Registration Statement No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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
incorporation or organization) Identification Number)
c/o Royal Oak Mines (USA) Inc.
5501 Lakeview Drive
Kirkland, Washington,
USA, 98033-7314
(425) 822-8992
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
William J.V. Sheridan, Esq.
Lang Michener
Suite 2500, BCE Place, 181 Bay Street
Toronto, Ontario
M5J 2T7
(416) 360-8600
(Name, address and telephone number of agent for service)
Approximate date of commencement of the proposed sale of the securities
to the public. As soon as practicable following the effective date of this
Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box./ /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(b) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered aggrgate price per aggregate offering registration fee (1)
unit (1) price (1)
<S> <C> <C> <C> <C>
Common Shares 10,000,000 $0.7188 $7,188,000.00 $1,998.26
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 on the basis of the average high and low prices
reported on the American Stock Exchange Composite Tape on October 28,
1998.
(2) Also being registered are the Common Share Purchase Rights of Royal
Oak Mines Inc. associated with the Common Shares.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 30 1998.
The information in this Prospectus is not complete, and it may change.
This Prospectus is included in a registration statement that we filed with the
Securities and Exchange Commission. The selling shareholders cannot sell these
securities until that registration statement becomes effective. This Prospectus
is not an offer to sell these securities or the solicitation of an offer to buy
these securities in any state or other jurisdiction where an offer to sell or
the solicitation of an offer to buy is not permitted.
PROSPECTUS
10,000,000 COMMON SHARES
ROYAL OAK MINES INC.
The shareholders of Royal Oak Mines Inc., a corporation organized under
the laws of the Province of Ontario, Canada, identified in this Prospectus under
the heading "Selling Shareholders" are offering and selling 10,000,000 common
shares of the Company.
The selling shareholders anticipate selling the shares from time to
time primarily in transactions (which may include block transactions) on the
American Stock Exchange or The Toronto Stock Exchange at the then current market
price. They may also sell shares in negotiated transactions or otherwise at
varying prices that will be determined at the time of sale. We will not receive
any of the proceeds from the sale of the shares by the selling shareholders.
The common shares are quoted on the American Stock Exchange under the
symbol "RYO" and The Toronto Stock Exchange under the symbol "RYO". On October
28, 1998, the last sales price of the common shares as reported on the American
Stock Exchange was $0.688 (US) and on The Toronto Stock Exchange was $1.08.
Prospective Investors should obtain a current quote for the common shares.
Our principal executive offices are located at 5501 Lakeview Drive,
Kirkland, Washington, 98033-7314, U.S.A., and our telephone number is (425)
822-8992.
-----------------------------
Investment in the common shares involves certain risks. See "Risk
Factors" beginning at page 5.
-----------------------------
The enforcement by investors of civil liabilities under the federal securities
laws may be adversely affected by the fact that the Company is incorporated or
organized under the laws of a foreign country, that some or all of the experts
named in this Prospectus may be residents of a foreign country and that all or a
substantial portion of the assets of the Company and said persons may be located
outside the United States.
<PAGE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is October 30, 1998
<PAGE>
TABLE OF CONTENTS
EXCHANGE RATE DATA.............................................................4
ABOUT ROYAL OAK MINES INC......................................................5
RISK FACTORS...................................................................5
RECENT DEVELOPMENTS...........................................................12
USE OF PROCEEDS...............................................................16
PRICE RANGE AND TRADING VOLUME OF COMMON SHARES...............................16
LEGAL PROCEEDINGS.............................................................18
SELLING SHAREHOLDERS..........................................................21
PLAN OF DISTRIBUTION..........................................................23
WHERE YOU CAN FIND MORE INFORMATION...........................................24
INCORPORATION OF INFORMATION FILED WITH THE COMMISSION........................24
LEGAL MATTERS.................................................................26
EXPERTS ......................................................................26
Some of the statements contained in or incorporated by reference unto
this Prospectus refer to the future performance, plans and expectations of the
Company and are forward-looking. These statements are based on a number of
variables and assumptions that are inherently uncertain. Among other things,
they include statements regarding (a) the Company's ability to successfully
complete development projects within projected capital budgets or to carry on
mining operations within projected operating budgets, (b) volatility in the
price of gold, copper and other commodities, (c) interest and foreign exchange
rates, (d) government regulation and agency action, (e) competing land claims,
(f) the accuracy of estimates of ore reserves and mineral inventory and (g)
general economic and competitive conditions. Actual future results or values may
differ significantly from those suggested by the forward-looking statement for
various reasons, including those discussed under "Risk Factors". We are under no
obligation to update these statements.
(3)
<PAGE>
EXCHANGE RATE DATA
We publish our consolidated financial statements in Canadian dollars.
All dollar amounts used in this prospectus are expressed in Canadian dollars
unless we otherwise specifically indicate. The following table sets forth, for
the periods indicated, the high and low exchange rates (i.e., the highest and
lowest rates at which Canadian dollars were sold), the average exchange rate
(i.e., the average of the exchange rates on the last business day of each month
during the applicable period) and the period end exchange rate of the Canadian
dollar in exchange for the United States dollar. The rate is calculated from the
inverse of the exchange rate reported by the Federal Reserve Bank of New York
for cable transfers payable in Canadian dollars as certified for customs
purposes (the "Noon Buying Rate"). On October 28, 1998, the inverse of the Noon
Buying Rate was Cdn $1.00 equals $0.6485(US).
<TABLE>
<CAPTION>
Year Ended December 31 Nine Months
ended
September 30
------------------------------------------------ --------------
1994 1995 1996 1997 1998
----------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Exchange rate at period end 0.7129 0.7323 0.7301 0.7034 0.6533
Average exchange rate during the period 0.7321 0.7305 0.7332 0.7222 0.6831
Highest exchange rate during the period 0.7632 0.7527 0.7513 0.7489 0.7105
Lowest exchange rate during the period 0.7105 0.7023 0.7235 0.6947 0.6321
</TABLE>
(4)
<PAGE>
- --------------------------------------------------------------------------------
ABOUT ROYAL OAK MINES INC.
Royal Oak Mines Inc. ("Royal Oak" or the "Company") was formed from the
amalgamation on July 23, 1991 of Giant Yellowknife Mines Limited, Pamour Inc.,
Pamorex Minerals Inc., Royal Oak Resources Ltd. and Akaitcho Yellowknife Gold
Mines Limited. On January 1, 1992 Royal Oak amalgamated with its wholly-owned
subsidiary Supercrest Mines Limited and on December 29, 1997 the Company
amalgamated with its wholly-owned subsidiary Kemess Mines Inc. The head office
and principal place of business of the Company is 5501 Lakeview Drive, Kirkland,
Washington 98033-7314. References in this Prospectus to a particular fiscal year
of the Company are to the year which ends on December 31.
Royal Oak is a major North American gold mining company which, together
with its predecessors, has produced in excess of 50 million ounces of gold over
a 60-year period. In 1997, the Company owned and operated five producing gold
mines. The Company commenced limited production at its new Kemess South
gold-copper mine located in British Columbia on May 19, 1998. See "Operating
Properties - Kemess South". The Company has several projects (Matachewan,
Duport, Red Mountain and the Pamour expansion) at various stages of development.
Work on these projects was postponed in 1997 due to low gold prices and the need
to conserve cash to complete construction of the Kemess South mine. The Company
has extensive land positions in Canada covering approximately 562,000 acres, as
well as approximately 238,000 acres in Fiji, which provide it with the
opportunity to expand its reserves through focused exploration and development.
As of and for the fiscal year ended December 31, 1997, Royal Oak had
approximately 7.0 million ounces of mineable gold reserves and had produced
351,349 ounces of gold.
The Company's five producing gold mines in 1997 consisted of the
Colomac and Giant mines in the Northwest Territories, the Pamour and Nighthawk
mines in Ontario and the Hope Brook mine in Newfoundland. In September 1997, the
Company closed the Hope Brook mine after depletion of ore reserves, and in
December 1997, the Company closed the high cost Colomac mine for economic
reasons. Both mines have been placed on care and maintenance. Through
acquisitions, exploration and the implementation of more advanced and efficient
mining methods, the Company has increased its annual production from 194,952
ounces of gold in 1991 to 351,349 ounces of gold in 1997, with record gold
production of 389,203 ounces recorded in 1996. The Company conducts a focused
exploration program to develop additional mineable gold reserves in close
proximity to its existing mines in order to maximize the utilization of its
processing facilities and to increase processing efficiencies. The reduction of
approximately 2.9 million ounces, or 29%, from the 9.9 million ounces reported
at December 31, 1996, mainly reflects the estimation of ore reserves at a gold
price of $495 per ounce ($350(US) per ounce) at December 31, 1997 compared with
$527 per ounce ($390(US) per ounce) at the end of 1996.
- --------------------------------------------------------------------------------
RISK FACTORS
You should consider carefully the risk factors set forth below as well
as the other information contained or incorporated in this Prospectus before
deciding to invest in the shares of common stock.
ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
As at October 28, 1998, the Company has approximately $321(US) million
in principal amount of long term secured undeptedness outstanding (approximately
$497(Cdn.) million based on the exchange rate as of the date hereof). Such
amount does not include capital leases of approximately $24.4 million. When
combined, the Company's secured indebtedness and capital leases represent
approximately 72% of the Company's total capitalization, and the Company's
average annual interest expense relating to such secured indebtedness and
capital leases is approximately $40.8(US) million (approximately $63(Cdn.)
million based on the exchange rate as of the date hereof).
(5)
<PAGE>
The degree of the Company's leverage is important for a number of
reasons, including: (i) requiring the Company to dedicate a significant portion
of the Company's cash flow from operations to debt service requirements, thereby
reducing the funds available for operations and future business opportunities;
and (ii) increasing the Company's vulnerability to adverse economic and industry
conditions. In addition, under the various agreements which govern the Company's
outstanding secured indebtedness, the Company is prohibited from incurring any
additional material indebtedness. These prohibitions restrict the Company's
ability to fund its operating working capital and future business opportunities
by incurring additional indebtedness.
The Company's ability to make scheduled repayments of its present
indebtedness will depend on, among other things, (a) future gold and copper
volatility (see below), (b) the future operating performance of the Company
including the ability of the Kemess South mine to operate at anticipated levels
and (c) costs of production and the Company's ability to refinance its
indebtedness when necessary. Each of these factors is to a large extent subject
to economic, financial, competitive and other factors beyond the Company's
control. We cannot assure you that we will be able to make these scheduled
repayments on a timely basis.
GOLD AND COPPER PRICE VOLATILITY
The Company's profitability is significantly affected by changes in the
market prices of gold and copper. Gold prices may fluctuate dramatically and are
affected by numerous industry factors such as demand for precious metals,
forward selling by producers, central bank sales and purchases of gold and
production and cost levels in major gold-producing regions such as North
America, South Africa and the former Soviet Union. Moreover, gold prices are
also affected by macro-economic factors such as expectations for inflation,
interest rates, currency exchange rates and global or regional political and
economic situations. The current demand for, and supply of, gold affects gold
prices, but not necessarily in the same manner as current demand and supply
affect the prices of other commodities. The potential supply of gold consists of
new gold mine production plus existing stocks of bullion and fabricated gold
held by governments, financial institutions, industrial organizations and
individuals. The establishment of a single central bank authority for the
European Union may result in sales of gold currently held by the central banks
of member nations. Since mine production in any single year constitutes a very
small portion of the total potential supply of gold, normal variations in
current production do not necessarily have a significant effect on the supply of
gold or on its price.
Copper prices may also fluctuate dramatically and are affected by
numerous factors beyond the Company's control including (a) expectations of
inflation, (b) speculative activities, (c) the relative exchange rate of the
United States dollar with other currencies, (d) global and regional demand, and
(e) production and production costs in major producing regions. For example,
between January 1, 1997 and October 28, 1998, the price per pound of copper
fluctuated between a high of $1.2338(US) and a low of $0.7043(US). The aggregate
effect of these factors, all of which are beyond the Company's control, is
impossible to predict.
If gold and/or copper prices should decline below the Company's cash
costs of production and remain at such levels for any sustained period, the
Company could determine that it is not economically feasible to continue
commercial production at any or all of its mines. The Company has recently
undertaken an analysis of the carrying value of its assets to determine
recoverability of its investments. As a result of this analysis, the Company
plans to make a pre-tax provision of approximately $81 million for the
revaluation of the carrying value of some of its assets to their estimated
realizable value. This writedown of the carrying value of any such assets will
be reflected as a non-cash charge in the consolidated financial statements for
the period ended September 30, 1998. See "Recent Developments - Writedown of
Assets". The Company enters into hedging programs, from time to time, to reduce
certain of the risks associated with gold and/or copper price volatility.
However, we cannot assure you that such hedging strategies will be successful.
See "Risk Factors - Hedging Activities". The aggregate effect of these factors,
all of which are beyond the Company's control, is impossible to predict.
(6)
<PAGE>
The volatility of gold and copper prices is illustrated in the
following table which sets forth the average of the daily closing prices in
United States dollars of gold and copper for 1980, 1985, 1990, 1995 and each
year thereafter until 1998:
<TABLE>
<CAPTION>
1980 1985 1990 1995 1996 1997 1998(3)
----------- ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gold(1) (per ounce) $614.32 $317.22 $383.64 $384.08 $391.59 $331.29 $294.40
Copper(2) (per pound) 0.990 0.643 1.208 1.331 1.060 1.032 0.762
-------------------
(1) London Bullion Market
(2) London Metal Exchange
(3) Through October 28, 1998
</TABLE>
As of October 28, 1998 the closing price for gold was $293.15(US) per
ounce and the closing price for copper was $0.704(US) per pound.
At the current world market price for gold, the Company's Giant, Pamour
and Nighthawk mines are, effectively, breaking even on a cash basis. Revenues
from gold produced at such mines are offsetting the current cash costs of
operations at such mines but are not sufficient to cover the total costs of
operations of such mines. Accordingly, if the current world market price of gold
continues for a sustained period, it is likely that operations may be
temporarily suspended, or one or all of such mines may be closed and placed on
care and maintenance. In the event of any such closures, the ability of the
Company to make the interest payments and scheduled principal repayments of its
secured indebtedness is doubtful and may result in one or more defaults under
the agreements which govern such secured indebtedness.
At current world market prices of gold and copper and provided that the
Company's operating mines achieve their forecast production and cost targets for
1998, the Company currently expects to have sufficient cash to meet interest
payments arising during the balance of 1998. However, at such price levels the
Company's ability to meet interest payments and scheduled principal repayments
of secured indebtedness occurring after 1998 will depend upon the Company's
ability to maintain its costs of production at or below current levels, the
performance of the Company's operating mines at or above forecast production,
and its ability to refinance principal repayments as they fall due.
Under the terms of the agreements which govern the Company's currently
existing secured indebtedness, a default under any of such agreements may lead
to a cross default under all of such agreements, with the result that, if there
is a default under any such agreements, all long-term secured debt together with
interest accrued but unpaid thereon may thereupon become due and payable.
HEDGING ACTIVITIES
In the normal course of its business, the Company uses gold spot
deferred contracts, gold forward sales commitments and gold call option
contracts to manage its exposure to fluctuations in the price of gold.
Contracted prices on spot deferred and forward sales contracts are recognized in
revenue when production is delivered against the commitment. If actual delivery
is not made against a particular spot deferred contract at the time of maturity,
gains or losses, if any, are recognized at that time. In addition, the Company
uses foreign exchange contracts to minimize the impact of fluctuations in
foreign currency prices. Contract positions are designed to ensure that the
Company will receive a defined minimum price for certain quantities of its
production. The related costs paid or premiums received for option contracts
(7)
<PAGE>
which hedge the sales prices of commodities are deferred and included in income
as part of the hedged transaction. Revenues from the aforementioned contracts
are recognized at the time contracts expire or are closed out by either delivery
of the underlying commodity or settlement of the net position in cash. The
Company is exposed to certain losses on forward sales contracts, generally the
amount by which the contract price exceeds the spot price of the commodity, in
the event of non-performance by the counterparties to these agreements. The
Company believes that it has minimized credit risk relating to its hedging
activities by dealing with large credit-worthy institutions and by limiting its
credit exposure to such institutions. Due to the significant decline in gold and
copper prices over the last eighteen months and the decline in the value of the
Canadian dollar relative to the United States dollar in the last seven months,
the Company has recently realized significant hedging losses.
Commodity Hedging
As of September 30, 1998, the Company had contractual arrangements, in
both United States and Canadian dollars, for 710,000 ounces of gold call options
written with expiry dates between 1998 and 2002 at strike prices of $312(US) to
$356(US) per ounce.
For the fiscal year ended December 31, 1997 and for the six month
period ended June 30, 1998, the Company suffered a $22.5 million loss and a $6.1
million gain, respectively, on commodity hedging activities.
Foreign Exchange
Currency fluctuations may affect the cash flow which the Company will
realize from its operations as gold and copper are sold in world markets in
United States dollars and the Company's costs are incurred primarily in Canadian
dollars. The Company reports its financial statements in Canadian dollars. From
time to time, the Company enters into hedging programs to reduce certain risks
associated with foreign exchange exposure, although there can be no assurance
that such hedging strategies will be successful. For the fiscal year ended
December 31, 1997 and for the six month period ended June 30, 1998, the Company
suffered a $23.8 million loss and a $9.6 million loss, respectively, on currency
hedging activities.
ORE RESERVE ESTIMATES; MINERAL INVENTORY
The ore reserves presented or incorporated by reference in this
Prospectus are estimates and no assurance can be given that the indicated amount
of gold or other minerals may be economically recovered. Ore reserve estimates
may require revisions based on actual production experience, exploration
activities and metal prices. Only certain of the Company's reserves have been
reviewed and confirmed by independent sources. Reserves are typically calculated
using current geological and calculation methods, which might not detect
fraudulent activities such as the introduction into ore samples of gold or other
precious or base metals from unrelated sources. The ore grade actually recovered
by the Company may differ from the estimated grade of reserves. The Company
revises it reserve estimates at each year end based on the results of the year's
exploration activities, metal production and metal prices. Many factors relating
to each mine, such as the design of the mine plan, unexpected operating and
processing problems, increases in the stripping ratio in open pit mines,
unforeseen geotechnical conditions which may result in increased ground support
or dilution in underground operations, and the complexity of the mineralogy and
metallurgy of an ore body, may adversely affect cash costs. Moreover,
fluctuations in the market price of gold, copper or other minerals, as well as
increased production costs or reduced recovery rates, may render reserves
containing relatively lower grades of mineralization uneconomic to recover and
may ultimately result in a reduction of reserves and mineral inventory.
GOVERNMENTAL PERMITS AND PAYMENTS
In the ordinary course of business, mining companies are required to
seek governmental permits for expansion of existing operations or for the
commencement of new operations. Obtaining the necessary governmental permits is
a complex and time-consuming process involving numerous jurisdictions and often
involving public hearings and costly undertakings on the part of the Company.
The duration and success of permitting efforts are contingent upon many
variables not within the Company's control. Environmental protection permitting,
including the approval of reclamation plans, may significantly increase costs
(8)
<PAGE>
and cause delays depending on the nature of the activity to be permitted and the
interpretation of applicable requirements implemented by the permitting
authority. There can be no assurance that all necessary permits will be obtained
and, if obtained, that the costs involved will not exceed those previously
estimated by the Company. It is possible that the costs and delays associated
with the compliance with such standards and regulations could become such that
the Company would not proceed with the development or continued operation of a
mine or mines.
The Company commenced limited production at the Kemess South mine on
May 19, 1998. On October 7, 1998, the Company announced that the Kemess South
mine reached commercial production after meeting design criteria on separate
campaigns mining and processing hypogene and supergene ore types. The
development of the Kemess South mine was facilitated by approximately $162
million of compensation, economic assistance and investment from the British
Columbia provincial government.
REGULATIONS AND MINING LAW
The Company's mining operations and exploration activities are subject
to extensive federal, provincial, state and local laws and regulations governing
exploration, development, production, exports, taxes, labour standards,
occupational health and safety, waste disposal, monitoring, protection and
remediation of the environment, reclamation, mine safety, toxic substances and
other matters. Compliance with such laws and regulations increases the costs of
planning, designing, drilling, developing, constructing, operating and closing
mines and other facilities. It is possible that the costs and delays associated
with compliance with laws and regulations could become such that the Company
would not proceed with the development or continue the operation of a mine or
mines.
The Company has expended significant resources, both financial and
managerial, to comply with environmental protection laws, regulations and
permitting requirements and the Company anticipates that it will continue to do
so in the future. Although the Company believes that its operations and
facilities comply in all material respects with applicable environmental
protection requirements, there can be no assurance that additional significant
costs and liabilities will not be incurred to comply with current and future
requirements. In July 1997, the combination of inordinately wet weather and fine
particulate soil conditions resulted in a Pollution Abatement Order being issued
against Kemess Mines Inc., a predecessor of the Company, for the release of
sedimentation into water courses around the Kemess South mine construction site.
The Company has worked closely with the federal and provincial governments to
improve its control measures and ensure compliance with the above Order and
applicable legislation. Moreover, it is possible that future developments, such
as increasingly strict environmental protection laws, regulations and
enforcement policies thereunder, and claims for damages to natural resources,
property and persons resulting from or alleged to result from the Company's
operations, could result in substantial costs and liabilities in the future. See
"Legal Proceedings".
MINING RISKS AND INSURANCE
The business of mining for gold and other metals is generally subject
to a number of risks and hazards, including environmental hazards, industrial
accidents, labour disputes, aboriginal land claims, native blockades,
encountering unusual or unexpected geological conditions, stope failures,
changes in the regulatory environment and natural phenomena such as inclement
weather conditions, floods, blizzards and earthquakes. Such occurrences could
result in damage to, or destruction of, mineral properties or production
facilities, personal injury or death, environmental damage, delays in mining,
monetary losses and possible legal liability. The Company maintains insurance
against risks that are typical in the mining industry, but which may not provide
adequate coverage in certain circumstances. Moreover, insurance against certain
risks (including certain liabilities for environmental pollution or other
hazards as a result of exploration and production) is not generally available to
(9)
<PAGE>
companies within the industry. Without such insurance, if the Company becomes
subject to environmental liabilities, the payment of such liabilities would
reduce its available funds.
EXPLORATION AND ORE RESERVE GROWTH
Exploration for gold and other precious metals is highly speculative in
nature, involves many risks and is frequently unsuccessful. We cannot assure you
that exploration efforts will result in the discovery of gold mineralization or
that any mineralization discovered will result in an increase of reserves. If
ore reserves are developed, it may take a number of years and substantial
expenditures from the initial phases of drilling until production is possible,
during which time the economic feasibility of production may change
substantially. We cannot assure you that the exploration programs will result in
the replacement of current production with new reserves or that the development
programs will be able to extend the life of existing mines or locate new mines.
In the event that new reserves are not developed, the Company may not be able to
sustain its current level of gold production. In 1997, the Company ceased
operations at its Hope Brook, Newfoundland and Colomac, Northwest Territories
mines as a result of the high operating costs relative to the price of gold and,
in the case of the Hope Brook mine, the depletion of ore reserves.
DEVELOPMENT PROJECTS
General - The Company from time to time engages in the development of
new ore bodies, both at newly acquired properties and currently existing mining
operations. The Company's ability to sustain or increase its present level of
gold production is dependent in part on the successful development of such new
ore bodies and/or expansion of existing mining operations. The economic
feasibility of any individual development project and all such projects
collectively is based upon, among other things, estimates of ore reserves,
metallurgical recoveries, production rates and capital and operating costs of
such development projects and future metal prices. Development projects are also
subject to the completion of favorable feasibility studies, the issuance of all
required governmental approvals and permits, the settlement of any claims made
against the Company or otherwise affecting the Company and its development
projects and the receipt of adequate financing. Development projects may have no
operating history upon which to base estimates of future operating costs and
capital requirements. Particularly for development projects, estimates of ore
reserves, metal recoveries and cash operating costs are to a large extent based
upon the interpretation of geological data obtained from drill holes and other
sampling techniques, metallurgical test work and feasibility studies which
derive estimates of cash operating costs based upon anticipated tonnage and
grades of ore to be mined and processed, the configuration of the ore body,
expected recovery rates of metal from the ore, comparable facility and equipment
costs, anticipated climate changes, availability of appropriate supplies of
water and power and other factors. As a result, actual cash operating costs and
economic returns of any and all development projects may differ significantly
from those anticipated in feasibility studies as a result of circumstances not
foreseeable at the time of preparation of such studies, delays in obtaining
necessary permits, settlement of claims, increases in taxes, rates and other
charges and other events that are beyond the Company's control.
Pending Projects - The development and construction cost requirements
for the Company's development projects are significant and are subject to the
completion of favorable feasibility studies, receipt of adequate financing and
all required governmental approvals and permits and other events. Work on these
projects other than the Kemess South mine was postponed in 1997 due to low gold
prices and the need to conserve cash to complete construction of the Kemess
South mine. The Company plans to update feasibility studies and prioritize the
development of its other projects when the price of gold recovers above the
$360(US) per ounce level for a sustained period. At the current world market
price of gold such projects are uneconomic and, if such price continues, it is
unlikely these projects will be completed. The Company is limited in its ability
to develop projects pursuant to restrictive covenants contained in existing
indentures and credit agreements.
(10)
<PAGE>
COMPETITION
Because mines have limited lives based on proven and probable ore
reserves, the Company is continually seeking to replace and expand its ore
reserves. The Company encounters competition from other mining companies in
connection with the acquisition of properties producing or capable of producing
gold and in the recruitment and retention of qualified employees. As a result of
this competition, some of which is with companies having significantly greater
financial resources, the Company may be unable to acquire attractive mining
properties on terms it considers acceptable. In addition, there are a number of
uncertainties inherent in any program relating to the location of economic ore
reserves, the development of appropriate metallurgical processes, the receipt of
necessary governmental permits and the construction of mining and processing
facilities and the appropriate financing thereof. Accordingly, we cannot assure
you that the Company's programs will yield new ore reserves to replace mined
reserves and expand current reserves. The Company is limited in its ability to
acquire properties pursuant to restrictive covenants contained in existing
indentures and credit agreements. See "Risk Factors - Adverse Consequences of
Financial Leverage".
ABORIGINAL LAND CLAIMS
Historically, aboriginal groups have asserted rights over land located
within their "traditional territory". In order to pursue a claim under
established treaty processes, an aboriginal group was required to notify the
responsible federal, provincial or territorial government having jurisdiction
over the land in question. Each jurisdiction has one or more procedures in place
to review and resolve any such claim, after which judicial review becomes
available. On December 11, 1997, the Supreme Court of Canada rendered judgment
in the case of Delgamuukw et al v. Her Majesty the Queen in Right of the
Province of British Colombia, The Attorney General of Canada and the First
Nations Summit et al. The impact of the Delgamuukw decision is far from certain
and will likely require many years of litigation and possible government
intervention before being finally determined. However, the Delgamuukw decision
may ultimately result in a significant change in the land claims process in
Canada by providing a legal basis for the assertion that "aboriginal title"
takes precedence over "Crown title" and by placing into dispute the Crown's
right to grant alienation of such lands without the consultation or consent of
any affected aboriginal group. The decision may result in aboriginal groups
seeking judicial relief as an alternative to the slower, more complex treaty
process. Prior to the Delgamuukw decision, it had been the policy of the British
Columbia government to exclude lands leased by third parties from ongoing treaty
negotiations with the various aboriginal groups in the Province. The most
significant of the mineral claims that make up the Kemess South mine are under
lease to the Company from the British Columbia government. The Delgamuukw
decision has created uncertainty as to the Crown's right to grant such
alienation in the absence of consulting with or obtaining the consent of
aboriginal groups claiming territorial rights. Because the future impact of the
Delgamuukw decision has yet to be determined, we cannot assure you that future
claims, negotiations or judgments will not affect the Company's properties,
including its Kemess South mine. If the Company's properties are included in any
future negotiated settlements or court awards, there can also be no assurance
that the Company would receive adequate compensation. To advance their
respective interests, some aboriginal groups may take action which will limit or
prevent operations at the Kemess South mine, such as, among other things, road
blockades and the interruption of power supply.
CHANGE OF CONTROL
The Indenture in respect of the Notes (as defined) and the Senior
Debentures (as defined) provide that, upon the occurrence of any "Change of
Control Triggering Event" or "Change of Control of the Corporation", as the case
may be, the Company will be required to make an offer to the Noteholders to
prepay the Notes and may be required by the holders of the Senior Debentures
(the "Debentureholders") to prepay the Senior Debentures at 101% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
prepayment. We cannot assure you that the Company would be able to obtain
financing on commercially reasonable terms or at all at such time, and
consequently we cannot assure you that
(11)
<PAGE>
the Company would be able to prepay the Notes and the Senior Debentures, as the
case may be, pursuant to such an offer to holders of Notes or requirements of
holders of Senior Debentures. Clause (i) of the definition of "Change of Control
Triggering Event" in the Indenture in respect of the Notes and the definition of
"Change of Control of the Corporation" in the Senior Debentures includes a sale,
lease, exchange or other transfer of "all or substantially all" of the assets of
the Company to a person or group of persons. There is little case law
interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of the lenders to require the Company to prepay the Notes and the
Senior Debentures, as the case may be, as a result of a sale, lease, exchange or
other transfer of all or substantially all of the Company's assets to a person
or group of persons may be uncertain.
CREDIT RATING CHANGES
On March 18, 1998, both Standard & Poor's ("S&P") and Moody's Investors
Service ("Moody's) downgraded Royal Oak's credit rating. S&P lowered Royal Oak's
corporate credit rating from single 'B' to double 'C' and lowered its rating of
the Notes from triple 'C' to single 'C'. Moody's lowered its rating of the Notes
from B3 to Caa2. On March 27, 1998, S&P raised its corporate credit rating for
the Company to single 'B' minus from double 'C' and its rating on the Notes to
triple 'C' from single 'C'.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings which could,
individually or in the aggregate, have a material effect on the Company. See
"Legal Proceedings".
RECENT DEVELOPMENTS
KEMESS PROJECT
The Company commenced limited production at the Kemess South mine on
May 19, 1998 when hypogene ore was conveyed to line "A", one of two parallel
milling and flotation circuits in the concentrator. On June 14, 1998, line "B"
was commissioned. Operations at the Kemess South mine are proceeding as planned.
During the period from commencement of production on May 19 to October
16, the Kemess South operation produced approximately 44,900 ounces of gold and
13.2 million pounds of copper contained in concentrates. The concentrate is
transported to the Far East for smelting and refining to recover metal values.
The Company has made design modifications and changes and adjustments
to chemical reagent additions to the flotation circuit in the concentrator to
optimize gold and copper recoveries. The average life-of-mine recoveries are
estimated to be 82% copper and 78% gold.
On October 7, 1998, the Company announced that commercial production
had been reached.
The Kemess South mine is substantially in compliance with environmental
regulations. The impoundment of tailings from the concentrator is operating
successfully as a zero discharge system. Measures adopted to control sediment in
local streams have been successfully implemented, and the re-vegetation of areas
disturbed during construction is continuing.
The final construction cost of the Kemess South mine is expected to be
approximately $480 million which is an increase of approximately 11.6% over the
previously announced cost estimate. The increase is attributed to a number of
unforeseen construction-related factors, the most significant of which related
to additional costs for the tailings dam construction and the tailings pipeline
system. These additional costs accounted for approximately one-half of the cost
overrun. The design of the tailings dam was substantially altered due to
(12)
<PAGE>
geotechnical considerations related to bedrock and soil conditions. At the
Company's request, the tailings pipeline design was changed to increase the
number of tailings lines from one to two, in order to decrease the operating
risk, adding additional costs to the previous estimates. In the dam and pipeline
areas, the previously estimated budgets had not adequately allowed for the added
difficulties in the handling of materials, nor for the control of sediments
resulting from the earthworks program, nor for the substantial increase in the
volumes of materials to be moved as a consequence of redesign. Additional costs
were incurred in power line clearing, government assessed stumpage costs,
project expenses associated with increased costs resulting primarily from staff
requirements, site accommodations, travel, freight and fuel. The remaining
overrun amounts were associated with redesign requirements during the
mechanical, piping, and electrical stage of the project construction, and bulk
construction material quantity reconciliations. Delays in completing the senior
secured debenture financing of the Company in June 1998 also contributed to cost
overruns. See "Recent Developments - 1998 Financing - Senior Secured
Debentures".
1998 FINANCING - SENIOR SECURED DEBENTURES
The Company entered into a securities purchase agreement with Trilon
Financial Corporation ("Trilon") on April 17, 1998 providing for the issuance by
the Company to Trilon and Northgate Exploration Limited of Senior Secured
Debentures in the aggregate principal amount of $120(US) million (the "Senior
Debentures") (the "Trilon Financing"). The initial draw-down of $115(US) million
under the Senior Debentures occurred on June 24, 1998 and $4.75(US) million was
drawn down on August 18, 1998. The balance of $0.25(US) million may be drawn
down subject to the fulfillment of certain conditions. The Senior Debentures
mature June 22, 2000 and bear interest at a rate of 30 day LIBOR plus 6% per
annum. Interest payments commenced July 31, 1998 and are payable monthly
thereafter.
The Company issued the Senior Debentures for the following purposes:
(i) to repurchase and retire the Senior Secured Debentures issued by the Company
in January 1998 in the principal amounts of $19.5 million and $30.7(US) million
and pay accrued interest thereon; (ii) to pay the Company's past due accounts
payable attributable to construction of the Kemess South mine; and (iii) to
provide the Company with working capital.
The Senior Debentures are secured by a first fixed and floating charge
on all of the present and after acquired property and assets of the Company and
certain of its subsidiaries, subject to mutually agreed permitted encumbrances
and are redeemable, in whole or in part, in aggregate minimum amounts owing
thereon. Under the terms of the Senior Debentures, the Debentureholders can
require the Company to transfer ownership of the Kemess South mine to a
wholly-owned subsidiary of the Company. The Company received a formal request
from the Debentureholders in early July 1998 requiring the transfer of the
Kemess South mine to a wholly-owned subsidiary of the Company. The Company has
identified adverse tax consequences which may arise from such a transfer.
Consequently, the Company has asked the Debentureholders to reconsider their
request and discussions between the Company and the Debentureholders are
continuing, regarding the proposed transfer.
The fees payable by the Company to the Debentureholders consist of the
following:
(1) a non-refundable up-front fee of $2.4(US) million, which was
paid on closing;
(2) a non-refundable fee equal to 2% of the outstanding principal
and accrued interest payable to the Debentureholders which
exceeds the following threshold levels as at the following
dates, being (a) $80(US) million on February 15, 1999, and (b)
$50(US) million on October 15, 1999; and
(13)
<PAGE>
(3) a royalty payable to Trilon of up to a maximum of 1.62% (the
"Royalty") of the gross revenues of the Kemess South mine to
be accrued but unpaid for two years and thereafter payable
quarterly. The accrued Royalty will bear compound interest at
the three-month LIBOR rate plus 1% per annum. The Royalty is
to be prorated in the event that the Senior Debentures are
redeemed prior to maturity based on the amount redeemed and
the timing of such redemption. The Company may acquire the
Royalty on June 22, 2003 at the then fair market value,
payable in cash on such closing.
HEDGING ARRANGEMENTS
The Company entered into a number of agreements with Bankers Trust
Company ("Bankers"), Macquarie Bank Limited ("Macquarie") and The Bank of Nova
Scotia ("BNS") (collectively the "Hedging Parties"), each dated June 22, 1998.
As at June 30, 1998, the Company was indebted to Bankers and BNS, pursuant to
repayment agreements (the "Repayment Agreements"), in the aggregate amount of
approximately $25(US) million, including accrued interest. The Company agreed to
pay to Bankers and BNS $500,000(US) and $100,000(US), respectively, on December
1, 1998 and agreed to pay the balance, together with interest at the rate of 12%
per annum, in twelve monthly payments, commencing in January, 1999.
The Company also entered into an agreement with Macquarie (the
"Macquarie Agreement') pursuant to which the Company agreed to secure the
payment of certain present and future indebtedness under hedging contracts
between the Company and Macquarie to the extent that any such indebtedness
becomes due.
In connection with the Repayment Agreements and the Macquarie
Agreement, the Company entered into a trust indenture (the "Hedging Indenture")
dated as of June 22, 1998 with Montreal Trust Company of Canada (the "Hedging
Trustee"), pursuant to which the Company and certain subsidiaries granted, and
may in the future grant, security in the assets, property and undertaking of the
Company and such subsidiaries to the Hedging Trustee up to a maximum amount of
$50(US) million for the benefit of the Hedging Parties and, subject to certain
conditions, other providers of credit in respect to hedging and related
activities of the Company. The security constituted by the Hedging Indenture
ranks junior in priority to the security held by the Debentureholders. The
Hedging Indenture provides for the issuance and pledging of three bonds (the
"Bonds") by the Company in favour of the Hedging Parties as security for the
indebtedness owed, and, in the case of Macquarie, certain indebtedness which may
become owing by the Company to the Hedging Parties. The Bonds issued to Bankers,
BNS and Macquarie, each dated June 22, 1998, are in principal amounts of $21(US)
million, $5(US) million and $15(US) million, respectively. The Company may in
the future issue bonds under the Hedging Indenture to secure any future
indebtedness under agreements which may be entered into by the Company in
respect to hedging and related activities of the Company, subject to the maximum
amount specified above.
SENIOR SUBORDINATED NOTES
In order to obtain the required consent to the issuance of the Senior
Debentures, the Company and the holders ("the Noteholders") of the Company's
$175(US) million Senior Subordinated Notes due 2006 (the "Notes") agreed to
certain amendments and supplements to the Indenture dated as of August 12, 1996
among the Company, Kemess Mines Inc. and Mellon Bank, F.S.B., as trustee, as
amended by the First Supplemental Indenture dated as of December 31, 1997 and
the Second Supplemental Indenture dated as of January 31, 1998 between the
Company and Chase Manhattan Trust Company, National Association ("Chase"), as
successor trustee to Mellon Bank, F.S.B. (as so supplemented and amended, the
"Indenture"). The Indenture was amended and supplemented by:
(1) the Third Supplemental Indenture dated as of May 19, 1998
which reduces the length of time required to set a record date
for determining the Noteholders entitled to consent to any
amendment or supplement of the Indenture or any waiver
pursuant thereto from 30 days to 3 days prior to the first
solicitation of such consent;
(14)
<PAGE>
(2) the Fourth Supplemental Indenture dated as of June 22, 1998
which has the effect of: (i) increasing the interest rate
payable on the Notes by 175 basis points to 12.75% per annum
effective May 30, 1998; (ii) increasing the limits on
aggregate Permitted Indebtedness (as defined in the Indenture)
to $120(US) million (to permit the issuance of the Senior
Debentures) and, to the extent the Senior Debentures are
repaid, establishing a working capital facility; (iii)
allowing the transfer in the future of the Kemess South mine
to a new wholly-owned Subsidiary (as defined in the
Indenture); (iv) allowing such Subsidiary to guarantee
repayment of certain Senior Indebtedness (as defined in the
Indenture) and the Notes; (v) providing for the granting of
collateral security by the Company and its subsidiaries to
secure the Notes; and (vi) allowing the Company to redeem the
Notes at a purchase price of 105.5% of the principal amount of
the Notes plus all accrued and unpaid interest at any time
before August 15, 2001; and
(3) the Fifth Supplemental Indenture dated as of June 22, 1998
which provides that in the event of certain bankruptcy or
other similar proceedings in which the Debentureholders and
the Noteholders may be placed in the same class of creditors,
Noteholders who consent to the Fifth Supplemental Indenture
have agreed for the benefit of themselves and their assignees:
(i) to take all steps reasonably within their control or power
to place the Noteholders in a different class of creditors
from the Debentureholders; and (ii) to assign to the
Debentureholders their voting rights in any such proceedings
to enable the Debentureholders to vote against and defeat any
restructuring plan presented to any class of creditors which
includes both the Debentureholders and the Noteholders.
Pursuant to the Fourth Supplemental Indenture, the Company and certain
of its subsidiaries granted and may in the future grant security in favour of
Chase, as trustee, and CIBC Mellon Trust Company ("CIBC Mellon"), as collateral
agent, in the assets, properties and undertaking of the Company and such
subsidiaries to secure repayment of principal and interest owing on the Notes
and all other present and future amounts owing under the Indenture. The Fourth
Supplemental Indenture included an Inter-Creditor Agreement between, among
others, the Debentureholders, Chase, as trustee, and CIBC Mellon, as collateral
agent, pursuant to which the security of the Debentureholders was confirmed as
having priority over and ranking senior to the security held by Chase and CIBC
Mellon on behalf of the Noteholders. Pursuant to the Fourth Supplemental
Indenture, Chase, as trustee, and CIBC Mellon, as collateral agent, also
acknowledged to the Company, the Hedging Trustee and the Hedging Parties that
the security constituted by the Hedging Indenture ranks in priority to the
security held by Chase and CIBC Mellon on behalf of the Noteholders.
Noteholders who executed consents to the Third, Fourth and Fifth
Supplemental Indentures were entitled to receive, pro rata based on the
percentage of principal amount of Notes held, a consent fee equal to an
aggregate of 10 million common shares of the Company issued in a private
placement not required to be registered under the Securities Act, at a deemed
issue price of $1.125(US) per common share. Resale of the common shares received
as consent fees are being registered on behalf of the Selling Shareholders
pursuant to the Registration Statement of which this Prospectus is a part. The
Third and Fourth Supplemental Indentures are binding on all Noteholders while
the Fifth Supplemental Indenture is binding only on the Noteholders who provided
their consent to such supplemental indenture. Approximately 99% of Noteholders
consented to the Fifth Supplemental Indenture.
WRITEDOWN OF ASSETS
In September 1998, the Company completed an analysis of the carrying
value of its assets at a gold price of $300(US) per ounce to determine
recoverability of its investments.
A key part of this analysis is the absence of gold production sold
forward which historically the Company has entered into from time to time to
reduce certain of the risks associated with gold price volatility. These
historic hedge positions have significantly increased the realized price
received for gold production sold by the Company with premiums above spot price
(15)
<PAGE>
ranging from $20(US) per ounce to $93(US) per ounce over the past 6 years.
Currently, the Company has no gold production sold forward and is selling all
gold production into the spot market. In addition, the Company is limited in its
ability to hedge its gold production because of certain covenants related to its
indebtedness. This restriction limits the premium above the spot gold price that
the Company is able to realize on its gold sales.
As a result of this analysis, the Company intends to make a pre-tax
provision of approximately $81 million for the revaluation of the carrying value
of its assets to their estimated realizable value. This writedown will be
reflected as a non-cash charge in the consolidated financial statements for the
period ended September 30, 1998 and is not expected to significantly affect cash
flow from operations and/or earnings before interest, taxes, depreciation and
amortization in 1998. The writedown of approximately $81 million affects the
carrying value of the Company's assets at its mining operations in Timmins,
Ontario and Yellowknife, Northwest Territories, as well as certain exploration
and development properties. The carrying value of the Company's Kemess South
mine and total Kemess property position is not affected by the writedown.
At December 31, 1997, the Company valued its ore reserves at a gold
price of $495(Cdn.) per ounce (equivalent to $350(US) an ounce at that time).
The steady decline in the gold price over the last three years will likely
result in the Company valuing its ore reserves at a gold price of $300(US) per
ounce at year-end 1998. Whereas this is expected to result in a downward
revision of mineable ore reserves at the Company's Timmins and Yellowknife
mining operations (net of production and exploration in 1998), the Company
believes that the amount of gold contained in mineable ore reserves at the
Kemess South property, which accounted for approximately 60% of the Company's
total gold contained in mineable ore reserves at December 31, 1997, will not be
effected by valuation at a gold price of $300(US) per ounce.
ISSUANCE AND EXERCISE OF SPECIAL WARRANTS
The Company filed a short form prospectus dated August 31, 1998 in the
provinces of Alberta, British Columbia, Newfoundland and Ontario in respect of
4,103,663 Common Shares issuable upon the exercise of 4,103,663 special
warrants. The special warrants, which had been issued by the Company on June 24,
1998 at a price of $1.30 per special warrant, entitled the holder to acquire one
Common Share per special warrant without payment of additional consideration.
The Company received net proceeds from the sale of special warrants of
approximately $5.2 million, all of which was used to reduce the Company's
outstanding accounts payable. No cash proceeds were received directly by the
Company. All of the special warrants have been exercised and 4,103,663 Common
Shares have been issued in offshore transactions in accordance with Regulation S
under the Securities Act.
ISSUANCE OF COMMON SHARES
The Company filed a short form prospectus dated October 23, 1998 in the
provinces of Alberta, British Columbia, Manitoba, Newfoundland and Ontario in
respect of 7,079,646 Common Shares to be issued by the Company at a price of
$1.13 per Common Share. The Company will receive net proceeds from the sale of
Common Shares of approximately $8,000,000, all of which will be used to reduce
the Company's accounts payable. No cash proceeds will be received directly by
the Company. The 7,079,646 Common Shares will be issued in offshore transactions
in accordance with Regulation S under the Securities Act.
USE OF PROCEEDS
All of the Common Shares offered hereby are being sold by the Selling
Shareholders. The Company will not receive any of the proceeds from the sale of
the Common Shares being offered hereby.
(16)
<PAGE>
PRICE RANGE AND TRADING VOLUME OF
COMMON SHARES
TRADING ON THE AMERICAN STOCK EXCHANGE
The consolidated volume of trading and price ranges in United States
dollars of the Common Shares on the AMEX are set forth in the following table
for the periods indicated:
<TABLE>
<CAPTION>
PERIOD HIGH LOW VOLUME
<S> <C> <C> <C>
1997
First Quarter.................... 3.625 2.813 24,437,500
Second Quarter................... 3.125 2.188 20,441,100
Third Quarter.................... 2.875 1.625 30,072,400
Fourth Quarter................... 3.000 0.938 65,651,200
1998
First Quarter.................... 1.625 0.625 57,559,000
Second Quarter................... 1.188 0.750 26,560,100
Third Quarter.................... 0.875 0.375 29,902,000
October (1 - 28)................. 0.938 0.625 15,802,600
</TABLE>
The closing price of the Common Shares on the AMEX on October 28, 1998
was $0.688(US).
TRADING ON THE TORONTO STOCK EXCHANGE
The volume of trading and price ranges of the Common Shares on the TSE
are set forth in the following table for the periods indicated:
<TABLE>
<CAPTION>
PERIOD HIGH LOW VOLUME
<S> <C> <C> <C>
1997
First Quarter.......................... 5.00 3.77 15,972,645
Second Quarter......................... 4.34 3.00 8,505,353
Third Quarter.......................... 3.93 2.25 13,158,220
Fourth Quarter......................... 4.15 1.37 23,944,681
</TABLE>
(17)
<PAGE>
<TABLE>
<CAPTION>
PERIOD HIGH LOW VOLUME
<S> <C> <C> <C>
1998
First Quarter.......................... 2.30 0.85 19,091,759
Second Quarter......................... 1.73 1.16 5,693,737
Third Quarter.......................... 1.32 0.55 6,847,534
October (1 - 28)....................... 1.35 0.95 4,067,854
</TABLE>
The closing price of the Common Shares on the TSE on October 28, 1998
was $1.08.
LEGAL PROCEEDINGS
The Company is from time to time involved in various claims, legal
proceedings and complaints arising in the ordinary course of business. The
Company is also subject to proceedings, lawsuits and other claims, including
proceedings under laws and regulations related to environmental and other
matters. No assurance can be given as to the ultimate outcome with respect to
such claims and litigation. The resolution of such claims and litigation could
be material to the Company's operating results of any particular period,
depending upon the level of income for such period. In addition, the Company is
subject to reassessment for income and mining taxes for certain years. It does
not believe that adverse decisions in any potential tax reassessments or any
amount which it may be required to pay by reason thereof will have a material
adverse effect on the financial condition or future results of operations of the
Company.
Mack Lake Mining Corp. v. Giant Yellowknife Mines Limited, et al,
(October 1983), begun in the Supreme Court of Ontario where the action has since
been stayed, and in the Northwest Territories as action no. 7031/83(NWT)
alleging, inter alia, title to the Salmita mineral claims, an accounting of
profits made, and damages in the sum of $10 million. The Company is one of nine
named defendants (including the original title holders) and has defended, inter
alia, on the basis of being a "bona fide purchaser for value without notice".
Pleadings and productions are complete, however pretrial discovery remains
incomplete.
Fullowka et al v. Royal Oak Mines Inc. et al, (September 1994; served
July 1995), begun by widows and dependents of nine miners killed during the 1992
strike at the Giant mine in the Supreme Court of the NWT as action no. CV 05408
alleging, inter alia, negligence on the part of the Company and two named
directors/officers (along with 23 other named defendants). Roger Warren, a
member of the Union, was charged and subsequently convicted of causing the
deaths by explosion. The claim against the Company and all named defendants but
one totals approximately $10.8 million plus interest and costs. The claim
against the two directors/officers and all defendants, excluding the Company,
totals approximately $33.65 million plus taxes, interest and costs. The Company
has denied any negligence on its part. Pleadings and productions are complete;
pre-trial discovery has commenced and is scheduled to continue throughout 1998.
A second action (action no. CV 06964) has been commenced recently by the widows
against the "John Does" in the original action; two of whom have served notices
of third party claims against, inter alia, the Company and the two
directors/officers aforesaid. Some of the Defendants have moved the court to
strike the second action as being untimely. The Northwest Territories Workers'
Compensation Board has rendered a decision that the immunity provisions of the
Workers' Compensation Act do not apply to one of the named directors/officers,
and an order has recently been obtained quashing this decision although it is
likely that the order will be appealed.
(18)
<PAGE>
James A. O'Neil v. Margaret K. Witte and William J.V. Sheridan (April
28, 1997), claim begun in the Supreme Court of the Northwest Territories as
action no. CV 07028 seeking damages of $2 million plus interest and costs and
alleging post-traumatic stress in connection with the factual events referred to
in the preceding claim. The Company has been served with a third party notice,
however, in the opinion of counsel this notice is improper and will be
discontinued.
Falconbridge Limited and Windy Craggy Exploration Limited v. Kemess
Mines Inc. and Royal Oak Mines Inc. et al, (June 1996), begun in the Supreme
Court of British Columbia as action no. C962983 alleging, inter alia, breach of
contract, breach of the duty of good faith, breach of fiduciary duty and unjust
enrichment arising from and related to agreements entered into in 1983 and 1984
between the plaintiffs and Geddes Resources Limited providing for a 22.5%
royalty on the Windy Craggy claims; and the impact on same of the British
Columbia government's appropriation of the claims for park purposes in 1993 and
its subsequent resolution of Geddes' claim for compensation under the 1995 Heads
of Agreement. Pleadings are complete and pretrial discovery is largely complete.
The trial is scheduled to commence in 1999.
Tsay Key Dene and Takla Indian Bands v. Kemess Mines Inc. et al,
(February 1997), begun in the Supreme Court of British Columbia as action no. 97
0723 seeking injunctive relief and an order setting aside the Certificate of
Approval, License of Occupation and Permits to Cut for the Kemess South mine and
its power line for, amongst other causes, alleged failure on the part of the
British Columbia government to adequately consult with the Bands before granting
the documents in issue and for alleged bias on the part of the Government
related to the Heads of Agreement entered into between the British Columbia
government and the Company in August 1995 in, inter alia, settlement of the
Windy Craggy compensation claim. Interim and interlocutory injunction
applications were denied by two separate judges of the British Columbia Supreme
Court and have not been appealed by the petitioners. Hearing on the merits of
the petitioners' claims was scheduled to commence in September 1997 but was
adjourned at the petitioners' request to accommodate a court supervised
mediation process between the British Columbia government and the petitioners,
which began in August 1997, continued into December 1997 and was adjourned in
January 1998 upon the withdrawal by one of the petitioners following
pronouncement of the Delgamuukw decision by the Supreme Court of Canada. See
"Risk Factors - Aboriginal Land Claims". In May 1998, the Takla Indian Band
discontinued the proceeding against the Defendants. Also in May 1998, the other
petitioner, the Tsay Key Dene, and the Provincial Government agreed to
mediation, and the scheduled proceedings will be adjourned pending results of
the mediation.
Tsay Key Dene Indian Band and Grand Chief v. The Attorney General of
Canada, Her Majesty the Queen in the Right of Canada and Her Majesty the Queen
in the Right of B.C. et al, (January 1998), begun in the Supreme Court of
British Columbia as action no. 98 0232. Even though the Company is not a party
to this proceeding, the relief claimed could adversely impact the Kemess South
mine and as a result the Company may seek intervenor status. The plaintiff,
relying on the Delgamuukw decision, asserts that federal and provincial approval
of the Kemess South mine constituted an infringement of the plaintiff's
aboriginal rights and title to the land on which the Kemess South mine is
located and further constituted a breach by both governments of their fiduciary
and constitutional obligations. The plaintiff seeks declarations of statutory
invalidity rendering all licenses and permits granted thereunder
unconstitutional, void and unenforceable; damages from the named Provincial
Ministries and departments, and injunctive relief designed to prevent the Kemess
South mine from operating.
Takla Lake Indian Band v. The Attorney General of Canada, Her Majesty
the Queen in the Right of B.C. and Royal Oak Mines Inc., (February 1998), begun
in the Supreme Court of British Columbia as action no. 03742 seeking
declarations of statutory invalidity and negation of all licenses, permits and
decisions regarding the Kemess South mine made thereunder; and damages and
injunctive relief. As with the preceding action, this action appears to be
founded on the Delgamuukw decision and claims aboriginal use of and title to the
lands on which the Kemess South mine is located. Outside counsel has been
retained and the Company intends to vigorously respond and defend.
(19)
<PAGE>
Golden Hill Ventures Ltd. v. Kemess Mines Inc., (September 1997), begun
in support of Golden Hill's Builder's Lien in the Supreme Court of British
Columbia as action no. 10023 (Smithers) and relocated as action no. 4146 (Prince
George) alleging, inter alia, pre-tender and contractual misrepresentations
relied on to Golden Hill's detriment, breach of contract, quantum meruit, unjust
enrichment and an "extras" claim for work and materials in a sum that doubles
the original contract amount. The amount claimed is for the holdback under the
contract, less outstanding room and board owed by the plaintiff (being the
amount of $309,507.00), plus extras in the amount of $6,153,395.00. The Company
is disputing the alleged misrepresentations and challenging the extras claimed
as being related to and arising from alleged deficiencies in the plaintiff's
performance of the contract and is asserting a counterclaim for losses arising
from delay in the plaintiff's performance including the work of subsequent
contractors. Pretrial discovery commenced during the summer of 1998 and is
continuing.
Royal Oak Mines Inc. v. Tercon Contractors Ltd. (arbitration; January
1998 and heard March-May 1998, ongoing) Tercon Contractors Ltd. v. Royal Oak
Mines Inc. (builders lien proceeding) (May 1998). On March 20, 1998, the
arbitrator entered an award finding against the Company generally and directed
that the parties attempt to agree as to actual amounts owing, absent which
agreement the arbitrator would retain jurisdiction over the matter for the
purpose of determining the amount of a final monetary award against the Company.
On May 5, 1998, the arbitrator made a partial award in the amount of
$6,453,105.28. A court order that the award could be enforced as a judgment was
made on May 7, 1998. On May 13, 1998, Tercon obtained a writ of seizure and sale
of the Kemess South mine lease and claims. The Company challenged the same and
on June 4, 1998, the court ordered the return of the mine lease and claims,
stayed any execution against the same under this proceeding and under the
builders lien proceeding commenced by Tercon. The court ordered the Company to
pay $3,500,000 to Tercon from the proceeds of the Trilon financing (which amount
has been paid) and permitted the Company to make application for payment terms
as to the balance. This application is set to be heard October 30, 1998. In the
builders lien action commenced by Tercon, Tercon has obtained a declaration that
it is entitled to a claim of lien in the amount of $2,953,185.28. This action
has not been completed, and while Tercon is expected to proceed with the
builders lien action, no date for the completion thereof has been set. Further
proceedings on the builder's lien claim are likely to be dependent on the
outcome of the October 30th application. In addition, in May 1998, Royal Oak
commenced proceedings against Tercon for misrepresentation in connection with
the subject contracts. This proceeding is in its very early stages.
Additional Builders' Liens and Claims. The Company has also received
notice of and is in the process of responding to builders' liens filed against
the Kemess South mine and/or claims arising out of work performed at the Kemess
South mine by various contractors.
One of the claimants, Focus Industrial Contractors Inc. commenced an
action in the Supreme Court of British Columbia in May 1998 as action 0982755
against the Company and certain of its employees, its subcontractor, Great West
Electric Co. Ltd., and its employee, claiming $914,604 for conversion. The
Company is defending the action and has agreed to indemnify the other
defendants.
Pollution Abatement Order: On July 16, 1997, the Company was served
with a Pollution Abatement Order by the Province of British Columbia under
section 31 of its Waste Management Act, respecting the Kemess South mine. The
basis for the order was the release of total suspended solids into Kemess Creek
and associated tributary water courses asserted to be at potentially deleterious
levels. The release related to soil, dust, and mud that entered the creek system
during very heavy rains encountered during the earth-moving construction work at
the mine site. The Company has cooperated with both the British Columbia and
federal ministries since issuance of the order and implemented a plan that dealt
with sediment control techniques and structures during the 1998 Spring runoff. A
joint government investigation into the sedimentation issue and the likely
impact of same on fish in the Kemess creeks began in March 1998.
(20)
<PAGE>
SELLING SHAREHOLDERS
The Common Shares offered hereby were issued by the Company to the
holders (the "Noteholders") of its Series B Secured 12.75% Senior Subordinated
Notes due 2006 (the "Notes"). In June 1998, Royal Oak completed a $120(US)
million Senior Secured Debenture offering to Trilon and Northgate Exploration
Limited. The Company solicited consents from all Noteholders for amendments and
supplements to, and a waiver under, the indenture dated August 12, 1996 (the
"Indenture") pursuant to which the Notes were issued, all of which were
necessary to complete the Trilon Financing. The Company agreed to pay a consent
fee to beneficial owners of the Notes who consented to all of the proposed
amendments to, and waiver under, the Indenture. The consent fee is payable by
way of issuance to the beneficial holders of Notes, pro rata based on the
percentage of principal amount of Notes held, of an aggregate of 10,000,000
Common Shares of the Company on a private placement basis at a deemed issue
price of $1.125(US) per Common Share. See "Recent Development - 1998 Financing
Senior Secured Debentures.
The Company has agreed to register the Common Shares under the
Securities Act of 1933, as amended (the "Securities Act") and to pay most
expenses in connection therewith. The Common Shares may be offered and sold
pursuant to this Prospectus by the persons named below (the "Selling
Shareholders"). Except for their status as Noteholders and as indicated below,
none of the Selling Shareholders has or, within the past three years, has had,
any material relationship with the Company. The Company will not receive any of
the proceeds from the sale of the Common Shares registered hereunder by the
Selling Shareholders.
Set forth below is the name of each Selling Shareholder and opposite
his/her name is the number of Common Shares held by such holder, as of the date
of this Prospectus, and the number of Common Shares to be offered hereby. None
of the Selling Shareholders holds in excess of one percent (1%) of the class of
Common Shares.
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES NUMBER OF COMMON SHARES
NAME OWNED OFFERED HEREBY
<S> <C> <C>
Bost & Co. 276,968.00 276,968.00
NationsBanc Montgomery Securities, LLC 463,149.00 463,149.00
Nesbitt Burns Inc. 57,533.00 57,533.00
Clayton H. Schubert Jr. & Margaret M. Schubert 287.00 287.00
Co TTEES FBO Development Economics Pension
Plan Dtd 12/29/84
Clayton Schubert Cust for Clayton Randolph 287.00 287.00
Schubert u/ca UGMA
Owen Ward 1,438.00 1,438.00
Delaware Charter Guarantee & Trust Co. 287.00 287.00
FBO William Isaacs IRA
Asa Chandler 287.00 287.00
Delaware Charter Guarantee & Trust Co. 5,753.00 5,753.00
Cust Lee W. Minton Jr. IRA
Barry Schneiderwind 5,753.00 5,753.00
CIBC Oppenheimer 265,002.00 265,002.00
IFTC 1,206,775.00 1,206,775.00
Waleelight & Co. 184,109.00 184,109.00
Gauge & Co. 306,368.00 306,368.00
Sidefin & Co. 57,533.00 57,533.00
Grain & Co. 23,013.00 23,013.00
Long Bluff & Co. 215,752.00 215,752.00
Bearding & Co. 4,314.00 4,314.00
Saxon & Co. 66,164.00 66,164.00
Bernard Heerey 29,342.00 29,342.00
Nathaniel Grey 8,628.00 8,628.00
Comac International NV 395,833.00 395,833.00
</TABLE>
(21)
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES NUMBER OF COMMON SHARES
NAME OWNED OFFERED HEREBY
<S> <C> <C>
Comac Partners LP 472,641.00 472,641.00
Comac Endowment Fund LP 181,519.00 181,519.00
Contrarian Capital Fund 1 LP 434,669.00 434,669.00
Contrarian Capital Offshore Fund Limited 33,139.00 33,139.00
Trident Tr Co LMTD (Cayman) LMTD
Contrarian Capital Fund II LP 252,517.00 252,517.00
FAMCO Income Partners 115,067.00 115,067.00
FAMCO Value Income Partners 356,710.00 356,710.00
Long Term Capital Portfolio LP LT 53 LTC Corp. 287,670.00 287,670.00
DFG Corporation MAB Capital Offset 129,451.00 129,451.00
ZPG Securities LLC Acorn/Fam 17,259.00 17,259.00
Wight Martindale, Jr. 2,877.00 2,877.00
Hare & Co. 1,236,981.00 1,236,981.00
IRA-F/B/O George D. Nagrodsky 1,726.00 1,726.00
Gruntal & Co. as Custodian
OBIE & Co. 1,165,061.00 1,165,061.00
Gerlach & Co. 287,670.00 287,670.00
Goldman Sachs & Co. 85,553.00 85,553.00
Batrus & Co. 11,506.00 11,506.00
Auer & Co. 2,877.00 2,877.00
Swim & Co. 678,900.00 678,900.00
Heisen & Co. 172,601.00 172,601.00
T. Finn & Co. 33,656.00 33,656.00
c/o Chase for acct #N76304-35
Ingalls & Snyder LLC 283,123.00 283,123.00
Lewis Kahn 3,739.00 3,739.00
Jordan A. Grey 1,438.00 1,438.00
Smith Barney Inc. 5,753.00 5,753.00
Harbor Fund II LP 28,767.00 28,767.00
Paragon Capital Corp. 287.00 287.00
Dr. Earl Shneider 1,438.00 1,438.00
Famco Off Shore Ltd. Hemisphere Mngmt. 5,062.00 5,062.00
Milton S. Lider Trust 575.00 575.00
DTD 4/17/97 Milton S. Lider TTEE
Fahnestock & Co. Inc. 8,918.00 8,918.00
Richard M. Young 5,753.00 5,753.00
Anne N. Young 2,877.00 2,877.00
Jeffrey Bremser 575.00 575.00
Charles G. Hanson TTEE 2,877.00 2,877.00
Charles G. Hanson Trust dtd 8/6/93
Shirley Bush Helzberg TTEE 4,890.00 4,890.00
Shirley Bush Helzberg Rev Trust dtd 12/23/94
Ray D. Jones Jr. 1,726.00 1,726.00
Madalene Olander Woodbury 575.00 575.00
Madalene Orlander Woodbury Liv Revocable
Trust dtd 11/6/96
Thomas H. Woodbury 575.00 575.00
Philip L. Woodbury 1,726.00 1,726.00
Philip L. Woodbury Rev Trust U/A dtd 4/25/90
Albert D. Kramer & 575.00 575.00
Gail S. Kramer JWRDS
Comac Partners 46,027.00 46,027.00
Wayne Hummer Investments LLC 575.00 575.00
FBO John T. Brennan IRA Plan
</TABLE>
(22)
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES NUMBER OF COMMON SHARES
NAME OWNED OFFERED HEREBY
<S> <C> <C>
Account #0520937715
Wayne Hummer Investments LLC 575.00 575.00
FBO Bonnie L. Brennan IRA Plan
Account #0520937517
Marcia Weisz 1,726.00 1,726.00
Annette Starr Trustee 1,726.00 1,726.00
Annette Starr Self Decl Trust, UAD 10/2/90
William Smulders & Joan Smulders JT TEN 575.00 575.00
Steve Rochell 2,301.00 2,301.00
Ernst & Company 5,753.00 5,753.00
Hare & Co. 5,753.00 5,753.00
Bunk Doherty & Griffin SC 4,027.00 4,027.00
Edwin R. Buster III 5,753.00 5,753.00
Jacques Geyer 9,204.00 9,204.00
Mary E. Glade 287.00 287.00
Tim Horrigan 1,438.00 1,438.00
Stanley Kwitek 1,150.00 1,150.00
Jesse P. Luton Jr. & 2,877.00 2,877.00
Helen J. Luton Jt Ten
Arnold W. Manske & 2,301.00 2,301.00
Clarice M. Manske Jt Ten
Ruth E. Martin Irrevocable Trust 1,150.00 1,150.00
Victor Planeaux & 1,150.00 1,150.00
Dorothy C. Planeaux Jt Ten
2832 Ashfield Lane
Joseph Horrigan 575.00 575.00
William M. Breen 575.00 575.00
CP Sanders & 575.00 575.00
Margaret B. Sanders Jt Ten
Marvin Harold Bock Trust 575.00 575.00
Marvin Harold Bock TTEE
John Gohmann 575.00 575.00
Tejas Securities Group 2,877.00 2,877.00
Prudential Securities 1,726.00 1,726.00
Custodian for Nathaniel I. Grey
Prudential Securities 575.00 575.00
Custodian for David Muething
Nathaniel I. Grey & 575.00 575.00
Herbert M. Grey Ten Comm
Justin A. Bereny & 575.00 575.00
Frances E. Bereny Jt Ten
Albert D. Kramer & 575.00 575.00
Gail S. Kramer Jt Ten
------------- -------------
10,000,000 10,000,000
---------- ----------
</TABLE>
PLAN OF DISTRIBUTION
Offers and sales of Common Shares pursuant to this Prospectus may be
effected by each of the Selling Shareholders from time to time in one or more
transactions, directly by such Selling Shareholders or through underwriters,
brokers, dealers or agents to be designated from time to time, at prices and on
terms then prevailing in the market or in privately negotiated transactions.
Such
(23)
<PAGE>
offers or sales may be effected in any legally available manner, including
without limitation (i) directly in privately negotiated transactions, (ii)
through purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus, (iii) through block
trades in which a broker-dealer will attempt to sell the Common Shares as agent
but may resell a portion of the block as principal to facilitate the
transaction, (iv) through transactions on the American Stock Exchange and The
Toronto Stock Exchange in accordance with the rules of such exchanges, (v)
through ordinary broker's transactions and transactions in which the broker
solicits the purchasers, and (vi) through any combination of two or more of the
foregoing.
In connection with the sale of the Common Shares, underwriters,
brokers, dealers and agents may receive compensation from the Selling
Shareholders or from purchasers of the Common Shares in the form of discounts,
concessions or commissions. Underwriters, brokers, dealers and agents who
participate in the distribution of the Common Shares may be deemed to be
underwriters, and any discounts or commissions received by them from the Selling
Shareholders and any profit on the resale of Common Shares by them may be deemed
to be underwriting discounts and commissions under the Securities Act. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
At the time a particular offer of Common Shares is made, if and to the
extent required, this Prospectus will be accompanied by a Prospectus Supplement
setting forth the specific number of Common Shares offered, the name of the
Selling Shareholders making the offer, the offering price and the other terms of
the offering, including the names of any underwriters, agents, dealers and
brokers involved and the compensation, if any, of such underwriters, agents,
dealers or brokers.
WHERE YOU CAN FIND MORE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act (the
"Registration Statement") with respect to the registration of the shares offered
under this Prospectus. This Prospectus constitutes a part of the Registration
Statement and, in accordance with the rules of the Commission, omits certain of
the information contained in the Registration Statement. For such information,
reference is made to the Registration Statement and the exhibits thereto.
The Company files annual, quarterly and current reports, proxy
statements and other information with the Commission. You may read and copy any
reports, statements or other information that the Company files at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
You may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Company makes its filings with the
Commission electronically and such filings are also available to the public on
the Commission's internet site at http://www.sec.gov. You may also inspect the
Company's Commission reports and other information at the office of NASDAQ
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF INFORMATION FILED WITH THE COMMISSION
The following documents and portions of documents filed by the Company
with the Commission are hereby incorporated by reference into this Prospectus
and made a part hereof:
(a) Form 10-K of the Company for the year ended December 31, 1997;
(b) Form 10-Q of the Company dated May 15, 1998;
(c) Form 10-Q of the Company dated August 14, 1998;
(d) Form 8-A12B of the Company dated March 2, 1998;
(e) Form 8-K of the Company dated January 8, 1998 with respect to
the Company's closing in escrow of its $44 (US) million Senior
Secured Debenture financing;
(24)
<PAGE>
(f) Form 8-K of the Company dated January 8, 1998 with respect to
the establishment of a record date of November 30, 1997 for
obtaining the consent of the $175 (US) million Senior
Subordinated Note holders;
(g) Form 8-K of the Company dated January 19, 1998 with respect to
reaching an agreement with a majority of the $175 (US) million
Senior Subordinated Note holders to consents acceptable to the
$44 (US) million Senior Secured Debenture holders;
(h) Form 8-K of the Company dated January 28, 1998 with respect to
the Company drawing down funds from the $44 (US) million
Senior Secured Debenture financing;
(i) Form 8-K of the Company dated February 25, 1998 with respect
to the adoption of a shareholder rights plan by the board of
directors;
(j) Form 8-K of the Company dated March 11, 1998 with respect
to a capital cost increase of 9.3% for the Kemess South mine
from previously announced estimates;
(k) Form 8-K of the Company dated March 17, 1998 with respect to a
technical default under the Company's $44 (US) million Senior
Secured Debentures;
(l) Form 8-K of the Company dated March 17, 1998 with respect to
the Company holding a conference call on March 18, 1998;
(m) Form 8-K of the Company dated March 18, 1998 with respect to
a summary of the Company's conference call on March 18, 1998;
(n) Form 8-K of the Company dated March 25, 1998 with respect to
the Trilon Financial Corporation $120 (US) million Senior
Secured Debenture financing;
(o) Form 8-K of the Company dated March 30, 1998 with respect to
the Company's response to a press release issued by the Tsay
Keh Dene Band on March 30, 1998;
(p) Form 8-K of the Company dated March 31, 1998 with respect to
the Company's unaudited operating results for the fourth
quarter and year ended December 31, 1997;
(q) Form 8-K of the Company dated April 7, 1998 with respect to
the Company's exploration program for 1998;
(r) Form 8-K of the Company dated May 12, 1998 with respect to the
Company's unaudited financial results for the first quarter
ended March 31, 1998;
(s) Form 8-K of the Company dated May 15, 1998 with respect to
arrangements to receive consents from the majority of the
$175(US) million Senior Subordinated Note holders;
(t) Form 8-K of the Company dated June 16, 1998 with respect to
the filing of annual financial statements;
(u) Form 8-K of the Company dated June 24, 1998 with respect to
the Company's closing the $120 (US) million Senior Secured
Debenture financing with Trilon Financial Corporation;
(v) Form 8-K of the Company dated July 24, 1998 with respect to
the concentrates from the Kemess South mine meeting all assay
specifications for pre-payment;
(25)
<PAGE>
(w) Form 8-K of the Company dated August 14, 1998 with respect to
the Company's unaudited financial results for the second
quarter ended June 30, 1998;
(x) Form 8-K of the Company dated August 17, 1998 with respect to
the Kemess South mine meeting all design criteria for
processing hypogene ore;
(y) Form 8-K of the Company dated September 15, 1998 with respect
to a short form prospectus for the issuance of 4,103,633
common shares upon the exercise of 4,103,633 special warrants;
(z) Form 8-K of the Company dated September 22, 1998 with respect
to a $81(US) million writedown of the Company's assets in the
third quarter;
(aa) Form 8-K of the Company dated October 7, 1998 with respect to
the Kemess South mine reaching commercial production;
(bb) Form 12b-25 relating to the Company's Form 10-K dated March
31, 1998; and
(cc) Proxy Statement of the Company dated May 21, 1998 prepared in
connection with the Company's annual and special meeting of
shareholders held on June 26, 1998, filed under cover of
Schedule 14A.
(dd) the description of the Common Shares which is contained in its
Registration Statement filed under Section 12 of the Exchange
Act and any amendment or report filed for the purpose of
updating such description filed subsequent to the date of this
Prospectus and prior to the termination of the offering
described herein.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this
Prospectus and prior to the termination of this offering, shall be deemed to be
incorporated by reference into and to be a part of this Prospectus. Any
statement contained in or in any document incorporated or deemed to be
incorporated by reference into this Prospectus shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus, except as so modified or superseded.
The Company hereby undertakes to provide without charge to
each person, including any beneficial owner to whom a copy of this Prospectus
has been delivered, upon written or oral request of such person, a copy of any
or all of the information that has been incorporated by reference in this
Prospectus (not including exhibits to such information unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Written or oral requests for such copies should be directed to
Royal Oak Mines Inc., 5501 Lakeview Drive, Kirkland, Washington, 98033-7314,
U.S.A. Attention: Vice-President, Investor Relations, telephone: (425) 822-8992,
Fax: (425) 822-3552.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be
passed upon for the Company by Lang Michener. Partners and associates of Lang
Michener own beneficially, directly or indirectly, 5,000 Common Shares and
options to acquire 115,000 Common Shares. In addition, pursuant to a short form
prospectus dated October 23, 1998 and in accordance with Registration S under
the Securities Act, Lang Michener will receive 176,991 Common Shares. A partner
of Lang Michener is a director and Secretary of the Company.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and
1996 and the consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997 of the Company included in the Company's December 31, 1997 Annual
Report on Form 10-K, incorporated by reference in this Prospectus, have been
incorporated herein in reliance on the report of Arthur Andersen, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
(26)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows:
Securities and Exchange Commission Registration Fee...................$1,998.26
Accountant's Fees and Expenses...........................................$1,000
Listing Fees...............................................................$N/A
Legal Fees and Expenses.................................................$20,000
Blue Sky Fees and Expenses.................................................$N/A
Miscellaneous..............................................................$N/A
Total................................................................$22,998.26
The registrant will pay all of these expenses.
Item 15. Indemnification of Directors and Officers
Under the Business Corporations Act (Ontario), the Company may
indemnify a present or former director or officer or a person who acts or acted
at the Company's request as a director or officer of another corporation of
which the Company is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he was made a party by reason of his position with the Company and provided that
the director or officer acted honestly and in good faith with a view to the best
interests of the Company and, in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, had reasonable grounds for
believing that his conduct was lawful. Such indemnification may be made in
connection with a derivative action only with court approval. A director or
officer is entitled to indemnification from the Company as a matter of right if
he was substantially successful on the merits and fulfilled the conditions set
forth above.
In accordance with the Business Corporations Act (Ontario),
the By-laws of the Company indemnify a director or officer, a former director or
officer, or a person who acts or acted at the Company's request as a director or
officer of a corporation in which the Company is or was a shareholder or
creditor, and his heirs and legal representatives, against any and all losses
and expenses reasonably incurred by him in respect of any civil, criminal or
administrative proceeding to which he is made a party by reason of being or
having been a director or officer of the Company or other corporation if he
acted honestly and in good faith with a view to the best interests of the
Company or, in the case of a criminal or administrative action or proceeding
that is enforced by monetary penalty, he had reasonable grounds in believing
that his conduct was lawful.
A policy of directors' and officers' liability insurance is
maintained by the Company which insures directors and officers for losses as a
result of claims based upon the acts or omissions as directors and officers of
such Company, including liabilities arising under the Securities Act of 1933, as
amended, and also reimburses the Company for payments made pursuant to the
indemnity provisions under the Business Corporations Act (Ontario).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provision, the Company has
been informed that in the opinion of the U.S. Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
(27)
<PAGE>
Item 16. Exhibits
Exhibit Number Description of Exhibits
5 Opinion of Counsel
23.1 Consent of Independent Accountants
23.2 Consent of Counsel (Contained in Exhibit 5)
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by section 10(a)(3)
of the Securities Act of 1933 (the "1933 Act");
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that
are incorporated by reference in the registration statement.
2. That, for the purpose of determining any liability under the
1933 Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the 1934 Act (and, where applicable, each filing of any employee
benefit plan's annual report pursuant to Section 15(d) of the 1934 Act)
that is incorporated by reference in registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification
(28)
<PAGE>
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
(29)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Kirkland, State of Washington, on the 30th day of
October, 1998.
ROYAL OAK MINES INC.
By: /s/ Margaret K. Witte
-------------------------------------
Margaret K. Witte
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capabilities and dates indicated.
<TABLE>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/Margaret K. Witte President, October 30, 1998
- ------------------------------------ Chief Executive Officer ----------------
Margaret K. Witte and Director
(Principal Executive Officer)
/s/James H. Wood Chief Financial Officer October 30, 1998
- ----------------------------------- (Principal Financial and ----------------
James H. Wood Accounting Officer)
/s/Joseph A. Brand Controller October 30, 1998
- ----------------------------------- ----------------
Joseph A. Brand
/s/Ross F. Burns Director October 30, 1998
- ----------------------------------- ----------------
Ross F. Burns
/s/William J.V. Sheridan Director October 30, 1998
- ----------------------------------- ----------------
William J.V. Sheridan
Director October 30, 1998
- ----------------------------------- ----------------
J. Conrad Lavigne
Director October 30, 1998
- ----------------------------------- ----------------
Dale G. Parker
</TABLE>
(30)
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
5 Opinion of Counsel
23.1 Consent of Independent Accountants
23.2 Consent of Counsel (Contained in Exhibit 5) N/A
(31)
EXHIBIT 5
[LETTERHEAD OF LANG MICHENER]
Reply to:
Toronto Office
October 29, 1998
Securities and Exchange Commission
450 5th Street N.W.
Judiciary Plaza
Washington, D.C. 20549
U.S.A.
Dear Sirs:
RE: ROYAL OAK MINES INC.: REGISTRATION STATEMENT ON FORM S-3
We are counsel to Royal Oak Mines Inc., a company amalgamated under the laws of
the Province of Ontario (the "Company") and have acted on its behalf in
connection with the registration under the Securities Act of 1933, as amended
(the "Act") of 10,000,000 common shares, without par value (the "Common
Shares"), of the Company, previously issued by the Company to the holders (the
"Noteholders") of its Series B Secured 12.75% Senior Subordinated Notes due 2006
(the "Notes"). The 10,000,000 Common Shares were issued to the Noteholders in
June 1998 in consideration of the Noteholders providing their consent to certain
waivers and amendments to the indenture under which the Notes were issued to,
among other things, permit the Company to complete a $120(US) million Senior
Secured Debenture offering. The consent fee was payable by way of issuance to
the beneficial holders of Notes, pro rata based on the percentage of principal
amount of Notes held, of an aggregate of 10,000,000 Common Shares of the Company
on a private placement basis at a deemed issue price of $1.125(US) per Common
Share.
We are generally familiar with the properties and affairs of the Company. As the
basis for the opinions herein expressed, we have also made such investigations
and examined such additional documents and proceedings as we have considered
relevant and necessary. In such examinations, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to authentic original documents of documents
submitted to us as certified, conformed or photostatic copies or facsimiles.
The opinions expressed herein are expressly limited to the laws of the Province
of Ontario and the laws of Canada applicable therein and we express no opinion
as to the laws of any other jurisdiction.
Based and relying on the foregoing, we are of the opinion that the said
10,000,000 Common Shares have been validly allotted and issued as fully paid and
non-assessable Common Shares in accordance with applicable law.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-3 relating to the above mentioned Common
Shares.
Yours truly,
/s/Lang Michener
-2-
EXHIBIT 23.1
[LETTERHEAD OF ARTHUR ANDERSEN & CO.]
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
We consent to the incorporation by reference in the Royal Oak Mines Inc. Form
S-3 Registration Statement (relating to the issuance of 10,000,000 common
shares) of our audit report dated April 6, 1998 to the shareholders of Royal Oak
Mines Inc. on the balance sheets as at December 31, 1997 and 1996, and the
statements of income (loss), retained earnings (deficit) and cash flow for the
years ended December 31, 1997, 1996 and 1995.
/s/ Arthur Andersen & Co.
Vancouver, British Columbia
October 29, 1998
