Unassociated Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark one)
R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2008
 
or
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number:  001-31593
Apollo Gold Corporation
(Exact name of registrant as specified in its charter)
Yukon Territory
Not Applicable
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5655 S. Yosemite Street, Suite 200
Greenwood Village, Colorado 80111-3220
(Address of Principal Executive Offices Including Zip Code)
Registrant’s telephone number, including area code:   (720) 886-9656
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Shares, no par value
 
 
NYSE Amex
 
 
 
Toronto Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes £ No R
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes £ No R
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes R     No £
 
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Accelerated filer ¨
   
Non-accelerated filer ¨ (do not check if a smaller reporting company)
Smaller Reporting Company R
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes £ No R
 
As of June 30, 2008, the aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was $69,201,110 based upon the closing sale price of the common stock as reported by the NYSE Amex on that date.
 
As of March 20, 2009, the registrant had 232,811,195 common shares, no par value per share, outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant’s definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A no later than 120 days after the close of the registrant’s fiscal year.
 


 
 

 

TABLE OF CONTENTS
 
 
13
 
22
 
36
 
50
 
50
 
51
 
52
 
54
 
73
 
74
 
75
 
75
 
76
 
77
 
78
 
83
 
F-1
INDEX TO EXHIBITS
   

 
-2-

 

REPORTING CURRENCY, FINANCIAL AND OTHER INFORMATION
 
All amounts in this Report are expressed in United States (“U.S.”) dollars.  Unless otherwise indicated Canadian currency is denoted as “Cdn$.”
 
Financial information is presented in accordance with generally accepted accounting principles (“GAAP”) in Canada (“Cdn GAAP”).  Differences between accounting principles generally accepted in the U.S. (“U.S. GAAP”) and those applied in Canada, as applicable to Apollo Gold Corporation, are discussed in Note 25 to the Consolidated Financial Statements.
 
Information in Part I and II of this report includes data expressed in various measurement units and contains numerous technical terms used in the gold mining industry.  To assist readers in understanding this information, a conversion table and glossary are provided below.
 
References to “Apollo,” the “Company,”  “we,” “our,” or “us” mean Apollo Gold Corporation, its predecessors and consolidated subsidiaries, or any one or more of them, as the context requires.
 
NON-GAAP FINANCIAL MEASURES
 
In this Annual Report on Form 10-K, 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 United States Securities and Exchange Commission (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 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 GAAP 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 for a reconciliation of these non-GAAP measures to our Statements of Operations.
 
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K and the documents incorporated by reference in this report 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:
 
 
-3-

 
 
 
·
plans for the development of the Black Fox project;
 
·
the timing of commencement of mining and milling at Black Fox;
 
·
estimates of future production at Black Fox;
 
·
contemplated drawdowns under the Black Fox project finance facility and our ability to meet our repayment obligations under the Black Fox project facility;
 
·
timing and amount of future cash flows from the Montana Tunnels mine;
 
·
our ability to finance exploration at Huizopa;
 
·
our ability to repay the convertible debentures issued to RAB Special Situations (Master) Fund Limited (“RAB”) due February 23, 2010;
 
·
the future effect of recent issuances and registration for immediate resale of a significant number of common share purchase warrants on our share price;
 
·
future financing of projects, including the possible financing Apollo’s share of the M Pit at Montana Tunnels;
 
·
placing the Montana Tunnels mine on care and maintenance and the costs associated therewith;
 
·
the decision to undertake the M Pit expansion;
 
·
liquidity to support operations and debt repayment;
 
·
acquisition of new equipment at the Black Fox complex;
 
·
sufficiency of future cash flows from the Montana Tunnels mine to repay the Montana Tunnels’ indebtedness;
 
·
completion of a Canadian National Instrument NI 43-101 for the Huizopa project;
 
·
the establishment and estimates of mineral reserves and resources;
 
·
daily production, mineral recovery rates and mill throughput rates;
 
·
total production costs;
 
·
cash operating costs;
 
·
total cash costs;
 
·
grade of ore mined and milled from Black Fox and cash flows therefrom;
 
·
anticipated expenditures for development, exploration, and corporate overhead;
 
·
timing and issue of permits, including permits necessary to conduct phase II of open pit mining at Black Fox;
 
·
expansion plans for existing properties;
 
·
estimates of closure costs;
 
·
estimates of environmental liabilities;
 
·
our ability to obtain financing to fund our estimated expenditure and capital requirements;
 
·
our ability to hedge metals and financial products;
 
·
factors impacting our results of operations; and
 
·
the impact of adoption of new accounting standards.

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 Annual Report on Form 10-K:
 
 
·
changes in business and economic conditions, including the recent significant deterioration in global financial and capital markets;
 
·
significant increases or decreases in gold and zinc prices;
 
·
changes in interest and currency exchange rates including the LIBOR rate;
 
·
changes in availability and cost of financing;
 
·
timing and amount of production;

 
-4-

 

 
·
unanticipated grade of ore changes;
 
·
unanticipated recovery or production problems;
 
·
changes in operating costs;
 
·
operational problems at our mining properties;
 
·
metallurgy, processing, access, availability of materials, equipment, supplies and water;
 
·
determination of reserves;
 
·
costs and timing of development of new reserves;
 
·
results of current and future exploration and development activities;
 
·
results of future feasibility studies;
 
·
joint venture relationships;
 
·
political or economic instability, either globally or in the countries in which we operate;
 
·
local and community impacts and issues;
 
·
timing of receipt of government approvals;
 
·
accidents and labor disputes;
 
·
environmental costs and risks;
 
·
competitive factors, including competition for property acquisitions;
 
·
availability of external financing at reasonable rates or at all; and
 
·
the factors discussed in this Annual Report on Form 10-K under the heading “Risk Factors.”

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 Annual Report on Form 10-K and in any documents incorporated by reference into this Annual Report on Form 10-K.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
 
GLOSSARY OF TERMS
 
We report our reserves on two separate standards to meet the requirements for reporting in both Canada and the United States (“U.S.”).  Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 (“NI 43-101”).  The definitions given in NI 43-101 are adopted from those given by the Canadian Institute of Mining Metallurgy and Petroleum.  U.S. reporting requirements for disclosure of mineral properties are governing by SEC Industry Guide 7.  These reporting standards have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but embody differing approaches and definitions.

We estimate and report our resources and reserves according to the definitions set forth in NI 43-101 and modify and reconcile them as appropriate to conform to SEC Industry Guide 7 for reporting in the U.S.  The definitions for each reporting standard are presented below with supplementary explanation and descriptions of the parallels and differences.

 
-5-

 

NI 43-101 Definitions
   
     
indicated mineral resource
 
The term “indicated mineral resource” refers to that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics can be established with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit.  The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
     
inferred mineral resource
 
The term “inferred mineral resource” refers to that part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity.  The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
     
measured mineral resource
 
The term “measured mineral resource” refers to that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters to support production planning and evaluation of the economic viability of the deposit.  The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
     
mineral reserve
 
The term “mineral reserve” refers to the economically mineable part of a measured or indicated mineral resource demonstrated by at least a preliminary feasibility study.  This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.  A mineral reserve includes diluting materials and allowances for losses that might occur when the material is mined.
     
mineral resource  
The term “mineral resource” refers to a concentration or occurrence of natural, solid, inorganic material or natural solid fossilized organic material, including base and precious metals, coal and industrial metals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction.  The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge.
 
 
-6-

 

probable mineral reserve
 
The term “probable mineral reserve” refers to the economically mineable part of an indicated, and in some circumstances a measured mineral resource demonstrated by at least a preliminary feasibility study.  This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
     
proven mineral reserve1
 
The term “proven mineral reserve” refers to the economically mineable part of a measured mineral resource demonstrated by at least a preliminary feasibility study.
     
qualified person2
 
The term “qualified person” refers to an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development, production activities and project assessment, or any combination thereof, including experience relevant to the subject matter of the mineral project or technical report and is a member or licensee in good standing of a professional association.

SEC Industry Guide 7 Definitions
 
exploration stage
 
An “exploration stage” prospect is one which is not in either the development or production stage.
     
development stage
 
A “development stage” project is one which is undergoing preparation of an established commercially mineable deposit for its extraction but which is not yet in production.  This stage occurs after completion of a feasibility study.
     
mineralized material3
 
The term “mineralized material” refers to material that is not included in the reserve as it does not meet all of the criteria for adequate demonstration for economic or legal extraction.
     
probable reserve
 
The term “probable reserve” refers to reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced.  The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
     
production stage
 
A “production stage” project is actively engaged in the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product.
     
proven reserve
 
The term “proven reserve” refers to reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
 
 
-7-

 

reserve
 
The term “reserve” refers to that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.  Reserves must be supported by a feasibility study done to bankable standards that demonstrates the economic extraction.  (“Bankable standards” implies that the confidence attached to the costs and achievements developed in the study is sufficient for the project to be eligible for external debt financing.)  A reserve includes adjustments to the in-situ tonnes and grade to include diluting materials and allowances for losses that might occur when the material is mined.
 

1 For Industry Guide 7 purposes this study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.
2 Industry Guide 7 does not require designation of a qualified person.
3  This category is substantially equivalent to the combined categories of measured and indicated mineral resources specified in NI 43-101.

Additional Definitions
     
breccia
 
rock consisting of angular fragments of other rocks held together by mineral cement or a fine-grained matrix
     
call
 
a financial instrument that provides the right, but not the obligation, to buy a specified number of ounces of gold or silver or of pounds of lead or zinc at a specified price
     
clasts
 
fragments of a pre-existing rock or fossil embedded within another rock
     
concentrate
 
a processing product containing the valuable ore mineral from which most of the waste mineral has been eliminated
     
cretaceous
 
the third and latest of the periods in the Mesozoic era
     
cut off or cut-off grade
 
when determining economically viable mineral reserves, the lowest grade of mineralized material that qualifies as ore, i.e. that can be mined at a profit
     
diatreme
 
an upward sloping passage forced through sedimentary rock by volcanic activity
     
doré
 
unrefined gold bullion bars containing various impurities such as silver, copper and mercury, which will be further refined to near pure gold
     
fault
 
a rock fracture along which there has been displacement
     
feasibility study
 
a definitive engineering and economic study addressing the viability of a mineral deposit taking into consideration all associated technical factors, costs, revenues, and risks
     
fold
 
a curve or bend of a planar structure such as rock strata, bedding planes, foliation, or cleavage
     
formation
 
a distinct layer of sedimentary rock of similar composition
 
 
-8-

 

geophysicist
 
one who studies the earth; in particular the physics of the solid earth, the atmosphere and the earth’s magnetosphere
     
geotechnical
 
the study of ground stability
     
grade
 
quantity of metal per unit weight of host rock
     
heap leach
 
a mineral processing method involving the crushing and stacking of ore on an impermeable liner upon which solutions are sprayed to dissolve metals such as gold and copper; the solutions containing the metals are then collected and treated to recover the metals
     
heterolithic
 
having more than one, differing kinds of rock components
     
host rock
 
the rock containing a mineral or an ore body
     
hydrothermal
 
the products of the actions of heated water, such as a mineral deposit precipitated from a hot solution
     
intercalated
 
said of layered material that exists or is introduced between layers of a different character
     
latitic composition
 
igneous rock composed largely of equal amounts of orthoclase and plagioclase feldspar minerals and less than 10% quartz
     
mafic
 
pertaining to or composed dominantly of the ferromagnesian rock-forming silicates; said of some igneous rocks and their constituent minerals
     
mapping or geologic mapping
 
the recording of geologic information such as the distribution and nature of rock units and the occurrence of structural features, mineral deposits, and fossil localities
     
mineral
 
a naturally formed chemical element or compound having a definite chemical composition and, usually, a characteristic crystal form
     
mineralogy
 
the science of minerals
     
mineralization
 
a natural occurrence in rocks or soil of one or more metal yielding minerals
     
mining
 
the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product.  Exploration continues during the mining process and, in many cases, mineral reserves are expanded during the life of the mine operations as the exploration potential of the deposit is realized.
     
National Instrument 43-101
 
Canadian standards of disclosure for mineral projects
     
open pit
 
surface mining in which the ore is extracted from a pit or quarry, the geometry of the pit may vary with the characteristics of the ore body
 
 
-9-

 

ore
 
mineral bearing rock that can be mined and treated profitably under current or immediately foreseeable economic conditions
     
ore body
 
a mostly solid and fairly continuous mass of mineralization estimated to be economically mineable
     
outcrop
 
that part of a geologic formation or structure that appears at the surface of the earth
     
petrographic
 
the systematic classification and description of rocks, especially by microscopic examinations of thin sections
     
pluton
 
a body of igneous rock that has formed beneath the surface of the earth by consolidation from magma
     
put
 
a financial instrument that provides the right, but not the obligation, to sell a specified number of ounces of gold or of pounds of lead or zinc at a specified price
     
pyrite
 
common sulfide of iron
     
quartz
 
a mineral composed of silicon dioxide, SiO2 (silica)
     
quartz monzonite
 
a course-grained igneous rock made up principally of feldspar minerals and quartz
     
reclamation
 
the process by which lands disturbed as a result of mining activity are modified to support beneficial land use. Reclamation activity may include the removal of buildings, equipment, machinery and other physical remnants of mining, closure of tailings storage facilities, leach pads and other mine features, and contouring, covering and re-vegetation of waste rock and other disturbed areas.
     
reclamation and closure costs
 
the cost of reclamation plus other costs, including without limitation certain personnel costs, insurance, property holding costs such as taxes, rental and claim fees, and community programs associated with closing an operating mine
     
recovery rate
 
a term used in process metallurgy to indicate the proportion of valuable material physically recovered in the processing of ore, generally stated as a percentage of the material recovered compared to the total material originally present
     
SAG
 
semi-autogenous grinding, a method of grinding rock into fine particles, in which the grinding media consists of steel balls
     
SEC Industry Guide 7
 
U.S. reporting guidelines that apply to registrants engaged or to be engaged in significant mining operations
     
sedimentary rock
 
rock formed at the earth’s surface from solid particles, whether mineral or organic, which have been moved from their position of origin and redeposited
 
 
-10-

 

skarn
 
a rock of complex mineral composition
     
stratigraphy
 
the branch of geology which studies the formation, composition, sequence and correlation of the stratified rock as parts of the earth’s crust
     
strike
 
the direction or trend that a structural surface, e.g.  a bedding or fault plane, takes as it intersects the horizontal
     
strip
 
to remove overburden in order to expose ore
     
subangular
 
somewhat angular, free from sharp angles but not smoothly rounded
     
sulfide
 
a mineral including sulfur (S) and iron (Fe) as well as other elements; metallic sulfur-bearing mineral often associated with gold mineralization
     
variogram
 
graphical representation of the rate of change of grade with distance which is used to define parameters for controlling sample layout and resource modeling
     
vein
 
a thin, sheet-like crosscutting body of hydrothermal mineralization, principally quartz
     
volcanic clastics
 
volcanic rocks containing significant amounts of rock fragments that have been moved from their place of origin during volcanic activity
     
volcanic rock
 
originally molten rocks, generally fine grained, that have reached or nearly reached the earth’s surface before solidifying
 
 
-11-

 

CONVERSION FACTORS AND ABBREVIATIONS
 
For ease of reference, the following conversion factors are provided:
 
1 acre
 
= 0.4047 hectare
 
1 mile
 
= 1.6093 kilometers
1 foot
 
= 0.3048 meter
 
1 troy ounce
 
= 31.1035 grams
1 gram per metric tonne
 
= 0.0292 troy ounce/short ton
 
1 square mile
 
= 2.59 square kilometers
1 short ton (2000 pounds)
 
= 0.9072 tonne
 
1 square kilometer
 
= 100 hectares
1 tonne
 
= 1,000 kg or 2,204.6 lbs
 
1 kilogram
 
= 2.204 pounds or 32.151 troy oz
1 hectare
 
= 10,000 square meters
 
1 hectare
 
= 2.471 acres

The following abbreviations could be used herein:
 
Ag
 
= silver
 
m
 
= meter
Au
 
= gold
 
m(2)
 
= square meter
Au g/t
 
= grams of gold per tonne
 
m(3)
 
= cubic meter
g
 
= gram
 
Ma
 
= million years
ha
 
= hectare
 
Oz
 
= troy ounce
km
 
= kilometer
 
Pb
 
= lead
km(2)
 
= square kilometers
 
t
 
= tonne
kg
 
= kilogram
 
T
 
= ton
lb
 
= pound
 
Zn
 
= zinc

Note:  All units in this report are stated in metric measurements unless otherwise noted.
 
-12-

 
PART I
 
ITEM 1.  BUSINESS
 
OVERVIEW OF APOLLO GOLD
 
The earliest predecessor to Apollo Gold Corporation was incorporated under the laws of the Province of Ontario in 1936.  In May 2003, it reincorporated under the laws of the Yukon Territory.  Apollo Gold Corporation maintains its 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.  Apollo Gold Corporation maintains its 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 Annual Report on Form 10-K.
 
Apollo is engaged in gold mining including extraction, processing, refining and the production of by-product metals, as well as related activities including exploration and development.  The Company is the operator of the Montana Tunnels mine, which is a 50% joint venture with Elkhorn Tunnels, LLC (“Elkhorn”).  The Montana Tunnels mine is an open pit mine and mill producing gold doré and lead-gold and zinc-gold concentrates.  We ceased mining at Montana Tunnels on December 5, 2008 and, following the expected completion of milling of stockpiled ore at the end of April 2009, we expect to place the mine on care and maintenance.
 
Apollo has an advanced stage development project, the Black Fox project, located near 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 milling of ores are scheduled to commence in April 2009.
 
Apollo also owns Mexican subsidiaries which own concessions at the Huizopa exploration project, located in the Sierra Madres in Chihuahua, Mexico.  The Huizopa project is subject to an 80% Apollo/20% Mineras Coronado joint venture agreement.
 
See the disclosure below and Item 2 “Description of Properties” for further information about our properties.

 
-13-

 

BACKGROUND
 
Apollo Gold Corporation
 
The following chart illustrates Apollo’s operations and principal operating subsidiaries and their jurisdictions of incorporation.  Apollo owns 100% of the voting securities of each subsidiary.
 
APOLLO GOLD CORPORATION AND ITS SUBSIDIARIES
(as of March 20, 2009)
 

 
APOLLO GOLD CORPORATION:  NYSE Amex exchange and Toronto Stock Exchange listed holding company which owns and operates the Black Fox development property.
 
APOLLO GOLD, INC.:  Holding company, employs executive officers and furnishes corporate services to Apollo Gold Corporation and its subsidiaries.
 
MONTANA TUNNELS MINING, INC.:  Owns a 50% interest in and operates the Montana Tunnels mine and owns the Diamond Hill mine.  The Montana Tunnels mine is subject to a joint venture agreement with Elkhorn which has a 50% beneficial interest in the Montana Tunnels mine.
 
MINE DEVELOPMENT FINANCE INC.:  Provides intercompany loans and other financial services to its affiliated companies.
 
MINERA SOL DE ORO S.A. de C.V.:  Holds rights to the Huizopa exploration property.
 
MINAS de ARGONAUTAS, S. de R.L de C.V.:  Conducts exploration at the Huizopa exploration property in Mexico.

 
-14-

 
 
Financial Information
 
Segmented information is contained in Note 23 of the “Notes to the Consolidated Financial Statements” contained within this Annual Report on Form 10-K.

Products
 
The Montana Tunnels mine produces gold, zinc, silver, and lead in gold doré and lead-gold and zinc-gold concentrates.  The metals produced are sold to custom smelters, refiners and metals traders.  The percentage of sales contributed by each class of product is reflected in the following table.
 
   
Year Ended
December 31,
 
Product Category
 
2008
   
2007
   
2006
 
Gold
    46 %     32 %     32 %
Zinc
    32 %     40 %     47 %
Silver and Lead
    22 %     28 %     21 %
 
The table below summarizes the Company’s share of Montana Tunnels’ metals production and average metals prices for the periods indicated.
 
   
Year Ended December 31,
 
 
 
2008 (1)
   
2007(1) (2)
   
2006(3)
 
Production Summary
                 
Gold ounces
    24,346       16,632       4,959  
Silver ounces
    242,875       250,982       116,004  
Lead pounds
    7,780,046       5,590,737       1,196,317  
Zinc pounds
    18,986,730       11,874,543       3,040,058  
Average metals prices
                       
Gold – London Bullion Mkt.  ($/ounce)
  $ 872     $ 696     $ 604  
Silver – London Bullion Mkt.  ($/ounce)
  $ 15.02     $ 13.40     $ 11.55  
Lead – London Metals Exchange (LME) Cash ($/pound)
  $ 0.95     $ 1.17     $ 0.58  
Zinc – LME Cash ($/pound)                    
  $ 0.85     $ 1.47     $ 1.49  

(1)
Effective December 31, 2006, the Montana Tunnels mine became a 50/50 joint venture; therefore, 2008 and 2007 metal production shown in the table above represents Apollo’s 50% share of the joint venture.
(2)
The Montana Tunnels mine recommenced milling operations on March 1, 2007; therefore, production in 2007 is for a ten month period.
(3)
The Montana Tunnels mine ceased milling operations on May 12, 2006; therefore, no metal products were produced after that date for the remainder of 2006.

Gold
 
Montana Tunnels produced 24,346, 16,632, and 4,959 ounces of gold during the years ended December 31, 2008, 2007, and 2006, respectively.
 
The majority of our gold revenue is derived from the sale of gold contained within the lead-gold and zinc-gold concentrates.  See Item 2 “Description of Properties – Montana Tunnels Mine” for further information.  The balance of the gold revenue is derived from the sale of refined gold in the form of doré bars.  Because doré is an alloy consisting primarily of gold but also containing silver and other metals,  bars are sent to refiners to produce bullion that meets the required market standard of 99.99% pure gold.  Under the terms of our refining contracts, the bars are refined for a fee, and our share of the refined gold and the separately recovered silver is paid to us.
 
 
-15-

 
 
Gold Uses
 
Gold has two primary uses:  product fabrication and bullion investment.  Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins.  Gold investors purchase gold bullion, official coins and high-carat jewelry.
 
Gold Supply
 
The worldwide supply of gold consists of a combination of new production from mining and existing stocks of bullion and fabricated gold held by governments, financial institutions, industrial organizations and private individuals.
 
Gold Price History
 
The price of gold is volatile and is affected by numerous factors beyond our control such as the sale or purchase of gold by various central banks and financial institutions, inflation or deflation, fluctuation in the value of the US dollar and foreign currencies, global and regional demand, and the political and economic conditions of major gold-producing countries throughout the world.
 
The following table presents the high, low and average afternoon fixing prices for gold per ounce on the London Bullion Market over the past ten years:
 
Year
 
High
   
Low
   
Average
 
1999
    326       253       279  
2000
    313       264       279  
2001
    293       256       271  
2002
    349       278       310  
2003
    416       320       364  
2004
    454       375       409  
2005
    537       411       445  
2006
    725       525       604  
2007
    841       608       696  
2008
    1011       713       872  
2009*
    990       810       901  

* Through February 28, 2009
 
Zinc
 
Production from the Montana Tunnels mine also includes the extraction, processing and sale of zinc contained in sulfide concentrates.  The Montana Tunnels mine produced approximately 19,000,000, 11,900,000, and 3,000,000 pounds of payable zinc in 2008, 2007, and 2006, respectively.
 
Due to its corrosion resisting property, zinc is used primarily as the coating in galvanized steel.  Galvanized steel is widely used in construction of infrastructure, housing and office buildings.  In the automotive industry, zinc is used for galvanizing and die-casting and in the vulcanization of tires.  Smaller quantities of various forms of zinc are used in the chemical and pharmaceutical industries, including fertilizers, food supplements and cosmetics, and in specialty electronic applications such as satellite receivers.

 
-16-

 

Annual Global Supply/ Demand Balance for Zinc, 2004-2008
 
   
2008
   
2007
   
2006
   
2005
   
2004
 
   
(000 tonnes)
 
Refined Consumption
    11,563       11,437       11,040       10,612       10,654  
Refined Production
    11,789       11,412       10,669       10,232       10,353  
Implied Surplus (Deficit)
    226       (15 )     (343 )     (351 )     (269 )
LME Stocks           – Total
 
Not avail
      88       90       394       629  
                               – As weeks of consumption
 
Not avail
      0.4       0.4       1.9       3.1  
Reported Stocks    – Total
    827       601       548       828       1,038  
                               – As weeks of consumption
    3.7       2.7       2.6       4.1       5.1  
LME Cash Price    – $/tonne
    1,873       3,250       3,273       1,382       1,048  
                               – cents/lb
    85.0       147.4       148.5       62.7       47.5  

Data Source:  Standard Bank Metals Report
 
Zinc Price History
 
The following table sets forth for the periods indicated the London Metals Exchange high, low and average settlement prices of zinc in U.S. dollars per pound:
 
   
Zinc
 
Year
 
High
   
Low
   
Average
 
2001
    0.48       0.33       0.40  
2002
    0.42       0.33       0.35  
2003
    0.46       0.34       0.38  
2004
    0.56       0.42       0.56  
2005
    0.86       0.53       0.64  
2006
    1.93       1.43       1.53  
2007
    1.84       1.00       1.47  
2008
    1.28       0.47       0.85  
2009*
    0.52       0.48       0.58  

*  Through February 28, 2009
 
Silver
 
Montana Tunnels produced 242,875, 250,982, and 116,004 ounces of silver in the years ended December 31, 2008, 2007, and 2006, respectively.  The silver production is derived from the gold doré as well as the lead and zinc concentrates.
 
Silver has traditionally served as a medium of exchange, much like gold. While silver continues to be used for currency, the current principal uses of silver are for industrial uses, primarily for electrical and electronic components, photography, jewelry and silverware. Silver’s strength, malleability, ductility, thermal and electrical conductivity, sensitivity to light and ability to endure extreme changes in temperature combine to make silver a widely used industrial metal. Specifically, it is used in photography, batteries, computer chips, electrical contacts, and high technology printing. Silver’s anti-bacterial properties also make it valuable for use in medicine and in water purification.
 
Silver Price History
 
The following table sets forth for the periods indicated the London Metals Exchange high, low and average settlement prices of silver in U.S. dollars per ounce.

 
-17-

 
 
   
Silver
 
Year
 
High
   
Low
   
Average
 
2001
    4.83       4.03       4.37  
2002
    5.13       4.22       4.60  
2003
    5.99       4.35       4.88  
2004
    8.29       5.49       6.65  
2005
    9.22       6.39       7.31  
2006
    14.94       8.83       11.57  
2007
    15.82       11.67       13.38  
2008
    20.92       8.88       15.02  
2009*
    14.39       10.41       12.35  

*  Through February 28, 2009
 
Lead
 
Production from Montana Tunnels also includes the extraction, processing and sale of lead contained in sulfide concentrates.  Montana Tunnels produced approximately 7,800,000, 5,600,000, and 1,200,000 pounds of payable lead in 2008, 2007 and 2006, respectively.
 
The primary use of lead is in motor vehicle batteries, but it is also used in cable sheathing, solder in printed wiring circuits, shot for ammunition and alloying.  Lead in chemical form is used in alloys, glass and plastics.
 
Annual Global Supply/ Demand Balance for Lead, 2004-2008
 
   
2008
   
2007
   
2006
   
2005
   
2004
 
   
(000 tonnes)
 
Refined Consumption
    8,596       8,235       8,051       7,774       7,295  
Refined Production
    8,637       8,078       7,921       7,638       6,957  
Implied Surplus (Deficit)
    41       (157 )     (111 )     (100 )     (282 )
LME Stocks           – Total
 
Not avail
      45       41       44       40  
                               – As weeks of consumption
 
Not avail
      0.3       0.3       0.3       0.3  
Reported Stocks     – Total
    311       270       292       296       298  
                               – As weeks of consumption
    1.9       1.7       1.9       2.0       2.1  
LME cash price     – $/tonne
    2,090       2,595       1,288       976       887  
                               – cents/lb
    94.8       117.7       58.4       44.3       40.2  

Data Source:  Standard Bank Metals Report
 
Lead Price History
 
The following table sets forth for the periods indicated the London Metals Exchange high and low settlement prices for lead in U.S. dollars per pound.
 
   
Lead
 
Year
 
High
   
Low
   
Average
 
2001
    0.24       0.20       0.22  
2002
    0.24       0.18       0.20  
2003
    0.34       0.19       0.23  
2004
    0.45       0.29       0.40  
2005
    0.49       0.41       0.44  
2006
    0.79       0.47       0.58  
2007
    1.80       0.78       1.18  
2008
    1.57       0.40       0.95  
2009*
    0.51       0.45       0.54  

*  Through February 28, 2009

 
-18-

 

Smelting and Refining Process
 
Our lead and zinc concentrates are shipped by rail for smelting to Teck Cominco Metals Ltd. in Trail, British Columbia, Canada, approximately five hours from the Montana Tunnels mine.  Our contract with Teck Cominco covers all lead and zinc concentrates produced from the ores from the L Pit.  See Item 2 “Description of Properties – Montana Tunnels Mine” for further information.
 
We have an agreement with Johnson Matthey to refine gold doré produced at the Montana Tunnels mine to a final finished product.  Johnson Matthey receives $0.75 for each ounce of gold doré it refines, in addition to receiving a fee of 0.5% of the payable metal for silver and 0.1% of the payable metal for gold, with a minimum charge of $750 per delivery.
 
Mineral Reserves
 
Our proven and probable mineral reserves are estimated in conformance with definitions set out in NI 43-101 and on a basis consistent with the definition of proven and probable mineral reserves set forth in SEC Industry Guide 7.  See our “Glossary of Terms.”
 
The estimates of our mineral reserves are prepared by us based on information compiled and/or validated by Mr. Richard F. Nanna, our employee and Senior Vice President of Exploration.  Mr. Nanna is a professional geologist with 36 years of experience and a registered Professional Geologist in the State of Washington and is considered a qualified person under NI 43-101.
 
Since we report our mineral reserves to both NI 43-101 and SEC Industry Guide 7 standards, it is possible for our reserve estimates to vary between the two.  Where such a variance occurs it will arise from the differing requirements for reporting mineral reserves set forth by the different reporting authorities to which we are subject.  No reconciliation between NI 43-101 and SEC Industry Guide 7 is included for Montana Tunnels or Black Fox as there are no material differences.
 
The following table sets forth the estimated mineral reserves attributable to the interest held by Apollo in its properties.
 
Estimated Proven and Probable Reserves – Gold Ounces
 
         
As of December 31,
 
Mines
 
Apollo interest
   
2008
   
2007
   
2006
 
Montana Tunnels
    50 %     251,900       283,664       275,850  
Black Fox Project
    100 %     1,330,000       1,002,000       448,800  
Apollo Gold – Total
            1,581,900       1,285,664       724,650  

 
Montana Tunnels Reserves – Apollo’s Interest
 
Apollo’s interest in the end-of-year 2008 reserves at Montana Tunnels is approximately 19.8 million tons containing approximately 251,900 ounces of gold, 4,160,000 ounces of silver,  375.6 million pounds of zinc, and 128.6 million pounds of lead.  The grade model was modified in 2008 with a new indicator cut off to reflect higher metal prices.  Further, the M Pit was redesigned and incorporates new geological information and better access to the north end of the pit.  This combination has resulted in an increase of reserves.  The Montana Department of Environmental Quality and the Bureau of Land Management issued a Record of Decision approving the M Pit expansion in November 2008.

 
-19-

 

Montana Tunnels Mine Reserve Estimate at December 31, 2008
(Apollo’s 50% interest)
 
Pit (Imperial Summary)
Classification
 
Tons
000’s
   
Grade
oz Au/T
   
Ag oz
Ag/T
   
Pb %
   
Zn %
   
Ounces
Au
 
M Pit
Proven
    13,886.6       0.0129       0.212       0.164       0.487       179,000  
Mill Stockpile (1)
Proven
    887.5       0.0089       0.200       0.170       0.550       7,500  
Subtotal
Proven
    14,774.0       0.0126       0.211       0.164       0.491       186,500  
                                                   
M Pit
Probable
    5,052.5       0.0129       0.211       0.160       0.434       65,400  
Subtotal
Probable
    5,052.5       0.0129       0.211       0.160       0.434       65,400  
                                                   
Total
Proven + Probable
    19,826.5       0.0128       0.211       0.163       0.476       251,900  

(1)  Represents material mined from the current L Pit and stockpiled at the Montana Tunnels mill.

The past three years average metal prices were used for the calculation of the year-end 2008 reserves, which are as follows:
Gold - $724/oz                 Silver - $13.32/oz                 Lead - $0.90/lb                 Zinc - $1.27/lb

Black Fox Reserves
 
On April 14, 2008, we filed a Canadian National Instrument, NI 43-101 Technical Report, which was prepared to a bankable standard (“bankable feasibility study”).  A bankable feasibility study is a comprehensive analysis of a project’s economics (+/- 15% precision) used by the banking industry for financing purposes.  The table below summarizes the Black Fox Total Mineral Reserve.  The mineral reserves shown in the table below were calculated based on a gold price of $650 per ounce.

Black Fox Probable Reserve Statement as of December 31, 2008
 
Mining Method
 
Cutoff Grade
Au g/t
   
Tonnes
(000)
   
Grade
Au g/t
   
Contained
Au Ounces
 
Open Pit
    1.0       4,350       5.2       730,000  
Underground (1)
    3.0       2,110       8.8       600,000  
                                 
Total Probable Reserves
                            1,330,000  

 (1)  Underground reserves assume 95% mining recovery 17% planned dilution and 5% unplanned dilution at 0 grams per tonne grade.

Employee Relations
 
As of December 31, 2008, we had approximately 225 employees, including 6 employees at our principal executive office in Greenwood Village, Colorado, 190 employees at Montana Tunnels and 29 employees at Black Fox.
 
Competition
 
We compete with major mining companies and other natural mineral resource companies in the acquisition, exploration, financing and development of new prospects.  Many of these companies are larger and better capitalized than we are.  There is significant competition for the limited number of gold acquisition and exploration opportunities.  Our competitive position depends upon our ability to successfully and economically explore, acquire and develop new and existing mineral prospects.  Factors that allow producers to remain competitive in the market over the long term include the quality and size of their ore bodies, costs of operation, and the acquisition and retention of qualified employees.  We also compete with other mining companies for skilled mining engineers, mine and processing plant operators and mechanics, geologists, geophysicists and other technical personnel.  This could result in higher turnover and greater labor costs.

 
-20-

 
 
Regulatory Environment
 
Our mining exploration, development and production activities are subject to extensive regulation at the federal, state and local levels in the countries in which we operate. These regulations relate to, among other things, environmental and land-use matters, conservation, safety, drilling and spacing of drill holes and transportation matters. The following is a summary of some key regulations that affect our operations.

Safety. 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. In addition, our Black Fox operations are subject to safety and health regulations in Ontario, Canada.
 
Current Environmental 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. 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. We have made, and expect to make in the future, significant expenditures to comply with such laws, regulations and permitting requirements.
 
For more information regarding the regulations to which we are subject and the risks associated therewith, see Item 1A “Risk Factors.”

Available Information
 
We maintain a link to investor information on our website, www.apollogold.com, where we make available, free of charge, our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also make available on our website copies of the charters of the audit, compensation, technical and nominating committees of our board of directors, our code of business conduct and ethics and our corporate governance principles. Shareholders may request a printed copy of these governance materials or any exhibit to this report by writing to our Manager of Investor Relations, Apollo Gold Corporation, 5655 S. Yosemite Street, Suite 200, Greenwood Village, CO 80111. You may also read and copy any materials we file with the SEC at the SECs Public Reference Room, which is located at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information regarding the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains the documents we file with the SEC. Our website and the information contained on or connected to our website are not incorporated by reference herein and our web address is included as an inactive textual reference only.

 
-21-

 

ITEM 1A.          RISK FACTORS
In addition to historical information, the information in this Annual Report on Form 10-K 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 report.  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 March 20, 2009, we had an aggregate principal amount of approximately $57.1 million in long-term debt outstanding.  In addition, we expect to drawdown the remaining $33 million of the $70 million Black Fox project finance facility on or before June 30, 2009.  While our $70 million project facility is outstanding, we will have annual principal obligations of between approximately $10.2 million and $24.5 million (assuming we drawdown the full $70 million available thereunder).  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 Special Situations (Master) Fund Limited (“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.

If we do not generate sufficient cash flow from Black Fox operations in 2009 or by raising additional equity or debt financing in the near term, then we may not be able to meet our debt obligations and capital expenditure commitments.
 
As of March 20, 2009, we had an aggregate principal amount of approximately $57.1 million in long-term debt outstanding.  In addition, we expect to drawdown an additional $33 million under the Black Fox project finance facility on or before June 30, 2009, which drawdown will give rise to $22.5 million in principal and interest repayment obligations and capital lease payment obligations during fiscal year 2009.  Furthermore, as of March 20, 2009, we had aggregate capital commitments outstanding of approximately $18.0 million, $15.8 million of which is due during fiscal year 2009.  Currently, we are not generating positive cash flow.  If we are unable to satisfy our debt service and capital commitment requirements, we may not be able to continue our operations.  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.

 
-22-

 


Operational problems and start-up issues may disrupt mining operations at Black Fox which commenced in March 2009 and prevent or delay us from commencing milling operations in April 2009, or substantially reduce gold production once milling commences.

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 expect to commence milling in April 2009, 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;
 
·
adverse weather 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 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 are less amenable to mining or treatment than expected;
 
·
delivery and installation of equipment necessary to commence 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 and on schedule.  Although we believe that we have obtained sufficient funds to develop the Black Fox project, we cannot provide assurance of this.  Furthermore, 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.

 
-23-

 

Mining of ore at our Montana Tunnels mine ceased in December 2008.

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.  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.

The Montana Tunnels mine is our only source of revenue and cash flow at this time.  If we are unable or choose not to pursue the M Pit project, the Montana Tunnels mine will cease to generate revenues and cash flow once the stockpiled ore at the Montana Tunnels mine has been processed, which stockpile we expect to exhaust in April 2009.  We expect that the proceeds from stockpiled ore will be fully utilized in repaying the $2,762,000 of existing indebtedness outstanding under the October 2007 debt facility (as increased by the July 2008 amendment thereto) and completing closure of the mine and milling facilities.  In addition, 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, during which time no ore will be produced.  As a result, there will be a period of time after the ore stockpiles from the L Pit have been exhausted and prior to production from the M Pit (which period we expect would be a minimum of twelve months but could be longer) during which we will have no revenue or cash flow from the Montana Tunnels mine.
 
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.
 
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 available debt financing has 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.

 
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The existence of outstanding rights to purchase common shares may impair our share price and our ability to raise capital.

Approximately 129.2 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 $0.29.  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 the option of the holder at a conversion 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 232,811,195 common shares outstanding as at March 20, 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 34.3% of our outstanding common shares (on an undiluted basis) 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 $0.74 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.

 
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We have a history of losses.
 
With the exception of the 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, the Montana Tunnels mine is our only current source of revenue and mining of ore at the mining operations ceased on December 5, 2008.  We expect to continue the milling of ore stockpiles at Montana Tunnels until April 2009.  Following the cessation of the milling of the ore stockpiles, we will no longer have any revenues or cash flow from the Montana Tunnels mine.  In addition, if we choose and are able to pursue the M Pit expansion, there will be a period of time after the ore stockpiles from the L Pit have been exhausted and prior to production from the M Pit (which period we expect would be a minimum of twelve months but could be longer) 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 $954/oz on March 20, 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;
 
·
interest rates; and
 
·
global or regional political or economic events, including but not limited to acts of terrorism.

 
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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 finance facility, we and the lenders have entered into a hedging program covering both gold sales and part of our Canadian dollar operating costs.  Specifically, we have entered into a 250,420 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 is for the Canadian dollar equivalent of $60 million, at an exchange rate of Cdn$1.21=US$1.0, over the four year term of the project facility agreement.  In addition, in connection with our Montana Tunnels debt facility financed by RMB Australia Holdings Limited, we were required to enter into hedges on gold, silver, lead and zinc.  These hedges cover the first quarter 2009 production from the Montana Tunnels mine and represent approximately 40% of our share of gold and silver and 50% of our share of lead production from the Montana Tunnels mine.  There is no outstanding hedge on zinc production.  
 
In the future, we may enter into 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.

 
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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 December 31, 2008, our auction rate securities held an adjusted cost basis and fair value of $1.1 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.

 
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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.
 
Operational problems may occur in our Montana Tunnels mining and milling operations.
 
It is common to encounter operational issues in mining and milling of ores.  Since 2005, all of our revenues have been derived from our operations at the Montana Tunnels mine, which is a low-grade mine.  During 2004, we experienced problems related to the milling of low-grade ore at the Montana Tunnels mine, which negatively affected our revenues and earnings.  Throughout 2005, we experienced operational problems, particularly in the open pit, leading to the suspension of mining on October 21, 2005 for safety reasons due to increased wall activity in the open pit.  After the suspension of mining and until May 12, 2006, we were able to continue to produce gold doré, lead-gold and zinc-gold concentrates from milling low-grade stockpiled ore.  However, on May 12, 2006, all operations ceased at the mine and it was placed on care and maintenance.  On July 28, 2006, we entered into a joint venture agreement with Elkhorn Tunnels, LLC, in respect of the Montana Tunnels mine pursuant to which Elkhorn Tunnels made financial contributions in exchange for a 50% interest in the mine.  Mill operations recommenced in March 2007.  In April and May 2008, the mill at the Montana Tunnels mine was shut down for approximately three weeks due to a crack in the exterior shell of the ball mill.  There can be no assurances that we will not encounter additional operational problems at our Montana Tunnels mine or mill or other mines or mills we may operate in the future.

We may not achieve our production estimates.
 
We prepare estimates of future production for our operations.  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.

 
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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.

 
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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.

 
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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.

 
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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.

 
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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 report 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 believe that we were a PFIC in 2008 and do not expect to be a PFIC in 2009, we cannot guarantee that we were not a PFIC in 2008 and we are unable to predict whether we will be a PFIC 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 report 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.

 
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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.

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 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 report 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.

 
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ITEM 2.   PROPERTIES
 
Maps of Operations and Properties
 
The maps below show the locations of the Montana Tunnels mine, the Black Fox project and the Huizopa project in North America.  These properties are described in further detail below.

Figure 1 – Property locations in North America

 
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Montana Tunnels Mine
 
The Montana Tunnels mine was originally owned and operated by Pegasus Gold, a mining company incorporated in Canada.  Pegasus commenced operations at the Montana Tunnels mine in 1987 and in 1998, Pegasus filed for bankruptcy.  In 2002, we purchased Montana Tunnels Mining, Inc. (“MTMI”), from the receiver in the bankruptcy proceeding.
 
Figure 2 – Montana Tunnels mine location in Montana, U.S.

 
-37-

 
 
On July 28, 2006, Apollo entered into a joint venture (“JV Agreement”) with Elkhorn Tunnels LLC (“Elkhorn”), in respect of the Montana Tunnels mine.  The JV Agreement called for Elkhorn to contribute $13 million in return for a 50% interest in the Montana Tunnels mine.  Apollo is the operator of the mine.
 
Location
 
The Montana Tunnels mine is an open pit, poly-metallic mine and mill located about five miles west of Jefferson City, Montana.  The Montana Tunnels mine is located in the historic “Wickes-Corbin” mining district in Section 8 of Township 7 North, Range 4 West, Jefferson County.  The Montana Tunnels mine’s elevation ranges from 5,200 to 6,300 feet with moderately mountainous topography.  The Montana Tunnels mine is easily accessible by way of interstate highway and paved roads.  The Montana Tunnels mine and mill receive power supply from Northwestern Energy from overland power lines.
 
Production
 
At Montana Tunnels the mining of the open pit was suspended on October 21, 2005 for safety reasons due to increased wall activity on the eastern side of the open pit.  Following suspension of mining, the mill continued to process ore from stockpiled low grade material and produce gold dore and lead-gold and zinc-gold concentrates until May 12, 2006 when all operations ceased and the property was placed on care and maintenance.
 
Following the signing of the JV Agreement the Montana Tunnels mine commenced an open pit wall remediation program on August 10, 2006, which called for removal of approximately 7 million tons of waste over a six month period and encompassed the laying back of the east and south east sectors of the pit wall and rebuilding the access ramp to the pit bottom.  Mill start up occurred on March 1, 2007.
 
During the second quarter of 2008 there was a failure of the ball mill shell due to cracking which caused a shutdown of the mill for three weeks severely impacting production of metals.
 
For the year ended December 31, 2008, the mill processed 4,510,000 tons of ore producing gold dore and lead-gold and zinc-gold concentrates containing 52,700 ounces of gold, 661,000 ounces of silver, 16,500,000 pounds of lead and 47,200,000 million pounds of zinc.  Payable metal is shown in the table below.
 
Montana Tunnels Mine Production History
 
Statistics below are for 100% of the Montana Tunnels mine, Apollo’s share of production is 50%
 
Year Ended December 31, 2008
 
Year
 
Milled
Tons
000’s
   
Grade
Au oz/T
   
Grade
Ag oz/T
   
Grade
Pb
%
   
Grade
Zn
%
 
2008
    4,510       0.0144       0.18       0.22       0.63  
2007
    3,971       0.0123       0.22       0.20       0.47  
2006
    1,427       0.0078       0.17       0.10       0.20  

   
Year Ended December 31,
 
Payable Metal
 
2008
   
2007
   
2006
 
Gold (oz)
    48,691       33,263       4,959  
Silver (oz)
    485,759       501,963       116,004  
Lead (lb)
    15,560,091       11,181,474       1,196,317  
Zinc (lb)
    37,973,460       23,749,087       3,040,058  

 
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Year Ended December 31,
 
   
2008
   
2007(1)
   
2006(2)
 
Total Cost/Ton Ore Processed
  $ 16.70     $ 18.62     $ 7.08  
Cash Operating Cost/Oz Gold
  $ 447     $ (124 )   $ 643  
Total Cash Cost/Oz Gold
  $ 503     $ (60 )   $ 718  
Total Production Cost/Oz Gold
  $ 563     $ 10     $ 794  

(1)
Only 10 months of ore processing (March to December)
(2)
Only 5 months of ore processing (January to May)

The Montana Tunnels mine has produced the following aggregate amounts of the listed metals from its inception in 1987 through December 31, 2008:

   
Payable Production
Gold
 
1,637,000 ozs
Silver
 
30,760,000 ozs
 
409,100,000 lbs.
Zinc
 
1,105,000,000 lbs.

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 (“WARN”).  On February 3, 2009, 82 of these employees were terminated.

As at December 31, 2008 there was a stockpile of ore of approximately 1.6 million tons, which we expect will be sufficient for us to continue milling and thus produce concentrates until the end of April 2009.

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.  The decision to proceed with the M Pit project must be agreed to by both our company and Elkhorn.  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; the prices of gold, silver, lead and zinc; and available smelter terms.  We are not currently engaged in discussions with financing sources for our $35 million share of the financing costs.  We expect to continue milling stockpiled ore at Montana Tunnels until April 2009.  If no decision has been made on the M Pit project by the time that the stockpiled ore is exhausted, then the mill will be placed on care and maintenance.  On February 27, 2009, we issued additional WARN notices to all of the remaining 104 employees in anticipation of the cessation of milling in April 2009.

Description of Land, Geology, Process and Equipment
 
Property Ownership Status.

More than 99% of the Montana Tunnels mineable deposit is overlain by private property wholly owned by MTMI.  One 0.3 acre BLM parcel is controlled by an unpatented mining claim.  More than 90% of the property located within the permit boundary is private property owned by MTMI.  In October 2007 Montana Tunnels purchased an additional private parcel of land to secure a 1,000 foot section of the mine access road.  Properties controlled by MTMI in the vicinity of the Montana Tunnels mine and the permit boundary are summarized in the table below:

 
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Property Holdings
Land Type
 
Approx. Acres
 
Notes
Fee Lands
 
2,633
   
         
Patented Mining Claims
 
2,415
 
139 claims total; 15 with partial, usually majority ownership.
Total Private Property Owned
 
5,050
   
Leased Patented Claims
 
45
 
Lease Agreement on three patented claims west of the pit. 4.5% net smelter royalty
         
Unpatented Claims
 
4,620
 
213 claims; majority are peripheral to land package and outside permit boundary; few cover minor BLM fractions between private parcels; acreage assumes 20-acre claims.
         
Other Property Mineral Rights
 
7,200
 
Private properties formerly owned by MTMI in which all mineral estate retained.

Royalty

The design layback of the M Pit encompasses a very small amount of mineralized material beneath three leased patented claims in the Clancy Creek area.  If we proceed with the M Pit expansion, ores mined from these claims will be minimal and subject to a 4.5% net smelter royalty (“NSR”).

Royalty Agreements

Agreement
 
Royalty
 
Description
Louis Hill
 
4.5% NSR
 
Lease Agreement on three patented claims west of the pit.
         
Clara Kyler Estate
 
1.5% NSR
 
Fee land and patented claims south and southeast of tailings impoundment.
         
Bar Ed Ranch/Estate
 
1.5% NSR
 
7,200 acres of fee lands and patented claims to the north, northeast, and south of the permit boundary in which MTMI controls the mineral rights only.
         
Bar Ed Partnership
 
1.5% NSR
 
Patented claim southeast of permit boundary.
         
Gannon/Lemieux
 
1.5% NSR
 
12 patented claims 0.1 miles south of the Montana Tunnels pit.
         
Alfred Nugent
 
2% NSR
 
7 patented claims east of the mine site.
         
Dudley Billett, Jr.
 
4% NSR
 
One patented claim east of the tailings impoundment.
         
Franco Nevada US Corp.
 
5% NSR
 
13 patented claims east of the mine plus fractional interest in two patented claims one mile east of permit boundary.
         
Fife, et.al.
 
1.5% NSR
 
4 patented claims 0.75 miles south of the Montana Tunnels pit.

Geology
 
The Montana Tunnels deposit is hosted in the central part of the diatreme, an upward-sloping passage forced through sedimentary rock by volcanic activity.  The diatreme is a heterolithic breccia, characterized by a sand-size fragmented matrix of quartz latitic composition surrounding subangular to well-rounded fragments of Cretaceous Elkhorn Mountains Volcanics, Tertiary Lowland Creek Volcanics, and clasts derived from the Cretaceous Butte Quartz Monzonite pluton.

 
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There are two main zones of mineralization at Montana Tunnels:  (i) a central, pipe-like core of contiguous mineralization, and (ii) discontinuous zones of mineralization peripheral to the core deposit, termed fringe mineralization.  The core of the deposit in plain view is oblong in shape and ranges from about 200 feet to 1,000 feet in width, and from 1,400 to 2,000 feet in length, with a vertical extent of at least 2,000 feet.  The core zone strikes approximately N30 E and dips steeply (60 degrees to 80 degrees) to the northwest.  Metallurgical projections are based on historical feed grade versus tails grade trends; mill throughput tonnage, ore properties relative to pit location and bench elevation; and ore blending requirements.
 
Process and Equipment
 
Open pit mining at Montana Tunnels was conducted 20 hours per day seven days per week.  Mining was performed by two shovels, twelve 150 ton and two 85 ton haul trucks in addition to ancillary equipment.  Following the cessation of mining activities on December 5, 2008  all mining equipment, except for three  trucks and  two loaders used for transferring ore from the stockpile to the crusher,  is parked and in good working order.
 
When in full production a primary and secondary crusher is used, in series, to generate a coarse ore stockpile ahead of the concentrator.  The crusher has an approximate capacity of 16,500 tons per day.  The grinding circuit consists of a SAG mill, ball mill and tertiary crusher (SABC circuit) followed by conventional differential flotation.  A gravity circuit, in closed loop with the ball mill, recovers 10-15% of gold produced by the concentrator.  The remainder of the mill’s production is in the form of concentrates:  a zinc-gold concentrate and a lead-gold-silver concentrate.  The concentrates are shipped, via rail, to a smelter.  The original mill was constructed during 1986 and 1987, and is currently in good working order.  When milling operations cease at the end of April 2009, the mill will be cleaned and Montana Tunnels will be placed on care and maintenance at a cost of approximately $150,000 per month, the cost of which will be shared by our JV partner.
 
At the same time Apollo entered into the JV Agreement, Apollo also entered into two other agreements with Elkhorn Goldfields Inc. (“EGI”), an affiliate of Elkhorn.  The first agreement is an option agreement pursuant to which EGI was granted an option to purchase Apollo’s Diamond Hill mine for $0.8 million.  The option had an exercise term of two years which was extended by an additional year and will expire on July 28, 2009.  The underground Diamond Hill gold mine is situated 28 miles southeast of Helena, Montana and has been on care and maintenance since 2000.

The second agreement is a custom milling agreement pursuant to which EGI will have the right to have MTMI process the ore from EGI’s Elkhorn mine, located 20 miles to the south of the Montana Tunnels mine, through the 1,000 ton per day Diamond Hill mill which is situated within the Montana Tunnels mill complex.  Should EGI exercise its right to have MTMI process the ore, it will reimburse MTMI for all of its expenses in connection with the milling.  The custom milling agreement also gives EGI a two-year option to purchase the Diamond Hill mill for $1.0 million.  This option to purchase was extended by an additional year and will expire on July 28, 2009.

Mineral Reserves
 
The table below shows Apollo’s share of the mineral reserves at Montana Tunnels.
 
 
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Montana Tunnels Mine Reserve Estimate at December 31, 2008
(Apollo’s 50% interest)
 
Pit (Imperial Summary)
 
Classification
 
Tons
000’s
   
Grade 
oz Au/T
   
Ag oz
Ag/T
   
Pb %
   
Zn %
   
Ounces 
Au
 
M Pit
 
Proven
    13,836.5       0.0129       0.212       0.164       0.487       179,000  
Mill Stockpile
 
Proven
    837.5       0.0089       0.200       0.170       0.550       7,500  
Subtotal
 
Proven
    14,674.0       0.0127       0.211       0.164       0.490       186,500  
                                                     
M Pit
 
Probable
    5,052.5       0.0129       0.211       0.160       0.434       65,400  
Subtotal
 
Probable
    5,052.5       0.0129       0.211       0.160       0.434       65,400  
                                                     
Total
 
Proven + Probable
    19,726.5       0.0128       0.211       0.163       0.476       251,900  

The three years average metal prices for 2006 - 2008 were used for the calculation of the year-end 2007 reserves, which are as follows:

Gold - $724/oz                      Silver - $13.32/oz                      Lead - $0.90/lb                      Zinc - $1.27/lb

Environmental
 
The permitted plan of operations allows mining of ore reserves from the L Pit mine design.  Unstable pit walls in the ramp sector on the east side of the Montana Tunnels mine closed down the open pit in October 2005.  A pit wall layback and pit ramp reconstruction in the east sector of the open pit was subsequently developed using extensive geotechnical analysis to ensure stability and safety for ongoing mining operations.  A permit revision for the pit wall layback and associated changes was approved by the Department of Environmental Quality in December 2005.  This work was initiated in August 2006 following completion of the JV Agreement with Elkhorn.
 
Following the closure of the open pit in October 2005, milling of low grade stockpiles continued until May 2006 at which time the mill was shut down and the property placed on care and maintenance.  As a result of the unplanned milling of the low grade stockpiles, a revision to the operating permit was obtained in the fourth quarter of 2006 allowing the Montana Tunnels mine to raise the tailings embankment thus increasing the tailings capacity to accommodate the mill tailings from the L Pit ore reserves.  The raising of the tailings embankment was completed during 2007.
 
The Montana Department of Environmental Quality and Bureau of Land Management issued a Record of Decision approving the M Pit Expansion in November 2008.  The M Pit mine expansion amendment would provide approximately 38 million tons of additional ore for processing and add approximately seven years to the life of the mine.  The decision to proceed with the $70 million M Pit project must be agreed by both our company and Elkhorn, LLC, our joint venture partner.  To date no decision has been made to proceed with the M Pit project.
 
The current bonding requirements for the Montana Tunnels L Pit mine are met by the following bond instruments:
 
   
Year Ended December 31,
 
Type of Bonding
 
2008(1)
   
2007(1)
 
Partially secured surety bond issued by CNA pursuant to the Term Bonding Agreement described immediately below
  $ 14,988,000     $ 14,988,000  
Cash bond posted directly with the State of Montana
    129,000       129,000  
Real estate bond posted directly with the State of Montana
    3,576,000       3,576,000  
Total Obligated Bonding Requirement Met
  $ 18,693,000     $ 18,693,000  

(1)
Apollo’s share of the amounts shown is 50%.
 
 
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National Fire Insurance Company of Hartford, a unit of Continental Casualty Company (“CNA”), provides $15,041,000 of the total reclamation bonding for the Montana Tunnels mine plan of operations at a deferred bond premium cost of $14 per $1,000 of bonding under a Term Bonding Agreement dated August 1, 2002.  CNA also provides a separate exploration bond in the amount of $53,000 under the same agreement.
 
Bonding requirements are subject to adjustment by the State of Montana for various reasons from time to time.
 
Drilling
 
As of December 31, 2008, the Montana Tunnels mine database contains 896 reverse circulation, rotary, core and blasthole drill holes, totaling 470,299 feet that were drilled from the mid-1970s to the present by numerous mining and exploration companies.
 
From 2002 through 2004 thirteen reverse-circulation holes for 11,000 feet were drilled to increase confidence levels in the M Pit reserve.  The drill holes were placed as mine development phases provided locations to collar specific holes.  Results from both the 2002 and 2004 drilling programs were favorable, providing a higher degree of definition to the current ore reserve and established the geometric distribution of the polymetallic grade mineralization in the M Pit design.
 
The Montana Tunnels mine drill hole spacing is generally within the gold variogram range of 30 feet to 140 feet in the core.
 
Black Fox Project
 
The Black Fox property was formerly known as the Glimmer mine.  In April 1996, Exall Resources Ltd. (“Exall”) purchased 60% of the property from Hemlo Gold Inc., and Glimmer Resource Inc. (“Glimmer”) held the remaining 40%.
 
In September 2002, we purchased all of the real estate and related assets of the mine, which ceased operations in May 2001, from Exall and Glimmer and renamed it “Black Fox”.  We paid Exall and Glimmer an aggregate purchase price consisting of Cdn$3 million in cash and an aggregate of 2,080,000 of our common shares.  Pursuant to the terms of the acquisition, an additional Cdn$3 million was paid to Exall and Glimmer on January 6, 2006.
 
From 1997 until 2001, the mine produced approximately 210,000 ounces of gold.
 
On July 28, 2008, we completed the acquisition from St Andrew Goldfields Ltd., which we refer to as St Andrew, of its Stock Mill and related equipment, infrastructure, property rights, laboratory and tailings facilities, located near Timmins, Ontario.  The acquisition was made pursuant to an asset purchase agreement dated June 11, 2008, as amended June 30, 2008 and July 23, 2008, between Apollo Gold and St Andrew.  Pursuant to the asset purchase agreement, St Andrew agreed to sell the Stock Mill complex to Apollo Gold 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.  
 
 
-43-

 

Figure 3 – Black Fox mine and Black Fox mill (formerly known as the Stock mill) locations along
Destor-Porcupine Fault Zone in Province of Ontario, Canada


Location
 
The Black Fox project consists of two properties: a mine and a mill.  The Black Fox mine  is located approximately seven miles east of Matheson, Ontario, Canada.  The stock mill complex purchased from St Andrew, which we renamed the Black Fox mill complex, is located approximately 12 miles west of Matheson, which means that it is approximately 19 miles west of the Black Fox mine site.  Both properties are easily accessible by provincial highway and power is supplied by Hydro One.
 
Property, plant and equipment at the mine consists of an administration office, change house facilities, core sheds and surface infrastructure for the mine (pumps, heating, etc.), all of which are in good working condition.  Property, plant and equipment at the Black Fox mill consists of an administrative office, electrical and mechanical shops, laboratory and an 1,100 tonnes per day mill for processing the Black Fox ores.  The mill is currently being refurbished and expanded to increase the throughput rate to 2,000 tonnes per day.  All plant facilities and equipment are in good working order and we expect the expanded mill to be commissioned in April 2009.  Within the mill property, there is also a permitted tailings compound.
 
The Black Fox mine sits astride the Destor-Porcupine Fault Zone (DPFZ), which is a deep break in the Precambrian rocks of the Abitibi Greenstone Belt.  This fault system hosts many of the deposits in the Timmins area.  The system regionally strikes east-west and dips variably to the south.  Black Fox lies on the southern limb of a large scale fold on a flexure in the DPFZ Fault where the strike changes from east-west to southeast.  Folded and altered ultra mafic and mafic are the host rocks for mineralization.  Gold occurs as free gold in quartz veining and stockworks in altered ultra mafics and in gold associated with pyrite in altered tholeiitic basalts.
 
The Black Fox mine consists of 3,195 acres of which: 185 acres are leasehold patents, 1,559 acres are owned by Apollo, 319 acres are leased by us, 820 acres where we have surface rights only and 311 acres where we have mineral rights but no surface rights.  The 3,195 acres includes property known as Grey Fox, which is approximately 2 miles southeast of the actual Black Fox mine.
 
 
-44-

 

The Black Fox mill property consists of:
 
Leasehold – 15 parcels
2,608 acres
Patented – 9 parcels
1,068 acres
Unpatented – 21 parcels
2,451 acres
Total of all property
6,127 acres

None of the currently defined reserves are subject to production royalties.  However, Apollo owns properties totaling 1,414 acres that are subject to net smelter return royalties, ranging from 2.0% to 3.25%, if there is production in the future from any reserves found on that property.
 
Exploration and Development
 
From 2003 to 2007, we conducted a drilling program during which we completed a total of 504 surface diamond drill holes totaling 149,548 meters and 396 underground holes totaling 78,644 meters.  Apollo’s drilling supplemented the data from the 286 surface and 707 underground drill holes drilled by the previous owners.  A table of total drill holes is shown below.
 
Black Fox Project Drill Hole Database
 
Company
 
Period
 
Location
 
Number
   
Meters
 
Noranda
   
1989-1994
 
Surface
    143       28,015  
Exall
   
1995-1999
 
Surface
    143       21,520  
Exall
   
1996-2001
 
Underground
    707       61,115  
Apollo
   
2002-2006
 
Surface
    454       136,390  
Apollo
   
2004-2006
 
Underground
    371       75,704  
Apollo
 
2007
 
Surface
    50       13,158  
Apollo
 
2007
 
Underground
    25       2,940  
Totals
              1,893       338,842  

In addition, during 2008, we drilled 16 exploration diamond drill holes on our property know as Grey Fox and expect to announce the assay results in April 2009.

Mineral Reserves
 
On April 14, 2008, we filed a Canadian National Instrument, NI 43-101 Technical Report, which was prepared to a bankable standard (“bankable feasibility study”).  A bankable feasibility study is a comprehensive analysis of a project’s economics (+/- 15% precision) used by the banking industry for financing purposes.  The table below summarizes the Black Fox Total Mineral Reserve.  The mineral reserves shown in the table below were calculated based on a gold price of $650 per ounce.

Black Fox Probable Reserve Statement as of December 31, 2008
 
Mining Method
 
Cutoff Grade
Au g/t
   
Tonnes
(000)
   
Grade 
Au g/t
   
Contained
Au Ounces
 
Open Pit
    1.0       4,350       5.2       730,000  
Underground (1)
    3.0       2,110       8.8       600,000  
                                 
Total Probable Reserves
                            1,330,000  

 
 
-45-

 

(1)  Underground reserves assume 95% mining recovery 17% planned dilution and 5% unplanned dilution both at 0 grams per tonne grade.

The reserve estimates were based on information from 1,893 drill holes totaling 338,842 meters.  All assays over 170 grams of gold per tonne (5.5 oz of gold per ton) were capped at this level, which represents 0.25% of the assays.

Permits
 
We have received all necessary permits and approvals required to commence mining activities of phase I of the open pit.  In particular, we have received Certified Closure Plan Approval, an Amended Certificate of Approval for Industrial Sewage Works, and a Permit to Take Water (Surface and Ground Water.)  The open pit reserves are divided into phase I and phase II and we expect to apply for the permits necessary to conduct phase II once mining on phase I has commenced.
 
Mining Operations
 
In October, 2008, we awarded a contract for the removal of the glacial till material which overlays the open pit and work commenced on October 23, 2008.  This removal is scheduled to be completed in May 2009.  Mining of the open pit ore and waste, which commenced in March 2009, is undertaken by Company employees.  All long lead time mining equipment, and all items required to commence mining were on site February 2009.
 
We expect that, by the second quarter of 2009, the open pit will produce 1,500 tonnes of ore per day, which will be sufficient to feed the mill.  Based on this assessment, we have decided to defer underground mining to periods after 2009.  Our decisions regarding the development of the underground mine and the timing thereof will be partially influenced by progress with the phase II of the open pit permitting.  Therefore, we do not expect to be in a position to make a determination regarding the development and timing of underground mining until 2010.
 
Mill Complex
 
In the third quarter 2008, we awarded GBM Engineering Ltd., of the UK an EPCM contract (Engineering, Procurement, Construction and Management) to increase the mill capacity to 2,000 tonnes per day at a cost of approximately $22.0 million.  The mill is scheduled to start commissioning in April 2009 and is expected to reach a throughput rate of 1,500 tonnes per day in May 2009.  The upgrade of our mill means that we will not toll treat ores as highlighted in the NI 43-101.
 
Production
 
In March 2009, we commenced mining of the Black Fox open pit and we estimate that we will mine 2,983,000 tonnes in 2009, 374,000 tonnes of which will be ore.  The mine will operate 24 hours per day, 7 days per week and will employ approximately 140 personnel.  The ore will be crushed at the mine site and be transported to the Black Fox mill by a fleet of contract trucks.  The mining equipment consists of four CAT 777 trucks, two CAT excavators, one Komatsu PC 2000 loader, two CAT D8 bulldozers and two Atlas Copco drills.
 
 
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The Black Fox mill is scheduled to commence milling in April 2009 and should reach a throughput rate of 1,500 tonnes per day in May 2009.  Recoveries of gold are projected to be 95%.  The mill will produce a gold dore, which will be refined by the Johnson Matthey refinery in Brampton, Ontario.  The mill is expected to employ 42 personnel.

Bonding
 
Closure plans for both the mine and mill sites prepared by AMEC Earth and Environmental, a Division of AMEC Americas Limited, were submitted to and accepted by the Ontario Ministry of Northern Development and Mines (“MNDM”) during 2008.  Bonding requirements for each site were set by the MNDN as follows (in Cdn$);
 
Phase I of Black Fox mine
  $ 7,428,830  
Black Fox mill complex
             6,892,300  
         
Total
  $ 14,321,130  
 
As of March 20, 2009 we had posted Cdn$5,644,650 of the Black Fox mine bonding requirement with the balance of Cdn$1,784,180 due in May 2009 and had posted Cdn$3,500,000 towards the Black Fox mill complex with the balance of Cdn$3,392,300 due prior to mill start up which is estimated to be April 2009.
 
We have met these bonding requirements through letters of credit issued by TD Canada Trust secured by a pledged deposit account of Cdn$9,144,650.  The obligations to reimburse TD Canada Trust for any drawing under the letter of credit are secured by Apollo’s maintenance of an amount equal to the amount available for drawing the above mentioned deposit account pledged to TD Canada Trust.  The annual letter of credit fee is 1% of the amount available for drawing.  Interest is earned on the deposit account at a rate established by TD Canada Trust from time to time.  We will file an amended closure plan for phase II of the open pit in the third quarter of 2009.  We expect that there will be additional bonding requirements in connection with this amended closure plan for phase II, but we are unable to quantify the amount at this time.
 
Exploration Stage Properties
 
Huizopa
 
We own Mexican subsidiaries which own 100% of the concessions at the Huizopa exploration project.  Pursuant to an agreement with the previous owner (the “Previous Owner”) of one of those Mexican subsidiaries, we have a joint venture with the Previous Owner in which we hold an 80% interest and the Previous Owner holds a 20% free carry interest.  If our Mexican subsidiary chooses not to go forward with the Huizopa project, it is obligated to transfer a controlling interest in the subsidiary that holds the option back to the Previous Owner, and to transfer 91% of the concessions it owns at the Huizopa project back to the Previous Owner.
 
The Huizopa project is located in the northern part of the Sierra Madres in the state of Chihuahua, Mexico, near the border with the State of Sonora, and encompasses a block of mining concession claims of approximately 170 sq. km.  During 2007, we acquired new claims to the east of our holdings that expanded our land position from 128 sq. km. to 170 sq. km.
 
 
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 Sporadic shallow underground mining limited to a few high-grade zones was done in the past but no mining has taken place at Huizopa since 1936.  The property is very remote and will be accessed initially by helicopter.  To maintain the exploration and exploitation rights for the “Rosa” and “Donna” concessions, we were required to pay $0.1 million in April 2007 and $1.5 million (plus applicable taxes in Mexico) in October 2007.  These concessions represent approximately 17% of the Huizopa property.  These payments were made ahead of schedule on February 28, 2007 when the Company issued 1,000,000 common shares and paid $2.55 million in settlement of these contractual land payments and certain other claims on its Huizopa properties.
 
The geology is characterized by a series of parallel, low sulfidation gold-silver, quartz veins hosted by Tertiary-age volcanic rocks.  Silver to gold ratios in the veins and from the material on historic mine dumps indicate the Huizopa area hosts an extensive gold-bearing hydrothermal system.  Two major parallel quartz vein systems with north trending structures contain many single vein outcrops 7 to 10 meters thick suggesting a series of stacked veins.  Strike lengths are over 2.0 km on the property with untested down dip potential.  The stratigraphy of the Huizopa area has two sections of relatively mafic lava flows with intercalated volcanic clastics.  The dominant strike azimuths of faults are 340º and 160º with dips ranging from vertical to 33º.  Most of these structures, including the major faults with associated thick gouge or breccia zones, dip eastward.  These east dipping faults are the faults associated with quartz veins, brecciation, and mineralization.
 
We established an extensive remote field camp at the project and refurbished an existing airstrip.  The camp is supplied by fixed wing aircraft and helicopter.
 
Mapping of the mining concession began in June 2004 and were ongoing through 2007.  The results were compiled and transferred to new topography maps and air photos as well as the Mexican government’s Chabacan topographical sheet which has been enlarged from 1:50,000 scale to 1:10,000.  Geologic mapping suggests that the faults that host gold-silver mineralization may be more numerous and more continuous than earlier field work indicated.  Petrographical examination revealed the presence of native gold, silver, and electrum in many samples and widespread vein features indicative of repeated boiling and explosive brecciation.  Overall vein textures are consistent with high-level exposures of epithermal quartz-adularia and/or fault breccia veins.
 
In the first quarter of 2006, we entered into an agreement with the Ejido Huizopa (the “Ejido”), 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.  Pursuant to the agreement, and in consideration for certain payments to the Ejido, we have a right to use Ejido land covering  our mining concessions in Huizopa for all activities necessary for the exploration, development, and production of potential ore deposits in our Huizopa project area.  We can in the future apply for a change of use of land without any additional obligations to the Ejido.  In addition, we may traverse adjoining and nearby Ejido land outside the boundaries of the Huizopa mining concessions for the purpose of constructing, operating, and maintaining improvements or facilities necessary for the Huizopa project.
 
In 2006, a geophysical program was initiated on the property and the process to select initial drilling targets commenced in 2007.  Drill targets were selected and a contract signed with a drilling contractor to commence helicopter supported core drilling in 2008.  This initial drilling program commenced in February 2008 and 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 Apollo’s geochemical sampling and geologic mapping.  Anomalous gold and silver was found in twenty of the holes with six of the twenty holes having significant gold and silver values.  We are currently working on completing an NI 43-101 for the Huizopa project more fully describing the property and drill results.  This NI 43-101 will not contain any resources and reserves.  Drilling assay results of core holes with intercepts greater than 0.5 grams per tonne are shown below.

 
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Hole 
I.D.
 
From 
Meters
   
To 
Meters
   
Assays grams 
Au/tonne
   
Assays
grams
Ag/tonne
 
PDO 08
    24.8       26.4       1.1       12.0  
                                 
PDO 09
    37.5       38.1       4.1       46.0  
PDO 09
    38.1       39.2       1.6       18.0  
PDO 09
    39.6       40.0       0.8       11.5  
                                 
PDO 10
    81.1       81.3       0.0       61.0  
PDO 10
    81.3       81.9       0.0       20.7  
PDO 10
    81.9       83.4       42.5       162.0  
PDO 10
    83.4       84.7       0.5       29.7  
                                 
PDO 11
    83.5       85.0       1.7       24.8  
PDO 11
    85.0       85.5       0.8