Royex’s remarkable growth guided by Goodman’s hand

The rapid growth and successful transformation of Royex Gold Mining Corp into a major mining investment house over the past three and a half years has been nothing short of remarkable. However the very acts which led to the company’s growth — the acquisitions, the restructuring and other myriad corporate shuffles — have prompted a majority of the Canadian investment community to label the new organization complex.

The comments are familiar ones to Royex’s chairman of the board, Ned Goodman. During a wide ranging interview with The Northern Miner, Mr Goodman explained that the emergence of Royex as the flagship of a mining group anchored by its 49% interest in International Corona Resources is anything but complex.

Mr Goodman, who is one of the chief architects of Royex should know. In 1984 as chairman of Campbell Resources, Mr Goodman helped devise the amalgamation of several Campbell affiliates into Royex Gold. At that time, the new company had varying interests in several companies including a 19.5% interest in Corona and a 64% stake in Mascot Gold Mines. Other interests were in the Cullaton Lake and Goldlund mines.

At that time, Corona was still in the development stage with its Hemlo, Ont., gold mine, Mascot was an unknown entity and troubles plagued both Cullaton and Goldlund.

Mr Goodman’s coup however, and the move which has established the foundation for Royex was the purchase of that 19.5% stake in Corona from then Corona chairman, Murray Pezim in 1983. By September, 1984, falling gold prices forced Mr Pezim into financial difficulties — powerful enough to force him to sell, via an affiliate company, control of Corona to Royex. The purchase price was $7 million and Royex was left with 60% control in Corona. An impressive investment, for control of Corona today would cost more than $350 million.

A long time believer in gold, Mr Goodman surmized that South African problems would force European investors to increase their exposure to North Amercian gold assets. “Royex (then a Campbell affiliate) was to be the collector of those assets,” Mr Goodman explains. However, Campbells’ major shareholders had differing feelings about the growing Royex and decided to sell the affiliate in the spring of 1985.

Enter Ned Goodman, again. As president of Beutel Goodman, a financial services company which controlled New Venture Equities, he developed a plan whereby Corona would purchase the Campbell interest in Royex. New Venture, armed with a capital pool of $50 million, merged with Corona thereby providing the capital needed for the purchase of Royex. Royex emerged as flagship

Corona, which holds a 50% interest in the David Bell mine at Hemlo, was initally believed by mining analysts to be the flagship of the group as a result of the inter- corporate ownership structure. However, a falling out between Corona’s management and Murray Pezim forced Royex to affirm its control of Corona once and for all. Mr Pezim, following Corona’s annual meeting in February, threatened to acquire control.

That reaffirmation took place in April when Royex increased its stake in Corona from 38% to 49% after purchasing 4 million Corona shares for a combination of cash, Royex preference shares and warrants. “We had to establish who owns Corona inorder to eliminate any doubts,” Mr Goodman notes. Just prior to the offer by Royex for Corona shares, Royex purchased control of Lacana Mining Corp for $52 million. The company then sold its stake in Mascot Gold to Lacana for $150 million in cash and Lacana preference shares.

That last maneuver sparked the analysts’ cry that Royex was becoming complex to follow. “You can’t run the company to suit the analysts,” Mr Goodman, who is both a geologist and financial analyst argues back. “We bought Lacana for $52 million and sold Mascot for $90 million (in cash and promissory notes). That leaves $40 million left over,” he says. Also, the Lacana deal saw $60 million in preferred shares go to Royex which are convertible into Lacana shares at $10 per share. Lacana a good deal for Royex

Today that block of preferred shares is alone worth almost $100 million to Royex, at a Lacana share price of $16. “That,” Mr Goodman says “sounds like a pretty good deal for Royex.” The mining analysts however, “instead of saying it’s a good deal, say it’s complex and have to go back to their computers,” inorder to reevaluate the restructured Royex.

The new Royex forecasts its share of gold production in 1988 of 194,400 oz, increasing to 220,500 oz by 1990. It’s crown jewel, Corona, estimates gold output of 283,700 oz next year and 360,200 oz by 1990. A large chunk of that gold, however, is expected to come from the Page- Williams mine also in Hemlo. Corona won a 50% interest in the mine from Lac Minerals in a bitter legal battle last year. That decision remains under appeal. Until ownership of the Page-Williams mine is resolved, “we have kept Corona neat, clean and tidy.” On the appeal, Mr Goodman says that Corona’s lawyers predict that “if we don’t get it (the decision) from the judges by the end of this month, we shouldn’t expect anything until the fall.” If the original decision stands, Corona will receive 240,200 oz per year from the Page-Williams mine from 1990. Mascot has blossomed

Mascot, which was a minor player in Royex’s scheme of things just three years ago, has blossomed into the largest open pit gold mine in Canada. In production this year, gold output will soar to 160,300 oz in 1988 at a cash cost per oz of $119 (US). All the wheeling and dealing is not expected by any one to stop here. Last month, Corona completed a $50 million(US) gold loan through Banque Paribas Capital Markets in Europe, which made the company essentially debt free and improved the company’s working capital position to $41.9 million.

With a clear mandate to increase investments in precious metals, Royex will continue exploring opportunities, Mr Goodman explained. As the historical record shows, sitting still for long periods is something Goodman and company are not accustomed to.