Apollo Gold signs toll milling deal with St Andrew Goldfields

Apollo Gold (APG-T, AGT-X) will mill 100,000 tonnes of ore from its Black Fox mine at St Andrew Goldfields‘ (SAS-T) nearby Holt mill.

Under the arrangement, excess low-grade ores will be trucked, using a contractor, to St Andrew’s Holt mill, about 50 km from the Black Fox mine. The Holt mill has a processing capacity of about 3,000 tonnes per day.

Black Fox, an Archean age, lode gold deposit in the Abitibi greenstone belt, is 10 km east of the town of Matheson on the eastern side of the Porcupine district and about 75 km east of the Timmins gold camp.

Apollo started mining ore at Black Fox in April and milling it in May. So far the mine has produced two types of ore: higher grade containing more than 3 grams of gold per tonne, and lower grade containing between 1 gram and 3 grams of gold per tonne.

The higher grade ores are being processed at the Black Fox mill and the low-grade ores are being stockpiled at the mine. Currently, there are roughly 120,000 tonnes of excess low-grade ore stockpiled at the Black Fox site with an estimated grade of roughly 2 grams gold per tonne.

The toll milling arrangement has been set at an initial amount of 100,000 tonnes and any future milling would require a separate contract.

“Apollo has the opportunity to produce additional ounces of gold and therefore cash flow from low-grade ore tonnes which, in our long term plan, would not have been milled until the end of the life of the mine, and St Andrew is able to generate funds from an asset not currently in use,” Apollo’s president and chief executive David Russell, said in a statement.

The Holt mill has been undergoing minor refurbishment and upgrades ahead of commercial milling of ore from St Andrew’s Holloway mine, expected to start in the fourth quarter of 2009. The mill was put back into production on Sept. 5.

Black Fox has proven and probable reserves of 6.46 million tonnes grading 6.4 grams gold per tonne for total contained gold of 1.33 million ounces. Those numbers were based on a gold price of US$650 per ounce and a cut-off grade of 0.9 gram gold per tonne for the open-pit portion of the mine and 3 grams gold for the underground portion.

A technical report published in April 2008 maintained that at a gold price of US$750 per oz., Black Fox has a life of mine of 8.75 years and will have cash operating costs of about US$386.57 per ounce. A base case analysis demonstrated that the mine would have a pre-tax net present value of US$227.1 million at a 5% discount rate and an internal rate of return of 62%.

In addition to Black Fox, Apollo has an early stage exploration project called Huizopa in the Sierra Madres of Chihuahua state in Mexico. Apollo also owns the Montana Tunnels mine, which is a 50% joint venture with Elkhorn Tunnels in Montana. Montana Tunnels was put on care and maintenance at the end of April.

At presstime in Toronto, Apollo was trading at 48.5¢ per share. The junior has a 52-week trading range of 13¢-59¢ per share and has 261.4 million shares outstanding.

St Andrew Goldfields was trading at 41¢ per share and has a 52-week trading range of 6.5¢-50¢ per share and 324.3 million shares outstanding.