Gammon Gold Confirms the Third Consecutive Quarter of Improvements in Several Key Performance Indicators with a 23% increase in Production & a 59% increase in Operating Cash Flow over Q1 2008

    HALIFAX, July 14 /CNW/ - Gammon Gold Inc. ("Gammon") (TSX:GAM and
AMEX:  GRS): Gammon confirmed today that Q2 2008 production and cash flow
performance has successfully built on the strong results achieved in Q1 2008
and is reporting another consecutive quarter of best ever production and
operating cash flow in the history of the company. The strong production
continues to drive positive cash flow performance and the strength of the
operating cash flow continues to fund 100% of the expansion capital and the
new aggressive exploration program. This has positioned the company such that
it has not made a draw down on its debt facility in over 6 months and the
Company has made $8.0 million in unscheduled repayments including an
additional $0.9 million repayment in early July.
    "The turnaround strategy launched in December 2007 had an initial focus
on improving productivity and that strategy has had an obvious and positive
impact on production that has exceeded even our internal targets to date.
These production improvements underpin the 59% increase in operating cash flow
in Q2 over Q1. In fact, Q2 operating cash flow has improved by over
$20 million or 750% over Q4 2007. Net free cash flow of $3.8 million is a 137%
improvement over Q1 2008 and a 496% improvement over Q4 2007. This sustained
net free cash flow status has been achieved earlier than our previous guidance
of Q3 2008." said Rene Marion, CEO of Gammon Gold. Mr. Marion went on to say
"During the balance of 2008, while focusing on our expansion programs that
will build on the success of our improved productivity, the Company will be
turning to the continuous improvement phase of our program and be focusing on
further cost reduction initiatives."
    "I am pleased to see total cash costs at $506 per gold equivalent ounce
for the quarter as we incurred significant one off maintenance costs at Ocampo
as well as the new retroactive long term retention program costs associated
with securing the new management teams assembled at both Ocampo and El Cubo,
with over 80 key personnel within the organization participating in the
program. The mining industry throughout the world is competing for talent and
this new retention program is designed to encourage key employees to stay with
the company in order to sustain the positive momentum going forward" said
Russell Tremayne, Chief Operating Officer. He continued, "Additionally,
although the rainy season has only just begun, I am encouraged that the
initiatives we implemented during Q2 to mitigate the impact of the rainy
season appear to be having a positive effect thus far. We will continue to
carefully monitor the effectiveness of these remedial strategies as we move
through the rainy season to not only allow adjustments to be made as required
but also with a view to establishing the most effective wet season strategy
going forward."

    Consolidated Results

    During Q2 2008, the Company produced 43,465 ounces of gold and 1,445,887
ounces of silver or 71,154 gold equivalent ounces at a total cash cost of $506
per gold equivalent ounce which represents a 52% increase over Q3 2007
production and a 34% improvement in cash costs.

    Quarterly Production Au (e) & Total Cash Costs

    For the six month period ending June 30th, the Company produced
76,564 ounces of gold and 2,756,858 ounces of silver or 129,100 gold
equivalent ounces at a total cash cost of $500 per gold equivalent ounce. It
is significant to note that while production achieved in the first half of
2008 is tracking strongly to our 2008 guidance, it has not yet benefited from
the expansionary initiatives scheduled to be completed at Ocampo during the
latter half of 2008. Additionally, it should also be noted that cash costs
have been negatively impacted by one off costs associated with the turnaround
strategy that was launched at both Ocampo and El Cubo in December 2007,
including significantly higher than average expenses related to the
accelerated maintenance program largely completed in Q2 2008 and a high strip
ratio at Ocampo. With the accelerated maintenance program completed in Q2, as
well as the recently completed re-phasing of the open pit that will allow
Ocampo to significantly reduce stripping activities, we anticipate lower cash
costs to be achieved in the balance of 2008.
    The Company's ongoing operational improvements support the Company's
improved cash flow performance that the Company has achieved over the past
two (2) quarters. Operating cash flow improved significantly to $23.2 million
representing a $33.8 million increase over Q3 2007 and a $20.5 million
increase over Q4 2007. Net free cash flow was $3.8 million which is 138%
higher than Q1 2008 levels and represents a $24.2 million improvement over Q3
2007 and a $14.4 million increase over Q4 2007 despite Q2 2008 being the most
heavily weighted quarter for capital expenditures and accelerated maintenance
works to execute our turnaround strategy. The improved cash profile achieved
over the past two (2) quarters has allowed the Company to fully fund its
operations, capital investment programs, corporate G&A overheads and our
expanded exploration program as well as to make unscheduled debt repayments of
$8.0 million (over a 25% reduction in debt since the beginning of the year).
The Company's improved cash flow performance to date exceeds our original
target of achieving positive net free cash flow status by Q3 2008.

    Cash Flow Performance (000's)

    Q2 Highlights

    During Q2 the Company continued to achieve a number of firsts, bests and
significant milestones:


    - Production in Q2 2008 was the highest achieved in the history of the
      company at 71,154 gold equivalent ounces, building on the improved
      production reported in Q1 2008, an increase of 23% over Q1 and a 48%
      improvement over Q4 2007 when the turnaround strategy was launched
    - Our key performance indicators are continually achieving best ever
      results month over month, with record tonnes per day being reported in
      the Open Pit, Mill and Heap Leach at Ocampo
    - All major new underground production equipment arrived and was
      commissioned during April and May at Ocampo, resulting in an immediate
      improvements in underground productivity
    - In Q2 2008 we achieved positive cash flow from operations of
      $23.2 million and positive net free cash flow of $3.8 million, the best
      in the Company's history
    - In Q2 we reported total cash of $506 per gold equivalent ounce, that
      was impacted by one off costs related to:

      - a 6 month retroactive costs associated with a new Long Term Incentive
        Program for the newly formed management teams and a recently approved
        stock option plan for non executives, and
      - the high costs for the turnaround, including significantly higher
        charges related to the accelerated maintenance program and high strip
        ratio at the Ocampo open pit that will be considerably reduced over
        the balance of 2008

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


    - Our record cash flow performance has allowed the Company to expand our
      2008-2009 exploration program to $26-29 million so we can accelerate
      the development of our highly prospective assets to enhance our
      reserves and resources and potentially increase our production profile
    - Drilling has commenced at both Ocampo and El Cubo and the rate of
      drilling at our highly prospective Guadalupe y Calvo exploration
      property has already tripled where camp facilities are being
      established, sample preparation equipment has been ordered and
      contracts awarded or tendered for components of the scoping study


    - Our record cash flow has also allowed us to:

      - Fully fund the expansion capital programs, exploration programs and
        general and administrative costs, and
      - Make unscheduled debt repayments of $8.0 million on our revolving
        line of credit ($5.0 million in Q2 alone), with over a 25% reduction
        in our debt thus far in 2008.

    Looking Forward - Opportunities for H2 2008

    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

    - 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
    - The accelerated maintenance program was 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
    - 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
    - At both Ocampo and El Cubo the Company continues to implement optimum
      mining methods such as longhole mining that will maximize productivity
      and decrease dilution in the underground operations
    - New underground production mining equipment is expected to be received
      at El Cubo in Q3 2008 and is anticipated to have a positive impact on
      production 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 turnaround 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 areas
where costs savings opportunities have been identified:

    - The accelerated maintenance program at Ocampo was largely completed in
      Q2 2008 that resulted in significantly higher maintenance costs and
      these additional costs 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 a cost saving opportunity of up to $45 per ounce at Ocampo
    - 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
      fully utilize the lower cost Las Torres Mill
    - Full commissioning of the 600 metre haulage level at El Cubo is
      anticipated by year end which will eliminate the costly surface haulage
    - Labour rationalization as well as general and administrative costs
      reductions at El Cubo anticipated to be realized by Q3 2008

    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 6 pieces of primary production equipment for the underground
operations. All major capital projects remain on schedule and on budget for

    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 will further reduce production costs by up to $24 per gold equivalent

    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 plant.

    Heap Leach Pad Expansion

    As of the end of June Gammon has 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. Leach pad storm
water storage capacity will be augmented by the completion of a large storage
pond in the second half of 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 enhanced growth strategy going forward. Our strategic
activities over the past six months have positioned Gammon to achieve ongoing
improvements throughout our operations in the quarters and years ahead."
    Recent press releases and corporate presentations can be found on our
corporate website at that provides detailed information
relating to the Company's tremendous progress achieved to date in executing
its growth strategy.

    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

    No stock exchange, securities commission or other regulatory authority
    has approved or disapproved the information contained herein.

    Certain statements included herein, including information as to the
future financial or operating performance of the Company, its subsidiaries and
its projects, constitute forward-looking statements. The words "believe",
"expect", "anticipate", "contemplate", "target", "plan", "intends",
"continue", "budget", "estimate", "forecast", "may", "will", "schedule" and
similar expressions identify forward-looking statements. Forward-looking
statements include, among other things, statements regarding targets,
estimates and assumptions in respect of gold and silver production and prices,
operating costs, results and capital expenditures, mineral reserves and
mineral resources and anticipated grades, recovery rates, future financial or
operating performance, margins, operating and exploration expenditures, costs
and timing of the development of new deposits, costs and timing of
construction, costs and timing of future exploration and reclamations
expenses. Forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by the Company,
are inherently subject to significant business, economic, competitive,
political and social uncertainties and contingencies. Many factors could cause
the Company's actual results to differ materially from those expressed or
implied in any forward-looking statements made by, or on behalf of, the
Company. Such factors include, among others, known and unknown uncertainties
and risks relating to additional funding requirements, reserve and resource
estimates, commodity prices, hedging activities, exploration, development and
operating risks, illegal miners, political and foreign risk, uninsurable
risks, competition, limited mining operations, production risks, environmental
regulation and liability, government regulation, currency fluctuations, recent
losses and write-downs, restrictions in the Company's loan facility,
dependence on key employees, possible variations of ore grade or recovery
rates, failure of plant, equipment or process to operate as anticipated,
accidents and labour disputes. Investors are cautioned that forward-looking
statements are not guarantees of future performance and, accordingly,
investors are cautioned not to put undue reliance on forward-looking
statements due to the inherent uncertainty therein.

For further information:

For further information: please visit the Gammon Gold website at or: Rene Marion, Chief Executive Officer, Gammon Gold Inc.,
(902) 468-0614; Anne Day, Director of Investor Relations, Gammon Gold Inc.,
(902) 468-0614

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