At last, a little blue sky for Gammon Gold

Stung by a string of bad news over the last year ranging from a third-quarter loss of US$44.8 million to start-up problems at two gold operations in Mexico to allegations about stock-option manipulation and inaccurate production statements, Gammon Gold (GAM-T, GRS-X) enjoyed a happier moment today when it declared that its first-quarter cash flow turned positivethe first time in the company’s history.

Net cash flow of $0.6 million in the first quarter was a $15.6 million improvement over the fourth quarter of 2007, demonstrating that Gammon “is successfully advancing its turnaround strategy” the company said in a news release.

The Nova Scotia-based mid-tier gold and silver producer also reported surplus cash at the end of March ($7.2 million in reserves), which allowed it to make an unplanned $1.5 million debt repayment on its revolving line of credit debt facility earlier this month.

Coupled with a previous unscheduled debt repayment of $2.1 million in late February, Gammon has plunked down $3.6 million in unplanned debt repayments so far this year. That means its $60 million line of credit debt facility is now drawn down to $31.3 million.

Cash costs in the first quarter also came in at the low end of the 2008 full-year cash cost guidance, which is significant because production in the first quarter of 2008 is estimated to be the lowest production quarter this year.

Total cash costs of $489 per gold equivalent oz translated into a 25% improvement over the prior quarter’s cash cost result and were 19-23% lower ($100 per gold equivalent oz) than the company’s original first quarter cost guidance of $580-$600 per gold equivalent oz.

Gammon also achieved a 20% increase in total production (including both its Ocampo and El Cubo projects in Mexico), over its fourth quarter result in 2007.

Gammon churned out 33,099 oz gold and 1.3 million oz silver in the three months ended March 31, (or 57,946 gold equivalent oz) at a cash cost of $489 per gold-equivalent oz, a decrease of 25% over the fourth quarter of 2007.

During the first quarter, the company sold a total of 31,455 oz gold and 1.2 million oz silver or 55,099 gold equivalent oz and realized an average gold price of $928 per oz and an average silver price of $17.69 per oz.

At Gammon’s flagship Ocampo project in Mexico’s Chihuahua state, production in the first quarter gained 11% over the previous quarter.

Both excavators at Ocampo have been refurbished and returned to operations. In March the heap leach posted an average crushing and stacking rate of 8,774 tonnes per day, the second best single month ever, and a 43% improvement over December.

Significant improvements were also made at the El Cubo project in Guanajuato state, where first quarter production jumped 27% over the fourth quarter.

In early afternoon trading, the news sent Gammon gold shares up 5 to $8.08 in mid-day trading, with 590,247 shares changing hands.

Gammon shares have traded within a 52-week window of $5.80 and $20.90.