Gammon Gold Confirms Q2 as Another Consecutive Quarter of Record Key Performance Indicators Including Record Production of 71,154 Gold Equivalent Ounces and Operating Cash Flow of $25.3 Million



    TSX: GAM / AMEX:   GRS / BSX: GL7

    HALIFAX, Aug. 8 /CNW/ - Gammon Gold Inc. ("Gammon Gold") (TSX:GAM and
AMEX:  GRS) announces the second quarter unaudited financial results for the
three months ended June 30, 2008. All figures reported are in U.S. dollars
unless otherwise indicated.
    Q2 2008 production and cash flow performance has successfully built on
the strong results achieved in Q1 2008 and Gammon is reporting the best ever
production and cash flow performance in the history of the company. The strong
production continues to drive significantly improved cash flow performance and
the strength of the operating cash flow continues to fund 100% of the
expansion capital and the newly expanded exploration program. Cash flow
performance has been so strong that it has allowed the company to make year to
date unscheduled repayments of $8.0 million including the additional
$0.9 million repayment in early July and it is now over six months since the
Company last made a draw down on its debt facility.
    René Marion, Chief Executive Officer of Gammon Gold stated: "We are
pleased to report yet another quarter with record achievements. Q2 performance
has built on our strong Q1 performance and this quarter over quarter
improvement in performance was leveraged by the strong positive momentum we
have achieved in executing the first phase of our 3-phase turn around
strategy. The first phase of this strategy has resulted in Q2 2008 providing a
48% improvement in production, a 25% decrease in total cash costs, a 132%
increase in net earnings per share, a $22.6 million improvement in operating
cash flow and an $16.1 million improvement in net free cash flow over Q4 2007
when the turn around strategy was first launched. Our cash flow performance to
date has exceeded our internal targets to such a degree that we have been able
to fully fund our accelerated one-off maintenance programs, capital project
initiatives as well as our significantly expanded exploration program."
Mr. Marion continued, "In the coming quarters the Company expects to continue
building on the productivity gains we have realized to date, while also
turning an increased focus to reducing costs throughout our operations. We are
well poised to fully leverage the 2008 capital project initiatives at Ocampo
where mill capacity will increase by 65-78% and heap leach capacity will
increase by 113-146%. Also noteworthy, additional expansion opportunities are
currently being evaluated based on independent consultation that identifies
significant expansion opportunities beyond our current 2008 plans that were
not considered in the 3-year operational guidance that was issued on March 31,
2008. The execution of our current strategy combined with our significant
growth opportunities will position the Company in strong stead to increase
shareholder wealth into the future. In light of the current valuation of our
stock and industry comparables, we believe that Gammon remains a superior
investment that provides value for our shareholders."
    Mr. Russell Tremayne, Chief Operating Officer of Gammon Gold stated: "We
have made great progress in addressing our productivity challenges over the
past 2 quarters such that we are now in a position to direct more focus to
cost optimization. At Ocampo, some immediate initiatives are the rapid
reduction of the stripping ratio over the next few quarters, full access to
20MW of grid power by mid-2009, the optimization of reagent usage and economy
of scale improvements to be realized through the increased mill capacity
project. The Mill expansion is anticipated to be completed in the fourth
quarter as part of the budgeted 2008 capital expansion program. Additional
cost saving strategies will be implemented at El Cubo as well that includes a
targeted workforce optimization program, the consolidation of 100% of the
processing activity to the stand alone Las Torres mill, the closure of the
Tajo mill and the receipt of new underground mining equipment in July that is
expected to improve productivity at El Cubo." Mr. Tremayne continued: "The
arrival of 18 new pieces of underground equipment at both Ocampo and El Cubo
has allowed us to retire some older equipment, improve the availability of the
fleet while increasing productivity. In particular the delivery of 2 new
scissor lift platforms has allowed us to improve the efficiency of our rock
support at Ocampo."

    
    Q2 2008 Highlights

    -------------------------------------------------------------------------

    For the three-month period ended June 30, 2008.

      - Production of 43,465 gold ounces and 1,445,887 silver ounces, or
        71,154 gold equivalent ounces, at a quarterly cash cost per ounce of
        $505 per gold equivalent ounce, representing a 20% improvement in
        gold equivalent production and a 28% reduction in total cash costs
        over Q2 2007. Production and cash costs to date position Gammon well
        to meet its 2008 guidance

      - Revenue from mining operations of $64.6 million compared to
        $38.4 million in Q2 2007, reflecting a 68% increase in revenue and an
        average realized quarterly gold price of $897 per ounce and realized
        silver price of $17.44 per ounce

      - Net earnings of $6.5 million or $0.06 per share compared to a net
        loss of $25.5 million or $0.23 per share in Q2 2007, representing a
        $32.0 million or 125% improvement over Q2 2007

      - Adjusted net earnings of $7.0 million or $0.06 per share compared to
        an adjusted net loss of $23.5 million or $0.21 per share in Q2 2007,
        representing a $30.4 million or 130% improvement over Q2 2007

      - Cash flow from operations was a positive $25.3 million, as compared
        to negative cash flow from operations of $17.1 million Q2 2007,
        representing a $42.4 million or a 248% improvement over Q2 2007

      - Positive net free cash flow of $5.3 million as compared to negative
        net free cash flow of $35.5 million in Q2 2007, representing a
        $40.8 million or a 115% improvement over Q2 2007

      - The Company's significantly improved cash flow performance enabled it
        to:

      - Make $5.0 million in principal debt repayments during the quarter
        and a further $0.9 million repayment in early July 2008. To date, a
        total of $8.0 in debt repayments have been made on the Company's
        revolving line of credit debt facility. The Company's net debt to
        book equity ratio has been reduced to 3.8%

      - Internally fund our expanded $26-29 million exploration program
        designed to increase resources, convert resources and to
        potentially increase our production profile

      - Internally fund 100% of our year to date 2008 capital expansion
        projects where the spending profile was more heavily weighted
        towards the first half of this year

      - Our key performance indicators are continually achieving best ever
        results quarter over quarter, with record tonnes per day being
        reported in the Open Pit (83,554 tonnes per day), Mill (1,760 tonnes
        per day - 17% over nameplate capacity) and Heap Leach (8,700 tonnes
        per day - 9% over nameplate capacity) at Ocampo

      - All major new underground production equipment arrived and was
        commissioned at Ocampo by late June resulting in immediate
        improvements in underground productivity

      - All new underground production mining equipment has arrived at
        El Cubo which will have a positive impact on production rates through
        improved availabilities

      - All major contracts have been renegotiated or are being renegotiated
        with suppliers resulting in significant savings going forward

      - The Company is making significant progress on the advanced pre-
        feasibility level scoping study program at our highly prospective
        exploration property, Guadalupe y Calvo that is designed to convert
        inferred resources to measured & indicated categories and to look for
        additional inferred resources. The rate of drilling at Guadalupe y
        Calvo has already tripled since the start of the drilling campaign
        where camp facilities are now being established, sample preparation
        equipment has been ordered and contracts awarded or tendered for
        components of the scoping study. To date, 82 holes have been
        completed with assays received on 68 holes with results from 7 more
        holes in process

      - Drilling activities under the expanded exploration program have also
        commenced at both Ocampo and El Cubo where historically, less than
        20% of each property's land packages have been explored. The focus of
        this program is to accelerate the development of these highly
        prospective assets to enhance our reserves and resources and
        potentially increase our production profile

      - The Company announced the appointment of George Elliott to the Board
        of Directors. Mr. Elliott is a seasoned business leader with 35 years
        of experience in legal affairs and corporate finance throughout a
        variety of industries. Most recently, from 2000 to 2007, Mr. Elliott
        held the roles of Chairman and CEO for Titanium Corporation Inc.
        Prior to this, Mr. Elliott was senior counsel at the law firm Gowling
        Lafleur Henderson. Mr. Elliott has also served as an Executive Vice
        President of MCAP Financial, which manages over C$20 billion in
        mortgage investments for Canadian financial institutions.
        Mr. Elliott's vast business experience will bring considerable
        strength to Gammon's Board of Directors. In addition, Mr. Elliott
        will assume the position of Chair of the Nominating & Corporate
        Governance Committee

      - The Company has appointed Steve Hill, a seasoned executive with over
        30 years of mining experience, as General Mine Manager at Ocampo. The
        Company has also identified a short list of potential Vice President
        of Exploration candidates for near term appointment. Steve has a
        strong background in the mining industry and his international
        experience will further strengthen our management

    As provided above, the positive financial results reported for the second
quarter represents another consecutive quarter of strong performance.


    Six Months ended June 30, 2008 Highlights

    -------------------------------------------------------------------------

    For the six-month period ended June 30, 2008.

      - Production of 76,564 gold ounces and 2,756,858 silver ounces, or
        129,100 gold equivalent ounces, at a cash cost per ounce of $499 per
        gold equivalent ounce, representing a 5% improvement in gold
        equivalent production and a 21% reduction in total cash costs per
        gold equivalent ounce over the same period in 2007. Production and
        cash costs results to date position the Company to achieve our
        production guidance and cash costs on an annualized basis without
        considering the impact of our 2008 budgeted capital expansion
        projects which will be completed during the fourth quarter

      - Revenue from mining operations of $115.9 million compared to
        $81.9 million for the same period in 2007, reflecting a 42%
        improvement over Q2 2007 and an average quarterly gold selling price
        of $905 per ounce and silver selling price of $17.31 per ounce

      - Net earnings of $15.0 million or $0.13 per share compared to a net
        loss of $35.8 million or $0.33 per share for the same period in 2007,
        representing a $50.8 million or 142% improvement over the same period
        in 2007

      - Adjusted net earnings of $13.6 million or $0.11 per share compared to
        an adjusted net loss of $30.1 million or $0.28 per share for the
        same period in 2007, representing a $43.7 million or a 145%
        improvement

      - Cash flow from operations was a positive $39.9 million, as compared
        to negative cash flow from operations of $26.3 million Q2 2007,
        representing a $66.2 million or a 252% improvement over Q2 2007

      - Positive net free cash flow of $6.9 million as compared to negative
        net free cash flow of $55.9 million in Q2 2007, representing a
        $62.8 million or a 112% improvement over Q2 2007

      - $30.2 million, or 67-76%, of Ocampo's $40 to $45 million capital
        expansion program has been completed including the arrival of primary
        production equipment for the underground operations. All major
        capital projects remain on schedule and on
        budget for 2008

    As provided above, the positive financial results reported for the six
months ended June 30, 2008 encompassed the two best consecutive quarters of
financial performance of the Company in its history to date.
    The performance over the past two quarters reflects improved performance
at Ocampo as a result of improved mine productivity and underground dilution
levels that were implemented as part of the turn around strategy launched in
December 2007 and surpasses our internal targets. Improvements in key
operational indicators such as daily mill tonnage, heap leach, mining
equipment availability, and open pit production achieved in Q1 2008 all
continued to improve in Q2 2008. This trend is anticipated to continue in
future quarters as productivity initiatives continue to gain further traction.


    Summarized Financial and Operating Results
    -------------------------------------------------------------------------

    (in thousands, except ounces, per share amounts, average realized prices
     and total cash costs)
    -------------------------------------------------------------------------
                               Three        Three          Six          Six
                              months       months       months       months
                               ended        ended        ended        ended
                             June 30,     June 30,     June 30,     June 30,
                                2008         2007         2008         2007
    -------------------------------------------------------------------------
    Gold ounces sold          44,273       31,006       75,728       67,388
    Silver ounces sold     1,484,763    1,306,267    2,733,357    2,775,445
    Gold equivalent
     ounces sold(1)           72,694       57,063      127,793      123,368
    Gold ounces produced      43,465       32,246       76,564       67,632
    Silver ounces
     produced              1,445,887    1,357,708    2,756,858    2,779,674
    Gold equivalent
     ounces produced(1)       71,154       59,313      129,100      123,459
    Revenue from mining
     operations              $64,550      $38,415     $115,918      $81,915
    Net earnings / (loss)     $6,522     ($25,488)     $15,011     ($35,750)
    Net earnings / (loss)
     per share                 $0.06       ($0.23)       $0.13       ($0.33)
    Net earnings / (loss)
     per share, diluted(2)     $0.05       ($0.23)       $0.12       ($0.33)
    Adj. Net earnings /
     (loss)(3)                $7,005     ($23,489)     $13,600     ($30,143)
    Adj. Net earnings /
     (loss) per share(3)       $0.06       ($0.21)       $0.11       ($0.28)
    Cash flows from /
     (used in) operations    $25,341     ($17,064)     $39,894     ($26,325)
    Net free cash flow(3)     $5,297     ($35,494)      $6,889     ($55,920)
    Total cash costs per
     gold equivalent ounce(3)   $505         $702         $499         $632
    -------------------------------------------------------------------------
    (1) Gold equivalent ounces are calculated based on actual sales.
    (2) Net loss per share on a diluted basis is the same as net loss per
        share on an undiluted basis for the three and six months ended
        June 30, 2007, as all factors were anti-dilutive.
    (3) See the Non-GAAP Measures section of the Q2 2008 Management's
        Discussion and Analysis.

    "Our three phase turn around strategy was launched in early December after
the completion of an operational audit that identified key business critical
initiatives. The first element of this turn around strategy focused primarily
on improving productivity towards the technical limits of the infrastructure,
progress against which has significantly exceeded our internal expectations to
date. Now we expect to favourably augment our performance further by directing
more focus on cost reduction management. We have identified numerous
opportunities to decrease costs that will be underpinned by our ongoing
production improvements together with the benefits to be realized from our
budgeted 2008 capital expansion investment projects currently underway."
stated René Marion, Chief Executive Officer of Gammon Gold.
    Scott Perry, Chief Financial Officer of Gammon Gold stated: "Costs in Q1
and Q2 were negatively impacted by a stronger Mexican Peso exchange rate and a
number of non-recurring costs associated with the execution of our turn around
strategy, our recently implemented long term incentive and retention programs
as well as preparations for the rainy season at Ocampo. Despite these
additional costs we have reported the Company's best ever cash flow
performance that continues to fully fund our capital expansion projects as
well as our exploration program and has allowed us to continue to make
unscheduled debt repayments of $8.0 million on our revolving line of credit
facility. The operational success we have achieved to date provides us with a
strong level of confidence that we will be able to fully fund our 2008
business plan and comfortably achieve our 2008 production and cash cost per
ounce targets." Mr. Perry continued: "Net earnings for the quarter were
particularly strong coming in line with Q1 performance despite being impacted
by an unfavourable $3.7 million swing in foreign exchange gains & losses when
compared to our first quarter results."

    Looking Forward - Current Opportunities

    During the second half of 2008, productivity is expected to continue to
improve, driven by a number of key elements primarily focused on our Ocampo
operation:

    Production

    - As of the end of June 2008, all underground production equipment has
      been received at Ocampo and is now fully commissioned. The Company
      currently has 9-12 months or 560,000 tonnes of underground ore
      completely developed to accelerate the planned ramp-up in production
    - Key elements of the accelerated maintenance program were largely
      completed in Q2, positively impacting equipment availability,
      particularly in the Open Pit and the milling and crushing plants
    - As a result of the new pit phasing design, the strip ratio will now
      decrease rapidly over the next 9-12 months allowing for increased ore
      production rates from the open pit operations
    - By Q4 2008 the Company anticipates completing the expansion of the Mill
      circuit to 2,400-2,600 tonnes per tonne per day as well as the
      expansion of the heap leach crushing circuit to 13,000-15,000 tonnes
      per day, a 114%-132% increase in mill productivity over Q2 2007 and a
      65%-91% increase in the crushing circuit productivity over Q2 2007
    - At both Ocampo and El Cubo the Company continues to implement optimum
      mining methods such as longhole mining that should maximize
      productivity and decrease dilution in the underground operations
    - New underground production mining equipment began arriving in July at
      El Cubo which will have a positive impact on production rates through
      improved availabilities
    - Complete the consolidation of all processing activities to the more
      efficient and higher capacity Las Torres mill at El Cubo

    Costs incurred during the first 6 months of 2008 were impacted by one-off
costs related to the turn around strategy launched in December 2007 as the
Company addressed productivity and maintenance issues throughout its
operations. With these expenditures substantially behind us, a number of costs
saving opportunities have been identified:

    Costs

    - The accelerated maintenance program at Ocampo was largely completed in
      Q2 2008 that resulted in significantly higher maintenance costs and
      these additional expenditures will not be incurred in the balance of
      2008
    - The new pit re-phasing plan will rapidly reduce the strip ratio at the
      Ocampo open pit that will have an impact on reducing costs for the
      balance of the year
    - All activities relating to the preparation for the rainy season at
      Ocampo have been completed and no further significant expenditures are
      expected to be incurred during the balance of 2008
    - Optimizing consumables and reagents, such as cyanide are expected to
      provide an annualized cost saving opportunity of up to $45 per ounce at
      Ocampo over the next 18 months
    - In the second half of 2009 the Company anticipates having access to
      20 megawatts of grid power that is expected to provide an additional
      cost saving opportunity of up to $24 per ounce at Ocampo
    - The consolidation of operations and administration to the Los Torres
      Mill at El Cubo during the second half of 2008 will allow the Company
      to fully utilize the lower cost Las Torres Mill
    - Full commissioning of the 600 metre central haulage level at El Cubo is
      anticipated by year end which will eliminate the costly surface haulage
      and improve the efficiency of our underground mining operations
    - Labour rationalization as well as general and administrative costs
      reductions at El Cubo are anticipated to be realized in the second half
      of 2008

    Additional Growth Opportunities - 2009 & Beyond

    The Company has identified additional growth opportunities beyond the
current 2008 capital expansion plans that have the potential to significantly
increase capacity and production profiles over and above the current
expansionary plans.

    - The Company has launched its expanded exploration program at our highly
      prospective exploration property, Guadalupe y Calvo that is designed to
      increase resources and convert inferred resources to measured &
      indicated. A Scoping Study is expected to be complete by Q1 2009.
      Pending positive results from the Scoping Study, the Company could have
      the opportunity to accelerate advancement of this property to
      production by capitalizing on the availability of the three mills
      placed on care and maintenance at El Cubo
    - The Company is currently reviewing the additional capital expansion
      opportunities at Ocampo identified by an independent mining consultant
      firm that indicate significant increases in capacity beyond the current
      2008 capital expansion program

    Based on the receipt and the Company's review of the Scoping Study from
Guadalupe y Calvo as well as results from the basic engineering studies
currently underway at Ocampo, the Company anticipates issuing an updated
3 year operational outlook, by the end of Q1 2009.

    Ocampo Capital Project Update
    -----------------------------

    During the first half of 2008, $30.2 million, or 67-76%, of Ocampo's
$40 to $45 million capital expansion program has been completed including the
arrival of primary production equipment for the underground operations. All
major capital projects remain on schedule and on budget for 2008.

    20 Megawatt Grid Power

    In partnership with Agnico-Eagle on a 50-50% cost sharing basis, Gammon is
contributing $7 million to the construction of a 25 km, 115 Kv power line to
bring in full grid power for its Ocampo operations. Contracts have been
awarded for power line and substation construction and negotiations for power
line right-of-way are nearly completed. Gammon expects to be on-line by the
end of the second half of 2009. When the project is completed, lower cost grid
power is expected to further reduce production costs by up to $24 per gold
equivalent ounce.

    Mill Upgrades

    Milling of ore in Ocampo uses a dry-stack tailings disposal system
utilizing two existing plate-filter lines. As part of a larger project to
raise mill production by upwards of 65-78%, a third filter line is being
added. The project is currently 50% complete with the filter frame already
installed. Commissioning is expected by the fourth quarter of 2008. In order
to support an increase in mill production requirements, Gammon is installing
additional cyclones, pumps and an oxygen injection plant.

    Heap Leach Pad Expansion

    As of the end of June 2008, Gammon had completed a lined leach pad
expansion on-time and on-budget which will allow for an additional 5 million
tonnes of ore to be stacked and leached. A design for additional pad space is
underway and construction is anticipated to commence in late 2008.
    Mr. Marion added further comments, "Capital projects designed to increase
production capacity at Ocampo are well underway and are expected to remain on
target and on budget. The increased capacity that we will gain through our
expansionary projects, combined with our aggressive cost reduction initiatives
will underpin Gammon's growth strategy going forward. Our strategic activities
over the past six months have positioned Gammon to target ongoing improvements
throughout our operations in the quarters and years ahead."
    Unaudited Financial Statements for the three-months ended June 30, 2008
are attached to this release and are posted on SEDAR at www.sedar.com and on
the Company's website at www.gammongold.com. The Management's Discussion and
Analysis for the three-months ended June 30, 2008 is posted on SEDAR at
www.sedar.com and on the Company's website at www.gammongold.com.

    Conference Call and Webcast:

    A webcast and conference call will be held on Friday, August 8, 2008
starting at 10:00 am Eastern Time (11:00 am Atlantic Time). Senior management
will be on hand to discuss the results.

    Conference Call Access:

    - Toll Free: 1-800-762-8795
    When the Operator answers please ask to be placed into the Gammon Gold
Second Quarter Results Conference Call.

    Live Webcast:

    The event will be broadcast live on the internet via webcast. To access
the webcast please follow the link provided below:
    http://w.on24.com/r.htm?e=115156&s=1&k=612D0B17749C728C344923B6AA35599E

    Archive Call Access:

    If you are unable to attend the conference call, a replay will be
available until midnight, Friday, August 15, 2008 by dialing the appropriate
number below:
    - Local Toronto Participants: 1-416-640-1917 Passcode: 21279147#
    - North America Toll Free: 1-877-289-8525 Passcode: 21279147#
    - Outside North America: 1-416-640-1917 Passcode: 21279147#

    Archive Webcast:

    The webcast will be archived for 365-days by following the link provided
below:
    http://w.on24.com/r.htm?e=115156&s=1&k=612D0B17749C728C344923B6AA35599E or
via the Company's website at www.gammongold.com.

    About Gammon Gold

    Gammon Gold Inc. is a Nova Scotia based mid tier gold and silver producer
with properties in Mexico. The Company's flagship Ocampo Project in Chihuahua
State achieved commercial production in January 2007. Gammon Gold also
operates its El Cubo operation in Guanajuato State and has the promising
development Guadalupe y Calvo property in Chihuahua State. The company remains
100% unhedged.

    Cautionary Statement

    Cautionary Note to US Investors - The United States Securities and
Exchange Commission permits US mining companies, in their filings with the
SEC, to disclose only those mineral deposits that a company can economically
and legally extract or produce. This press release uses certain terms, such as
"measured," "indicated," and "inferred" "resources," that the SEC guidelines
strictly prohibit US registered companies from including in their filings with
the SEC. US Investors are urged to consider closely the disclosure in Gammon
Gold's Annual Report on Form 40-F (File No. 001-31739), which may be secured
from Gammon Gold, or from the SEC's website at http://www.sec.gov/edgar.shtml.
    No stock exchange, securities commission or other regulatory authority has
approved or disapproved the information contained herein.
    Certain information regarding the Company contained herein may constitute
forward-looking statements within the meaning of applicable securities laws.
Forward-looking statements are subject to a variety of risks and uncertainties
which could cause actual events or results to differ from those reflected in
the forward-looking statements. Should one or more of these risks and
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in forward looking
statements. Specific reference is made to "Risk Factors" in the Company's
Annual Information Form and Form 40-F Report. Forward-looking statements may
include estimates, plans, expectations, opinions, forecasts, projections,
guidance or other statements that are not statements of fact including,
without limitation, statements regarding potential mineralization and
reserves, including without limitation, statements regarding future cash costs
and production at El Cubo and Ocampo and the ability to continue to
successfully implement the Company's turn-around strategy, statements
regarding the resource growth potential of Guadalupe y Calvo, statements
regarding the company's ability to continue its improved cash flow
performance, the impact of any future exploration on reserve estimates;
expectations regarding the timing and extent of production at the Ocampo
project; the implications of the Mexican Single Rate Tax on future income tax
payments; estimates regarding the future costs related to exploration at
Ocampo; the nature and availability of additional funding sources; and future
plans and objectives of Gammon. In some cases, you can identify
forward-looking statements by the use of words such as may, will, should,
could, expect, plan, intend, anticipate, believe, estimate, predict, potential
or continue or the negative or other variations of these words, or other
comparable words or phrases. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
the Company's expectations include, among others, risks related to
international operations, including political turmoil and limited local
infrastructure to support large scale mining operations; the actual results of
current exploration activities; conclusions of economic evaluations and
changes in project parameters as plans continue to be refined; and
fluctuations in future prices of gold and silver. These factors are set out in
the Company's Annual Information Form. The Company's forward-looking
statements are expressly qualified in their entirety by this cautionary
statement.


    Consolidated Balance Sheets
    (Unaudited, in thousands of United States dollars)
    -------------------------------------------------------------------------
                                                      June 30    December 31
                                                         2008           2007
    -------------------------------------------------------------------------
    ASSETS
    Current
      Cash and cash equivalents                 $       8,215  $       3,601
      Restricted cash                                       -            108
      Receivables
        Commodity taxes                                13,196         10,240
        Trade / other                                   3,903          1,740
      Inventories (Note 6)                             61,150         51,586
      Prepaids and deposits                             3,422          2,250
                                                -------------- --------------
                                                       89,886         69,525

    Deposits on property, plant and equipment           6,522          5,395
    Other long-term assets                              4,879            192
    Mining interests and property, plant and
     equipment                                        585,594        572,041
    Goodwill                                          106,799        106,799
                                                -------------- --------------
                                                $     793,680  $     753,952
                                                -------------- --------------

    -------------------------------------------------------------------------
    LIABILITIES
    Current
      Payables and accruals                     $      31,227  $      17,279
      Current portion of long-term debt and
       capital leases (Note 7)                         29,904         33,073
                                                -------------- --------------
                                                       61,131         50,352

    Long-term debt and capital leases (Note 7)          5,992          1,334
    Other long-term obligations                           326              -
    Asset retirement obligations                        3,120          2,991
    Employee future benefits                            4,306          3,746
    Future income taxes                               112,170        108,879
                                                -------------- --------------
                                                      187,045        167,302
                                                -------------- --------------
    SHAREHOLDERS' EQUITY
    Capital stock                                     715,559        699,512
    Contributed surplus                                31,300         42,373
    Deficit                                          (146,658)      (161,669)
    Accumulated other comprehensive income              6,434          6,434
                                                -------------- --------------
                                                      606,635        586,650
                                                -------------- --------------
                                                $     793,680  $     753,952
                                                -------------- --------------


    Consolidated Statements of Operations and Comprehensive Income / (Loss)
    (Unaudited, in thousands of United States dollars except per share data)
    -------------------------------------------------------------------------
                          Three months ended             Six months ended
                        June 30,       June 30,       June 30,       June 30,
                           2008           2007           2008           2007
    -------------------------------------------------------------------------

    Revenue
     from mining
     operations   $      64,550  $      38,415  $     115,918  $      81,915
                  -------------- -------------- -------------- --------------
    Expenses
      Production
       costs,
       excluding
       amortiza-
       tion &
       depletion         36,303         39,714         63,000         77,154
      Refining
       costs                419            372            793            846
      General and
       administra-
       tive               7,580          9,732         12,594         13,396
      Amortization
       and
       depletion         10,529         13,867         20,455         26,473
                  -------------- -------------- -------------- --------------
                         54,831         63,685         96,842        117,869
                  -------------- -------------- -------------- --------------

    Earnings /
     (loss) before
     other items          9,719        (25,270)        19,076        (35,954)
                  -------------- -------------- -------------- --------------

    Interest on
     long-term
     debt                  (347)          (732)          (917)        (3,218)
    Foreign
     exchange
     (loss) /
     gain                  (329)        (2,128)         3,023         (3,761)
    Interest and
     other income            99            265            173            318
                  -------------- -------------- -------------- --------------
                           (577)        (2,595)         2,279         (6,661)
                  -------------- -------------- -------------- --------------

    Earnings /
     (loss) before
     income taxes         9,142        (27,865)        21,355        (42,615)
                  -------------- -------------- -------------- --------------

    Future income
     tax expense /
     (recovery)           1,100         (2,377)         3,027         (6,865)
    Current tax
     expense              1,520              -          3,317              -
                  -------------- -------------- -------------- --------------
                          2,620         (2,377)         6,344         (6,865)
                  -------------- -------------- -------------- --------------

    Net earnings /
     (loss) and
     comprehensive
     income /
     (loss)       $       6,522  $     (25,488) $      15,011  $     (35,750)
                  -------------- -------------- -------------- --------------

    -------------------------------------------------------------------------

    Net earnings /
     (loss) per
     share
     (Note 8)
      Basic       $        0.06  $       (0.23) $        0.13  $       (0.33)
      Diluted     $        0.05  $       (0.23) $        0.12  $       (0.33)

    Weighted
     average
     shares
     outstanding
     (Note 8)
      Basic         118,374,420    112,417,219    118,301,139    108,894,973
      Diluted       120,749,503    112,417,219    120,820,514    108,894,973

    -------------------------------------------------------------------------


    Consolidated Statements of Cash Flows
    (Unaudited, in thousands of United States dollars)
    -------------------------------------------------------------------------
                         Three months ended             Six months ended
                        June 30,       June 30,       June 30,       June 30,
                           2008           2007           2008           2007
    -------------------------------------------------------------------------

    OPERATING
     ACTIVITIES
      Net earnings
      / (loss)    $       6,522  $     (25,488) $      15,011  $     (35,750)
      Amortization
       and
       depletion         10,529         13,867         20,455         26,473
      Unrealized
       foreign
       exchange
       loss               2,126          2,291            272          5,446
      Stock
       option
       expense,
       net of
       forfei-
       tures                975          3,776          1,405          4,079
      Employee
       future
       benefits             223         (1,234)           560         (1,049)
      Future
       income
       tax
       expense /
       (recovery)         1,100         (2,377)         3,027         (6,865)
      Other
       long-term
       obligations          326              -            326              -
      Change in
       non-cash
       operating
       working
       capital
       (Note 9)           3,540         (7,899)        (1,162)       (18,659)
                  -------------- -------------- -------------- --------------

                         25,341        (17,064)        39,894        (26,325)
                  -------------- -------------- -------------- --------------

    INVESTING
     ACTIVITIES
      Increase
       in deposits
       on property,
       plant and
       equipment           (625)             -         (1,127)             -
      Expenditures
       on mining
       interests
       and
       property,
       plant and
       equipment        (20,044)       (18,430)       (33,005)       (29,595)
                  -------------- -------------- -------------- --------------
                        (20,669)       (18,430)       (34,132)       (29,595)
                  -------------- -------------- -------------- --------------

    FINANCING
     ACTIVITIES
      Repayment
       of capital
       lease
       obligations         (620)          (625)        (1,228)        (1,313)
      Proceeds
       from long-
       term debt              -          4,195          4,380          6,394
      Repayment
       of long-
       term debt         (6,035)      (123,892)        (8,170)      (123,892)
      Proceeds
       from
       equity
       offering               -        170,284              -        170,284
      Proceeds
       from
       exercise
       of options         2,825         15,830          3,762         33,242
                  -------------- -------------- -------------- --------------
                         (3,830)        65,792         (1,256)        84,715
                  -------------- -------------- -------------- --------------

    Net increase
     in cash and
     cash
     equivalents            842         30,298          4,506         28,795

    Cash and
     cash
     equivalents,
     beginning of
     period               7,373          2,571          3,709          4,074
                  -------------- -------------- -------------- --------------

    Cash and cash
     equivalents,
     end of
     period       $       8,215  $      32,869  $       8,215  $      32,869
                  -------------- -------------- -------------- --------------

    -------------------------------------------------------------------------

    Cash and cash
     equivalents
     is comprised
     of the
     following:

      Cash        $       7,315  $      32,869  $       7,315  $      32,869
      Temporary
       investments          900              -            900              -
                  -------------- -------------- -------------- --------------

                  $       8,215  $      32,869  $       8,215  $      32,869
                  -------------- -------------- -------------- --------------

    -------------------------------------------------------------------------
    




For further information:

For further information: Scott Perry, Chief Financial Officer, Gammon
Gold Inc., (902) 468-0614; Anne Day, Director of Investor Relations, Gammon
Gold Inc., (902) 468-0614; www.gammongold.com

Organization Profile

GAMMON GOLD INC.

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