Attached files
| file | filename |
|---|---|
| 8-K - APOLLO GOLD CORP | v175329_8k.htm |
| EX-99.2 - APOLLO GOLD CORP | v175329_ex99-2.htm |
| EX-23.1 - APOLLO GOLD CORP | v175329_ex23-1.htm |
EXHIBIT
99.1
SELECTED
FINANCIAL DATA
The
following table sets forth selected historical consolidated financial data for
Apollo Gold Corporation as of December 31, 2008, 2007, 2006, 2005, and 2004,
derived from our audited financial statements. The data set forth
below should be read in conjunction with, and is qualified in its entirety by
reference to, our financial statements and notes thereto included elsewhere in
this Form 8-K and with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Summary
of Financial Condition
(In
thousands of U.S. dollars, except per share data)
|
Canadian GAAP
|
Years Ended December 31,
|
|||||||||||||||||||
|
2008 (1)
|
2007 (1)
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Statements
of Operations Data
|
||||||||||||||||||||
|
Exploration
and business development
|
$ | 3,185 | $ | 2,430 | $ | 1,033 | $ | 918 | $ | 1,051 | ||||||||||
|
Operating
loss
|
(6,981 | ) | (7,181 | ) | (5,153 | ) | (9,254 | ) | (9,020 | ) | ||||||||||
|
Loss
from continuing operations
|
(6,759 | ) | (8,451 | ) | (7,603 | ) | (11,487 | ) | (9,504 | ) | ||||||||||
|
Income
(loss) from discontinued operations
|
8,355 | 10,867 | (7,984 | ) | (10,721 | ) | (21,503 | ) | ||||||||||||
|
Net
income (loss)
|
1,596 | 2,416 | (15,587 | ) | (22,208 | ) | (31,007 | ) | ||||||||||||
|
Net
income (loss) per share, basic and diluted
|
||||||||||||||||||||
|
Continuing
operations
|
(0.03 | ) | (0.06 | ) | (0.06 | ) | (0.11 | ) | (0.12 | ) | ||||||||||
|
Discontinued
operations
|
0.04 | 0.08 | (0.07 | ) | (0.11 | ) | (0.27 | ) | ||||||||||||
|
Total
|
$ | 0.01 | $ | 0.02 | $ | (0.13 | ) | $ | (0.22 | ) | $ | (0.39 | ) | |||||||
|
Balance
Sheets Data
|
At December
31,
|
|||||||||||||||||||
|
Total
assets
|
$ | 131,630 | $ | 75,073 | $ | 51,804 | $ | 62,545 | $ | 97,635 | ||||||||||
|
Long-term
debt, including current portion
|
29,575 | 13,313 | 8,900 | 7,272 | 6,750 | |||||||||||||||
|
Total
shareholders’ equity
|
73,755 | 42,873 | 28,243 | 32,441 | 47,221 | |||||||||||||||
|
U.S. GAAP
|
Years Ended December 31,
|
|||||||||||||||||||
|
2008 (1)
|
2007 (1)
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Statements
of Operations Data
|
||||||||||||||||||||
|
Revenue
from sale of minerals
|
$ | – | $ | – | $ | 10,177 | $ | 43,254 | $ | 38,254 | ||||||||||
|
Direct
operating costs
|
– | – | 15,361 | 48,357 | 52,473 | |||||||||||||||
|
Exploration
and business development
|
3,185 | 2,430 | 4,206 | 6,051 | 11,456 | |||||||||||||||
|
Operating
income (loss)
|
1,202 | (5,964 | ) | (15,813 | ) | (22,183 | ) | (36,302 | ) | |||||||||||
|
Income
(loss) from continuing operations
|
1,202 | (13,898 | ) | (11,813 | ) | (19,826 | ) | (38,792 | ) | |||||||||||
|
(Loss)
income from discontinued operations
|
– | – | (350 | ) | (4,907 | ) | 308 | |||||||||||||
|
Net
income (loss)
|
1,202 | (13,898 | ) | (12,163 | ) | (24,733 | ) | (38,484 | ) | |||||||||||
|
Net
earnings (loss) per share, basic and diluted
|
||||||||||||||||||||
|
Continuing
operations
|
0.01 | (0.10 | ) | (0.10 | ) | (0.19 | ) | (0.49 | ) | |||||||||||
|
Discontinued
operations
|
– | – | (0.00 | ) | (0.05 | ) | 0.00 | |||||||||||||
|
Total
|
$ | 0.01 | $ | (0.10 | ) | $ | (0.10 | ) | $ | (0.24 | ) | $ | (0.49 | ) | ||||||
|
Balance
Sheets Data
|
At December
31,
|
|||||||||||||||||||
|
Total
assets
|
$ | 86,262 | $ | 29,119 | $ | 19,042 | $ | 39,331 | $ | 77,749 | ||||||||||
|
Long-term
debt, including current portion
|
29,693 | 15,376 | 9,664 | 8,785 | 9,071 | |||||||||||||||
|
Total
shareholders’ equity
|
42,354 | 8,771 | 6,940 | 7,714 | 25,014 | |||||||||||||||
(1) Effective
December 31, 2006, the Montana Tunnels Mine is a 50/50 joint
venture. Under Canadian GAAP, the Montana Tunnels mine is reported as
a discontinued operation for all periods presented. As of and for the
years ended December 31, 2008 and 2007, the Montana Tunnels joint venture is
reported under the equity method for U.S. GAAP purposes. As of and
for the years ended December 31, 2006, 2005 and 2004, Montana Tunnels is
consolidated and included in continuing operation for U.S. GAAP
purposes.
-1-
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and related notes. The
financial statements have been prepared in accordance with generally accepted
accounting principles in Canada (“Canadian GAAP”). For a
reconciliation to generally accepted accounting principles in the U.S. (“U.S.
GAAP”), see Note 23 to the attached consolidated financial
statements. Unless stated otherwise, all dollar amounts are reported
in U.S. dollars.
BACKGROUND
AND RECENT DEVELOPMENTS
We are
principally engaged in gold mining including extraction, processing, refining
and the production of other by-product metals, as well as related activities
including exploration and development of mineral deposits principally in North
America.
During
the third quarter of 2009, the Company adopted a plan to dispose of Montana
Tunnels Mining, Inc. (“MTMI”), a previously reportable segment, which includes
the Montana Tunnels and Diamond Hill mines. The Montana Tunnels mine, a 50%
joint venture (“Montana Tunnels”), is an open pit mine and mill that produced
gold dore and lead-gold and zinc-gold concentrates, located in the State of
Montana. Montana Tunnels was placed under care and maintenance on April 30,
2009. The Diamond Hill mine, also located in the State of Montana, is currently
under care and maintenance. MTMI has therefore been classified as discontinued
operations and that change in classification was reported in our Form 10-Q for
the period ended September 30, 2009. We present MTMI in assets/liabilities of
discontinued operations in our Consolidated Financial Statements. Please refer
to Note 5(a) to our Notes to the Consolidated Financial Statements.
We own an
advanced stage development property, the Black Fox project, which is located
near Matheson in the Province of Ontario, Canada. The Black Fox
project consists of a mine site situated seven miles east of Matheson and the
recently acquired mill complex 12 miles west of Matheson. We expect
we will commence gold production at Black Fox in the second quarter
2009. We also own Mexican subsidiaries which own concessions at the
Huizopa exploration property located in the Sierra Madres in Chihuahua,
Mexico.
Corporate
Flow
Through Private Placement
On
December 31, 2008, we completed a private placement to Canadian purchasers of
3,000,000 common shares issued at Cdn$0.30 per share on a “flow through” basis
pursuant to the Income Tax Act
(Canada) for gross proceeds equal to Cdn$900,000. We used the
net proceeds from the sale of the flow through shares to fund exploration and
certain development expenditures at our Black Fox project.
In
consideration for finding the purchasers in the private placement, we paid a
cash finder’s fee of Cdn$40,500 (which is equal to 4.5% of the gross proceeds in
the private placement) to MAK Allen & Day Capital Partners. In
addition, in consideration for advisory services rendered in connection with the
private placement, we paid Haywood Securities Inc. an advisory fee equal to
Cdn$36,000 (which is equal to 4.0% of the gross proceeds in the private
placement), together with 255,000 common share purchase warrants representing
the number of our common shares as is equal to 8.5% of the number of flow
through shares sold to purchasers in the private placement. Each such
warrant is immediately exercisable at a price of Cdn$0.30 into one of our common
shares within twenty-four (24) months of closing of the private
placement.
-2-
Black
Fox Project Financing
In May 2008, Apollo retained Macquarie
Bank Ltd. (“Macquarie Bank”) and RMB Australia Holdings Limited (“RMB”) as joint
arrangers (the “Banks”) and underwriters for the Black Fox project finance
facility. The Banks conducted due diligence and project review with Apollo
throughout the remainder of 2008 and to ensure that development of the Black Fox
open pit mine and the upgrade of the mill complex continued on schedule, Apollo
and the Banks completed a $15 million bridge facility (the “Bridge Facility”) on
December 10, 2008, with each Bank making available 50% of the aggregate loan.
The Bridge Facility was subject to an arrangement fee of 5% and interest at
LIBOR plus 10% per annum. In addition, each of the Banks received 21,307,127
warrants, each warrant entitling the holder to purchase one common share at a
price of Cdn$0.221 per common share and exercisable for a four year
period.
On
February 20, 2009, we entered into a project facility agreement (“Project
Facility”) with the Banks. The Project Facility refinanced the $15 million
Bridge Facility under which we had drawn down $13.8 million as of the closing of
the Project Facility. Under the Project Facility agreement, we may borrow up to
$70,000,000 from the Banks at any time between February 20, 2009 and June 30,
2009, after which time any undrawn portion of the $70,000,000 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 $7,000,000 as
approved by the Banks in our corporate budget ($3,723,939 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
$15,341,345 under the Bridge Facility and (v) any other purpose that the Banks
approve.
The
Project Facility was subject to an arrangement fee of $3,465,551, 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 LIBOR
plus 7% per annum and interest is payable quarterly commencing March 31, 2009.
The 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 | ||
-3-
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 below; 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.
-4-
As a part
of the Project Facility, we and the Banks have entered into a hedging program
covering both gold sales and part of our Canadian dollar operating costs.
Specifically, we have entered into a 250,420 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. The foreign exchange hedge program was for the Canadian dollar
equivalent of $60 million, at an average exchange rate of US$1 = Cdn$1.21, over
a period covering the four year term 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
owned by RAB to February 23, 2010. Furthermore, RAB agreed that we
shall have the option to repay the $772,200 of accrued interest on RAB’s
February 2007 convertible debentures in either our common shares or
cash. We elected to pay the accrued interest in common shares and
issued 2,444,765 shares to RAB calculated by dividing the accrued interest owed
by the volume weighted average market price of our common shares as quoted on
the Toronto Stock Exchange during the five trading days ending February 23,
2009. In consideration for the foregoing, we agreed to (i) issue
2,000,000 common shares to RAB, (ii) extend the expiration date of the
accompanying warrants issued to RAB to March 5, 2010 and (iii) reduce the
exercise price of the accompanying warrants issued to RAB from $0.50 to
$0.25. The terms and conditions of the $3,148,100 aggregate principal
amount of February 2007 convertible debentures and accompanying warrants not
owned by RAB were not amended and we repaid the principal amount and accrued
interest thereon to the holders thereof on in cash February 23,
2009.
In
December 2008, we retained Haywood Securities Inc., (“Haywood”), to provide
financial and advisory services, including in connection with the repayment or
restructuring of the February 2007 convertible debentures. In
consideration for those services, we agreed to issue 1,000,000 of our common
shares to Haywood by February 28, 2009. In addition, the Black Fox
Project Facility constitutes an “alternative transaction” under the terms of our
agreement with Haywood, which required us to pay certain compensation to
Haywood. Specifically, we were obligated to compensate Haywood by
issuing to it 2,172,840 common shares and 2,567,901 common share purchase
warrants exercisable for a two year period at an exercise price of Cdn$0.256 per
share.
Early
repayment of debt facility with RMB
On July
1, 2008, we entered into an amendment to the October 2007 debt facility with RMB
pursuant to which we borrowed an additional $5,150,000 under that debt
facility. In connection therewith, we entered into additional put and
call contracts for gold, silver, lead and zinc.
-5-
On
October 23, 2008, we closed some of the additional put and call contracts
put in place in connection with the July 2008 amendment early since the current
value of the contracts exceeded the December 2008 repayment obligation of
$1,716,667 under the debt facility, and the proceeds therefrom of $2,010,000
were applied as follows:
|
1.
Repayment of facility principal
|
$ | 1,952,000 | ||
|
2.
Interest due December 31, 2008
|
$ | 49,300 | ||
|
3.
Fees
|
$ | 8,600 |
As of
March 20, 2009 and after giving effect to the $1,952,000 repayment of principal
described above and an additional $75,000 payment made on December 23, 2008, we
owed $2,762,000 under the October 2007 RMB debt facility, as amended, $1,717,000
of which is payable on March 31, 2009 and $1,045,000 on June 30,
2009.
Black
Fox
Reserves - On April 14, 2008,
we filed a Canadian National Instrument, NI 43-101 Technical
Report. The mineral reserves shown in the table below were calculated
based on a gold price of $650 per ounce.
Black
Fox Probable Reserve Statement as of December 31, 2008
|
Mining Method
|
Cutoff Grade
Au g/t
|
Tonnes
(000)
|
Grade
Au g/t
|
Contained
Au Ounces
|
||||||||||||
|
Open
Pit
|
1.0 | 4,350 | 5.2 | 730,000 | ||||||||||||
|
Underground
|
3.0 | 2,110 | 8.8 | 600,000 | ||||||||||||
|
Total
Probable Reserves
|
1,330,000 | |||||||||||||||
Purchase of the Stock Mill Complex
– On July 28, 2008, we completed the acquisition of the Stock
Mill Complex (now referred to as the Black Fox mill) from St Andrew for a
purchase price consisting of (i) $19.6 million cash (Cdn$20.1 million) and (ii)
the obligation to refund to St Andrew its bonding commitment at the mill complex
in the amount of approximately $1.1 million (Cdn$1.2 million) by July 28,
2009.
Mine Development - We have
received all necessary permits and approvals required to commence mining
activities for phase I of the open pit mine. In particular, we have
received Certified Closure Plan Approval, an Amended Certificate of Approval for
Industrial Sewage Works, and a Permit to Take Water (Surface and Ground
Water.)
Mining Operations - In October
2008, we awarded a contract for the removal of the glacial till material which
overlays the open pit. This work commenced on October 23, 2008 and is
scheduled to be completed in May 2009. Mining of the open pit ore and
waste was undertaken by our employees utilizing our fleet of equipment in March
2009. We expect that, by the second quarter of 2009, the open pit
will produce 1,500 tonnes of ore per day, which will be sufficient to feed the
mill.
Mill Complex - In the third
quarter 2008, we awarded GBM Engineering Ltd., of the UK, an EPCM (Engineering,
Procurement, Construction and Management) contract to increase throughput of the
mill’s historic throughput rate of 1,100 tonnes per day up to 2,000 tonnes per
day at a cost of approximately $22.0 million. The upgraded mill is
scheduled for commissioning in April 2009 and is expected to reach a throughput
rate of 1,500 tonnes per day in May 2009.
-6-
Huizopa
Project
On August
14, 2008, we announced the results of the core drilling program on the Puma de
Oro Exploration target. Twenty five NQ core holes were drilled on a
north-trending zone targeted for drilling based on Apollo’s geochemical sampling
and geologic mapping. Anomalous gold and silver was found in twenty of the holes
with six of the twenty holes having significant gold and silver values. We are
currently working on completing a Canadian National Instrument 43-101 for the
Huizopa property.
BUSINESS
STRATEGY AND DEVELOPMENT
2009
Forecasted Highlights:
We have
two properties: the Black Fox project and the Huizopa
project. Below is a summary of our expectations for these two
properties in 2009.
Black Fox Project – We started
mining from the Black Fox mine in March 2009 and expect to commission the
upgraded Black Fox Mill in April with an objective of reaching a throughput rate
of 1,500 tonnes per day by the end of May 2009. We estimate that we will mine
2,983,000 tonnes in 2009, 374,000 tonnes of which will be ore. The ore will be
crushed at the mine site and be transported to the Black Fox mill by a fleet of
contract trucks. Recoveries of gold are projected to be 95%. The mill will
produce a gold dore.
Huizopa Project – Following
the completion of our 2008 drilling program, we expect to publish a Canadian
National Instrument 43-101 for the Huizopa project during the second quarter of
2009. This 43-101 will more fully describe the property and the drill
results. This 43-101 will not contain any resources or
reserves.
APOLLO
GOLD CORPORATION
Results
of Operations Year Ended December 31, 2008 Compared to Year Ended December 31,
2007
Operating
Expenses.
Depreciation and
Amortization. Depreciation and amortization expenses were $0.1
million for the year ended December 31, 2008, compared to $0.1 million for
2007.
General and Administrative
Expenses. General and administrative expenses for the year
ended December 31, 2008 were $3.7 million compared to $4.6 million for the year
ended December 31, 2007. The decrease of $0.9 million is due to lower
legal expenses in 2008.
Exploration and Business
Development. Expenses for exploration and development, consisting of
exploration related expenses at our exploration properties, totaled $3.2 million
and $2.4 million for the years ended December 31, 2008 and 2007, respectively.
The increase is due primarily to increased exploration activity at the Huizopa
property.
Total Operating
Expenses. As a result of these expense components, our total
operating expenses for the year ended December 31, 2008 decreased 3% to $7.0
million from $7.2 million for the year ended December 31, 2007.
-7-
Other
Income (Expense).
Interest Income, Interest Expense
and Financing Costs. We realized interest income of $0.2 million for the
year ended December 31, 2008 compared to interest income of $0.5 million for the
year ended December 31, 2007 due to lower interest rates realized during 2008.
We incurred interest expense of $4.3 million during 2008 and $4.8 million during
2007. The decrease in interest expense is primarily the result of retiring the
Series 2004-B convertible debentures in December 2007. Financing costs of $0.7
million were recorded in 2007 in conjunction with the convertible debentures
issued February 2007.
Realized and Unrealized Gains on
Derivative Instruments. For the year ended December 31, 2008, we realized
gains of $5.5 million from gold, silver, lead and zinc derivative instruments
and recorded $1.6 million in unrealized losses for the fair value of gold,
silver, lead and zinc derivative instruments. For the year ended December 31,
2007, we realized gains of $0.4 million from lead and zinc derivative
instruments and recorded $2.1 million in unrealized gains for the fair value of
lead and zinc derivative instruments maturing in 2008.
Foreign Exchange Loss and
Other. Foreign exchange loss and other was $1.3 million and $0.2 million
for the years ended December 31, 2008 and 2007, respectively. For 2008, we
recorded $0.9 million for foreign exchange losses from cash balances not held in
United States dollars and $0.4 million for an other than temporary impairment
for auction rate securities. During 2007, we recorded $0.2 million in foreign
exchange losses.
Income Tax Recovery. For the
year ended December 31, 2008, we recorded a $1.9 million tax benefit resulting
from a $1.9 million benefit for the issuance of flow-through shares in
connection with the flow-through equity offering in August 2008 , but recorded
no other recovery for income taxes as the net loss carry forwards are fully
offset by a valuation allowance. For the year ended December 31, 2007, we
recorded a $1.4 million recovery of income taxes in connection with the
flow-through equity offering in October 2007, but recorded no other recovery for
income taxes as the net loss carry forwards were fully offset by a valuation
allowance.
Loss
from Continuing Operations.
As a
result of the foregoing, the Company had income from continuing operations of
$6.8 million, or $0.03 per share, for the year ended December 31, 2008, as
compared to a loss of $8.5 million or $0.06 per share, for the year ended
December 31, 2007.
Income
from Discontinued Operations.
For the
year ended December 31, 2008, we recorded income from discontinued operations of
$8.4 million, or $0.04 per share, compared with $10.9 million, or $0.08 per
share, for the year ended December 31, 2007 from activity of the Montana Tunnels
joint venture. Revenues associated with Montana Tunnels for the year ended
December 31, 2008, increased 21% to $46.4 million, compared to $38.5 million for
the year ended December 31, 2007. The increase in revenue is due to (i) higher
gold prices in 2008, (ii) a 46% increase in gold ounces produced and sold and
(iii) the fact that the mill was shut down during the first two months of 2007.
For the year ended December 31, 2008, direct operating costs, which include
mining costs, processing costs, smelting and refining charges, and care and
maintenance costs, increased 43% to $37.6 million, from $26.3 million for the
year ended December 31, 2007. This increase is a result of there being twelve
months of production in 2008 compared to the ten months in 2007 plus 54% higher
treatment charges and increased cost per ton of mining.
-8-
Net
Income for the Year.
As a
result of the foregoing, we recorded net income of $1.6 million, or $0.01 per
share for the year ended December 31, 2008, as compared to net income of $2.4
million, or $0.02 per share, for the year ended December 31, 2007.
Results
of Operations Year Ended December 31, 2007 Compared to Year Ended December 31,
2006
Operating
Expenses.
Depreciation and
Amortization. Depreciation and amortization expenses were $0.1 million
for the year ended December 31, 2007, compared to $0.1 million for
2006.
General and Administrative
Expenses. General and administrative expenses for the year ended December
31, 2007 were $4.6 million compared to $4.0 million for the year ended December
31, 2006. Stock-based compensation expense recorded during 2007 was $1.0
million, an increase of $0.5 million over 2006.
Exploration and Business
Development. Expenses for exploration and development, consisting of
exploration related expenses at our exploration properties, totaled $2.4 million
and $1.0 million for the years ended December 31, 2007 and 2006, respectively.
The increase in exploration expenses is due to increased activity at our Huizopa
property and the settlement of certain claims in relation to the Huizopa
property.
Total Operating Expenses. As
a result of these expense components, our total operating expenses for the year
ended December 31, 2007 increased 48% to $34.1 million from $23.0 million for
the year ended December 31, 2006. Most of this increase in costs is due to the
resumption of mining and milling operations at the Montana Tunnels
mine.
Other
Income (Expense).
Interest Income, Interest Expense
and Financing Costs. We realized interest income of $0.5 million for the
year ended December 31, 2007 compared to interest income of $0.1 million for the
year ended December 31, 2006 due to higher cash balances throughout the year. We
incurred interest expense of $4.8 million during 2007 and $2.4 million during
2006. The increase in interest expense is due to the accretion on the
convertible debentures issued in February 2007. Financing costs of $0.7 million
were recorded in 2007 in conjunction with the convertible debentures issued
February 2007.
Realized and Unrealized Gains on
Derivative Instruments. For the year ended December 31, 2007, we realized
gains of $0.4 million from lead and zinc derivative instruments and recorded
$2.1 million in unrealized gains for the fair value of lead and zinc derivative
instruments maturing in 2008. We held no derivative instruments in
2006.
Foreign Exchange Loss and
Other. We realized foreign exchange loss and other expenses of $0.2
million and $0.2 million during the years ended December 31, 2007 and 2006,
respectively, from cash balances not held in United States dollars.
Income Tax Recovery. We
recorded a $1.4 million recovery of income taxes in connection with the
flow-through equity offering in October 2007, but recorded no other recovery for
income taxes as the net loss carry forwards are fully offset by a valuation
allowance.
-9-
Loss
from Continuing Operations.
As a
result of the foregoing, the Company recorded a loss from continuing operations
of $8.5 million, or $0.06 per share, for the year ended December 31, 2007, as
compared to a loss of $7.6 million or $0.06 per share, for the year ended
December 31, 2006.
Income
(Loss) from Discontinued Operations.
For the
year ended December 31, 2007, we recorded income from discontinued operations of
$10.9 million, or $0.08 per share, compared with a loss of $8.0 million, or
$0.07 per share, for the year ended December 31, 2006 primarily from activity of
the Montana Tunnels joint venture. Revenues for the year ended December 31,
2007, all of which came from Montana Tunnels increased 278% to $38.5 million,
compared to $10.2 million for the year ended December 31, 2006. The increase in
revenue is due to milling higher grade ores, higher metal prices in 2007 and the
fact that the mill was shut down from May 12, 2006 through February 28, 2007.
For the year ended December 31, 2007, direct operating costs, which include
mining costs, processing costs, smelting and refining charges, and care and
maintenance costs, increased 71% to $26.3 million, from $15.4 million for the
year ended December 31, 2006. The increase in costs is due to the following
factors: (1) in 2006 mining was suspended until August, while mining occurred
during all of 2007 and (2) the resumption of milling operations at Montana
Tunnels on March 1, 2007 after being shut down since May 2006. These factors
were partially offset because, effective December 31, 2006, the Montana Tunnels
mine became a 50/50 joint venture, and therefore Apollo’s share of revenues and
direct operating costs was 50% during 2007.
Net
Income (Loss) for the Year.
For the
year ended December 31, 2007, we recorded net income of $2.4 million, or $0.02
per share, as compared to a net loss of $15.6 million, or $0.13 per share, for
the year ended December 31, 2006.
Summary
of Quarterly Results
|
2008 Quarter Ended In
|
2007 Quarter Ended In
|
|||||||||||||||||||||||||||||||
|
Dec
|
Sept
|
June
|
March
|
Dec
|
Sept
|
June
|
March
|
|||||||||||||||||||||||||
|
($ in thousands, except per share and total cash cost per ounce data)
|
||||||||||||||||||||||||||||||||
|
Operating
loss
|
$ | (1,476 | ) | $ | (1,606 | ) | $ | (2,188 | ) | $ | (1,711 | ) | $ | (2,174 | ) | $ | (1,219 | ) | $ | (1,070 | ) | $ | (2,718 | ) | ||||||||
|
Loss
from continuing operations
|
194 | (2,210 | ) | (1,616 | ) | (3,127 | ) | (207 | ) | (2,190 | ) | (2,163 | ) | (3,891 | ) | |||||||||||||||||
|
Income
from discontinued operations
|
(1,471 | ) | 2,758 | 287 | 6,781 | 2,717 | 4,307 | 4,599 | (756 | ) | ||||||||||||||||||||||
|
Net
(loss) income
|
(1,277 | ) | 548 | (1,329 | ) | 3,654 | 2,510 | 2,117 | 2,436 | (4,647 | ) | |||||||||||||||||||||
|
Net
(loss) income per share, basic and diluted
|
0.00 | 0.00 | (0.01 | ) | 0.02 | 0.02 | 0.01 | 0.02 | (0.03 | ) | ||||||||||||||||||||||
|
Gold
production in ounces (discontinued operations)
|
5,482 | 7,319 | 4,612 | 6,933 | 5,233 | 4,755 | 5,483 | 1,161 | ||||||||||||||||||||||||
Financial
Condition, Liquidity and Capital Resources
To date,
we have funded our operations primarily through issuances of debt and equity
securities and cash generated by the Montana Tunnels joint venture (discontinued
operations). At December 31, 2008, we had cash of $3.1 million,
compared to cash of $4.5 million at December 31, 2007. The decrease
in cash since December 31, 2007 is primarily the result of investing cash
outflows of $41.3 million, partially offset by operating cash inflows of $1.6
million and financing cash inflows of $39.5 million. Additionally,
there was a $1.2 million reduction in cash due to the effect of exchange rate
changes on cash.
-10-
During
the year ended December 31, 2008, net cash used in investing activities totaled
$41.3 million. Capital expenditures for property, plant and equipment of $32.1
million for the further development of the Black Fox project, which included
$20.6 million for the purchase of the Black Fox mill complex. Net cash used in
restricted cash and restricted certificates of deposit amounted to $12.2
million, of which $9.0 million was in connection with the $15 million Bridge
Facility pending satisfaction of certain conditions required by the Banks,
respecting the improvement of our capital liquidity position on terms
satisfactory to the Banks. Other investing activities included (1) restricted
certificate of deposit cash outflows of $3.3 million for additional bonding for
future reclamation at Black Fox and (2) investing outflows of $2.5 million for
discontinued operations. Additionally, there were cash inflows of $5.5 million
from settlement of gold, silver, lead and zinc derivative
contracts.
During
the year ended December 31, 2008, cash provided by financing activities was
$39.5 million. Net proceeds on issuance of shares and warrants were $26.3
million which consists of (1) $18.1 million for the unit offering completed July
24, 2008, (2) $7.5 million for the flow-through offering completed August 21,
2008 and (3) $0.7 million for the flow-through offering completed December 31,
2008. Proceeds from loans of $22.2 million were comprised of (1) $5.2 million
for an extension on an existing debt facility, (2) $15.0 million for the Bridge
Facility entered into on December 10, 2008, (3) $1.0 million for an equipment
lease and (4) funding from a margin loan of $1.0 million that is secured by
long-term investments (the $1.5 million face value auction rate securities).
Payments of notes payable accounted for cash outflows of $9.7 million. Also,
cash inflows of financing activities included the exercise of 3.3 million
warrants at an average exercise price of $0.43 per common share for proceeds of
$1.4 million. Financing cash inflows related to discontinued operations were
$0.4 million.
During
2008, we spent $38.2 million on the development of the Black Fox project,
including $20.6 million on the purchase of the Black Fox mill complex and $3.3
million on additional bonding. In addition to the $38.2 million spent in 2008,
we estimate that an additional $57 million of capital, including $8.4 million of
additional bonding, will be required to complete the project. As of December 31,
2008, we had capital commitments associated with the development of Black Fox
amounting to $17.1 million and were committed to post $9.0 million (Cdn$10.9
million) cash for environmental bonding at Black Fox.
Management
has performed a mineral property impairment test to assess whether there are
facts and circumstances that indicate potential impairment of the Montana
Tunnels joint venture (discontinued operations). Management has considered the
expected future gold, silver, lead and zinc prices, cost structures, the
reserves, resources and status of the Montana Tunnels joint venture and
financial plans and concluded that there was no impairment for the Montana
Tunnels joint venture as of December 31, 2008. However, the ongoing challenging
conditions in the financial markets, the commodity markets, and the related
uncertainty about the future business environment make an assessment of the
mid-to-long term performance by using estimates and assumptions extremely
difficult. The continuation of the global liquidity crisis, the commodity market
volatility and its wider implications for the operating environment of the
Company’s mining operation could result in an impairment of mineral properties
in the future.
We
estimate that with our December 31, 2008 cash balance of $3.1 million, the
projected cash flows from Black Fox and the Montana Tunnels mine joint venture
(discontinued operations), and utilization of the $70.0 million Project
Facility, we will have sufficient funds to (1) fund the 2009 work programs for
the continued development of Black Fox, including the capital commitments
discussed in the immediately preceding paragraph, (2) fund $0.7 million for
exploration at Huizopa, (3) repay the $3.7 million outstanding principal amount
of convertible debentures due February 2009 (including interest of $0.6
million), (4) repay $15.3 million principal due in 2009 on the Project Facility
and (5) fund corporate overhead.
-11-
Table
of Contractual Obligations
|
Payments Due by Period
|
||||||||||||||||||||
|
Contractual Obligations
(as of December 31, 2008)
|
Total
|
Less
Than
1 Year
|
1-3
Years
|
3-5
Years
|
More
than
5 Years
|
|||||||||||||||
|
(Thousands)
|
||||||||||||||||||||
|
Convertible
debentures
|
$ | 7,438 | $ | 3,148 | $ | 4,290 | $ | – | $ | – | ||||||||||
|
Interest
on convertible debentures
|
1,339 | 567 | 772 | – | – | |||||||||||||||
|
Capital
lease obligations
|
1,745 | 633 | 1,112 | – | – | |||||||||||||||
|
Operating
lease obligations
|
486 | 369 | 111 | 6 | – | |||||||||||||||
|
Purchase
obligations
|
17,094 | 17,094 | – | – | – | |||||||||||||||
|
Notes
payable and other current debt
|
18,954 | 18,954 | – | – | – | |||||||||||||||
|
Other
long-term liabilities reflected on the balance sheet (1)
|
16,369 | – | – | – | 16,369 | |||||||||||||||
|
(1)
|
Other
long-term liabilities represent asset retirement
obligations. Asset retirement obligations include several
estimates about future reclamation costs, mining schedules, timing of the
performance of reclamation work and the quantity of ore reserves which in
turn determine the ultimate closure date, which in turn impacts the
discounted amounts of future asset retirement liabilities. The
discounted value of these projected cash flows is recorded as “Accrued
site closure costs” of 10.6 million as shown on the balance sheet as of
December 31, 2008 (full value is $29.1 million before removing 50% joint
venture interest). The amount shown above is undiscounted to
show full expected cash requirements to Apollo (full value is $29.3
million before removing 50% joint venture interest). As of
December 31, 2008, restricted certificates of deposit of $12.0 million
($19.6 million before removing 50% joint venture interest) has been placed
in trust as security relating to the asset retirement
obligations.
|
Off
Balance Sheet Arrangements
We have
no off balance sheet arrangements as of December 31, 2008.
Environmental
Compliance
Our
current and future exploration and development activities, as well as our future
mining and processing operations, are subject to various federal, state and
local laws and regulations in the countries in which we conduct our activities.
These laws and regulations govern the protection of the environment,
prospecting, development, production, taxes, labor standards, occupational
health, mine safety, toxic substances and other matters. We expect to be able to
comply with those laws and do not believe that compliance will have a material
adverse effect on our competitive position. We intend to obtain all licenses and
permits required by all applicable regulatory agencies in connection with our
mining operations and exploration activities. We intend to maintain standards of
environmental compliance consistent with regulatory requirements.
Our
current environmental liabilities are at Black Fox. As of December 31, 2008, we
have accrued $1.4 million related to reclamation, an increase of $1.0 million
from December 31, 2007. These liabilities are covered by $3.8 million of
restricted cash at December 31, 2008. We have accrued the present value of
management’s estimate of the future liability as of December 31,
2008.
Also, we
assumed additional environmental liabilities when we purchased the Black Fox
mill complex which are currently recorded at $1.2 million, included in the $1.4
million above. We will be required to post a bond of Cdn$1.2 million by July 28,
2009 to replace the existing bond put in place by St Andrew.
-12-
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.
Our
management routinely makes judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. We have identified certain accounting
policies that we believe are most important to the portrayal of our current
financial condition and results of operations. Our significant accounting
policies are disclosed in Note 3 to the Consolidated Financial Statements
included in this Annual Report on Form 10-K.
Transition
to United States generally accepted accounting principles
During the year ended December 31,
2008, the Company initiated a plan to transition from accounting principles
generally accepted in Canada (“Canadian GAAP”) to accounting principles
generally accepted in the United States (“US GAAP”), as allowable under both
Canada and US securities laws. The transition is anticipated to be retroactive
and effective for the three years ended December 31, 2009, with initial
presentation of the consolidated financial statements prepared in accordance
with US GAAP to be filed with our Annual Report on Form 10-K for the fiscal year
ending December 31, 2009.
We are
currently developing our US GAAP change-over plan. Towards this end we have
retained qualified professional personnel to oversee and effect the conversion
process. It is expected that the plan will take into consideration, among other
things:
|
|
•
|
Changes
in note disclosures;
|
|
|
•
|
Information
technology and data system
requirements;
|
|
|
•
|
Disclosure
controls and procedures, including investor relations and external
communications plans related to the US GAAP
conversion;
|
|
|
•
|
Financial
reporting expertise requirements, including training of personnel;
and
|
|
|
•
|
Impacts
on other business activities that may be influenced by GAAP measures, such
as performance measures and debt
covenants.
|
Although it is not possible at this
time to quantify the impact of these factors, Note 23 of the consolidated
financial statements highlights those key areas likely to be impacted by changes
in accounting policy.
Revenue
Recognition
Revenue
from the sale of gold and co-products is recognized when the following
conditions are met: persuasive evidence of an arrangement exists;
delivery has occurred in accordance with the terms of the arrangement; the price
is fixed or determinable and collectability is reasonably
assured. Revenue for gold bullion is recognized at the time of
delivery and transfer of title to counter-parties. Revenue for lead
and zinc concentrates is determined by contract as legal title to the
concentrate transfers and include provisional pricing arrangements accounted for
as an embedded derivative instrument under Statement of Financial Accounting
Standards (“SFAS”) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended.
-13-
Stock
incentive plans
The
Company accounts for stock options using the fair value based method of
accounting for all stock-based awards. The Company uses the Black-Scholes option
pricing model to estimate fair value and records stock-based compensation in
operations over the vesting periods of the awards. If and when the stock options
are ultimately exercised, the applicable amounts of additional contributed
surplus are transferred to share capital.
Stripping
Costs
Stripping
costs incurred during the production phase of a mine are variable production
costs that are included in the costs of the inventory produced during the period
that the stripping costs. EIC-160, Stripping Costs Incurred in the
Production Phase of a Mining Operation, requires stripping costs that
represent a betterment to the mineral property to be capitalized and amortized
in a rational and systematic manner over the reserves that directly benefit from
the specific stripping activity. During the years ended December 31, 2008 and
2007, the Company capitalized $nil and $6.8 million in deferred stripping costs
and recorded amortization thereon in the amount of $3.7 million and $2.0
million, respectively. These amounts relate to Montana Tunnels and therefore are
reported under discontinued operations. Deferred stripping costs are amortized
using the units-of-production method over the expected life of the operation
based on the estimated recoverable gold equivalent ounces.
Reclamation
and closure costs
The
Company recognizes liabilities for statutory, contractual or legal obligations
associated with the retirement of property, plant and equipment, when those
obligations result from the acquisition, construction, development or normal
operation of the assets. Initially, a liability for an asset retirement
obligation is recognized at its fair value in the period in which it is
incurred. Upon initial recognition of the liability, the corresponding asset
retirement cost is added to the carrying amount of that asset and the cost is
amortized as an expense over the economic life of the related asset. Following
the initial recognition of the asset retirement obligation, the carrying amount
of the liability is increased for the passage of time and adjusted for changes
to the amount or timing of the underlying cash flows needed to settle the
obligation.
The present value of the reclamation
liabilities may be subject to change based on management’s current estimates,
changes in remediation technology or changes to the applicable laws and
regulations by regulatory authorities, which affects the ultimate cost of
remediation and reclamation.
Income
taxes
The
Company accounts for income taxes whereby future income tax assets and
liabilities are computed based on differences between the carrying amount of
assets and liabilities on the balance sheet and their corresponding tax values
using the enacted or substantially enacted income tax rates at each balance
sheet date. Future income tax assets also result from unused loss carryforwards
and other deductions. The valuation of future income tax assets is reviewed
annually and adjusted, if necessary, by use of a valuation allowance to reflect
the estimated realizable amount. Although the Company has tax loss carryforwards
(see Note 15 to the consolidated financial statements), there is uncertainty as
to utilization prior to their expiry. Accordingly, the future income tax asset
amounts have been fully offset by a valuation allowance.
-14-
Depreciation
and Depletion
Depreciation
is based on the estimated useful lives of the assets and is computed using
straight-line and unit-of-production methods. Depletion is computed using the
unit-of-production method. The units-of-production method under Canadian GAAP is
based on proven and probable ore reserves and a portion of resources expected to
be converted to reserves based on past results. As discussed above, our
estimates of proven and probable ore reserves and resources may change, possibly
in the near term, resulting in changes to depreciation, depletion and
amortization.
Impairment
of Long-Lived Assets
We review
the net carrying value of all facilities, including idle facilities, on a
periodic basis. We estimate the net realizable value of each property based on
the estimated undiscounted future cash flows that will be generated from
operations at each property, the estimated salvage value of the surface plant
and equipment and the value associated with property interests. These estimates
of undiscounted future cash flows are dependent upon the estimates of metal to
be recovered from proven and probable ore reserves and mineral resources
expected to be converted into mineral reserves (see discussion above), future
production cost estimates and future metals price estimates over the estimated
remaining mine life. If undiscounted cash flows are less than the carrying value
of a property, an impairment loss is recognized based upon the estimated
expected future cash flows from the property discounted at an interest rate
commensurate with the risk involved.
Environmental
Matters
When it
is probable that costs associated with environmental remediation obligations
will be incurred and they are reasonably estimable, we accrue such costs at the
most likely estimate. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study for such facility and are charged to provisions for
closed operations and environmental matters. We periodically review our accrued
liabilities for such remediation costs as evidence becomes available indicating
that our remediation liability has potentially changed. Costs of future
expenditures for environmental remediation are not discounted to their present
value unless subject to a contractually obligated fixed payment schedule. Such
costs are based on our current estimate of amounts that are expected to be
incurred when the remediation work is performed within current laws and
regulations. Recoveries of environmental remediation costs from other parties
are recorded as assets when their receipt is deemed probable.
Changes
in Accounting Pronouncements
During
the first quarter 2008, we adopted three new presentation and disclosure
standards that were issued by the Canadian Institute of Chartered Accountants
(“CICA”): Handbook Section 1535, Capital Disclosures (“Section
1535”), Handbook Section 3862, Financial Instruments –
Disclosures (“Section 3862”) and Handbook Section 3863, Financial Instruments –
Presentation (“Section 3863”). Section 1535 requires the disclosure of
both qualitative and quantitative information that enables users of financial
statements to evaluate (i) an entity’s objectives, policies and processes for
managing capital; (ii) quantitative data about what the entity regards as
capital; (iii) whether the entity has complied with any capital requirements;
and (iv) if it has not complied, the consequences of such non-compliance.
Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments –
Disclosure and Presentation, revising and enhancing its disclosure requirements
and carrying forward unchanged its presentation requirements for financial
instruments. Sections 3862 and 3863 place increased emphasis on disclosures
about the nature and extent of risks arising from financial instruments and how
the entity manages those risks.
-15-
During
the second quarter 2008, Handbook Section 1400, General Standards of Financial
Statement Presentation, was amended to include requirements to assess and
disclose an entity’s ability to continue as a going concern. The new
requirements were effective for interim and annual financial statements relating
to fiscal years beginning on or after January 1, 2008. The adoption of this
statement did not have an impact on our consolidated financial
statements.
During
the first quarter 2008, the Company adopted Handbook Section 3031 – Inventories, which replaces
the former Section 3030 – Inventories. Section 3031
establishes standards for the measurement and disclosure of inventories,
including the measurement of inventories at the lower of cost and net realizable
value, consistent use of either first-in, first-out (FIFO) or weighted average
cost formulas and the reversal of inventory write-downs previously recognized.
The Company has applied the new standard prospectively. The adoption of Section
3031 on January 1, 2008, did not have a material impact on the Company’s
financial condition or operating results.
Recent
Accounting Pronouncements
Effective
January 1, 2009, we will adopt Handbook Section 3064, Goodwill and Intangible
Assets, which replaces Section 3062, and establishes revised standards
for recognition, measurement, presentation and disclosure of goodwill and
intangible assets. Concurrent with the introduction of this standard, the CICA
restricted the application of EIC 27, Revenues and Expenditures in the
Pre-operating Period (“EIC 27”). We are evaluating the impact of the
adoption of this new Section on our consolidated financial
statements.
During
January 2009, the CICA issued Handbook Sections 1582, Business Combinations
(“Section 1582”), 1601, Consolidated Financial
Statements (“Section 1601”) and 1602, Non-controlling Interests
(“Section 1602”) which replaces CICA Handbook Sections 1581, Business Combinations, and
1600, Consolidated Financial
Statements. Section 1582 establishes standards for the accounting for
business combinations that is equivalent to the business combination accounting
standard under International Financial Standards (“IFRS”). Section 1582 is
applicable for the Company’s business combinations with acquisition dates on or
after January 1, 2011. Early adoption of this Section is permitted. Section 1601
together with Section 1602 establishes standards for the preparation of
consolidated financial statements. Section 1601 is applicable for our interim
and annual consolidated financial statements for the fiscal year beginning
January 1, 2011. Early adoption of this Section is permitted. If we choose to
early adopt any one of these Sections, the other two sections must also be
adopted at the same time. We are evaluating the impact of the adoption of these
new Sections on our consolidated statements.
RELATED
PARTY TRANSACTIONS
The
Company had the following related party transactions for the three years ended
December 31, 2008, 2007, and 2006, respectively.
|
2008
|
2007
|
2006
|
||||||||||
|
(Thousands)
|
||||||||||||
|
Legal
fees paid to two law firms, a partner of each firm is a director of the
Company
|
$ | 512 | $ | 381 | $ | 118 | ||||||
|
Consulting
services paid to a relative of an officer and director of the
Company
|
16 | 9 | 14 | |||||||||
These
transactions are in the normal course of business and are measured at the
exchange amount which is the consideration established and agreed to by the
related parties. In addition, the Company had the following related
party transactions:
-16-
|
|
·
|
Acquisition of Black Fox Mill
Complex from St Andrew Goldfields Ltd. On July 28, 2008,
we completed the acquisition from St Andrew Goldfields Ltd., at the time a
beneficial owner of more than ten percent (10%) of our common shares, (“St
Andrew”), of a mill and related equipment, infrastructure, property
rights, laboratory and tailings facilities, located near Timmins,
Ontario. This transaction is not a related party transaction
for accounting purposes.
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July 2008 Public Unit
Offering. On July 24, 2008, we completed an offering of
40,806,500 units for gross proceeds of Cdn$20,215,750 and
US$185,625. The net proceeds of the offering were approximately
Cdn$18,740,000, Cdn$14,500,000 of which were used to fund Apollo Gold’s
acquisition of St Andrews’ mill complex in Timmins, Ontario, with the
remainder used for the development of the our Black Fox project and for
general working capital. St Andrew, at the time a beneficial
owner of more than ten percent (10%) of our common shares, purchased
2,400,000 units in the offering. In addition, the following
officers and directors of Apollo participated in the
offering: David W. Peat (25,000 units); Robert W. Babensee
(20,000 units); Charles E. Stott (10,000 units); R. David Russell (100,000
units); Melvyn Williams (100,000 units) and Brent E. Timmons (40,000
units).
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Also,
a director of the Company participated in the private placement of flow-
through shares that we completed in October 2007 and purchased 54,545
flow-through shares in connection with the
offering.
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