SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 6, 1996
ROYAL OAK MINES INC.
(Exact name of registrant as specified in its charter)
Commission File Number 1-4350
ONTARIO, CANADA 98-0160821
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
c/o Royal Oak Mines (USA) Inc.
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
(Address of principal executive offices) (Postal/Zip Code)
(206) 822-8992
Registrant's telephone number, including
area code
Item 5. Other Events
On November 6, 1996, the Registrant issued the press release set
forth as Exhibit 99.1 hereto, which press release is hereby incorporated
herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
99.1 Royal Oak Mines Inc. press release, dated November 6, 1996.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ROYAL OAK MINES INC.
Date: November 6, 1996 By: /s/ James H. Wood
James H. Wood
Chief Financial Officer
Exhibit 99.1 Royal Oak Mines Inc. press release, dated November 6, 1996.
[Royal Oak Mines Inc. Press Release Letterhead]
FOR IMMEDIATE RELEASE FROM KIRKLAND
November 6, 1996
Royal Oak Refocuses to Increase Profitability; Revalues Assets;
Announces Third Quarter Results
Royal Oak Mines Inc. (TSE and AMEX: RYO) announced today two important steps
to refocus its strategy. The Company announced that the Hope Brook Mine in
Newfoundland will be closed in the third quarter of 1997 so that the mill and
mine equipment can be relocated. In addition, as a result of a
reclassification of mineable reserves at the Colomac Mine in the Northwest
Territories, a provision has been made to decrease the carrying value of the
Colomac property.
Hope Brook was purchased by the Company in April of 1992, for $9.5 million
(5.9 million shares) and the Company spent approximately $10 million on
capital equipment and commissioning. Hope Brook has provided positive cash
flow from operations and has contributed to Royal Oak's consolidated cash
flow for the last five years. Royal Oak, however, believes that a positive
contribution by itself does not justify continuing to operate a mine, or to
use certain assets at that mine, if the assets can be better deployed to improve
cash flow and earnings. Consistent with this view, the Company, after careful
consideration, has determined that substantially all the Hope Brook mining and
milling assets will be relocated to the Matachewan project and the Hope Brook
mine will discontinue production in the third quarter of 1997.
The mill at Hope Brook will be dismantled and transported to the Matachewan
Mine, located 56 miles southeast of Timmins. The Matachewan Mine is expected to
produce approximately 100,000 ounces of gold annually over the life of the mine
at an estimated cash cost of US$227 an ounce, and is scheduled to commence
production in the second half of 1998.
Capital savings to the Matachewan project as a result of the reallocation of
assets and the salvage of the remaining equipment at Hope Brook is expected to
be approximately $23 million. The impact of closing the Hope Brook Mine under
this strategic initiative results in net cash flow from operations less capital
spending improving by approximately $15 million between now and 1998, which
includes an estimated $12.3 million during 1997. This increase in cash flow
will provide Royal Oak with additional financial flexibility to develop low cost
production at Kemess and the expansion at Pamour.
Many of the approximately 280 employees at Hope Brook will be considered for
employment at other Royal Oak facilities currently under development.
At the Colomac Mine for the last nine months, mill output has not reconciled
with blasthole grades. A complete reserve audit at the mine has recently been
undertaken to reconcile reserves mined through the upper eleven benches.
Despite reserve audits by independent consultants in 1986 and 1987, an audit on
a 200,000 ton bulk sample taken in 1988 and a further independent reserve audit
in 1992, the Company now believes the reserve grade in the zones 2.0, 2.5 and
3.0 where mining is currently underway is 0.046 opt compared to the year-end
1995 estimate by the Company of 0.053 opt. Based on this analysis, a 253,000
oz. decrease in the mineable ore reserves at Colomac results. The Company has
been successful in increasing the mining rate to over 50,000 tpd and milled
tonnage to over 9,500 tpd. These production rates exceed the rates in the
feasibility study upon which the operation was predicated. The result of mining
lower grade ore is that the cash cost at Colomac for the nine month period ended
September 30, 1996 was US$369 per ounce. It is anticipated that cash costs will
continue at this level.
Furthermore, the Company's Kim and Cass projects, which are expected to supply
additional higher grade ore to the Colomac mill, are subject to both Federal and
Territorial permitting and it is unknown at this time how long the permitting
process will take. After deducting 1996 production at Colomac through the third
quarter and reclassifying mineable reserves, the readjusted proven and probable
reserves at Colomac and Kim-Cass are approximately 358,000 ounces as at the end
of September 1996. The Company believes, however, that the Indin Lake land
position still hosts excellent exploration potential and Royal Oak will be
increasing its exploration focus in the area. Mine life at Colomac beyond the
year 1999 cannot be estimated at this time but still appears promising.
Revaluation of Assets
As a result of the above-mentioned strategic initiatives, the Company will
provide for the revaluation of the carrying values of the Hope Brook and Colomac
assets, and for the provision for reclamation costs at Hope Brook, in the fourth
quarter of 1996.
Subject to final analysis, these charges will be approximately $37.4 million in
total. These charges consist of $10 million for reclamation costs at Hope
Brook, the revaluation of Hope Brook assets by a reduction of $9.0 million, and
the revaluation of Colomac assets by a reduction of $18.4 million. The after-
tax impact of these revaluations will be a decrease in net income of
approximately $27 million, or $0.19 per share, in the fourth quarter. The
revaluations will not significantly affect cash flow from operations and/or
EBITDA in 1996.
Royal Oak Announces Third Quarter Results
The Company also today announced the unaudited financial results for the three
month and nine month periods ended September 30, 1996. All figures are in
Canadian $000 unless otherwise stated.
<TABLE>
Three months Nine Months
ended September 30 ended September 30
1996 1995 1996 1995
<S> (C> <C> <C> <C>
Gold Production (ounces) 104,012 92,159 283,655 276,365
Revenue 77,323 52,258 183,169 153,097
Operating Income 16,083 3,240 21,479 5,622
Net Income 10,216 6,228 15,321 19,479
Net Income Per Share (C$) 0.07 0.05 0.11 0.17
Net Cash Flow from Operations 27,209 5,924 42,844 19,749
Net Cash Flow Per Share from Operations (C$) 0.20 0.05 0.31 0.17
Cash Cost of Production (US$ per ounce) 348 366 337 355
Average Spot Gold Price (US$ per ounce) 385 384 392 384
Average Realized Gold Price (US$ per ounce) 543 418 472 402
</TABLE>
Gold production was 104,012 ounces in the third quarter of 1996, an increase of
13% from 92,159 ounces produced in the same period a year earlier. In the nine
month period ended September 30, 1996, gold production of 283,655 ounces was 3%
higher than 276,365 ounces produced in the same period last year. The increase
in gold production in the third quarter this year was attributable to increased
production at the Pamour Mine which resulted from the positive impact of higher
grade ore from the Nighthawk Mine which is processed at the Pamour mill. (The
Nighthawk Mine commenced limited production from development ore towards the end
of the third quarter last year). In addition, there was an increase in mill
throughput at the Hope Brook Mine compared to the third quarter of 1995 when
there was a shortfall in ore mined. In the nine month period this year, the
positive impact of production at the Nighthawk Mine on the Pamour operation was
sufficient to offset slightly lower production at the Giant, Colomac, and Hope
Brook mines compared to the same period last year.
Revenue in the third quarter this year was 48% higher than in the same period of
1995, a result of the 13% increase in gold production and a realized gold price
of US$543 per ounce which was 30% higher than the US$418 per ounce realized in
the third quarter of 1995. Whereas the spot price was effectively unchanged in
the comparable quarters the Company recognized a significant hedge gain in the
third quarter of this year. The Company took advantage of favourable conditions
in the gold market to realize $18.0 million from the one-time buy-back of call
options. The Company's regular hedging program resulted in a realized gold
price of US$416 per ounce for the third quarter, and US$425 per ounce for the
year-to-date period. In the nine month period ended September 30, 1996,
revenue increased by 20% from the same period a year earlier and was mainly due
to a higher realized gold price of US$472 per ounce which was 17% above that in
the same period a year earlier. The average spot price of US$392 per ounce was
2% higher than in the same period last year. Hedge gains of $31.8 million were
realized in the nine month period ended September 30 this year which included
$18.0 million from the one-time buy-back of call options noted above.
The impact of the high realized gold price on revenue in both periods this year,
in addition to a 5% decrease in cash costs in each period from the year-ago
periods, resulted in improved operating income; $16.1 million in the third
quarter and $21.5 million in the nine month period of 1996, compared to $3.2
million and $5.6 million, respectively, in the comparable 1995 periods.
Net income of $10.2 million in the third quarter of 1996 was 64% higher than
$6.2 million in the same period a year earlier. In the nine month period, net
income decreased by 21% from $19.5 million a year ago to $15.3 million this
year.
EBITDA for the third quarter of 1996 was $26.8 million and for the year to date
was $46.0 million.
The Company expects to produce approximately 400,000 ounces of gold in 1996 at
an estimated cash cost of approximately $335 per ounce. The lower production
level and increase in cash cost from the previous estimates mainly result from
mining the lower grade ore at Colomac.
"We are still on target to become a senior-tier gold producer at an average cash
cost of under US$230 an ounce -- well below the industry average -- by the year
2000", said Ms. Witte, President and CEO of Royal Oak. "Achieving that goal is
expected to give our shareholders the higher valuations accorded by the market
to senior-tier producers.
"We started the Company by building an asset base through acquiring under-
performing and inactive mines at very attractive prices of under 10 cents on the
dollar," said Ms. Witte. "We then returned these mines to profitability by
increasing production and cutting costs. We have been very successful but are
now entering a new phase of our growth, based on the development of large,
long-life, low-cost gold mines."
"Our Kemess Project, for example, is today's largest mine development in Canada.
It has mineable ore reserves of 4.1 million ounces of gold, and one billion
pounds of copper. The Company's wholly-owned subsidiary, Kemess Mines Inc., has
successfully completed the assessment process under the Canadian Environmental
Assessment Act and on November 4, 1996 received from the Department of Fisheries
and Oceans a formal Authorization upon terms and conditions to proceed with the
project. Construction is proceeding on schedule for start-up in the second
quarter of 1998. Kemess and our Pamour Mine expansion in particular, are
important core assets and hold the key to Royal Oak's future."
Conference Call
Royal Oak's management will be holding an open conference call at 2:00 p.m.
Toronto time on Wednesday, November 6, 1996. Mining analysts, investors and
the media are invited to phone (416)620-8855 approximately 5 to 10 minutes
beforehand.
For further information, contact: or in Europe contact:
Mr. J. Graham Eacott Mr. David Williamson
Vice President, Investor Relations David Williamson Associates
Royal Oak Mines International Investor Relations
5501 Lakeview Drive 78 Old Broad Street, 3rd Floor
Kirkland, WA 98033 London, England EC2M 1QP
Telephone (206)822-8992 Telephone 011-44-171-628-3989
Facsimile (206)822-3552 Facsimile 011-44-171-920-0563
<TABLE>
ROYAL OAK MINES INC.
Consolidated Balance Sheets
(unaudited - Cdn$ 000's)
September 30 December 31
1996 1995
======== ===========
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $233,042 $139,410
Short-term investments 20,779 2,971
Receivables 16,577 7,138
Inventories 69,413 46,136
Prepaid expenses 9,460 5,620
-------- --------
Total Current Assets 349,271 201,275
Property, Plant and Equipment, net 469,790 191,381
Long-Term Investments 16,559 36,307
Deferred charges and Other 9,330 --
-------- --------
TOTAL ASSETS $844,950 $428,963
======== ========
LIABILITIES
Current Liabilities
Acccounts payable $ 30,521 $13,640
Accrued payroll 2,813 5,267
Current portion of deferred revenue 20,801 4,523
Income taxes payable 4,118 3,350
Interest payable 4,049 --
Other current liabilities 17,294 15,654
-------- -------
Total Current Liabilities 79,596 42,434
Deferred Revenue 25,646 25,188
Other Liabilities 15,191 15,612
Deferred Income Taxes 13,884 5,064
Senior Subordinated Notes 238,385 --
Minority Interest in Subsidiary Companies 134 170
-------- --------
TOTAL LIABILITIES 372,836 88,468
-------- --------
SHAREHOLDERS' EQUITY
Capital Stock
Common stock
Authorized - unlimited
Outstanding - 138,680,263
(Dec. 31, 1995 - 119,118,714) 378,255 261,957
Retained Earnings 93,859 78,538
-------- --------
TOTAL SHAREHOLDERS' EQUITY 472,114 340,495
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $844,950 $428,963
======== ========
Certain 1995 items have been reclassified to conform with the 1996 presentation.<PAGE>
ROYAL OAK MINES INC.
</TABLE>
<TABLE>
ROYAL OAK MINES INC.
Consolidated Statements of Income
(unaudited - Cdn$ 000's except per share amounts)
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
======== ======== ======== ========
<S> <C> <C> <C> <C>
REVENUE $ 77,323 $ 52,258 $183,169 $153,097
-------- -------- -------- --------
EXPENSES
Operating 49,544 45,648 130,926 135,300
Royalties and marketing 807 610 2,215 1,718
Administrative and corporate 2,500 2,100 7,360 7,045
Depreciation and amortization 7,587 3,694 18,953 9,964
Exploration 1,424 237 3,833 491
Recovery of loss on foreign currency contracts (622) (3,271) (1,597) (7,043)
-------- -------- -------- --------
Total operating expenses 61,240 49,018 161,690 147,475
-------- -------- -------- --------
OPERATING INCOME 16,083 3,240 21,479 5,622
OTHER INCOME (EXPENSE)
Interest and other income, net 3,214 3,416 5,762 15,583
Interest expense (126) (43) (213) (137)
Long-term debt interest (3,590) -- (3,590) --
Long-term debt interest capitalized 1,926 -- 1,926 --
-------- -------- -------- --------
NET INCOME BEFORE UNDERNOTED 17,507 6,613 25,364 21,068
Income and mining taxes - current (361) (279) (1,084) (1,248)
Income and mining taxes - deferred (6,814) -- (8,820) --
Minority interest 6 85 36 94
Equity in income (loss) of associated companies (122) (191) (175) (435)
-------- -------- -------- --------
NET INCOME 10,216 6,228 15,321 19,479
RETAINED EARNINGS - BEGINNING OF PERIOD 83,643 68,619 78,538 55,368
-------- -------- -------- --------
RETAINED EARNINGS - END OF PERIOD $ 93,859 $ 74,847 $ 93,859 $ 74,847
======== ======== ======== ========
EARNINGS PER SHARE $0.07 $0.05 $0.11 $0.17
======== ======== ======== ========
Weighted average number of
common shares outstanding (000's) 138,286 119,021 136,099 117,510
======== ======== ======== ========
Certain 1995 items have been reclassified to conform with the 1996 presentation.
</TABLE>
<TABLE>
ROYAL OAK MINES INC.
Consolidated Statements of Cash Flow
(unaudited - Cdn$ 000's)
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
======== ======== ======== ========
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Consolidated net income for the period $ 10,216 $ 6,228 $ 15,321 $ 19,479
Items not affecting cash:
Depreciation and amortization 7,587 3,694 18,953 9,964
Deferred income tax 6,814 -- 8,820 --
Recovery of loss on foreign currency
contracts (622) (3,271) (1,597) (7,043)
Other 116 156 284 391
-------- -------- -------- --------
CASH FLOW 24,111 6,807 41,781 22,791
Net changes in other operating items 3,098 (883) 1,063 (3,042)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities 27,209 5,924 42,844 19,749
-------- -------- -------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares 1,940 268 116,298 14,843
Issuance of senior subordinated notes 238,385 -- 238,385 --
Cost of senior subordinated notes (8,616) -- (8,616) --
Reclamation -- 3,000 -- 3,000
Other (1,801) (76) 624 (223)
-------- ------- -------- --------
Net cash provided by financing activities 229,908 3,192 346,691 17,620
-------- ------- -------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Investment in Kemess capital assets through purchase
of companies -- -- (201,976) --
Decrease in long-term investments -- -- 26,882 --
Investment in capital assets through purchase of
Consolidated Professor Mines Limited (15) -- (15,858) --
Investment in other capital assets, net (41,972) (8,440) (74,188) (25,726)
Investment in exploration and
non-producing properties, net 657 (8,309) (5,035) (13,965)
Change in other assets (1,648) (13,814) (7,919) (14,950)
-------- -------- -------- --------
Net cash used in investing activities (42,978) (30,563) (278,094) (54,641)
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS DURING PERIOD 214,139 (21,447) 111,441 (17,272)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING
OF PERIOD 39,683 183,113 142,381 178,938
-------- -------- -------- --------
CASH AND SHORT-TERM INVESTMENTS AT END OF
PERIOD $253,822 $161,666 $253,822 $161,666
======== ======== ======== ========
Certain 1995 items have been reclassified to conform with the 1996 presentation.<PAGE>
</TABLE>
