Royal Oak arranges financing to purchase Pamour Companies

Despite a hostile equity financing market, Royal Oak Resources (TSE) has finally completed a $33-million purchase of the Pamour (TSE) group of companies. The purchase has transformed Royal Oak from a small-time explorer to a medium-sized gold producer, with interests in three Canadian gold mines and several exploration properties.

Royal Oak’s new portfolio includes a 67.1% interest in Pamour and a 16.6% interest in Giant Yellowknife Mines (TSE). Through these assets, the Vancouver-based junior also owns 54.4% of Pamorex Minerals (TSE), an active exploration company, 44.5% of Akaitcho Yellowknife Gold Mines (TSE), and 38.6% of Mate Yellowknife Gold Mines (COATS).

As part of the deal, Royal Oak has taken responsibility for Pamour’s $19.7 million debt.

Royal Oak raised about $19.6 million in debt financing and $16 million in equity financing to cover the purchase price. The debt, which must be repaid within two years at an interest rate of prime plus 1.75%, was provided by the vendor, Giant Resources, and two foreign banks.

Westpac Banking, one of the Australian creditors, has acquired 373,900 common shares and 982,983 units of Royal Oak, along with a convertible note for the acquisition of additional shares. Each unit consists of one common share and one-half of a warrant.

Equity financing for the deal was divided equally between European and North American investors. Teck (TSE), which held a 16.5% interest in the Vancouver-based junior, bought 3.3 million units to increase its stake to 18.4%.

On the first day of trading after closing, shares of Royal Oak gained 7 cents to close at 89 cents. Pamour lost 20 cents to close at $1.

The next step will be to amalgamate the companies into a single intermediate gold producer, said Royal Oak President Margaret Witte. To cut costs, all of Pamour’s senior executives will be laid off and replaced with Witte at the helm, Ross Burns as vice- president of exploration and Michael Gross as vice-president of operations.

Several operational changes will be made at the group’s gold mines, including a cost reductions to the US$280 level at the Giant mine near Yellowknife, N.W.T., and to the US$250 level at the Pamour 1 and Hoyle mines in Timmins, Ont. Operating costs at the three mines currently average about $340.

“The main focus will be to increase (throughput) tonnage at the Hoyle mine and decrease tonnage at Pamour 1,” said Witte. Altogether, the three mines produce about 200,000 oz. per year and provide cash flow of about $18 million.

On the exploration side, Witte says Royal Oak will concentrate on three or four properties with the potential to supply high-grade feed to existing mills. Properties likely to receive the greatest attention are the Matachewan property, where three drills are turning, the Coniaurum deposit just east of the old McIntyre mine, and Pamorex’ Nighthawk Lake property 15 miles east of Timmins.

“We are focusing (our exploration) very tightly,” said Witte. “Our priority is to stay close to home.”

Witte’s exploration strategy will mean that distant projects like those in Nevada, where Pamorex is exploring through subsidiary Arctic Precious Metals, will be abandoned.

Witte said grumblings about the $16-million share offering, including objections to stated ore reserve figures, are unfounded. Before the deal was closed, revisions were made to the purchase documents to clarify the source of the figures. Ore reserve estimates were supplied by a Denver-based consulting firm and not by management, as originally stated, she said.