The walls keep closing in on
Facing crushing debts, the exasperated gold miner announced two days before Christmas that it would defer making payments on its outstanding loans until Feb. 15, 1999.
By then, the company hopes it will have renegotiated the terms of US$120 million in short-term senior debentures, 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.
“The company and its advisors believe this restructuring can be negotiated on a consensual basis,” said Royal Oak President Margaret Witte in a release. “Low commodity prices are reducing cash flow available to service existing debt. This requires that existing interest and principal repayment terms be amended to reflect current circumstances.”
Royal Oak slipped into critical condition in March, when a $40-million cost overrun at its $470-million Kemess South gold-copper project in British Columbia forced the company to seek out a US$120-million emergency loan from Toronto-based merchant banker
The Kemess South mine, which the company has hailed as its turnaround project (despite marginal gold and copper grades), finally entered commercial production in October. Adding production from Kemess to existing output from the Giant mine in Yellowknife, N.W.T., and the Pamour and Nighthawk mines near Timmins, Ont., Royal Oak predicts it will produce about 278,000 oz. gold in 1998 at an estimated cash cost of US$240 per oz., net of byproduct credits.
As of Sept. 30, 1998, Royal Oak had total current assets of $37.6 million and total current liabilities of $114.1 million, for a difference of $76.4 million, or about 10 months of revenue. If Royal Oak were to liquidate all its current assets, it would only just cover the company’s $33.4-million worth of accounts payable and accrued payroll costs.
Meanwhile another troubled gold miner is having better success at keeping the financial wolves at bay.
Greenstone’s bankers have agreed to waive the loan’s 1998 production test, which would have made the loan due on Jan. 28, 1999.
Following a review of Greenstone’s key projects in Central America, the banking syndicate agreed to revert to an original maturity date of July 28, 2000 — a date that will be reviewed annually, based on production.
The bankers are also removing a condition requiring Greenstone to maintain cash balances and/or unused credit totalling US$5 million. In return, Greenstone will cap the revolving credit facility at $18.7 million and boost the interest rate by 0.5%.
Under the new terms, Greenstone is required to raise at least US$7 million in equity, a condition that is already being satisfied by the imminent closing of the deal underwritten by Nesbitt Burns.
The new equity financing consists of 10.8 million shares at C$1.20 per share. Greenstone has granted Nesbitt Burns an option, exercisable at $1.20 per share for 30 days following the closing of this offering, to buy up to 1.6 million shares to cover any over-allotments.
Earlier in December, Greenstone retained Nesbitt Burns to advise on an ongoing review of the company, which is being supervised by a special committee of the Greenstone board. Under the terms of the equity financing, the underwriters may replace two Greenstone directors with nominees who would also be appointed to the special committee.
Greenstone owns and operates the Santa Rosa gold mine in Panama and the Cerro Mojon and Bonanza gold mines in Nicaragua, and is commissioning the San Andres gold mine in Honduras.
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