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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 1-4350
ROYAL OAK MINES INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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 (Postal/Zip Code)
offices)
(425) 822-8992
------------------------------
Registrant's telephone number,
including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes X No _
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common shares outstanding as of July 31, 1997 was 140,835,079. This includes
1,924,816 shares which are owned by a wholly owned subsidiary of the Company and
may not be voted, and are not considered outstanding for accounting matters,
including earnings per share calculations.
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INDEX
Page
PART I - FINANCIAL INFORMATION........................................ 3
Item 1. Consolidated Financial Statements of Royal Oak Mines Inc.
and Subsidiaries (All statements are unaudited except for
the December 31, 1996 Consolidated Balance Sheet, which
has been audited.)
Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996........................................ 4
Consolidated Statements of Income - Three and Six Months Ended
June 30, 1997 and 1996.................................. 5
Consolidated Statements of Cash Flow - Three and Six Months
Ended June 30, 1997 and 1996............................ 6
Notes to Consolidated Financial Statements (unaudited)...... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 13
PART II - OTHER INFORMATION........................................... 17
Item 2. Submission of Matters to a Vote of Security Holders......... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures............................................................ 19
In this Report, unless otherwise indicated, all dollar amounts are expressed in
Canadian dollars.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
All tabular amounts are in thousands of Canadian dollars, except as indicated.
(see Notes 1 and 7).
<TABLE>
Consolidated Balance Sheets
(unaudited - Cdn$ 000's)
June 30 December 31
1997 1996
(audited)
========== ===========
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 72,254 $197,766
Marketable securities 590 590
Receivables 66,344 17,492
Inventories 51,485 61,844
Prepaid expenses 8,362 7,729
-------- --------
Total Current Assets 199,035 285,421
Property, Plant and Equipment, net 493,558 482,733
Long-Term Investments 61,414 44,255
Deferred Charges and Other Assets 9,869 9,221
-------- --------
TOTAL ASSETS $763,876 $821,630
======== ========
LIABILITIES
Current Liabilities
Accounts payable $ 25,263 $ 21,094
Accrued payroll costs 3,102 3,514
Accrued reclamation costs 2,010 --
Deferred revenue and capital leases 8,893 13,508
Income and other taxes payable 4,816 3,894
Senior subordinated notes interest payable 9,831 10,180
Other current liabilities 16,376 20,383
-------- --------
Total Current Liabilities 70,291 72,573
Deferred Revenue and Other Liabilities 38,597 35,205
Deferred Reclamation Costs 20,988 17,622
Senior Subordinated Notes 241,728 239,680
Deferred Income Taxes 843 5,064
Minority Interest in Subsidiary Companies 89 120
-------- --------
TOTAL LIABILITIES 372,536 370,264
-------- --------
SHAREHOLDERS' EQUITY
Capital Stock
Common stock
Authorized - unlimited
Outstanding - 138,910,263 (Dec. 31, 1996 - 138,845,263) 378,989 378,813
Retained Earnings 12,351 72,553
-------- --------
TOTAL SHAREHOLDERS' EQUITY 391,340 451,366
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $763,876 $821,630
======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<TABLE>
Consolidated Statements of Income
(unaudited - Cdn$ 000's except per share amounts)
Three months ended Six months ended
June 30 June 30
------------------ -------------------
1997 1996 1997 1996
========= ======== ======== ========
<S> <C> <C> <C> <C>
REVENUE $ 58,979 $ 54,797 $106,463 $105,846
-------- -------- -------- --------
EXPENSES
Operating 51,006 39,310 94,058 81,339
Royalties and marketing 447 846 871 1,408
Administrative and corporate 3,544 2,694 6,196 4,843
Depreciation and amortization 6,158 5,954 11,950 11,030
Reclamation 1,246 177 2,376 336
Exploration and other 1,319 1,449 2,666 2,409
Provision for loss on currency and commodity
contracts 7,357 (209) 9,875 (976)
-------- -------- -------- --------
Total operating expenses 71,077 50,221 127,992 100,389
-------- -------- -------- --------
OPERATING INCOME (LOSS) (12,098) 4,576 (21,529) 5,457
OTHER INCOME (EXPENSE)
Interest and other income, net 547 1,121 2,499 2,503
Interest expense (69) (64) (187) (103)
Senior subordinated notes interest (6,503) -- (12,847) --
Senior subordinated notes interest capitalized 5,544 -- 9,964 --
Foreign currency translation on senior
subordinated notes 490 -- (2,048) --
Write-down of mine assets (39,700) -- (39,700) --
-------- -------- -------- --------
NET INCOME (LOSS) BEFORE UNDERNOTED (51,789) 5,633 (63,848) 7,857
Income and mining taxes - current (313) (368) (639) (723)
Income and mining taxes - deferred -- (1,466) 4,221 (2,006)
Minority interest (5) 3 31 30
Equity in income of associated companies 18 (53) 33 (53)
-------- -------- -------- --------
NET INCOME (LOSS) (52,089) 3,749 (60,202) 5,105
RETAINED EARNINGS - BEGINNING OF PERIOD 64,440 79,894 72,553 78,538
-------- -------- -------- --------
RETAINED EARNINGS - END OF PERIOD $ 12,351 $ 83,643 $ 12,351 $ 83,643
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE $ (0.38) $ 0.03 $ (0.43) $ 0.04
======== ======== ======== ========
Weighted average number of
common shares outstanding (000's) 138,884 138,196 138,864 135,006
======== ======== ======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flow
(unaudited - Cdn$ 000's)
Three months ended Six months ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
======== ======== ======== ========
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Consolidated net income (loss) for the period $ (52,089) $ 3,749 $(60,202) $ 5,105
Items not affecting cash:
Depreciation and amortization 6,158 5,954 11,950 11,030
Reclamation 1,246 177 2,376 336
Deferred income tax -- 1,466 (4,221) 2,006
Provision for loss on currency and commodity
contracts 7,357 (209) 9,875 (976)
Foreign currency translation on senior
subordinated notes (490) -- 2,048 --
Deferred charges and other 223 51 91 169
Write-down of mine assets 39,700 -- 39,700 --
-------- -------- -------- --------
CASH FLOW 2,105 11,188 1,617 17,670
Net change in other operating items (7,713) 8,113 (73,476) (2,035)
-------- -------- -------- --------
Net cash provided by (used in) operating activities (5,608) 19,301 (71,859) 15,635
-------- -------- -------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares 65 359 177 114,359
Capital lease payable (249) 1,019 (527) 939
Deferred credits and other (18) (25) (18) 1,485
-------- -------- ------- --------
Net cash provided by (used in) financing activities (202) 1,353 (368) 116,783
-------- -------- ------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Investment in Kemess capital assets through
purchase of companies -- -- -- (201,976)
(Increase)decrease in long-term investments (17,846) -- (17,846) 26,882
Investment in capital assets through purchase of
Consolidated Professor Mines Limited -- (2,592) -- (15,844)
Investment in other capital assets, net (15,426) (12,788) (30,736) (32,216)
Investment in exploration and non-producing
properties, net (2,377) (3,626) (4,068) (5,692)
Change in other assets (48) (3,027) (635) (6,270)
-------- -------- -------- --------
Net cash used in investing activities (35,697) (22,033) (53,285) (235,116)
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND MARKETABLE
SECURITIES DURING PERIOD (41,507) (1,379) (125,512) (102,698)
CASH AND MARKETABLE SECURITIES AT BEGINNING OF PERIOD 114,351 41,062 198,356 142,381
-------- -------- -------- --------
CASH AND MARKETABLE SECURITIES AT END OF PERIOD $ 72,844 $ 39,683 $ 72,844 $ 39,683
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 69 $ 47 $ 13,386 $ 86
Income taxes $ 25 $ 175 $ 65 $ 530
Cash consists of cash and short-term investments.
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
1. Interim Financial Statements Accounting Policies
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP") which, in the case of Royal Oak Mines Inc. (the "Company"),
differ in certain material respects from United States generally accepted
accounting principles ("U.S. GAAP"), as described in Note 7. Also, such
statements do not include all of the disclosures required by generally accepted
accounting principles for annual statements. In the opinion of management all
adjustments considered necessary for fair presentation have been included in
these statements. Operating results for the three and six months ended June 30,
1997, are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1997. For further information, see the Company's
Consolidated Financial Statements, including the accounting policies and notes
thereto, included in the Annual Report to Shareholders and Annual Report on Form
10-K for the year ended December 31, 1996.
The calculations of net earnings per share are based upon the weighted average
number of common shares of the Company outstanding during each period (except as
set forth in Note 11(b)). When outstanding convertible instruments materially
dilute earnings per share, fully diluted earnings per share are disclosed.
2. Presentation
Certain amounts for 1996 have been reclassified to conform with the current
year's presentation.
3. Interest and Other Income, Net
<TABLE>
Three months ended Six months ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 1,241 $ 336 $ 3,218 $ 1,360
Gain on sale of securities -- 2,285 -- 2,731
Other, net (694) (1,500) (719) (1,588)
--------- ------- ------- -------
Interest and other income, net $ 547 $1,121 $ 2,499 $ 2,503
========= ======= ======= =======
</TABLE>
4. Inventories
<TABLE>
June 30 December 31
1997 1996
-------- -----------
<S> <C> <C>
Bullion in process $18,614 $25,687
Stores and operating supplies 32,871 36,157
------- -------
Inventories $51,485 $61,844
======= =======
</TABLE>
5. Net Change in Other Operating Items
<TABLE>
Three months ended Six months ended
June 30 June 30
-------------------- -------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Receivables $(16,086) $ (96) $(49,452) $ (366)
Inventories 10,680 1,733 (10,441) (26,693)
Prepaid expenses 4,449 (2,059) (1,833) (2,904)
Accounts payable, accrued payroll
and other current liabilities (10,091) (10,815) (7,817) 2,431
Deferred revenue (1,661) 19,112 (2,845) 25,097
Income taxes payable 338 238 922 400
Long-term reclamation reclassified
to current period 4,658 -- (2,010) --
-------- -------- -------- --------
Net change in other operating items $ (7,713) $ 8,113 $(73,476) $ (2,035)
======== ======== ======== ========
</TABLE>
6. Reclamation and Environmental Remediation
The Company's current and proposed mining and exploration activities are subject
to various laws and regulations governing the protection of the environment.
These laws and regulations are continually changing and are generally becoming
more restrictive. The Company conducts its operations so as to protect its
employees, the general public and the environment and believes its operations
are in compliance with all applicable laws and regulations, in all material
respects. The Company believes it has complied, and expects in the future to
comply, with such laws and regulations, including making all required
expenditures.
Where estimated reclamation and closure costs are reasonably determinable, the
Company has recorded a provision for environmental liabilities, using the unit-
of-production method, based on management's estimate of these costs. Such
estimates are subject to adjustment based on changes in laws and regulations and
as new information becomes available.
7. Reconciliation to United States Generally Accepted Accounting Principles
Reconciliation of net income in accordance with Canadian GAAP to net income in
accordance with U.S. GAAP is as follows:
<TABLE>
Three months ended Six months ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income in accordance with Canadian
GAAP $(52,089) $ 3,749 $(60,202) $ 5,105
Adjustments:
Depreciation and amortization 3,133 (1,517) 2,355 (2,233)
Income taxes -- 531 -- 782
-------- ------- -------- -------
Net income in accordance with U.S.
GAAP $(48,956) $ 2,763 $(57,847) $ 3,654
======== ======= ======= =======
Earnings (loss) per share in accordance
with U.S. GAAP $ (0.35) $ 0.02 $ (0.42) $ 0.03
======== ======= ======== =======
</TABLE>
The effects on the balance sheets of the Company at June 30, prepared in
accordance with U.S. GAAP, are:
<TABLE>
June 30
------------------
1997 1996
-------- --------
<S> <C> <C>
Increase (decrease):
Property, plant and equipment $ 7,077 $ 66,877
Prepaid expenses (pension asset) $ (552) $ (359)
Long-term investment in equity
securities $(17,701) --
Deferred income taxes $ 19,377 $ 80,122
Provision for unrealized loss on
long-term investments (contra-
equity account) $(17,701) --
Retained earnings $(12,852) $(13,604)
</TABLE>
Statement of Financial Accounting Standards No. 109 requires that a deferred tax
liability be recognized for differences between the assigned values and the tax
bases of the assets and liabilities recognized in a business combination
involving a purchase of stock. Canadian GAAP does not require similar
recognition. Accordingly, during the six months ended June 30, 1997, a
difference between U.S. GAAP and Canadian GAAP arose for the deferred tax
liabilities associated with the excess of the assigned values and the tax bases
of assets acquired in the acquisition of Geddes Resources Limited and
Consolidated Professor Mines Limited. The effect of these differences is to
increase property, plant and equipment and deferred income taxes by $21.0
million as of June 30, 1997.
Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting for
Certain Investments in Debt and Equity Securities, requires that marketable
securities be put into one of two categories: trading securities (securities
which are bought and held principally for the purpose of selling them in the
near term) or available-for-sale securities (investments not classified as
trading securities). SFAS 115 requires that unrealized gains and losses on
available-for-sale securities should be excluded from earnings and reported as a
net amount in a separate component of shareholders' equity until realized.
Canadian GAAP requires no recognition or reporting of unrealized losses unless
the loss is considered permanent.
8. Acquisition of Geddes Resources Limited, El Condor Resources Ltd. and St.
Philips Resources Inc.
On January 11, 1996, the Company acquired all of the outstanding shares of
Geddes Resources Limited ("Geddes"), El Condor Resources Ltd. ("El Condor") and
St. Philips Resources Inc. ("St. Philips") not already owned by the Company
pursuant to an arrangement (the "Plan of Arrangement") on the following terms:
Geddes: 0.30 shares of the Company for each share of Geddes.
El Condor: 0.95 shares of the Company plus $2.00 cash for each share of El
Condor.
St. Philips: $3.40 cash for each share of St. Philips.
As a result of these transactions, the Company issued 19,011,883 common shares
of the Company and paid approximately $56 million in cash pursuant to the Plan
of Arrangement. The January 11, 1996 closing price on The Toronto Stock
Exchange for the Company's common shares was $6.00. This price was used to
value the common shares of the Company issued under the Plan of Arrangement. At
the time of acquisition, St. Philips, with its wholly owned subsidiary, and El
Condor jointly owned the Kemess South property. El Condor owned 100% of the
Kemess North property.
The following table outlines the details of the purchase price and its
allocation to the assets and liabilities acquired:
<TABLE>
El St.
Geddes Condor Philips Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Purchase price:
Cash paid, including
open market purchases $ 3,220 $ 34,222 $ 38,562 $ 76,004
Issue of common shares 37,650 76,421 -- 114,071
-------- -------- -------- --------
40,870 110,643 38,562 190,075
Initial carrying value
of Geddes 9,192 -- -- 9,192
Transaction and other costs 2,290 680 679 3,649
-------- -------- -------- --------
52,352 111,323 39,241 202,916
Cash and cash equivalents
acquired from companies (561) (1) (378) (940)
-------- -------- -------- --------
Total $ 51,791 $111,322 $ 38,863 $201,976
======== ======== ======== ========
Allocated to:
Property, plant and
equipment $ 52,101 $112,087 $ 39,015 $203,203
Other assets 31 151 9 191
Total liabilities (341) (916) (161) (1,418)
-------- -------- -------- --------
Total $ 51,791 $111,322 $ 38,863 $201,976
======== ======== ======== ========
</TABLE>
9. Acquisition of Consolidated Professor Mines Limited
On February 5, 1996, the Company made a public offer to purchase all of the
outstanding common shares of Consolidated Professor Mines Limited ("Consolidated
Professor"), consisting of approximately 20 million common shares, at a cash
price of $0.80 per share. By June 30, 1996, the Company had purchased all
shares tendered and acquired all remaining shares in accordance with compulsory
acquisition procedures, for a total purchase price of $16.3 million. The
purchase price, net of cash acquired on the acquisition of $0.3 million, has
been assigned as follows:
Capital assets $15.9 million
Miscellaneous net assets 0.1 million
-----
Purchase price, net of cash acquired $16.0 million
=====
10. Credit Line
The Company has a $28 million unsecured, revolving line of credit with a major
Canadian bank. This line will be used as necessary to finance working capital
for current operations. At June 30, 1997, the Company had drawn $2.3 million in
the form of letters of credit.
11. Capital Stock
(a) Changes in capital
<TABLE>
Number of
shares Amount
----------- --------
<S> <C> <C>
Balance, December 31, 1995 121,043,530 $270,811
Issued to acquire Geddes and El Condor (See note 8) 19,011,883 114,071
Issued for share purchase options 87,833 288
----------- --------
Balance, June 30, 1996 issued and outstanding 140,143,246 385,170
Company shares held by Witteck Development Inc.
(see note 11(b)) (1,924,816) (8,854)
----------- --------
Balance, June 30, 1996 for financial
reporting purposes 138,218,430 $376,316
=========== ========
Balance, December 31, 1996 140,770,079 $387,667
Issued for share purchase options 65,000 176
----------- --------
Balance, June 30, 1997 issued and outstanding 140,835,079 387,843
Company shares held by Witteck Development Inc.
(see note 11(b)) (1,924,816) (8,854)
----------- --------
Balance, June 30, 1997 for financial
reporting purposes 138,910,263 $378,989
=========== ========
</TABLE>
(b) Company shares held by Witteck Development Inc.
During 1995, the Board of Directors and the shareholders approved the
acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose
sole asset is an investment in the Company of 1,924,816 common shares of the
Company. This investment has been recorded as a reduction of capital stock on
the balance sheet. Consequently, the common shares of the Company that are held
by Witteck may not be voted and have been excluded from the determination of
earnings per share information.
12. Long-Term Debt
On August 12, 1996, the Company completed the sale of US$175 million principal
amount of 11% Senior Subordinated Notes due 2006 (the "Notes"). The Notes were
sold in a private placement to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933 and to certain other accredited
institutional buyers. On October 9, 1996, an exchange offer was made to
exchange the Notes for Series B 11% Senior Subordinated Notes due 2006 (the
"Series B Notes"), pursuant to a Registration Statement on Form S-4 filed under
the Securities Act of 1933, as amended. This exchange offer expired on November
5, 1996, and all US$175 million principal amount of Notes were exchanged for
Series B Notes.
The Series B Notes are unsecured senior subordinated obligations of the Company
and, as such, will be subordinated in right of payment to all existing and
future senior indebtedness of the Company. The Series B Notes are guaranteed by
Kemess Mines Inc., a wholly owned subsidiary of the Company. The Series B Notes
and interest payments are denominated in U.S. dollars.
13. Write-down of Mine Assets
On May 29, 1997 the Company announced, as a result of the current weak gold
price and the diminishing ore reserves at the Colomac Mine in the Northwest
Territories, it would make a provision to write-down the Colomac assets in the
quarter ending June 30, 1997. The pre-tax provision is $39.7 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
REVENUE
Revenue from the sale of gold for the three months ended June 30, 1997 increased
$4.2 million or 8% to $59.0 million, from $54.8 million in the same period of
1996. Increased revenues during the three month period ended June 30, 1997 as
compared to the same period of 1996, were primarily attributed to a 15% or
13,398 ounce increase in gold production. However, it should be noted that
increased revenues associated with increased production volumes in the second
quarter of 1997 were offset by declines in realized gold prices. Average
realized gold prices decreased 8% or US $33 per ounce from the average realized
gold price of US $439 per ounce reported for the second quarter 1996. Revenue
from the sale of gold for the six month period ended June 30, 1997 increased
$0.7 million or 1% to $106.5 million from revenues of $105.8 million reported
for the same period in 1996. Increased revenues were mainly attributed to
increased gold production of 10,282 ounces. These increases were however,
offset by lower realized gold prices. The average realized gold price for the
six month period ended June 30, 1997 was US $405 per ounce as compared to the
average realized gold price of US $431 per ounce for the same period in 1996.
Second Quarter Production Profiles (equivalent ounces of gold):
<TABLE>
3 Months Ended 3 Months Ended
Division June 30, 1997 June 30, 1996 Increase
<S>
Northwest Territories <C> <C> <C>
Giant 22,981 18,388 4,593
Colomac 32,387 31,753 634
Ontario 26,307 24,780 1,527
Newfoundland 23,170 16,526 6,644
Total equivalent ounces 104,845 91,447 13,398
</TABLE>
EXPENSES
Operating expenses increased 30% or $11.7 million to $51.0 million for the
second quarter 1997, from $39.3 in the same period in 1996. This was primarily
due to higher levels of production during the second quarter of 1997 as compared
to those of the comparable period for 1996. Increased production volumes were
attributed to the timing differences in the temporary shutdown of the Hope Brook
mill and operational difficulties experienced at the Giant Mine during the
second quarter of 1996. The 1997 planned production shutdown at the Hope Brook
mill occurred during January and February, while the 1996 temporary mill
shutdown occurred during March and April. Giant's operational difficulties
during 1996 stemmed from lower productivity in the mine and delays in bringing
the higher grade Supercrest deposit to full production.
On a cost per ounce basis second quarter 1997 cash costs per ounce of gold
increased 11% or US $36 per ounce over the operating cash cost per ounce of
US $315 reported for the second quarter 1996. This was reflective of the
continued decline in head grades and mill recovery rates at the high cost
Hope Brook and Colomac mines, which are now scheduled for closure during the
third and fourth quarters of 1997 respectively. It is anticipated that closure
of these high cost operations will produce lower operating cash costs for the
remainder of 1997.
Royalties and marketing expenses for the second quarter of 1997 declined 47% or
$0.4 million from the 1996 second quarter amount of $0.8 million. Cost
declines were attributed to the expiration of the Hope Brook royalty agreement
at the end of 1996.
Administrative and corporate expenses increased $0.8 million or 32% over the
amount in the second quarter of 1996 of $2.7 million, bringing the second
quarter 1997 cost to $3.5 million. Cost increases were mainly attributed to
increased manpower to manage the strategic growth of the Company.
Depreciation and amortization costs for the second quarter of 1997 of
$6.2 million increased $0.2 million or 3% over the amount of $6.0 million
reported for the comparable period in 1996. Increased depreciation and
amortization costs in the second quarter of 1997 were primarily associated with
increased production volumes. Increased depreciation and amortization costs
were, however, substantially offset by the elimination of Hope Brook
depreciation costs due to the 1996 write-down of the assets to their net
realizable value and the impact of additional ore reserves added in late 1996.
Reclamation costs increased during the second quarter of 1997 to $1.2 million
from $0.2 million in the same period of 1996. The Company applies the
unit-of-production method based on estimated total mineral inventory in
calculating the charge to income for reclamation. Increases in reclamation
costs were mainly attributed to higher mill production volumes at the Colomac
Mine and write-downs in Colomac gold ore reserve estimates at the end of 1996.
Exploration expenditures are periodically reviewed and assessed as to their
future economic value in light of strategic plans, gold price forecasts and
potential ore reserves. Those reserves determined to be of little or no future
economic value are written-down or written-off to income in that period of
determination. Exploration costs for the second quarter of 1997 were determined
to be $1.3 million as compared to the amount reported in the same period for
1996 of $1.4 million. Exploration spending will continue to be carefully
managed throughout the remainder of 1997 and further contained if gold prices
continue to weaken.
The gold price used in estimating the company's ore reserves at December 31,
1996 was $527 (US $390) per ounce of gold. The market price for gold is
currently below these levels. If the Company determines that ore reserves
should be calculated at a significantly lower price than used at December 31,
1996, there would likely be a material reduction in the amount of economic gold
reserves and potential gold prospects. Should such a reduction occur, material
write-downs of the Company's investment in mining properties and/or increased
amortization charges may be required.
The Company enters into foreign currency and commodity contracts to minimize
exposure to adverse fluctuations in foreign currency exchange rates associated
with US dollar gold sales and commodity prices. A loss on hedging activity of
$7.4 million was recorded in the second quarter of 1997, as compared to a $0.2
million gain in the same period of 1996. The majority of the loss was related
to foreign currency hedges brought about by a continued weakening of the
Canadian dollar. The provision for loss recorded for the six months ended June
30, 1997 was $9.9 million as compared to a gain of $1.0 million for the same
period in 1996.
Interest expense accrued on the Senior Subordinated Notes for the three and six
month periods ended June 30, 1997 was $6.5 and $12.8 million, respectively.
Interest expense was, however, partially offset by interest income earned on and
interest capitalized from, the proceeds of the Senior Subordinated Notes used to
invest in marketable securities or expended on long-term construction projects,
primarily the Kemess project.
The Company's Senior Subordinated Notes are denominated in United States
dollars. Generally accepted accounting principles require the translation of
these notes at the exchange rate in effect at the balance sheet date. This
resulted in the Company recognizing a gain on translation of its Senior
Subordinated Notes of $0.5 million for the three month period ended June 30,
1997 and a loss on translation of $2.1 million for the six month period ended
June 30, 1997. No gains or losses were recorded during comparable periods of
1996, as the Senior Subordinated Notes were not issued until August of 1996.
A write-down provision of $39.7 million was recognized during the three month
period ended June 30, 1997. The provision was necessary to write-down Colomac
assets to net realizable value. Declining gold prices, high operating costs and
diminishing ore reserves at the Colomac Mine contributed to the decision to
close the Colomac Mine in October of 1997 and recognize a loss in asset value.
Mining and income taxes for the three month period ended June 30, 1997 decreased
$1.5 million or 83% as compared to taxes recognized in the same period of 1996.
Mining and income taxes for the six month period ended June 30, 1997 decreased
$6.3 million or 231% as compared to taxes recognized for the same period in
1996. Decreases in tax expense were a direct result of net losses incurred.
No deferred tax assets were recognized during the three month period ended
June 30, 1997. Generally accepted accounting principles disallow recognition of
deferred tax assets unless ultimate realization of the tax asset is virtually
certain.
The Company currently holds long-term investments in equity securities of other
gold mining companies. Current market values for those securities are below
original investment cost by approximately $18 million, due mainly to recent
declines in spot gold prices. Generally accepted accounting principles (as
referenced in Note 7 to the financial statements) does not require recognition
of a provision for loss on long-term investments unless the Company determines
the loss in value to be permanent in nature. The Company will continue to
monitor spot gold price movements and the market value of all long-term
investments for purposes of recognizing a permanent impairment to investments
held.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 the Company had cash, cash equivalents and marketable
securities of $72.8 million compared to $114.4 million at March 31,1997 and
$198.4 million at December 31, 1996.
OPERATING ACTIVITIES
Net cash used by operating activities for the three month period ended June 30,
1997 was $5.6 million compared to net cash provided by operating activities of
$19.3 million in the same period of 1996. Net cash used by operating activities
for the six month period ended June 30, 1997 was $ 71.9 million compared to net
cash provided by operating activities of $15.6 million for the same period of
1996. Reduced cash flows from operations during 1997 as compared to the same
periods of 1996 were primarily attributed to declining gold prices, higher
operating costs at the Hope Brook and Colomac Mines, reduced interest income on
declining cash balances and increased investments in working capital. The
increase in working capital in early 1997 was brought about by the need to
supply the Colomac Mine with operating and maintenance supplies over a winter
ice road, and the recognition of the receivable from the B.C. Government in
conjunction with construction of the Kemess project. The consumption of
supplies inventory at the Colomac Mine through the second quarter of 1997 and
receipts of cash against receivables (mainly that relating to the B.C.
Government) significantly reduced the Company's investment in working capital by
the end of the second quarter. This reduction is expected to continue through
the balance of 1997.
FINANCING ACTIVITIES
Net cash used in financing activities for the three month period ended June 30,
1997 was $0.2 million compared to net cash provided of $1.4 million for the same
period in 1996. The higher cash provided in the 1996 period was mainly due to
limited issues of share capital and capital lease financing which required lease
payments during 1997. Net cash used by investing activities for the six month
period ended June 30, 1997 was $0.4 million compared to net cash provided of
$116.8 million in the same period of 1996. The higher cash provided during
1996 was primarily related to the issuance of share capital of $114.4 million
to fund the acquisition of the Kemess property.
INVESTING ACTIVITIES
Net cash used in investing activities during the three-month period ended June
30, 1997 was $35.7 million compared to $22.0 million for the same period of
1996. The higher cash usage in 1997 reflected the Company's strategic
investment in equity securities of other companies. Increased spending on the
Kemess project was virtually offset by funding from the B.C. Government. A
formal written agreement between the Company and the B.C. Government confirming
the B.C. Government's commitment to partially fund the Kemess project was
finalized on June 27, 1997. Net cash used for investing activities during the
six month period ended June 30, 1997 was $53.3 million compared to net cash used
of $235.1 million during the same period in 1996. Higher cash usage during the
1996 period was related to the acquisition of the Kemess property for the
aggregate consideration of approximately $202 million and the acquisition of all
the shares of Consolidated Professor Mines Limited for the total consideration
of approximately $16 million.
The Company has recently revised its estimate of the total cost of the Kemess
project to approximately $427.0 million from $390.0 million. The principal
reasons for the increase are the additional stumpage fees payable to the B.C.
Government related to the power line clearing and the additional cost associated
with the modification made to the design of both the tailings line and the
tailings dam. The Company expects to fund the completion of the project from
current cash and securities in treasury, investment and economic assistance from
the B.C. Government, from cash expected to be provided from current operations
in the next three quarters, as well as from approximately $90 million in
permitted debt capacity and equipment lease financing. The Company is currently
negotiating an increase in its line of credit.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical statements, the matters discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on numerous variables and assumptions that are inherently uncertain and
could cause actual results to be materially more or less favorable than
projected, including without limitation general economic and competitive
conditions and other factors. Among such factors are those related to
volatility in the price of gold, copper and other commodities, changes in
interest and foreign exchange rates, government regulation and agency action,
competing land claims, the accuracy of estimates of ore reserves and mineral
inventory, environmental costs and risks, unanticipated processing, access,
transportation of supplies, water availability or other problems, other factors
relating to the Company's ability successfully to complete development projects
within projected capital budgets or to carry on mining operations within
projected operating budgets and the risk factors listed from time to time in the
Company's filings with the Securities and Exchange Commission, including without
limitation the Company's Annual Report on Form 10-K for the year ended December
31, 1996, Part I:, Item 7, Risks and Uncertainties.
PART II - OTHER INFORMATION
Item 2. Submission of Matters to a Vote of Security Holders.
(A) The Company's Annual and Special Meeting of Shareholders was held
on May 29, 1997.
(C) Four proposals were submitted for shareholder approval, all of
which were passed with the following voting results:
1) All seven of the Company's directors were re-elected to
serve until the next annual meeting of shareholders,
based on the votes as tabulated below:
<TABLE>
Votes abstained,
Votes not voted or
Nominee Votes for withheld spoiled
--------------------- ---------- -------------------------
<S> <C> <C> <C>
Margaret K. Witte 81,408,763 1,182,917 905,291
Ross F. Burns 82,406,518 185,162 905,291
William J.V. Sheridan 82,375,443 216,237 905,291
J. Conrad Lavigne 82,340,085 251,595 905,291
John L. May 82,406,018 185,662 905,291
George W. Oughtred 82,404,243 187,437 905,291
Matthew Gaasenbeek 82,366,565 225,115 905,291
</TABLE>
2. The reappointment of Arthur Anderson & Co., Chartered
Accountants, as independent auditors and to authorize the
directors to fix their remuneration was approved with
74,410,552 votes for, 393,535 votes against, 120,380 votes
withheld and 693,687 votes abstaining, not voted or spoiled.
3. The proposal to approve stock options granted to senior
officers and directors of the Company was removed from
consideration at the meeting.
4. The proposal to approve the Company's 1997 Executive
Performance Incentive Plan was approved with 71,805,889 votes
for, 5,818,773 votes against and 5,872,809 votes abstaining,
not voted or spoiled.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement between Edmund Szol, Arctic Precious
Metals, Inc. and Royal Oak Mines Inc.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on May 6, 1997, regarding a press
release from Royal Oak Mines Inc., announcing the petition from the
Tsay Keh Dene Band to stay the Kemess project has been dismissed.
A report on Form 8-K was filed on May 15, 1997, regarding a press
release from Royal Oak Mines Inc., announcing first quarter 1997
results of operations.
A report on Form 8-K was filed on May 23, 1997, regarding a press
release from Royal Oak Mines Inc., announcing the appointment of
Edmund Szol as Executive Vice President and Chief Operating Officer.
A report on Form 8-K was filed on May 29, 1997, regarding a press
release from Royal Oak Mines Inc., announcing the write-down of
Colomac assets in the second quarter of 1997.
A report on Form 8-K was filed on June 27, 1997, regarding a press
release from Royal Oak Mines Inc., announcing an injunction against
a roadblock set up by the Tsay Keh Dene Band.
A report on Form 8-K was filed on June 27, 1997, regarding a press
release from Royal Oak Mines Inc., announcing Royal Oak Mines Inc.
receiving funds for the Kemess project upon signing a formal
agreement with the B.C. Government.
SIGNATURES
Pursuant to the requirements 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: August 14, 1997 By /s/ Margaret K. Witte
------------------------
Margaret K. Witte
President and Chief
Executive Officer
Date: August 14, 1997 By /s/ James H. Wood
------------------------
James H. Wood
Chief Financial Officer
EXHIBIT INDEX
Exhibit Method of Filing
- ------- ----------------
10.1 Employment Agreement dated May 22, 1997, between
Edmund Szol, Arctic Precious Metals, Inc. and
Royal Oak Mines Inc. Filed herewith
27. Financial Data Schedule Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND IN THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.3813
<CASH> 72,254
<SECURITIES> 590
<RECEIVABLES> 66,344
<ALLOWANCES> 0
<INVENTORY> 51,485
<CURRENT-ASSETS> 199,035
<PP&E> 573,376
<DEPRECIATION> 79,818
<TOTAL-ASSETS> 763,876
<CURRENT-LIABILITIES> 70,291
<BONDS> 241,728
0
0
<COMMON> 378,989
<OTHER-SE> 12,351
<TOTAL-LIABILITY-AND-EQUITY> 763,876
<SALES> 106,463
<TOTAL-REVENUES> 106,463
<CGS> 127,992
<TOTAL-COSTS> 127,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,028
<INCOME-PRETAX> (63,784)
<INCOME-TAX> (3,582)
<INCOME-CONTINUING> (60,202)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,202)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 22nd day of May 1997
BETWEEN:
ARCTIC PRECIOUS METALS, INC.
5501 Lakeview Drive
Kirkland, Washington 98033
(Fax No. 206-822-3552)
(hereinafter called "Arctic")
OF THE FIRST PART
- and -
EDMUND SZOL
4206 E. Lake Sammamish Parkway S.E.
Issaquah, WA 98029
(hereinafter called the "Employee")
OF THE SECOND PART
- and -
ROYAL OAK MINES INC.
BCE Place, Suite 2500
181 Bay Street
Toronto, Ontario
M5J 2T7
(Fax No. 416-365-1719)
(hereinafter called "Royal Oak")
OF THE THIRD PART
WHEREAS Arctic and the Employee wish to enter into a written agreement to
record the terms and conditions of the Employee's continued employment with
Arctic;
AND WHEREAS Arctic's parent company, Royal Oak, has agreed to assume certain
obligations herein and to guarantee the performance by Arctic of its
obligations to the Employee hereunder;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein
set out, the parties agree as follows:
1. EMPLOYMENT
Employee commenced employment with Arctic on February 27, 1995 and hereby
accepts continued employment with Arctic from and after May 22, 1997 on
the terms and subject to the conditions herein set forth.
2. DUTIES
Subject to instructions which may be received from time to time by the
Employee from the Chief Executive Officer of Arctic, the Employee is
hereafter engaged by Arctic as Executive Vice-President and Chief
Operating Officer and in such other executive capacities as may be
determined by the Chief Executive Officer of Arctic from time to time;
and,in furtherance of his duties, the Employee shall do the following:
(a) serve Arctic faithfully;
(b) observe all policies of Arctic and perform all services
associated with his position to the best of his ability;
(c) devote substantially all of his working time and attention to the
business of Arctic, except to the extent otherwise permitted by
the Chief Executive Officer;
(d) carry out all lawful instructions given to him by the Chief
Executive Officer; and
(e) endeavour to further the best interests of Arctic.
The Employee will be based in Kirkland, Washington but may from time to
time be called upon and hereby agrees to perform services elsewhere.
3. TERM
The term of this Agreement shall commence May 22, 1997 and continue
thereafter indefinitely unless earlier terminated in accordance with the
provisions of this Agreement.
4. ANNUAL SALARY AND BONUS
In consideration for services rendered hereunder, Arctic shall pay to the
Employee the following:
(a) Salary: Employee's salary shall be US$200,000 per annum. Arctic
agrees to review the salary at least every twelve (12)months and
may make adjustments, in its discretion, based on changes in
market pay rates for jobs similar to the Employee's, cost of
living and such other factors as Arctic deems relevant.
(b) Bonus: Employee will be eligible for an annual bonus award to a
maximum value of 50 percent of the salary unless Arctic, in its
discretion, determines to pay a higher maximum value. The amount
of the bonus is based on achievement of predetermined annual
performance objectives set for the Employee by the Chief
Executive Officer of Arctic and communicated to the Employee at
the beginning of the year.
5. OTHER BENEFITS
In addition to the annual salary and bonus award provided in paragraph 4
of this Agreement, Arctic shall provide the following benefits to the
Employee:
(a) Fringe Benefits
Arctic shall furnish to the Employee at Arctic's expense such
insurance (including, without limitation, medical, dental,
vision, hospitalization, life and disability insurance), pension,
and other benefits as are provided to senior executives by Arctic
including participation in the Company's supplementary executive
retirement plan and/or split dollar life insurance program.
(b) Stock Options
The Employee shall be entitled upon execution of this Agreement
to receive 65,000 new options to purchase shares of Arctic's
parent company, Royal Oak, which options are exercisable
following shareholder approval on a one-third (1/3) basis per
year commencing on the first anniversary of the date of this
Agreement and valid for a term of seven years with the price of
those options fixed at US $2.50. The terms of the option shall
be stipulated by Royal Oak in a separate Stock Option Agreement
to be executed by Royal Oak and the Employee prior to any options
being exercised thereunder. The Employee shall also be eligible
for future grants of stock options for shares in Royal Oak on
terms applicable to other senior officers of Arctic.
(c) Business Expenses
Arctic agrees to reimburse the Employee quarterly for all
ordinary and necessary business expenses incurred by the Employee
in the performance of his duties under this Agreement and the
Employee shall provide vouchers and statements in respect of
all such expenses in a timely manner.
(d) Membership
Arctic agrees to provide the employee with one reasonably priced
business club membership for the purposes of personal and family
use and for entertaining. All meals and sundry expenses for
personal use will be to the account of the employee, with Arctic
responsible for and paying all reasonable expenses incurred by
the Employee for the purpose of entertaining clients and business
associates.
(e) Vacation
The Employee shall be entitled to four weeks of paid vacation
during each full calendar year in which he is employed by Arctic
pursuant to this Agreement, the timing of such vacation being
mutually agreed upon between the Employee and Arctic. Vacation
entitlement is non-cumulative and must be taken in the year in
which it is earned unless otherwise agreed to in writing by the
Chief Executive Officer.
(f) Demand Loan
The Employee will be eligible to borrow from Arctic an aggregate
maximum amount of US $90,000.00 interest free for the purpose of
financing a home. Repayment of such loan in the amount of US
$15,000.00 per year shall be guaranteed by the Employee and
security, in the form of a second mortgage on the said home,
shall be provided by the Employee to secure repayment of the
loan to Arctic. The terms of the loan shall be stipulated by
Arctic in a separate written Loan Agreement to be executed by the
Employee and Arctic prior to any advances being made thereunder
and shall include a requirement for repayment of any amount then
outstanding within 120 days of cessation of the Employee's
employment hereunder for any reason whatsoever.
6. TERMINATION AND COMPENSATION AT TERMINATION
Notwithstanding anything herein contained to the contrary, this Agreement
shall terminate in the following manner and the Employee shall be
compensated as indicated:
(a) Termination by Arctic for Cause
This Agreement and the employment of the Employee may be
terminated effective immediately for cause by the giving of
written notice of dismissal by Arctic to the Employee. As
used herein, "cause" includes, but shall not be limited
to, competing with or publicly denigrating the business of
Arctic, unauthorized disclosure or use of Confidential
Information in breach of paragraph 7 herein, repetition of
conduct subject and subsequent to progressive discipline, gross
misconduct or gross negligence by the Employee in the performance
of his duties hereunder, the commission by the Employee of an
act of theft, dishonesty, embezzlement or vandalism against
Arctic, its parent Royal Oak or any of their respective related,
associated or subsidiary companies, or the conviction of the
Employee for any indictable criminal offence or a felony or
criminal offence of moral turpitude.
If this Agreement is terminated by Arctic for cause, the
Employee shall continue to accrue and receive his salary and
benefits through to the date of termination indicated in the
notice of dismissal only. No additional compensation or payment
shall or need be made by Arctic to the Employee.
(b) Termination by Arctic Without Cause
This Agreement and the employment of the Employee hereunder may
be terminated by Arctic effective at any time without cause by
giving the Employee at least 24 months' prior written notice of
termination. In the event such notice is given, the employment
of the Employee shall terminate on the date specified in the
said notice. In lieu of notice, Arctic may, in its discretion,
terminate the employment of the Employee immediately by making
payments to the Employee of all salary and bonus, equal to the
salary and bonus received by the Employee with respect to the
last completed fiscal year of Arctic prior to such notice and
continuing (if possible, and in accordance with applicable
statutory provisions, or if not, paying the present value of)
all benefits which would have accrued to the benefit of the
Employee to the date of termination had the period of notice of
termination required by this Agreement been given. The parties
hereto acknowledge that this Agreement and the period of notice
referred to herein are fair and reasonable in all the
circumstances.
The Employee hereby acknowledges and agrees that, should Arctic
or its parent company, Royal Oak, subsequently take over or
otherwise acquire control of additional properties and/or
projects which substantially increases the duties and
responsibilities of the position of Executive Vice-President
and Chief Operating Officer herein assumed, then any
reassignment of the Employee by Arctic to the position of Chief
Operating Officer of North American Operations or some like
position, at a salary and benefits comparable to those held by
the Employee prior to any such takeover or acquisition, will
not constitute or be deemed to constitute constructive dismissal
or termination of the employment of the Employee hereunder.
(c) Termination of Change of Control
For purposes of this Agreement, "Change in Control" means any one
or more of the following:
(i) the acquisition by any person or group of related persons
or persons acting jointly or in concert of more than 30%
of the issued and outstanding common shares of Arctic or
its parent company Royal Oak (calculated on a
non-diluted basis), whether acquired in a single
transaction or a series of transactions, whether or not
one or more of those transactions occurred before the
date hereof;
(ii) the election to the Board of Directors of Arctic or its
parent company Royal Oak of persons employed by or
representing any one person or group of related persons
or persons acting jointly or in concert and
constituting 40 percent or more of the Board.
Should a Change of Control occur, the Employee's employment with
Arctic or any successor corporation shall be hereby guaranteed
to age 62 in such senior management or consulting capacity as
may be determined by Arctic or its successor corporation at a
salary and bonus equal to the salary and bonus received by the
Employee with respect to the last completed fiscal year of
Arctic, and benefits (on a fully vested basis) comparable to
those accorded the Employee prior to such Change of Control.
Should the Employee elect to pursue such guaranteed employment to
age 62, he hereby agrees to fully and capably perform all duties
assigned to him by Arctic or its successor corporation and waives
any subsequent right to or claim for constructive dismissal
during the course of such employment and compensation on
termination after age 62 beyond the minimum required by law.
Conversely, should the Employee elect to reject such guarantee of
employment to age 62 and to terminate his employment with Arctic
or its successor corporation within the period for election
specified below, then the Employee shall be entitled to the
compensation and benefit package outlined in subparagraph (b)
above and shall be further given the right to immediately
exercise all approved outstanding options, subject to
confirmation of Exchange approval as specified in each Stock
Option Agreement.
The Employee shall have three (3) months from the date of any
Change of Control to make the election whether to pursue or
reject the aforesaid guarantee of employment.
The parties hereto acknowledge that this Agreement and the
compensation packages proposed in lieu of notice in
subparagraphs (b) and (c) herein are fair and reasonable in all
the circumstances.
(d) Termination by the Employee
This Agreement and the employment of the Employee hereunder may
be terminated by the Employee upon at least three (3) months'
prior written notice to Arctic given at any time. If the
Employee so terminates this Agreement and his employment
hereunder, he shall continue to accrue and will receive his
annual salary and benefits (excluding bonus entitlement) through
to the date specified in his notice of termination and no more.
Upon receipt of such notice, Arctic may, in its discretion,
immediately terminate the employment of the Employee by making
payment to the Employee of all salary and continuing (if
possible, and in accordance with applicable statutory
provisions, or if not possible, paying the present value of)
all benefits which would have accrued to the benefit of the
Employee to the date of termination specified in his notice of
termination.
(e) Termination by Mutual Agreement
This Agreement and the employment of the Employee hereunder may
be terminated by mutual agreement in writing of the parties
hereto. The Employee shall continue to accrue and receive his
annual salary and benefits through to the date of termination
settled upon pursuant to such mutual agreement.
The fact of termination of the Employee's employment in
accordance with subparagraphs (d) and (e) herein and the terms
of such termination shall be maintained as confidential by the
Employee and shall not be disclosed to anyone other than
Employee's legal and financial advisors until the Employee
is so authorized by the Chief Executive Officer of Arctic.
(f) Termination by Death
The Agreement and the employment of the Employee hereunder shall
be terminated by the death of the Employee. All compensation
to the Employee shall cease at his death.
(g) Termination by Permanent Disability
For the purpose of this Agreement, "Permanent Disability" means:
the Employee is unable to perform any and every duty of his
employment, and such disability may reasonably be expected to
exceed a period of six months.
If the Employee's employment is terminated due to Permanent Disability,
the following compensation shall be paid:
1. salary shall stop at the end of the month in which termination
occurs;
2. all employee benefits, except Arctic sponsored medical,
accidental and life insurance, shall cease with termination.
The medical insurance (with premium waiver for accidental and
life insurance) shall continue for the Employee and his
dependents for two (2) years under the same cost sharing
arrangement as between Arctic and its other employees.
Accidental and life coverage shall continue for as long as the
Employee remains disabled under the disability plan. The
Employee will be given the option, consistent with then
existing legislation, to convert medical coverage upon
cessation thereof to an individual policy;
3. the bonus payable under paragraph 4 (b) of this Agreement will
be payable at year end on a pro rata basis based on the period
of employment as a percentage of the full year.
If the parties cannot mutually agree upon whether the Employee has a
Permanent Disability or when the Employee became Permanently Disabled
for the purposes of this Agreement, then Arctic and the Employee shall
each appoint one doctor of medicine licensed to practice in the State
of Washington and the two doctors so appointed shall determine if the
Employee has a Permanent Disability and the time at which he became so
Permanently Disabled for the purposes of this Agreement. If the two
doctors so appointed cannot agree upon whether the Employee is or when
the Employee became Permanently Disabled, they shall appoint a third
doctor of medicine licensed to practice in the State of Washington and
the decision of the majority shall be binding on both parties
hereto and shall not be subject to appeal.
7. CONFIDENTIAL INFORMATION AND TRADE SECRETS
The Employee acknowledges that he has a fiduciary obligation to Arctic
and that, in the course of providing services hereunder, he will be
entrusted with confidential information and trade secrets ("Confidential
Information") concerning the present and contemplated projects, services
and techniques involved and used by Arctic, its parent company Royal Oak
and their respective associated, related and subsidiary companies in
connection with their respective businesses, the disclosure of any of
which to competitors of Arctic, Royal Oak or the general public would
be highly detrimental to the best interests of Arctic and not
compensable by damages. The Employee further acknowledges that the
right to maintain all such Confidential Information as confidential
constitutes a proprietary right which Arctic, its parent company
Royal Oak and their respective associated, related and subsidiary
companies are entitled to protect by way of injunctive relief in
addition to other remedies available to each on breach of such
confidentiality.
The Employee further acknowledges that the restrictions and prohibitions
set out herein are reasonable and proper based on the nature of the
business of Arctic, its parent company Royal Oak and their respective
associated, related and subsidiary companies, which businesses as of
the date hereof are to a significant extent carried on in Canada and
the United States. Accordingly, the Employee agrees that:
(a) he will not, during the term of this Agreement or at any time
thereafter, disclose any of such Confidential Information to any
person or use any of such Confidential Information for any
purpose other than those of Arctic and Royal Oak; and
(b) he will not, during the term of this Agreement or at any time
thereafter, disclose any information concerning the business of
Arctic, its parent company Royal Oak or their respective
associated, related and subsidiary companies which could
adversely affect the image or reputation of any of them.
The Employee agrees that the provisions of this paragraph 7 will, in
their entirety, survive termination of this Agreement by any party for
any reason and in any manner whatsoever.
8. PERFORMANCE GUARANTEE
In consideration of the Employee agreeing to transfer to and continue his
employment with Arctic, Royal Oak hereby guarantees to the Employee the
full performance by Arctic of each and every obligation hereunder
assumed by Arctic and further indemnifies and agrees to hold harmless
the Employee from and against any and all loss, damage, injury and
expense (including recovery of all legal fees and disbursements)
incurred by the Employee as a result of any breach by Arctic of its
obligations hereunder or in enforcing and securing to
the Employee all of his rights and entitlement hereunder.
9. NOTICES
Wherever this Agreement requires or permits any consent, approval,
notice, request or demand from any party to another, the consent,
approval, notice, request or demand (including, without limitation,
telecopied communications) must be in writing to be effective and shall
be deemed to have been given on the earlier of receipt or five business
days after it is enclosed in any envelope, addressed to the party to be
notified at the address first above written (or such other addresses as
may be designated by written notice from time to time), properly stamped,
sealed and deposited in the mail system, in the case of Arctic, to the
attention of the Chief Executive Officer and in the case of Royal Oak to
the attention of Mr. W. J. V. Sheridan, Secretary. Any consent,
approval, notice, request or demand aforesaid if delivered or
telecopied shall be deemed to have been given on the day of such
delivery or telecopied transmission. Any such delivery shall be
sufficient, if left with any person at the above address of the Employee
in the case of the Employee, and with the receptionist at the above
addresses of Arctic and Royal Oak in the case of Arctic and Royal Oak
respectively.
10. ENTIRE AND BINDING AGREEMENT
The provisions contained herein and in any Stock Option Agreement or Loan
Agreement created in accordance with paragraphs 5 (b) and (f) herein
constitute the entire Agreement between the parties and supersede all
previous communications, representations, understandings and agreements,
whether oral or written, between the parties with respect to the subject
matter hereof.
Subject to the provisions hereof, this Agreement shall be binding upon
and shall enure to the benefit of the parties hereto and upon their
respective heirs, legal representatives, successors and permitted
assigns.
11. AMENDMENTS
No alteration or amendment to this Agreement will take effect unless the
same is in writing duly executed by each of the parties in the same
manner as this Agreement.
12. WAIVERS
One or more consents to or waivers of any breach of the terms or
provisions of this Agreement by any party shall not be construed as a
consent or waiver of a subsequent breach of the same term or provision,
nor shall it be considered a consent to or waiver of any other then
existing or subsequent breach of a different term or provision. The
consent or waiver by any party to or of any act by any other party
requiring such consent or waiver shall be deemed not to waive or render
unnecessary consent to or waiver of any subsequent similar act. No
custom or practice of any party shall constitute a waiver of any
other party's right to insist upon strict compliance with the terms and
provisions hereof.
15. SEVERABILITY
If any term or provision of this Agreement shall be or shall become
illegal or unenforceable, the remaining terms and provisions shall
nevertheless be valid, binding, and subsisting.
16. INTERPRETATION
For purposes of this Agreement, "person" includes any body corporate,
government or any subdivision or department thereof, trust,
unincorporated association, joint venture and/or partnership.
17. HEADINGS
Headings are for convenience of reference only and shall not affect the
interpretation of this Agreement.
18. ASSIGNMENT
Neither the rights nor obligations under this Agreement shall be assigned
or otherwise disposed of without the prior written consent of the
non-assigning party, except that Arctic may assign this Agreement to
any successor or related corporation without such consent.
19. APPLICABLE LAW
Whether pursuant to court proceedings or otherwise, the rights and
obligations of the parties under and pursuant to this Agreement shall be
construed under and governed by the laws of the State of Washington and
the parties hereby agree to submit to the exclusive jurisdiction of its
courts.
IN WITNESS WHEREOF this Agreement is executed by the parties as of the date
first above written.
ARCTIC PRECIOUS METALS, INC.
By:/s/ Margaret K. Witte c/s
----------------------------
Margaret K. Witte
(authorized signing officer)
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF:
/s/ Hien DeYoung /s/ Edmund Szol l/s
- --------------------- -----------------------
Hien DeYoung Edmund Szol
Witness
ROYAL OAK MINES INC
By:/s/ Margaret K. Witte l/s
---------------------------
Margaret K. Witte
(authorized signing officer)
