, what are other reasons why Apollo Gold represents a good long-term investment opportunity to a potential investor?

David Russell: The long-term look, Number 1, you look at management, we’ve got a very solid Board of Directors, there is seven of us. Charlie Stott is our Chairman. He is a retired former CEO of AMAX Gold. They understand the business very, very well. The other five members plus myself, very strong in the accounting field, the legal field, securities field. We’re very pleased with the Board. They have to watch that we have a very, very strong Board. We’ve got a very dedicated management team. They also should look and say, it’s not a big management team but it’s one that’s manageable for the assets that we have and in same math, you say, ok, you have taken the Black Fox project from zero ounces to 1.33 million with resources over 2 million, that the Grey Fox really ought to be a great investment that the investor should look at in the future also that we have the assets to add ounces of gold to the portfolio.

Like I said, our target is 30%, 35% resource increase in 2010, but we’d also like to actually increase the reserves by the end of the year. So, we’ve got really the advantage from the production exploration profile to really bring ounces to the books so to speak and value to the investor. So, it’s early in the game on our stock being at $0.45, like you’ve mentioned this morning, where should it be. My target is, say by year’s end or early next year, we should be well over a dollar. That’s not saying that it’s going to double or triple by looking into a crystal ball, it’s just that we’ve got the asset, we’ve got the production profile and we’ve got the exploration and the management team to back it up.

WSR: We certainly do look forward to continuing to track the company’s growth, as well as the report on your continued progress. I’d like to thank you for taking the time to update our investors and good to have you on again.

David Russell: Thank you for having, Juan. Just always a pleasure to be with you.

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