Apollo vows to survive production crisis

Chapman said the company originally announced that it would go to the market for the additional financing either in October or November. However, the lack of available reserve grade ore at Montana Tunnels as the operators strip the new "L" pit proved to be the undoing of the company's second quarter results. Meanwhile, Montana Tunnels has been running incremental fringe ores, which are not part of the main ore body, through its mill. Chapman told Mineweb that the company would have lost $4 million had it not processed the very low grade, incremental ores.

As a result, the mine's total cash cost price skewered upward to a steep $899 per ounce for the second quarter of this year, compared to $343/oz a year ago. The total cash cost for Apollo as a whole were $492/oz for the second quarter of this year, compared to $299/oz year ago, and $382/oz for the first six months of this year, up from $273/oz for the same period of 2003.

During a recent analysts' conference call, Wade Bristol, Apollo Vice President of Operations, said Montana Tunnels needs to finish its waste stripping, which will take another two months. Dick Nanna, Senior Vice President of Exploration and Development, said exploring drilling at Montana Tunnels has been suspended until funds are available.

To compound Apollo's production woes, leach times have increased at Florida Canyon due to the higher elevation of its leach pad. As a result 5,000 ounces of gold "were getting hung up in pad inventory," according to Bristol. In response to a question from analyst Jeremy Hampton, Russell said the current value of the 70,000 ounces of gold contained in the ore on the heap leach pad is $30 million. But, he added, it would take two years to get all the ounces of out the leach pad. Total cash cost per ounce at Florida Canyon for the second quarter of this year were $361/oz. compared to $326/oz a year ago. Gold production was 18,442 ounces for the second quarter of 2004 at the facility. Florida Canyon is forecast to product 18,000 ounces of gold during the third quarter and 21,000 ounces in the fourth quarter at an average total cash cost of $340/oz.

Meanwhile, Apollo will not sell its current hedge position because it would lose money on the transaction, according to Mel Williams, Senior Vice President of Finance and Corporate Development. During the first half of this year, the hedge position was reduce by 37,862 ounces leaving an outstanding balance of 42,000 ounces as of June 30, 2004, with a mark to market loss of $2.2 million. This position runs through April 2005.

ANY GOOD NEWS?

So what's the good news, if any? Russell said the new Standard Mine, located four miles from Florida Canyon is ahead of schedule. Pad earthworks and lining will be completed this month. Production of the first ounces of gold are scheduled for November with a forecasted 2004 production of 10,000 ounces at an estimated cash cost of $225 per ounce. Bristol told analysts that the Standard Mine will have a "much lower" strip ratio and "a quite a bit shorter haul distance than Florida Canyon. In fact, ore mined at Florida Canyon could be leached within the new Standard facility, which has "significantly better economics than Florida Canyon," he added. Florida Canyon has been operating for a number of years.

Apollo Gold is gambling its future on the Black Fox advanced exploration project, which Nanna called the "cornerstone project" for the company. The final feasibility study for the project is forecast to be completed during the first quarter of 2005. Nanna said the revised closure plan has been accepted by Canadian regulators and financial assurances are in place. To date, 17,000 meters have been drilled underground on the property and a 920 meter underground drift was completed during the second quarter of this year. Surface drilling now totals 35,000 meters.

The $15 million to $20 million in financing which Apollo hopes to finalized in September will be used for capital and development programs at Montana Tunnels, $4.2 million for Black Fox, $2 million for the Standard Mine, and $1.5 million for the Huizopa exploration project in Mexico. Current liabilities were reported as $13 million as of June 30, 2004, compared to $13.83 million as of December 31, 2003. The company has $12.5 million in cash and short-term investments as of June 30, 2004. External financing is needed to progress Black Fox through feasibility, begin exploration drilling at the Huizopa project, finished stripping at Montana Tunnels and bring the mine into a cash positive flow, and complete construction of the standard mine.

An exploration camp has been erected at Huizopa, but the project is located in a remote area with access mainly by helicopter or an eight-hour horseback ride, according to Nanna.

So, what happens if Apollo Gold doesn't get the financing? Analyst Craig Miller asked if the company would declare bankruptcy. Williams responded that "we are confident that we are getting the financing." If not, the company will fall back on alternatives. Russell said the company can slow mining down at Florida Canyon, increase its leach pad ore, and generate cash. Black Fox and Huizopa would be placed on hold.

Chapman told Mineweb that the current operating and developing mines do allow Apollo Gold the luxury of discretionary spending. The share price has dropped below a dollar for only about two to three weeks, he added. Therefore, Apollo "is not panicked yet," he declared. Russell told Mineweb that he doesn't like the stock to "be beat down" because the market has panicked over Apollo's production problems. Nevertheless, the two men firmly believe they are weeks away from final signatures on the financing, and desperately needed production at Montana Tunnels, forecast at 6,700 ounces of gold during the third quarter and 14,300 ounces of gold in the fourth quarter. Stripping during the second quarter has cost $4.3 million or 80-cents per ton.

IF ALL ELSE FAILS...The absolute last option for Apollo Gold, its management insists--only when everything else aforementioned in this story fails--is filing for bankruptcy.  

Thank-you for your interest in Apollo Gold.

To answer your question - we are as concerned about the stock price as anyone. Nothing has changed with the assets - as a matter of fact we have made operational changes at the Nevada operations to cut costs and increase efficiencies and Montana Tunnels is near the end of the stripping program for the south wall and ready to turn cash positive in 2005. Our current cash position is sufficient to maintain our current operations and we are working on a financial instrument to allow the continued aggressive exploration program and other discretionary spending programs. We anticipate closing the new financing by the end of September.

The Black fox project continues to demonstrate significant gold grades in the core drilling program with the permitting and feasibility study programs underway.

Our internal net asset values for the company remain at approximately US$ 243 million which is approximately US$ 2.78 per share. With a closing share price for Thursday of US$ 0.54 / share we estimate that there is a 81% discount.

I wish I could be more helpful in explaining the unrealistic stock price - we are continuing our investigation.

If you have any other questions or comments please feel free to get in touch.

Thanks,

Dave Young  

Subscribers to the Debenture will also receive share purchase warrants of the Company. For each Debenture purchased, 600 warrants will be issued. Each warrant will entitle the holder to purchase a share of the Company stock at a price of US $0.80 for the period of three years from the closing of the Debenture
Offering.

Closing of the Debenture Offering is expected to occur on November 16, 2004, or such alternate date as may be agreed upon by the Company and Regent.

The closing of the Debenture Offering and the Bridge Financing are subject to certain conditions, including all required regulatory approvals and the completion of definitive documentation.

This press release is not an offer of securities for sale in the United States. The securities described herein may not be offered or sold in the United States absent registration or an exemption from registration, and any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the Company and that will contain detailed information about the Company and management as well as financial
statements. This release shall not constitute an offer to sell or solicitation of an offer, solicitation or sale would be unlawful.

Apollo is a gold mining company with operating mines in Nevada and Montana, an advanced-stage development project, Black Fox, along the productive Destor-Porcupine Fault east of the Timmins Gold Camp in Ontario, Canada, and an early-stage exploration project in the Sierra Madre Gold Belt in Chihuahua, Mexico, called the Huizopa project.