Apollo Signs Toll-Milling Deal With St Andrew

Apollo Gold (APG-T, AGT-X) will mill 100,000 tonnes of ore from its Black Fox mine at St Andrew Goldfields’ (SAS-T, STADF-O) 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, Ont., 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 gold per tonne; and lower grade, containing between 1 and 3 grams gold.

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.

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 service 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 oz. Those numbers were based on a gold price of US$650 per oz. and a cutoff 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 mine life of 8.75 years and will have cash operating costs of about US$386.57 per oz. A base-case analysis demonstrated that the mine would have a pretax 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 gold-silver exploration project called Huizopa in the Sierra Madres of Chihuahua state, Mexico. Apollo also owns the Montana Tunnels zinc, lead and gold 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 traded at 48.5¢ per share. The junior has a 52-week trading range of 13-59¢ and 261.4 million shares outstanding.