TORONTO, and NEW YORK, NY, Oct. 1 /CNW/ - Gammon Gold Inc. ("Gammon Gold") (NYSE: GRS, TSX: GAM) and Capital Gold Corporation ("Capital Gold") (TSX and NYSE AMEX: CGC) have entered into a definitive merger agreement pursuant to which Gammon Gold will offer to acquire all of the issued and outstanding common shares of Capital Gold in a cash and share transaction (the "Acquisition"). The total consideration for the purchase of 100% of the fully diluted in-the-money shares of Capital Gold is approximately US$288 million or US$4.57 per Capital Gold share based on Gammon Gold's closing price on September 24, 2010 on the NYSE.

The Acquisition has the unanimous support of both companies' Boards of Directors and Officers and strengthens Gammon's position as a leading Mexico focused, growing gold producer.

Under the terms of the Acquisition, each common share of Capital Gold will be exchanged for 0.5209 common shares of Gammon Gold and a cash payment in the amount of US$0.79 per share. Based on the September 24, 2010 closing price of Capital Gold's shares on the NYSE AMEX, the acquisition price represents a 20% premium to the close on September 24th and a 30% premium to the 20-day volume weighted average price on the NYSE AMEX ending on that date.

Capital Gold owns and operates the El Chanate gold mine located in Sonora, Mexico as well as the Orion development project in Nayarit, Mexico.

Commenting on behalf of Capital Gold, Stephen Cooper, Chairman of the Board of Directors stated; "The Capital Gold team should be congratulated for their many achievements. They have transformed the El Chanate gold mine from a small exploration property to a low cost, quality asset with tremendous upside potential. They have increased reserves at El Chanate by 1.3 million gold ounces (535%) since 2002, and there is additional potential yet to be realized." He continued, "This is an exciting value-add transaction that allows Capital Gold shareholders to participate in both the future success of El Chanate and Gammon's well established portfolio of gold assets. Both Gammon Gold and Capital Gold have operating teams that possess extensive experience in Mexico, which supported by Gammon Gold's strong financial foundation will allow El Chanate and Orion's potential to be fully realized. The Capital Gold Board of Directors is confident that the shareholders of both companies will benefit from this business combination and we look forward to the continued success of the combined companies."

Commenting on behalf of Gammon Gold, Rene Marion, President and CEO, stated; "We anticipate that this transaction will transform Gammon Gold into a well diversified Mexican gold producer with an attractive suite of operating assets and an enhanced pipeline of development and exploration stage projects that will increase our exposure to gold in a positive gold price environment. Following the transaction, we anticipate Gammon Gold will be among the lowest cost producers in the industry with an exciting organic growth profile." He continued, "We believe that our offer to Capital Gold shareholders is highly compelling as it offers an attractive opportunity and provides ongoing participation in a large, well-funded, liquid, producing company focused on Mexico. Both sets of shareholders will also be able to participate in the substantial operating and financial synergies we expect to derive from this transaction. This transaction positions Gammon to become a leading consolidator in the attractive but fragmented Mexican gold sector."

Stifel, Nicolaus & Company, Incorporated has provided a fairness opinion to the Board of Directors of Capital Gold that the consideration offered pursuant to the Acquisition is fair, from a financial point of view, to the shareholders of Capital Gold. The Board of Capital Gold unanimously recommends that holders of Capital Gold shares vote in favour of the Acquisition. The senior officers and directors of Capital Gold have agreed to vote in favour of the Acquisition.

The Acquisition will be completed by way of a merger under the General Corporation Law of the State of Delaware. After completion of the Acquisition, it is expected that current Capital Gold shareholders will own approximately 20% of Gammon Gold on a fully diluted basis. The transaction is subject to receipt of approval of holders of at least 50% plus one of the outstanding Capital Gold shares, and, if required by law, approval by shareholders excluding directors and officers holding approximately 1.1 percent of Capital Gold shares who are entitled to change of control payments, regulatory approvals, and the satisfaction of certain other customary conditions.

The transaction is expected to close in late 2010.

If the transaction is not completed, Capital Gold has agreed to pay a break fee of US$10.3 million to Gammon Gold under certain circumstances. Capital Gold may also be entitled to a break fee of up to US$ 2.0 million under certain circumstances. Capital Gold has, among other things, agreed to provide Gammon Gold with certain other customary deal protections, including a non-solicitation provision and a right to match.

Gammon Gold's lead financial advisor is Dundee Securities. UBS Canada Securities Inc. has also been retained as an advisor. Its Canadian legal counsel is Fasken Martineau DuMoulin LLP and its U.S. legal advisor is Kirkland & Ellis LLP. Capital Gold's financial advisor is Cormark Securities Inc., its Canadian legal counsel is Macleod Dixon LLP and its U.S. legal advisor is Ellenoff Grossman & Schole LLP.

Conference Call and Webcast Details

A webcast and conference call will be held on Friday October 1, 2010 starting at 10:45 am Eastern Time (11:45 am Atlantic Time).

    <<