Better small than nothing at all
In exchange for shares, creditors of
The proposal, which falls under the Bankruptcy and Insolvency Act and is subject to court approval, carries three stipulations:
– a 1.62% gross smelter royalty in the Kemess mine must be sold to current owner
– 1.5 million shares and 159.3 million non-voting shares of Royal Oak must be issued to creditors; and
– all remaining assets of Royal Oak are to be sold and transferred, with resulting proceeds given to creditors.
These conditions are expected to be fulfilled by the end of February 2000, and
In April, an Ontario court forced Royal Oak into receivership. The company’s troubles were tied to a US$120-million emergency loan from Trilon to cover a $40-million cost overrun at the then-$470-million Kemess South gold-copper project in British Columbia. Commercial production followed in October, but by then it was too little too late for the cash-strapped miner; it failed in its attempt to renegotiate the terms of the short-term senior debentures, plus US$26 million in commodity hedge debt, US$175 million in secured notes and $19.5 million in equipment loans from Canada’s Export Development Corp.
First to fall was the Pamour mine in Timmins, Ont. — though not without a fight from Local 4440 of the United Steelworkers of America, the union representing the Pamour employees. The union withdrew from the bidding process after independent consulting firm Strathcona Mineral Services and accounting firm Deloitte & Touche deemed as uneconomic the capital investment required to keep the mine running.
Similar reasoning led to the shutdown, soon afterwards, of the Giant mine in Yellowknife, N.W.T. However, mining there is slated to resume in the first quarter of 2000 by
The remaining reserves at Giant were deemed minable by Rostle Postle Associates but at a cash cost of around US$290 per oz. The consulting firm said there was another year’s worth of production left at the time Royal Oak went into receivership and that an adequate exploration program to increase reserves would cost $10 million.
Miramar will overcome such costs by focusing on the Supercrest zone and trucking mined ore to its adjacent Con mine for processing. About 300 tons grading 0.34 oz. per ton are to be mined daily for two years, resulting in a combined annual production of 130,000 oz. at under US$260 per oz.
Miramar is also selling a portion of the property to the city of Yellowknife and the Department of Indian Affairs and Northern Development. The former will provide funding for exploration, which Miramar says it will match to a maximum of $500,000 per year for both properties.
The sales agreement also relieves Miramar of environmental liabilities related to previous operations. The company is responsible for its own efforts and, accordingly, set up the reclamation security fund.
Kemess was auctioned off in October to Northgate but must still pass an appeals period, which is expected to end shortly. The company will pay US$145 million for the mine, with funds to be provided by Trilon.
When opened, Kemess had reserves of 211 million tonnes grading 0.2% copper and 0.6 gram gold per tonne. In 1999, it was expected to produce 235,700 oz. gold at an estimated cash cost of US$185 per oz. after credits for copper. Actual cash costs, last reported in the early part of the year, had run to US$262 per oz.
Royal Oak will retain a 5% residual interest in Kemess and other intangible assets, including roughly US$200 million in tax losses.
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