200,000-oz. gold producer born by Royal Oak amalgamation

Canada has a new intermediate gold producer. Royal Oak Mines (TSE) is a 200,000-oz.-per-year gold company formed from the recent amalgamation of Royal Oak Resources and four companies in the Pamour group.

For Royal Oak Mines President Margaret (Peggy) Witte and others on the team, the amalgamation culminates eight months of work aimed at rationalizing and restructuring the assets of the Pamour group.

On July 22, shareholders voted in favor of the amalgamation of Royal Oak Resources with Giant Yellowknife Mines, Pamour, Pamorex Minerals and Akaitcho Yellowknife Gold Mines to form a new entity, Royal Oak Mines. But approval came only after Royal Oak management sweetened the original share exchange ratios, following negotiations with dissenting shareholders. Now that the amalgamation has been approved, Royal Oak management expects administrative costs will be significantly reduced as various legal fees, accounting costs and regulatory filings are eliminated.

Royal Oak Mines is also expected to have a broader shareholders’ base that should increase the liquidity of its shares and eliminate the discounts and undervaluations by financial markets that typically exist because of indirect and partial holdings. Financing for existing and new projects should also be easier to raise.

Royal Oak Mines has about 53.6 million shares outstanding, with Witte and Teck (TSE) each holding an approximate 7% interest.

The company has two mining operations, one in the Timmins area of Ontario and the other in the Northwest Territories, each turning out about 100,000 oz. gold annually. Along with a gross cash flow of about $15 million per year, the company is reporting minable reserves of 1.4 million oz. gold, five development-stage mines and 130 mineral exploration properties. Since taking over the Pamour group in the fall of 1990, Royal Oak management headed by Witte initiated a number of successful measures aimed at cutting administrative costs and improving productivity and reducing costs at the various mining operations.

The acquisition of the Pamour group was funded by a combination of equity and debt for a total purchase price of $33 million, with the debt portion consisting of two secured notes aggregating $19.6 million.