Subscriber Inquires About Apollo

J. Taylor's Gold, Energy & Tech Stocks (06/26/2009)
QUESTION: Hi Jay. You have been recommending Apollo Gold for quite some time now. I am a little concerned about their hedging program. But what is your opinion regarding this? You might have addressed this question before. If so, please let me know which issue of your newsletter it was published in. Thank you.

EDITOR'S RESPONSE: Apollo Gold has a 250,000-oz. forward-sales arrangement at $870 per ounce, and those ounces are to be sold over the next four years. Already the company has a total resource of upward to 2 million ounces, and given some very exciting results on the Grey Fox Project, those numbers are likely to grow considerably. With a cost of production expected to be around $300 per ounce, the company can turn a good profit with forward sales at $870/oz. Of course, if inflationary forces grow, those profit margins could be squeezed, which raises a question as to whether those ounces can be prepaid.

We note that the banks as usual are being well compensated for lending out depositor money. Not only will they make money on their forward gold sales, but they also have warrants to purchase an additional 34.8 million shares at $0.20. They currently have 233.6 million shares outstanding. All that said, we nevertheless think this is a very undervalued stock, assuming of course that they are able to begin producing those 250,000 ounces at a cost of $300 per ounce or so. And what we find really exciting are recent drill results from Grey Fox. We think Apollo may be on to a new major gold mining operation at Black Fox and Grey Fox and potentially from that 3.5-kilometer area between the two.

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