Filed
Pursuant to Rule No. 424(b)(5)
Registration
No. 333-119198
PROSPECTUS
SUPPLEMENT
(TO
PROSPECTUS DATED OCTOBER 5, 2004)
APOLLO
GOLD CORPORATION
2,222,221
Units, each Unit Consisting of
One
“Super
Flow-Through” Common Share and
One-Half
of One Warrant to Purchase One Common Share and
166,666
Broker Warrants to Purchase One Broker Unit each, with each
Broker
Unit Consisting of One Common Share and One-Half of One Warrant
to
Purchase One Common Share and
Common
Shares Issuable upon Exercise of the Broker Warrants and
Warrants
Comprising
the Units and the Broker Units
We
are
offering 2,222,221 units consisting of one “super flow-through” common share of
Apollo Gold Corporation and one-half of one warrant to purchase one common
share
for Cdn$0.45 per unit. Each whole warrant will entitle its owner to purchase
one
common share for Cdn$1.00 per share at any time within one year of closing,
and
for Cdn$1.15 per share thereafter. You may exercise your warrants at any time
after the closing until two years after the date of closing.
Our
common
shares are traded on the American Stock Exchange under the symbol “AGT” and on
the Toronto Stock Exchange under the symbol “APG.” On October 17, 2006, the
closing price for our common shares on the American Stock Exchange was $0.39
per
share and the closing price on the Toronto Stock Exchange was Cdn$0.45 per
share. There has been no prior trading market for the warrants. Application
has
been made for listing approval on the American Stock Exchange as to the common
shares and the common shares to be received on exercise of the unit warrants.
Application has been made to the Toronto Stock Exchange to approve the listing
of the common shares and the common shares to be received on exercise of the
unit warrants and the broker warrants.
The
units
will be offered in Canada. Subscriptions
will be received subject to rejection or allotment in whole or in part and
the
right is reserved to close the subscription books at any time without notice.
Closing of the offering is expected to occur on or about October 26, 2006,
or
such other time as may be agreed upon by the Company and the placement agents.
Certificates representing the common shares and unit warrants that comprise
the
units will be available for delivery at closing. The units are being offered
on
a best efforts basis by Regent Mercantile Bancorp Inc. and Limited Market Dealer
Inc., whom we refer to as the placement agents. As compensation for the
placement agents' services, in addition to other compensation, we are issuing
up
to 166,666 broker warrants to
be
allocated evenly between the placement agents. Each broker warrant will
be exercisable at any time within two years from the closing and will entitle
its holder to purchase one broker unit for Cdn$0.45 per broker unit. Each broker
unit will consist of one common share and one-half of one common share purchase
warrant, with each whole warrant entitling the holder to purchase one additional
common share at a price of Cdn$1.00 per share for the first twelve months from
the date of issuance and for Cdn$1.15 per share thereafter until 24 months
from
the closing.
Unless
otherwise indicated, all references to “$” or “dollars” in this prospectus
supplement refer to United States dollars. References to “Cdn$” in this
prospectus supplement refer to Canadian dollars.
Investing
in the units involves a high degree of risk. See “Risk Factors” beginning
on page S-8 of this prospectus supplement.
Neither
the U.S. Securities and Exchange Commission nor any state securities commission
or other regulatory body has approved or disapproved these securities, or
determined if this prospectus supplement or the related prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
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|
Per
Unit
|
|
Total
|
|
|
Initial
offering price
|
|
|
Cdn$0.45
|
|
|
Cdn$999,999.45
|
|
|
Placement
agents' fee*
|
|
|
Cdn$0.03375
|
|
|
Cdn$74,999.96
|
|
|
Proceeds,
before expenses, to Apollo Gold Corporation
|
|
|
Cdn$0.41625
|
|
|
Cdn$924,999.49
|
|
*The
placement agents also will be granted the broker warrants described
above.
Regent
Mercantile Bancorp Inc.
Limited
Market Dealer Inc.
The
date
of this prospectus supplement is October 24, 2006.
TABLE
OF CONTENTS
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Page
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S-3
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CURRENCY
INFORMATION
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S-3
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OUR
BUSINESS
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S-4
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THE
OFFERING
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S-5
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STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
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S-6
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RISK
FACTORS
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S-8
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USE
OF PROCEEDS
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S-17
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PRICE
RANGE OF OUR COMMON SHARES
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S-17
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CAPITALIZATION
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S-18
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DILUTION
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S-18
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PLAN
OF DISTRIBUTION
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S-19
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DESCRIPTION
OF SECURITIES
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S-20
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LEGAL
MATTERS
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S-23
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EXPERTS
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S-23
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TRANSFER
AGENT AND REGISTRAR
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S-23
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INCORPORATION
OF DOCUMENTS BY REFERENCE
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S-23
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WHERE
YOU CAN FIND MORE INFORMATION
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S-24
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Prospectus
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Page
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IMPORTANT
NOTICE TO READERS
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1
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WHERE
YOU CAN FIND MORE INFORMATION
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1
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
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1
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STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
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2
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OUR
BUSINESS
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3
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RISK
FACTORS
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4
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USE
OF PROCEEDS
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14
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RATIO
OF EARNINGS TO FIXED CHARGES
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14
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DESCRIPTION
OF DEBT SECURITIES
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14
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DESCRIPTION
OF COMMON SHARES
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25
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DESCRIPTION
OF WARRANTS
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26
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PLAN
OF DISTRIBUTION
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27
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LEGAL
MATTERS
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28
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EXPERTS
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28
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You
should rely only on the information contained or incorporated by reference
in
this prospectus supplement and the related prospectus. See “Incorporation of
Documents by Reference” on page S-23 of this prospectus supplement. We have
not authorized any other person to provide you with different information.
If
anyone provides you with different or inconsistent information, you should
not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. Information on any of
the
websites maintained by us does not constitute a part of this prospectus
supplement. You should assume that the information appearing in this prospectus
supplement and the related prospectus or any documents incorporated by reference
is accurate only as of their respective dates. Our business, financial
condition, results of operations and prospects may have changed since those
dates.
ABOUT
THIS PROSPECTUS
This
prospectus supplement will be and the related prospectus has been filed with
the
Securities and Exchange Commission, which we refer to as the SEC, pursuant
to a
registration statement on Form S-3, which we refer to as the registration
statement. This prospectus supplement may add to, update or change the
information in the related prospectus. If information in this prospectus
supplement is inconsistent with information in the related prospectus, this
prospectus supplement will apply and will supersede that information in the
related prospectus.
It
is
important for you to read and consider all information contained or incorporated
by reference in this prospectus supplement and the related prospectus in making
your investment decision. You should also read and consider the information
in
the documents to which we have referred you in “Where You Can Find More
Information” in this prospectus supplement.
In
this
prospectus supplement and the accompanying prospectus, unless otherwise stated,
references to “Apollo Gold,” “the Company,” “we,” “us” and “our” refer to Apollo
Gold Corporation and its subsidiaries.
Our
financial statements are prepared in accordance with generally accepted
accounting principles in Canada, which we refer to as Canadian GAAP. We provide
certain information reconciling our financial information with generally
accepted accounting principles in the United States, which we refer to as U.S.
GAAP.
CURRENCY
INFORMATION
The
noon
rate of exchange on October 17, 2006 as reported by the Bank of Canada for
the
conversion of Canadian dollars into United States dollars was Cdn$1.00 equals
$0.8787.
OUR
BUSINESS
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
prospectus.
We
are
principally engaged in gold mining including extraction, processing, refining
and the production of other co-product metals, as well as related activities
including exploration and development of mineral deposits principally in North
America. We own the Montana Tunnels mine, an open pit mine and mill located
near
Helena, Montana, which produced gold doré and lead-gold and zinc-gold
concentrates until it was placed under care and maintenance on May 12, 2006.
On
July 28, 2006, we entered into a joint venture agreement with Elkhorn Tunnels,
LLC (which we refer to as Elkhorn) in respect of the Montana Tunnels Mine.
With
the expected financial contributions from Elkhorn under the joint venture
agreement, we believe that we will be able to remediate the pit wall instability
and recommence mill operations in early 2007.
We
own a
development property, the Black Fox project, which is located near the township
of Matheson in the Province of Ontario, Canada. We also own Mexican subsidiaries
which own or have the right to acquire concessions of the Huizopa exploration
property located in the Sierra Madres in Chihuahua, Mexico.
THE
OFFERING
|
Securities
offered
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|
2,222,221
units. Each unit consists of one “super flow-through” common share and
one-half of one warrant to purchase one common share. Please refer
to
“Description of Securities” beginning on page S-20 for an explanation of
“super flow-through” common shares.
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Issue
price
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Cdn$0.45 per
unit.
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Warrants
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Each
whole unit warrant will be exercisable for Cdn$1.00 per common share
at
any time after the closing until one year after the closing, and
for
Cdn$1.15 per common share at any time thereafter, with the warrants
expiring two years after closing. A holder of our unit warrants will
not
have the voting and other rights of a shareholder until the warrantholder
has exercised the warrants for our common shares. The number of common
shares issuable upon exercise of the warrants will be subject to
antidilution adjustments upon the occurrence of certain events. Please
refer to “Description of Securities - Description of Unit
Warrants.”
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Broker
Warrants
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|
Up
to 166,666 broker warrants, as compensation for the placement agents'
services. Each broker warrant will be exercisable at a price of Cdn$0.45
at any time within two years from the closing and will entitle its
holder
to purchase one broker unit. Each broker unit will consist of one
common
share and one-half of one purchase warrant, with each such warrant
entitling the holder to purchase one additional common share at a
price of
Cdn$1.00 per share for the first twelve months from the date of issuance
and for Cdn$1.15 per share thereafter until 24 months from the closing.
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Common
shares outstanding after this offering
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126,905,214
common shares, assuming all of the unit warrants and broker warrants
are
exercised.
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Risk
factors
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An
investment in the units involves a high degree of risk. You should
not
consider this offer if you cannot afford to lose your entire investment.
Please refer to “Risk Factors” beginning on page S-8 of this
prospectus supplement and on page 3 of the related prospectus and
pages 21-30 of our Annual
report on Form 10-K for the fiscal year ended December 31,
2005
for factors you should consider.
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Use
of proceeds
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The
gross proceeds of the offering will be used for further exploration
of the
Black Fox project.
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Trading
symbols
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Our
common shares are traded on the American Stock Exchange under the
symbol
“AGT” and on the Toronto Stock Exchange under the symbol “APG.” There has
been no prior trading market for the unit warrants and the unit warrants
will not be listed on the American Stock Exchange or the Toronto
Stock
Exchange. Application has been made for listing approval on the American
Stock Exchange of the common shares and the common shares to be received
on exercise of the unit warrants. Application
has been made to the Toronto Stock Exchange to approve the listing
of the
common shares and common shares to be issued on exercise of the unit
warrants.
|
STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
This
prospectus supplement, the related prospectus and the documents incorporated
by
reference in this prospectus supplement and the related prospectus contain
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended, which we refer to as the Securities Act, and Section
21E of the Securities Exchange Act of 1934, as amended, which we refer to as
the
Exchange Act. 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:
| · |
the
Company’s future focus on Black
Fox;
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| · |
our
ability to effectively remediate the east wall instability problems
at the
Montana Tunnels mine;
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| · |
our
ability to bring the Montana Tunnels mine back into
production;
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| · |
future
financial contributions by Elkhorn, our joint venture partner in
respect
of the Montana Tunnels mine;
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| · |
the
establishment and estimates of mineral reserves and
resources;
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| · |
production
and production costs;
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| · |
plans
for Black Fox and Huizopa;
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| · |
estimates
of environmental liabilities;
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| · |
our
ability to fund our estimate expenditure and capital
requirements;
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factors
impacting our results of
operations;
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application
of Sarbanes-Oxley 404 reporting requirements and our ability to meet
those
reporting requirements; and
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| · |
the
impact of adoption of new accounting
standards.
|
These
forward looking statements are subject to numerous risks, uncertainties and
assumptions, including additional operational and remediation problems at the
Montana Tunnels mine; the failure of Elkhorn to make the expected financial
contributions under the joint venture agreement in respect of the Montana
Tunnels mine; unexpected changes in business and economic
conditions; metallurgy, processing, access, availability of materials,
equipment, supplies and water; determination of reserves; changes in project
parameters; costs and timing of development of new reserves; results of current
and future exploration activities; results of pending and future feasibility
studies; 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 our Annual Report on Form 10-K for the year ended December
31, 2005 under the heading “Risk Factors.” We disclaim any obligation to update
forward-looking statements, whether as a result of new information, future
events or otherwise. Many of these factors are beyond our ability to control
or
predict. These factors are not intended to represent a complete list of the
general or specific factors that may affect us. We may note additional factors
elsewhere in this prospectus supplement and the related prospectus, in any
additional prospectus supplement and in any documents incorporated by reference
into this prospectus supplement and the related prospectus. We undertake no
obligation to update forward-looking statements.
RISK
FACTORS
An
investment in the units involves a high degree of risk. You should consider
the
following discussion of risks in addition to the other information in this
prospectus supplement before purchasing any units. In addition to historical
information, the information in this prospectus supplement contains
“forward-looking” statements about our future business and performance. Our
actual operating results and financial performance may be very different from
what we expect as of the date of this prospectus. The risks below address
material factors that may affect our future operating results and financial
performance.
Risks
Related to the Offering
The
market price of our common shares could experience volatility and could decline
significantly.
Our
common shares are listed on the American Stock Exchange and the Toronto Stock
Exchange. Our share price has declined significantly since 2004. 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
short-term changes in gold prices or in our financial condition or results
of
operations as reflected in our quarterly earnings reports. 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.
If
we complete additional equity financings, then our existing shareholders may
experience dilution.
Any
additional equity financing that we obtain would involve the sale of our common
shares and/or sales of securities that are convertible or exercisable into
our
common shares, such as share purchase warrants or convertible notes. There
is no
assurance that we will be able to complete equity financings that are not
dilutive to our existing shareholders.
The
existence of outstanding rights to purchase common shares may impair our ability
to raise capital.
As
of
October 17, 2006, approximately 29.6 million additional common shares are
issuable on exercise of warrants, options or other rights to purchase common
shares at prices ranging from $0.20 to $2.90. In addition, there are
approximately 11.7 million common shares issuable upon the conversion of the
$8.8 million outstanding principal amount of our Series 2004-B Secured
Convertible Debentures at the option of the holder at a conversion price of
$0.75 per share. During the term of the warrants, options 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 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 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 than those provided by the
outstanding rights.
No
market will exist for the sale of unit warrants.
There
is
no established trading market for the unit warrants to be issued in this
offering and no market is expected to exist
for the
unit warrants in the future. The unit warrants will not be listed for trading
on
any stock exchange. The holders of the unit warrants are not likely to be able
to trade the unit warrants and may be forced to convert the unit warrants in
order to sell or transfer their interest in the unit warrants.
Risks
Related to an Investment in the Company
We
have identified a material weakness in our internal controls over financial
reporting.
We
identified a material weakness for the year ended December 31, 2004. A
material weakness is a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. We lacked appropriate review of non-routine or complex accounting
matters, related accounting entries, and appropriate documentation, disclosure
and application of Canadian and U.S. GAAP, primarily due to a lack of sufficient
personnel with a level of technical accounting expertise commensurate with
our
reporting requirements.
The
following actions were taken in 2005 to remediate this material weakness. We
established a Financial Disclosure Policy Committee to review all non-routine
accounting matters and disclosure and application of Canadian and U.S. GAAP.
We
added additional technical accounting expertise to the accounting staff. We
implemented formal policies addressing the internal controls over non-routine
or
complex accounting matters, accounting entries, appropriate documentation,
and
disclosures. However, in January 2006 a major restructuring and streamlining
at
the corporate office significantly changed the design and structure of the
internal controls and procedures at the corporate level. As of this date
management has not had sufficient time to evaluate these controls and therefore
believes this material weakness still exists.
Additionally,
related to the reduction in staffing at the Montana Tunnels mine in mid October
2005, our controls at that location are not operating as previously designed
related to segregation of duties over procurement, inventory control and
accounting duties. Corporate management has increased its involvement with
day-to-day oversight and management of the Montana Tunnels mine, but as of
this
date, management has not had sufficient time to evaluate these controls and
therefore believes the change in controls is significant enough to be reported
as a material weakness. In an effort to address this material weakness, staffing
requirements and other changes in control are being evaluated as the future
operational requirements of the Montana Tunnels mine is being
determined.
There
may be certain tax risks associated with investments in our
company.
Potential
investors that are United States taxpayers should consider that we could be
considered to be a “passive foreign investment company” (“PFIC”) for federal
income tax purposes. Although we believe that we currently are not a PFIC and
do
not expect to become a PFIC in the near future, the tests for determining PFIC
status are dependent upon a number of factors, some of which are beyond our
control, and we can not assure you that we will not become a PFIC in the future.
If we were deemed to be a PFIC, then a United States taxpayer who disposes
or is
deemed to dispose of our shares at a gain, or who received a so-called “excess
distribution” on the shares, generally would be required to treat such gain or
excess distribution as ordinary income and pay an interest charge on a portion
of the gain or distribution unless the taxpayer makes a timely qualified
electing fund election (a “QEF” election). A United States taxpayer who makes a
QEF election generally must report on a current basis his or her share of any
of
our ordinary earnings and net capital gain for any taxable year in which we
are
a PFIC, whether or not we distribute those earnings. Special estate tax rules
could be applicable to our shares if we are classified as a PFIC for income
tax
purposes.
We
have a history of losses and we expect to incur losses in the
future.
Since
our
inception through a merger in June 2002, we have incurred significant losses
and
we expect significant losses to continue for the foreseeable future. Our net
losses were $22,208,000, $31,007,000 and $14,090,000 for the years ended
December 31, 2005, 2004 and 2003, respectively. There can be no assurance that
we will achieve or sustain profitability in the future.
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. During this
period, we have not generated sufficient revenues to cover our expenses and
costs. If we are unsuccessful in addressing these risks and uncertainties,
our
business, results of operations and financial condition will be materially
and
adversely affected.
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 these 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.
Our
future earnings may be affected by metals price volatility, specifically the
volatility of the price of gold.
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. Changes in the price of gold significantly affect our profitability.
Gold
prices historically have fluctuated widely, based on numerous industry factors
including:
| · |
industrial
and jewelry demand;
|
| · |
central
bank lending, sales and purchases of
gold;
|
| · |
forward
sales of gold by producers and
speculators;
|
| · |
production
and cost levels in major gold-producing
regions; and
|
| · |
rapid
short-term changes in supply and demand because of speculative or
hedging
activities
|
Gold
prices are also affected by macroeconomic factors, including:
| · |
confidence
in the global monetary system;
|
| · |
expectations
of the future rate of inflation (if
any);
|
| · |
the
strength of, and confidence in, the U.S. dollar (the currency in
which the price of gold is generally quoted) and other
currencies;
|
| · |
global
or regional political or economic events, including but not limited
to
acts of terrorism
|
The
current demand for, and supply of, gold also affects gold prices. The supply
of
gold consists of a combination of new production from mining and existing shares
of bullion held by government central banks, public and private financial
institutions, industrial organizations and private individuals. As the amounts
produced by all producers in any single year constitute a small portion of
the
total potential supply of gold, normal variations in current production do
not
usually have a significant impact on the supply of gold or on its price.
Mobilization of gold held by central banks through lending and official sales
may have a significant adverse impact on the gold price.
All
of
the above factors are beyond our control and are impossible for us to predict.
If the market prices for gold or silver fall below our costs to produce them
for
a sustained period of time, we will experience additional losses and we could
also be required by our reduced revenue to discontinue exploration, development
and/or mining at one or more of our properties.
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. 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. Any material reduction in our
reserves may lead to increased net losses, reduced cash flow, asset write-downs
and other adverse effects on our results of operations and financial condition.
Reserves should not be interpreted as assurances of mine life or of the
profitability of current or future operations. No assurance can be given that
the amount of metal estimated will be produced or the indicated level of
recovery of these metals will be realized.
We
may not achieve our production estimates.
We
prepare estimates of future production for our 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.
Each
of
these factors also applies to future development properties and to any future
recommencement of mining at Montana Tunnels. 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
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.
From
time
to time we will engage 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 Black Fox and
other future projects 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 will be profitable.
Exploration
in general, and gold exploration in particular, are speculative and are
frequently unsuccessful.
Mineral
exploration, particularly for gold and silver, 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 uncertainties, no assurance can be given that our exploration
programs will result in the expansion or replacement of existing ore reserves
that are being depleted by current production.
We
have experienced operational problems at our Montana Tunnels
mine.
Since
the
sale of our Florida Canyon and Standard mines in November 2005, all of our
revenues have been derived from our milling operations at the Montana Tunnels
mine, which is a low grade mine. Historically, the Montana Tunnels mine has
been
unprofitable. 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, an affiliate of Calim Private
Equity LLC, in respect of the Montana Tunnels mine pursuant to which Elkhorn
Tunnels will make scheduled financial contributions in exchange for up to a
fifty percent interest in the mine. With the expected financial contributions
from Elkhorn Tunnels under the joint venture agreement, we believe that we
will
be able to remediate the pit wall instability and recommence mill operations
in
early 2007. However, there can be no assurances that our joint venture partner
will make the expected financial contributions or that we will be able to
remediate the pit wall instability.
We
do not currently have and may not be able to raise the funds necessary to
explore and develop our Black Fox and Huizopa properties and our other
properties.
We
do not
currently have sufficient funds to complete all of our planned exploration
activities at Black Fox and Huizopa or to develop a mine at Black Fox. The
development of Black Fox and the exploration of Huizopa and our other properties
will require significant capital expenditures. Sources of external financing
may
include bank and nonbank 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.
Our
Black Fox property is pledged to the holders of our 12% Series 2004-B
Secured Convertible Debentures and we may not be able to obtain financing from
an asset based lender.
Our
Black
Fox property is pledged to the holders of our 12% Series 2004-B Secured
Convertible Debentures as security for our obligations under these debentures.
It may be difficult for us to raise additional external funds through banks,
asset-based lenders, or other types of lenders, which may require us to raise
additional funds through future debt and equity offerings. In addition, the
inability to pledge any additional significant assets may make it difficult
or
impossible to obtain financing on acceptable terms, or at all. The failure
to
obtain acceptable financing would have a material adverse effect on our growth
strategy and our results of operations and financial condition.
Possible
hedging activities could expose us to losses.
In
the
future, we may enter into precious and/or base metals hedging contracts that
may
involve outright forward sales contracts, spot-deferred sales contracts, the
use
of options which may involve the sale of call options and the purchase of all
these hedging instruments. There can be no assurance that we will be able to
successfully hedge against price, currency and interest rate fluctuations.
In
addition, our ability to hedge against zinc and lead price risk in a timely
manner may be adversely affected by the smaller volume of transactions in both
the zinc and lead markets. 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. Any
significant nonperformance could have a material adverse effect on our financial
condition and results of operations.
We
face substantial governmental regulation.
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.
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. We have made, and expect to make in the future, significant
expenditures to comply with such laws and regulations.
Some
of
our properties are located in historic mining districts with past production
and
abandoned mines. The major historical mine workings and processing facilities
owned (wholly or partially) by us in Montana are being targeted by the Montana
Department of Environmental Quality (“MDEQ”) for publicly funded cleanup, which
reduces our exposure to financial liability. We are participating with the
MDEQ
under Voluntary Cleanup Plans on those sites. Our cleanup responsibilities
have
been completed at the Corbin Flats Facility and at the Gregory Mine site, both
located in Jefferson County, Montana, under programs involving cooperative
efforts with the MDEQ. MDEQ is also contemplating remediation of the Washington
Mine site at public expense under the Surface Mining Control and Reclamation
Act
of 1977 (“SMCRA”). In February 2004, we consented to MDEQ’s entry onto the
portion of the Washington Mine site owned by us to undertake publicly funded
remediation under SMCRA. In March 2004, we entered into a definitive written
settlement agreement with MDEQ and the Bureau of Land Management (“BLM”) under
which MDEQ will conduct publicly funded remediation of the Wickes Smelter site
under SMCRA and will grant 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. However,
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.
Potential
Legislation.
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 bonding in
accordance with regulatory determinations is a condition to the right to operate
under all material operating permits, and therefore increases in bonding
requirements could prevent our operations from continuing even if we were in
full compliance with all substantive environmental laws.
We
face strong competition from other mining companies for the acquisition of
new
properties.
Mines
have limited lives and, as a result, we may seek to replace and expand our
reserves through the acquisition of new properties. 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 on terms that we
consider acceptable.
The
title to some of our properties may be uncertain or
defective.
Certain
of our United States mineral rights 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 the existence and extent of title to any of
our
properties are in doubt, title to mining properties are subject to potential
claims by third parties claiming an interest in them.
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, or 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.
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.
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 remedying an environmental problem, we might be required to suspend
or significantly curtail operations or enter into other interim compliance
measures.
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. A substantial amount of our assets are
located in Canada and our head office is located in the United States.
Additionally, a number of our directors and the experts that may be named in
the
prospectus and this prospectus supplement are residents of Canada. Although
we
have appointed Lackowicz, Shier & Hoffman as our agents for service of
process in the Yukon Territory, it might not be possible for investors to
collect judgments obtained in Canadian 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 named in this prospectus supplement and the related prospectus, in
United States courts would be limited to the assets or the assets of such
persons or corporations, as the case might be, in the United States. The
enforceability in Canada of United States judgments or liabilities in original
actions in Canadian courts predicated solely upon the civil liability provisions
of the federal securities laws of the United States is
doubtful.
USE
OF PROCEEDS
We
expect
the proceeds to us from this offering to be approximately Cdn$1,000,000 before
deducting estimated expenses of the offering that we will pay. The gross
proceeds will be used to fund further exploration of the Black Fox
project.
The
timing, nature and amount of our actual expenditures will depend upon numerous
factors, including the results of our development activities, unforeseen
business opportunities and operational problems that may arise, as well as
the
amount of cash, if any, generated by our operations. We will retain broad
discretion in the allocation and use of the net proceeds of this offering.
PRICE
RANGE OF OUR COMMON SHARES
Our
common shares are listed on the American Stock Exchange under the trading symbol
“AGT” and on the Toronto Stock Exchange under the trading symbol “APG.” On
October 17, 2006, the closing price per share for our common shares as reported
by the American Stock Exchange was $0.39 and as reported by the Toronto Stock
Exchange was Cdn$0.45.
The
following table sets forth, for the periods indicated, the reported high and
low
market closing prices per share of our common shares.
| |
|
American
Stock
Exchange
|
|
Toronto
Stock
Exchange
|
|
| |
|
High
|
|
Low
|
|
High
|
|
Low
|
|
| |
|
($)
|
|
Cdn$
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.75
|
|
|
0.28
|
|
|
0.88
|
|
|
0.32
|
|
|
Second
Quarter
|
|
|
0.85
|
|
|
0.41
|
|
|
0.97
|
|
|
0.47
|
|
|
Third
Quarter
|
|
|
0.50
|
|
|
0.35
|
|
|
0.58
|
|
|
0.40
|
|
|
Fourth
Quarter (through October 17, 2006)
|
|
|
0.40
|
|
|
0.36
|
|
|
0.45
|
|
|
0.39
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.77
|
|
|
0.47
|
|
|
0.92
|
|
|
0.56
|
|
|
Second
Quarter
|
|
|
0.49
|
|
|
0.27
|
|
|
0.59
|
|
|
0.33
|
|
|
Third
Quarter
|
|
|
0.36
|
|
|
0.23
|
|
|
0.41
|
|
|
0.27
|
|
|
Fourth
Quarter
|
|
|
0.32
|
|
|
0.17
|
|
|
0.37
|
|
|
0.18
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2.61
|
|
|
1.80
|
|
|
3.30
|
|
|
2.40
|
|
|
Second
Quarter
|
|
|
2.11
|
|
|
1.25
|
|
|
2.76
|
|
|
1.72
|
|
|
Third
Quarter
|
|
|
1.41
|
|
|
0.54
|
|
|
1.85
|
|
|
0.67
|
|
|
Fourth
Quarter
|
|
|
1.05
|
|
|
0.60
|
|
|
1.25
|
|
|
0.72
|
|
We
have
not declared or paid cash dividends on our common shares since our inception
and
we expect for the foreseeable future to retain all of our earnings from
operations for use in expanding and developing our business. Future dividend
decisions will consider our then-current business results, cash requirements
and
financial condition.
CAPITALIZATION
The
following table sets forth our consolidated capitalization (i) as of the
dates indicated, and (ii) as adjusted to give effect to this offering. The
following table should be read in conjunction with the audited consolidated
financial statements and accompanying notes for the year ended December 31,
2005, and the unaudited condensed financial statements for the quarterly period
ended June 30, 2006, each of which is incorporated by reference in this
prospectus supplement.
| |
|
As
at Dec. 31,
|
|
As
at June 30,
|
|
| |
|
2005
(1)
|
|
2006
|
|
| |
|
($000’s)
|
|
($000’s)
|
|
($000’s)
|
|
| |
|
Actual
|
|
Actual
(2)
|
|
As
Adjusted (2)(3)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Debt
|
|
|
596
|
|
|
160
|
|
|
160
|
|
|
Long-term
Debt
|
|
|
6,676
|
|
|
7,167
|
|
|
7,167
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
161,677
|
|
|
166,614
|
|
|
167,383
|
|
|
Deficit
|
|
|
(129,236
|
)
|
|
(136,007
|
)
|
|
(136,007
|
)
|
| |
|
|
32,441
|
|
|
30,607
|
|
|
31,376
|
|
|
Total:
|
|
|
39,713
|
|
|
37,934
|
|
|
38,703
|
|
|
(1)
|
These
numbers are derived from audited financial
statements.
|
|
(2)
|
These
numbers are derived from unaudited financial
statements.
|
|
(3)
|
Amounts
shown are before estimated expenses of the
offering.
|
DILUTION
The
difference between the offering price per common share and the pro forma net
tangible book value per common share after this offering constitutes dilution
to
you. Net tangible book value per share is determined by dividing our net
tangible book value (total tangible assets minus total liabilities) by the
number of common shares outstanding.
At
June
30, 2006, our net tangible book value was $30.2 million, or $0.25 per common
share, under Canadian GAAP. After giving effect to the issuance of the 2,222,221
units and the broker warrants, our pro forma net tangible book value as of
June
30, 2006 would have been $31.0 million or $0.25 per common share under Canadian
GAAP. This represents an immediate decrease in the net tangible book value
of
less than $0.01 per common share to existing shareholders and an immediate
decrease in the net tangible book value of $0.15 per common share under Canadian
GAAP to the recipients of this offering.
The
following table illustrates the per share dilution to you:
|
Canadian
GAAP
|
|
|
|
|
|
|
Offering
price (in U.S. dollars)
|
|
|
|
|
$
|
0.40
|
|
|
Net
tangible book value per share as
of June 30, 2006
|
|
$
|
0.25
|
|
|
|
|
|
Decrease
attributable to new offering
|
|
|
0.00
|
|
|
|
|
|
Adjusted
net tangible book value per share after offering
|
|
|
|
|
|
0.25
|
|
|
Decrease
per share to new offering recipients
|
|
|
|
|
$
|
0.15
|
|
|
Decrease
as a percentage of issuance price
|
|
|
|
|
|
38
|
%
|
PLAN
OF DISTRIBUTION
We
are
offering units consisting of one “super flow-through” common share and one-half
of one warrant to purchase one common share for Cdn$0.45 per unit. Each whole
warrant will entitle its owner to purchase one common share for Cdn$1.00 per
share at any time within one year of closing, and for Cdn$1.15 per share at
any
time thereafter, with the warrants expiring two years after closing. In
connection with this offering, we will pay fees to Regent Mercantile Bancorp
Inc. and Limited
Market Dealer Inc., our placement agents, who will be working solely on a
“best efforts” basis. Therefore, we may not sell the entire amount of units
offered pursuant to this prospectus supplement.
Pursuant
to an agency agreement, we engaged the placement agents as our exclusive agents
in connection with this offering. The agency agreement provides that the closing
of the offering of units is subject to certain closing conditions, including
(i)
the absence of any material adverse change in our business, (ii) the approval
of
the American Stock Exchange and the Toronto Stock Exchange and (iii) the receipt
of opinions and certificates from us and our counsel. In addition, we will
enter
into subscription agreements directly with the investors in connection with
this
offering. Assuming subscription agreements are executed by investors as
currently contemplated, on and subject to the terms and conditions of the
subscription agreements, investors will agree to purchase, and we will agree
to
sell, up to an aggregate of 2,222,221 units.
Confirmations
and definitive prospectuses will be delivered, or otherwise made available,
to
all purchasers who agree to purchase units, informing purchasers of the closing
date as to such units. We currently anticipate that closing of the sale of
units
will take place on or about October 24, 2006. Purchasers will also be informed
of the date and manner in which they must transmit the purchase price for their
units.
On
the
scheduled closing date, the following will occur:
| · |
we
will receive funds in the amount of the aggregate
purchase price;
|
| · |
we
will pay the placement agents fee in accordance with the terms of
our
agreement with placement agents;
and
|
| · |
the
purchasers will receive the units that they
purchased.
|
On
October 11, 2006, we entered into a letter agreement with Regent Mercantile
Bancorp Inc. pursuant to which Regent Mercantile Bancorp Inc. agreed to act
as
placement agent in connection with the offering of units under this prospectus
supplement and the related prospectus. Pursuant to the agreement, we will pay
the placement agents at closing a cash fee equal to seven and one-half percent
of the aggregate gross proceeds to us in the offering. In addition, we agreed
to
grant broker warrants to the placement agents, each of which will entitle its
holder to purchase one broker unit at a price of Cdn$0.45 for two years. Each
broker unit will consist of a one common share and one-half of one common share
purchase warrant, with each whole warrant entitling the holder to purchase
one
additional common share at a price of Cdn$1.00 per share for the first twelve
months from the date of issuance and for Cdn$1.15 per share thereafter, with
the
warrants expiring two years after closing. We have also agreed to reimburse
the
placement agents for up to Cdn$25,000 of expenses incurred in connection with
the offering. The estimated offering expenses payable by us, in addition to
the
placement agents' fees, are Cdn$125,000,
which
include legal, accounting and printing costs and various other fees associated
with registering the units and listing the common shares.
The
following table sets forth the cash fee to be paid to the placement agents
for
this offering on a per unit basis and assuming all of the units offered hereby
are sold at the closing.
| |
|
Per
Unit
|
|
Maximum
Total
|
|
|
Agents’
Fees
|
|
|
Cdn$0.03375
|
|
|
Cdn$75,000
|
|
In
addition, the placement agents will also receive the broker warrants described
above.
We
have
agreed to indemnify the placement agent against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or the Securities
Act.
We may also be required to contribute to payments the placement agent may be
required to make in respect of such liabilities.
The
agreement with the placement agent and the form of subscription agreement with
the purchasers are included as exhibits to our Current Report on Form 8-K that
will be filed with the Securities and Exchange Commission in connection with
the
completion of this offering.
The
placement agents, Regent Mercantile Bancorp Inc. and Limited
Market Dealer Inc., may be deemed to be an underwriter within the meaning
of Section 2(a)(11) of the Securities Act and any commissions received by it
and
any profit realized on the resale of the common shares underlying the broker
warrants sold by them while acting as principal might be deemed to be
underwriting discounts or commissions under the Securities Act. As placement
agents, Regent Mercantile Bancorp Inc. and
Limited
Market Dealer Inc. would be required to comply with the requirements of
the Securities Act and the Securities Exchange Act of 1934, as amended, or
the
Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities
Act and Rule 10b-5 and Regulation M under the Exchange Act. These rules and
regulations may limit the timing of purchases and sales of common shares and
unit warrants by Regent Mercantile Bancorp Inc and
Limited
Market Dealer Inc. Under these rules and regulations, Regent Mercantile
Bancorp Inc. and
Limited
Market Dealer Inc.:
| · |
may
not engage in any stabilization activity in connection with our
securities; and
|
| · |
may
not bid for or purchase any of our securities or attempt to induce
any
person to purchase any of our securities, other than as permitted
under
the Exchange Act, until it has completed its participation in the
distribution.
|
DESCRIPTION
OF SECURITIES
Description
of Common Shares
We
are
authorized to issue an unlimited number of common shares, without par value.
As
of October 17, 2006, there were 123,321,883
common
shares outstanding.
Dividend
Rights
Holders
of our common shares may receive dividends when, as and if declared by our
board
on the common shares, subject to the preferential dividend rights of any other
classes or series of shares of our company. In no event may a dividend be
declared or paid on the common shares if payment of the dividend would cause
the
realizable value of our company’s assets to be less than the aggregate of its
liabilities and the amount required to redeem all of the shares having
redemption or retraction rights which are then outstanding.
Voting
and Other Rights
Holders
of our common shares are entitled to one vote per share, and in general, all
matters will be determined by a majority of votes cast.
Election
of
Directors
All
of
the directors serve from the date of election or appointment until the earlier
of the next annual meeting of our shareholders or the date on which their
successors are elected or appointed in accordance with the provisions of our
By-laws and Articles of Continuance. Directors
are elected by a majority of votes cast.
Liquidation
In
the
event of any liquidation, dissolution or winding up of Apollo Gold Corporation,
holders of the common shares have the right to a ratable portion of the assets
remaining after payment of liabilities and liquidation preferences of any
preferred shares or other securities senior to the common shares that may then
be outstanding.
Redemption
Our
common shares are not redeemable or convertible.
Description
of Unit Warrants
Each
unit
will include one-half of one common share purchase warrant. A whole warrant
will
entitle the holder to purchase one common share at an exercise price of Cdn$1.00
per share at any time within one year of closing, and for Cdn$1.15 per share
thereafter. The warrants will be exercisable at any time after the closing
until
two years after the closing.
The
warrants will be issued in the form of warrant certificates. The warrant will,
among other things, include provisions for the appropriate adjustment in the
class, number and price of the common shares to be issued upon exercise of
the
warrants upon the occurrence of certain events, including any subdivision,
consolidation or reclassification of our common shares, the payment of stock
dividends and our amalgamation.
The
common shares underlying the unit warrants, when issued upon exercise of a
unit
warrant, will be fully paid and non-assessable, and we will pay any transfer
tax
incurred as a result of the issuance of common shares upon exercise.
We
are
not required to issue fractional shares upon the exercise of a warrant and
you
may not exercise one-half of one warrant or any other fraction thereof. The
holder of a warrant will not possess any rights as a holder of our common shares
until he or she exercises the warrant.
A
warrant
may be exercised upon surrender of the warrant certificate on or before the
expiry date of the unit warrant at our principal office in Greenwood Village,
Colorado, with the exercise form found on the back of the warrant certificate
completed and executed as indicated, accompanied by payment of the exercise
price (by money order, wire transfer, bank draft or certified check payable
to
the order of Apollo Gold Corporation) for the number of common shares with
respect to which the unit warrant is being exercised.
The
foregoing discussion of material terms and provisions of the unit warrants
is
qualified in its entirety by reference to the detailed provisions of the warrant
certificate.
For
the
life of the unit warrants, the holders thereof have the opportunity to profit
from a rise in the market price of the common shares without assuming the risk
of ownership of the common shares underlying the unit warrants. The unit warrant
holders may be expected to exercise their unit warrants at a time when we would,
in all likelihood, be able to obtain any needed capital by an offering of common
shares on terms more favorable than those provided for by the unit warrants.
Furthermore, the terms on which we could obtain additional capital during the
life of the unit warrants may be adversely affected.
Description
of Tax Treatment of Flow-Through Common Shares
“Flow-through”
shares are common shares that provide Canadian resident purchasers with
potential tax benefits by virtue of the Company incurring certain qualifying
exploration expenses as determined under Canadian tax laws and renouncing the
tax benefits related thereto to the purchasers. Flow-through shares and
non-flow-through shares offer the same rights and entitlements to their holders
as prescribed in our articles to other holders of our common shares.
Flow-through shares do not have a different trade designation than
non-flow-through shares. Flow-through shares are not a separate or distinct
security from non-flow-through shares. The only difference is the contractual
obligation of the issuer to renounce the Canadian Exploration Expense (“CEE”) to
the holders of flow-through shares, which leads to the tax benefit to the holder
under the Canadian tax system.
The
Canadian federal government allows Canadian companies, who meet certain criteria
and are engaged in resource exploration, to write off the full cost of these
activities by claiming the CEE deduction as defined by the Income
Tax Act
(Canada). As a means of raising capital for exploration, companies may issue
flow-through shares, whereby the 100% tax-deductible CEE is “flowed through” to
the purchasers of these shares. The company must spend the flow-through dollars
on exploration in Canada, which includes most non-development stages of mining
including, without limitation, ground sampling, geophysics and drilling.
Exploration or mining companies who issue flow-through shares renounce the
CEE
deductions that would normally be available to the company and provide the
deduction to the investors. The investors can then deduct the CEE from their
income and thereby reduce their own income tax. Since only Canadian residents
will be able to benefit from the tax treatment of flow-through shares, generally
flow-through shares are offered only to Canadian residents. Although
non-Canadian residents are not prohibited from purchasing flow-through shares,
flow-through shares are often sold at a premium to the market price of the
company’s listed shares because of their tax benefits, so there is no incentive
for non-Canadian residents to purchase flow-through shares.
The
tax
deduction must be used by the initial purchaser of the flow-through shares
and
“super” flow-through shares (described below). Purchasers of flow-through shares
(including “super” flow-through shares), however, can subsequently sell such
flow-through shares and still remain eligible to receive preferential tax
treatment in Canada as described above.
A
flow-through share is deemed to have a cost of nil for tax purposes. This tax
cost of nil would be used in calculating the gain on the subsequent sale of
the
shares.
(i) Regular
flow-through shares
In
a
regular flow-through share offering, 100% of CEE renounced by the issuer company
to a purchaser is deductible from the purchaser’s income, thereby reducing the
immediate cost of the purchaser’s investment. For example, if the purchaser has
a taxable income of $100,000 and the purchaser invests $10,000 in flow-through
shares, the purchaser’s taxable income is reduced to $90,000 (for both federal
and provincial taxes).
(ii) Super
flow-through shares
In
addition to the 100% deduction of CEE for purchasers of regular flow-through
shares, the Canadian federal government allows a 15% tax credit for certain
types of CEEs. The tax credit is credited against the federal portion of the
investor’s taxes. This tax credit is only available to individuals. Corporations
and trusts are not eligible for the tax credit. To distinguish it from the
fully
deductible regular flow-through shares, investors are calling this new
credit-enhanced version “super” flow-through shares.
To
be
“super” flow-through shares, the CEE must be an expense incurred in conducting
mining exploration activity from or above the surface of the earth for the
purpose of determining the existence, location, extent or quality of a
particular kind of mineral resource in Canada (including a base or precious
metals deposit, but not including a coal or oil sands deposit), excluding
certain expenses.
Several
provincial tax credits are also available for purchasers of “super” flow-through
shares. Ontario (5%), Saskatchewan (10%), Manitoba (10%) and British Columbia
(20%) offer tax credits that apply to the provincial portion of income tax
relating to CEE in relevant jurisdictions.
For
example, if the company is working in BC and the investor is a resident of
BC,
the investor who purchased “super” flow-through shares of the company also gets
a 20% provincial tax credit, in addition to the CEE deduction and the federal
15% tax credit. As a result, an investment of $10,000 in “super” flow-through
shares has a net cost of $3,830, provided the investor is in the highest
individual tax bracket.
Since
tax
credits fall into the category of “assistance” or are, in effect, a grant, they
are also applied to reduce the CEE deduction. The federal tax credit is included
in income in the following year, and the provincial tax credit is included
in
income at the earliest of when such credit reduces tax payable for the year
or
when it is paid.
LEGAL
MATTERS
Lackowicz,
Shier & Hoffman, Yukon Territory, Canada, has provided its opinion on the
validity of the securities offered by this prospectus supplement.
EXPERTS
Our
reserves at December 31, 2005, incorporated by reference herein, were
prepared by us and audited by Mine Development Associates. All information
regarding reserves incorporated by reference herein is in reliance upon the
authority of that firm as experts in such matters.
TRANSFER
AGENT AND REGISTRAR
The
transfer agent and registrar for our common shares is CIBC Mellon Trust Company,
P. O. Box 7010, Adelaide Postal Station, Toronto, Ontario M5E
2W9, Canada.
INCORPORATION
OF DOCUMENTS BY REFERENCE
The
SEC
allows us to incorporate by reference the information we file with them, which
means we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this prospectus supplement, and information that we file with the SEC after
the
date of this prospectus supplement will automatically update and supersede
this
information. We incorporate by reference our documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of
the Exchange Act until we sell all of the securities; provided that this
prospectus will not incorporate any information we may furnish to the SEC under
Item 2.02 or Item 7.01 of Form 8-K:
| · |
Annual
report on Form 10-K for the fiscal year ended December 31,
2005;
|
| · |
Quarterly
reports on Form 10-Q for the quarters ended March 31, 2006 and June
30,
2006;
|
| · |
Current
reports on Form 8-K filed January 13, 2006, January 26, 2006, January
27,
2006, January 31, 2006, February 24, 2006, April 17, 2006, May 15,
2006
(Item 8.01 only), May 31, 2006 and August 2,
2006;
|
| · |
Definitive
Proxy Statement on Schedule 14A filed with the SEC on April 27, 2006;
and
|
| · |
Description
of our common stock contained in our Registration Statement on Form
10
filed with the SEC on June 22,
2003.
|
You
may
request a copy of the documents incorporated by reference in this prospectus
supplement at no cost through our website (www.apollogold.com)
as soon
as reasonably practicable after we electronically file the material with the
SEC, or by writing or telephoning us at the following address:
Investor
Relations
Apollo
Gold Corporation
5655
S.
Yosemite St., Suite 200
Greenwood
Village, CO 80111
(720)
886-9656
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the reporting requirements of the Exchange Act, and file annual,
quarterly and periodic reports, proxy statements and other information with
the
SEC. The SEC maintains a web site (http://www.sec.gov)
on
which our reports, proxy statements and other information are made available.
Such reports, proxy statements and other information may also be inspected
and
copied at the public reference facilities maintained by the SEC at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.
We
have
filed with the SEC a Registration Statement on Form S-3 under the Securities
Act
with respect to securities offered by the prospectus and this prospectus
supplement. The prospectus and this prospectus supplement, which constitute
part
of the Registration Statement, does not contain all of the information set
forth
in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. Reference is hereby made
to the Registration Statement and the exhibits to the Registration Statement
for
further information with respect to us and our common shares.
PROSPECTUS
$100,000,000
APOLLO
GOLD CORPORATION
Debt
Securities
Common
Shares
Warrants
Apollo
Gold Corporation (together with its subsidiaries, “Apollo Gold,” “we,” “us,” or
“our company”) may offer and sell from time to time our debt securities, common
shares or warrants, in one or more transactions up to a total dollar amount
of
$100,000,000.
This
prospectus provides you with a general description of the securities that we
may
offer. The accompanying prospectus supplement sets forth specific information
with regard to the particular securities being offered and may add, update
or
change information contained in this prospectus. You should read both this
prospectus and the prospectus supplement, together with any additional
information which is incorporated by reference into this
prospectus.
Our
common shares are traded on the American Stock Exchange under the symbol “AGT”
and on the Toronto Stock Exchange under the symbol “APG.”
References
in this prospectus to “$” are to United States dollars. Canadian dollars are
indicated by the symbol “cdn$”.
This
prospectus may not be used to offer and sell securities unless accompanied
by
the applicable prospectus supplement.
The
securities offered in this prospectus involve a high degree of risk. You should
carefully consider the matters set forth in “Risk Factors” beginning on
page 4 of this prospectus in determining whether to purchase our
securities.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved these securities, or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is October 5, 2004
TABLE
OF CONTENTS
| |
|
Page
|
|
|
|
1
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
|
1
|
|
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
|
|
1
|
|
STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
|
|
2
|
|
OUR
BUSINESS
|
|
3
|
|
RISK
FACTORS
|
|
4
|
|
USE
OF PROCEEDS
|
|
14
|
|
RATIO
OF EARNINGS TO FIXED CHARGES
|
|
14
|
|
DESCRIPTION
OF DEBT SECURITIES
|
|
14
|
|
DESCRIPTION
OF COMMON SHARES
|
|
25
|
|
DESCRIPTION
OF WARRANTS
|
|
26
|
|
PLAN
OF DISTRIBUTION
|
|
27
|
|
LEGAL
MATTERS
|
|
28
|
|
EXPERTS
|
|
28
|
You
should rely only on information contained or incorporated by reference in this
prospectus. We have not authorized anyone to provide you with information
different from that contained or incorporated in this prospectus.
We
are
not making an offer of these securities in any jurisdiction where the offering
is not permitted.
You
should not assume that the information contained or incorporated by reference
in
this prospectus is accurate as of any date other than the date on the front
of
this prospectus or the dates of the documents incorporated by
reference.
IMPORTANT
NOTICE TO READERS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or SEC, using a “shelf” registration process. Under the
shelf registration, we may sell any combination of the securities described
in
this prospectus in one or more offerings up to a total dollar amount of
$100,000,000. This prospectus provides you with a general description of the
securities that we may offer. Each time that we sell securities, we will provide
a prospectus supplement that will contain specific information about the terms
of that offering. The prospectus supplement also may add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information incorporated
by reference in this prospectus before making an investment in our securities.
See “Where You Can Find More Information” for more information. We may use this
prospectus to sell securities only if it is accompanied by a prospectus
supplement.
You
should not assume that the information in this prospectus, any accompanying
prospectus supplement or any document incorporated by reference is accurate
as
of any date other than the date on its front cover.
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the reporting requirements of the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”), and file annual, quarterly and periodic reports,
proxy statements and other information with the SEC. The SEC maintains a web
site (http://www.sec.gov)
on
which our reports, proxy statements and other information are made available.
Such reports, proxy statements and other information may also be inspected
and
copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for
further information on the operation of the public reference facilities.
We
have
filed with the SEC a Registration Statement on Form S-3, under the Securities
Act of 1933, as amended (the “Securities Act”), with respect to the securities
offered by this prospectus. This prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in
the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. Reference is hereby made to the
Registration Statement and the exhibits to the Registration Statement for
further information with respect to us and the securities.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC
allows us to “incorporate by reference” our publicly filed reports into this
prospectus, which means that information included in those reports is considered
part of this prospectus. Information that we file with the SEC after the date
of
this prospectus will automatically update and supersede the information
contained in this prospectus and in prior reports. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of the
securities offered pursuant to this prospectus have been sold:
| |
1.
|
Our
Annual Report on Form 10-K for the year ended December 31, 2003;
|
| |
2.
|
Our
Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 2004;
|
| |
3.
|
Report
on Form 8-K filed June 30, 2004;
and
|
| |
4.
|
The
description of our capital stock set forth in our Registration Statement
on Form 10, filed June 23, 2003.
|
We
will
furnish without charge to you, on written or oral request, a copy of any or
all
of the above documents, other than exhibits to such documents which are not
specifically incorporated by reference therein. You should direct any requests
for documents to either the Chief Financial Officer or the General Counsel,
Apollo Gold Corporation, 4601 DTC Boulevard, Suite 750, Denver, Colorado 80237,
telephone (720) 886-9656.
The
information relating to us contained in this prospectus is not comprehensive
and
should be read together with the information contained in the incorporated
documents. Descriptions contained in the incorporated documents as to the
contents of any contract or other document may not contain all of the
information which is of interest to you. You should refer to the copy of such
contract or other document filed as an exhibit to our filings.
STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
This
prospectus and the documents incorporated by reference in this prospectus
contain forward-looking statements, within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Words such as “anticipates,”
“expects,” “intends,” “forecasts,” “plans,” “believes,” “seeks,” “estimates,”
“may,” “will,” and similar expressions identify forward-looking statements.
These statements include comments regarding: the establishment and estimates
of
mineral reserves and resources, production, production commencement dates,
production costs, cash operating costs, total cash costs, grade, processing
capacity, potential mine life, feasibility studies, development costs,
expenditures and exploration.
Although
we believe that our plans, intentions and expectations reflected in these
forward-looking statements are reasonable, we cannot be certain that these
plans, intentions or expectations will be achieved. Our actual results could
differ materially from those anticipated in these forward-looking statements
as
a result of the risk factors set forth below and other factors described in
more
detail in this prospectus:
| ·
|
unexpected
changes in business and economic
conditions;
|
| ·
|
significant
increases or decreases in gold prices;
|
| ·
|
changes
in interest and currency exchange
rates;
|
| ·
|
timing
and amount of production;
|
| ·
|
unanticipated
grade changes;
|
| ·
|
unanticipated
recovery or production problems;
|
| ·
|
changes
in mining and milling costs;
|
| ·
|
metallurgy,
processing, access, availability of materials, equipment, supplies
and
water;
|
| ·
|
determination
of reserves;
|
| ·
|
changes
in project parameters;
|
| ·
|
costs
and timing of development of new reserves;
|
| ·
|
results
of current and future exploration activities;
|
| ·
|
results
of pending and 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 prospectus 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 prospectus,
in an accompanying prospectus supplement and in any documents incorporated
by
reference into this prospectus and the related prospectus supplement. We
undertake no obligation to update forward-looking statements.
OUR
BUSINESS
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 4601 DTC Boulevard,
Suite 750, Denver, Colorado 80237-2571, and the telephone number at that office
is (720) 886-9656. Our internet address is http://www.apollogold.com.
Information contained on our website is not a part of this
prospectus.
We
are
principally engaged in the exploration, development and mining of gold. We
have
focused our mining efforts to date on two principal properties: our Montana
Tunnels Mine, a low grade open pit gold and base metals mine located near
Helena, Montana, and our Florida Canyon Mine, a low grade open pit heap leach
mine located southwest of Winnemucca, Nevada. Five miles south of the Florida
Canyon Mine, we are developing an open pit at the Standard Mine, along with
constructing a leach pad and purchasing associated equipment, which will be
operated in conjunction with our Florida Canyon Mine. During 2003, we acquired
and incorporated into the Standard Mine property additional land positions
in
Buffalo Canyon. We are continuing to drill our Black Fox development property
located in Ontario, Canada. Our exploration properties include our Pirate Gold,
Nugget Field and Diamond Hill properties, our recently acquired Buffalo Canyon
property near the Standard Mine Project and claims staked and land acquired
at
the Willow Creek property located near the Florida Canyon Mine, and our Huizopa
joint venture property in the State of Sonora, Mexico.
RISK
FACTORS
An
investment in the securities involves a high degree of risk. You should consider
the following discussion of risks in addition to the other information in this
prospectus before purchasing any of the securities. In addition to historical
information, the information in this prospectus contains “forward-looking”
statements about our future business and performance. Our actual operating
results and financial performance may be very different from what we expect
as
of the date of this prospectus. The risks below address some of the factors
that
may affect our future operating results and financial performance.
We
have a history of losses and we expect to incur losses in the
future.
Since
our
inception through a merger in June 2002, we have incurred significant losses.
Our net losses were $2,186,000 and $3,051,000 for the years ended
December 31, 2003 and 2002, respectively. For the six months ended
June 30, 2004, we had a net loss of $7,921,000, and we expect to incur a
loss for the twelve months ended December 31, 2004. There can be no assurance
that we will achieve or sustain profitability in the future.
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. During
this period,
we have not generated sufficient revenues to cover our expenses and costs.
If we
are unsuccessful in addressing these risks and uncertainties, our business,
results of operations and financial condition will be materially and adversely
affected.
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; R. Llee Chapman, our Vice
President-Finance, Chief Financial Officer, Treasurer and Controller; Richard
F.
Nanna, our Vice President-Exploration; and Melvyn Williams, our 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.
Our
earnings may be affected by metals price volatility, specifically the volatility
of gold and zinc prices.
We
derive
all of our revenues from the sale of gold, silver, lead and zinc and, as a
result, our earnings are directly related to the prices of these metals. Changes
in the price of gold significantly affect our profitability. 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;
|
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|
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);
|
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|
the
strength of, and confidence in, the U.S. dollar (the currency in
which the
price of gold is generally quoted) and other
currencies;
|
| ·
|
global
or regional political or economic events, including but not limited
to
acts of terrorism.
|
The
current demand for, and supply of, gold also affects gold prices. The supply
of
gold consists of a combination of new production from mining and existing shares
of bullion held by government central banks, public and private financial
institutions, industrial organizations and private individuals. As the amounts
produced by all producers in any single year constitute a small portion of
the
total potential supply of gold, normal variations in current production do
not
usually have a significant impact on the supply of gold or on its price.
Mobilization of gold held by central banks through lending and official sales
may have a significant adverse impact on the gold price.
The
market prices for silver, zinc and lead are also volatile and are affected
by
numerous factors beyond our control, including global or regional consumptive
patterns, speculative activities, and general global political and economic
conditions. Our Montana Tunnels Mine has historically produced approximately
45
million pounds of these metals annually, and therefore the market prices of
these metals have a significant effect on our financial condition and results
of
operations.
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, we will experience additional
losses and we could also be required by our reduced revenue to discontinue
exploration, development and/or mining at one or more of our
properties.
On
September 16, 2004, the closing prices for gold, silver as reported on the
London P.M. fix were $403.40
per ounce, $6.2675 per ounce, respectively and the closing prices for zinc
and
lead as reported on the London Metals Exchange were $0.45 per pound and $0.41
per pound, respectively.
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. The amount and economic value of reserves may be adversely affected
by:
| ·
|
declines
in the market price of the various metals we
mine;
|
| ·
|
declines
in the quality of the ore we mine;
|
| ·
|
increased
production or capital costs; or
|
| ·
|
reduced
recovery rates.
|
Reserve
estimates will be 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. Our reserve estimates for
the
Standard Mine property, that has not yet commenced commercial production, may
change based on actual production experience.
Reserve
estimates are calculated using assumptions regarding metals prices. 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. Any material reduction in our
reserves may lead to increased net losses, reduced cash flow, asset write-downs
and other adverse effects on our results of operations and financial condition.
Reserves should not be interpreted as assurances of mine life or of the
profitability of current or future operations. No assurance can be given that
the amount of metal estimated will be produced or the indicated level of
recovery of these metals will be realized.
We
may
not achieve our production estimates.
We
prepare estimates of future production for our operations. We develop our plans
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. Our actual production may
vary from estimates for a variety of reasons, including:
| ·
|
risks
and hazards of the types discussed in this
section;
|
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|
actual
ore mined varying from estimates of grade, tonnage, dilution and
metallurgical and other
characteristics;
|
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|
short-term
operating factors relating to the ore reserves, such as the need
for
sequential development of ore bodies and the processing of new or
different ore grades;
|
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|
mine
failures, pit wall slides or cave-ins or equipment
failures;
|
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natural
phenomena such as inclement weather conditions, floods and
earthquakes;
|
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unexpected
labor shortages or strikes;
|
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restrictions
or regulations imposed by government agencies;
and
|
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|
litigation
pursued by governmental agencies or environmental
groups.
|
Each
of
these factors also applies to the Standard Mine now under construction and
other
future development properties not yet in production and to the Montana Tunnels
and Florida Canyon expansions. In these cases, 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 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.
From
time
to time we will engage 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 Black Fox and
other future projects may be based on feasibility studies. The economic
feasibility of our development projects is based upon many factors,
including:
| ·
|
anticipated
metallurgical characteristics that are to be mined and
processed;
|
| ·
|
anticipated
recurring rates of gold and other minerals from the
ore;
|
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|
capital
and operating costs of comparable facilities and equipment;
and
|
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|
future
gold/metal prices.
|
Development
projects are also 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, including:
| ·
|
anticipated
tonnage and grades of ore to be mined and
processed;
|
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|
the
configuration of the ore body;
|
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|
ground
and mining conditions;
|
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|
expected
recovery rates of the gold from the ore;
and
|
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|
anticipated
environmental and regulatory compliance
costs.
|
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 our
operations at the Standard Mine or any other development property will be
profitable.
Exploration
in general, and gold exploration in particular, are speculative and are
frequently unsuccessful.
Mineral
exploration, particularly for gold and silver, 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.
Success in increasing our reserves will be the result of a number of factors,
including the following:
| · |
geological
and technical expertise;
|
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|
quality
of land available for exploration;
and
|
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|
capital
available for exploration.
|
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 uncertainties, no assurance can be given that our exploration
programs will result in the expansion or replacement of existing ore reserves
that are being depleted by current production.
We
are dependent upon two mining properties.
All
of
our revenues are currently derived from our mining and milling operations at
the
Montana Tunnels Mine and Florida Canyon Mine, which are low grade mines. If
operations at either of these mines or at any of our processing facilities
are
reduced, interrupted or curtailed, for any reason, our results of operations
and
financial condition could be materially adversely affected.
If
we do not achieve additional financing, then our mining operations and
development activities will be curtailed.
We
had
cash and short term investments of $3.2 million as of August 31, 2004. Our
current cash and short term investments and cash flows from operations are
not
sufficient to fund our operations and development activities at current levels.
External financing would be needed to carry out the following plans:
(a) finish the stripping program at Montana Tunnels and bring this mine
into a cash positive situation and (b) complete the construction of the
Standard mine, (c) progress Black Fox through feasibility and continue
development drilling, and (d) commence drilling at the Huizopa project.
In
order
to achieve these plans, we will require external financing, which may include
nonbank debt or equity financing by additional sales of our common shares and/or
securities that are convertible into shares of our common shares. There can
be
no assurance that additional financing will be available on terms acceptable
to
us, or at all. If we cannot obtain sufficient financing, we will be required
to
suspend operations at Montana Tunnels and development drilling at Black Fox,
or
cease construction of the Standard Mine, and our future revenues, operating
results and financial condition would be materially adversely affected.
We
do not currently have and may not be able to raise the funds necessary to
explore and develop our Black Fox and Huizopa properties and our other
properties.
We
do not
currently have sufficient funds to complete a feasibility study on or develop
our Black Fox property, or to begin exploration drilling at our Huizopa
property. We will need additional external financing to perform a feasibility
study and, if successful, develop a mine at Black Fox, and to fund the
exploration and development of Huizopa and our other properties. Black Fox,
Huizopa and our other development properties will require significant capital
expenditures. Sources of external financing may include bank and nonbank
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.
Possible
hedging activities could expose us to losses.
In
connection with a previous financing we have gold hedging contracts covering
32,000 ounces as of September 1, 2004 that involve the use of put and call
options. The contracts give the holder the right to buy and us the right to
sell
stipulated amounts of gold at the upper and lower exercise prices, respectively.
The contracts continue through April 25, 2005, with a put option of $295 per
ounce and a call option of $345 per ounce. Based on recent gold prices of
approximately $400 per ounce, we are realizing about $55 an ounce less than
the
market price on our currently outstanding hedging positions.
In
the
future, we may enter into additional precious and/or base metals hedging
contracts that may involve outright forward sales contracts, spot-deferred
sales
contracts, the use of options which may involve the sale of call options and
the
purchase of all these hedging instruments. There can be no assurance that we
will be able to successfully hedge against price, currency and interest rate
fluctuations. In addition, our ability to hedge against zinc and lead price
risk
in a timely manner may be adversely affected by the smaller volume of
transactions in both the zinc and lead markets. 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. Any significant nonperformance could have a material
adverse effect on our financial condition and results of
operations.
We
face substantial governmental regulation.
Safety.
Our
U.S. mining operations are 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.
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. We have made, and expect to make in the future, significant
expenditures to comply with such laws and regulations. These requirements
include regulations under many state and U.S. federal laws and regulations,
including:
| ·
|
the
Comprehensive Environmental Response, Compensation and Liability
Act of
1980 which regulates and establishes liability for the release of
hazardous substances;
|
| ·
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the
Endangered Species Act;
|
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|
the
Resource Conservative and Recovery
Act;
|
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|
the
Migratory Bird Treaty Act;
|
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|
the
Safe Drinking Water Act;
|
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|
the
Emergency Planning and Community Right-to-Know
Act;
|
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the
Federal Land Policy and Management
Act;
|
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|
the
National Environmental Policy Act;
|
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|
the
National Historic Preservation Act;
|
| ·
|
Montana
Comprehensive Environmental Cleanup and Responsibility
Act;
|
| ·
|
Montana
Strip and Underground Mine Reclamation Act;
and
|
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|
Nevada
Mined Land Reclamation statute.
|
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 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. The Corbin Flats Facility was the MDEQ’s number one
priority site in Jefferson County targeted for cleanup under the Montana
Comprehensive Environmental Cleanup and Responsibility Act (“CECRA”). The MDEQ
has reimbursed us for more than half of our cleanup costs at the Corbin Flats
Facility under two Montana State public environmental cleanup funding programs.
MDEQ is 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 will grant 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. However, 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.
Potential
Legislation.
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 pollution of the
environment 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 environmental pollution 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 bonding in
accordance with regulatory determinations is a condition to the right to operate
under all material operating permits, and therefore increases in bonding
requirements could prevent our operations from continuing even if we were in
full compliance with all substantive environmental laws.
We
face strong competition from other mining companies for the acquisition of
new
properties.
Mines
have limited lives and as a result, we may seek to replace and expand our
reserves through the acquisition of new properties. In addition, there is a
limited supply of desirable mineral lands available in the United States, Canada
and Mexico and other areas where we would consider conducting exploration and/or
production activities. Because we face strong competition for new properties
from other mining companies, some of which have greater financial resources
than
we do, we may be unable to acquire attractive new mining properties on terms
that we consider acceptable.
The
titles to some of our properties may be uncertain or
defective.
Certain
of our United States mineral rights 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 under 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 currently unpatented mining claims located on federal
lands. 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.
While
we
have no reason to believe that the existence and extent of any of our properties
are in doubt, title to mining properties are subject to potential claims by
third parties claiming an interest in them.
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, or 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.
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:
| ·
|
political
and country risks;
|
| ·
|
unusual
or unexpected geologic formations;
|
| ·
|
slope
failures and landslides; and
|
| ·
|
flooding
and periodic interruptions due to inclement or hazardous weather
conditions.
|
Such
risks could result in:
| ·
|
damage
to or destruction of mineral properties or producing
facilities;
|
| ·
|
personal
injury or death;
|
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 remedying an environmental problem, we might be required to suspend
or significantly curtail operations or enter into other interim compliance
measures.
The
market price of our common shares could experience volatility and could decline
significantly.
Our
common shares are listed on the American Stock Exchange and the Toronto Stock
Exchange. 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 short-term changes in gold prices or in our
financial condition or results of operations as reflected in our quarterly
earnings reports. Other factors unrelated to our performance that could have
an
effect on the price of our common shares include the following:
| ·
|
the
extent of analytical coverage available to investors concerning our
business could be limited if investment banks with research capabilities
do not continue to follow our
securities;
|
| ·
|
the
trading volume and general market interest in our securities could
affect
an investor’s ability to trade significant numbers of common
shares;
|
| ·
|
the
relatively small size of the public float will limit the ability
of some
institutions to invest in our securities;
and
|
| ·
|
a
substantial decline in our shares price that persists for a significant
period of time could cause our securities to be delisted from the
American
Stock Exchange and the Toronto Stock Exchange, further reducing market
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.
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. Substantially all of our assets are
located outside of Canada and our head office is located in the United States.
Additionally, a number of our directors and the experts named in this prospectus
are residents of Canada. Although we have appointed Lackowicz, Shier &
Hoffman as our agents for service of process in the Yukon Territory, it might
not be possible for investors to collect judgments obtained in Canadian courts
predicated on the civil liability provisions of 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 named in this prospectus, 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.
If
we complete additional equity financings, then our existing shareholders may
experience dilution.
Any
additional equity financing that we obtain would involve the sale of our common
shares and/or sales of securities that are convertible or exercisable into
shares of our common shares, such as share purchase warrants or convertible
notes. There is no assurance that we will be able to complete equity financings
that are not dilutive to our existing shareholders.
There
may be certain tax risks associated with investments in our company.
Potential
investors that are United States taxpayers should consider that we could be
considered to be a “passive foreign investment company” (“PFIC”) for federal
income tax purposes. Although we believe that we currently are not a PFIC and
do
not expect to become a PFIC in the near future, the tests for determining PFIC
status are dependent upon a number of factors, some of which are beyond our
control, and we can not assure you that we would not become a PFIC in the
future. If we were deemed to be a PFIC, then a United States taxpayer who
disposes or is deemed to dispose of our shares at a gain, or who received a
so-called “excess distribution” on the shares, generally would be required to
treat such gain or excess distribution as ordinary income and pay an interest
charge on a portion of the gain or distribution unless the taxpayer makes a
timely qualified electing fund election (a “QEF” election). A United States
taxpayer who makes a QEF election generally must report on a current basis
his
or her share of any of our ordinary earnings and net capital gain for any
taxable year in which we are a PFIC, whether or not we distribute those
earnings. Special estate tax rules could be applicable to our shares if we
are
classified as a PFIC for income tax purposes.
USE
OF PROCEEDS
Unless
otherwise indicated in the applicable prospectus supplement, we intend to use
the net proceeds from the sale of the securities offered under this prospectus
for the exploration and development of our properties, acquisition, exploration
and development of additional properties or interests, working capital and
general corporate purposes.
Pending
the application of the net proceeds, we expect to invest the proceeds in
short-term, investment-grade, interest-bearing instruments, or other
investment-grade securities.
RATIO
OF EARNINGS TO FIXED CHARGES
Apollo
Gold was created as a result of a business combination by amalgamation during
2002. As shown in the table below, in each year since our inception, our
earnings have been insufficient to cover fixed charges:
|
|
|
Six
months ended
|
|
Fiscal
year ended
December
31,
|
|
|
|
|
June
30, 2004
|
|
2003
|
|
2002
|
|
|
|
|
(in
thousands)
|
|
|
Coverage
Deficiency
|
|
$
|
(7,921
|
)
|
$
|
(2,186
|
)
|
$
|
(3,051
|
)
|
Please
refer to Exhibit 12.1 filed with the registration statement of which this
prospectus constitutes a part for additional information regarding the ratio
of
earnings to fixed charges.
DESCRIPTION
OF DEBT SECURITIES
We
may
issue debt securities from time to time in one or more series. The following
description summarizes the general terms of the debt securities that we may
offer pursuant to this prospectus that are common to all series. The particular
terms of any series of our debt securities will be described in the prospectus
supplement relating to those debt securities. We urge you to read the applicable
prospectus supplement for the terms of the series of debt securities offered
because the terms of specific series of debt securities may differ from the
general information that we have provided below.
We
are a
holding company that conducts substantially all of our operations through
subsidiaries. As a result, claims of the holders of the debt securities will
generally have a junior position to claims of creditors of our subsidiaries,
except to the extent that we may be recognized as a creditor of those
subsidiaries. Claims of creditors of our subsidiaries other than us may include
substantial amounts of long-term debt, commercial paper and other short-term
borrowings.
As
required by federal law for all bonds and notes of companies that are publicly
offered, the debt securities will be governed by a document called an
“indenture.” An indenture is a contract between a financial institution, acting
on your behalf as trustee of the debt securities offered, and us. The debt
securities will be issued pursuant to an indenture that we will enter into
with
a trustee, which we will select. When we refer to the “indenture” in this
prospectus, we are referring to the indenture under which your debt securities
are issued, as may be supplemented by any supplemental indenture applicable
to
your debt securities. The trustee has two main roles. First, subject to some
limitations on the extent to which the trustee can act on your behalf, the
trustee can enforce your rights against us if we default on our obligations
under the indenture. Second, the trustee performs certain administrative duties
for us with respect to the debt securities.
A
prospectus supplement will describe the specific terms of any particular series
of debt securities, including any of the terms in this section that will not
apply to that series, and any special considerations, including tax
considerations, applicable to those debt securities. The prospectus supplement
relating to each series of debt securities that we offer using this prospectus
will be attached to the front of this prospectus. In some instances, certain
of
the precise terms of debt securities you are offered may be described in a
further prospectus supplement. If information in a prospectus supplement is
inconsistent with the information in this prospectus, then the information
in
the prospectus supplement will apply and, where applicable, supersede the
information in this prospectus.
The
following section is a summary of the principal terms and provisions that will
be included in the indenture, unless otherwise provided in any applicable
prospectus supplement. Because this section is a summary, it does not describe
every aspect of the debt securities or the indenture. We urge you to read the
indenture and any supplement thereto that are applicable to you. The form of
indenture is filed as an exhibit to the registration statement of which this
prospectus is a part. See “Where You Can Find More Information” for information
on how to obtain a copy of the indenture.
General
The
senior debt securities will have the same ranking as all of our other unsecured
and unsubordinated debt. The subordinated debt securities will be unsecured
and
will be subordinated and junior to all senior indebtedness.
The
debt
securities may be issued in one or more separate series of senior debt
securities and/or subordinated debt securities. The prospectus supplement
relating to the particular series of debt securities being offered will specify
the particular amounts, prices and terms of those debt securities. These terms
may include:
| ·
|
the
title of the debt securities;
|
| ·
|
any
limit upon the aggregate principal amount of the debt
securities;
|
| ·
|
the
date or dates, or the method of determining the dates, on which the
debt
securities will mature;
|
| ·
|
the
interest rate or rates of the debt securities, or the method of
determining those rates, the interest payment dates and, for registered
debt securities, the regular record
dates;
|
| ·
|
if
a debt security is issued with original issue discount, the yield
to
maturity;
|
| ·
|
the
places where payments may be made on the debt
securities;
|
| ·
|
any
mandatory or optional redemption provisions applicable to the debt
securities;
|
| ·
|
any
sinking fund or analogous provisions applicable to the debt
securities;
|
| ·
|
any
conversion or exchange provisions applicable to the debt
securities;
|
| ·
|
any
terms for the attachment to the debt securities of warrants, options
or
other rights to purchase or sell our
securities;
|
| ·
|
the
portion of the principal amount of the debt security payable upon
the
acceleration of maturity if other than the entire principal amount
of the
debt securities;
|
| ·
|
any
deletions of, or changes or additions to, the events of default or
covenants applicable to the debt
securities;
|
| ·
|
if
other than U.S. dollars, the currency or currencies in which payments
of
principal, premium and/or interest on the debt securities will be
payable
and whether the holder may elect payment to be made in a different
currency;
|
| ·
|
the
method of determining the amount of any payments on the debt securities
which are linked to an index;
|
| ·
|
whether
the debt securities will be issued in fully registered form without
coupons or in bearer form, with or without coupons, or any combination
of
these, and whether they will be issued in the form of one or more
global
securities in temporary or definitive
form;
|
| ·
|
any
terms relating to the delivery of the debt securities if they are
to be
issued upon the exercise of
warrants;
|
| ·
|
whether
and on what terms we will pay additional amounts to holders of the
debt
securities that are not U.S. persons in respect of any tax, assessment
or
governmental charge withheld or deducted and, if so, whether and
on what
terms we will have the option to redeem the debt securities rather
than
pay the additional amounts; and
|
| · |
any
other specific terms of the debt
securities.
|
Unless
otherwise specified in the applicable prospectus supplement, (1) the debt
securities will be registered debt securities and (2) debt securities
denominated in U.S. dollars will be issued, in the case of registered debt
securities, in denominations of $1,000 or an integral multiple of $1,000 and,
in
the case of bearer debt securities, in denominations of $5,000. Debt securities
may bear legends required by U.S. federal tax law and regulations.
If
any of
the debt securities are sold for any foreign currency or currency unit or if
any
payments on the debt securities are payable in any foreign currency or currency
unit, the prospectus supplement will contain any restrictions, elections, tax
consequences, specific terms and other information with respect to the debt
securities and the foreign currency or currency unit.
Some
of
the debt securities may be issued as original issue discount debt securities.
Original issue discount securities bear no interest during all or a part of
the
time that these debt securities are outstanding or bear interest at below-market
rates and will be sold at a discount below their stated principal amount at
maturity. The prospectus supplement will also contain special tax, accounting
or
other information relating to original issue discount securities or relating
to
other kinds of debt securities that may be offered, including debt securities
linked to an index or payable in currencies other than U.S.
dollars.
Exchange,
Registration and Transfer
Debt
securities may be transferred or exchanged at the corporate trust office of
the
security registrar or at any other office or agency maintained by us for these
purposes, without the payment of any service charge, except for any tax or
governmental charges. The senior trustee initially will be the designated
security registrar in the United States for the senior debt securities. The
subordinated trustee initially will be the designated security registrar in
the
United States for the subordinated debt securities.
If
debt
securities are issuable as both registered debt securities and bearer debt
securities, the bearer debt securities will be exchangeable for registered
debt
securities. Except as provided below, bearer debt securities will have
outstanding coupons. If a bearer debt security with related coupons is
surrendered in exchange for a registered debt security between a record date
and
the date set for the payment of interest, the bearer debt security will be
surrendered without the coupon relating to that interest payment and that
payment will be made only to the holder of the coupon when due.
In
the
event of any redemption in part of any class or series of debt securities,
we
will not be required to:
| ·
|
issue,
register the transfer of, or exchange, debt securities of any series
between the opening of business 15 days before any selection of debt
securities of that series to be redeemed and the close of business:
|
| ·
|
if
debt securities of the series are issuable only as registered debt
securities, the day of mailing of the relevant notice of redemption,
and
|
| ·
|
if
debt securities of the series are issuable as bearer debt securities,
the
day of the first publication of the relevant notice of redemption
or, if
debt securities of the series are also issuable as registered debt
securities and there is no publication, the day of mailing of the
relevant
notice of redemption;
|
| ·
|
register
the transfer, or exchange, of any registered debt security selected
for
redemption, in whole or in part, except the unredeemed portion of
any
registered debt security being redeemed in part;
or
|
| ·
|
exchange
any bearer debt security selected for redemption, except to exchange
it
for a registered debt security which is simultaneously surrendered
for
redemption.
|
Payment
and Paying Agent
We
will
pay principal, interest and any premium on fully registered securities in the
designated currency or currency unit at the office of a designated paying agent.
Payment of interest on fully registered securities may be made at our option
by
check mailed to the persons in whose names the debt securities are registered
on
days specified in the indentures or any prospectus supplement.
We
will
pay principal, interest and any premium on bearer securities in the designated
currency or currency unit at the office of a designated paying agent or agents
outside of the United States. Payments will be made at the offices of the paying
agent in the United States only if the designated currency is U.S. dollars
and
payment outside of the United States is illegal or effectively precluded. If
any
amount payable on any debt security or coupon remains unclaimed at the end
of
two years after that amount became due and payable, the paying agent will
release any unclaimed amounts to us, and the holder of the debt security or
coupon will look only to us for payment.
Global
Securities
A
global
security represents one or any other number of individual debt securities.
Generally all debt securities represented by the same global securities will
have the same terms. Each debt security issued in book-entry form will be
represented by a global security that we deposit with and register in the name
of a financial institution or its nominee that we select. The financial
institution that we select for this purpose is called the depositary. Unless
we
specify otherwise in the applicable prospectus supplement, The Depositary Trust
Company, New York, New York, known as DTC, will be the depositary for all debt
securities that are issued in book-entry form.
A
global
security may not be transferred to or registered in the name of anyone other
than the depositary or its nominee, unless special termination situations arise.
As a result of these arrangements, the depositary, or its nominee, will be
the
sole registered holder of all debt securities represented by a global security,
and investors will be permitted to own only beneficial interests in a global
security. Beneficial interests must be held by means of an account with a
broker, bank or other financial institution that in turn has an account either
with the depositary or with another institution that has an account with the
depositary. Thus, an investor whose security is represented by a global security
will not be registered holder of the debt security, but an indirect holder
of a
beneficial interest in the global security.
Temporary
Global Securities
All
or
any portion of the debt securities of a series that are issuable as bearer
debt
securities initially may be represented by one or more temporary global debt
securities, without interest coupons, to be deposited with the depositary for
credit to the accounts of the beneficial owners of the debt securities or to
other accounts as they may direct. On and after an exchange date provided in
the
applicable prospectus supplement, each temporary global debt security will
be
exchangeable for definitive debt securities in bearer form, registered form,
definitive global bearer form or any combination of these forms, as specified
in
the prospectus supplement. No bearer debt security delivered in exchange for
a
portion of a temporary global debt security will be mailed or delivered to
any
location in the United States.
Interest
on a temporary global debt security will be paid to the depositary with respect
to the portion held for its account only after they deliver to the trustee
a
certificate which states that the portion:
| ·
|
is
not beneficially owned by a United States
person;
|
| ·
|
has
not been acquired by or on behalf of a United States person or for
offer
to resell or for resale to a United States person or any person inside
the
United States; or
|
| ·
|
if
a beneficial interest has been acquired by a United States person,
that
the person is a financial institution, as defined in the Internal
Revenue
Code, purchasing for its own account or has acquired the debt security
through a financial institution and that the debt securities are
held by a
financial institution that has agreed in writing to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal
Revenue
Code and the regulations to the Internal Revenue Code and that it
did not
purchase for resale inside the United States.
|
The
certificate must be based on statements provided by the beneficial owners of
interests in the temporary global debt security. The depositary will credit
the
interest received by it to the accounts of the beneficial owners of the debt
security or to other accounts as they may direct.
“United
States person” means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or an estate or trust with income subject to United States federal
income taxation regardless of its source.
Definitive
Global Securities
Bearer
Securities.
The
applicable prospectus supplement will describe the exchange provisions, if
any,
of debt securities issuable in definitive global bearer form. We will not
deliver any bearer debt securities delivered in exchange for a portion of a
definitive global debt security to any location in the United States.
U.S.
Book-Entry Securities.
Debt
securities of a series represented by a definitive global registered debt
security and deposited with or on behalf of a depositary in the United States
will be represented by a definitive global debt security registered in the
name
of the depositary or its nominee. Upon the issuance of a global debt security
and the deposit of the global debt security with the depositary, the depositary
will credit, on its book-entry registration and transfer system, the respective
principal amounts represented by that global debt security to the accounts
of
participating institutions that have accounts with the depositary or its
nominee. The accounts to be credited shall be designated by the underwriters
or
agents for the sale of U.S. book-entry debt securities or by our company, if
these debt securities are offered and sold directly by our company.
Ownership
of U.S. book-entry debt securities will be limited to participants or persons
that may hold interests through participants. In addition, ownership of U.S.
book-entry debt securities will be evidenced only by, and the transfer of that
ownership will be effected only through, records maintained by the depositary
or
its nominee for the definitive global debt security or by participants or
persons that hold through participants.
So
long
as the depositary or its nominee is the registered owner of a global debt
security, that depositary or nominee, as the case may be, will be considered
the
sole owner or holder of the U.S. book-entry debt securities represented by
that
global debt security for all purposes under the indenture. Payment of principal
of, and premium and interest, if any, on, U.S. book-entry debt securities will
be made to the depositary or its nominee as the registered owner or the holder
of the global debt security representing the U.S. book-entry debt securities.
Owners of U.S. book-entry debt securities:
| ·
|
will
not be entitled to have the debt securities registered in their
names;
|
| ·
|
will
not be entitled to receive physical delivery of the debt securities
in
definitive form; and
|
| ·
|
will
not be considered the owners or holders of the debt securities under
the
indenture.
|
The
laws
of some jurisdictions require that purchasers of securities take physical
delivery of securities in definitive form. These laws impair the ability to
purchase or transfer U.S. book-entry debt securities.
We
expect
that the depositary for U.S. book-entry debt securities of a series, upon
receipt of any payment of principal of, or premium or interest, if any, on,
the
related definitive global debt security, will immediately credit participants’
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the global debt security as shown on the
records of the depositary. We also expect that payments by participants to
owners of beneficial interests in a global debt security held through those
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in “street name,” and will be the responsibility of those
participants.
Covenants
of the Company
We
may,
without the consent of the holders of the debt securities, merge into or
consolidate with any other person, or convey or transfer all or substantially
all of our company’s properties and assets to another person provided
that:
| ·
|
the
successor assumes on the same terms and conditions all the obligations
under the debt securities and the indentures;
and
|
| ·
|
immediately
after giving effect to the transaction, there is no default under
the
applicable indenture.
|
The
remaining or acquiring person will be substituted for our company in the
indentures with the same effect as if it had been an original party to the
indenture. A prospectus supplement will describe any other limitations on the
ability of our company to merge into, consolidate with, or convey or transfer
all or substantially all or our properties and assets to, another person.
Satisfaction
and Discharge; Defeasance
We
may be
discharged from our obligations on the debt securities of any class or series
that have matured or will mature or be redeemed within one year if we deposit
with the trustee enough cash and/or U.S. government obligations or foreign
government securities, as the case may be, to pay all the principal, interest
and any premium due to the stated maturity or redemption date of the debt
securities and comply with the other conditions set forth in the applicable
indenture. The principal conditions that we must satisfy to discharge our
obligations on any debt securities are (1) pay all other sums payable with
respect to the applicable series of debt securities and (2) deliver to the
trustee an officers’ certificate and an opinion of counsel which state that the
required conditions have been satisfied.
Each
indenture contains a provision that permits our company to elect to be
discharged from all of our obligations with respect to any class or series
of
debt securities then outstanding. However, even if we effect a legal defeasance,
some of our obligations will continue, including obligations to:
| ·
|
maintain
and apply money in the defeasance
trust;
|
| ·
|
register
the transfer or exchange of the debt
securities;
|
| · |
replace
mutilated, destroyed, lost or stolen debt securities;
and
|
| ·
|
maintain
a registrar and paying agent in respect of the debt
securities.
|
Each
indenture also permits our company to elect to be released from our obligations
under specified covenants and from the consequences of an event of default
resulting from a breach of those covenants. To make either of the above
elections, we must deposit in trust with the trustee cash and/or U.S. government
obligations, if the debt securities are denominated in U.S. dollars, and/or
foreign government securities if the debt securities are denominated in a
foreign currency, which through the payment of principal and interest under
their terms will provide sufficient amounts, without reinvestment, to repay
in
full those debt securities. As a condition to legal defeasance or covenant
defeasance, we must deliver to the trustee an opinion of counsel that the
holders of the debt securities will not recognize income, gain or loss for
U.S.
federal income tax purposes as a result of the deposit and defeasance and will
be subject to U.S. federal income tax in the same amount and in the same manner
and times as would have been the case if the deposit and defeasance had not
occurred. In the case of a legal defeasance only, the opinion of counsel must
be
based on a ruling of the U.S. Internal Revenue Service or other change in
applicable U.S. federal income tax law.
The
indentures specify the types of U.S. government obligations and foreign
government securities that we may deposit.
Events
of Default, Notice and Waiver
Each
indenture defines an event of default with respect to any class or series of
debt securities as one or more of the following events:
| ·
|
failure
to pay interest on any debt security of the class or series for 30
days
when due;
|
| ·
|
failure
to pay the principal or any premium on any debt securities of the
class or
series when due;
|
| ·
|
failure
to make any sinking fund payment for 30 days when
due;
|
| ·
|
failure
to perform any other covenant in the debt securities of the series
or in
the applicable indenture with respect to debt securities of the series
for
90 days after being given notice; and
|
| · |
occurrence
of an event of bankruptcy, insolvency or reorganization set forth
in the
indenture.
|
An
event
of default for a particular class or series of debt securities does not
necessarily constitute an event of default for any other class or series of
debt
securities issued under an indenture.
In
the
case of an event of default arising from events of bankruptcy or insolvency
set
forth in the indenture, all outstanding debt securities will become due and
payable immediately without further action or notice. If any other event of
default as to a series of debt securities occurs and is continuing, the trustee
or the holders of at least 25% in principal amount of the then outstanding
debt
securities of that series may declare all the debt securities to be due and
payable immediately.
The
holders of a majority in aggregate principal amount of the debt securities
then
outstanding by notice to the trustee may on behalf of the holders of all of
the
debt securities of that series waive any existing default or event of default
and its consequences under the applicable indenture except a continuing default
or event of default in the payment of interest on, or the principal of, the
debt
securities of that series.
Each
indenture requires the trustee to, within 90 days after the occurrence of a
default known to it with respect to any outstanding series of debt securities,
give the holders of that class or series notice of the default if uncured or
not
waived. However, the trustee may withhold this notice if it determines in good
faith that the withholding of this notice is in the interest of those holders,
except that the trustee may not withhold this notice in the case of a payment
default. The term “default” for the purpose of this provision means any event
that is, or after notice or lapse of time or both would become, an event of
default with respect to debt securities of that series.
Other
than the duty to act with the required standard of care during an event of
default, a trustee is not obligated to exercise any of its rights or powers
under the applicable indenture at the request or direction of any of the holders
of debt securities, unless the holders have offered to the trustee reasonable
security and indemnity. Each indenture provides that the holders of a majority
in principal amount of outstanding debt securities of any series may direct
the
time, method and place of conducting any proceeding for any remedy available
to
the trustee, or exercising any trust or other power conferred on the trustee
if
the direction would not conflict with any rule of law or with the indenture.
However, the trustee may take any other action that it deems proper which is
not
inconsistent with any direction and may decline to follow any direction if
it in
good faith determines that the directed action would involve it in personal
liability.
Each
indenture includes a covenant that we will file annually with the trustee a
certificate of no default, or specifying any default that exists.
Modification
of the Indentures
We
and
the applicable trustee may modify an indenture without the consent of the
holders for limited purposes, including adding to our covenants or events of
default, establishing forms or terms of debt securities, curing ambiguities
and
other purposes which do not adversely affect the holders in any material
respect.
We
and
the applicable trustee may make modifications and amendments to an indenture
with the consent of the holders of a majority in principal amount of the
outstanding debt securities of all affected series. However, without the consent
of each affected holder, no modification may:
| ·
|
change
the stated maturity of any debt
security;
|
| ·
|
reduce
the principal, premium, if any, or rate of interest on any debt
security;
|
| ·
|
change
any place of payment or the currency in which any debt security is
payable;
|
| ·
|
impair
the right to enforce any payment after the stated maturity or redemption
date;
|
| ·
|
adversely
affect the terms of any conversion
right;
|
| ·
|
reduce
the percentage of holders of outstanding debt securities of any series
required to consent to any modification, amendment or waiver under
the
indenture;
|
| ·
|
change
any of our obligations, with respect to outstanding debt securities
of a
series, to maintain an office or agency in the places and for the
purposes
specified in the indenture for the series;
or
|
| ·
|
change
the provisions in the indenture that relate to its modification or
amendment other than to increase the percentage of outstanding debt
securities of any series required to consent to any modification
or waiver
under the indenture.
|
Meetings
The
indentures contain provisions for convening meetings of the holders of debt
securities of a series. A meeting may be called at any time by the trustee
and
also, upon request, by our company or the holders of at least 25% in principal
amount of the outstanding debt securities of a series, in any case upon notice
given in accordance with “Notices” below. Persons holding a majority in
principal amount of the outstanding debt securities of a series will constitute
a quorum at a meeting. A meeting called by our company or the trustee that
does
not have a quorum may be adjourned for not less than 10 days. If there is not
a
quorum at the adjourned meeting, the meeting may be further adjourned for not
less than 10 days. Any resolution presented at a meeting at which a quorum
is
present may be adopted by the affirmative vote of the holders of a majority
in
principal amount of the outstanding debt securities of that series, except
for
any consent which must be given by the holders of each debt security affected
by
the modifications or amendments of an indenture described above under
“Modification of the Indentures.” However, a resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver, or other
action which may be made, given, or taken by the holders of a specified
percentage, which is equal to or less than a majority, in principal amount
of
outstanding debt securities of a series may be adopted at a meeting at which
a
quorum is present by the affirmative vote of the holders of the specified
percentage in principal amount of the outstanding debt securities of that
series. Any resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with an indenture will
be
binding on all holders of debt securities of that series and the related
coupons. The indentures provide that specified consents, waivers and other
actions may be given by the holders of a specified percentage of outstanding
debt securities of all series affected by the modification or amendment, acting
as one class. For purposes of these consents, waivers and actions, only the
principal amount of outstanding debt securities of any series represented at
a
meeting at which a quorum is present and voting in favor of the action will
be
counted for purposes of calculating the aggregate principal amount of
outstanding debt securities of all series affected by the modification or
amendment favoring the action.
Notices
In
most
instances, notices to holders of bearer debt securities will be given by
publication at least once in a daily newspaper in New York, New York and in
London, England and in other cities as may be specified in the bearer debt
securities and will be mailed to those persons whose names and addresses were
previously filed with the applicable trustee, within the time prescribed for
the
giving of the notice. Notice to holders of registered debt securities will
be
given by mail to the addresses of those holders as they appear in the security
register.
Title
Title
to
any bearer debt securities and any related coupons will pass by delivery. We,
the trustee, and any agent of ours or the trustee may treat the holder of any
bearer debt security or related coupon and, prior to due presentment for
registration of transfer, the registered owner of any registered debt security
as the absolute owner of that debt security for the purpose of making payment
and for all other purposes, regardless of whether or not that debt security
or
coupon shall be overdue and notwithstanding any notice to the
contrary.
Replacement
of Securities Coupons
Debt
securities or coupons that have been mutilated will be replaced by our company
at the expense of the holder upon surrender of the mutilated debt security
or
coupon to the security registrar. Debt securities or coupons that become
destroyed, stolen, or lost will be replaced by our company at the expense of
the
holder upon delivery to the security registrar of evidence of its destruction,
loss, or theft satisfactory to our company and the security registrar. In the
case of a destroyed, lost, or stolen debt security or coupon, the holder of
the
debt security or coupon may be required to provide reasonable security or
indemnity to the trustee and our company before a replacement debt security
will
be issued.
Governing
Law
The
indentures, the debt securities, and the coupons will be governed by, and
construed under, the laws of the State of New York without regard to the
principles of conflicts of laws.
Concerning
the Trustees
We
may
from time to time maintain lines of credit, and have other customary banking
relationships, with any of the trustees.
Senior
Debt Securities
The
senior debt securities will rank equally with all of our company’s other
unsecured and non-subordinated debt.
Certain
Covenants in the Senior Indenture
The
prospectus supplement relating to a series of senior debt securities will
describe any material covenants in respect of that series of senior debt
securities.
Subordinated
Debt Securities
The
subordinated debt securities will be unsecured. The subordinated debt securities
will be subordinate in right of payment to all senior indebtedness. In addition,
claims of creditors and preferred shareholders of our subsidiaries generally
will have priority with respect to the assets and earnings of our subsidiaries
over the claims of our creditors, including holders of the subordinated debt
securities, even though those obligations may not constitute senior
indebtedness. The subordinated debt securities, therefore, will be effectively
subordinated to creditors, including trade creditors, and preferred shareholders
of our subsidiaries, if any, with regard to the assets of our subsidiaries.
Creditors of our subsidiaries include trade creditors, secured creditors and
creditors holding guarantees issued by our subsidiaries.
Unless
otherwise specified in a prospectus supplement, senior indebtedness shall mean
the principal of, premium, if any, and interest on, all indebtedness for money
borrowed by our company and any deferrals, renewals, or extensions of any senior
indebtedness. Indebtedness for money borrowed by our company includes all
indebtedness of another person for money borrowed that we guarantee, other
than
the subordinated debt securities, whether outstanding on the date of execution
of the subordinated indenture or created, assumed or incurred after the date
of
the subordinated indenture. However, senior indebtedness will not include any
indebtedness that expressly states to have the same rank as the subordinated
debt securities or to rank junior to the subordinated debt securities. Senior
indebtedness will also not include:
| ·
|
any
of our obligations to our subsidiaries;
and
|
| ·
|
any
liability for federal, state, local or other taxes owed or owing
by our
company.
|
The
senior debt securities constitute senior indebtedness under the subordinated
indenture. A prospectus supplement will describe the relative ranking among
different series of subordinated debt securities.
Unless
otherwise specified in a prospectus supplement, we may not make any payment
on
the subordinated debt securities and may not purchase, redeem, or retire any
subordinated debt securities if any senior indebtedness is not paid when due
or
the maturity of any senior indebtedness is accelerated as a result of a default,
unless the default has been cured or waived and the acceleration has been
rescinded or the senior indebtedness has been paid in full. We may, however,
pay
the subordinated debt securities without regard to these limitations if the
subordinated trustee and our company receive written notice approving the
payment from the representatives of the holders of senior indebtedness with
respect to which either of the events set forth above has occurred and is
continuing. Unless otherwise specified in a prospectus supplement, during the
continuance of any default with respect to any designated senior indebtedness
under which its maturity may be accelerated immediately without further notice
or the expiration of any applicable grace periods, we may not pay the
subordinated debt securities for 90 days after the receipt by the subordinated
trustee of written notice of a default from the representatives of the holders
of designated senior indebtedness. If the holders of designated senior
indebtedness or the representatives of those holders have not accelerated the
maturity of the designated senior indebtedness at the end of the 90 day period,
we may resume payments on the subordinated debt securities. Only one notice
may
be given in any consecutive 360-day period, irrespective of the number of
defaults with respect to designated senior indebtedness during that period.
In
the
event that we pay or distribute our company’s assets to creditors upon a total
or partial liquidation, dissolution or reorganization of our company or our
company’s property, the holders of senior indebtedness will be entitled to
receive payment in full of the senior indebtedness before the holders of
subordinated debt securities are entitled to receive any payment. Until the
senior indebtedness is paid in full, any payment or distribution to which
holders of subordinated debt securities would be entitled but for the
subordination provisions of the subordinated indenture will be made to holders
of the senior indebtedness as their respective interests may appear. However,
holders of subordinated debt securities will be permitted to receive
distributions of shares and debt securities subordinated to the senior
indebtedness. If a distribution is made to holders of subordinated debt
securities that, due to the subordination provisions, should not have been
made
to them, the holders of subordinated debt securities are required to hold it
in
trust for the holders of senior indebtedness, and pay it over to them as their
interests may appear.
If
payment of the subordinated debt securities is accelerated because of an event
of default, either we or the subordinated trustee will promptly notify the
holders of senior indebtedness or the representatives of the holders of the
acceleration. We may not pay the subordinated debt securities until five
business days after the holders or the representatives of the senior
indebtedness receive notice of the acceleration. Afterwards, we may pay the
subordinated debt securities only if the subordination provisions of the
subordinated indenture otherwise permit payment at that time.
As
a
result of the subordination provisions contained in the subordinated indenture,
in the event of insolvency, our creditors who are holders of senior indebtedness
may recover more, ratably, than the holders of subordinated debt securities.
In
addition, our creditors who are not holders of senior indebtedness may recover
less, ratably, than holders of senior indebtedness and may recover more,
ratably, than the holders of subordinated indebtedness.
The
prospectus supplement relating to a series of subordinated debt securities
will
describe any material covenants in respect of any series of subordinated debt
securities.
DESCRIPTION
OF COMMON SHARES
We
are
authorized to issue an unlimited number of common shares, without par value.
As
of September 8, 2004, there were 79,632,172 common shares
outstanding.
Dividend
Rights
Holders
of our common shares may receive dividends when, as and if declared by our
board
on the common shares, subject to the preferential dividend rights of any other
classes or series of shares of our company. In no event may a dividend be
declared or paid on the common shares if payment of the dividend would cause
the
realizable value of our company’s assets to be less than the aggregate of its
liabilities and the amount required to redeem all of the shares having
redemption or retraction rights, which are then outstanding.
Voting
and Other Rights
Holders
of our common shares are entitled to one vote per share, and in general, all
matters will be determined by a majority of votes cast.
Election
of Directors
All
of
the directors serve from the date of election or appointment until the earlier
of the next annual meeting of the company’s shareholders or the date on which
their successors are elected or appointed in accordance with the provisions
of
our By-laws and Articles of Arrangement. Directors are elected by a majority
of
votes cast.
Liquidation
In
the
event of any liquidation, dissolution or winding up of Apollo Gold, holders
of
the common shares have the right to a ratable portion of the assets remaining
after payment of liabilities and liquidation preferences of any preferred shares
or other securities that may then be outstanding.
Redemption
Apollo
Gold common shares are not redeemable or convertible.
Other
Provisions
All
outstanding common shares are, and the common shares offered by this prospectus
or obtainable on exercise or conversion of other securities offered hereby,
if
issued in the manner described in this prospectus and the applicable prospectus
supplement, will be, fully paid and non-assessable.
You
should read the prospectus supplement relating to any offering of common shares,
or of securities convertible, exchangeable or exercisable for common shares,
for
the terms of the offering, including the number of common shares offered, any
initial offering price and market prices relating to the common
shares.
This
section is a summary and may not describe every aspect of our common shares
that
may be important to you. We urge you to read our Articles of Arrangement, as
amended, and our By-laws, because they, and not this description, define your
rights as a holder of our common shares. See “Where You Can Find More
Information” for information on how to obtain copies of these
documents.
CIBC
Mellon Trust Company, P.O. Box 7010 Adelaide Postal Station, Toronto, Ontario
M5E2W9, Canada, is the transfer agent and registrar for our common
shares.
DESCRIPTION
OF WARRANTS
At
September 8, 2004, three series of warrants were outstanding to purchase a
total
of 3,717,246 million common shares.
|
Issued
with:
|
|
Date
Issued
|
|
Amount
Outstanding
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Agent
Warrants
|
|
September
27, 2003
|
|
653,277
|
|
$1.67
|
|
September
26, 2005
|
|
Agent
Warrants
|
|
October
27, 2003
|
|
63,969
|
|
$1.67
|
|
October
26, 2005
|
|
Private
Placement
|
|
December
23, 2002
|
|
3,000,000
|
|
$2.10
|
|
December
23, 2006
|
|
Total
|
|
|
|
3,717,246
|
|
|
|
|
We
may
issue warrants for the purchase of debt securities, common shares or units
consisting of any combination of the foregoing securities. Each series of
warrants will be issued under a separate warrant agreement. The applicable
prospectus supplement will describe the terms of the warrants offered, including
but not limited to the following:
| ·
|
the
number of warrants offered;
|
| ·
|
the
price or prices at which the warrants will be issued;
|
| ·
|
the
currency or currencies in which the prices of the warrants may be
payable;
|
| ·
|
the
securities for which the warrants are exercisable;
|
| ·
|
whether
the warrants will be issued with any other securities and, if so,
the
amount and terms of these securities;
|
| ·
|
the
amount of securities purchasable upon exercise of each warrant and
the
price at which and the currency or currencies in which the securities
may
be purchased upon such exercise;
|
| ·
|
the
events or conditions under which the amount of securities may be
subject
to adjustment;
|
| ·
|
the
date on which the right to exercise such warrants shall commence
and the
date on which such right shall expire;
|
| ·
|
the
circumstances, if any, which will cause the warrants to be deemed
to be
automatically exercised;
|
| ·
|
any
material risk factors relating to such warrants;
|
| ·
|
if
applicable, the identity of the warrant agent; and
|
| ·
|
any
other terms of such warrants.
|
Prior
to
the exercise of any warrants, holders of such warrants will not have any rights
of holders of the securities purchasable upon such exercise, including the
right
to receive payments of dividends, or the right to vote such underlying
securities.
Prospective
purchasers of warrants should be aware that special United States federal income
tax, accounting and other considerations may be applicable to instruments such
as warrants. The applicable prospectus supplement will describe such
considerations, to the extent they are material, as they apply generally to
purchasers of such warrants.
PLAN
OF DISTRIBUTION
We
may
offer the securities directly to one or more purchasers, through agents, or
through underwriters or dealers designated from time to time. We may distribute
the securities from time to time in one or more transactions at a fixed price
or
prices (which may be changed from time to time), at market prices prevailing
at
the times of sale, at prices related to these prevailing market prices or at
negotiated prices. We may offer securities in the same offering, or we may
offer
securities in separate offerings. The applicable prospectus supplement will
describe the terms of the offering of the securities, including:
| ·
|
the
offeror(s) of the securities;
|
| ·
|
the
terms of the securities to which the prospectus supplement relates;
|
| ·
|
the
name or names of any underwriters;
|
| ·
|
the
purchase price of the securities and the proceeds to be received
from the
sale;
|
| ·
|
any
underwriting discounts and other items constituting underwriters’
compensation; and
|
| ·
|
any
discounts or concessions allowed or reallowed or paid to dealers.
|
If
underwriters are used in the sale, the securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The securities may
be
either offered to the public through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate. The obligations
of
the underwriters to purchase securities will be subject to the conditions
precedent agreed to by the parties and the underwriters will be obligated to
purchase all the securities of a class or series if any are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Securities
may be sold directly by our company or through agents designated by our company
from time to time. Any agent involved in the offer or sale of the securities
in
respect of which this prospectus is delivered will be named, and any commissions
payable by our company to any agent will be set forth, in the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, any agent
will be acting on a best efforts basis for the period of its appointment.
We
may
authorize agents or underwriters to solicit offers by eligible institutions
to
purchase securities from our company at the public offering price set forth
in
the prospectus supplement under delayed delivery contracts providing for payment
and delivery on a specified date in the future. The conditions to these
contracts and the commissions payable for solicitation of these contracts will
be set forth in the applicable prospectus supplement.
Agents
and underwriters may be entitled to indemnification by our company against
some
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the agents or underwriters may
be
required to make relating to these liabilities. Agents and underwriters may
be
customers of, engage in transactions with, or perform services for, our company
in the ordinary course of business.
Each
class or series of securities other than the common shares will be a new issue
of securities with no established trading market. Any underwriter may make
a
market in these securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can
be
given as to the liquidity of the trading market for any securities.
LEGAL
MATTERS
Lackowicz,
Shier & Hoffman, Yukon Territory, Canada, has provided its opinion on the
validity of the securities offered by this prospectus.
EXPERTS
The
financial statements incorporated in this prospectus by reference from the
Company’s Annual Report on Form 10-K for the year ended December 31, 2003, have
been audited by Deloitte & Touche LLP, independent registered Chartered
Accountants, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and
auditing.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITY
The
Business Corporations Act (Yukon Territory) imposes liability on officers and
directors for breach of fiduciary duty except in certain specified
circumstances, and also empowers corporations organized under Yukon Territory
law to indemnify officers, directors, employees and others from liability in
certain circumstances such as where the person successfully defended himself
on
the merits or acted in good faith in a manner reasonably believed to be in
the
best interests of the corporation.
Our
By-laws, with certain exceptions, eliminate any personal liability of our
directors and officers to us or our shareholders for monetary damages arising
from such person’s performance as a director or officer, provided such person
has acted in accordance with the requirements of the governing statute. Our
By-laws also provide for indemnification of directors and officers, with certain
exceptions, to the full extent permitted under law which includes all liability,
damages and costs or expenses arising from or in connection with service for,
employment by, or other affiliation with us to the maximum extent and under
all
circumstances permitted by law.
In
addition, we maintain officers’ and directors’ liability insurance with Great
American Insurance Company and Navigators Insurance Company. The policies are
effective through June, 2005.
You
should rely only on the information incorporated by reference or provided in
this prospectus or any supplement to this prospectus. We have authorized no
one
to provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of this prospectus.
APOLLO
GOLD CORPORATION
$100,000,000
DEBT
SECURITIES
COMMON
SHARES
WARRANTS
PROSPECTUS