Unassociated Document
Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-158095
PROSPECTUS
APOLLO GOLD
CORPORATION
17,160,000 Common Shares
The
selling shareholder identified on page 21 may use this prospectus to offer
and resell from time to time up to 17,160,000 common shares of Apollo Gold
Corporation (together with its subsidiaries, “we,” “us” or “our
company”). The 17,160,000 common shares offered hereby are comprised
of 8,580,000 common shares issuable to RAB Special Situations (Master) Fund
Limited, which we sometimes refer to in this prospectus as RAB, upon conversion
of $4,290,000 principal amount of our convertible debentures issued on February
23, 2007 and due February 23, 2010, which we sometimes refer to in this
prospectus as the February 2007 convertible debentures, and 8,580,000 common
shares issuable upon exercise of warrants included with such convertible
debentures. For more information regarding the foregoing, see “The
Company – Recent Events” on page 6 of this prospectus.
Our common shares are traded on the NYSE
Amex exchange under the symbol “AGT” and on the Toronto Stock Exchange under the
symbol “APG.” On June 11, 2009, the closing price for our common
shares on the NYSE Amex exchange was $0.46 per share and the closing price
on the Toronto Stock Exchange was Cdn$0.51 per share.
We will not receive any proceeds from
the sale of the shares resold under this prospectus by the selling
shareholder. The issuance of the February 2007 convertible debentures
described above were made in a private placement in reliance upon and exemption
from registration contained in Regulation S of the U.S. Securities Act of 1933,
as amended.
The selling shareholder may sell the
shares in transactions on the NYSE Amex exchange or the Toronto Stock Exchange
and by any other method permitted by applicable law. The selling
shareholder may sell the shares at prevailing market prices or at prices
negotiated with purchasers and will be responsible for any commissions or
discounts due to brokers or dealers. The amount of these commissions
or discounts cannot be known at this time because they will be negotiated at the
time of the sales. See “Plan of Distribution” beginning on
page 21.
References in this prospectus to “$” are
to United States dollars. Canadian dollars are indicated by the
symbol “Cdn$”.
The common shares
offered in this prospectus involve a high degree of risk. You should carefully
consider the matters set forth in “Risk Factors” beginning on page 9 of
this prospectus in determining whether to purchase our common
shares.
Neither the
U.S. Securities and Exchange Commission nor any state securities commission
has approved or disapproved our common shares, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is July 2,
2009.
TABLE OF CONTENTS
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Page
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WHERE
YOU CAN FIND MORE INFORMATION
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1 |
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CURRENCY
AND EXCHANGE RATE INFORMATION
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NON-GAAP
FINANCIAL MEASURES
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
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STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
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THE
COMPANY
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4 |
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RECENT
EVENTS
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6 |
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RISK
FACTORS
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9 |
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USE
OF PROCEEDS
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19 |
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DESCRIPTION
OF COMMON SHARES
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19 |
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SELLING
SHAREHOLDER
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20 |
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PLAN
OF DISTRIBUTION
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21 |
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TAX
CONSIDERATIONS
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22 |
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LEGAL
MATTERS
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27 |
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EXPERTS
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27 |
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DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITY
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28 |
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You should rely only on information
contained or incorporated by reference in this prospectus. See
“Incorporation of Certain Documents by Reference” on page 2 of this
prospectus. We have not authorized anyone to provide you with
information different from that contained or incorporated in this
prospectus. If anyone provides you with different or inconsistent
information, you should not rely on it. Information on any of the
websites maintained by us does not constitute a part of this
prospectus.
You should assume that the information
appearing in this prospectus or any documents incorporated by reference in this
prospectus is accurate only as of their respective dates. Our
business, financial condition, results of operations and prospects may have
changed since those dates.
WHERE
YOU CAN FIND MORE INFORMATION
We are subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (which we
sometimes refer to in this prospectus as the Exchange Act), and file annual,
quarterly and periodic reports, proxy statements and other information with the
United States Securities and Exchange Commission, which we sometimes refer to in
this prospectus as the SEC. The SEC maintains a web site
(http://www.sec.gov) on which our reports, proxy statements and other
information are made available. Such reports, proxy statements and
other information may also be inspected and copied at the public reference
facilities maintained by the SEC at 100 F Street, NE, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference facilities.
We have filed with the SEC a
Registration Statement on Form S-3, under the Securities Act of 1933, as
amended (which we sometimes refer to in this prospectus as the Securities Act),
with respect to the securities offered by this prospectus. This
prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the SEC. Reference is hereby made to the Registration Statement and
the exhibits to the Registration Statement for further information with respect
to the securities and us.
CURRENCY AND EXCHANGE RATE
INFORMATION
We report in United States dollars.
Accordingly, all references to “$,” “U.S.$” or “dollars” in this prospectus
refer to United States dollars unless otherwise indicated. References to “Cdn$”
or “Canadian dollars” are used to indicate Canadian dollar
values.
The noon rate of exchange on June 11,
2009 as reported by the Bank of Canada for the conversion of Canadian dollars
into United States dollars was Cdn$1.00 equals $0.9106 and the conversion of
United States dollars was $1.00 equals Cdn$1.0982.
NON-GAAP
FINANCIAL MEASURES
In this
prospectus or in the documents incorporated herein by reference, we use 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 SEC
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.
generally accepted accounting principles or U.S. GAAP. These terms are used by
management to assess performance of individual operations and to compare our
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, lead and
zinc.
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.
These
measures are not necessarily indicative of operating profit or cash flow from
operations as determined under generally accepted accounting principles in
Canada and the United States and may not be comparable to similarly titled
measures of other companies. See Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2008 and Item 2,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2009 for a reconciliation of these non-GAAP measures to our Statements of
Operations.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC
allows us to “incorporate by reference” our publicly filed reports into this
prospectus, which means that information included in those reports is considered
part of this prospectus. Information that we file with the SEC after
the date of this prospectus will automatically update and supersede the
information contained in this prospectus and in prior reports. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
other than information in a report on Form 8-K furnished pursuant to Item 2.02
or Item 7.01 of Form 8-K and exhibits filed in connection with such information,
until all of the securities offered pursuant to this prospectus have been
sold:
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1.
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Our Annual Report on
Form 10-K for the year ended December 31, 2008, filed with the
SEC on March 27, 2009;
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2.
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Our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2009, filed with the
SEC on May 15, 2009;
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3.
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Our Current Reports on
Form 8-K, filed with the SEC on January 5, 2009, February 13, 2009,
February 19, 2009, February 24, 2009, February 25, 2009, March 25, 2009
and June 4, 2009; and
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4.
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The description of our capital
stock set forth in our Registration Statement on Form 10, filed
June 23, 2003.
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In
addition, all filings filed by us pursuant to the Exchange Act after the date of
this registration statement and prior to effectiveness of this registration
statement shall be deemed to be incorporated by reference into this
prospectus.
We will furnish without charge to you,
on written or oral request, a copy of any or all of the above documents, other
than exhibits to such documents that are not specifically incorporated by
reference therein. You should direct any requests for documents to
the Chief Financial Officer, Apollo Gold Corporation, 5655 S. Yosemite
Street, Suite 200, Greenwood Village, Colorado 80111-3220, telephone
(720) 886-9656.
The information relating to us contained
in this prospectus is not comprehensive and should be read together with the
information contained in the incorporated documents. Descriptions contained in
the incorporated documents as to the contents of any contract or other document
may not contain all of the information that is of interest to
you. You should refer to the copy of such contract or other document
filed as an exhibit to our filings.
STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
This prospectus and the documents
incorporated by reference in this prospectus contain 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:
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plans
for the further development of the Black Fox mine and mill including,
without limitation, the timing of the development of the underground mine
at Black Fox;
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estimates
of future production and the timing of gold pours at Black
Fox;
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our
ability to meet our repayment obligations under the Black Fox project
facility;
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our
ability to finance exploration at our Huizopa
project;
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our
ability to repay the convertible debentures issued to RAB due February 23,
2010;
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the
future effect of recent issuances and registration for immediate resale of
a significant number of common share purchase warrants on our share
price;
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future
financing of projects, including the financing required for the M Pit
expansion at Montana Tunnels;
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costs
associated with placing the Montana Tunnels mine and mill on care and
maintenance and the decision to undertake the M Pit
expansion;
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liquidity
to support operations and debt
repayment;
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completion
of a Canadian National Instrument 43-101 for the Huizopa project and the
content thereof;
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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;
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total
production costs;
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grade
of ore mined and milled from Black Fox and cash flows
therefrom;
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anticipated
expenditures for development, exploration, and corporate
overhead;
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timing
and issue of permits, including permits necessary to conduct phase II of
open pit mining at Black Fox;
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expansion
plans for existing properties;
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estimates
of closure costs;
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estimates
of environmental liabilities;
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our
ability to obtain financing to fund our estimated expenditure and capital
requirements;
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factors
impacting our results of operations;
and
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the
impact of adoption of new accounting
standards.
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Although we believe that our plans,
intentions and expectations reflected in these forward-looking statements are
reasonable, we cannot be certain that these plans, intentions or expectations
will be achieved. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of the risk
factors set forth below and other factors described in more detail in this
prospectus:
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changes in business and economic
conditions, including the recent significant deterioration in global
financial and capital
markets;
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significant increases or decreases
in gold and zinc prices;
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changes in interest and currency
exchange rates including the LIBOR
rate;
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changes in availability and cost
of financing;
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timing and amount of
production;
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unanticipated ore grade
changes;
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unanticipated recovery or
production problems;
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changes in operating
costs;
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operational problems at our mining
properties;
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metallurgy, processing, access,
availability of materials, equipment, supplies and
water;
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determination of
reserves;
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costs and timing of development of
new reserves;
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results of current and future
exploration and development
activities;
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results of future feasibility
studies;
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joint venture
relationships;
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political or economic instability,
either globally or in the countries in which we
operate;
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local and community impacts and
issues;
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timing of receipt of government
approvals;
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accidents and labor
disputes;
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environmental costs and
risks;
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competitive factors, including
competition for property
acquisitions;
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availability of external financing
at reasonable rates or at all;
and
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the factors discussed in this
prospectus under the heading “Risk
Factors.”
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Many of
these factors are beyond our ability to control or predict. These
factors are not intended to represent a complete list of the general or specific
factors that may affect us. We may note additional factors elsewhere
in this prospectus and in any documents incorporated by reference into this
prospectus. We undertake no obligation to update forward-looking
statements.
THE
COMPANY
Overview
Our earliest predecessor was
incorporated under the laws of the Province of Ontario in 1936. In
May 2003, we reincorporated under the laws of the Yukon Territory. We
maintain our registered office at 204 Black Street, Suite 300, Whitehorse, Yukon
Territory, Canada Y1A 2M9, and the telephone number at that office is (867)
668-5252. We maintain our principal executive office at 5655 S.
Yosemite Street, Suite 200, Greenwood Village, Colorado 80111-3220, and the
telephone number at that office is (720) 886-9656. Our internet
address is http://www.apollogold.com. Information contained on
our website is not a part of this prospectus or the documents incorporated
herein by reference.
We are engaged in gold mining including
extraction, processing, refining and the production of by-product metals, as
well as related activities including exploration and development. We
own the Black Fox project, an open pit mine and mill located near the
Township of Matheson in the
Province of Ontario, Canada. The Black Fox project consists of mining
operations located 7 miles east of Matheson and the Black Fox mill complex
located 12 miles west of Matheson, therefore approximately 19 miles from the
mine. Mining of ores at the open pit mine began in March 2009 and
the first gold bars were poured in May 2009. We are also the operator
of the Montana Tunnels mine, which is a 50% joint venture with Elkhorn Tunnels,
LLC. The Montana Tunnels mine, which is located near Helena,
Montana, is an open pit mine and
mill that historically has produced gold doré and lead-gold and zinc-gold
concentrates. We ceased mining at Montana Tunnels on December 5, 2008
and, following the completion of milling of stockpiled ore at the end of April
2009, we placed the mine on care and maintenance.
We also own Mexican subsidiaries which
own concessions at the Huizopa exploration project, located in the Sierra Madres
in Chihuahua, Mexico. The Huizopa project is an 80% Apollo/20%
Mineras Coronado joint venture.
Black
Fox
On April
14, 2008, we filed a Canadian Instrument, NI 43-101 Technical
Report. The mineral reserves reflected in the table below are taken
from this report and were calculated based on a gold price of $650 per
ounce.
Black
Fox Probable Reserve Statement as of February 29, 2008
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Grade
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Open
Pit
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0.88 |
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4,350 |
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5.2 |
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730,000 |
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Underground
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3.0 |
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2,110 |
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8.8 |
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600,000 |
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Total
Probable Reserves
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1,330,000 |
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Since April 2008, when we completed the
bankable feasibility study on the Black Fox mine, we have made progress at Black
Fox on a number of fronts. Specifically, we received all necessary
permits and approvals required to commence mining activities, purchased all
mining equipment required to commence mining at the open pit and transported
such equipment to the Black Fox mine location.
On July 28, 2008, we completed the
acquisition from St Andrew Goldfields Ltd., which we refer to in this prospectus
as St Andrew, of a mill and related equipment, infrastructure, property rights,
laboratory and tailings facilities, located near Matheson. Under the
terms of the asset purchase agreement pursuant to which we purchased the mill
complex, St Andrew agreed to sell the mill complex to us for a purchase price of Cdn$20 million
and the refund to St Andrew of its bonding commitment at the mill complex in the
amount of approximately Cdn$1.2 million.
In the third quarter of 2008, we awarded
GBM Engineering Limited an engineering, procurement, construction and management
contract, which we refer to in this prospectus as an EPCM contract, to increase
the throughput of the Black Fox mill from its current rate of 1,100 tonnes per
day at a cost of approximately $22.0 million. The mill was
commissioned in April 2009 and, as a result of the work performed under the EPCM
contract, reached a throughput rate of 1,500 tonnes per day by the end of May
2009.
On February 20, 2009, we entered into a project facility
agreement with Macquarie Bank Limited and RMB Australia Holdings Limited, which
we sometimes refer to as the project finance banks, pursuant to which we may
borrow up to $70,000,000 from the project finance banks at any time between
February 20, 2009 and June 30, 2009, after which time any undrawn portion of the
$70,000,000 commitment will be cancelled and will no longer be available for
drawdown. The project facility agreement refinanced the $15,000,000
bridge facility agreement that we had previously entered into on December 10,
2008, under which we had drawn down $14.8 million as of the closing of the
project facility agreement. As of June 2, 2009, we had drawn down
the full $70 million available under the project facility agreement.
See the discussion below
under the heading “Recent Events – Black Fox Financing” for additional
information.
As a result of the foregoing progress,
we commenced open pit
operations at the Black Fox project with the first blast on March 18,
2009.
The commissioning of the upgraded mill,
with the exception of the new ball mill, commenced in mid April utilizing an
existing low grade ore stockpile. During the first week of May 2009, the
new ball mill was brought online and we are now
processing normal grade ores from the Black Fox open pit. The first gold pour from Black Fox occurred at the end of May
2009.
Capital
expenditures at Black Fox for the three months ended March 31, 2009 were
approximately $22 million, which included (1) $13 million towards the cost of
upgrading the Black Fox mill to increase its throughput rate from 1,100 tonnes
per day to 2,000 tonnes per day, (2) $3 million for contract pond and road
construction at the mine site and (3) capitalized expenditures of $6 million
including contract pre-stripping of the open pit.
Montana Tunnels
Mine
During the first quarter of 2009, the Montana Tunnels mill processed 1,086,163 tons of ore,
which had been stockpiled as of December 31, 2008, at an average throughput of 12,100 tons
per day for the quarter. Payable production in the first quarter
of 2009 was 7,700 ounces of gold,
99,000 ounces of silver, 2,392,000 pounds of
lead and 8,185,000 pounds of zinc. Our share of this production is
50%. Total cash costs for the first quarter
of 2009 on a by-product basis were $1,217
per ounce of gold and on a co-product basis they were $1,083 per ounce of gold, $16.87
per ounce of silver, $0.68 per lb of lead and $0.63 per lb of zinc.
The Montana Tunnels mine ceased milling
operations on April 30, 2009 and we placed the mine and mill on care
and maintenance at that time. See the discussion below under the
heading “Recent Events – Cessation of Mining at Montana
Tunnels” for additional
information.
Huizopa
Project
During
the second quarter 2008, the helicopter assisted core drilling program on two
identified targets (Puma de Oro and Lobo de Oro) at our Huizopa project was
completed. On August 14, 2008, we announced the results of the core
drilling program on the Puma de Oro exploration target. Twenty five
NQ core holes were drilled on a north-trending zone targeted for drilling based
on our geochemical sampling and geologic mapping. We expect to
publish a Canadian National Instrument 43-101 for the Huizopa project by the end
of June 2009. This 43-101 will more fully describe the property and
the drill results and will not contain any resources or
reserves.
RECENT
EVENTS
Extension of
Maturity Date for February 2007 Convertible Debentures held by RAB Special
Situations (Master) Fund Limited
On
February 23, 2007, we concluded a private placement pursuant to which we sold
$8,580,000 aggregate principal amount of convertible debentures due February 23,
2009, which debentures we sometimes refer to in this prospectus as the February
2007 convertible debentures. Each $1,000 principal amount of the
February 2007 convertible debentures was convertible at the option of the holder
into 2,000 of our common shares, at any time until February 23,
2009. Additionally, each $1,000 principal amount of the February 2007
convertible debentures included 2,000 common share purchase warrants, which we sometimes refer to herein as
the accompanying warrants, entitling the holder to purchase one of our
common shares at an exercise price of $0.50 per share, with such accompanying warrants expiring
February 23, 2009. We filed a Form 8-K with the SEC on
February 26, 2007 disclosing the terms of the February 2007 convertible
debentures, the warrants and the
private placement pursuant to which such securities were
issued.
RAB Special Situations (Master) Fund
Limited, which we sometimes refer to in this prospectus as RAB, owns $4,290,000 principal
amount of February 2007 convertible debentures (on which $772,200 of interest was
accrued and unpaid on the original maturity date of February 23,
2009) and 8,580,000 accompanying
warrants. On February 16, 2009, we and RAB agreed to extend the
original maturity date of the February 2007 convertible debentures owned by RAB to February 23,
2010. Furthermore, RAB agreed that we shall have the option to repay
the $772,200 of accrued interest on RAB’s February 2007 convertible debentures in either
our common shares or
cash. If we elected to pay the accrued interest in common shares, the
number of shares issued would be calculated by dividing the accrued interest
owed by the volume weighted average market price of our common shares as quoted
on the Toronto Stock Exchange during the five trading days ending February 23,
2009. We elected to exercise our right to pay the $772,200 of accrued
interest in our common shares and, in accordance with the foregoing formula,
issued 2,444,765 shares to RAB. In consideration for the foregoing,
we agreed to (i) issue 2,000,000 common shares to RAB, (ii) extend the expiration date
of the accompanying warrants issued to RAB to March 5, 2010 and (iii) reduce the
exercise price of the accompanying warrants issued to RAB from $0.50 to
$0.25. The terms and conditions of the $3,148,100 aggregate principal
amount of February 2007 convertible debentures and accompanying warrants not owned by
RAB were not amended and the principal amount and accrued interest thereon was
repaid to the holders thereof in cash on February 23,
2009. Consequently, 8,152,000 of the accompanying warrants not held by RAB
expired unexercised.
In
December 2008, we retained Haywood Securities Inc., which we sometimes refer to
in this prospectus as Haywood, to provide financial and advisory services,
including in connection with the repayment or restructuring of the February 2007
convertible debentures. In consideration for those services, we
agreed to issue 1,000,000 of our common shares to Haywood by February 28,
2009. In addition, the
Black Fox project facility agreement constitutes an “alternative transaction”
under the terms of our agreement with Haywood and requires us to pay certain
compensation to Haywood. Specifically, we are obligated to compensate
Haywood by issuing to it 2,172,840 common shares and 2,567,901 common share
purchase warrants exercisable for a two year period at an exercise price of
Cdn$0.256 per share. The warrants issued to Haywood contain customary
anti-dilution provisions in the event of certain corporate reorganizations or
issuances of securities by us to all of our shareholders.
Black Fox
Financing
On
February 20, 2009, we entered into
a project facility agreement with Macquarie Bank Limited and RMB Australia
Holdings Limited, which we sometimes refer to as the project finance banks, to
act as joint arrangers and underwriters for the Black Fox project finance
facility. The
project facility agreement refinanced the $15,000,000 bridge
facility agreement that we had previously entered into on December 10,
2008. Under the project facility agreement, we may borrow up to
$70,000,000 from the project finance banks at any time between February 20, 2009
and June 30, 2009, after which time any undrawn portion of the $70,000,000
commitment will be
cancelled and will no longer be available for drawdown. As of June 2, 2009, we had drawn down
the full $70 million available under the project facility agreement.
The project facility
agreement requires that we to use proceeds from the facility only for: (i) the
funding of the development, construction and operation of our Black Fox project;
(ii) the funding of certain fees and costs due under the project facility
agreement and certain related project agreements; (iii) corporate expenditures
of up to $7,000,000 as approved by the project finance banks in our corporate
budget ($3,723,939 of which was used to repay the February 2007
convertible debentures, and interest thereon, not held by RAB); (iv) repayment of $15,341,345 under
the bridge facility agreement and (v) any other purpose that the project finance
banks approve.
The project facility agreement was
subject to an arrangement fee of $3,465,551, which was paid upon the initial
drawdown under the project facility agreement on February 23, 2009, and a
commitment fee equal to 1% per annum calculated on a daily basis on the average
monthly balance of the undrawn commitment, which is payable in arrears on March
31, 2009 and June 30, 2009. On March 31, 2009, we paid a commitment
fee of $48,472. Amounts borrowed under the project facility agreement
bear interest at LIBOR plus 7% per annum and the interest is payable commencing
March 31, 2009 and in accordance with the applicable interest period (currently
monthly but may be monthly, quarterly or such other period agreed to by the
project finance banks and us). The $70 million principal amount is
repayable by us in accordance with the following schedule:
|
Repayment
Date
|
|
Repayment
Amount
|
|
|
September 30,
2009
|
|
$ |
9,300,000 |
|
|
December 31,
2009
|
|
$ |
6,000,000 |
|
|
March 31,
2010
|
|
$ |
4,400,000 |
|
|
June 30,
2010
|
|
$ |
4,000,000 |
|
|
September 30,
2010
|
|
$ |
3,200,000 |
|
|
December 31,
2010
|
|
$ |
2,200,000 |
|
|
March 31,
2011
|
|
$ |
1,800,000 |
|
|
June 30,
2011
|
|
$ |
2,700,000 |
|
|
September 30,
2011
|
|
$ |
2,800,000 |
|
|
December 31,
2011
|
|
$ |
2,900,000 |
|
|
March 31,
2012
|
|
$ |
4,900,000 |
|
|
June 30,
2012
|
|
$ |
6,800,000 |
|
|
September 30,
2012
|
|
$ |
9,000,000 |
|
|
December 31,
2012
|
|
$ |
3,800,000 |
|
|
March 31,
2013
|
|
$ |
6,200,000 |
|
Under the
terms of the project facility
agreement, all cash proceeds generated from the Black Fox project must be
deposited into a proceeds account and may only be withdrawn and used by us in
accordance with the terms set forth in the project facility
agreement.
In connection with the project facility
agreement, we issued 34,836,111 warrants to the project finance banks
(11,637,775 to RMB Australia Holdings Limited and 23,198,336 to Macquarie Bank
Limited) as partial
consideration for financing services provided in connection with the
project facility
agreement. Each
warrant entitles the holder to purchase one of our common shares pursuant to the
terms and conditions of the warrant. The warrants expire on February
20, 2013 and have an exercise price of Cdn$0.252 per warrant share, subject to
customary anti-dilution adjustments. We have agreed to use our
best efforts to register the resale of the warrant shares with the SEC promptly
following the execution of the project facility
agreement. The warrants are in addition to the 42,614,254 warrants (21,307,127 to each
project finance
bank) issued to the
project finance
banks in connection with
the bridge facility agreement. Following the issuance of the
34,836,111 warrants
provided in connection with
the project facility
agreement and assuming exercise by the project finance banks of all warrants
held by them, RMB Australia Holdings Limited and Macquarie Bank Limited would
beneficially own 14.11% and 17.67%, respectively, of our issued and outstanding
capital stock (on an otherwise undiluted basis), and based on 235,311,192 shares
outstanding as of June 11, 2009.
Borrowings under the project facility
agreement are secured by a first lien on substantially all of our assets,
including the Black Fox project, and the stock of our
subsidiaries.
The project facility agreement contains
various financial and operational covenants that impose limitations on
us. These include, among other things, limitations and covenants
regarding: (i) the conduct of the Black Fox project and use of
related assets; (ii) the completion of the Black Fox project; (iii) the use of
our funds; (iv) compliance with applicable laws and permits; (v) mining rights
at the Black Fox project; (vi) our corporate budget; (vii) provision of
information; (viii) maintenance of accounting records; (ix) maintenance of
corporate existence; (x) compliance with certain material agreements; (xi)
capital maintenance requirements; (xii) payment of indebtedness and taxes;
(xiii) amendments to existing agreements relating to the Black Fox project or
entry into any such agreements; (xiv) amendments to governing documents; (xv)
disposition of or encumbrance of certain assets; (xvi) engaging in other lines
of business; (xvii) incurrence of indebtedness; (xviii) related party
transactions; (xix) creation of new subsidiaries; (xx) dividends and other
distributions; (xxi) maintenance of the property securing the project facility
agreement; (xxii) insurance; (xxiii) subordination of intercompany claims;
(xxiv) tradeability of the warrant shares under Canadian securities laws; (xxv)
registration of the warrant shares under United States securities laws; (xxvi)
maintenance of listing status on the TSX and status as a reporting issuer under
Canadian securities laws; (xxvii) maintenance of certain financial coverage
ratios and minimum project reserves; (xxviii) satisfaction of a minimum tangible
net worth test; and (xxix) maintenance of the hedging arrangements described
below; and (xxx) the operation of the Black Fox project in compliance with an
agreed cash flow budgeting and operational model.
Subject in certain cases to applicable
notice provisions and cure periods, events of default under the project facility
agreement include, without limitation: (i) failure to make payments when due;
(ii) certain misrepresentations under the project facility agreement and certain
other documents; (iii) breach of financial covenants in the project facility
agreement; (iv) breach of other covenants in the project facility agreement 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 exchange 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 agreement and other transaction documents,
the rights of the project finance banks or the enforceability of a transaction
document. The project facility agreement provides that in the event
of default, the project finance banks may declare that the debts and monetary
liabilities of our company are immediately due and payable and/or cancel the
credit facility.
As a part of the project facility
agreement, we and the project finance banks have entered into a hedging program
covering both gold sales and part of our Canadian dollar operating
costs. Specifically, we have entered into a 250,430 ounce gold
forward sales program which will be allocated across the four year term of the
project facility agreement. The weighted average price of the sales
program is $876 per ounce of gold. The foreign exchange hedge program
involves the purchase of Cdn$70.2 million for the equivalent of US$58 million,
at an exchange rate of US$1.00 equals Cdn$1.21, over the four year term of the
project facility agreement.
Cessation of
Mining at Montana Tunnels
On December 5, 2008, we ceased mining of
ore from the Montana Tunnels open pit operation as a result of exhausting the
ore in our current “L Pit” permit. In connection therewith, we issued
60 day notice of terminations of employment to 87 employees in compliance with
the U.S. Department of Labor’s Worker Adjustment and Retraining Notification
Act, which we refer to as the WARN Act. On February 3, 2009, 82 of
these employees were terminated. On February 27, 2009, we issued
additional WARN Act notices to all of the remaining 104 employees in
anticipation of the cessation of milling in April 2009. We ceased
milling of stockpiled ore on April 30, 2009 and, effective May 1, 2009, the mine
and mill were placed on care and maintenance. The current estimate of
the reclamation liability for the L Pit and the Montana Tunnels site is $18.5
million which is covered by $15.3 million in cash in a trust account plus
collateralized land valued at $3.2 million (our share of the liability, cash in trust
and collateralized land is 50% of these amounts).
We have received all necessary
permits to expand the current pit, which expansion plan we refer to as the M Pit
project. The M Pit project would involve a 12 month pre-stripping
program that would cost approximately $70 million, during which time no ore
would be produced. We are not currently engaged in discussions with
financing sources for our $35 million share of the financing
costs. The decision to proceed with the M Pit project must be agreed
to by both our company and
Elkhorn Tunnels, LLC, our joint venture partner at the mine. We and
our joint venture partner have not yet made a production decision on the M Pit
project and such decision will depend, among other things, on securing financing
for the $70 million and the prices of gold, silver, lead and zinc and available
smelter terms.
RISK
FACTORS
An
investment in our common shares involves a high degree of risk. You
should consider the risk factors set forth below and the other information in
this prospectus before purchasing any of our common shares. In
addition to historical information, the information in this prospectus contains
“forward-looking” statements about our future business and performance. Our
actual operating results and financial performance may be very different from
what we expect as of the date of this prospectus. The risks below address some
of the factors that may affect our future operating results and financial
performance.
Our
substantial debt could adversely affect our financial condition; and our related
debt service obligations may adversely affect our cash flow and ability to
invest in and grow our businesses.
We now
have, and for the foreseeable future will continue to have, a significant amount
of indebtedness. As of June 11, 2009, we had an aggregate principal
amount of $70.0 million in indebtedness outstanding under the project finance
facility. While our $70 million project facility is outstanding, we will have
annual principal repayment obligations thereunder of between approximately $10.2
million and $24.5 million. The interest rate on this loan is floating
based on the LIBOR rate plus 7 percent per annum; accordingly, if the LIBOR rate
is increased, interest expense will be higher. The maturity date on
this loan is March 31, 2013. We intend to fulfill our debt service
obligations from cash generated by our Black Fox project, which is expected to
be our only source of significant revenues. Because we anticipate
that a substantial portion of the cash generated by our operations will be used
to service this loan during its term, such funds will not be available to use in
future operations, or investing in our businesses. The foregoing may
adversely impact our ability to repay the $4,290,000 principal amount of
convertible debentures due February 23, 2010 owned by RAB, to finance the development of the M Pit at Montana
Tunnels and conduct all of our planned exploration activities at our Huizopa
property or pursue other corporate opportunities. In addition,
we may not generate sufficient cash from operations to repay our debt
obligations or satisfy any additional debt obligations when they become due and
may have to raise additional financing from the sale of equity or debt
securities, enter into commercial transactions or otherwise restructure our debt
obligations. There can be no assurance that any such financing or
restructuring will be available to us on commercially acceptable terms, or at
all, and our existing debt agreements prohibit us from incurring additional
indebtedness without the consent of the lenders thereunder. If we are
unable to restructure our obligations, we may be forced to seek protection under
applicable bankruptcy laws. Any restructuring or bankruptcy would
materially impair the value of our common shares.
Operational
problems and start-up issues may disrupt mining operations at Black Fox, which
commenced in March 2009, and impair the operation of and substantially reduce
gold production from milling operations at Black Fox, the commissioning of which
commenced in April 2009.
Mine
development projects, including our Black Fox project, inherently involve risks
and hazards. Although we commenced mining of the Black Fox
open pit in March 2009 and commenced the commissioning of the mill in
April 2009, the successful
development of and any future production at our Black Fox project could be
prevented, delayed or disrupted by, among other things:
|
|
·
|
unanticipated
changes in grade and tonnage of material to be mined and
processed;
|
|
|
·
|
unanticipated
adverse geotechnical conditions;
|
|
|
·
|
incorrect
data on which engineering assumptions are
made;
|
|
|
·
|
availability
and cost of labor and other supplies and
equipment;
|
|
|
·
|
availability
of economic sources of power;
|
|
|
·
|
adequacy
of water supply;
|
|
|
·
|
adequacy
of access to the site;
|
|
|
·
|
unanticipated
transportation costs;
|
|
|
·
|
government
regulations (including regulations relating to prices, royalties, duties,
taxes, restrictions on production, quotas on exportation of minerals, as
well as the costs of protection of the environment and agricultural
lands);
|
|
|
·
|
lower
than expected ore grades;
|
|
|
·
|
the
physical or metallurgical characteristics of the ore being less amenable
to mining or treatment than
expected;
|
|
|
·
|
problems
with delivery and installation of equipment necessary to commence or
continue operations as planned; or
|
|
|
·
|
failure
of our equipment, processes or facilities to operate properly or as
expected.
|
Production
delays or stoppages will adversely affect our sales and operating results, and
could prevent us from meeting our debt repayment obligations under the project
facility agreement.
Furthermore,
we cannot be certain that the Black Fox project will be developed at the
budgeted cost. Although we believe that we have obtained sufficient
funds to develop the Black Fox project, we cannot provide assurance of
this. If the actual cost to complete the Black Fox project is
significantly higher than currently expected, there can be no assurance that we
will have sufficient funds to cover these costs or that we will be able to
obtain alternative sources of financing to cover these costs.
The
Toronto Stock Exchange has indicated to us that it is conducting a review of our
eligibility for continued listing of our common shares on the Toronto Stock
Exchange.
In
connection with the completion of the project finance facility, we issued
34,836,111 common share purchase warrants to the project finance
banks. Each warrant is exercisable for a period of 48 months from
closing at an exercise price of Cdn$0.252 per share (subject to customary
anti-dilution adjustments). These warrants were in addition to the
42,614,254 common share purchase warrants issued to the project finance banks in
connection with the bridge facility agreement entered into on December 10,
2008. Under the Company Manual of the Toronto Stock Exchange, which
we sometimes refer to herein as the TSX, shareholder approval would be required
for the issuance of these warrants because the number of common shares issuable
upon exercise of these warrants is in excess of 25% of our currently issued and
outstanding common shares. Because we did not have sufficient time to
obtain shareholder approval prior to the anticipated closing of the project
finance facility, we applied to the TSX for a financial hardship exemption from
the shareholder approval requirements. The TSX granted the financial hardship
exemption to us, but as a consequence of relying upon such exemption, the TSX
has informed us that it will commence a review to determine the eligibility for
continued listing of our common shares on the TSX. The TSX has
indicated that we must demonstrate that we meet all TSX listing requirements on
or before September 15, 2009. Following the completion of the project
finance facility on February 20, 2009, we believe that we meet all the listing
requirements of the TSX. However, there can be no assurance that the
TSX will agree and, if we are unable to demonstrate our compliance, our common
shares would be delisted from the TSX.
We placed our Montana Tunnels mine on
care and maintenance on May 1, 2009.
On May 1, 2009, we placed the Montana
Tunnels mine and mill on care and maintenance as a result of exhausting the ore
in our current L Pit permit. While we have received all necessary
permits to expand the current pit, which expansion plan we refer to as the M Pit
project, the M Pit project would cost approximately $70 million, and we and our
joint venture partner have not yet determined whether to proceed with the M Pit
project. Such decision will depend, among other things, on the
ability to secure financing for the $70 million on acceptable terms and the
prices of gold, silver, lead and zinc and available smelter
terms. If we choose to and are able to pursue the M Pit
project, we expect that the pre-stripping program will take approximately 12
months.
The Montana Tunnels mine has been our
only source of revenue and cash flow in recent years and, now that it has been
placed on care and maintenance, it will no longer generate revenue or cash flow
for us.
We
do not currently have and may not be able to raise sufficient funds to explore
our Huizopa property and commence the development of the M Pit at Montana
Tunnels.
We do not currently have sufficient
funds to undertake the M Pit expansion at the Montana Tunnels mine and conduct
all of our planned exploration activities at our Huizopa
property. The M Pit expansion and exploration of Huizopa will require
significant capital expenditures. Sources of external financing may
include bank and non-bank borrowings and future debt and equity
offerings. There can be no assurance that financing will be available
on acceptable terms, or at all. The failure to obtain financing would
have a material adverse effect on our growth strategy and our results of
operations and financial condition.
In addition, in recent months, the U.S.
stock market indexes experienced a steep decline and the availability of debt
financing tightened. In light of these developments, concerns by
investors regarding the stability of the U.S. financial system could result in
less favorable commercial financing terms, including higher interest rates or
costs and tighter operating covenants, thereby preventing us from obtaining the
financing required to develop the M Pit at Montana Tunnels and to conduct all of
our planned exploration activities at our Huizopa property.
The existence of outstanding rights to
purchase common shares may impair our share price and our ability to raise
capital.
Approximately 128.0 million of our
common shares are issuable on exercise of warrants, options or other rights to
purchase common shares at prices ranging from $0.176 to $2.24 and a weighted
average price of $0.32. In addition, there are 8,580,000 common
shares issuable upon the conversion of the $4,290,000 outstanding principal
amount of convertible
debentures now due February 23, 2010 held by RAB, which are convertible at a
price of $0.50 per share. During the term of the warrants, options,
convertible debentures and other rights, the holders are given an opportunity to
profit from a rise in the market price of our common shares with a resulting
dilution in the interest of the other shareholders. Our ability to obtain
additional equity financing during the period such rights are outstanding may be
adversely affected, and the existence of the rights may have an adverse effect
on the price of our common shares. The holders of the warrants, options,
convertible debentures and other rights can be expected to exercise them at a
time when we would, in all likelihood, be able to obtain any needed capital by a
new offering of securities on terms more favorable to us than those provided by
the outstanding rights.
Past and future equity issuances could
impair our share price.
If our shareholders sell substantial
amounts of our common shares, the market price of our common shares could
decrease. We have 235,311,192 common shares outstanding as at June 11, 2009. In addition, we may sell
additional common shares in subsequent offerings and issue additional common
shares to finance future acquisitions or as compensation in financing
transactions. In the bridge facility financing completed on December
10, 2008 and the project facility financing completed February 20, 2009, we
issued warrants to purchase 77,450,365 common shares to the project finance
banks (32,944,902 to RMB Australia Holdings Limited and 44,505,463 to Macquarie
Bank Limited), representing approximately 32.9% of our outstanding common shares
(on an undiluted basis) as of June 11, 2009 as partial consideration for
financing services. In addition, we issued 2,567,901 common
share purchase warrants to Haywood Securities Inc. in consideration for financial advisory
services provided in connection with the restructuring of the February 2007
convertible debentures held by RAB and the project finance
facility. We have agreed to register the resale of the common shares
underlying the warrants issued to the project finance banks and Haywood with the
SEC.
We cannot predict the size of future
issuances of common shares or the effect, if any, that future issuances and
sales of common shares will have on the market price of our common shares. Sales
or issuances of large numbers of our common shares, or the perception that such
sales might occur, may adversely affect prevailing market prices for our common
shares. With any additional issuance of common shares, investors will suffer
dilution and we may experience dilution in our earnings per
share.
The
market price of our common shares has experienced volatility and could decline
significantly.
Our
common shares are listed on the NYSE Amex exchange and the Toronto Stock
Exchange. Our share price has declined significantly since 2004, and
over the last year the closing price of our common shares has fluctuated from a
low of $0.11 per share to a high of $0.61 per share. The stock
prices of virtually all companies have decreased since the fall of 2008 as
global economic issues have adversely affected public
markets. Furthermore, securities of small-cap companies have
experienced substantial volatility in the past, often based on factors unrelated
to the financial performance or prospects of the companies
involved. These factors include macroeconomic developments in North
America and globally and market perceptions of the attractiveness of particular
industries. Our share price is also likely to be significantly
affected by global economic issues, as well as short-term changes in gold and
zinc prices or in our financial condition or liquidity. As a result
of any of these factors, the market price of our common shares at any given
point in time might not accurately reflect our long-term
value. Securities class action litigation often has been brought
against companies following periods of volatility in the market price of their
securities. We could in the future be the target of similar
litigation. Securities litigation could result in substantial costs
and damages and divert management’s attention and resources.
We
have a history of losses.
With the
exception of fiscal years ended December 31, 2008 and 2007, during which we had
a net income of $1,596,000 and $2,416,000, respectively, we have incurred
significant losses. Our net losses were $15,587,000 and $22,208,000 for the
years ended December 31, 2006 and 2005, respectively. In addition, we
placed the Montana Tunnels mine, which has been our only source of revenue in
recent years, on care and maintenance on May 1, 2009 as a result of exhausting
the ore in our current L Pit permit. In addition, if we choose and
are able to pursue the M Pit expansion, we expect that the pre-stripping program
will take approximately 12 months during which we will have no revenue or cash
flow from the Montana Tunnels mine. However, during this time we will
have obligations under loan agreements and for the development of the Black Fox
project and therefore, we expect that there could be significant losses until
such time as we begin production from Black Fox and there can be no assurance
that we will achieve or sustain profitability in the future.
Our
earnings may be affected by metals price volatility, specifically the volatility
of gold and zinc prices.
We
historically have derived all of our revenues from the sale of gold, silver,
lead and zinc, and our development and exploration activities are focused on
gold. As a result, our future earnings are directly related to the
price of gold. Since the beginning of 2008, the London
P.M. or afternoon fix gold spot price, as reported by the Wall Street
Journal, has fluctuated from a high of $1,011/oz to a low of $712/oz and was
$947.50/oz on June 11, 2009. Changes in the price of gold
significantly affect our profitability and the trading price of our common
shares. Gold prices historically have fluctuated widely, based on
numerous industry factors including:
|
|
·
|
industrial
and jewelry demand;
|
|
|
·
|
central
bank lending, sales and purchases of
gold;
|
|
|
·
|
forward
sales of gold by producers and
speculators;
|
|
|
·
|
production
and cost levels in major gold-producing
regions; and
|
|
|
·
|
rapid
short-term changes in supply and demand because of speculative or hedging
activities.
|
Gold
prices are also affected by macroeconomic factors, including:
|
|
·
|
confidence
in the global monetary system;
|
|
|
·
|
expectations
of the future rate of inflation (if
any);
|
|
|
·
|
the
strength of, and confidence in, the U.S. dollar (the currency in
which the price of gold is generally quoted) and other
currencies;
|
|
|
·
|
global
or regional political or economic events, including but not limited to
acts of terrorism.
|
The
current demand for, and supply of, gold also affects gold prices. The
supply of gold consists of a combination of new production from mining and
existing shares of bullion held by government central banks, public and private
financial institutions, industrial organizations and private
individuals. As the amounts produced by all producers in any single
year constitute a small portion of the total potential supply of gold, normal
variations in current production do not usually have a significant impact on the
supply of gold or on its price. Mobilization of gold held by central
banks through lending and official sales may have a significant adverse impact
on the gold price.
All of
the above factors are beyond our control and are impossible for us to
predict. If the market prices for gold, silver, zinc or lead fall
below our costs to produce them for a sustained period of time, that will make
it more difficult to obtain financing for our projects, we will experience
additional losses and we could also be required to discontinue exploration,
development and/or mining at one or more of our properties.
Possible
hedging activities could expose us to losses.
As a part
of the project facility agreement, we and the project finance banks entered into
a hedging program covering both gold sales and part of our Canadian dollar
operating costs. Specifically, we have entered into a 250,430 ounce gold forward
sales program which will be allocated across the four year term of the project
facility agreement. The weighted average price of the sales program is $876 per
ounce of gold. The foreign exchange hedge program involves the
purchase of Cdn$70.2 million for the equivalent of US$58 million, at an exchange
rate of US$1.00 equals Cdn$1.21, over the four year term of the project facility
agreement.
In the
future, we may enter into currency and precious and/or base metals hedging
contracts that may involve outright forward sales contracts, spot-deferred sales
contracts, the use of options which may involve the sale of call options and the
purchase of all these hedging instruments. There can be no assurance
that we will be able to successfully hedge against price, currency and interest
rate fluctuations. Further, there can be no assurance that the use of
hedging techniques will always be to our benefit. Some hedging
instruments may prevent us from realizing the benefit from subsequent increases
in market prices with respect to covered production. This limitation
would limit our revenues and profits. Hedging contracts are also
subject to the risk that the other party may be unable or unwilling to perform
its obligations under these contracts. It is our intention to deliver
the quantity of gold required by our forward sales on a going forward basis;
however, we may cash settle these forward sale obligations if it is beneficial
to us. Any significant nonperformance could have a material adverse
effect on our financial condition and results of operations.
Disruptions
in the supply of critical equipment and increases in prices of raw materials
could adversely impact our operations.
We are a
significant consumer of electricity, mining equipment, fuels and mining-related
raw materials, all of which we purchase from outside sources.
Increases in prices of electricity, equipment, fuel and raw materials could
adversely affect our operating expenses and
profitability. Furthermore, failure to receive raw materials in a
timely manner from third party suppliers could impair our ability to meet
production schedules or our contractual commitments and thus adversely impact
our revenues. From time to time, we obtain critical mining equipment
from outside North America. Factors that can cause delays in the
arrival of such equipment include weather, political unrest in countries from
which equipment is sourced or through which it is delivered, terrorist attacks
or related events in such countries or in the U.S., and work stoppages by
suppliers or shippers. Prolonged disruptions in the supply of any of
our equipment or other key raw materials, implementing use of replacement
equipment or new sources of supply, or a continuing increase in the prices of
raw materials and energy could have a material adverse effect on our operating
results, financial condition or cash flows.
Our
investments in auction rate securities are subject to risks which may cause
losses and affect the liquidity of these investments.
We
acquired auction rate securities in 2007 with a face value of $1.5
million. The securities were marketed by financial institutions with
auction reset dates at 28 day intervals to provide short-term
liquidity. All such auction rate securities were rated AAA when
purchased, pursuant to our investment policy. Beginning in August
2007, a number of auctions failed and there is no assurance that auctions for
the auction rate securities in our investment portfolio, which currently lack
liquidity, will succeed. An auction failure means that the parties
wishing to sell their securities could not do so as a result of a lack of buying
demand. As at March 31, 2009, our auction rate securities held an
adjusted cost basis and fair value of $1.0 million based on liquidity
impairments to these securities and, during the second quarter of 2008, were
downgraded to a AA rating. Uncertainties in the credit and capital
markets could lead to further downgrades of our auction rate securities holdings
and additional impairments. Furthermore, as a result of auction
failures, our ability to liquidate and fully recover the carrying value of our
auction rate securities in the near term may be limited or not
exist.
Substantially
all of our assets are pledged to secure our indebtedness.
Substantially
all of the Montana Tunnels assets and our Black Fox property are pledged to
secure indebtedness outstanding under (i) the Facility Agreement, dated October
12, 2007 and as amended July 1, 2008, by and among Montana Tunnels Mining, Inc.,
Apollo Gold, Apollo Gold, Inc., a wholly owned subsidiary of Apollo Gold, RMB
Australia Holdings Limited and RMB Resources Inc. and (ii) the Facility
Agreement, dated February 20, 2009, by and among Apollo Gold, Macquarie Bank
Limited, RMB Australia Holdings Limited and RMB Resources Inc. Since
these assets represent substantially all of our assets, we will not have access
to additional secured lending with other financial institutions, which will
require us to raise additional funds through unsecured debt and equity
offerings, and covenants in our borrowing agreements limit our ability to incur
unsecured indebtedness. Default under our debt obligations would
entitle our lenders to foreclose on our assets.
Our
Huizopa exploration project is subject to political and regulatory
uncertainty.
Our
Huizopa exploration project is located in the northern part of the Sierra Madres
in the State of Chihuahua, Mexico. There are numerous risks inherent in
conducting business in Mexico, including political and economic instability,
exposure to currency fluctuations, greater difficulties in accounts receivable
collection, difficulties in staffing and managing operations and potentially
adverse tax consequences. In addition, our ability to explore and develop our
Huizopa exploration project is subject to maintaining satisfactory relations
with the Ejido Huizopa, which is a group of local inhabitants who under Mexican
law are granted rights to conduct agricultural activities and control surface
access on the property. In 2006, we entered into an agreement with the Ejido
Huizopa pursuant to which we agreed to make annual payments to the Ejido Huizopa
in exchange for the right to use the land covering our mining concessions for
all activities necessary for the exploration, development and production of
potential ore deposits. There can be no assurances that the Ejido Huizopa will
continue to honor the agreement. If we are unable to successfully manage our
operations in Mexico or maintain satisfactory relations with the Ejido Huizopa,
our development of the Huizopa property could be hindered or terminated and, as
a result, our business and financial condition could be adversely
affected.
Our
reserve estimates are potentially inaccurate.
We
estimate our reserves on our properties as either “proven reserves” or “probable
reserves.” Our ore reserve figures and costs are primarily estimates and are not
guarantees that we will recover the indicated quantities of these
metals. We estimate proven reserve quantities based on sampling and
testing of sites conducted by us and by independent companies hired by
us. Probable reserves are based on information similar to that used
for proven reserves, but the sites for sampling are less extensive, and the
degree of certainty is less. Reserve estimation is an interpretive
process based upon available geological data and statistical inferences and is
inherently imprecise and may prove to be unreliable.
Our
reserves are reduced as existing reserves are depleted through
production. Reserves may be reduced due to lower than anticipated
volume and grade of reserves mined and processed and recovery
rates.
Reserve
estimates are calculated using assumptions regarding metals
prices. Our reserves at our Black Fox project were estimated using a
gold price of $650/oz. These prices have fluctuated widely in the
past. Declines in the market price of metals, as well as increased
production costs, capital costs and reduced recovery rates, may render reserves
uneconomic to exploit, and lead to a reduction in reserves. Any
material reduction in our reserves may lead to lower earnings or higher losses,
reduced cash flow, asset write-downs and other adverse effects on our results of
operations and financial condition, including difficulty in obtaining financing
and a decrease in our stock price. Reserves should not be interpreted
as assurances of mine life or of the profitability of current or future
operations. No assurance can be given that the amount of metal
estimated will be produced or the indicated level of recovery of these metals
will be realized.
We
may not achieve our production estimates.
We
prepare estimates of future production for our Black Fox project. We
develop our estimates based on, among other things, mining experience, reserve
estimates, assumptions regarding ground conditions and physical characteristics
of ores (such as hardness and presence or absence of certain metallurgical
characteristics) and estimated rates and costs of mining and
processing. In the past, our actual production from time to time has
been lower than our production estimates and this may be the case in the
future.
Each of
these factors also applies to future development properties not yet in
production and to the Montana Tunnels M Pit. In the case of mines we
may develop in the future, we do not have the benefit of actual experience in
our estimates, and there is a greater likelihood that the actual results will
vary from the estimates. In addition, development and expansion
projects are subject to financing contingencies, unexpected construction and
start-up problems and delays.
Our
future profitability depends in part on actual economic returns and actual costs
of developing mines, which may differ significantly from our estimates and
involve unexpected problems, costs and delays.
We are
engaged in the development of new ore bodies. Our ability to sustain
or increase our present level of production is dependent in part on the
successful exploration and development of new ore bodies and/or expansion of
existing mining operations. Decisions about the development of the M
Pit expansion at Montana Tunnels and other future projects, such as Huizopa, are
subject to the successful completion of feasibility studies, issuance of
necessary governmental permits and receipt of adequate financing.
Development
projects have no operating history upon which to base estimates of future cash
flow. Our estimates of proven and probable ore reserves and cash
operating costs are, to a large extent, based upon detailed geologic and
engineering analysis. We also conduct feasibility studies that derive
estimates of capital and operating costs based upon many factors.
It is
possible that actual costs and economic returns may differ materially from our
best estimates. It is not unusual in the mining industry for new
mining operations to experience unexpected problems during the start-up phase
and to require more capital than anticipated. There can be no
assurance that the Black Fox property that we are developing or any future M Pit
expansion at Montana Tunnels will be profitable.
Our
operations may be adversely affected by risks and hazards associated with the
mining industry.
Our
business is subject to a number of risks and hazards including adverse
environmental effects, technical difficulties due to unusual or unexpected
geologic formations, and pit wall failures as well as the associated risks of
underground mining.
Such
risks could result in personal injury, environmental damage, damage to and
destruction of production facilities, delays in mining and
liability. For some of these risks, we maintain insurance to protect
against these losses at levels consistent with our historical experience and
industry practice. However, we may not be able to maintain current
levels of insurance, particularly if there is a significant increase in the cost
of premiums. Insurance against environmental risks is generally too
expensive or not available for us and other companies in our industry, and,
therefore, we do not maintain environmental insurance. To the extent
we are subject to environmental liabilities, we would have to pay for these
liabilities. Moreover, in the event that we are unable to fully pay
for the cost of remediating an environmental problem, we might be required to
suspend or significantly curtail operations or enter into other interim
compliance measures.
Mineral
exploration in general, and gold exploration in particular, are speculative and
are frequently unsuccessful.
Mineral
exploration is highly speculative in nature, capital intensive, involves many
risks and frequently is nonproductive. There can be no assurance that
our mineral exploration efforts will be successful. If we discover a
site with gold or other mineralization, it will take a number of years from the
initial phases of drilling until production is possible, during which time the
economic feasibility of production may change. Substantial
expenditures are required to establish ore reserves through drilling, to
determine metallurgical processes to extract the metals from the ore and, in the
case of new properties, to construct mining and processing
facilities. As a result of these and other uncertainties, no
assurance can be given that our exploration programs will result in the
expansion or replacement of existing ore reserves that are being depleted by
current production.
We
have a limited operating history on which to evaluate our potential for future
success.
We were
formed as a result of a merger in June 2002 and have only a limited operating
history upon which you can evaluate our business and prospects. Over
this period, with the exception of the fiscal years 2008 and 2007, we have not
generated sufficient revenues to cover our expenses and costs.
The
titles to some of our properties may be uncertain or defective.
Certain
of our United States mineral rights of the Montana Tunnels mine consist of
“unpatented” mining claims created and maintained in accordance with the U.S.
General Mining Law of 1872. Unpatented mining claims are unique U.S.
property interests, and are generally considered to be subject to greater title
risk than other real property interests because the validity of unpatented
mining claims is often uncertain. This uncertainty arises, in part,
out of the complex federal and state laws and regulations that supplement the
General Mining Law. Also, unpatented mining claims and related
rights, including rights to use the surface, are subject to possible challenges
by third parties or contests by the federal government. The validity
of an unpatented mining claim, in terms of both its location and its
maintenance, is dependent on strict compliance with a complex body of federal
and state statutory and decisional law. In addition, there are few
public records that definitively control the issues of validity and ownership of
unpatented mining claims.
In recent
years, the U.S. Congress has considered a number of proposed amendments to the
General Mining Law. Although no such legislation has been adopted to
date, there can be no assurance that such legislation will not be adopted in the
future. If ever adopted, such legislation could, among other things,
impose royalties on gold production from unpatented mining claims located on
federal lands or impose fees on production from patented mining
claims. If such legislation is ever adopted, it could have an adverse
impact on earnings from our operations, could reduce estimates of our reserves
and could curtail our future exploration and development activity on federal
lands or patented claims.
While we
have no reason to believe that our rights to mine on any of our properties are
in doubt, title to mining properties are subject to potential claims by third
parties claiming an interest in them and, in September 2006 some of our claims
associated with our Black Fox project were listed as reopened for staking on the
Ministry of Northern Development and Mines (MNDM) website. Five of
these claims totaling 185 acres were immediately staked by local
prospectors. None of our reserves or resources at our Black Fox
project are located on the properties related to these claims. All of
these overstaked claims have since been returned to us.
We
may lose rights to properties if we fail to meet payment requirements or
development or production schedules.
We derive
the rights to most of our mineral properties from unpatented mining claims,
leaseholds, joint ventures or purchase option agreements which require the
payment of maintenance fees, rents, purchase price installments, exploration
expenditures, or other fees. If we fail to make these payments when
they are due, our rights to the property may lapse. There can be no
assurance that we will always make payments by the requisite payment
dates. In addition, some contracts with respect to our mineral
properties require development or production schedules. There can be
no assurance that we will be able to meet any or all of the development or
production schedules. Our ability to transfer or sell our rights to
some of our mineral properties requires government approvals or third party
consents, which may not be granted.
We
face substantial governmental regulation.
Canadian
Regulation. Our Black Fox mining operations and exploration
activities in the Province of Ontario are subject to various laws and
regulations governing the environment, agricultural zoning, prospecting,
development, production, exports, taxes, labor standards, occupational health,
waste disposal, toxic substances, mine safety and other matters. The Canadian
mining industry is subject to federal and provincial environmental protection
legislation. This legislation imposes high standards on the mining industry in
order to reduce or eliminate the effects of waste generated by extraction and
processing operations and subsequently emitted into the air or water.
Consequently, drilling, refining, extracting and milling are all subject to the
restrictions imposed by this legislation. In addition, the construction and
commercial operation of a mine typically entail compliance with applicable
environmental legislation and review processes, as well as the obtaining of
permits, particularly for the use of the land, permits for the use of water, and
similar authorizations from various government bodies. Canadian federal,
provincial, and local laws and regulations relating to the exploration for and
development, production and marketing of mineral production, as well as
environmental and safety matters have generally become more stringent in recent
years, often imposing greater liability on a larger number of potentially
responsible parties. Because the requirements imposed by such laws and
regulations are frequently changed, we are unable to predict the ultimate cost
of compliance with such requirements. There is no assurance that laws and
regulations enacted in the future will not adversely affect our financial
condition and results of operations. We believe that it is in substantial
compliance with all current laws and regulations material to our activities.
However, changing government regulations may have an adverse effect on
us.
United States
Regulation. Our U.S. mining operation is subject to inspection
and regulation by the Mine Safety and Health Administration of the United States
Department of Labor (“MSHA”) under the provisions of the Mine Safety and Health
Act of 1977. The Occupational Safety and Health Administration
(“OSHA”) also has jurisdiction over safety and health standards not covered by
MSHA. Our policy is to comply with applicable directives and
regulations of MSHA and OSHA. We have made and expect to make in the
future, significant expenditures to comply with these laws and
regulations.
We must
comply with environmental standards, laws and regulations that may result in
increased costs and delays depending on the nature of the regulated activity and
how stringently the regulations are implemented by the regulatory
authority. The costs and delays associated with compliance with such
laws and regulations could stop us from proceeding with the exploration of a
project or the operation or future exploration of a mine. Laws and
regulations involving the protection and remediation of the environment and the
governmental policies for implementation of such laws and regulations are
constantly changing and are generally becoming more restrictive. We
have made, and expect to make in the future, significant expenditures to comply
with such laws and regulations.
Some of
our properties are located in historic mining districts with past production and
abandoned mines. The major historical mine workings and processing
facilities owned (wholly or partially) by us in Montana are being targeted by
the Montana Department of Environmental Quality (“MDEQ”) for publicly funded
cleanup, which reduces our exposure to financial liability. We are
participating with the MDEQ under Voluntary Cleanup Plans on those
sites. Our cleanup responsibilities have been completed at the Corbin
Flats Facility and at the Gregory Mine site, both located in Jefferson County,
Montana, under programs involving cooperative efforts with the
MDEQ. MDEQ is also contemplating remediation of the Washington Mine
site at public expense under the Surface Mining Control and Reclamation Act of
1977 (“SMCRA”). In February 2004, we consented to MDEQ’s entry onto
the portion of the Washington Mine site owned by us to undertake publicly funded
remediation under SMCRA. In March 2004, we entered into a definitive
written settlement agreement with MDEQ and the Bureau of Land Management (“BLM”)
under which MDEQ will conduct publicly funded remediation of the Wickes Smelter
site under SMCRA and granted us a site release in exchange for our donation of
the portion of the site owned by us to BLM for use as a waste
repository. There can be no assurance that we will continue to
resolve disputed liability for historical mine and ore processing facility waste
sites on such favorable terms in the future. We remain exposed to
liability, or assertions of liability, that would require expenditure of legal
defense costs, under joint and several liability statutes for cleanups of
historical wastes that have not yet been completed.
Environmental
laws and regulations may also have an indirect impact on us, such as increased
costs for electricity due to acid rain provisions of the Clean Air Act
Amendments of 1990. Charges by refiners to which we sell our metallic
concentrates and products have substantially increased over the past several
years because of requirements that refiners meet revised environmental quality
standards. We have no control over the refiners’ operations or their
compliance with environmental laws and regulations.
Changes
to the current laws and regulations governing the operations and activities of
mining companies, including changes to the U.S. General Mining Law of 1872, and
permitting, environmental, title, health and safety, labor and tax laws, are
actively considered from time to time. We cannot predict which
changes may be considered or adopted and changes in these laws and regulations
could have a material adverse impact on our business. Expenses
associated with the compliance with new laws or regulations could be
material. Further, increased expenses could prevent or delay
exploration or mine development projects and could therefore affect future
levels of mineral production.
We
are subject to environmental risks.
Environmental
Liability. We are subject to potential risks and liabilities
associated with environmental compliance and the disposal of waste rock and
materials that could occur as a result of our mineral exploration and
production. To the extent that we are subject to environmental
liabilities, the payment of such liabilities or the costs that we may incur to
remedy any non-compliance with environmental laws would reduce funds otherwise
available to us and could have a material adverse effect on our financial
condition or results of operations. If we are unable to fully remedy
an environmental problem, we might be required to suspend operations or enter
into interim compliance measures pending completion of the required
remedy. The potential exposure may be significant and could have a
material adverse effect on us. We have not purchased insurance for
environmental risks (including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from exploration
and production) because it is not generally available at a reasonable price or
at all.
Environmental
Permits. All of our exploration, development and production
activities are subject to regulation under one or more of the various state,
federal and provincial environmental laws and regulations in Canada, Mexico and
the U.S. Many of the regulations require us to obtain permits for our
activities. We must update and review our permits from time to time,
and are subject to environmental impact analyses and public review processes
prior to approval of the additional activities. It is possible that
future changes in applicable laws, regulations and permits or changes in their
enforcement or regulatory interpretation could have a significant impact on some
portion of our business, causing those activities to be economically reevaluated
at that time. Those risks include, but are not limited to, the risk
that regulatory authorities may increase bonding requirements beyond our
financial capabilities. The posting of bonds in accordance with
regulatory determinations is a condition to the right to operate under all
material operating permits, and therefore increases in bonding requirements
could prevent our operations from continuing even if we were in full compliance
with all substantive environmental laws.
We
face strong competition from other mining companies for the acquisition of new
properties.
Mines
have limited lives and as a result, we may seek to replace and expand our
reserves through the acquisition of new properties. In addition,
there is a limited supply of desirable mineral lands available in the United
States, Canada and Mexico and other areas where we would consider conducting
exploration and/or production activities. Because we face strong
competition for new properties from other mining companies, most of which have
greater financial resources than we do, we may be unable to acquire attractive
new mining properties.
We
are dependent on certain key personnel.
We are
currently dependent upon the ability and experience of R. David Russell, our
President and Chief Executive Officer; Richard F. Nanna, our Senior Vice
President-Exploration; and Melvyn Williams, our Chief Financial Officer and
Senior Vice President-Finance and Corporate Development. We believe
that our success depends on the continued service of our key officers and there
can be no assurance that we will be able to retain any or all of such
officers. We currently do not carry key person insurance on any of
these individuals, and the loss of one or more of them could have a material
adverse effect on our operations.
There
may be certain tax risks associated with investments in our
company.
U.S.
persons who are potential holders of our common shares, warrants or options to
purchase our common shares, or debentures convertible into our common shares,
which we sometimes refer to in this prospectus as equity securities, should be
aware that we could constitute a “passive foreign investment company” (or a
“PFIC”) for U.S. federal income tax purposes. The tests for
determining PFIC status for a taxable year depend upon the relative values of
certain categories of assets and the relative amounts of certain kinds of
income. The application of these factors depends upon our financial
results for the year, which is beyond our ability to predict or control, and may
be subject to legal and factual uncertainties. While we do not expect
to be a PFIC in 2009, we are unable to predict whether we will be a PFIC in 2009
or in later years. We undertake no obligation to advise investors as
to our PFIC status for any year.
If we are
a PFIC for any year, any holder of our equity securities who is a U.S. person
for U.S. federal income tax purposes, which we sometimes refer to in this
prospectus as a U.S. holder, and whose holding period for the equity securities
includes any portion of a year in which we are a PFIC generally would be subject
to a special adverse tax regime in respect of “excess
distributions.” Excess distributions would include certain
distributions received with respect to our common shares. Gain
recognized by a U.S. holder on a sale or other transfer of our equity securities
also would be treated as an excess distribution. Under the PFIC
rules, excess distributions would be allocated ratably to a U.S. holder’s
holding period. For this purpose, the holding period of common shares
acquired through either an exercise of warrants or options or a conversion of
debentures includes the holder’s holding period in those warrants, options, or
convertible debentures.
The
portion of any excess distributions (including gains treated as excess
distributions) allocated to the current year would be includible as ordinary
income in the current year. In contrast, the portion of any excess
distributions allocated to prior years would be taxed at the highest marginal
rate applicable to ordinary income for each year (regardless of the taxpayer’s
actual marginal rate for that year and without reduction by any losses or loss
carryforwards) and would be subject to interest charges to reflect the value of
the U.S. federal income tax deferral.
Elections
may be available to mitigate the adverse tax rules that apply to PFICs (the
so-called “QEF” and “mark-to-market” elections), but these elections may
accelerate the recognition of taxable income and may result in the recognition
of ordinary income. The QEF and mark-to-market elections are not
available to U.S. holders with respect to warrants, options, or convertible
debentures. We have not decided whether we will provide the U.S.
Holders of our common shares with the annual information required to make a QEF
election.
Additional
special adverse rules could apply to our equity securities if we are a PFIC and
have a non-U.S. subsidiary that is also a PFIC. Finally, special
adverse rules that impact certain estate planning goals could apply to our
equity securities if we are a PFIC.
The PFIC
rules are extremely complex, and shareholders are urged to consult their own tax
advisers regarding the potential consequences to them of Apollo being classified
as a PFIC.
You
could have difficulty or be unable to enforce certain civil liabilities on us,
certain of our directors and our experts.
We are a
Yukon Territory, Canada, corporation. While our chief executive
officer is located in the United States, many of our assets are located outside
of the United States. Additionally, a number of our directors and the
experts named in this prospectus are residents of Canada. It might
not be possible for investors in the United States to collect judgments obtained
in United States courts predicated on the civil liability provisions of U.S.
securities legislation. It could also be difficult for you to effect
service of process in connection with any action brought in the United States
upon such directors and experts. Execution by United States courts of
any judgment obtained against us, or any of the directors, executive officers or
experts identified in this prospectus or documents incorporated by reference
herein, in United States courts would be limited to the assets, or the assets of
such persons or corporations, as the case might be, in the United
States. The enforceability in Canada of United States judgments or
liabilities in original actions in Canadian courts predicated solely upon the
civil liability provisions of the federal securities laws of the United States
is doubtful.
USE
OF PROCEEDS
All of
the common shares covered by this prospectus are being sold by the selling
shareholder identified in this prospectus. We will not receive any
proceeds from the sale by the selling shareholder of these common
shares. See “Selling Shareholder.”
DESCRIPTION
OF COMMON SHARES
We are
authorized to issue an unlimited number of common shares, without par
value. As of June 11, 2009, there were 235,311,192 common shares
outstanding.
Dividend
Rights
Holders
of our common shares may receive dividends when, as and if declared by our board
on the common shares, subject to the preferential dividend rights of any other
classes or series of shares of our company. In no event may a
dividend be declared or paid on the common shares if payment of the dividend
would cause the realizable value of our company’s assets to be less than the
aggregate of its liabilities and the amount required to redeem all of the shares
having redemption or retraction rights which are then outstanding.
We have
not declared or paid cash dividends on our common shares since our
inception. Future dividend decisions will consider our then-current
business results, cash requirements and financial condition. The
Montana Tunnels debt facility with RMB Australia Holdings Limited and its
affiliated entities, as amended, and the Black Fox project facility agreement
with the project finance banks currently restrict our ability to pay
dividends.
Voting
and Other Rights
Holders
of our common shares are entitled to one vote per share, and in general, all
matters will be determined by a majority of votes cast.
Election
of Directors
All of
the directors serve from the date of election or appointment until the earlier
of the next annual meeting of the company’s shareholders or the date on which
their successors are elected or appointed in accordance with the provisions of
our By-laws and Articles of Incorporation. Directors are elected by a
majority of votes cast.
Liquidation
In the
event of any liquidation, dissolution or winding up of our company, holders of
the common shares have the right to a ratable portion of the assets remaining
after payment of liabilities and liquidation preferences of any preferred shares
or other securities that may then be outstanding.
Redemption
Our
common shares are not redeemable or convertible.
Other
Provisions
All
outstanding common shares are fully paid and non-assessable.
This
section is a summary and may not describe every aspect of our common shares that
may be important to you. We urge you to read our Articles of
Incorporation, as amended, and our By-laws, because they, and not this
description, define your rights as a holder of our common shares. See
“Where You Can Find More Information” for information on how to obtain copies of
these documents.
CIBC
Mellon Trust Company, 320 Bay Street, P. O. Box 1, Toronto, Ontario M5H
4A6, Canada, is the transfer agent and registrar for our common
shares.
SELLING
SHAREHOLDER
The
selling shareholder identified below is offering for resale all of the common
shares being offered under this prospectus. The 17,160,000 common
shares offered hereby are comprised of 8,580,000 common shares issuable to RAB
Special Situations (Master) Fund Limited, which we sometimes refer to in this
prospectus as RAB, upon conversion of $4,290,000 principal amount of our
convertible debentures issued on February 23, 2007 and due February 23, 2010,
which we sometimes refer to in this prospectus as the February 2007 convertible
debentures, and 8,580,000 common shares issuable upon exercise of warrants
included with such convertible debentures. For more information
regarding the foregoing, see “The Company – Recent Events” on page 6 of this
prospectus.
The table
below includes information regarding ownership of our common stock by the
selling shareholder named herein and the number of shares that may be sold by it
under this prospectus. We have prepared this table based on
information supplied to us by or on behalf of the selling
shareholder. Other than as described herein, (i) the selling
shareholder has had no material relationship with us for the past three years
and (ii) to the best of our knowledge based on the information supplied to us by
or on behalf of the selling shareholder, the selling shareholder is not a
broker-dealer or an affiliate of a broker-dealer.
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Common
Shares
|
|
|
|
|
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Common
Shares Beneficially
Owned
After the Offering(1)
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Beneficially
Owned Prior
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|
Common
Shares
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|
|
Percentage
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|
Name
of Selling Shareholder
|
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to
the Offering(1)
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Offered
Hereby
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Number(2)
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of
Class(3)
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RAB
Special Situations (Master) Fund Limited(4)
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21,404,765(5)
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17,160,000(6)
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4,244,765
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1.80%
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|
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Total
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|
21,404,765
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|
|
17,160,000
|
|
|
|
4,244,765
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1.80%
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(1)
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Pursuant
to Rule 13d-3 of the Exchange Act, a person is deemed to be the
beneficial owner of a security if that person has the right to acquire
beneficial ownership of such security within 60 days, including the
right to acquire through the exercise of an option or warrant or through
the conversion of a security.
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(2)
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Assumes
that all of the shares currently beneficially owned by the selling
shareholder and registered hereunder are sold and the selling shareholder
acquires no additional common shares before the completion of this
offering.
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(3)
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The
percentage ownership for the selling shareholder is based on 235,311,192
common shares outstanding as of June 11, 2009. In accordance
with SEC rules, common shares that may be acquired pursuant to options,
warrants or convertible securities that are exercisable as of June 11,
2009, or will become exercisable within 60 days thereafter, are
deemed to be outstanding and beneficially owned by the person holding such
securities for the purpose of computing such person’s percentage
ownership, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other
person.
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(4)
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RAB
Special Situations (Master) Fund Limited, which we sometimes refer to as
RAB in this prospectus, is a corporation organized under the laws of the
Cayman Islands. William Philip Seymour Richards, a citizen of
the United Kingdom, beneficially owns and exercises voting and dispositive
control over 350,000 of our common shares and has sole voting
and dispositive powers over all of the shares beneficially owned by
RAB.
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(5)
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Represents
(i) 2,444,765 common shares issued to this selling shareholder in
connection with its agreement to extend the maturity of $4,290,000
principal amount of our February 2007 convertible debentures owned by it
and originally due February 23, 2009, (ii) 8,580,000 common shares
issuable upon exercise of warrants included in the February 2007
convertible debentures purchased by RAB, and 8,580,000 common shares
issuable to RAB upon conversion of the February 2007 convertible
debentures held by it, and (iii) 1,800,000 common
shares.
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(6)
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Represents
8,580,000 common shares issuable upon exercise of warrants included in the
February 2007 convertible debentures purchased by RAB and 8,580,000 common
shares issuable to RAB upon conversion of the February 2007 convertible
debentures held by it.
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PLAN
OF DISTRIBUTION
The
common shares covered by this prospectus are being registered to permit public
secondary trading of these securities by the holder thereof from time to time
after the date of this prospectus. All of the common shares covered
by this prospectus are being sold by the selling shareholder or its pledgees,
donees, assignees, transferees or other successors-in-interest. We
will not receive any of the proceeds from the sale of these shares.
The
selling shareholder and its pledgees, assignees, donees, or other
successors-in-interest who acquire their shares after the date of this
prospectus may sell the common shares directly to purchasers or through
broker-dealers or agents.
The
common shares may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined at
the time of sale, or at negotiated prices. Sales may be effected in
transactions, which may involve block transactions or crosses:
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through
the NYSE Amex exchange or on any national securities exchange or quotation
service on which the common shares may be listed or quoted at the time of
sale;
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through
the Toronto Stock Exchange in compliance with Canadian securities laws and
rules of the Toronto Stock Exchange through registered
brokers;
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in
the over-the-counter market;
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in
transactions otherwise than on exchanges or quotation services, or in the
over-the counter market;
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through
the exercise of purchased or written options;
or
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through
any other method permitted under applicable
law.
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In
connection with sales of the common shares or otherwise, the selling shareholder
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares in the course of hedging the positions they
assume. The selling shareholder may also sell short the shares and deliver the
shares to close out short positions, or loan or pledge the shares to
broker-dealers that in turn may sell the shares.
The
aggregate proceeds to the selling shareholder from the sale of the common shares
offered hereby will be the purchase price of the common shares less discounts
and commissions, if any, paid to broker-dealers. The selling shareholder
reserves the right to accept and, together with its agents from time to time, to
reject, in whole or in part, any proposed purchase of common shares to be made
directly or through agents.
In order
to comply with the securities laws of some states, if applicable, the common
shares may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the shares may not be sold
unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
The
selling shareholder may sell the shares to or through broker-dealers, who may
receive compensation in the form of discounts, concessions or commissions from
the selling shareholder or the purchasers. The selling shareholder and any
broker-dealers or agents that participate in the sale of the common shares may
be determined to be “underwriters” within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act. If the selling shareholder is an “underwriter” within the
meaning of Section 2(11) of the Securities Act, it will be subject to the
prospectus delivery requirements of the Securities Act.
We are
not aware of any plans, arrangements or understandings between the selling
shareholder and any underwriter, broker-dealer or agent regarding the sale of
the common shares by the selling shareholder. The selling shareholder may decide
not to sell any or all of the shares offered by it pursuant to this prospectus
and may transfer, devise or gift the shares by other means not described in this
prospectus. Moreover, any shares covered by this prospectus that qualify for
sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.
If
required, we will distribute a supplement to this prospectus describing any
material changes in the terms of this offering. We may suspend the use of this
prospectus if we notify the selling shareholder that our board of directors has
determined that the sale of our common shares at such time would be detrimental
to us and our stockholders or if material non-public information exists that
must be disclosed so that this prospectus, as in effect, does not include an
untrue statement of a material fact or omit to state a material fact required to
make the statements in this prospectus not misleading.
TAX
CONSIDERATIONS
U.S.
Federal Income Tax Considerations
The
following is a summary of the material anticipated U.S. federal income tax
consequences regarding the acquisition, ownership and disposition of our common
shares. This summary applies to you only if you hold such common shares as a
capital asset and are eligible for benefits under the Convention between the
United States of America and Canada with Respect to Taxes on Income and on
Capital signed on September 26, 1980, as amended and currently in force, which
we refer to as the U.S.-Canada tax treaty. This summary is based upon the U.S.
Internal Revenue Code of 1986, as amended, which we refer to as the Code,
regulations promulgated under the Code, administrative rulings and judicial
decisions and the U.S.-Canada tax treaty as in effect on the date of this
prospectus. Changes in the laws may alter the tax treatment of our common
shares, possibly with retroactive effect.
This
summary is general in nature and does not address the effects of any state or
local taxes, or the tax consequences in jurisdictions other than the United
States. In addition, it does not address all tax consequences that may be
relevant to you in your particular circumstances, nor does it apply to you if
you are a holder with a special status, such as:
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a
person that owns, or is treated as owning under certain ownership
attribution rules, 10% or more of our voting
shares;
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a
broker, dealer or trader in securities or
currencies;
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a
bank, mutual fund, life insurance company or other financial
institution;
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a
tax-exempt organization;
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a
qualified retirement plan or individual retirement
account;
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a
person that holds our common shares as part of a straddle, hedge,
constructive sale or other integrated transaction for tax
purposes;
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a
partnership, S corporation or other pass-through
entity;
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an
investor in a partnership, S corporation or other pass-through
entity;
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a
person whose functional currency for tax purposes is not the U.S.
dollar;
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a
person liable for alternative minimum
tax;
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a
U.S. Holder (as defined below) who is a resident or deemed to be a
resident in Canada pursuant to the Income Tax Act (Canada);
and
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a
Non-U.S. Holder (as defined below) that has a trade or business in the
United States or that is an individual that either has a tax home in the
United States or is present within the United States for 183 days or more
(computed in a manner that gives partial credit for days present in
certain prior taxable years) during the taxable
year.
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If a
partnership (including for this purpose any entity treated as a partnership for
U.S. federal income tax purposes) holds our common shares, the tax treatment of
a partner will generally depend upon the status of the partner and upon the
activities of the partnership. A partner of a partnership that owns or may
acquire our common shares should consult the partner’s tax advisor regarding the
specific tax consequences of the acquisition and ownership of our common
shares.
We
believe that we are not, have not at any time been, and will not be after this
offering a “controlled foreign corporation” as defined in Section 957(a) of the
Code, although we can provide no certainty regarding this position.
YOU SHOULD CONSULT YOUR OWN ADVISOR
REGARDING THE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
OUR COMMON SHARES IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.
U.S.
Holders
The
following discussion applies to you if you are a “U.S. Holder.” For purposes of
this discussion, a “U.S. Holder” means a beneficial owner of a common share that
is, for U.S. federal income tax purposes:
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an
individual citizen or resident of the United States (including an alien
who is a “green card” holder or who is present in the United States for 31
days or more in the calendar year and meets certain other
requirements);
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a
corporation created or organized in or under the laws of the United States
or any political subdivision
thereof;
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an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
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a
trust (1) that validly elects to be treated as a U.S. person for U.S.
federal income tax purposes, or (2) the administration over which a U.S.
court can exercise primary supervision and all of the substantial
decisions of which one or more U.S. persons have the authority to
control.
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Distributions
We do not
anticipate paying dividends in the foreseeable future. However, subject to the
discussion under “— Passive foreign investment company,” below, the gross amount
of distributions, if any, payable by us on our common shares generally would be
treated as dividend income to the extent paid out of current or accumulated
earnings and profits. Such dividends will generally be “qualified dividends” in
the hands of individual U.S. Holders and will be generally subject to a 15%
maximum individual U.S. federal income tax rate for qualified dividends received
in taxable years beginning before January 1, 2011. A corporation may be eligible
for a dividends received deduction under Section 243 of the Code.
A
distribution on our shares in excess of current or accumulated earnings and
profits will be treated as a tax-free return of capital to the extent of the
U.S. Holder’s adjusted basis in such shares and then as capital gain. See “—
Sale or other disposition of common shares” below.
Canadian
withholding tax on dividend distributions paid by us to a U.S. Holder is
generally reduced to 15% pursuant to the U.S.-Canada tax treaty. U.S. Holders
generally may claim the amount of any Canadian income taxes withheld either as a
deduction from gross income or as a credit against U.S. federal income tax
liability, subject to numerous complex limitations that must be determined and
applied on an individual basis. A U.S. Holder’s ability to claim such a credit
against U.S. federal income tax liability may be limited to the extent that
dividends on our common shares are treated as U.S.-source income for U.S.
foreign tax credit purposes. To the extent that a distribution with respect to
our common shares is paid from earnings and profits accumulated by a domestic
corporation engaged in a U.S. trade or business (such as a U.S. subsidiary), any
such income would be treated as U.S.-source income for U.S. foreign tax credit
purposes.
Sale
or other disposition of common shares
Subject
to the discussion under “— Passive foreign investment company” below, in
general, if you sell or otherwise dispose of our common shares in a taxable
disposition:
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you
will recognize gain or loss equal to the difference (if any) between the
U.S. dollar value of the amount realized on such sale or other taxable
disposition and your adjusted tax basis in such common
shares;
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any
gain or loss will be capital gain or loss and will be long-term capital
gain or loss if your holding period for the common shares sold is more
than one year at the time of such sale or other taxable disposition;
and
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any
gain or loss will generally be treated as U.S.-source income for U.S.
foreign tax credit purposes, although special rules apply to U.S. Holders
who have a fixed place of business outside the United States to which this
gain is attributable.
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Long-term
capital gains of individual taxpayers are generally subject to a 15% maximum
U.S. federal income tax rate for capital gains recognized in taxable years
beginning before January 1, 2011. The deductibility of capital losses is subject
to limitations.
If you
are a cash basis taxpayer who receives foreign currency, such as Canadian
dollars, in connection with a sale or other taxable disposition of our common
shares, the amount realized will be based on the U.S. dollar value of the
foreign currency received with respect to such common shares, as determined on
the settlement date of such sale or other taxable disposition.
If you
are an accrual basis taxpayer who receives foreign currency in a sale or other
taxable disposition of our common shares, you generally may elect the same
treatment required of cash basis taxpayers with respect to a sale or other
taxable disposition of such common shares, provided the election is applied
consistently from year to year. The election may not be changed without the
consent of the IRS. If you are an accrual basis taxpayer and do not elect to be
treated as a cash basis taxpayer (pursuant to the U.S. Treasury Regulations
applicable to foreign currency transactions) for this purpose, you might have a
foreign currency gain or loss for U.S. federal income tax purposes because of
differences between the U.S. dollar value of the foreign currency received on
the date of the sale (or other taxable disposition) of our common shares and the
date of payment. Any such currency gain or loss generally will be treated as
ordinary income or loss and would be in addition to gain or loss, if any,
recognized on the sale (or other taxable disposition) of our common
shares.
Passive
foreign investment company
PFIC
Rules Generally. U.S. persons who are potential holders of our common shares,
warrants or options to purchase our common shares, or debentures convertible
into our common shares, which we sometimes refer to in this prospectus as equity
securities, should be aware that we could constitute a “passive foreign
investment company” (or a “PFIC”) for U.S. federal income tax purposes. The
tests for determining PFIC status for a taxable year depend upon the relative
values of certain categories of assets and the relative amounts of certain kinds
of income. The application of these factors depends upon our financial results
for the year, which is beyond our ability to predict or control, and may be
subject to legal and factual uncertainties. While we do not expect to be a PFIC
in 2009, we are unable to predict whether we will be a PFIC in 2009 or in later
years.
In
general terms, we will be a PFIC for any tax year in which either (i) 75% or
more of our gross income is passive income (the “income test”) or (ii) the
average percentage, by fair market value, of our assets that produce or are held
for the production of passive income is 50% or more (the “asset test”). “Passive
income” includes, for example, dividends, interest, certain rents and royalties,
certain gains from the sale of stock and securities, and certain gains from
commodities transactions. For example, we could be a PFIC for a tax year if we
have (i) losses from sales activities but interest income (and/or other passive
income) that exceeds those losses or (ii) positive gross profit from sales but
interest income (and/or other passive income) constitutes 75% or more of our
total gross income. In such situations, we could be a PFIC even without
recognizing substantial amounts of passive income.
If we are
a PFIC for any year, any U.S. Holder whose holding period for common shares
includes any portion of a year in which we are a PFIC generally would be subject
to a special adverse tax regime in respect of “excess distributions.” Excess
distributions would include certain distributions received with respect to our
common shares. Gain recognized by a U.S. Holder on a sale or other transfer of
our common shares also would be treated as an excess distribution. Such gains
and excess distributions would be allocated ratably to the U.S. Holder’s holding
period. For this purpose, the holding period of common shares acquired through
either an exercise of warrants or options or a conversion of debentures includes
the holder’s holding period in those warrants, options, or convertible
debentures.
The
portion of any excess distributions (including gains treated as excess
distributions) allocated to the current tax year would be includible as ordinary
income in the current tax year. In contrast, the portion of any excess
distributions allocated to prior years would be taxed at the highest marginal
rate applicable to ordinary income for each year (regardless of the taxpayer’s
actual marginal rate for that year and without reduction by any losses or loss
carryforwards) and would be subject to interest charges to reflect the value of
the U.S. federal income tax deferral. U.S. Holders must report any gains or
distributions received from a PFIC by filing a Form 8621, Return by a
Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund,
with their returns.
Certain
elections may sometimes be used to reduce the adverse impact of the PFIC rules
on U.S. Holders (“qualifying electing fund” (“QEF”) and “mark-to-market”
elections), but these elections may accelerate the recognition of taxable income
and may result in the recognition of ordinary income.
QEF
Election to Reduce Impact of PFIC Rules. The rules described above for "excess
distributions" will not apply to a U.S. Holder if the U.S. Holder makes a QEF
election for the first taxable year of the U.S. Holder's holding period for our
common shares during which we are a PFIC and we comply with specified reporting
requirements. A QEF election for a taxable year generally must be made on or
before the due date (as may be extended) for filing the taxpayer's U.S. federal
income tax return for the year. A U.S. Holder who makes a QEF election generally
must report on a current basis his or her pro rata share of our ordinary income
and net capital gain for any taxable year in which we are a PFIC, whether or not
we distribute those earnings. A U.S. Holder who makes a QEF election must file a
Form 8621 with their annual return. We have not decided whether we will provide
the U.S. Holders of our common shares with the annual information required to
make a QEF election.
Mark-to-Market
Election to Reduce Impact of PFIC Rules. If we become a PFIC, a U.S. Holder of
our common shares may elect to recognize any gain or loss on our common shares
on a mark-to-market basis at the end of each taxable year, so long as the common
shares are regularly traded on a qualifying exchange. The mark-to-market
election under the PFIC rules is an alternative to the QEF election. We believe
our common shares will be regularly traded on a qualifying exchange, but we
cannot provide assurance that our common shares will be considered regularly
traded on a qualifying exchange for all years in which we may be a PFIC. A U.S.
Holder who makes a mark-to-market election generally must recognize as ordinary
income all appreciation inherent in the U.S. Holder’s investment in our common
shares on a mark-to-market basis and may recognize losses inherent in our common
shares only to the extent of prior mark-to-market gain recognition. The
mark-to-market election must be made by the due date (as may be extended) for
filing the taxpayer's federal income tax return for the first year in which the
election is to take effect. A U.S. Holder who makes a mark-to-market election
must file a Form 8621 with their annual return.
Rules for
Lower-Tier PFIC Subsidiaries. Special adverse rules apply to U.S. Holders of our
common shares for any year in which we are a PFIC and have a non-U.S. subsidiary
that is also a PFIC (a “lower tier PFIC”). If we are a PFIC and a U.S. Holder of
our common shares does not make a QEF election (as described above) in respect
of any lower tier PFIC, the U.S. Holder could incur liability for the deferred
tax and interest charge described above if (i) we receive a distribution from,
or dispose of all or part of our interest in, the lower tier PFIC or (ii) the
U.S. Holder disposes of all or part of our common shares. A QEF election that is
made for our common shares will not apply to a lower tier PFIC although a
separate QEF election might be made with respect to a lower-tier PFIC. We will
use reasonable best efforts to cause a lower-tier PFIC to provide the
information necessary for an effective QEF election to be made with respect to
such lower-tier PFIC. Moreover, a mark-to-market election (as described above)
is not available for lower-tier PFICs.
Estate
Planning. Special adverse rules that impact certain estate planning goals could
apply to our common shares if we are a PFIC.
Tax
advice. The PFIC rules are extremely complex, and shareholders are urged to
consult their own tax advisers regarding the potential consequences to them of
us being classified as a PFIC.
Non-U.S.
Holders
The
following summary applies to you if you are a non-U.S. Holder of our common
shares. A non-U.S. Holder is a beneficial owner of a common share that is not a
U.S. Holder.
Distributions
In
general, you will not be subject to U.S. federal income tax or withholding tax
on dividends, if any, received from us with respect to our common shares, unless
such income is (i) effectively connected with your conduct of a trade or
business in the United States or (ii) if a treaty applies, such income is
attributable to a permanent establishment or fixed base you maintain in the
United States.
Sale
or other disposition of common shares
In
general, you will not be subject to U.S. federal income tax on any gain realized
upon the sale or other disposition of our common shares unless:
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such
gain is effectively connected with your conduct of a U.S. trade or
business or, if a treaty applies, such gain is attributable to a permanent
establishment or fixed base you maintain in the United States;
or
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you
are an individual who is present in the United States for 183 days or more
during the taxable year of disposition or have a tax home in the United
States, and certain other requirements are
met.
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U.S.
Information Reporting and Backup Withholding Tax
U.S.
Holders of our common shares may be subject to information reporting and may be
subject to backup withholding (currently at a rate of 28%) on distributions on
our common shares or on the proceeds from a sale or other disposition of our
common shares paid within the United States. Payments of distributions on, or
the proceeds from the sale or other disposition of, our common shares to or
through a foreign office of a broker generally will not be subject to backup
withholding, although information reporting may apply to those payments in
certain circumstances. Backup withholding will generally not apply, however, to
a U.S. Holder who:
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furnishes
a correct taxpayer identification number and certifies that the U.S.
Holder is not subject to backup withholding on IRS Form W-9, Request for
Taxpayer Identification Number and Certification (or substitute form);
or
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is
otherwise exempt from backup
withholding.
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In
general, a non-U.S. Holder will not be subject to information reporting and
backup withholding. However, a non-U.S. Holder may be required to establish an
exemption from information reporting and backup withholding by certifying the
non-U.S. Holder’s non-U.S. status on Form W-8BEN, Certificate of Foreign Status
of Beneficial Owner for United States Tax Withholding.
Backup
withholding is not an additional tax. Any amounts withheld from a payment to a
holder under the backup withholding rules may be credited against the holder’s
U.S. federal income tax liability, and a holder may obtain a refund of any
excess amounts withheld by filing the appropriate claim for refund with the IRS
in a timely manner.
LEGAL
MATTERS
Lackowicz,
Shier & Hoffman has provided its opinion on the validity of the common
shares offered by this prospectus.
EXPERTS
The
consolidated financial statements incorporated in this prospectus by reference
from our Annual Report on Form 10-K for the years ended December 31,
2008, 2007 and 2006 have been audited by Deloitte & Touche LLP,
independent registered chartered accountants, as stated in their report, which
report expresses an unqualified opinion on the financial statements and
includes a separate report titled Comments by Independent Registered Chartered
Accountants on Canada — United States of America Reporting Differences
referring to changes in accounting principles and substantial doubt on our
ability to continue as a going concern, which is incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITY
The
Business Corporations Act (Yukon Territory) imposes liability on officers and
directors for breach of fiduciary duty except in certain specified
circumstances, and also empowers corporations organized under Yukon Territory
law to indemnify officers, directors, employees and others from liability in
certain circumstances such as where the person successfully defended himself on
the merits or acted in good faith in a manner reasonably believed to be in the
best interests of the corporation.
Our
By-laws, with certain exceptions, eliminate any personal liability of our
directors and officers to us or our shareholders for monetary damages arising
from such person’s performance as a director or officer, provided such person
has acted in accordance with the requirements of the governing statute. Our
By-laws also provide for indemnification of directors and officers, with certain
exceptions, to the full extent permitted under law which includes all liability,
damages and costs or expenses arising from or in connection with service for,
employment by, or other affiliation with us to the maximum extent and under all
circumstances permitted by law.
We
maintain insurance policies under which our directors and officers are insured,
within the limits and subject to the limitations of the policies, against
expenses in connection with the defense of actions, suits or proceedings, and
certain liabilities that might be imposed as a result of such actions, suits or
proceedings, to which they are parties by reason of being or having been a
director or officer of Apollo.
You
should rely only on the information incorporated by reference or provided in
this prospectus or any supplement to this prospectus. We have authorized no one
to provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of this prospectus.
APOLLO
GOLD CORPORATION
17,160,000
COMMON
SHARES
PROSPECTUS