Investing to Wealth

Gammon Gold Inc. (NYSE: GRS)

Gammon Gold Inc. (GRS) is engaged in the mining, development, exploration and acquisition of resource properties. The Company owns and operates two producing mines in Mexico, the Ocampo mine in Chihuahua State, and the El Cubo mine in Guanajuato State, and also owns the Guadalupe y Calvo advanced exploration property in Chihuahua State, Mexico. The Company mined 72,566 tons of underground ore during the year ended December 31, 2008, for a total of 313,575 tons annually, or 857 tons per day (TPD). The Ocampo Mill Circuit processed 660,819 tons during 2008, at an average rate of 1,806 TPD. In addition, total tons processed during 2008, were 194,730 at an average of 2,117 TPD. Gammon Gold has a 100% interest in the Ocampo Gold-Silver Project located in Chihuahua, Mexico. The El Cubo Mine has three processing plants: the El Tajo Flotation Plant, the El Tajo Cyanide Plant, and the Chirimetera Flotation Plant.

The Company was formerly known as Gammon Lake Resources Inc.; Gammon Gold Inc. was founded in 1986 and is headquartered in Halifax, Canada.

Source: https://trading.scottrade.com/quotesresearch/ScottradeResearch.aspx?symbol=GRS , http://www.reuters.com/finance/stocks/incomeStatement?symbol=GRS.N , http://www.gammongold.com/

Financial Summary

During the second quarter of 2009, GRS sold 30,461 gold ounces and 1,116,067 silver ounces, or 47,081 gold equivalent ounces, compared to sales of 44,273 gold ounces and 1,484,763 silver ounces, or 72,694 gold equivalent ounces, in 2008. Gold equivalent ounces sold, using the Company’s long-term gold equivalency ratio of 55:1, were 50,753 ounces in the second quarter of 2009, which represents a decrease of 29% over sales of 71,269 gold equivalent ounces in the same period of the prior year. Second-quarter revenues decreased by 33% to $43.3 million, compared to second quarter 2008 revenues of $64.6 million. This $21.3 million decline in revenue was due to decreased gold and silver production and the 20% decrease in the average realized price of silver.

Consolidated net losses were $7.6 million in the second quarter of 2009, a $12.4 million decline over the Company’s consolidated net earnings of $4.8 million in the second quarter of 2008. This decrease in earnings is primarily due to the $21.3 million reduction in revenue mentioned previously, offset by decreased production costs of $13.5 million, and a foreign exchange loss of $7.0 million during the quarter, compared with a foreign exchange loss of $2.0 million in the same quarter last year. GRS has monetary liabilities denominated in Mexican pesos and Canadian dollars that are then translated into United States dollars. The foreign exchange loss recognized in the second quarter resulted from the strengthening of the Mexican peso and Canadian dollar versus the U.S. dollar.

Total cash costs per gold equivalent ounce for the second quarter of $453 represented a 10% improvement over cash costs per gold equivalent ounce of $501 in the same period in 2008. Using the Company’s long-term gold equivalency ratio of 55:1, cash costs per gold equivalent ounce were $420 in the second quarter of 2009 compared to $511 in the second quarter of 2008, representing an 18% improvement over the prior year. This improvement in cash costs per gold equivalent ounce was largely due to the positive effects of the devaluation of the Mexican peso.

GRS reported cash flow from operations during the second quarter of $13.7 million, a decrease of $10.6 million, or 44%, over the prior year result of $24.3 million. This decline in operating cash flow resulted from a 29% decline in metal production and 20% decline in silver prices, combined with greater cash payments when compared to the prior quarter, related to the timing of amounts payable by the Company.

The Company’s balance of cash and cash equivalents as at June 30, 2009, was $22.0 million, a significant increase over the balance as at the end of 2008 of $3.3 million. Factors that can impact on the Company’s liquidity are monitored regularly and include the market prices of gold and silver, production levels, operating cash costs, capital costs and exploration expenditures, and currencies.

Operating activities contributed $13.7 million during the second quarter of 2009 compared to the same period in 2008, when operating activities contributed cash flows of $24.3 million. This decline of $10.6 million, or 44%, resulted from a 29% decline in metal production and 20% decline in silver prices, combined with increased cash payments compared to the prior quarter, related to the timing of amounts payable by the Company. Year-to-date operating cash flow declined by $6.2 million year-over-year, also due to the weakening of the silver price and declines metal production, offset by an increase in net working capital.

Investing activities for the quarter ended June 30, 2009, used cash of $21.1 million as a result of capitalized stripping and development on mining interests, and expenditures on property, plant and equipment, which compared to $20.7 million in the second quarter of 2008. Current quarter expenditures were largely for the purpose of the new heap leach stacking system, completion of the 20 megawatt power line, development in the underground, exploration drilling, and capitalized stripping activities in the open pit. As of June 30, 2009, the Company had committed to purchase $1.4 million in property, plant and equipment that will be financed by operating cash flow, and will be delivered throughout the third quarter of 2009. Year-to-date cash used in investing activities declined by $5.7 million year-over-year due to $7.2 million in proceeds received in the first quarter upon the sale of certain pieces of equipment, which were subsequently leased back, offset by increased capital expenditures.

Financing activities for the second quarter of 2009 contributed cash of $4.6 million compared to 2008, when financing activities used $2.8 million. The $7.4 million increase in cash flow from financing activities in the second quarter of 2009 resulted from greater proceeds on the exercise of stock options of $2.7 million and a the second quarter of 2008 repayment of debt of that reduced the second quarter of 2008 financing cash flow by $5.0 million. Year-to-date cash contribution from financing activities was $14.4 million, a $14.6 million increase over the prior year. This increase was predominantly due to increased proceeds of $13.3 million received on the exercise of stock options.

Source: http://www.gammongold.com/reports.php

Analyst Consensus

This is the consensus forecast amongst 13 polled investment analysts. Against the Gammon Gold Inc company.

On August 13, 2009, GRS reported second quarter 2009 earnings of 0.01 per share. This result was in line with the consensus of the 9 analysts following the company and under-performed last year’s second-quarter results by -83.33%. The next earnings announcement is expected on November 12, 2009.

Source: Financial Times.com

Source: http://www.reuters.com/finance/stocks/estimates?symbol=GRS.N

Investment Highlights

GRS last month completed the public offering of 12,926,000 common shares at a price of U.S.$8.90 per common share for gross proceeds of U.S.$115,041,400. The Offering was sold on a bought deal basis to a syndicate of underwriters led by BMO Nesbitt Burns Inc. and UBS Securities Canada Inc. and including Dundee Securities Corporation, Macquarie Capital Markets Canada Ltd., Canaccord Capital Corporation and Research Capital Corporation, and includes 1,1686,000 common shares issued pursuant to the full exercise of the over-allotment option. The net proceeds of the Offering will be used to fund expanded operations exploration programs at the Ocampo and El Cubo mines, the advancement of the Guadalupe y Calvo project, debt repayment, greenfields exploration and general corporate purposes. The common shares have been offered by way of short form prospectus in all of the provinces and territories in Canada and in the United States pursuant to a registration statement filed under the Canada/U.S. multijurisdictional disclosure system, and have also been offered on a private placement basis in certain jurisdictions outside Canada and the United States pursuant to applicable prospectus exemptions. A registration statement relating to these securities has become effective with the United States Securities and Exchange Commission pursuant to Rule 467(a) under the U.S. Securities Act of 1933.

The Company recently announced the discovery of significant mineralization at the Santa Eduviges, Las Molinas and San Amado areas at its flagship Ocampo operation together with an overall update its ongoing 2009 exploration programs:

2009 Ocampo Exploration Highlights

To date, the Company has completed 85,838 metres, or 70%, of its planned 123,000 metre reserve replacement drilling program;

• The San Amado drilling returned a bonanza grade intercept at hole OG-797 of 0.5 meters at 318 grams per tonne gold and 1,028 grams per tonne silver or 336.68 grams per tonne gold equivalent;

• The drilling program at Santa Eduviges underground target has provided some very encouraging results with one hole reporting over 9.0 metres of 14.57 grams per tonne gold equivalent. Given the ongoing drilling success to date, an additional 5,900 metres of drilling has been added to the original 4,380 metre program and an additional diamond drill will be mobilizing in October;

• The Company has completed 82% of the planned drilling program at the open pits;

• The drilling program at the northeast underground area has completed 56% of its 39,776 planned program to date. Two additional drill rigs have been mobilized to assist in completing this program by year-end. Encouraging results continue to be received from the Jesus Maria, Belen and Rosario targets;

• Exploration drifting is progressing towards the southeast and northeast underground vein extensions. Drill stations will be established to allow the start of underground drilling in these areas during the fourth quarter;

• The grass root exploration drilling program has completed 78% of the planned program designed to identify new open pit and underground targets for follow up. Significant new mineralization has been identified at Las Molinas, Altagracia and San Amado targets;

• The Company had originally targeted the release of an interim reserve and resource update at the end of the third quarter. However, the aggressive drilling program that is currently underway at Ocampo has resulted in a considerable amount of new significant data that needs to be processed and analyzed to determine its overall impact. The ongoing analysis has been further impacted by personnel changes in our technical services team. The release of the interim reserve and resource statement has been delayed until such time as the compilation and analysis can be completed.

Gammon was pleased to provide a mid-year update of our ongoing 2009 exploration program in mid August of this year. In 2009, the board of directors approved a $12.3 million exploration program that includes a strategic, 123,000 metre drilling program at our Ocampo mine.

“We are very pleased with the recent drill results and our expanding mineralization to the north, east and south of our current operations at Ocampo. I am particularly pleased with several intercepts in the Picacho pit area where we have had significant results both in-pit and to the southeast of the currently designed Picacho pit, an area that has been previously untested,” René Marion, CEO of GRS stated in the press release. “While we are still in the early stages of the underground drilling program, with only 44% of the drilling complete, the results we have received to date are in line with our expectations and we anticipate that the underground program will be completed by the end of the year.”

Source: Scottrade.com, Reuters.com, gammongold.com

Technical Analysis

Moving Average Price Compare

GRS is trading above its 50-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

Bollinger Bands

GRS is trading above its upper Bollinger Band. Relative to recent price action, the stock is currently overextended and due for either a pause or retracement.

MACD

The MACD for GRS currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0 which implies that the underlying moving averages are trending higher.

Comparative Analysis

Source: Reuter.com, Nasdaq.com

Insider Trading Activity

Net Share Purchase Activity

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