Add
AGT to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| AGT > SEC Filings for AGT > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
All Dollar amounts are expressed in United States Dollars.
The following discussion and analysis should be read in conjunction with ''Management's Discussion and Analysis of Financial Condition and Results of Operations'' contained in our Annual Report on Form 10-K for the year ended December 31, 2008 as well as with the consolidated financial statements and related notes and the other information appearing elsewhere in this report. As used in this report, unless the context otherwise indicates, references to ''we,'' ''our,'' "us," the "Company" or ''Apollo'' refer to Apollo Gold Corporation and its subsidiaries collectively. The financial statements in this Form 10-Q have been prepared in accordance with generally accepted accounting principles in Canada (Canadian GAAP). For a reconciliation to GAAP in the United States (U.S. GAAP), see Note 18 to the consolidated financial statements set forth above.
In this Form 10-Q, the terms "cash operating cost," "total cash cost" and "total production cost" are non-GAAP financial measures and are used on a per ounce of gold sold basis. Cash operating costs per ounce is equivalent to direct operating cost as found on the Consolidated Statements of Operations, less production royalty expenses and mining taxes but includes by-product credits for payable silver, lead, and zinc production. Total cash costs is equivalent to cash operating costs plus production royalties and mining taxes. The term "total production costs" is equivalent to total cash costs plus non-cash costs including depreciation and amortization. See "Reconciliation of Cash Operating and Total Production Costs Per Ounce" below. References in this Form 10-Q to "$" are to United States dollars. Canadian dollars are indicated by the symbol "Cdn$".
Certain prior period figures have been reclassified to conform to the current period presentation. In particular, for the three months ended March 31, 2008, $0.5 million that was recorded as cash inflows from investing activities has been reclassified to operating activities in connection with proceeds from the sale of derivative contracts.
BACKGROUND AND RECENT DEVELOPMENTS
We are principally engaged in gold mining including extraction, processing, refining and the production of other co-product metals, as well as related activities including exploration and development of mineral deposits principally in North America. We own Black Fox, an open pit mine and mill located in the Province of Ontario, Canada (the "Black Fox project"). The Black Fox project consists of an open pit mine site situated seven miles east of Matheson and a mill complex 12 miles west of Matheson. Mining of ores from the open pit at the Black Fox project began in March 2009 and milling operations commenced in April 2009. The Black Fox project also includes an underground mine, of which we expect will commence mining operations in 2011.
We are the operator of the Montana Tunnels mine, which is a 50% joint venture with Elkhorn Tunnels, LLC ("Elkhorn"). The Montana Tunnels mine is an open pit mine and mill located near Helena, Montana, which produced gold doré and lead-gold and zinc-gold concentrates. The Montana Tunnels mine ceased milling operations on April 30, 2009 and we placed the mine and mill on care and maintenance at that time.
We also own Mexican subsidiaries which own concessions at the Huizopa exploration property located in the Sierra Madres in Chihuahua, Mexico.
Black Fox
We commenced open pit operations at the Black Fox project with the first blast on March 18, 2009 and as of May 1, 2009, we had mined 240,000 tonnes of material of which 75,000 tonnes was ore. 16,000 tonnes of this ore has been crushed and transported to the Black Fox mill located 26 kilometers west of the mine site.
The commissioning of the upgraded mill, with the exception of the new ball mill, commenced in mid April utilizing an existing low grade ore stockpile and it has progressed steadily throughout the month of April. During the first week of May 2009, the new ball mill was brought online and we are now processing normal grade ores from the Black Fox open pit. We expect the throughput rate will be slowly increased towards our primary objective of 1,500 tonnes of ore per day by the end of May as previously forecast. The first gold pour and sales are scheduled to occur prior to the end of May 2009.
Capital expenditures for the three months ended March 31, 2009 were approximately $22 million, which included (1) $13 million towards the cost of upgrading the Black Fox mill to increase its throughput rate from 1,100 tonnes per day to 2,000 tonnes per day, (2) $3 million for contract pond and road construction at the mine site and (3) capitalized expenditures of $6 million including contract pre-stripping of the open pit.
On February 20, 2009, we entered into a $70 million project debt facility agreement ("Project Facility") with Macquarie Bank Ltd. and RMB Australia Holdings Limited ("the Banks"). See "Material Changes in Liquidity" below for a detailed discussion of the Project Facility.
As a part of the Project Facility, we entered into a hedging program with the Banks covering both gold sales and part of our Canadian dollar operating costs. Specifically, we have entered into a 250,430 ounce gold forward sales program which will be allocated across the four year term of the Project Facility. The weighted average price of the sales program is $876 per ounce of gold. We entered into a program to purchase Cdn$70.2 million for the equivalent of US$58 million, at an exchange rate of US$1 = Cdn$1.21, over a period covering the four year term of the Project Facility.
Montana Tunnels During the first quarter 2009, the mill processed 1,086,163 tons of ore, which had been stockpiled as of December 31, 2008, at an average throughput of 12,100 tons per day for the quarter. As at March 31, 2009, the ore stockpile sitting alongside the mill was sufficient for the mill to operate through April 30, 2009. Payable production in the first quarter was 7,700 ounces of gold, 99,000 ounces of silver, 2,392,000 pounds of lead and 8,185,000 pounds of zinc. Apollo's share of this production is 50%. Grade: Recoveries: Gold ounces per ton 0.0105 Gold 75.63% Silver ounces per ton 0.1611 Silver 76.75% Lead % 0.1600 Lead 89.86% Zinc % 0.5360 Zinc 85.17% |
Total cash costs for the first quarter 2009 on a by-product basis were $1,217 per ounce of gold and on a co-product basis they were $1,083 per ounce of gold, $16.87 per ounce of silver, $0.68 per lb of lead and $0.63 per lb of zinc. For the first quarter 2009, the higher cash costs per ounce of gold on a by-product basis compared to the first quarter 2008 are mainly the result of a 59% reduction in by-product credits due to a 58% decline in realized zinc prices and a 49% decrease in realized lead prices combined with a 44% decline in lead production.
The Montana Tunnels mine ceased milling operations on April 30, 2009 and we placed the mine and mill on care and maintenance at that time.
We have received all necessary permits to expand the current pit, which expansion plan we refer to as the M Pit project. The M Pit project would involve a 12 month pre-stripping program that would cost approximately $70 million, during which time no ore would be produced. We are not currently engaged in discussions with financing sources for our estimated $35 million share of the financing costs. The decision to proceed with the M Pit project must be agreed to by both Apollo and Elkhorn. We and our joint venture partner have not yet made a production decision on the M Pit project and such decision will depend, among other things, on securing financing for the $70 million and the prices of gold, silver, lead and zinc and available smelter terms.
Huizopa Project
Following the completion of our 2008 drilling program, we expect to publish a Canadian National Instrument 43-101 for the Huizopa project by the end of May 2009. This 43-101 will more fully describe the property and the drill results. This 43-101 will not contain any resources or reserves.
Production & Metals Price Averages
The table below summarizes our share of production of gold, silver and other
metals, as well as average metal prices and other key statistics, for each
period indicated:
Three months Three months
ended ended
March 31, March 31,
2009 2008
Metal Sales:
Gold (ounces) 3,865 6,933
Silver (ounces) 49,649 85,048
Lead (pounds) 1,195,994 2,124,695
Zinc (pounds) 4,092,730 4,431,797
Total revenue ($millions) $ 7.4 $ 15.9
Total cash and production costs on a by-product basis:
Total cash costs per ounce of gold $ 1,217 $ (3 )
Total production costs per ounce of gold $ 1,295 $ 132
Total cash costs on a co-product basis:
Total cash costs per ounce of gold $ 1,083 $ 561
Total cash costs per ounce of silver $ 16.87 $ 8.20
Total cash costs per pound of lead $ 0.68 $ 0.81
Total cash costs per pound of zinc $ 0.63 $ 0.62
Average metal prices:
Gold - London bullion mkt. ($/ounce) $ 909 $ 927
Silver - London bullion mkt. ($/ounce) $ 12.61 $ 17.68
Lead - LME ($/pound) $ 0.53 $ 1.31
Zinc - LME ($/pound) $ 0.52 $ 1.10
|
RECONCILIATION OF CASH OPERATING AND TOTAL PRODUCTION COSTS PER OUNCE
Three
months Three months
ended ended
March 31, March 31,
($ in thousands) 2009 2008
Gold ounces sold 3,865 6,933
Direct operating costs $ 8,402 $ 9,059
Less: Mining taxes, royalty expenses 327 491
By-product credits 3,698 9,079
Cash operating cost 4,377 (511 )
Cash operating cost per ounce of gold $ 1,132 $ (74 )
Cash operating costs 4,377 (511 )
Add: Mining taxes, royalty expenses 327 491
Total cash costs 4,704 (20 )
Total cash cost per ounce of gold $ 1,217 $ (3 )
Total cash costs 4,704 (20 )
Add: Depreciation & amortization (operations only) 300 934
Total production costs 5,004 914
Total production cost per ounce of gold $ 1,295 $ 132
|
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008
Revenue from the Sale of Minerals
Revenue for the three months ended March 31, 2009 decreased 54% to $7.4 million from $15.9 million for the same period in 2008. Decreased production levels and lower prices of lead, zinc and silver contributed to the lower revenues in the first quarter of 2009 compared to 2008.
Operating Expenses
Direct Operating Costs. Direct operating costs, which includes mining costs, processing costs and smelting and refining charges at the Montana Tunnels mine, for the three months ended March 31, 2009 decreased 7% to $8.4 million from $9.1 million for the three months ended March 31, 2008. This decrease is result of lower production in the first quarter of 2009 compared to the first quarter of 2008.
Depreciation and Amortization. Depreciation and amortization expenses were $0.3 million and $0.4 million for the three months ended March 31, 2009 and 2008, respectively.
General and Administrative Expenses. General and administrative expenses were $0.9 million and $0.9 million for the three months ended March 31, 2009 and 2008, respectively.
Accretion Expense - Accrued Site Closure Costs. Accrued accretion expense was $0.2 million for the three months ended March 31, 2009 compared to $0.2 million for the same period in 2008.
Amortization of Deferred Gain. Amortization of deferred gain relating to the transfer of assets and liabilities to Montana Tunnels joint venture was $0.5 million for the three months ended March 31, 2009 compared to $0.6 million for the same period in 2008.
Exploration and Business Development Expense. Expenses for exploration and development, consisting of drilling and related land expenses mainly at our Huizopa project in Mexico, totaled $0.2 million and $0.8 million for the three months ended March 31, 2009 and 2008, respectively. The lower expenditures in 2009 were a direct result of lower exploration activity in Mexico.
Total Operating Expenses. As a result of these expense components, our total operating expenses decreased 11% to $9.6 million for the three months ended March 31, 2009, from $10.8 million for the three months ended March 31, 2008.
Other Income (Expenses)
Interest Income and Interest Expense. We realized interest income of $0.1 million and interest expense of $1.0 million during the three months ended March 31, 2009 compared to $0.1 million in interest income and $1.1 million in interest expense during the three months ended March 31, 2008. Additionally, interest of $0.8 million was capitalized for the development of the Black Fox project, which included $0.2 million of accretion on the debt discount for the Project Facility.
Debt Transaction Costs. During the three months ended March 31, 2009, we recorded debt transaction costs and loss on modification of debt of $1.8 million. The $1.8 million costs are comprised of (1) $0.6 million for legal and other administrative costs associated with the Project Facility and (2) $1.2 million related to the issuance of common shares and warrants issued to a financial advisory services firm for services (See Note 8(c) to the financial statements for further details).
Loss on Modification of Convertible Debentures. During the three months ended March 31, 2009, we recorded a loss on modification of convertible debentures of $2.0 million. The $2.0 million loss is in connection with the issuance of shares and warrants in for the one year extension of $4.3 million face value Series 2007-A convertible debentures.
Unrealized Losses on Derivative Contracts. Unrealized losses on derivative contacts of $18.4 million for the three months ended March 31, 2009 are comprised of (1) a $0.5 million loss for the change in value recorded for gold, silver and lead contracts held as of December 31, 2008 that matured during the quarter, (2) a $16.1 million loss recorded for the fair value of gold forward sales contracts as of March 31, 2009 that were entered into on February 20, 2009 in connection with the Project Facility and (3) a $1.8 million loss recorded for the fair value of Canadian dollar contracts as of March 31, 2009 that were entered into on February 20, 2009 also in connection with the Project Facility.
Net Income (Loss)
As a result of the foregoing, the Company recorded a net loss of $24.8 million, or ($0.11) per share, for the three months ended March 31, 2009, as compared to net income of $3.7 million, or $0.02 per share, for the three months ended March 31, 2008.
MATERIAL CHANGES IN LIQUIDITY
To date, we have funded our operations primarily through issuances of debt and equity securities and cash generated by the Montana Tunnels joint venture. At March 31, 2009, we had cash of $5.2 million, compared to cash of $2.9 million at December 31, 2008. The increase in cash since December 31, 2008 is primarily the result of financing cash inflows of $17.3 million and operating cash inflows of $1.6 million, partially offset by investing cash outflows of $16.8 million.
During the three months ended March 31, 2009, net cash used in investing activities totaled $16.7 million. Capital expenditures for property, plant and equipment of $21.9 million were for the development of the Black Fox project. Cash inflows for restricted cash and certificates of deposit of $5.1 million were comprised of $10.0 million being release from restricted cash upon meeting certain requirements of our lenders which were offset by (1) a $1.7 million increase in restricted cash due to the balance of cash in a restricted account controlled by the Banks as of March 31, 2009 and (2) a $3.2 million increase in our environmental bonding posted during the quarter for Black Fox reclamation.
During the three months ended March 31, 2009, cash provided by financing activities was $17.3 million. Cash inflows of financing activities included drawdowns of the $38.0 million Project Facility ($41.5 million less the arrangement fee of $3.5 million) and the exercise of 2.8 million warrants at an exercise price of $0.176 per common share for proceeds of $0.5 million. These inflows were partially offset by cash outflows for repayment of debt of $21.2 million which included the repayment of a $15.0 bridge facility.
We estimate that with our March 31, 2009 cash balance of $5.2 million, the projected cash flows from Black Fox and the utilization of the undrawn amounts of the $70.0 million Project Facility, we will have sufficient funds to (1) fund the remainder of the 2009 work programs for the continued development of Black Fox, (2) fund $0.5 million of exploration at Huizopa, (3) repay $15.3 million principal due in 2009 on the Project Facility and (4) fund corporate overhead.
Black Fox $70 Million Project Facility
The Project Facility refinanced a $15 million bridge facility (the "Bridge Facility") entered into on December 10, 2008. Under the Project Facility agreement, we may borrow up to $70 million from the Banks at any time between February 20, 2009 and June 30, 2009, after which time any undrawn portion of the $70 million commitment will be cancelled and will no longer be available for drawdown. The Project Facility requires us to use proceeds from the facility only for: (i) the funding of the development, construction and operation of our Black Fox project; (ii) the funding of certain fees and costs due under the Project Facility and certain related project agreements; (iii) corporate expenditures of up to $7 million as approved by the Banks in our corporate budget ($3.7 million of which was used to repay the February 2007 convertible debentures, and interest thereon, not held by RAB Special Situation (Master) Fund Limited ("RAB")); (iv) repayment of $15.3 million principal and interest under the Bridge Facility and (v) any other purpose that the Banks approve.
The Project Facility was subject to an arrangement fee of $3.47 million, which was paid upon the initial drawdown under the Project Facility, and a commitment fee equal to 1% per annum calculated on a daily basis on the average monthly balance of the undrawn commitment, which is payable in arrears on March 31, 2009 and June 30, 2009. Amounts borrowed under the Project Facility bear interest at the London interbank offered rate ("LIBOR") plus 7% per annum and interest is payable monthly commencing March 31, 2009 and in accordance with the applicable interest period (currently monthly but may be monthly, quarterly or such other period agreed to by the Banks and us). Once fully drawn, the $70 million principal amount is repayable by us in accordance with the following schedule:
Repayment Date Repayment Amount September 30, 2009 $ 9,300,000 December 31, 2009 $ 6,000,000 March 31, 2010 $ 4,400,000 June 30, 2010 $ 4,000,000 September 30, 2010 $ 3,200,000 December 31, 2010 $ 2,200,000 March 31, 2011 $ 1,800,000 June 30, 2011 $ 2,700,000 September 30, 2011 $ 2,800,000 December 31, 2011 $ 2,900,000 March 31, 2012 $ 4,900,000 June 30, 2012 $ 6,800,000 September 30, 2012 $ 9,000,000 December 31, 2012 $ 3,800,000 March 31, 2013 $ 6,200,000 |
In connection with the Project Facility, we issued 34,836,111 warrants to the Banks (11,637,775 to RMB and 23,198,336 to Macquarie Bank) as consideration for financing services provided in connection with the Project Facility. Each warrant entitles the holder to purchase one of our common shares pursuant to the terms and conditions of the warrant. The warrants expire on February 20, 2013 and have an exercise price of Cdn$0.252 per warrant share, subject to customary anti-dilution adjustments. We have agreed to use our best efforts to register the resale of the shares issuable upon exercise of the warrants with the SEC promptly following the execution of the Project Facility. The warrants are in addition to the 42,614,254 warrants issued to the Banks in connection with the Bridge Facility. Following the issuance of the 34,836,111 warrants provided in connection with the Project Facility and assuming exercise by the Banks of all warrants held by them, RMB and Macquarie Bank would beneficially own 14.88% and 18.54%, respectively, of our issued and outstanding capital stock (on an otherwise undiluted basis).
Borrowings under the Project Facility are secured by a first lien on substantially all of our assets, including the Black Fox project, and the stock of our subsidiaries.
The Project Facility contains various financial and operational covenants that
impose limitations on us. These include, among other things, limitations and
covenants regarding: (i) the conduct of the Black Fox project and use of related
assets; (ii) the completion of the Black Fox project; (iii) the use of our
funds; (iv) compliance with applicable laws and permits; (v) mining rights at
the Black Fox project; (vi) our corporate budget; (vii) provision of
information; (viii) maintenance of accounting records; (ix) maintenance of
corporate existence; (x) compliance with certain material agreements; (xi)
capital maintenance requirements; (xii) payment of indebtedness and taxes;
(xiii) amendments to existing agreements relating to the Black Fox project or
entry into any such agreements; (xiv) amendments to governing documents; (xv)
disposition of or encumbrance of certain assets; (xvi) engaging in other lines
of business; (xvii) incurrence of indebtedness; (xviii) related party
transactions; (xix) creation of new subsidiaries; (xx) dividends and other
distributions; (xxi) maintenance of the property securing the Project Facility;
(xxii) insurance; (xxiii) subordination of intercompany claims; (xxiv)
tradability of the warrant shares under Canadian securities laws; (xxv)
registration of the warrant shares under United States securities laws; (xxvi)
maintenance of listing status on the TSX and status as a reporting issuer under
Canadian securities laws; (xxvii) maintenance of certain financial coverage
ratios and minimum project reserves; (xxviii) satisfaction of a minimum tangible
net worth test; and (xxix) maintenance of the hedging arrangements described
above; and (xxx) the operation of the Black Fox project in compliance with an
agreed cash flow budgeting and operational model.
Subject in certain cases to applicable notice provisions and cure periods, events of default under the Project Facility include, without limitation: (i) failure to make payments when due; (ii) certain misrepresentations under the Project Facility and certain other documents; (iii) breach of financial covenants in the Project Facility; (iv) breach of other covenants in the Project Facility and certain other documents; (v) loss of certain mineral rights; (vi) compulsory acquisition or expropriation of certain secured property by a government agency; (vii) certain cross-defaults on other indebtedness of our company; (viii) entry of certain judgments against us that are not paid or satisfied; (ix) enforcement of encumbrances against our material assets (or any such encumbrance becomes capable of being enforced); (x) events of liquidation, receivership or insolvency of our company; (xi) maintenance of listing status on the TSX or NYSE Amex and status as a reporting issuer under Canadian securities laws; or (xii) occurrence of any event which has or is reasonably likely to have a material adverse effect on our assets, business or operations, our ability to perform under the Project Facility and other transaction documents, the rights of the Banks or the enforceability of a transaction document. The Project Facility provides that in the event of default, the Banks may declare that the debts and monetary liabilities of our company are immediately due and payable and/or cancel the credit facility and foreclose on our assets.
As at March 31, 2009, the Company was in compliance with the various financial and operational covenants of the Project Facility.
Extension of maturity date for February 2007 convertible debentures held by RAB
On February 23, 2007, we concluded a private placement pursuant to which we sold $8,580,000 aggregate principal amount of convertible debentures due February 23, 2009. Each $1,000 principal amount of the February 2007 convertible debentures was convertible at the option of the holder into 2,000 of our common shares, at any time until February 23, 2009. Additionally, each $1,000 principal amount of the February 2007 convertible debentures included 2,000 common share purchase warrants, entitling the holder to purchase one of our common shares at an exercise price of $0.50 per share, with such accompanying warrants expiring February 23, 2009. We filed a Form 8-K with the SEC on February 26, 2007 disclosing the terms of the February 2007 convertible debentures, the warrants and the private placement pursuant to which such securities were issued.
RAB owns $4,290,000 principal amount of February 2007 convertible debentures (on which $772,200 of interest was accrued and unpaid on the maturity date of February 23, 2009) and 8,580,000 accompanying warrants. We and RAB agreed to extend the original maturity date of the February 2007 convertible debentures . . .
|
|