posted on Oct 26, 2009 08:30AM
see Brigus Gold for current activity
Haywood Securities says Apollo Gold's decision to divest its 50% ownership in the Montana Tunnels project is good for Apollo's Black Fox gold mine, and for eventually resuming production at Montana Tunnels.Author: Dorothy Kosich
RENO, NV -
Haywood Securities said the decision of junior gold miner Apollo Gold to sell its 50% interest in the Montana Tunnels project in Montana to joint venture partner Elkhorn Tunnels for US$9 million should help with Apollo's $6.3 million debt payment.
The two companies have entered into a letter of intent for the sale of the 50% interest in Montana Tunnels, the Diamond Hill mine and mill as well as ancillary equipment for US$5 million in cash over the next seven months and a 4% net smelter royalty payable from future production to a maximum of $4 million.
Elkhorn Tunnels is a subsidiary of Elkhorn Goldfields, a private company owned by the Black Diamond Financial Group.
Both companies will continue to review other property owned by Montana Tunnels and Apollo will have the option of forming a joint venture with Elkhorn to pursue other exploration opportunities.
In a recent analysis, Haywood noted that Apollo will receive $750,000 in payments prior to the December 31st debt repayment of $6.3 million. Haywood estimates Apollo's current cash balance to be $5 million.
The deal with Elkhorn "will reduce the re-financing risk and, along with improving operational results at Black Fox, helps improve investor sentiment and market interest in this undervalued story," Haywood metals analysts Kerry Smith and Shane Nagle asserted.
Located in the Timmins Mining District, Black Fox produced its first gold in May. A feasibility study has estimated total probable reserves of 1,330,000 ounces of gold at Black Fox.
Haywood noted the transaction allows Apollo to concentrate on Black Fox. The company had been spending between $50,000 to $60,000 a month on the Montana Tunnels project, which has been on care and maintenance since April 30th.
Smith and Nagle estimated Montana Tunnels require a zinc price of $1.10/pound and a lead price of 85-cents/pound to justify a restart.
Haywood has rated Apollo Gold "SECTOR OUTPERFORM" with "SPECULATIVE" risk, with a 12-month target of 95-cents per share.