SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
R
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2010
OR
£
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Commission
File Number: 001-31593
APOLLO
GOLD CORPORATION
(Exact
name of registrant as specified in its charter)
Yukon
Territory, Canada
|
Not
Applicable
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
5655
South Yosemite St., Suite 200
Greenwood
Village, Colorado 80111-3220
(Address
of principal executive offices) (Zip code)
Registrant’s
telephone number, including area code:
(720) 886-9656
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
R
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” and
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.:
Large
Accelerated Filer
¨
|
Accelerated
Filer
R
|
Non-Accelerated
Filer
¨
(do
not check if a smaller
reporting
company)
|
Smaller
Reporting Company
£
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
R
At May
10, 2010, there were 337,973,660 common shares of Apollo Gold Corporation
outstanding.
TABLE
OF CONTENTS
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Page
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4
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4
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5
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6
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7
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8
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9
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33
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42
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43
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43
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43
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44
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44
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44
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46
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Certification
of CEO Pursuant to Section 302
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Exhibit
31.1
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Certification
of CFO Pursuant to Section 302
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Exhibit
31.2
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Certification
of CEO and CFO Pursuant to Section 906
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Exhibit
32.1
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STATEMENTS
REGARDING FORWARD LOOKING INFORMATION
This
Quarterly Report on Form 10-Q contains forward looking statements as defined in
the
Private Securities
Litigation Reform Act of 1995
with respect to our financial condition,
results of operations, business prospects, plans, objectives, goals, strategies,
future events, capital expenditures, and exploration and development
efforts. Forward-looking statements can be identified by the use of
words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “intends,” “continue,” or the negative of such terms,
or other comparable terminology. These statements include comments
regarding:
|
·
|
the
timing, benefits and effects of the proposed business combination with
Linear Gold Corp.;
|
|
·
|
plans
for the development of and production at the Black Fox mine including,
without limitation, the timing of the development of the underground mine
at Black Fox;
|
|
·
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estimates
of future production at Black Fox;
|
|
·
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repayments
of indebtedness and our ability to meet our repayment obligations under
the Black Fox project finance
facility;
|
|
·
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our
exploration and development plans, including such plans for our Grey Fox,
Pike River and Huizopa projects;
|
|
·
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our
ability to repay the convertible debentures issued to RAB Special
Situations (Master) Fund Limited (“RAB”) due August 23,
2010;
|
|
·
|
the
future effect of issuances and registration for immediate resale of a
significant number of common share purchase warrants on our share
price;
|
|
·
|
liquidity
to support operations and debt
repayment;
|
|
·
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future
financing of projects, including our Grey Fox, Pike River and Huizopa
projects;
|
|
·
|
completion
of a Canadian National Instrument 43-101 for our exploration
properties;
|
|
·
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the
establishment and estimates of mineral reserves and
resources;
|
|
·
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daily
production, mineral recovery rates and mill throughput
rates;
|
|
·
|
total
production costs;
|
|
·
|
grade
of ore mined and milled from Black Fox and cash flows derived
therefrom;
|
|
·
|
anticipated
expenditures for development, exploration, and corporate
overhead;
|
|
·
|
timing
and issue of permits, including permits necessary to conduct phase II of
open pit mining at Black Fox;
|
|
·
|
expansion
plans for existing properties;
|
|
·
|
estimates
of closure costs and reclamation
liabilities;
|
|
·
|
our
ability to obtain financing to fund our estimated expenditure and capital
requirements;
|
|
·
|
factors
impacting our results of operations;
and
|
|
·
|
the
impact of adoption of new accounting
standards.
|
These
forward looking statements are subject to numerous risks, uncertainties and
assumptions including: completion of the proposed business combination with
Linear Gold Corp.; unexpected changes in business and economic conditions,
including the recent significant deterioration in global financial and capital
markets; significant increases or decreases in gold prices; changes in
interest and currency exchange rates including the LIBOR rate; timing and amount
of production; unanticipated changes in grade of ore; unanticipated recovery or
production problems; changes in operating costs; operational problems at our
mining properties; metallurgy, processing, access, availability of materials,
equipment, supplies and water; determination of reserves; costs and timing of
development of new reserves; results of current and future exploration and
development activities; results of current and future exploration activities;
results of future feasibility studies; joint venture relationships; political or
economic instability, either globally or in the countries in which we operate;
local and community impacts and issues; timing of receipt of government
approvals; accidents and labor disputes; environmental costs and risks;
competitive factors, including competition for property acquisitions;
availability of external financing at reasonable rates or at all; and the
factors discussed in our Annual Report on Form 10-K for the year ended December
31, 2009 under the heading “Risk Factors.” Many of these factors are
beyond our ability to control and predict. These factors are not
intended to represent a complete list of the general or specific factors that
may affect us. Except as required by securities law, we disclaim any
obligation to update forward looking statements, whether as a result of new
information, future events or otherwise.
ACCOUNTING
PRINCIPLES, REPORTING CURRENCY AND OTHER INFORMATION
Apollo
Gold Corporation prepares its consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) and publishes its financial statements in United States
dollars. This Quarterly Report on Form 10-Q should be read in
conjunction with our condensed consolidated financial statements and related
notes included in this quarterly report, as well as our annual financial
statements for the fiscal year ended December 31, 2009 included in our
Annual Report on Form 10-K.
Unless
stated otherwise, all dollar amounts are expressed in United States
dollars.
References
to “we,” “our,” “us,” the “Company” or “Apollo” mean Apollo Gold Corporation and
its consolidated subsidiaries, or to any one or more of them, as the context
requires.
NON-GAAP
FINANCIAL INFORMATION
In this
Quarterly Report on Form 10-Q, Apollo uses the terms “cash operating costs,”
“total cash costs” and “total production costs,” each of which are considered
non-GAAP financial measures as defined in the United States Securities and
Exchange Commission Regulation S-K Item 10 and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with U.S. GAAP. These terms are used by management to assess
performance of individual operations and to compare Apollo’s performance to
other gold producers.
The term
“cash operating costs” is used on a per ounce of gold 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.
The term
“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 and accretion on accrued site closure
costs.
This
information differs from measures of performance determined in accordance with
generally accepted accounting principles (GAAP) in Canada and the United States
and should not be considered in isolation or a substitute for measures of
performance prepared in accordance with GAAP. These measures are not
necessarily indicative of operating profit or cash flow from operations as
determined under GAAP and may not be comparable to similarly titled measures of
other companies. See Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, for a reconciliation of these
non-GAAP measures to our Statements of Operations.
PART I — FINANCIAL INFORMATION
ITEM 1.
|
FINANCIAL
STATEMENTS
|
These
condensed consolidated financial statements should be read in conjunction with
the financial statements, accompanying notes and other relevant information
included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2009 filed with the Securities and Exchange Commission on
March 17, 2010.
APOLLO GOLD CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands of U.S. dollars)
(Unaudited)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
CURRENT
|
|
|
|
Cash
|
|
$
|
1,931
|
|
|
$
|
–
|
|
Restricted
cash (Note 5)
|
|
|
17,695
|
|
|
|
6,731
|
|
Accounts
receivable and other
|
|
|
1,107
|
|
|
|
1,690
|
|
Prepaids
|
|
|
1,578
|
|
|
|
394
|
|
Derivative
instruments (Note 6 and Note 20)
|
|
|
8,167
|
|
|
|
1,961
|
|
Inventories
(Note 7)
|
|
|
8,718
|
|
|
|
8,189
|
|
Total
current assets
|
|
|
39,196
|
|
|
|
18,965
|
|
Derivative
instruments (Note 6)
|
|
|
–
|
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4,844
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Long-term
investments (Note 8)
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4,476
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|
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|
1,036
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Property,
plant and equipment
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113,561
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|
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116,171
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|
Investment
in Montana Tunnels joint venture (Note 14)
|
|
|
–
|
|
|
|
3,440
|
|
Restricted
certificates of deposit
|
|
|
15,318
|
|
|
|
14,805
|
|
TOTAL
ASSETS
|
|
$
|
172,551
|
|
|
$
|
159,261
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
CURRENT
|
|
|
|
|
|
|
|
|
Bank
indebtedness
|
|
$
|
–
|
|
|
$
|
328
|
|
Accounts
payable
|
|
|
5,395
|
|
|
|
6,789
|
|
Accrued
liabilities
|
|
|
2,245
|
|
|
|
2,129
|
|
Derivative
instruments (Note 6)
|
|
|
12,757
|
|
|
|
12,571
|
|
Current
portion of long-term debt (Note 9)
|
|
|
41,305
|
|
|
|
34,860
|
|
Total
current liabilities
|
|
|
61,702
|
|
|
|
56,677
|
|
Accrued
long-term liabilities
|
|
|
353
|
|
|
|
483
|
|
Derivative
instruments (Note 6)
|
|
|
30,849
|
|
|
|
31,654
|
|
Long-term
debt (Note 9)
|
|
|
34,094
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|
|
|
48,909
|
|
Equity-linked
financial instruments (Note10)
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|
|
17,305
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|
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|
27,318
|
|
Accrued
site closure costs
|
|
|
5,710
|
|
|
|
5,345
|
|
Future
income tax liability
|
|
|
450
|
|
|
|
1,304
|
|
TOTAL
LIABILITIES
|
|
|
150,463
|
|
|
|
171,690
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Common
stock – Nil par value, unlimited shares authorized, 337,973,660 and
264,200,927 shares issued and outstanding, respectively
|
|
|
230,450
|
|
|
|
202,769
|
|
Additional
paid-in capital
|
|
|
45,942
|
|
|
|
45,555
|
|
Accumulated
deficit
|
|
|
(254,304
|
)
|
|
|
(260,753
|
)
|
TOTAL
SHAREHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
22,088
|
|
|
|
(12,429
|
)
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
|
|
$
|
172,551
|
|
|
$
|
159,261
|
|
Subsequent
Event (Notes 6 and 20)
The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
APOLLO GOLD CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(U.S.
dollars and shares in thousands, except per share amounts)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
|
|
|
|
|
Revenue
from the sale of gold
|
|
$
|
17,626
|
|
|
$
|
–
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Direct
operating costs
|
|
|
9,984
|
|
|
|
–
|
|
Depreciation
and amortization
|
|
|
3,461
|
|
|
|
10
|
|
Accretion
expense – accrued site closure costs
|
|
|
175
|
|
|
|
–
|
|
General
and administrative expenses
|
|
|
1,949
|
|
|
|
932
|
|
Exploration
and business development
|
|
|
271
|
|
|
|
227
|
|
|
|
|
15,840
|
|
|
|
1,169
|
|
Operating
income (loss)
|
|
|
1,786
|
|
|
|
(1,169
|
)
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
54
|
|
|
|
40
|
|
Interest
expense (Note 12)
|
|
|
(3,342
|
)
|
|
|
(830
|
)
|
Debt
transaction costs
|
|
|
–
|
|
|
|
(1,239
|
)
|
Loss
on modification of convertible debentures (Note 9(b))
|
|
|
(513
|
)
|
|
|
(1,969
|
)
|
Linear
acquisition costs
|
|
|
(577
|
)
|
|
|
–
|
|
Fair
value change on equity-linked financial
instruments
(Note 10)
|
|
|
10,013
|
|
|
|
(4,753
|
)
|
Realized
(losses) gains on derivative instruments
|
|
|
(3,343
|
)
|
|
|
368
|
|
Unrealized
gains (losses) on derivative instruments
|
|
|
1,981
|
|
|
|
(18,418
|
)
|
Foreign
exchange gain and other
|
|
|
222
|
|
|
|
97
|
|
|
|
|
4,495
|
|
|
|
(26,704
|
)
|
Income
(loss) before income taxes and equity loss in Montana Tunnels joint
venture
|
|
|
6,281
|
|
|
|
(27,873
|
)
|
Income
taxes (Note 13)
|
|
|
869
|
|
|
|
73
|
|
Equity
loss in Montana Tunnels joint venture (Note 14)
|
|
|
(701
|
)
|
|
|
(624
|
)
|
Net
income (loss) and comprehensive income (loss) for the
period
|
|
$
|
6,449
|
|
|
$
|
(28,424
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income (loss) per share (Note 15)
|
|
$
|
0.02
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
Basic
weighted-average number of shares outstanding
|
|
|
276,461
|
|
|
|
226,459
|
|
Diluted
weighted-average number of shares outstanding (Note 15)
|
|
|
312,656
|
|
|
|
226,459
|
|
The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
APOLLO GOLD CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(U.S.
dollars and shares in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
222,860
|
|
|
$
|
189,451
|
|
|
$
|
2,234
|
|
|
$
|
48,241
|
|
|
$
|
(197,572
|
)
|
|
$
|
42,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(6,939
|
)
|
|
|
(1,531
|
)
|
|
|
(8,470
|
)
|
Shares
issued for services
|
|
|
5,173
|
|
|
|
1,553
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,553
|
|
Shares
issued in settlement of interest
|
|
|
2,445
|
|
|
|
772
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
772
|
|
Warrants
issued for services
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
961
|
|
|
|
–
|
|
|
|
961
|
|
Warrants
exercised
|
|
|
7,612
|
|
|
|
1,416
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,416
|
|
Shares
issued for cash and related compensation warrants
|
|
|
26,111
|
|
|
|
9,577
|
|
|
|
–
|
|
|
|
294
|
|
|
|
–
|
|
|
|
9,871
|
|
Expiration
of note warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,234
|
)
|
|
|
2,234
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based
compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
764
|
|
|
|
–
|
|
|
|
764
|
|
Net
loss and comprehensive loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(61,650
|
)
|
|
|
(61,650
|
)
|
Balance,
December 31, 2009
|
|
|
264,201
|
|
|
|
202,769
|
|
|
|
–
|
|
|
|
45,555
|
|
|
|
(260,753
|
)
|
|
|
(12,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services (Note 11(a)(i and iii))
|
|
|
2,693
|
|
|
|
1,039
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,039
|
|
Warrants
issued for services (Notes 9(b) and 11(a)(iii))
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
149
|
|
|
|
–
|
|
|
|
149
|
|
Warrants
exercised (Note 11(a)(ii))
|
|
|
8,580
|
|
|
|
2,145
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,145
|
|
Shares
issued for cash (Notes 4 and 11(a)(iv))
|
|
|
62,500
|
|
|
|
24,497
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
24,497
|
|
Stock-based
compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
238
|
|
|
|
–
|
|
|
|
238
|
|
Net
income and comprehensive income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,449
|
|
|
|
6,449
|
|
Balance,
March 31, 2010
|
|
|
337,974
|
|
|
$
|
230,450
|
|
|
$
|
–
|
|
|
$
|
45,942
|
|
|
$
|
(254,304
|
)
|
|
$
|
22,088
|
|
The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
APOLLO GOLD CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands of U.S. dollars)
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income (loss) for the period
|
|
$
|
6,449
|
|
|
$
|
(28,424
|
)
|
Items
not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,461
|
|
|
|
10
|
|
Stock-based
compensation
|
|
|
238
|
|
|
|
182
|
|
Shares
and warrants issued for services and payment of interest
|
|
|
599
|
|
|
|
4,020
|
|
Accretion
expense – accrued site closure costs
|
|
|
175
|
|
|
|
–
|
|
Accretion
expense – amortization of debt discount
|
|
|
1,583
|
|
|
|
–
|
|
Accretion
expense – convertible debentures
|
|
|
215
|
|
|
|
802
|
|
Interest
paid on convertible debentures
|
|
|
(772
|
)
|
|
|
(567
|
)
|
Unrealized
(gains) losses on derivative instruments
|
|
|
(1,981
|
)
|
|
|
18,418
|
|
Net
change in equity-linked financial instruments
|
|
|
(10,013
|
)
|
|
|
4,753
|
|
Other
|
|
|
193
|
|
|
|
(63
|
)
|
Income
taxes
|
|
|
(869
|
)
|
|
|
(73
|
)
|
Equity
investment in Montana Tunnels joint venture
|
|
|
589
|
|
|
|
624
|
|
Net
change in non-cash operating working capital items (Note
16)
|
|
|
(1,246
|
)
|
|
|
587
|
|
Earnings
distribution from Montana Tunnels joint venture
|
|
|
–
|
|
|
|
480
|
|
Net
cash (used in) provided by operating activities
|
|
|
(1,379
|
)
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Property,
plant and equipment expenditures
|
|
|
(1,062
|
)
|
|
|
(21,866
|
)
|
Restricted
cash and certificates of deposit, including bank
indebtedness
|
|
|
(11,292
|
)
|
|
|
8,170
|
|
Net
cash used in investing activities
|
|
|
(12,354
|
)
|
|
|
(13,696
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
on issuance of shares
|
|
|
24,497
|
|
|
|
–
|
|
Proceeds
from exercise of warrants
|
|
|
2,145
|
|
|
|
499
|
|
Proceeds
from debt
|
|
|
–
|
|
|
|
38,034
|
|
Repayments
of debt
|
|
|
(10,973
|
)
|
|
|
(20,937
|
)
|
Net
cash provided by financing activities
|
|
|
15,669
|
|
|
|
17,596
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
1,931
|
|
|
|
4,645
|
|
Cash,
beginning of period
|
|
|
–
|
|
|
|
–
|
|
Cash,
end of period
|
|
$
|
1,931
|
|
|
$
|
4,645
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
2,674
|
|
|
$
|
880
|
|
Income
taxes paid
|
|
$
|
–
|
|
|
$
|
25
|
|
See Note
16 for additional supplemental cash flow information.
The accompanying notes are an
integral part of these interim condensed
consolidated financial
statements.
APOLLO GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
These
interim condensed consolidated financial statements are prepared on the basis of
a going concern which assumes that Apollo Gold Corporation (“Apollo” or the
“Company”) will realize its assets and discharge its liabilities in the normal
course of business for the foreseeable future. To date the Company
has funded its operations through issuance of debt and equity securities and
cash generated by the Black Fox mine. The Company’s ability to
continue as a going concern is dependent on its ability to continue to issue
debt and/or equity securities, and/or continue to generate cash flow from the
Black Fox mine.
As of March 31, 2010, the Company has a
working capital deficiency of $22.5 million and an accumulated deficit of $254.3
million. As at March 31, 2010, the Company held cash of $1.9 million,
restricted cash of $17.7 million and had current debt of $41.3 million
consisting of (1) the current portion of the Black Fox project financing
facility (the “Project Facility”) (Note 9(a)) of $31.5 million, (2) the
outstanding principal and accrued interest due on the Series 2007-A convertible
debentures of $4.4 million (Note 9(b)), and (3) $5.4 million for capital leases
and other current debt. As a result, there is substantial doubt that
the Company will continue as a going concern.
On March
31, 2010, the Company entered into a definitive arrangement agreement (the
“Arrangement Agreement”) in respect of a business combination (the
“Arrangement”) with Linear Gold Corp. (“Linear”) pursuant to which the
businesses of Apollo and Linear would be combined by way of a court-approved
plan of arrangement (under the Business Corporations Act (Alberta) (“ABCA”) (See
Note 4).
In
addition, the Company and the two banks (the “Banks”) associated with the
Project Facility agreed to amend, subject to a number of conditions, the Project
Facility with a revised repayment schedule for 2010, as more fully described in
Note 9(a), which provides for repayments amounting to approximately $43.2
million in 2010, and would result in a balance owing to the Banks at December
31, 2010 of less than $26.8 million.
If the
Company is unable to generate sufficient cash flow from Black Fox, complete the
Arrangement, satisfy the conditions to the Banks’ revised repayment schedule,
and/or secure additional financing, it may be unable to continue as a going
concern and material adjustments would be required to the carrying value of
assets and liabilities and balance sheet classifications.
Apollo is
engaged in gold mining including extraction, processing, refining and the
production of other byproduct metals, as well as related activities including
the exploration and development of potential mining properties and acquisition
of mining claims. Apollo owns Black Fox, an open pit mine and mill
located near Matheson in the Province of Ontario, Canada (“Black
Fox”). Mining of ores at Black Fox began in March 2009, milling
operations commenced in April 2009, and commercial production commenced in late
May 2009. Exploration properties adjacent to the Black Fox mine
include the Grey Fox and Pike River properties.
Apollo
also owns Mexican subsidiaries which own concessions at the Huizopa exploration
project (the “Huizopa Project”), located in the Sierra Madres in Chihuahua,
Mexico. The Huizopa Project is subject to an 80% Apollo/20% Minas de
Coronado joint venture agreement. Currently the Company funds 100% of
exploration activity for the Huizopa Project.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
3.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
(a)
These
unaudited condensed consolidated interim financial statements have been prepared
in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)
and except as described in Note 19, conform in all material respects with
accounting principles generally accepted in Canada (“Canadian
GAAP”). The accounting policies followed in preparing these financial
statements are those used by the Company as set out in the audited financial
statements for the year ended December 31, 2009, except as disclosed in
(b)
below. Certain information and note disclosures normally included in
consolidated financial statements prepared in accordance with Canadian GAAP have
been omitted. These interim financial statements should be read
together with the Company’s audited financial statements for the year ended
December 31, 2009.
In the
opinion of management, all adjustments considered necessary for fair
presentation have been included in these financial
statements. Interim results are not necessarily indicative of the
results expected for the fiscal year.
(b)
|
Recently
adopted accounting pronouncements
|
In June
2009, the ASC guidance for consolidation accounting was updated to require an
entity to perform a qualitative analysis to determine whether the enterprise’s
variable interest gives it a controlling financial interest in a variable
interest entity (“VIE”). This analysis identifies a primary
beneficiary of a VIE as the entity that has both of the following
characteristics: (i) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and (ii) the obligation
to absorb losses or receive benefits from the entity that could potentially be
significant to the VIE. The updated guidance also requires ongoing
reassessments of the primary beneficiary of a VIE. The provisions of
the updated guidance are effective for the Company’s fiscal year beginning
January 1, 2010. The provisions of the updated guidance were adopted
January 1, 2010. The adoption had no impact on the Company’s
financial position, results of operations, or cash flows.
In
January 2010, the ASC guidance for fair value measurements and disclosure was
updated to require additional disclosures related to transfers in and out of
level 1 and 2 fair value measurements and enhanced detail in the level 3
reconciliation. The guidance was amended to clarify the level of disaggregation
required for assets and liabilities and the disclosures required for inputs and
valuation techniques used to measure the fair value of assets and liabilities
that fall in either level 2 or level 3. The updated guidance was
effective for the Company’s fiscal year beginning January 1, 2010, with the
exception of the level 3 disaggregation which is effective for the Company’s
fiscal year beginning January 1, 2011. The adoption had no impact on
the Company’s financial position, results of operations, or cash
flows. Refer to Note 17 for further details regarding the Company’s
assets and liabilities measured at fair value.
4.
|
PROPOSED
BUSINESS COMBINATION WITH LINEAR AND RELATED PRIVATE
PLACEMENT
|
General
. On March 9, 2010,
Apollo and Linear entered into a binding letter of intent (as amended on March
18, 2010, the “Letter of Intent”) pursuant to which (i) the businesses of Apollo
and Linear would be combined by way of a court-approved plan of arrangement (the
“Arrangement”) pursuant to the provisions of the ABCA and (ii) Linear would
purchase approximately 62,500,000 common shares (the “Purchased Shares”) of
Apollo at a price of Cdn$0.40 per common share for gross proceeds of Cdn$25.0
million (the “Private Placement”). The Private Placement was completed on March
19, 2010. As part of the Arrangement, the Apollo common shares issued to Linear
in this Private Placement will be cancelled without any payment upon completion
of the Arrangement. On March 31, 2010, Apollo, 1526735 Alberta ULC, an unlimited
liability company existing under the laws of the Province of Alberta and wholly
owned by Apollo (“Subco”), and Linear entered into a definitive arrangement
agreement (the “Arrangement Agreement”) with respect to the Arrangement. The
Arrangement Agreement supersedes the binding letter of intent entered into
between Apollo and Linear on March 9, 2010 (and as amended on March 18,
2010).
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Pursuant to the
Arrangement:
|
·
|
each
outstanding Linear common share will be exchanged for 5.4742 Apollo common
shares (the “Exchange Ratio”);
|
|
·
|
each
warrant to purchase a Linear common share (a “Linear Warrant”) outstanding
immediately prior to the effective time of the Arrangement (the “Effective
Time”) will be exchanged for a warrant to purchase an Apollo common share
(an “Apollo Warrant”) which will be exercisable to acquire, on the same
terms and conditions as were applicable to such Linear Warrant immediately
prior to the Effective Time, the number of Apollo common shares (rounded
to the nearest whole number) equal to the product of: (A) the number of
Linear common shares subject to such Linear Warrant immediately prior to
the Effective Time; and (B) 5.4742; the exercise price per Apollo common
share subject to any such Apollo Warrants shall be an amount (rounded to
the nearest cent) equal to the quotient of: (A) the exercise price per
Linear common share subject to such Linear Warrant immediately prior to
the Effective Time divided by (B) 5.4742;
and
|
|
·
|
each
outstanding option to purchase a Linear common share (“Linear Option”)
granted under Linear’s Stock Option Plan will be exchanged for options of
Apollo (the “Apollo Options”) granted under Apollo’s Stock Option Plan
which will be exercisable to acquire, on the terms and conditions set
forth in the Apollo Stock Option Plan, the number of Apollo common shares
(rounded to the nearest whole number) equal to the product of: (A) the
number of Linear common shares subject to such Linear Option immediately
prior to the Effective Time and (B) 5.4742; the exercise price per Apollo
common share subject to any such Apollo Option shall be an amount (rounded
to the nearest cent) equal to the quotient of: (A) the exercise price per
Linear common share subject to such Linear Option immediately prior to the
Effective Time divided by (B) 5.4742; provided that current employees of
Linear holding Linear Options whose employment is terminated in connection
with the Arrangement will have their Linear Options exchanged for Apollo
Options which shall expire on the earlier of: (i) the current expiry date
of the corresponding Linear Options; and (ii) the first anniversary of the
date of completion of the
Arrangement.
|
Upon consummation of the Arrangement,
the transaction is expected to be accounted for as an acquisition of a business
with Apollo being the acquirer. The shareholders of Linear
immediately prior to the Arrangement are expected to own approximately 47.8% of
the outstanding common stock of Apollo on a non-diluted basis and approximately
42.9% on a fully-diluted basis.
Board of Directors and other
Matters.
Upon consummation of the Arrangement, the Arrangement
Agreement contemplates that:
|
·
|
Apollo
and Linear will agree on a new name for Apollo;
and
|
|
·
|
The
Board of Directors of Apollo would consist of seven directors, which would
be composed of (i) Wade Dawe (the current Chief Executive Officer of
Linear), who would be nominated as the Chairman of the Board of Directors,
(ii) three current Apollo board members or Apollo nominees, (iii) two
Linear nominees and (iv) one nominee who shall be a technical person
mutually agreed upon by Apollo and
Linear.
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Conditions to Consummation of
Arrangement
. The Arrangement Agreement provides that each
party’s obligation to proceed with the Arrangement is subject to a number
of conditions precedent, including without limitation conditions
relating to (i) obtaining the necessary interim and final orders of the Court of
Queen’s Bench of Alberta (the “Court”), (ii) approval of the securityholders of
Linear and Apollo of the transactions set forth in the Arrangement Agreement for
which their approval is required under applicable law, (iii) approval of the
Toronto Stock Exchange and the NYSE Amex Equities Exchange to the listing of the
Apollo common shares to be issued in the Arrangement and the Apollo common
shares issuable upon exercise of the Apollo Options and Apollo Warrants issued
in the Arrangement, (iv) the effectiveness of a U.S. registration statement
registering the issuance of the Apollo common shares issuable upon exercise of
the Apollo Options and Apollo Warrants issued in the Arrangement under the
Securities Act and (v) other customary conditions typical for transactions of
this type.
Break Fee.
The
Arrangement Agreement provides that Apollo is required to pay a break fee of
Cdn$4.0 million if the Agreement is terminated (i) as a result the failure to
obtain the requisite Apollo shareholder approval or (ii) in certain
circumstances relating to Apollo’s receipt of a competing acquisition proposal
or if Apollo accepts a “superior proposal” meeting the requirements set forth in
the Arrangement Agreement. In addition, Linear is required to pay a
break fee of Cdn$4.0 million if the Arrangement Agreement is terminated (i) as a
result of the failure to obtain the requisite Linear shareholder approval or
(ii) in certain circumstances relating to Linear’s receipt of a
competing acquisition proposal or if Linear accepts a “superior proposal”
meeting the requirements set forth in the Arrangement Agreement.
Linear Private
Placement
Concurrently with the execution of the
Letter of Intent, Apollo and Linear entered into a subscription agreement (the
“Subscription Agreement”) providing for a Private Placement whereby Linear
purchased 62,500,000 common shares of Apollo at a price of Cdn$0.40 per common
share for gross proceeds of Cdn$25.0 million on March 19, 2010.
Pursuant to the Letter of Intent and
the Subscription Agreement (i) each of Macquarie Bank Limited and RMB Australia
Holdings Limited (collectively, the “Banks”) entered into a support agreement
pursuant to which each of the Banks agreed, among other things, to support and
vote in favor of the Arrangement; and (ii) each of the Banks entered into a
lock-up agreement, pursuant to which each of the Banks agreed, among
other things, not to, directly or indirectly, exercise or offer, sell, contract
to sell, lend, swap, or enter into any other agreement to transfer the economic
consequences of any of the Apollo common shares or common share purchase
warrants of Apollo held by them before December 31, 2010 (See Note 9(a) for
additional information about the Project Facility).
Restricted
cash consists of:
|
|
|
|
|
|
|
Restricted
cash, current
|
|
|
|
|
|
|
Project
Facility (a)
|
|
$
|
13,138
|
|
|
$
|
2,108
|
|
Unexpended
flow-through funds (b)
|
|
|
4,557
|
|
|
|
4,623
|
|
|
|
$
|
17,695
|
|
|
$
|
6,731
|
|
The
Restricted cash – Project Facility represents $17.7 million cash on deposit held
in restricted accounts, $4.6 million of which is designated for flow-through
exploration activity as described in (b) below. The balance may be
used to settle operational expenses at both Black Fox and the corporate office,
but requires approval from the Banks prior to use. The balance has
been classified as a current asset as it will be utilized within approximately
90 days of the period end to settle such operational expenses.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
(b)
|
Proceeds
from flow-through share offering
|
Notwithstanding
whether there is a specific requirement to segregate the funds, for accounting
purposes the funds received through the flow-through share offering completed on
July 15, 2009 which are unexpended at the consolidated balance sheet dates are
considered to be restricted and are not considered to be cash or cash
equivalents.
6.
|
DERIVATIVE
INSTRUMENTS
|
Fair
value of derivative instruments consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
dollar purchase contracts
|
|
$
|
–
|
|
|
$
|
8,167
|
|
|
$
|
8,167
|
|
|
$
|
–
|
|
|
$
|
6,805
|
|
|
$
|
6,805
|
|
Current
portion
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,961
|
)
|
|
|
(1,961
|
)
|
Long-term
portion
|
|
$
|
–
|
|
|
$
|
8,167
|
|
|
$
|
8,167
|
|
|
$
|
–
|
|
|
$
|
4,844
|
|
|
$
|
4,844
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
forward sales contracts
|
|
$
|
–
|
|
|
$
|
(43,606
|
)
|
|
$
|
(43,606
|
)
|
|
$
|
–
|
|
|
$
|
(44,225
|
)
|
|
$
|
(44,225
|
)
|
Less: Current
portion
|
|
|
–
|
|
|
|
12,757
|
|
|
|
12,757
|
|
|
|
–
|
|
|
|
12,571
|
|
|
|
12,571
|
|
Long-term
portion
|
|
$
|
–
|
|
|
$
|
(30,849
|
)
|
|
$
|
(30,849
|
)
|
|
$
|
–
|
|
|
$
|
(31,654
|
)
|
|
$
|
(31,654
|
)
|
On
February 20, 2009, the Company entered into a $70.0 million Project Facility
with two banks relating to Black Fox (Note 9(a)). As required by the
terms of the Project Facility, the Company entered into a derivative program
covering a portion of the Company’s forecasted gold sales and forecasted
Canadian dollar operating costs, with the Banks acting as
counterparties.
The
original derivative program included gold forward sales of 250,430 ounces,
representing approximately 60% of the Company’s forecasted sales beginning in
May 2009 and continuing over the four year term of the Project
Facility. The weighted average price of the sales program is $876 per
ounce of gold. During the three months ended March 31, 2010, the
Company realized a $3.8 million loss on the settlement of gold futures contracts
covering 15,796 ounces of gold.
The
original foreign exchange derivative program was for the Canadian dollar
equivalent of $58 million representing approximately 30% of the Company’s
forecasted Canadian dollar operating costs beginning in May 2009 and continuing
over the four year term of the Project Facility. The weighted average
price of the sales program is Cdn$1.21 per $1. During the three
months ended March 31, 2010, the Company realized gains of $0.4 million for the
settlement of the Canadian dollar equivalent of $2.8 million foreign exchange
contracts. The remaining amounts of the Canadian dollar foreign
exchange contracts were unwound early on April 23, 2010 for proceeds of $8.2
million (See Note 20).
Settlements
of the remaining gold forward sales contracts and Canadian dollar foreign
exchange contracts as of March 31, 2010 are as follows (table not in
thousands):
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
|
|
Gold Forward Sales Contracts
|
|
|
Canadian Dollar Foreign Exchange Contracts (1)
|
|
|
|
|
|
|
Average Contract
Price Per Ounce
|
|
|
Pay US Dollars
(Millions)
|
|
|
|
|
|
Purchase
Canadian Dollars
(Millions)
|
|
2010
|
|
|
41,850
|
|
|
$
|
876
|
|
|
$
|
10.6
|
|
|
$
|
1.21
|
|
|
$
|
12.9
|
|
2011
|
|
|
54,704
|
|
|
$
|
876
|
|
|
$
|
16.1
|
|
|
$
|
1.21
|
|
|
$
|
19.5
|
|
2012
|
|
|
73,458
|
|
|
$
|
876
|
|
|
$
|
16.3
|
|
|
$
|
1.21
|
|
|
$
|
19.7
|
|
2013
|
|
|
14,523
|
|
|
$
|
876
|
|
|
$
|
4.1
|
|
|
$
|
1.21
|
|
|
$
|
4.9
|
|
|
|
|
184,535
|
|
|
|
|
|
|
$
|
47.1
|
|
|
|
|
|
|
$
|
57.0
|
|
(1) The
Canadian dollar foreign exchange contracts were unwound early on April 23, 2010
(Note 20).
The
Company did not apply hedge accounting to these transactions. As a
result, the Company accounts for these derivative instruments as investments and
records the changes in unrealized gains and losses in the consolidated statement
of operations each period. The fair value of these derivatives is
recorded as an asset or liability at each balance sheet date as
follows:
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments under ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
forward contracts
|
|
n/a
|
|
|
$
|
–
|
|
|
n/a
|
|
|
$
|
–
|
|
|
Derivative
instruments
|
|
|
$
|
43,606
|
|
|
Derivative
instruments
|
|
|
$
|
44,225
|
|
Canadian
currency forward contracts
|
|
Derivative
instruments
|
|
|
|
8,167
|
|
|
n/a
|
|
|
|
6,805
|
|
|
n/a
|
|
|
|
–
|
|
|
n/a
|
|
|
|
–
|
|
Total
derivatives
|
|
|
|
|
$
|
8,167
|
|
|
|
|
|
$
|
6,805
|
|
|
|
|
|
$
|
43,606
|
|
|
|
|
|
$
|
44,225
|
|
The fair
value of the gold forward contracts have been determined by examining third
party bid and ask gold forward prices for gold contracts that mature on dates
that match the Company’s gold forward contract dates. For the gold
forward contract dates for which there was no corresponding third party bid and
ask gold forward prices available, the Company estimated the forward price using
linear interpolation. The Company also obtained the risk free rate
for each of the gold forward contract maturity dates and used linear
interpolation to calculate the risk free rate for the gold forward contract
maturity dates that were not available. As the gold forward contracts
are in a loss position, the Company did not include counterparty risk in its
valuation. The Company then calculated the difference between the
forward mid price (calculated as the average of bid and ask price) and the
contract price determined in the Company’s outstanding forward contracts to
determine the net cash flow and thus the value of the contracts.
The fair
value of the Canadian currency forward contracts have been determined by
examining the bid and ask prices for Canadian Dollar foreign exchange forwards
and the U.S. risk free rate for each of the contract dates, with consideration
also given to counterparty risk. The Company then translated the
related cash flows to be received on the contract dates to U.S. dollars using
the Canadian currency forward contracts for the respective contract maturity
dates. The Company then calculated the difference between the cash flows
received and the cash flows paid and discounted the net cash flow using the risk
free rate adjusted for counterparty consideration to derive the net value for
each contract.
The
Company’s valuation of its gold forward contracts and Canadian currency forward
contracts are considered Level 2 valuations, whereby the valuations utilize
quoted prices in markets that are not active, or inputs that are observable,
either directly or indirectly, for substantially the full term of the asset or
liability.
Inventories
consist of:
|
|
|
|
|
|
|
Doré
inventory
|
|
$
|
1,637
|
|
|
$
|
3,186
|
|
In-circuit
inventory
|
|
|
2,188
|
|
|
|
1,561
|
|
Stockpiled
ore inventory
|
|
|
3,712
|
|
|
|
2,633
|
|
Materials
and supplies
|
|
|
1,181
|
|
|
|
809
|
|
|
|
$
|
8,718
|
|
|
$
|
8,189
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Long-term
investments consist of:
|
|
|
|
|
|
|
Auction
rate securites (a)
|
|
$
|
1,036
|
|
|
$
|
1,036
|
|
Notes
receivable (b)
|
|
|
3,440
|
|
|
|
–
|
|
|
|
$
|
4,476
|
|
|
$
|
1,036
|
|
(a)
|
Auction
Rate Securities
|
The
Company acquired auction rate securities (“ARS”) in 2007, which are recorded in
long-term investments, with a face value of $1.5 million. The Company
has recorded an other than temporary impairment on its ARS, within foreign
exchange loss and other in the consolidated statement of operations, of nil and
$0.05 million for the three months ended March 31, 2010 and 2009, respectively,
and as such, no amounts have been recorded in other comprehensive
income. The adjusted cost basis and fair value of ARS at March 31,
2010 and December 31, 2009 are $1.0 million. The ARS are pledged as
collateral for a $0.9 million margin loan.
The
Company’s ARS investments are valued using a probability-weighted discounted
cash flow valuation. The Company’s valuation of the ARS investments
considers possible cash flows and probabilities forecasted under certain
potential scenarios. Each scenario’s cash flow is multiplied by the
probability of that scenario occurring. The major inputs included in
the valuation are: (i) maximum contractual ARS interest rate, (ii) probability
of passing auction/early redemption at each auction, (iii) probability of
failing auction at each auction, (iv) probability of default at each auction,
(v) severity of default, and (vi) discount rate. Changes in these
assumptions to reasonably possible alternative assumptions would not
significantly affect the Company’s results.
There
were no changes in the carrying value of the Company’s ARS from December 31,
2009 to March 31, 2010.
On
February 1, 2010, the Company sold its 100% interest in MTMI, which held the
Company’s remaining 50% interest in the Montana Tunnels joint venture to Elkhorn
(Note 14), for consideration consisting of certain promissory notes held by
Elkhorn and certain investors in Elkhorn or its affiliates with an aggregate
outstanding balance of approximately $9.5 million (the “Elkhorn
Notes”). The Elkhorn Notes are secured by real property in Boulder
County, Colorado. The Elkhorn Notes are due on February 1,
2011. The Elkhorn Notes bear interest at a rate of 8.0% per
annum.
Based on
a valuation performed on the property securing the Elkhorn Notes using Level 3
inputs the notes were recorded at a value of $3.4 million and classified as a
long-term investment, as the Company does not anticipate collecting on the
Elkhorn Notes within the next twelve months. Level 3 inputs are those
inputs used in a valuation technique that are both significant to the fair value
measurement and unobservable, i.e. supported by little or no market
activity. The valuation of the property included $1.7 million for the
associated land, and $1.7 million for the replacement cost of the associated
buildings. The land value was determined by examining sales of land
in the near vicinity with similar characteristics, and making adjustments as
appropriate. The replacement cost of the buildings was determined by
estimating the cost to re-create the structures on the property, and then
deducting for the physical depreciation of the standing buildings.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Long-term
debt consists of the following:
|
|
|
|
|
|
|
Black
Fox Project Facility (a)
|
|
$
|
54,097
|
|
|
$
|
62,514
|
|
Convertible
debentures (b)
|
|
|
4,367
|
|
|
|
4,926
|
|
Capital
leases
|
|
|
14,983
|
|
|
|
15,320
|
|
Notes
payable and other
|
|
|
1,952
|
|
|
|
1,009
|
|
Total
debt
|
|
|
75,399
|
|
|
|
83,769
|
|
Less:
current portion of long-term debt
|
|
|
(41,305
|
)
|
|
|
(34,860
|
)
|
Total
long-term debt
|
|
$
|
34,094
|
|
|
$
|
48,909
|
|
As of
March 31, 2010, long-term debt is repayable as follows:
|
|
Black Fox
Project
Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
33,202
|
|
|
$
|
4,676
|
|
|
$
|
3,221
|
|
|
$
|
1,952
|
|
|
$
|
43,051
|
|
2011
|
|
|
10,200
|
|
|
|
–
|
|
|
|
4,355
|
|
|
|
–
|
|
|
|
14,555
|
|
2012
|
|
|
16,598
|
|
|
|
–
|
|
|
|
3,709
|
|
|
|
–
|
|
|
|
20,307
|
|
2013
|
|
|
–
|
|
|
|
–
|
|
|
|
3,557
|
|
|
|
–
|
|
|
|
3,557
|
|
2014
|
|
|
–
|
|
|
|
–
|
|
|
|
1,908
|
|
|
|
–
|
|
|
|
1,908
|
|
Total
payments due under long-term debt
|
|
|
60,000
|
|
|
|
4,676
|
|
|
|
16,750
|
|
|
|
1,952
|
|
|
|
83,378
|
|
Less:
imputed interest
|
|
|
–
|
|
|
|
(309
|
)
|
|
|
(1,767
|
)
|
|
|
–
|
|
|
|
(2,076
|
)
|
Less:
unamortized debt discount
|
|
|
(5,903
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(5,903
|
)
|
Total
debt
|
|
|
54,097
|
|
|
|
4,367
|
|
|
|
14,983
|
|
|
|
1,952
|
|
|
|
75,399
|
|
Less:
current portion of long-term debt
|
|
|
(31,490
|
)
|
|
|
(4,367
|
)
|
|
|
(3,496
|
)
|
|
|
(1,952
|
)
|
|
|
(41,305
|
)
|
Total
long-term debt
|
|
$
|
22,607
|
|
|
$
|
–
|
|
|
$
|
11,487
|
|
|
$
|
–
|
|
|
$
|
34,094
|
|
On
February 20, 2009, the Company entered into a $70 million project financing
agreement (the “Project Facility”) with the Banks relating to the Black Fox
Project. As of December 31, 2009, the Company had borrowed the full
$70 million available under the Project Facility.
The terms
of the Project Facility include: (i) interest on the outstanding
principal amount accruing at a rate equal to the London interbank offered rate
(“LIBOR”) plus 7% per annum and payable in monthly installments commencing March
31, 2009 (interest is currently payable monthly but may be monthly, quarterly or
such other period as may be agreed to by the Banks and the Company); (ii)
scheduled repayment of the principal amount in unequal quarterly amounts
commencing September 30, 2009 (see discussion below regarding rescheduling of
quarterly payments) with the final repayment no later than March 31, 2013; and
(iii) an arrangement fee of $3.5 million, which was paid by the Company to the
Banks in cash on February 23, 2009. The average monthly LIBOR rate
charged to the Company during the three months ended March 31, 2010 was
0.2%.
Borrowings under the Project Facility
are secured by substantially all of the Company’s assets, including the Black
Fox Project, and the stock of its subsidiaries. The Project Facility
contains various financial and operational covenants that impose limitations on
the Company which include, among other requirements, the
following: maintenance of certain financial coverage ratios and
minimum project reserves, satisfaction of a minimum tangible net worth test, and
the operation of the Black Fox project in compliance with an agreed cash flow
budgeting and operational model. As at March 31, 2010, the Company
was in compliance with the various financial and operational covenants of the
Project Facility.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
The
Company recorded a $10.9 million discount on the Project Facility, comprised of
the $3.5 million arrangement fee and the $7.4 million fair value of the Banks’
Compensation Warrants, which discount will be accreted over the life of the loan
using the effective interest method and charged to interest
expense. Additionally, at inception, the Company recorded $0.6
million of debt transactions costs that are treated similarly to the discount on
the Project Facility. The accreted interest for the three months
ended March 31, 2010 was $1.6 million, which includes an adjustment of $0.5
million additional interest during the period for the revised estimated
repayment schedule of the principal.
Consent and Amendment to the
Project Facility
On March 9, 2010, the Banks executed a
consent letter (the “Consent Letter”) in connection with the Arrangement
Agreement (Note 4) with Linear, which was agreed to and accepted by each of
Apollo and Linear, pursuant to which the Banks agreed, subject to the terms and
conditions contained in the Consent Letter:
|
·
|
to
consent to the Arrangement (the
“Consent”);
|
|
·
|
prior
to the earliest to occur of (i) the date on which the Banks determine that
the Arrangement has been terminated or will not be completed, (ii) March
31, 2010, if the Definitive Agreements in respect of the Arrangement have
not been executed by such date, or (iii) September 30, 2010, not to make
demand, accelerate payment or enforce any security or any other remedies
upon an “event of default” or a “review event” under the Project Facility
unless and until the occurrence of certain “override events” set forth in
the Consent Letter (which “override events” are primarily related to
breaches of certain covenants and provisions of the Consent Letter and the
Project Facility) (the “Standstill Provisions”);
and
|
|
·
|
to
amend certain provisions of the Project Facility, including without
limitation the following revised repayment
schedule:
|
Repayment Date
|
|
Repayment Amount
|
|
The
earlier of two business days following completion of the Private Placement
and March 19, 2010
|
|
$
|
10,000,000
|
|
The
earlier of July 2, 2010 and the date that is two business days following
the consummation of the Arrangement
|
|
$
|
10,000,000
|
|
The
earlier of September 30, 2010 and the date on which the proceeds from any
one or more equity raisings following the consummation of the Arrangement
equals $10,000,000
|
|
$
|
10,000,000
|
|
December
31, 2010
|
|
$
|
5,000,000
|
|
The
remaining repayment dates between March 31, 2011 and March 31, 2013 to be
agreed between Apollo and the Banks by no later than September 30, 2010 to
reflect the “cashflow model” (as defined under the Project Facility) that
is approved by the Banks. In the absence of agreement between
Apollo and the Banks by September 30, 2010, amounts outstanding under the
Project Facility shall be due and payable on December 31,
2010.
|
|
$
|
35,000,000
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
The
Banks’ agreement to the Consent and the Standstill Provisions is subject to a
number of conditions, including without limitation (i) the Banks approving the
Definitive Agreements and such Definitive Agreements being executed by no later
than March 31, 2010, (ii) the Banks being satisfied that the completion of the
Arrangement will not cause a breach or default under any “project documents” (as
defined in the Project Facility), (iii) the Banks being satisfied that the
Arrangement will not have any material negative tax implications for Apollo,
Linear and each of their direct or indirect subsidiaries, (iv) the Banks being
satisfied that, immediately following completion of the Arrangement and after
making the payment of $10.0 million as set forth in the repayment schedule set
forth above, Apollo having restricted cash on hand of not less than Cdn$10.0
million, (v) at completion of the Arrangement, the Banks being satisfied
regarding indebtedness and encumbrances of Linear and its direct and indirect
subsidiaries, and (vi) that the Banks will allow the Company to close out its
Canadian dollar foreign exchange contracts provided it would generate proceeds
of greater than $5.0 million – the proceeds from the close out of these
contracts would be applied to the repayment due under the Repayment Schedule in
reverse order of maturity. On March 19, 2010, the Company repaid
$10.0 million of principal due on the Project Facility in accordance with (iv)
above. On April 23, 2010, the Canadian dollar foreign exchange
contracts were unwound for proceeds of $8.2 million which amount was repaid to
reduce the principal balance of the Project Facility. The $8.2
million is included in current portion of long-term debt at March 31,
2010.
(b)
|
Convertible
Debentures
|
On
February 26, 2010, the Company reached an agreement with the holder (the
“Debenture Holder”) of its Series 2007-A convertible debentures (the “2007
Debentures”) to further extend the maturity date of the $4.3 million principal
amount of the 2007 Debentures held by the Debenture Holder from February 23,
2010 to August 23, 2010 (the “Extended Debentures”). The Debenture
Holder owned $4.3 million principal amount of the 2007 Debentures as of December
31, 2009 and February 23, 2010 (on which $0.8 million of interest was paid on
March 3, 2010).
In consideration for the foregoing, the
Company agreed to (i) issue 800,000 common shares of the Company to the
Debenture Holder (“Debenture Holder Shares”) on February 26, 2010, and (ii)
issue 2,145,000 common share purchase warrants (“Debenture Holder Warrants”)
with an expiration date of February 23, 2011 and an exercise price of
$0.50.
The
Company recorded a loss on modification of convertible debentures of $0.5
million comprised of $0.3 million for the Debenture Holder Shares, $0.1 million
for the Debenture Holder Warrants and $0.1 million for administrative
costs. The Debenture Holder Warrants were assigned a fair value of
$0.1 million, using an option pricing model with the following
assumptions: no dividends are paid, a volatility of the Company’s
share price of 66%, an expected life of the warrants of one year, and an annual
risk-free rate of 1.3%.
The
Extended Debentures bear interest at a rate of 18% per annum and are
convertible, at the option of the holder, at any time prior to maturity into
common shares of the Company at $0.50. The Company has the option to
force conversion of the Extended Debentures under certain
circumstances.
On the
date of extension of the Extended Debentures, the $4.3 million principal
represented the fair value of the Debentures. The holder’s option to
convert the principal balance into common shares did not represent a beneficial
conversion feature at the date of extension as the trading price of the
Company’s common shares was lower than the strike price, and as such, no portion
of the principal was allocated to the holder’s option to convert the principal
balance. The $4.3 million fair value of the Extended Debentures is
classified as a liability.
10.
|
EQUITY-LINKED
FINANCIAL INSTRUMENTS
|
In June
2008, the ASC guidance for derivatives and hedging when accounting for contracts
in an entity’s own equity was updated to clarify the determination of whether an
instrument (or embedded feature) is indexed to an entity’s own stock which would
qualify as a scope exception from hedge accounting. The provisions of
the updated guidance were adopted January 1, 2009.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Under the
guidance, an equity-linked financial instrument (or embedded feature) would not
be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional
currency. As of March 31, 2010 and December 31, 2009, the Company had
104.4 million and 105.5 million outstanding warrants to purchase common shares
of the Company, respectively, that were denominated in a currency (Canadian
dollars) other than its functional currency (US dollars). As such,
these warrants are not considered to be indexed to the Company’s own stock,
which precludes the warrants from meeting the scope exception under the
guidance. The warrants thereby are accounted for separately as
derivative instruments, rather than as equity instruments.
As of
March 31, 2010, the Company has assessed the fair value of the outstanding
warrants subject to this accounting guidance and recorded a gain of $10.0
million on the fair value change of the warrants.
These
warrants were fair valued at March 31, 2010 and December 31, 2009 using an
option pricing model with the following assumptions: no dividends are
paid, weighted average volatilities of the Company’s share price of 76% and 78%,
weighted average expected lives of the warrants of 2.4 and 2.6 years, and
weighted average annual risk-free rates of 2.0% and 1.8%,
respectively.
(a)
|
Shares
issued in 2010
|
(i)
During
the three months ended March 31, 2010, the Company issued (a) 300,000 common
shares of the Company to a firm as compensation for services and (b) 1,592,733
common shares of the Company to a certain party as consideration for a
promissory note with an aggregate balance of $0.7 million (See Note
14).
(ii)
For
the three months ended March 31, 2010, there were 8,580,000 shares issued upon
exercise of warrants for proceeds of $2.1 million. Each warrant
exercised had an exercise price of $0.25.
(iii)
On
February 26, 2010, the Company issued 800,000 common shares of the Company and
2,145,000 common share purchase warrants that expire on February 23, 2011 and
have an exercise price of $0.50 to the Debenture Holder as compensation to
extend the 2007 Debentures for six months. See Note 9(b) for
additional information.
(iv)
On
March 19, 2010, the Company issued 62,500,000 common shares of the Company to
Linear for net proceeds of $24.5 million.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
A summary
of information concerning outstanding warrants is as follows:
|
|
Number of
Warrants and
Shares Issuable
upon Exercise
|
|
Balance,
December 31, 2009
|
|
|
111,593,178
|
|
Warrants
issued
|
|
|
2,145,000
|
|
Warrants
exercised
|
|
|
(8,580,000
|
)
|
Warrants
expired
|
|
|
(1,020,000
|
)
|
Balance,
March 31, 2010
|
|
|
104,138,178
|
|
The
following table summarizes outstanding warrants as at March 31,
2010:
|
|
Number of Warrants
and Shares Issuable
upon Exercise
|
|
|
|
|
|
|
|
|
|
|
Exercisable
in US$
|
|
|
February
26, 2010
|
|
|
2,145,000
|
|
|
0.50
|
|
February
23, 2011
|
|
|
|
|
|
|
Exercisable
in Cdn$
|
|
|
December
31, 2008
|
|
|
255,000
|
|
|
0.30
|
|
December
31, 2010
|
February
20, 2009
|
|
|
2,317,901
|
|
|
0.256
|
|
February
20, 2011
|
July
24, 2008
|
|
|
20,403,250
|
|
|
0.65
|
|
July
24, 2011
|
December
10, 2008
|
|
|
42,614,254
|
|
|
0.221
|
|
December
10, 2012
|
February
20, 2009
|
|
|
34,836,111
|
|
|
0.252
|
|
February
20, 2013
|
July
15, 2009
|
|
|
1,566,662
|
|
|
0.24
|
|
July
15, 2011
|
|
|
|
101,993,178
|
|
|
|
|
|
|
|
|
104,138,178
|
|
|
|
|
|
In
addition, 2,448,390 units issued to placement agents on July 24, 2008 (the
Agents’ Units) are outstanding. Each Agents’ Unit is exercisable at
Cdn$0.60 for four years into one common share of the Company and one- half of
one warrant (the Agents’ Warrant), with each whole Agents’ Warrant exercisable
into one common share of the Company at Cdn$0.78. The Agent’s Units
and Agents’ Warrants expire on July 24, 2012.
A summary
of information concerning outstanding stock options is as follows:
|
|
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
Balance,
December 31, 2009
|
|
|
11,594,371
|
|
|
$
|
0.64
|
|
Options
granted
|
|
|
200,000
|
|
|
|
0.50
|
|
Options
forfeited
|
|
|
(32,500
|
)
|
|
|
0.45
|
|
Balance,
March 31, 2010
|
|
|
11,761,871
|
|
|
$
|
0.64
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
The
following table summarizes information concerning outstanding and exercisable
stock options at March 31, 2010:
|
|
|
|
|
|
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
|
Weighted
Average
Remaining
Contractual Life
(in years
)
|
|
|
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
100,000
|
|
September
1, 2011
|
|
$
|
0.46
|
|
|
|
1.4
|
|
|
|
100,000
|
|
|
$
|
0.46
|
|
675,100
|
|
February
18, 2013
|
|
|
2.24
|
|
|
|
2.9
|
|
|
|
675,100
|
|
|
|
2.24
|
|
260,000
|
|
March
10, 2014
|
|
|
2.05
|
|
|
|
3.9
|
|
|
|
260,000
|
|
|
|
2.05
|
|
25,000
|
|
May
19, 2014
|
|
|
1.44
|
|
|
|
4.1
|
|
|
|
25,000
|
|
|
|
1.44
|
|
20,200
|
|
August
10, 2014
|
|
|
0.95
|
|
|
|
4.4
|
|
|
|
20,200
|
|
|
|
0.95
|
|
1,158,250
|
|
March
10, 2015
|
|
|
0.65
|
|
|
|
4.9
|
|
|
|
1,158,250
|
|
|
|
0.65
|
|
100,000
|
|
August
4, 2015
|
|
|
0.27
|
|
|
|
5.3
|
|
|
|
100,000
|
|
|
|
0.27
|
|
300,000
|
|
December
12, 2015
|
|
|
0.20
|
|
|
|
5.7
|
|
|
|
300,000
|
|
|
|
0.20
|
|
125,000
|
|
March
28, 2016
|
|
|
0.65
|
|
|
|
6.0
|
|
|
|
125,000
|
|
|
|
0.65
|
|
200,000
|
|
May
23, 2016
|
|
|
0.53
|
|
|
|
6.2
|
|
|
|
200,000
|
|
|
|
0.53
|
|
108,000
|
|
August
10, 2016
|
|
|
0.48
|
|
|
|
6.4
|
|
|
|
108,000
|
|
|
|
0.48
|
|
20,000
|
|
November
9, 2016
|
|
|
0.32
|
|
|
|
6.6
|
|
|
|
20,000
|
|
|
|
0.32
|
|
2,810,064
|
|
February
6, 2017
|
|
|
0.57
|
|
|
|
6.9
|
|
|
|
2,810,064
|
|
|
|
0.57
|
|
21,250
|
|
May
23, 2017
|
|
|
0.46
|
|
|
|
7.4
|
|
|
|
21,250
|
|
|
|
0.46
|
|
1,973,950
|
|
March
27, 2018
|
|
|
0.66
|
|
|
|
8.0
|
|
|
|
1,973,950
|
|
|
|
0.66
|
|
21,250
|
|
August
12, 2018
|
|
|
0.37
|
|
|
|
8.4
|
|
|
|
10,625
|
|
|
|
0.37
|
|
30,000
|
|
November
11, 2018
|
|
|
0.15
|
|
|
|
8.6
|
|
|
|
15,000
|
|
|
|
0.15
|
|
3,183,067
|
|
March
31, 2019
|
|
|
0.32
|
|
|
|
9.0
|
|
|
|
1,683,034
|
|
|
|
0.32
|
|
265,240
|
|
May
6, 2019
|
|
|
0.15
|
|
|
|
9.1
|
|
|
|
–
|
|
|
|
–
|
|
165,500
|
|
August
11, 2019
|
|
|
0.44
|
|
|
|
9.4
|
|
|
|
–
|
|
|
|
–
|
|
|
|
August
11, 2019
|
|
|
0.50
|
|
|
|
9.8
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
$
|
0.64
|
|
|
|
7.2
|
|
|
|
9,605,473
|
|
|
$
|
0.70
|
|
(d)
|
Stock-based
compensation
|
The fair
value of each option granted is estimated at the time of grant using the
Black-Scholes option-pricing model with weighted average assumptions for grants
as follows:
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.9
|
%
|
|
|
1.9
|
%
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
76
|
%
|
|
|
78
|
%
|
Expected
life in years
|
|
|
6
|
|
|
|
6
|
|
Weighted
average grant-date fair value of stock options
|
|
$
|
0.34
|
|
|
$
|
0.22
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Interest
expense consists of:
|
|
|
|
|
|
|
Accretion
on convertible debentures
|
|
$
|
215
|
|
|
$
|
802
|
|
Amortization
of debt discount
|
|
|
1,583
|
|
|
|
–
|
|
Amortization
of deferred financing costs
|
|
|
38
|
|
|
|
–
|
|
Project
Facility, capital leases and other
|
|
|
1,506
|
|
|
|
28
|
|
|
|
$
|
3,342
|
|
|
$
|
830
|
|
For the
three months ended March 31, 2009, the Company recorded capitalized interest of
$0.8 million.
The
Company recorded income tax benefits of $0.9 million and $0.1 million for the
three months ended March 31, 2010 and 2009, respectively, related to the
issuance of flow-through shares but recorded no other recovery for income taxes
as the net loss carry forwards are fully offset by a valuation
allowance.
14.
|
MONTANA
TUNNELS JOINT VENTURE
|
On
February 1, 2010, the Company completed the sale of its 100% interest in MTMI,
which held the Company’s remaining 50% interest in the Montana Tunnels joint
venture to Elkhorn, for consideration of certain promissory notes held by
Elkhorn and certain investors in Elkhorn or its affiliates with an aggregate
outstanding balance of approximately $9.5 million. Based on a
valuation performed on the property securing the Elkhorn Notes using Level 3
inputs (see Note 8(b)), an impairment of $0.3 million was recorded for the
Montana Tunnels equity interest as of December 31, 2009. For the
three months ended March 31, 2010, the Company has recorded a $0.7 million loss
on the sale of Montana Tunnels.
On March
12, 2010, the Company entered into a purchase agreement with a certain party who
was a secondary creditor to the property which secures the Elkhorn Notes (the
“Noteholder”) pursuant to which the Company issued 1,592,733 common shares on
March 18, 2010, as consideration for a promissory note held by the Noteholder
with an aggregate balance of $0.7 million. The Company recorded an
additional loss on the sale of the Montana Tunnels joint venture of $0.6 million
which is included within Equity loss in Montana Tunnels joint venture.
Principal and interest on the promissory note are due March 12, 2011 and the
promissory note bears interest of 8% per annum.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
15.
|
EARNINGS
(LOSS) PER SHARE
|
Basic
earnings (loss) per share (“EPS”) is calculated by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated to reflect
the dilutive effect of exercising outstanding warrants and stock options and of
conversion of convertible debentures by applying the treasury stock
method.
Earnings
(loss) used in determining EPS are presented below for the three months ended
March 31.
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
6,449
|
|
|
$
|
(28,424
|
)
|
Weighted
average number of shares outstanding, basic
|
|
|
276,461,433
|
|
|
|
226,458,505
|
|
Dilutive
securities:
|
|
|
|
|
|
|
|
|
Options
|
|
|
906,520
|
|
|
|
–
|
|
Warrants
|
|
|
35,287,606
|
|
|
|
–
|
|
Weighted
average number of shares outstanding, diluted
|
|
|
312,655,559
|
|
|
|
226,458,505
|
|
Basic
and diluted earnings (loss) income per share
|
|
$
|
0.02
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
Options
and warrants outstanding but not included in computation of diluted
weighted average number of shares (“OWNI”) because the strike prices
exceeded the average price of the common shares
|
|
|
33,104,194
|
|
|
|
36,486,837
|
|
Average
exercise price of OWNI
|
|
$
|
0.66
|
|
|
$
|
0.55
|
|
Shares
issuable for convertible debentures excluded from calculation of EPS
because their effect would have been anti-dilutive
|
|
|
8,580,000
|
|
|
|
8,580,000
|
|
Average
conversion price of anti-dilutive convertible securities
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
Due to a
net loss for the three months March 31, 2009, an additional 27.0 million
warrants and stock options were excluded from the EPS computation because their
effect would have been anti-dilutive.
16.
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
(a)
|
Net
changes in non-cash operating working capital items for the three months
ended March 31 are:
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
Accounts
receivable and other
|
|
$
|
583
|
|
|
$
|
(706
|
)
|
Prepaids
|
|
|
(103
|
)
|
|
|
12
|
|
Inventories
|
|
|
(318
|
)
|
|
|
–
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(1,394
|
)
|
|
|
852
|
|
Accrued
liabilities
|
|
|
(14
|
)
|
|
|
429
|
|
|
|
$
|
(1,246
|
)
|
|
$
|
587
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
(b)
|
Non-cash
transactions for the three months ended March 31
are:
|
|
|
|
|
|
|
|
Increase
in prepaid assets due to financing a portion of the Company’s insurance
program via the issuance of notes payable
|
|
|
1,080
|
|
|
|
582
|
|
Sale
of MTMI for long-term notes receivable
|
|
|
3,440
|
|
|
|
–
|
|
Increase
in property, plant and equipment due to assets acquired via issuance of
notes payable
|
|
|
–
|
|
|
|
633
|
|
Increase
in additional paid-in capital for the issuance of warrants to the Banks in
connection with the Project Facility (Note 7(a)) and a corresponding
decrease in debt for the debt discount
|
|
|
–
|
|
|
|
7,395
|
|
17.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The
Company examines the various financial instrument risks to which it is exposed
and assesses the impact and likelihood of those risks. These risks may include
market risk, credit risk, liquidity risk, currency risk, interest rate risk and
commodity risk. Where material, these risks are reviewed and
monitored by the Board of Directors.
(a)
|
Capital
Risk Management
|
The Company manages its capital to
ensure that it will be able to continue as a going concern while maximizing the
return to shareholders through the optimization of its debt and equity
balance.
The capital structure of the Company
consists of current and long-term debt and equity attributable to common
shareholders, comprising issued common stock, additional paid-in capital, and
accumulated deficit.
Credit risk on financial instruments
arises from the potential for counterparties to default on their obligations to
the Company. The Company’s credit risk is limited to cash, trade
receivables, restricted cash, restricted certificates of deposit, derivative
instruments, auction rate securities and notes receivable in the ordinary course
of business. Cash, restricted cash, restricted certificates of
deposit, derivative instruments and auction rate securities are placed with
high-credit quality financial institutions. The Company sells its
metal production exclusively to large international organizations with strong
credit ratings. The balance of trade receivables owed to the Company
in the ordinary course of business is not significant. The carrying
value of accounts receivable approximates fair value due to the relatively short
periods to maturity on these instruments. Therefore, the Company is
not exposed to significant credit risk. Overall, the Company’s credit
risk has not changed significantly from 2009 with the exception of the notes
receivable described in Note 8 (b).
The Company assesses quarterly whether
there has been an impairment of the financial assets of the
Company. The Company has not recorded an impairment on any of the
financial assets of the Company during the three months ended March 31,
2010. Apollo continues to maintain a portion of its investments in
ARS, which are floating rate securities that are marketed by financial
institutions with auction reset dates at 28 day intervals to provide short-term
liquidity. All ARS were rated AAA when purchased, pursuant to
Apollo’s investment policy at the time. Auction rate securities are
no longer permitted to be purchased under the Company’s current investment
policy. Beginning in August 2007, a number of auctions began to fail
and the Company is currently holding ARS with a par value of $1.5 million which
currently lack liquidity. All of Apollo’s ARS have continued to make
regular interest payments. Apollo’s ARS were downgraded to Aa during
2008. If uncertainties in the credit and capital markets persist or
Apollo’s ARS experience further downgrades, the Company may incur additional
impairments, which may continue to be judged other than
temporary. Apollo believes that the current illiquidity of its ARS
will not have a material impact on Apollo’s financial condition.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
The Company’s maximum exposure to
credit risk is represented by the carrying amount on the balance sheet of cash,
trade receivables, restricted cash, restricted certificates of deposit,
derivative instruments, auction rate securities and notes
receivable. There are no material financial assets that the Company
considers to be past due.
Liquidity risk is the risk that the
Company will not meet its financial obligations as they become
due. The Company has a planning and budgeting process to monitor
operating cash requirements including amounts projected for the existing capital
expenditure program and plans for expansion, which are adjusted as input
variables change. These variables include, but are not limited to,
available bank lines, mineral production from existing operations, commodity
prices, taxes and the availability of capital markets. As these
variables change, liquidity risks may necessitate the need for the Company to
conduct equity issues or obtain project debt financing.
Trade payables and accrued liabilities
are paid in the normal course of business typically according to their
terms. At March 31, 2010, the Company is in compliance with its debt
covenants. The Company’s overall liquidity risk has not changed
significantly from the prior year.
Financial instruments that impact the
Company’s net income or other comprehensive income due to currency fluctuations
include: Canadian dollar denominated cash, restricted certificates of
deposit and accounts payable. For the three months ended March 31,
2010, the sensitivity of the Company’s net income due to changes in the exchange
rate between the Canadian dollar and the United States dollar would have
impacted net income by $0.4 million, respectively, for a 10% increase or
decrease in the Canadian dollar.
On February 20, 2009, in order to meet
certain loan criteria of the Project Facility (Note 9(a)), the Company entered
into a foreign exchange derivative program for the Canadian dollar equivalent of
$58 million. These contracts were unwound on April 23, 2010 for
proceeds of $8.2 million. See Note 6 for details.
The Company is exposed to interest rate
risk on its outstanding borrowings and short-term investments. As of
March 31, 2010, the Company’s significant outstanding borrowings consist of
$54.1 million of indebtedness under the Project Facility (Note 9(a)) and the
Extended Debentures which have an aggregate $4.3 million face value (Note
9(b)). Amounts outstanding under the Project Facility accrue interest
at a floating rate based on LIBOR plus 7.0% and the Extended Debentures have a
stated rate of 18%. The average monthly LIBOR rate charged to the
Company on the Project Facility during the three months ended March 31, 2010 was
0.2%. The Company monitors its exposure to interest rates and has not
entered into any derivative contracts to manage this risk. The
weighted average interest rate paid by the Company during the first quarter of
2010 on its outstanding borrowings was 7.8%.
For the three months ended March 31,
2010, a 100 basis point increase or decrease in interest rates would have had a
$0.2 million increase or decrease to interest expense recorded during the
quarter.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
The Company’s principal businesses
include the sale of gold. Revenues, earnings and cash flows from the
sale of gold are sensitive to changes in market prices, over which the Company
has little or no control. The Company has the ability to address its
price-related exposures through the limited use of options, future and forward
contracts, but generally does not enter into such arrangements.
On February 20, 2009, in order to meet
certain loan criteria of the Project Facility, the Company entered into certain
gold forward sales contracts. See Note 6 for details.
(g)
|
Fair
Value Estimation
|
The fair value of financial instruments
that are not traded in an active market (such as derivative instruments) is
determined using a Black-Scholes model based on assumptions that are supported
by observable current market conditions, with the exception of auction rate
securities and notes receivable. The valuation method of the
Company’s ARS investments is described in Note 8(a). The valuation
method of the Company’s notes receivable acquired during the three months ended
March 31, 2010 is described in Note 8(b).
The carrying value less impairment
provision, if necessary, of restricted cash, restricted certificates of deposit,
long-term investments, trade receivables, trade payables, and notes receivable
approximate their fair values. In addition, as the interest rate on
the Company’s credit facility is floating and has no unusual rights or terms,
the carrying value approximates its fair value.
18.
|
SEGMENTED
INFORMATION
|
Apollo operates the Black Fox
development project in Canada. The reportable segments have been
determined at the level where decisions are made on the allocation of resources
and capital and where performance is measured. The financial
information for Montana Tunnels assets and liabilities as of December 31, 2009
and the results of operations for the three months ended March 31, 2010 and 2009
are reported under the equity investment method as a result of the joint venture
agreement (see Note 14) and is presented within Corporate and
Other.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Amounts
as at March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
11,061
|
|
|
$
|
28,135
|
|
|
$
|
39,196
|
|
Property,
plant, and equipment
|
|
|
110,545
|
|
|
|
3,016
|
|
|
|
113,561
|
|
Restricted
certificates of deposit
|
|
|
15,310
|
|
|
|
8
|
|
|
|
15,318
|
|
Other
long-term assets
|
|
|
–
|
|
|
|
4,476
|
|
|
|
4,476
|
|
Total
assets
|
|
$
|
136,916
|
|
|
$
|
35,635
|
|
|
$
|
172,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
40,669
|
|
|
$
|
21,033
|
|
|
$
|
61,702
|
|
Derivative
instruments
|
|
|
–
|
|
|
|
30,849
|
|
|
|
30,849
|
|
Equity-linked
financial instruments
|
|
|
–
|
|
|
|
17,305
|
|
|
|
17,305
|
|
Accrued
site closure costs
|
|
|
5,710
|
|
|
|
–
|
|
|
|
5,710
|
|
Debt
and other long-term liabilities
|
|
|
34,544
|
|
|
|
353
|
|
|
|
34,897
|
|
Total
liabilities
|
|
$
|
80,923
|
|
|
$
|
69,540
|
|
|
$
|
150,463
|
|
Amounts
as at December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
14,020
|
|
|
$
|
4,945
|
|
|
$
|
18,965
|
|
Derivative
instruments – long-term
|
|
|
–
|
|
|
|
4,844
|
|
|
|
4,844
|
|
Property,
plant, and equipment
|
|
|
113,167
|
|
|
|
3,004
|
|
|
|
116,171
|
|
Investment
in Montana Tunnels joint venture
|
|
|
–
|
|
|
|
3,440
|
|
|
|
3,440
|
|
Other
long-term assets
|
|
|
14,798
|
|
|
|
1,043
|
|
|
|
15,841
|
|
Total
assets
|
|
$
|
141,985
|
|
|
$
|
17,276
|
|
|
$
|
159,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
36,153
|
|
|
$
|
20,524
|
|
|
$
|
56,677
|
|
Derivative
instruments
|
|
|
–
|
|
|
|
31,654
|
|
|
|
31,654
|
|
Equity-linked
financial instruments
|
|
|
–
|
|
|
|
27,318
|
|
|
|
27,318
|
|
Accrued
site closure costs
|
|
|
5,345
|
|
|
|
–
|
|
|
|
5,345
|
|
Debt
and other long-term liabilities
|
|
|
50,213
|
|
|
|
483
|
|
|
|
50,696
|
|
Total
liabilities
|
|
$
|
91,711
|
|
|
$
|
79,979
|
|
|
$
|
171,690
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Amounts
for the three months ended March 31, 2010 and 2009 are as follows:
|
|
Three
Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from the sale of gold
|
|
$
|
17,626
|
|
|
|
–
|
|
|
$
|
17,626
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
operating costs
|
|
|
9,984
|
|
|
|
–
|
|
|
|
9,984
|
|
Depreciation
and amortization
|
|
|
3,455
|
|
|
|
6
|
|
|
|
3,461
|
|
Accretion
expense – accrued site closure costs
|
|
|
175
|
|
|
|
–
|
|
|
|
175
|
|
General
and administrative expenses
|
|
|
–
|
|
|
|
1,949
|
|
|
|
1,949
|
|
Exploration,
business development and other
|
|
|
181
|
|
|
|
90
|
|
|
|
271
|
|
|
|
|
13,795
|
|
|
|
2,045
|
|
|
|
15,840
|
|
Operating
income
|
|
|
3,831
|
|
|
|
(2,045
|
)
|
|
|
1,786
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
–
|
|
|
|
54
|
|
|
|
54
|
|
Interest
expense
|
|
|
(3,123
|
)
|
|
|
(219
|
)
|
|
|
(3,342
|
)
|
Loss
on modification of convertible debentures
|
|
|
–
|
|
|
|
(513
|
)
|
|
|
(513
|
)
|
Linear
acquisition costs
|
|
|
–
|
|
|
|
(577
|
)
|
|
|
(577
|
)
|
Fair
value change on equity-linked financial instruments
|
|
|
–
|
|
|
|
10,013
|
|
|
|
10,013
|
|
Realized
losses on derivative instruments
|
|
|
–
|
|
|
|
(3,343
|
)
|
|
|
(3,343
|
)
|
Unrealized
gains on derivative instruments
|
|
|
–
|
|
|
|
1,981
|
|
|
|
1,981
|
|
Foreign
exchange gain and other
|
|
|
96
|
|
|
|
126
|
|
|
|
222
|
|
|
|
|
(3,027
|
)
|
|
|
7,522
|
|
|
|
4,495
|
|
Income
before income taxes and equity loss in Montana Tunnels joint
venture
|
|
$
|
804
|
|
|
$
|
5,477
|
|
|
$
|
6,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
Property,
plant and equipment expenditures
|
|
$
|
1,045
|
|
|
$
|
17
|
|
|
$
|
1,062
|
|
|
|
Three
Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$
|
–
|
|
|
$
|
10
|
|
|
$
|
10
|
|
General
and administrative expenses
|
|
|
–
|
|
|
|
932
|
|
|
|
932
|
|
Exploration,
business development and other
|
|
|
64
|
|
|
|
163
|
|
|
|
227
|
|
Operating
loss
|
|
|
(64
|
)
|
|
|
(1,105
|
)
|
|
|
(1,169
|
)
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
–
|
|
|
|
40
|
|
|
|
40
|
|
Interest
expense
|
|
|
–
|
|
|
|
(830
|
)
|
|
|
(830
|
)
|
Debt
transaction costs
|
|
|
–
|
|
|
|
(1,239
|
)
|
|
|
(1,239
|
)
|
Loss
on modification of debentures
|
|
|
–
|
|
|
|
(1,969
|
)
|
|
|
(1,969
|
)
|
Fair
value change on equity-linked financial instruments
|
|
|
–
|
|
|
|
(4,753
|
)
|
|
|
(4,753
|
)
|
Realized
gains on derivative instruments
|
|
|
–
|
|
|
|
368
|
|
|
|
368
|
|
Unrealized
losses on derivative instruments
|
|
|
–
|
|
|
|
(18,418
|
)
|
|
|
(18,418
|
)
|
Foreign
exchange gain and other
|
|
|
–
|
|
|
|
97
|
|
|
|
97
|
|
Loss
before income taxes and equity loss in Montana Tunnels joint
venture
|
|
$
|
(64
|
)
|
|
$
|
(27,809
|
)
|
|
$
|
(27,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
Property,
plant and equipment expenditures
|
|
$
|
21,866
|
|
|
$
|
–
|
|
|
$
|
21,866
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
19.
|
DIFFERENCES
BETWEEN CANADIAN AND U.S. GAAP
|
The
Company prepares its consolidated financial statements in accordance with U.S.
GAAP. The following adjustments and/or additional disclosures would
be required in order to present the financial statements in accordance with
Canadian GAAP at March 31, 2010 and December 31, 2009 and for the three months
ended March 31, 2010 and 2009.
Material
variances between financial statement items under U.S. GAAP and the amounts
determined under Canadian GAAP are as follows:
|
|
|
|
|
|
|
Total
assets in accordance with U.S GAAP
|
|
$
|
172,551
|
|
|
$
|
159,261
|
|
Bank
indebtedness (e)
|
|
|
–
|
|
|
|
(328
|
)
|
Montana
Tunnels joint venture (b)
|
|
|
–
|
|
|
|
10,911
|
|
Black
Fox development costs(c)
|
|
|
26,633
|
|
|
|
27,674
|
|
Convertible
debentures (d)
|
|
|
(447
|
)
|
|
|
(485
|
)
|
Total
assets in accordance with Canadian GAAP
|
|
$
|
198,737
|
|
|
$
|
197,033
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities in accordance with U.S. GAAP
|
|
$
|
150,463
|
|
|
$
|
171,690
|
|
Bank
indebtedness (e)
|
|
|
–
|
|
|
|
(328
|
)
|
Montana
Tunnels joint venture (b)
|
|
|
–
|
|
|
|
10,911
|
|
Convertible
debentures (d)
|
|
|
(217
|
)
|
|
|
(86
|
)
|
Income
taxes related to flow-through share issuance (e)
|
|
|
–
|
|
|
|
(869
|
)
|
Equity-linked
financial instruments (g)
|
|
|
(17,305
|
)
|
|
|
(27,318
|
)
|
Total
liabilities in accordance with Canadian GAAP
|
|
$
|
132,941
|
|
|
$
|
154,000
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity (deficiency) in accordance with U.S.
GAAP
|
|
$
|
22,088
|
|
|
$
|
(12,429
|
)
|
Financing
costs (a)
|
|
|
–
|
|
|
|
(485
|
)
|
Black
Fox development costs (c)
|
|
|
26,633
|
|
|
|
27,674
|
|
Convertible
debentures (d)
|
|
|
(230
|
)
|
|
|
86
|
|
Income
taxes related to flow-through share issuance (e)
|
|
|
–
|
|
|
|
869
|
|
Equity-linked
financial instruments (g)
|
|
|
17,305
|
|
|
|
27,318
|
|
Total
shareholders’ equity in accordance with Canadian GAAP
|
|
$
|
65,796
|
|
|
$
|
43,033
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’
equity and liabilities in accordance with Canadian GAAP
|
|
$
|
198,737
|
|
|
$
|
197,033
|
|
Under Canadian GAAP, the components of
shareholders’ equity would be as follows:
|
|
|
|
|
|
Share
capital
|
|
$
|
228,664
|
|
|
$
|
202,925
|
|
Equity
component of convertible debentures
|
|
|
312
|
|
|
|
584
|
|
Contributed
surplus
|
|
|
37,022
|
|
|
|
36,051
|
|
Deficit
|
|
|
(200,202
|
)
|
|
|
(196,527
|
)
|
Total
shareholders’ equity in accordance with Canadian GAAP
|
|
$
|
65,796
|
|
|
$
|
43,033
|
|
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Under
Canadian GAAP, the net loss and net loss per share would be adjusted as
follows:
|
|
Three
months ended
March
31,
|
|
|
|
|
|
|
|
|
Income
(loss) before equity loss in Montana Tunnels joint venture for the period,
based on U.S. GAAP
|
|
$
|
7,150
|
|
|
$
|
(27,800
|
)
|
Financing
costs (a)
|
|
|
38
|
|
|
|
(572
|
)
|
Black
Fox development costs (c)
|
|
|
(1,041
|
)
|
|
|
–
|
|
Convertible
debentures (d)
|
|
|
(181
|
)
|
|
|
(168
|
)
|
Warrants
treated as liabilities under EITF 07-5 (h)
|
|
|
(10,013
|
)
|
|
|
4,753
|
|
Income
taxes (f)
|
|
|
1,073
|
|
|
|
116
|
|
Loss
from continuing operations for the period, based on Canadian
GAAP
|
|
|
(2,974
|
)
|
|
|
(23,671
|
)
|
Equity
loss in Montana Tunnels joint venture, under U.S. GAAP
|
|
|
(701
|
)
|
|
|
(624
|
)
|
Montana
Tunnels joint venture (b)
|
|
|
–
|
|
|
|
(458
|
)
|
Loss
from discontinued operations for the period, based on Canadian
GAAP
|
|
|
(701
|
)
|
|
|
(1,082
|
)
|
Net
(loss) income for the period based on Canadian GAAP
|
|
$
|
(3,675
|
)
|
|
$
|
(24,753
|
)
|
Comprehensive
loss based on Canadian GAAP
|
|
$
|
(3,675
|
)
|
|
$
|
(24,753
|
)
|
Basic
and diluted net loss per share in accordance with Canadian
GAAP
|
|
$
|
(0.01
|
)
|
|
$
|
(0.11
|
)
|
Equity
loss in Montana Tunnels joint venture, under U.S. GAAP
Under
Canadian GAAP, the consolidated statements of cash flows would be adjusted as
follows:
|
|
Three
months ended
March
31,
|
|
|
|
|
|
|
|
|
Cash
(used in) provided by operating activities based on U.S.
GAAP
|
|
$
|
(1,379
|
)
|
|
$
|
749
|
|
Montana
Tunnels joint venture (b)
|
|
|
–
|
|
|
|
807
|
|
Cash
(used in) provided by operating activities based on Canadian
GAAP
|
|
|
(1,379
|
)
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
Cash
used in investing activities based on U.S. GAAP
|
|
|
(12,354
|
)
|
|
|
(13,696
|
)
|
Montana
Tunnels joint venture (b)
|
|
|
–
|
|
|
|
(6
|
)
|
Restricted
cash for Canadian flow-through expenditures (e)
|
|
|
(4,295
|
)
|
|
|
(3,084
|
)
|
Cash
used in investing activities based on Canadian GAAP
|
|
|
(16,649
|
)
|
|
|
(16,786
|
)
|
|
|
|
|
|
|
|
|
|
Cash
provided by financing activities based on U.S. GAAP
|
|
|
15,669
|
|
|
|
17,596
|
|
Montana
Tunnels joint venture (b)(i)
|
|
|
–
|
|
|
|
(267
|
)
|
Cash
provided by financing activities based on Canadian GAAP
|
|
|
15,669
|
|
|
|
17,329
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash (outflow) inflow in accordance with Canadian GAAP
|
|
|
(2,364
|
)
|
|
|
2,095
|
|
Cash,
beginning of period in accordance with Canadian GAAP
|
|
|
4,295
|
|
|
|
3,097
|
|
Cash,
end of period in accordance with Canadian GAAP
|
|
$
|
1,931
|
|
|
$
|
5,192
|
|
Under
U.S. GAAP, debt financing costs are capitalized and amortized over the term of
the related debt.
Under
Canadian GAAP, the Company expenses debt financing costs when they are
incurred.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
(b)
|
Montana
Tunnels joint venture
|
Under
U.S. GAAP, the Company has accounted for its 50% interest in the Montana Tunnels
joint venture (“Montana Tunnels”) using the equity method whereby the Company's
share of the investees' earnings and losses is included in operations and its
investments therein are adjusted by a similar amount.
Under
Canadian GAAP, the Company would account for its joint venture interest in
Montana Tunnels using the proportionate consolidation method whereby the
Company's proportionate share of each line item of Montana Tunnels assets,
liabilities, revenues and expenses is included in the corresponding line item of
the Company's financial statements.
(c)
|
Development
of Black Fox
|
On April
14, 2008, the Company filed a Canadian National Instrument 43-101 prepared to
U.S. standards and on April 24, 2008, the Company’s Board of Directors approved
a plan authorizing management to proceed with development of Black
Fox. Therefore, effective April 24, 2008, under U.S. GAAP, mining
development costs at the Black Fox Project are
capitalized. Development costs incurred prior to April 24, 2008 were
expensed as incurred under U.S. GAAP.
Under
Canadian GAAP, mining development costs at Black Fox Project have been
capitalized from inception. Accordingly, for Canadian GAAP purposes,
a cumulative increase in property, plant and equipment of $26.2 million has been
recorded as at March 31, 2010.
(d)
|
Convertible
debentures
|
Under
Canadian GAAP, the 2007 Debentures (Note 9(b)) would be recorded as compound
financial instruments including detachable note warrants. On
issuance, under U.S. GAAP, the detachable note warrants are similarly treated as
an equity instrument with the remainder of the convertible debentures treated as
a liability. Further, under U.S. GAAP, the beneficial conversion
features determined using the effective conversion prices based on the proceeds
allocated to the convertible debentures is allocated to additional paid-in
capital. This discount on the debenture is recognized as additional
interest expense immediately as the debt is convertible at the date of
issuance. Canadian GAAP does not require the recognition of any
beneficial conversion feature.
(e)
|
Flow-through
common shares
|
Under
Canadian income tax legislation, a company is permitted to issue flow-through
shares whereby the Company agrees to incur qualifying expenditures and renounce
the related income tax deductions to the investors. Under U.S. GAAP,
the proceeds from issuance of these shares are allocated between the offering of
shares and the sale of tax benefits. The allocation is made based on
the difference between the quoted price of the existing shares and the amount
the investor pays for the shares. A liability is recognized for this
difference. The liability is reversed when tax benefits are renounced
and a deferred tax liability is recognized at that time. Income tax
expense is the difference between the amount of a deferred tax liability and the
liability recognized on issuance.
Under
Canadian GAAP, the Company has accounted for the issue of flow-through shares
using the deferral method in accordance with Canadian GAAP. At the
time of issue, the funds received are recorded as share
capital.
APOLLO
GOLD CORPORATION
Notes
to the Condensed Consolidated Financial Statements
Three
month period ended March 31, 2010
(Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
(Unaudited)
Also,
notwithstanding whether there is a specific requirement to segregate the funds,
the flow-through funds which are unexpended at the consolidated balance sheet
dates are considered to be restricted and are not considered to be cash or cash
equivalents under U.S. GAAP. They are not considered restricted under
Canadian GAAP. As at March 31, 2010 and December 31, 2009, there were
unexpended flow-through funds of $4.6 million and $4.6 million,
respectively.
While tax
accounting rules are essentially the same under both U.S. and Canadian GAAP, tax
account differences can arise from differing treatment of various assets and
liabilities. For example, certain mine developments cost are
capitalized under Canadian GAAP and expensed under U.S. GAAP, as explained
in (c) above. An analysis of these differences indicates that there
are larger potential tax benefits under U.S. GAAP than under Canadian GAAP
but a valuation allowance has been applied to all amounts as of March 31,
2010.
(g)
|
Equity-linked
financial instruments not indexed to the Company’s own
stock
|
Under
U.S. GAAP, effective January 1, 2009, an equity-linked financial instrument
would not be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional
currency. As of March 31, 2010 and December 31, 2009, the Company had
104.4 million and 105.5 million outstanding warrants to purchase common shares
of the Company, respectively, that were denominated in a currency (Canadian
dollars) other than its functional currency (US dollars). As such,
these warrants are not considered to be indexed to the Company’s own stock, and
are thereby required to be accounted for separately as derivative instruments,
rather than as equity instruments.
Under
Canadian GAAP, these warrants are accounted for as equity instruments, with
their fair value upon issuance recognized as additional paid-in
capital.
On April
23, 2010, the Company unwound its Canadian dollar foreign exchange contracts
(see Note 6) for net proceeds of $8.2 million. The proceeds were used
to reduce the debt outstanding on the Project Facility.
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
All
Dollar amounts are expressed in United States Dollars.
The
following discussion and analysis should be read in conjunction with
‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ contained in our Annual Report on Form 10-K for the year ended
December 31, 2009 as well as with the consolidated financial statements and
related notes and the other information appearing elsewhere in this
report. As used in this report, unless the context otherwise
indicates, references to ‘‘we,’’ ‘‘our,’’ “us,” the “Company” or ‘‘Apollo’’
refer to Apollo Gold Corporation and its subsidiaries
collectively. The financial statements in this Form 10-Q have been
prepared in accordance with generally accepted accounting principles in the
United States (U.S. GAAP). For a reconciliation to GAAP in Canada
(Canadian GAAP), see Note 19 to the consolidated financial statements set forth
above.
In this
Form 10-Q, the terms “cash operating cost,” “total cash cost” and “total
production cost” are non-GAAP financial measures and are used on a per ounce of
gold sold basis. Cash operating costs per ounce is equivalent to
direct operating cost as found on the Consolidated Statements of Operations,
less production royalty expenses and mining taxes but includes by-product
credits for payable silver, lead, and zinc production, where
applicable. Total cash costs is equivalent to cash operating costs
plus production royalties and mining taxes. The term “total
production costs” is equivalent to total cash costs plus non-cash costs
including depreciation and amortization. See “Reconciliation of Cash
Operating and Total Production Costs Per Ounce” below. References in
this Form 10-Q to “$” are to United States dollars. Canadian dollars
are indicated by the symbol “Cdn$”.
BACKGROUND
AND RECENT DEVELOPMENTS
We are
principally engaged in gold mining including extraction, processing, and
refining, as well as related activities including exploration and development of
mineral deposits principally in North America. We own Black Fox, an
open pit and underground mine and mill located in the Province of Ontario,
Canada (“Black Fox”). The Black Fox mine site is situated seven miles
east of Matheson and the mill complex is twelve miles west of
Matheson. Mining of ores from the open pit began in March 2009 and
milling operations commenced in April 2009. Underground mining at
Black Fox is expected to commence in 2010. We own two exploration
properties adjacent to Black Fox mine site known as Grey Fox and Pike
River.
We also
own Mexican subsidiaries which own an 80 percent interest in the Huizopa Project
joint venture, (20 percent Minas de Coronado, S. de R.L. de CV), an early stage
exploration project located in the Sierra Madres in Chihuahua,
Mexico.
During
the third quarter of 2009, the Company adopted a plan to dispose of Montana
Tunnels Mining, Inc. (“MTMI”), which includes the Montana Tunnels and Diamond
Hill mines. The Montana Tunnels mine, a 50% joint venture (“Montana
Tunnels”), accounted for under the equity investment method, is an open pit mine
and mill that produced gold doreand 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, was also under care and
maintenance. On February 1, 2010, we completed the sale of all the
outstanding capital stock of MTMI, which held the 50% joint venture in the
Montana Tunnels mine, to our joint venture partner, Elkhorn Goldfields, Inc.
(“Elkhorn”), for consideration consisting of certain promissory notes held by
Elkhorn and certain investors in Elkhorn or its affiliates from Calais
Resources, Inc., Calais Resources Colorado, Inc. (together with Calais
Resources, Inc., “Calais”) and Aardvark Agencies, Inc. with an aggregate
outstanding balance of approximately $9.5 million. Certain of the
promissory notes (with an aggregate outstanding balance of approximately $8
million) are past due and we agreed to forbear from collecting such notes until
February 1, 2011.
Corporate
Proposed
Business Combination with Linear and Related Private
Placement
General
. On March
9, 2010, Apollo and Linear entered into a binding letter of intent (as amended
on March 18, 2010, the “Letter of Intent”) pursuant to which (i) the businesses
of Apollo and Linear would be combined by way of a court-approved plan of
arrangement (the “Arrangement”) pursuant to the provisions of the Business
Corporations Act (Alberta) (“ABCA”) and (ii) Linear would purchase approximately
62,500,000 common shares (the “Purchased Shares”) of Apollo at a price of
Cdn$0.40 per common share for gross proceeds of Cdn$25.0 million (the “Private
Placement”). The Private Placement was completed on March 19,
2010. As part of the Arrangement, the Apollo common shares issued to
Linear in this Private Placement will be cancelled without any payment upon
completion of the Arrangement. On March 31, 2010, Apollo, 1526735
Alberta ULC, an unlimited liability company existing under the laws of the
Province of Alberta and wholly owned by Apollo (“Subco”), and Linear entered
into a definitive arrangement agreement (the “Arrangement Agreement”) with
respect to the Arrangement. The Arrangement Agreement supersedes the
binding letter of intent entered into between Apollo and Linear on March 9, 2010
(and as amended on March 18, 2010) and disclosed in the Form 8-Ks filed by
Apollo with the U.S. Securities and Exchange Commission (the “SEC”) on March 9,
2010 and March 23, 2010.
Pursuant to the
Arrangement:
|
·
|
each
outstanding Linear common share will be exchanged for 5.4742 Apollo common
shares (the “Exchange Ratio”);
|
|
·
|
each
warrant to purchase a Linear common share (a “Linear Warrant”) outstanding
immediately prior to the effective time of the Arrangement (the “Effective
Time”) will be exchanged for a warrant to purchase an Apollo common share
(an “Apollo Warrant”) which will be exercisable to acquire, on the same
terms and conditions as were applicable to such Linear Warrant immediately
prior to the Effective Time, the number of Apollo common shares (rounded
to the nearest whole number) equal to the product of: (A) the number of
Linear common shares subject to such Linear Warrant immediately prior to
the Effective Time; and (B) 5.4742; the exercise price per Apollo common
share subject to any such Apollo Warrants shall be an amount (rounded to
the nearest cent) equal to the quotient of: (A) the exercise price per
Linear common share subject to such Linear Warrant immediately prior to
the Effective Time divided by (B) 5.4742;
and
|
|
·
|
each
outstanding option to purchase a Linear common share (“Linear Option”)
granted under Linear’s Stock Option Plan will be exchanged for options of
Apollo (the “Apollo Options”) granted under Apollo’s Stock Option Plan
which will be exercisable to acquire, on the terms and conditions set
forth in the Apollo Stock Option Plan, the number of Apollo common shares
(rounded to the nearest whole number) equal to the product of: (A) the
number of Linear common shares subject to such Linear Option immediately
prior to the Effective Time and (B) 5.4742; the exercise price per Apollo
common share subject to any such Apollo Option shall be an amount (rounded
to the nearest cent) equal to the quotient of: (A) the exercise price per
Linear common share subject to such Linear Option immediately prior to the
Effective Time divided by (B) 5.4742; provided that current employees of
Linear holding Linear Options whose employment is terminated in connection
with the Arrangement will have their Linear Options exchanged for Apollo
Options which shall expire on the earlier of: (i) the current expiry date
of the corresponding Linear Options; and (ii) the first anniversary of the
date of completion of the
Arrangement.
|
Upon consummation of the Arrangement,
the transaction is expected to be accounted for as an acquisition of a business
with Apollo being the acquirer. The shareholders of Linear
immediately prior to the Arrangement are expected to own approximately 47.8% of
the outstanding common stock of Apollo on a non-diluted basis and approximately
42.9% on a fully-diluted basis.
Board of Directors and other
Matters.
Upon consummation of the Arrangement, the Arrangement
Agreement contemplates that:
|
·
|
Apollo
and Linear will agree on a new name for Apollo;
and
|
|
·
|
The
Board of Directors of Apollo would consist of seven directors, which would
be composed of (i) Wade Dawe (the current Chief Executive Officer of
Linear), who would be nominated as the Chairman of the Board of Directors,
(ii) three current Apollo board members or Apollo nominees, (iii) two
Linear nominees and (iv) one nominee who shall be a technical person
mutually agreed upon by Apollo and
Linear.
|
Conditions to Consummation of
Arrangement
. The Arrangement Agreement provides that each
party’s obligation to proceed with the Arrangement is subject to a number
of conditions precedent, including without limitation conditions
relating to (i) obtaining the necessary interim and final orders of the Court of
Queen’s Bench of Alberta (the “Court”), (ii) approval of the securityholders of
Linear and Apollo of the transactions set forth in the Arrangement Agreement for
which their approval is required under applicable law, (iii) approval of the
Toronto Stock Exchange and the NYSE Amex Equities Exchange to the listing of the
Apollo common shares to be issued in the Arrangement and the Apollo common
shares issuable upon exercise of the Apollo Options and Apollo Warrants issued
in the Arrangement, (iv) the effectiveness of a U.S. registration statement
registering the issuance of the Apollo common shares issuable upon exercise of
the Apollo Options and Apollo Warrants issued in the Arrangement under the
Securities Act and (v) other customary conditions typical for transactions of
this type.
Break Fee.
The
Arrangement Agreement provides that Apollo is required to pay a break fee of
Cdn$4.0 million if the Arrangement Agreement is terminated (i) as a result the
failure to obtain the requisite Apollo shareholder approval or (ii) in certain
circumstances relating to Apollo’s receipt of a competing acquisition proposal
or if Apollo accepts a “superior proposal” meeting the requirements set forth in
the Arrangement Agreement. In addition, Linear is required to pay a
break fee of Cdn$4.0 million if the Arrangement Agreement is terminated (i) as a
result of the failure to obtain the requisite Linear shareholder approval or
(ii) in certain circumstances relating to Linear’s receipt of a
competing acquisition proposal or if Linear accepts a “superior proposal”
meeting the requirements set forth in the Arrangement Agreement.
Linear Private
Placement
Concurrently with the execution of the
Letter of Intent, Apollo and Linear entered into a subscription agreement (the
“Subscription Agreement”) providing for a Private Placement whereby Linear
purchased 62,500,000 common shares of Apollo at a price of Cdn$0.40 per common
share for gross proceeds of Cdn$25.0 million. This Private Placement
closed on March 19, 2010.
Pursuant to the Letter of Intent and
the Subscription Agreement (i) each of Macquarie Bank Limited and RMB Australia
Holdings Limited (collectively, the “Banks”) entered into a support agreement
pursuant to which each of the Banks agreed, among other things, to support and
vote in favor of the Arrangement; and (ii) each of the Banks entered into a
lock-up agreement, pursuant to which each of the Banks agreed, among
other things, not to, directly or indirectly, exercise or offer, sell, contract
to sell, lend, swap, or enter into any other agreement to transfer the economic
consequences of any of the Apollo common shares or common share purchase
warrants of Apollo held by them before December 31, 2010 (See Note 9(a) for
additional information about the Project Facility).
Black
Fox Financing Agreement
On
February 20, 2009, we entered into a $70.0 million project financing agreement
(“Project Facility”) with Macquarie Bank Ltd. (“Macquarie Bank”) and RMB
Australia Holdings Limited (“RMB”) (together as the “Banks”) as joint arrangers
and underwriters.
On March 9, 2010, the Banks
executed a consent letter (the “Consent Letter”), which was agreed to
and accepted by each of Apollo and Linear Gold Corp. (“Linear”), pursuant to
which the Banks agreed, subject to the terms and conditions contained in the
Consent Letter:
|
·
|
to
consent to the Arrangement (the
“Consent”);
|
|
·
|
before
September 30, 2010, not to make a demand, accelerate payment or enforce
any security or any other remedies upon an “event of default” or a “review
event” under the Project Facility unless and until the occurrence of
certain “override events” set forth in the Consent Letter (which “override
events” are primarily related to breaches of certain covenants and
provisions of the Consent Letter and the Project Facility) (the
“Standstill Provisions”); and
|
|
·
|
to
amend certain provisions of the Project Facility, including without
limitation the following revised repayment
schedule:
|
Repayment
Date
|
|
Repayment Amount
|
|
The
earlier of two business days following completion of the Private Placement
and March 19, 2010
|
|
$
|
10,000,000
|
|
The
earlier of July 2, 2010 and the date that is two business days following
the consummation of the Arrangement
|
|
$
|
10,000,000
|
|
The
earlier of September 30, 2010 and the date on which the proceeds from any
one or more equity raisings following the consummation of the Arrangement
equals $10,000,000
|
|
$
|
10,000,000
|
|
December
31, 2010
|
|
$
|
5,000,000
|
|
The
remaining repayment dates between March 31, 2011 and March 31, 2013 to be
agreed between Apollo and the Banks by no later than September 30, 2010 to
reflect the “cashflow model” (as defined under the Project Facility) that
is approved by the Banks. In the absence of agreement between
Apollo and the Banks by September 30, 2010, amounts outstanding under the
Project Facility shall be due and payable on December 31,
2010.
|
|
$
|
35,000,000
|
|
The Banks’ agreement to the Consent and
the Standstill Provisions is subject to a number of conditions, including
without limitation (i) the Banks approving the Definitive Agreements and such
Definitive Agreements being executed by no later than March 31, 2010, (ii) the
Banks being satisfied that the completion of the Arrangement will not cause a
breach or default under any “project documents” (as defined in the Project
Facility), (iii) the Banks being satisfied that the Arrangement will not have
any material negative tax implications for Apollo, Linear and each of their
direct or indirect subsidiaries, (iv) the Banks being satisfied that,
immediately following completion of the Arrangement and after making the payment
of $10.0 million as set forth in the repayment schedule set forth above, Apollo
having restricted cash on hand of not less than Cdn$10.0 million, (v) at
completion of the Arrangement, the Banks being satisfied regarding indebtedness
and encumbrances of Linear and its direct and indirect subsidiaries, and (vi)
that the Banks will allow the Company to close out its Canadian dollar foreign
exchange contracts provided it would generate proceeds of greater than $5.0
million – the proceeds from the close out of these contracts would be applied to
the repayment due under the Repayment Schedule in reverse order of
maturity. On March 19, 2010, the Company repaid $10.0 million of
principal due on the Project Facility in accordance with (iv)
above. On April 23, 2010, the Canadian dollar foreign exchange
contracts were unwound for proceeds of $8.2 million which amount was repaid to
reduce the principal balance of the Project Facility.
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, 2010, the Company was in compliance with the various financial and
operational covenants of the Project Facility. The Company expects to
be able to meet its covenants during the next twelve months.
Extension
of maturity date for February 2007 convertible debentures held by
RAB
On
February 26, 2010, we reached an agreement with RAB, the holder of the February
2007 convertible debentures with principal amount of $4.3 million, to extend the
maturity date of the convertible debentures to August 23, 2010. Under
the terms of the convertible debentures, $0.8 million of accrued and unpaid
interest was due as of February 23, 2010, which was paid in cash by the Company
on March 3, 2010. In consideration for the extension of the maturity
date of the convertible debentures, the Company agreed to issue to RAB, (i)
800,000 additional common shares of the Company and (ii) 2,145,000 common share
purchase warrants (the “RAB Warrants”) whereby one RAB Warrant entitles the
holder to purchase one common share at an exercise price of $0.50 per share,
expiring February 23, 2011.
Black
Fox
During the first quarter of 2010, we
mined 2,062,000 tonnes of material of which 190,000 tonnes was gold
ore. The Black Fox mill processed 178,000 tonnes of ore (1,976 tonnes
per day), at a grade of 2.68 grams of gold per tonne, achieving a recovery rate
of 93%, for total gold production of 14,175 ounces. Gold ounces sold
during the quarter were 15,796 ounces. All gold sold was against the
forward sales contracts at a realized price of $875 per ounce. The
total cash cost per ounce of gold for the quarter was $631.
Much of the first quarter of 2010 was
spent in planning the commencement of the development of the Black Fox
underground mine. Currently there is an access ramp from surface down
to the 235 meter level where there is a 1,000 meter drift. The
underground mine development plan presently contemplates: (i) rehabilitation of
the existing ramp for production, (ii) development of a new ventilation raise,
and (iii) development of access drifts to the ore headings. In April
2010, we awarded the underground development contract to Cementation Inc., which
is expected to commence its development operations during May 2010. The Company
plans to mine underground ores using its own equipment and employees
and anticipates that the first ores will be extracted from underground
mining in July 2010 at a rate of approximately 100 tonnes per day rising
steadily to 750 tonnes per day at the commencement of 2011.
During January and February 2010, the
ore grade mined was low but we are now seeing an improvement in the grade as we
transition from a lower ore grade area of the open pit to mining higher ore
grade areas as the open pit deepens. The average gold grade at the
mill improved to nearly 3 grams per tonne (“gpt”) in March 2010 and further
increased to almost 3.5 gpt in April 2010, which was a significant improvement
over the average grade in Q1 2010. We are expecting progressively
higher production for the rest of 2010 and the July start up of underground
mining operations is expected to augment production with higher grade and higher
margin ounces of gold from the underground mine.
Capital expenditures for the first
quarter of 2010 were $1.1 million and included completion of the crushing
circuit at the mill in January 2010, which was completed to enable the mill to
achieve its targeted throughput rate of ores of 2,000 tonnes per day for the
year 2010.
Grey Fox and Pike River
Exploration Properties
During
2009 we conducted a 53-hole exploration program, mainly on our Grey Fox
property, and all holes but one intersected gold mineralization. All
assays on these holes are complete and work continues on production of an
initial National Instrument 43-101 compliant mineral resource estimate,
including some Measured and Indicated Resources, covering the first 500 meters
of strike and a maximum of 250 meters at the Contact Zone, expected to be
completed in the second quarter of 2010. At the beginning of
April 2010, we commenced our 2010 exploration drilling program targeted on both
Grey Fox and Pike River.
Production
& Metals Price Averages
The table
below summarizes our production of gold and silver, as well as average metal
prices and other key statistics, for the three months ended March 31,
2010:
|
|
Three months
ended
March
31,
2010
|
|
Metal
Sales:
|
|
|
|
Gold
(ounces)
|
|
|
15,796
|
|
Silver
(ounces)
|
|
|
930
|
|
Total
revenue ($millions)
|
|
$
|
17.6
|
|
Gold
ounces produced
|
|
|
14,175
|
|
Ore
tonnes mined
|
|
|
190,000
|
|
Total
tonnes mined
|
|
|
2,062,000
|
|
Tonnes
milled
|
|
|
178,000
|
|
Tonnes
per day milled
|
|
|
1,978
|
|
Head
grade of ore (gpt)
|
|
|
2.68
|
|
Recovery
(%)
|
|
|
93
|
|
Total
cash and production costs on a by-product basis:
|
|
|
|
|
Total
cash costs per ounce of gold
|
|
$
|
631
|
|
Total
production costs per ounce of gold
|
|
$
|
861
|
|
Average
metal prices:
|
|
|
|
|
Gold
- London bullion market. ($/ounce)
|
|
$
|
1,109
|
|
Silver
- London bullion market ($/ounce)
|
|
$
|
16.93
|
|
RECONCILIATION
OF CASH OPERATING AND TOTAL PRODUCTION COSTS PER OUNCE
($
in thousands)
|
|
Three months
ended
March
31,
2010
|
|
Gold
ounces sold
|
|
|
15,796
|
|
Direct
operating costs
|
|
$
|
9,984
|
|
Less: Mining
taxes, royalty expenses
|
|
|
–
|
|
By-product
credits
|
|
|
(16
|
)
|
Cash
operating cost
|
|
|
9,968
|
|
Cash
operating cost per ounce of gold
|
|
$
|
631
|
|
Cash
operating costs
|
|
|
9,968
|
|
Add: Mining
taxes, royalty expenses
|
|
|
–
|
|
Total
cash costs
|
|
|
9,968
|
|
Total
cash cost per ounce of gold
|
|
$
|
631
|
|
Total
cash costs
|
|
|
9,968
|
|
Add: Depreciation
& amortization (operations only)
|
|
|
3,455
|
|
Add: Accretion
on accrued site closure costs
|
|
|
175
|
|
Total
production costs
|
|
|
13,598
|
|
Total
production cost per ounce of gold
|
|
$
|
861
|
|
MATERIAL
CHANGES IN RESULTS OF OPERATIONS
Three
Months Ended March 31, 2010 Compared to the Three Months Ended March 31,
2009
In late May 2009, Black Fox, the
Company’s only producing property, entered commercial
production. Therefore, there was little or no comparable activity to
report for the three months ended March 31, 2009 for revenue from the sale of
gold, direct operating costs, depreciation and amortization, and accretion
expense – accrued site closure costs.
Revenue
from the Sale of Gold
Revenue
for the three months ended March 31, 2010 was $17.6 million compared to nil for
the same period in 2009. The average spot price recorded for gold for
the three months ended March 31, 2010 was $1,109 per ounce. Gold sold
for the three months ended March 31, 2010 was 15,796 ounces. All gold
sales were delivered against our gold forward sales contracts and therefore cash
received was at a realized price of $875 per ounce. The difference
between the average spot price per ounce of gold and the forward sales contract
price is recorded as a realized loss on derivative instruments.
Operating
Expenses
Direct Operating
Costs.
Direct operating costs at Black Fox, which include
mining costs and processing costs, for the three months ended March 31, 2010
were $10.0 million, compared to nil for the three months ended March 31,
2009.
Depreciation and
Amortization.
Depreciation and amortization expenses were $3.5
million and $0.01 million for the three months ended March 31, 2010 and 2009,
respectively.
Accretion Expense – Accrued Site
Closure Costs.
Accrued accretion expense was $0.2 million for
the three months ended March 31, 2010 compared to nil for the same period in
2009.
General and Administrative
Expenses.
General and administrative expenses were $1.9
million and $0.9 million for the three months ended March 31, 2010 and 2009,
respectively. The increase is a result of increased accounting,
legal, marketing and personnel expenses.
Exploration and Business
Development.
Expenses for exploration and development, related
to costs of maintaining our exploration properties totaled $0.3 million and $0.2
million for the three months ended March 31, 2010 and 2009,
respectively. During the first quarter of 2010, we spent $0.2 million
for exploration activities at our Grey Fox and Pike River properties in Canada
and $0.1 million at our Huizopa property in Mexico.
Total Operating
Expenses
. As a result of these expense components, our total
operating expenses for the three months ended March 31, 2010 were $15.8 million,
compared to $1.2 million for the three months ended March 31,
2009. The increase is primarily due to the commencement of commercial
production in late May 2009 at Black Fox.
Other
Income (Expenses)
Interest
Expense.
We recorded interest expense of $3.3 million during
the three months ended March 31, 2010 compared to $0.8 million during the three
months ended March 31, 2009. The increase is a result of increased
borrowings in conjunction with the $70 million Project Facility and an increase
in interest on capital leases. Additionally, interest of $0.8 million
was capitalized for the development of the Black Fox project during the three
months ended March 31, 2009.
Debt Transaction
Costs.
We recorded no debt transaction costs during the three
months ended March 31, 2010. During the three months ended March 31,
2009, we recorded debt transaction costs of $1.2 million related to the issuance
of common shares and warrants issued to a financial advisory services firm for
services.
Loss on Modification of Convertible
Debentures.
During the three months ended March 31, 2010, we
recorded a loss on modification of convertible debentures of $0.5 million
compared with $2.0 million for the three months ended March 31,
2009. For the three months ended March 31, 2010, the $0.5 million
loss is in connection with the issuance of shares and warrants for the a
six-month extension of $4.3 million face value Series 2007-A convertible
debentures which are now due on August 23, 2010. The $2.0 million
loss for the three months ended March 31, 2009 is in connection with the
issuance of shares and extension of warrants and a reduction in exercise price
of those warrants for the one year extension of $4.3 million face value Series
2007-A convertible debentures.
Linear Acquisition
Costs.
During the three months ended March 31, 2010, we
recorded $0.6 million for costs related to the proposed business combination
with Linear Gold Corp.
Fair Value Change on Equity-Linked
Financial Instruments.
During the three months ended March 31,
2010 and 2009, we recorded a gain of $10.0 million and a loss of $4.8 million,
respectively, for the change in fair value of certain warrants to purchase our
common shares denominated in a foreign currency (the Canadian dollar) due to
these warrants being treated as derivative instruments rather than equity
instruments for accounting purposes.
Realized (Losses) Gains on
Derivative Instruments.
For the three months ended March 31,
2010 and 2009, we recorded realized losses on derivative instruments of $3.3
million and realized gains of $0.4 million, respectively. The $3.3
million realized losses for the three months ended March 31, 2010 are comprised
of (1) $3.7 million losses for gold forward sales contracts settled and (2) $0.4
million gains for Canadian dollar contracts settled while the $0.4 million gain
in 2009 was for Canadian dollar purchase contracts settled.
Unrealized Gains (Losses) on
Derivative Instruments.
For the three months ended March 31,
2010 and 2009, we recorded unrealized gains on derivative instruments of $2.0
million and unrealized losses of $18.4 million, respectively. The
$2.0 million unrealized gains for the three months ended March 31, 2010 are
comprised of (1) $0.6 million for the change in fair value of the outstanding
gold contracts and (2) $1.4 million for the change in value of Canadian dollar
purchase contracts. The $18.4 million unrealized losses 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 and (3) a
$1.8 million loss recorded for the fair value of Canadian dollar contracts as of
March 31, 2009.
Net
Income (Loss)
As a
result of the foregoing, the Company recorded net income of $6.4 million, or
$0.02 per share, for the three months ended March 31, 2010, as compared to a net
loss of $28.4 million, or ($0.13) per share, for the three months ended March
31, 2009.
MATERIAL
CHANGES IN LIQUIDITY
To date,
we have funded our operations primarily through issuances of debt and equity
securities and cash generated by Black Fox. At March 31, 2010, we had
cash of $1.9 million, compared to cash of nil at December 31,
2009. The increase in cash since December 31, 2009 is primarily the
result of financing cash inflows of $15.7 million, offset by operating cash
outflows of $1.4 million and investing cash outflows of $12.4
million.
During
the three months ended March 31, 2010, net cash used in investing activities
totaled $12.4 million, consisting of capital expenditures for plant and
equipment of $1.1 million at Black Fox and an $11.3 million increase in
restricted cash.
During
the three months ended March 31, 2010, cash provided by financing activities was
$15.7 million. Cash inflows of financing activities included $24.5
million from the issuance of shares to Linear plus $2.2 million from the
exercise of warrants. These inflows were partially offset by cash
outflows for repayment of debt of $11.0 million, $10.0 million of which was for
the Project Facility loan with the Banks, which reduced the amount owing to the
Banks at March 31, 2010 from $70 million down to $60 million.
We
estimate that with our March 31, 2010 cash balance of $1.9 million and
restricted cash balance of $17.7 million, the projected cash flows from Black
Fox, and the successful completion of the proposed Linear business combination,
we will have adequate funds to (1) fund all of 2010 work programs for the
continued development of Black Fox estimated at $30 million, (2) fund $4.0
million of exploration at our Grey Fox and Pike River properties, (3) repay
$10.0 million principal on the Project Facility due upon closing of
the Linear business combination and (4) fund corporate overhead for the balance
of the year. The Company may be required to access debt or equity
markets later in the year to meet additional Project Facility
obligations.
MATERIAL
CHANGES IN CONTRACTUAL OBLIGATIONS
Not
applicable.
MATERIAL
CHANGES IN OFF BALANCE SHEET ARRANGEMENTS
Not
applicable.
ACCRUED
RECLAMATION COSTS
As of
March 31, 2010, we have accrued $5.7 million related to reclamation obligations
at our Black Fox property, an increase of $0.4 million from December 31,
2009. These liabilities are covered by restricted certificates of
deposit of $15.3 million at March 31, 2010. We have accrued the
present value of management’s estimate of these liabilities as of March 31,
2010.
DIFFERENCES
BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP)
The
Company reports under U.S. GAAP and reconciles to Canadian GAAP. The
application of Canadian GAAP has a significant effect on the net income and net
income per share. For a detailed explanation see Note 19 of our
interim financial statements.
CRITICAL
ACCOUNTING ESTIMATES AND 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 the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.
For other
critical accounting policies, please refer to those disclosed in our 10-K filing
for the year ended December 31, 2009 and to the changes in accounting policies
described below.
CHANGES
IN ACCOUNTING POLICIES
In June
2009, the ASC guidance for consolidation accounting was updated to require an
entity to perform a qualitative analysis to determine whether the enterprise’s
variable interest gives it a controlling financial interest in a variable
interest entity (“VIE”). This analysis identifies a primary
beneficiary of a VIE as the entity that has both of the following
characteristics: (i) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and ( ii) the obligation
to absorb losses or receive benefits from the entity that could potentially be
significant to the VIE. The updated guidance also requires ongoing
reassessments of the primary beneficiary of a VIE. The provisions of
the updated guidance are effective for our fiscal year beginning January 1,
2010. The provisions of the updated guidance were adopted January 1,
2010. The adoption had no impact on our financial position, results
of operations, or cash flows.
In
January 2010, the ASC guidance for fair value measurements and disclosure was
updated to require additional disclosures related to transfers in and out of
level 1 and 2 fair value measurements and enhanced detail in the level 3
reconciliation. The guidance was amended to clarify the level of disaggregation
required for assets and liabilities and the disclosures required for inputs and
valuation techniques used to measure the fair value of assets and liabilities
that fall in either level 2 or level 3. The updated guidance was
effective for the Company’s fiscal year beginning January 1, 2010, with the
exception of the level 3 disaggregation which is effective for the Company’s
fiscal year beginning January 1, 2011. The adoption had no impact on
our financial position, results of operations, or cash flows. Refer
to Note 17 for further details regarding the Company’s assets and liabilities
measured at fair value.
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Our
exposure to market risk includes, but is not limited to, the following risks:
changes in interest rates, changes in foreign currency exchange rates, commodity
price fluctuations and equity price risk.
Interest
Rate Risk
As of
March 31, 2010, the Company had $60.0 million principal outstanding on the
Project Facility. The terms of the Project facility include interest
on the outstanding principal amount accruing at a rate equal to LIBOR plus 7%
per annum and interest being repayable in monthly installments (currently the
LIBOR rate is the one-month rate but the LIBOR rate used may be monthly,
quarterly or such other period as may be agreed to by the Banks and
us). We estimate that given the expected outstanding debt during
2010, a one percent change in interest rates would affect our annual interest
expense by $0.5 million. See Note 17(e) to our financial statements
above for more information regarding our interest rate risk.
We
typically invest excess cash in high quality short-term debt
instruments. The rates received on such investments fluctuate with
changes in economic conditions. As a result, our investment income
may fall short of expectations during periods of lower interest
rates. We estimate that given the cash balances expected during 2010,
a one percent change in interest rates would not materially impact our annual
interest income. We may in the future actively manage our exposure to
interest rate risk.
Foreign
Currency Exchange Rate Risk
While the
majority of our transactions are denominated in U.S. dollars, certain purchases
of labor, operating supplies and capital assets are denominated in Canadian
dollars and Mexican pesos. The appreciation of non-US dollar
currencies against the US dollar increases the costs of goods and services
purchased in non-US dollar, which can adversely impact our net income and cash
flows. Conversely, a depreciation of non-US dollar currencies against
the US dollar usually decreases the costs of goods and services purchased in US
dollar terms. We had entered into the forward purchase of Canadian
dollars at an exchange rate with the US dollar of Cdn$1.21=US$1.0 for Cdn$
equivalent of US$58 million over a four year period which commenced in April
2009. We settled the remaining Canadian dollar forward purchase
contracts position for proceeds of $8.2 million. See Notes 6 and
17(d) to our financial statements above for more information regarding our
foreign currency exchange rate risk and how we manage that risk.
The value
of cash and cash equivalent investments denominated in foreign currencies also
fluctuates with changes in currency exchange rates. Appreciation of
non-US dollar currencies results in a foreign currency gain on such investments
and a decrease in non-US dollar currencies results in a loss.
Commodity
Price Risk
The
profitability of the Company’s operations will be dependent upon the market
price of gold. Gold prices fluctuate widely and are affected by numerous factors
beyond the control of the Company. The level of interest rates, the rate of
inflation, the world supply of gold and the stability of exchange rates can all
cause significant fluctuations in prices. Such external economic factors are in
turn influenced by changes in international investment patterns, monetary
systems and political developments. The price of gold has fluctuated widely in
recent years, and future price declines could cause some projects to become
uneconomic, thereby having a material adverse effect on the Company’s business
and financial condition. We have entered into derivative contracts to
protect the selling price for gold. At March 31, 2010, the remaining
contracts cover 184,535 ounces at an average price of $876 per ounce over the
period through May 2013. See Notes 6 and 17(f) to our financial
statements above for more information regarding our commodity price risk and how
we manage that risk. We may in the future more actively manage our
exposure through additional commodity price risk management
programs.
Furthermore,
reserve calculations and life-of-mine plans using significantly lower gold
prices could result in material write-downs of the Company’s investment in
mining properties and increased amortization.
In
addition to adversely affecting the Company's reserve estimates and its
financial condition, declining gold prices could require a reassessment of the
feasibility of a particular project. Such a reassessment may be the result of a
management decision or may be required under financing arrangements related to a
particular project. Even if the project is ultimately determined to be
economically viable, the need to conduct such a reassessment may cause delays in
the implementation of the project.
Equity
Price Risk
We have
in the past and may in the future seek to acquire additional funding by sale of
common shares. Movements in the price of our common shares have been
volatile in the past and may be volatile in the future. As a result,
there is a risk that we may not be able to sell new common shares at an
acceptable price should the need for new equity funding arise.
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
We
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, or Exchange Act) as of March 31,
2010. This evaluation was conducted under the supervision and with
the participation of management, including our Chief Executive Officer and Chief
Financial Officer. Based upon this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of March 31, 2010,
our disclosure controls and procedures were effective to provide reasonable
assurance that information required to be disclosed by us in reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the rules and forms of the
SEC. We also concluded that our disclosure controls and procedures
are effective to provide reasonable assurance that information required to be
disclosed in the reports filed or submitted under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
Changes
in Internal Control
There has
been no change in our internal control over financial reporting during the
quarter ended March 31, 2010, that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
PART II
— OTHER INFORMATION
ITEM 1.
|
LEGAL
PROCEEDINGS
|
On
September 4, 2009, Joe Green and companies owned or controlled by him, including
a Mexican company named Minas de Coronado, S. de R.L. de C.V., with whom the
Company’s Mexican subsidiary, Minera Sol de Oro, S.A. de C.V., has a joint
venture relationship at the Huizopa exploration project in the State of Sonora,
Mexico, filed a complaint against us in the United States District Court for the
District of Nevada. In that complaint, Mr. Green alleges, among other
things, that we and Minera Sol de Oro have breached various agreements and
alleged fiduciary duties and have failed to recognize Minas de Coronado’s right
to a joint venture interest in the Huizopa exploration project, and asks the
Court to undo the parties’ 80/20 joint venture arrangement and compel the return
of the Huizopa exploration project properties to Mr. Green’s companies. We
believe that the claims in the complaint are without merit, and intend to
vigorously defend ourselves against those claims.
On
October 5, 2009, we filed a motion to dismiss the complaint and to compel
arbitration or, in the alternative, to stay proceedings pending the conclusion
of the arbitration. On March 2, 2010, the court held a hearing on that
motion and on March 9, 2010, the court granted our motion and dismissed the
action. On April 8, 2010, Mr. Green appealed the March 9, 2010
Nevada District Court decision to the Ninth Circuit Court of Appeals. As a
result, Apollo will not be able to commence arbitration proceedings until that
appeal is decided or dropped.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in ‘‘Risk Factors’’ in our Annual Report on Form
10-K for the year ended December 31, 2009, which could materially affect our
business, financial condition and/or future results. The risks
described in our Annual Report on Form 10-K are not the only risks facing
us. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
In
accordance with Item 2(a) of Form 10-Q, information in respect of unregistered
sales of equity securities is not provided herein because it has been previously
included in a Current Report on Form 8-K.
Exhibit No.
|
|
Title of Exhibit
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley
Act
|
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
APOLLO
GOLD CORPORATION
|
|
|
Date: May
10, 2010
|
/s/
R. David
Russell
|
|
R.
David Russell, President and
|
|
Chief
Executive Officer
|
|
|
Date: May
10, 2010
|
/s/
Melvyn
Williams
|
|
Melvyn
Williams,
|
|
Chief
Financial Officer and Senior Vice President Finance
and
Corporate Development
|
Index to
Exhibits
Exhibit No.
|
|
Title of Exhibit
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley
Act
|
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