Apollo Gold Corp. and Linear Gold Corp. are ready to merge their respective businesses to create a new mid-tier gold player listed in Toronto and New York, Brigus Gold Corp.

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Brigus Gold Corp. – The merger of Apollo and Linear

Introduction

Apollo Gold Corp. and Linear Gold Corp. are ready to merge their respective businesses to create a new mid-tier gold player listed in Toronto and New York. The merged company will be rebranded as Brigus Gold Corp., taking effect when shareholders approve the business combination. A share consolidation of one Brigus Gold share for every four Apollo common shares will take place immediately prior to the merger. Apollo offered 5.47 shares for every outstanding Linear Gold Corp. share. All matters relating to the merger, including the proposed share consolidation and name change, will be submitted to the Apollo shareholders for approval at the shareholder meeting. After giving effect to the merger and the consolidation, Linear shareholders will receive approximately 1.37

Brigus Gold shares for each Linear share on completion of the Merger (5.474 divided by 4). Brigus Gold will focus on optimizing its key Black Fox gold operations in the Timmins gold mining district in Ontario and advancing the Box deposit towards production. Brigus Gold will also continue to strategically advance its Ixhuatàn and Huizopa gold projects in Mexico. For Apollo Gold, the main reason of the merger is Linear Gold’s strong cash position to repay part of its US$70 million project facility for the Black Fox Project.

Wade Dawe, Linear’s CEO and president, will be Brigus’ CEO and president following the merger. The combined company will be headquartered in the Denver area. The Merger is expected to close by the end of June 2010, subject to customary closing conditions, including receipt of all necessary regulatory, court and shareholder approvals.

Post-merger

Since the merger announcement, Apollo has reduced indebtedness under the US$70 million Black Fox Project to US$51.8 million, using US$10 million from the proceeds of Linear’s C$25 million private placement in Apollo and US$8.2 million from the closing out of in-the- money Canadian dollar hedges.

Upon closing of the merger, the combined company will repay an additional US$10 million of project debt and plans to reduce debt to US$27 million by the end of 2010. Combined Proven and Probable Reserves will total 2.3 million ounces of gold. When adding M&I and Inferred resources, we reach a total of 4.76M ounces of gold. The combined company will have a broad range of value creating assets, ranging from early stage exploration projects to a producing mine, all of which are located in relatively low-risk operating jurisdictions, as seen on the following page.

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Pro Forma Capitalization Linear Apollo Closing Post-Consolidation
Fully Diluted Shares Outstanding (millions) 49 357 632 156
Fully Diluted Market Capitalization (C$ million) $85 $121 $206 $206
Cash (US$ millions) $40 $7 $27 $27
Debt (US$ millions) $74 $46 $46

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At a cutoff grade of 3.0 g/t Au, minimum width of 1.5m

Project Pipeline

See pdf.

Cashflow

Total expenses in 2010 are US$35M for the Black Fox underground development, and US$19M debt for repayment, totaling US$54M.
We add US$11M for exploration and administrative costs, resulting in a total expense of US$65M for 2010.
Expected incoming cashflow from operating activities is US$40M. Together with the cash injection of Linear, Brigus should be able to spend US$67M throughout 2010. This means that there is not that much margin for operating errors.

This year could be seen as an investment in the management of the company, and hoping they’ll be capable to manage production costs, to meet the proposed budget for their planned expenses.
We also have 104M warrants outstanding, for a total cash inflow in the company of US$30.3M. However, the expiry date of those warrants is somewhere in 2011, so we cannot hope that they will be exercised this year. (see warrant scheme on p7)

We anticipate a further 37M shares dilution, to raise US$11M (37M shares issued at US$0.30), in order to obtain a cash buffer to guarantee the planned expenses. We estimate to exit the year with Fully diluted 650M outstanding shares (163M post-consolidation).
We believe 2010 will be the most difficult year for Brigus Gold, as they need money to start the underground development at Black Fox. If they can end the year without too much collateral damage, it looks like the company is poised for a big future.

Operating cashflows

Operating cashflows, based on US$550 cash cost, production of 90k oz in 2010 and 100k oz from 2011 on.
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Year Gold Produced in Oz Price received in USD Cash Flow Total cashflow from Black Fox activities
2010 42,000 876 13.6M
48,000 1100 26.4M 40M
2011 55,000 876 18M
45,000 1100 25M 43M
2012 75,000 876 25M
25,000 1100 13M 38M
2013 15,000 876 5M
85,000 1100 45M 50M

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Reserves and Resources

See pdf.

2010 Development Plan

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Receive Open Pit Phase 2 and 3 permits 2Q 2010
Commence Open Pit Phase 2 strip Late 2Q 2010
New decline access +~1,400 meters Complete bu 4Q 2010
Commence underground development 2Q 2010
2010 development ~2,000 meters
Commence underground ore production 3Q 2010
Initial underground production 45,000-50,000 t (495-545 tpd) @ 7.0 g/t 4Q 2010
Estimated 2010 underground gold production 16,000 – 18,000 oz
Commence Open Pit Phase 2 ore production 4Q 2010

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2011 Outlook

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Underground production reaches steady rate of 750 tpd
Number of headings = 5
Complete Open Pit Phase 2 strip

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Cashflow per share

As operating cashflows in 2011/2012 will total about US$80M, and the exercise of warrants will bring in another US$30M, it is possible that Brigus Gold would be able to finance the US$100M capital expenditure for the Box-project in Saskatchewan, Canada. However, we will use the 1/3 Equity-2/3 debt financing as reference. If full production is reached in 2013, the Box project could add another US$40M to the operational cashflow (based on US$480 cash cost and at US$1100 Gold). So cashflow for 2013 could total US$90M, meaning that the company would be able to repay their debt facility for the Box project within the year.

Operating cashflow/share

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Year Cashflow/Share
2011 6.6 cents
2012 5.8 cents
2013 7.7 cents

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Warrants outstanding

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Date Issued Number of Warrants and shares Issuable upon Exercise Excercise Price Expiry Date
Exercisable in US$
February 26, 2010 2,145,000 0.50 February 23, 2011
Exercisable in C$
December 31, 2008 225,000 0.30 December 31, 2010
July 24, 2008 20,403,250 0.65 July 24, 2011
December 10, 2008 42,614,254 0.221 December 10, 2012
February 20, 2009 34,836,111 0.252 February 20, 2013
July 15, 2009 1,566,662 0.24 July 15, 2011
101,993,178
TOTAL 104,138,178

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Conclusion

From 2013 on we expect Brigus Gold Corp. to trade around much higher levels. With 90M cashflow and 650M shares outstanding we have a cashflow of 14 cents per share. So as we speak we are only trading at a forward price/operating cashflow ratio of 2.4, while peer average is seen at 7.5 to 9. If we can get through 2010 relatively undamaged, the future looks very bright for Brigus Gold, with 7 projects in different stages of development.

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