Royal Oak foresees growth after startup of Kemess

Toronto-listed Royal Oak Mines expects its annual gold-equivalent production to escalate to 1.2 million oz. by 2001, up from 371,000 oz. in 1995.

The dramatic increase reflects the proposed Kemess gold-copper mine in central British Columbia, which is expected to come on stream in April 1998.

Production from the mine is expected to be low-cost, says President Margaret Witte, who predicts cash operating costs will drop to around US$220 per oz.

by 2001, compared with US$358 last year.

The company acquired Kemess in early 1996 as part of a compensation package for the expropriation of the Windy Craggy project in northern British Columbia. The package also includes payment of $166 million from the British Columbia government toward the estimated $390-million capital cost of the Kemess mine.

The balance of the capital cost will be funded by a debt financing of up to US$150 million, and by existing cash. As of Dec. 31, 1995, Royal Oak had $158.8 million in working capital (including $139.4 million in cash and cash-equivalent), no long-term debt and 119 million shares outstanding.

Based on an operating rate of 50,000 tons per day, the proposed open-pit mine is expected to produce 250,000 oz. gold and 60 million lb. copper at a cash cost (based on a copper credit at US$1 per lb.) of US$58 per oz. gold.

Pro-rating the cost of production for each metal results in a projected cash cost of US$158 per oz. gold and US53 cents per lb. copper.

For 1996, Royal Oak forecasts gold production at 425,000 oz., with cash costs dropping to US$306 per oz. as a result of improvements at its Colomac, Giant and Pamour mines.

At Colomac in the Northwest Territories, costs are expected to drop as daily production levels are increased to 11-12,000 tons. Production at Colomac in 1996 is projected at 144,000 oz. at a cash cost of US$291 per oz., compared with 117,646 oz. produced last year at a cash cost of US$383 per oz.

The Giant mine in the Northwest Territories is expected to produce 100,000 oz. this year at a cash cost of US$295 per oz., compared with 91,423 oz.

produced in 1995 at a cash cost of US$329 per oz.

An expected increase in grade and a new power program designed to save $1 million per year will result in production gains and lower costs at the mine.

Production from the Pamour mine in Ontario is expected to increase to 98,000 oz. from 80,120 oz. in 1995. Cash costs there are expected to drop to US$307 per oz. in 1996 from US$368 per oz. last year.

Projections for lower costs and higher production at Pamour are attributable to supplementary production from the nearby Nighthawk mine, which is expected to produce 30,000 oz. gold from ore grading 0.166 oz. per ton gold. The average grade at the Pamour mine last year was 0.067 oz.

In 1996, production from the Hope Brook mine in Newfoundland is projected at 83,000 oz. at a cash cost of $US344 per oz., which is comparable to last year, when 81,962 oz. were produced at a cash cost of US$343.

James Wood, chief financial officer, says Royal Oak is well on its way to meeting its production and cost targets for this year. For the first quarter, the company reported earnings of $1.3 million on production of 88,196 oz.

The cash cost during the quarter was US$348 per oz., while the average realized price of gold was US$423 per oz., buoyed by Royal Oak’s successful hedging activities.