The Bull Case for Apollo Gold (AGT)

| About: Apollo Gold (AGT)

After the recent market pounding, it's now reasonable to expect a bounce. I’m looking for the HUI to accelerate upwards and make a double top later in June.

Now would be a good time to seize any stock picking opportunities -- like Apollo Gold Corp (AMEX: AGT):


Apollo Gold Corp. is a gold mining company, with operations and exploration projects in Canada, USA, and Mexico.

Here are some details of current projects:

Black Fox is Apollo’s flagship project. Located in Ontario, Canada along the Destor-Porcupine Fault System within the Abitibi Greenstone Belt. With over 200,000 meters of successful core drilling completed, Black Fox is a quality high-grade gold mineralization property.

Feasibility study and permitting are expected to be completed in 2006, with construction and initial production underway as early as 2007. The current plan is for an open pit and underground mine with on-site milling and tailings facilities. In 2004, a new base metal zone was discovered, independent of the gold mineralization zone, and is under further study

The Huizopa Project is located on the famous Sierra Madre Gold Belt, near the Chihuahua border with the state of Sonora, Mexico, approximately 235 km (146 miles) due east of the city of Hermosillo, Sonora, Mexico. The Sierra Madre Gold Belt has a known mining history that goes back an estimated 400 years, with estimates of historical production as high as 40 million ounces of gold and 2 billion ounces of silver. The Huizopa area hosts an extensive gold-bearing hydrothermal system.

Montana Tunnels Mine - Montana, USA

Montana Tunnels is an open pit gold and base metal mine - located near Helena, Montana. Approximately 1.1 million ounces of gold have been recovered from 71 million tons of ore since mining began in 1987. The average grade of ore produced is 0.0186 opt gold, 0.35 opt silver, 0.22 % lead and 0.60 % zinc.
- Mining was suspended mid October 2005 as a result of pit wall instability in September and early October 2005.

The Story behind AGT:

AGT is a miner sitting on potentially huge gold reserves but running out of money to exploit them. The Black Fox drilling results are expected to be good, but the company does not have enough money to complete their exploration program there or at Huizopa.

The original intention was to finance exploration out of existing operations at the Montana Tunnel Mines but due to bad luck the mine was suspended in mid October 2005. It’s now likely the Montana Mine will be sold to fund further exploration.

Meanwhile, the bad news is a contrarian’s dream.

AGT exhibits unbelievable value, especially for a miner operating in stable countries such as the USA, Canada and Mexico.

For instance, Proven and Probable reserves at the beginning of 2006 stood at 993,000 Oz’s. At current prices that equates to a very favorable $57 per Oz in the Ground. Before taking into account any new reserves from imminent Drill Results from Black Fox.

Compared to other North American miners that’s a giveaway. An average industry price for miners of Apollo’s size runs at $100+ per Oz.

What attracted me most to AGT is the appealing valuation ratios. After the recent correction the Price/Sales ratio now stands at a low 1.40 and the Price/Book at 1.82. Very low valuations!


AGT at Strong support (yellow line)

AGT has experienced a 50% correction from its previous run-up (Dec – Apr). This is a normal routine correction within a Bull trend.

AGT looks to have found good support around the 45 to 50c level (yellow line)

Yes, the company has experienced setbacks.

But it’s important to note how closely it’s fortunes have followed that of the entire Gold market. Of interest is the dotted Grey line behind the price chart. This is a chart of the HUI superimposed against AGT. By and large AGT has moved in Synch with the HUI (with minor lead and lag times). In essence this chart shows that where HUI goes, AGT will follow.

The MACD has turned up from an oversold position (green rectangle) and recently registered a MACD crossover (blue histogram). This is good and means that AGT is beginning to gain momentum and accelerate upwards.

I think the risk / rewards favor building a position at current levels.


AGT has a market capitalization of approximately USD$57M.

This is a very liquid stock with a daily average volume of about 1 million shares (average over 3 months).

Disclosure: I have direct/indirect holdings in the stocks listed/mentioned.