<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 1-4350
ROYAL OAK MINES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
ONTARIO, CANADA 98-01621
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
C/O ROYAL OAK MINES (USA) 98033-7314
5501 LAKEVIEW DRIVE (POSTAL/ZIP CODE)
KIRKLAND, WASHINGTON, U.S.A.
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 822-8992
-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- ----------------------------------------
COMMON SHARES WITHOUT PAR VALUE AMERICAN STOCK EXCHANGE
THE TORONTO STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days. Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
Aggregate market value of the voting stock held by non-affiliates of the
registrant on March 23, 1998, based on the closing price of the shares on the
American Stock Exchange, was US$111,057,785.
Common shares outstanding as of March 23, 1998 were 140,865,079, including
1,924,816 shares owned by a wholly-owned subsidiary that may not be voted.
This Form 10-K has 84 pages; the Exhibit Index is located at page 80.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Glossary - Selected Mining Terms 4
Glossary - Selected Financial Terms 6
PART I
Item
- -----
1 Business 7
2 Properties 18
3 Legal Proceedings 33
4 Submission of Matters to a Vote of Security Holders 35
Executive Officers of the Registrant 35
PART II
5 Market for Registrant's Common Stock and Related Shareholder
Matters 36
6 Selected Financial Data 38
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 39
8 Financial Statements and Supplementary Data 49
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 77
PART III*
10 Directors and Executive Officers of the Registrant 78
11 Executive Compensation 78
12 Security Ownership of Certain Beneficial Owners and Management 78
13 Certain Relationships and Related Transactions 78
PART IV
14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 78
Exhibit Index 80
</TABLE>
The Registrant will furnish a copy of any exhibit filed as part of this report
to any shareholder of record upon receipt of a written request from such person
and payment of the Registrant's reasonable expenses for furnishing such an
exhibit. Requests should be made to the Vice President, Investor Relations, at
the address set forth on the cover page of this report.
- --------------
*Part III is incorporated by reference to Registrant's Management Information
Circular (Proxy Statement) to be provided by Registrant in connection with the
1998 Annual Meeting of Shareholders which involves the election of directors and
which will be filed within 120 days after December 31, 1997, the close of
Registrant's 1997 fiscal year.
-2-
<PAGE>
REPORTING CURRENCY AND FINANCIAL INFORMATION
ALL DOLLAR AMOUNTS STATED HEREIN ARE IN CANADIAN CURRENCY, UNLESS OTHERWISE
INDICATED.
The following table sets forth for each of the years indicated the exchange rate
of the Canadian dollar into the United States dollar at the end of each such
year, the average exchange rate during each such year, the highest rate, and
lowest rate during each such year:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
End of Period Rate(1) 0.7034 0.7301 0.7323 0.7129 0.7544
Average Rate(2) 0.7222 0.7332 0.7305 0.7321 0.7751
Highest Rate 0.7489 0.7513 0.7527 0.7632 0.8046
Lowest Rate 0.6947 0.7235 0.7023 0.7105 0.7439
</TABLE>
(1) Noon buying rate in New York City on December 31 for cable transfers
as certified for customs purposes by the Federal Reserve Bank of New York.
(2) Arithmetic average of the exchange rates on the last day of each month
during the year.
On March 24, 1998, the noon buying rate in New York City for cable transfers as
certified for customs purposes by the Federal Reserve Bank of New York was
C$1.00 equal to US$0.7047.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains references to the future performance,
plans and expectations of Royal Oak Mines Inc. ("Royal Oak," the "Registrant,"
the "Corporation" or the "Company") that are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on numerous variables and assumptions that
are inherently uncertain, including without limitation general economic and
competitive conditions and factors more fully described under "Risks and
Uncertainties" in "Item 7 - Management's Discussion and Analysis of Financial
Condition" and "Results of Operations" and the Company's other Securities and
Exchange Commission filings. Among such factors are those relating to the
Company's ability to successfully complete development projects within projected
capital budgets or to carry on mining operations within projected operating
budgets, volatility in the price of gold, copper and other commodities, interest
and foreign exchange rates, government regulation and agency action, competing
land claims, the accuracy of estimates of ore reserves and mineral inventory.
Actual future results or values may be materially more or less favorable than
projected. The forward-looking statements in this Annual Report on Form 10-K
represent the Company's judgment as of the filing date, and the Company
disclaims any intent or obligation to publicly release the results of any
revisions that may be made to these forward-looking statements to reflect any
future events or circumstances. Certain forward-looking statements in this
Annual Report on Form 10-K will be identified by a cross-reference to this
special note.
-3-
<PAGE>
GLOSSARY - SELECTED MINING TERMS
ADIT - A horizontal opening into the side of a hill to provide access for
underground mining.
CHALCOPYRITE - A sulphide mineral of copper and iron, a common ore of copper.
CONCENTRATE - A fine powdery product containing the valuable metal from which
most of the waste material in the ore has been eliminated and discarded.
CYANIDATION - A method of extracting gold or silver by dissolving it in a weak
solution of sodium or potassium cyanide.
DECLINE - A sloping underground opening for machine access from level to level
or from surface; also called a "ramp".
DILUTION - The effect of waste or low grade ore being included and removed along
with the ore in the mining process, subsequently lowering the grade of the ore.
DORE BAR - Unrefined gold and silver bullion bars usually consisting of
approximately 90 per cent precious metals.
DRIFT - A horizontal underground tunnel driven alongside or through an ore
deposit, from either an adit or shaft, to gain access to the deposit.
DYKE - A tabular intrusive igneous rock that cuts across or along pre-existing
country rock.
FLOTATION - A milling process by which some mineral particles are induced to
become attached to bubbles of froth and float, and others to sink so that the
valuable minerals are concentrated and separated from the worthless gangue.
FOOTWALL - The mass of rock beneath a geological structure (orebody, fault,
etc.).
GANGUE - Valueless rock or mineral aggregates in an ore which cannot be avoided
in mining.
GRADE - The amount of valuable mineral in each ton of ore, expressed as troy
ounces per ton for precious metals and as a percentage for other metals.
CUTOFF GRADE: The minimum content level at which an orebody can be
economically mined.
MILL HEAD GRADE: Metal content of mined ore going into a mill for
processing.
RECOVERED GRADE: Actual metal content recovered from the ore.
RESERVE GRADE: Estimated metal content of an orebody, based on reserve
calculations.
HYPOGENE - Ores or mineralized material formed by an upward moving enrichment
process, typically consisting of disseminations, fracture fillings and quartz
veinlets carrying varying amounts of copper and iron sulphides.
METRIC CONVERSION -
1 acre = 0.405 hectare
1 foot = 30.48 centimeters
1 mile = 1.609 kilometers
1 ton = 0.907 tonne
1 troy ounce = 31.103 grams
1 ounce per ton = 34.285 grams per tonne
MILL - A plant where ore is ground fine and undergoes physical or chemical
treatment to extract or upgrade the valuable metals.
-4-
<PAGE>
MINEABLE ORE RESERVES - Ore reserves which include allowances for dilution in
mining and take into account losses which are likely to occur in mining. All
ore reserves reported by the Company are mineable ore reserves.
MINERAL DEPOSIT - A deposit of mineralization which may or may not be ore, the
determination of which requires a comprehensive feasibility study.
MINERAL INVENTORY - Proven ore reserves plus probable ore reserves plus
mineralized material.
MINERALIZATION - Rock containing minerals or metals of economic interest.
MINERALIZED MATERIAL - A natural aggregate of one or more minerals which either
is not sufficiently delineated as to size, tonnage and grade or, even if so
delineated, cannot be economically extracted at the time of the reserve
determination at the stated economic conditions and, accordingly, cannot be
classified as mineable ore reserves.
OPT - Ounces per ton.
ORE - Mineralization that can be mined at a profit under the stated economic
conditions.
OREBODY - A mineral deposit that can be mined at a profit under existing
economic conditions.
ORE RESERVES - The tonnage and grade of an economically and legally extractable
orebody.
OXIDE ORE - Ore subjected to weathering and oxidation of primary minerals.
PORPHYRY - An igneous rock in which a number of mineral crystals are
conspicuously much larger than the majority of the crystals which make up the
rock. These large crystals are often of the mineral feldspar. Porphyry copper
and gold deposits are mineral deposits hosted in large intrusive igneous bodies
made up of porphyritic rock. These deposits usually contain very fine
dissemination of minerals containing gold and copper.
PROBABLE ORE RESERVES - Ore reserves that have reasonable geologic continuity
but cannot be considered proven because inspection and measurement locations are
not detailed enough to estimate accurately the size, shape, and mineral content
of the body. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
PROVEN ORE RESERVES - Ore reserves that can be accurately estimated by
establishing the size, shape, and mineral content of an orebody by inspection
and closely spaced samples.
PYRITE - A common sulphide mineral, shiny and yellow in color and composed of
sulphur and iron, sometimes known as "fool's gold".
RAISE - A vertical hole between mine levels used to move ore or waste rock or to
provide ventilation.
RAMP - An inclined underground tunnel which provides access for exploration or a
connection between levels of a mine.
RECOVERY PERCENTAGE - A measurement of the efficiency of milling which expresses
the amount of metal recovered as a percentage of the metal included in the ore
which was sent into the milling circuit.
REFINING - The final stage of metal production in which impurities are removed
from the molten metal.
RESOURCE - Mineralization based on geological evidence and assumed continuity.
May or may not be supported by samples but is supported by geological,
geochemical, geophysical or other data.
SHAFT - A vertical or steeply inclined opening providing access to a mine for
equipment, personnel and supplies and to hoist out ore and waste. It can also
be used for ventilation and as an auxiliary exit from the mine.
SPLAY - A fracture, fault or vein which splits off of a larger fracture, fault
or vein.
STOPE - An excavation in a mine from which ore is being, or has been, extracted.
-5-
<PAGE>
STRIP RATIO OR STRIPPING RATIO - The ratio of waste tons mined to ore tons
mined.
SULPHIDE ORE - Mineralization where the metal content is combined with sulphur.
SULPHIDES - Compounds of sulphur with other metallic elements.
SUPERGENE - Ores or mineralized material formed by secondary enrichment of
hypogene mineralization typically overlying the hypogene zone.
TAILINGS - The material that remains after all metals considered economic have
been removed from ore during milling.
TAILINGS POND - Containment area used to deposit tailings from milling.
TONS - Short tons. Two thousand pounds.
TPD - Tons per day.
GLOSSARY - SELECTED FINANCIAL TERMS
CASH COST PER OUNCE - Includes all site operating expenses, but excludes
royalties, marketing, capital and exploration expenditures, depreciation, post-
closure restoration accruals, finance and corporate administrative expenses;
divided by ounces produced. Cash costs has the same meaning, except not on a
unit production basis.
CASHFLOW - A measure of the fiscal strength of a business. The net of the
inflow and outflow of cash during an accounting period. Does not include
depreciation, amortization, or other items that do not involve an actual cash
outlay.
CONTANGO - Contango on gold is the positive difference between the spot market
gold price and the forward market gold price. It is often expressed as an
interest rate and is the difference between inter-bank deposit rates and gold
lending rates.
FORWARD SELLING - An agreement to sell a certain quantity of future production
at a set future date at a predetermined price.
GOLD REVENUE PER OUNCE - Total revenues received from gold sales, divided by the
number of ounces sold. Gold revenues are the result of spot sales and gold
derivative transactions.
LIBOR - London Interbank Offered Rate.
RATIO OF DEBT TO EQUITY - A measure of the total of a company's financial
strength which illustrates how much of the funds it uses were borrowed compared
with the total of how much was invested by shareholders plus earnings retained
by the company. Formula for the Company: (total debt/total debt plus total
shareholders' equity).
RETURN ON AVERAGE EQUITY - How much a company earns with the money invested by
shareholders and on earnings retained in the business. Simple formula: Average
equity = total of shareholders' equity at the beginning of the year and at the
end of the year divided by two. Return = (earnings/average equity) x 100.
SPOT DEFERRED CONTRACT - A spot deferred contract is similar to a forward sale
except the company has the option to extend the contract (roll it over). The
ultimate delivery date and sale price are not fixed on the contract. If it is
rolled over, the new contract price is based on the price at maturity of the old
contract plus a contango premium on the rollover date.
SPOT SALES - Transactions in which gold is sold for cash. The value date is two
business days in the future at which time gold is transferred to the buyer and
currency is sent to the seller.
WORKING CAPITAL - Current assets less current liabilities.
-6-
<PAGE>
PART I
ITEM 1 - BUSINESS
The Company is a major North American gold mining company that 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 is planning to
commence production at its new Kemess gold-copper mine located in British
Columbia in approximately May 1998. The Company has several projects
(Matachewan, Copperstone, 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
Company's South Kemess project. The Company has extensive land positions in
Canada covering approximately 617,000 acres, as well as over 7,000 acres in the
United States and 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, the Company had approximately 7.0
million ounces of gold in mineable ore reserves and produced 351,349 ounces of
gold.
In 1997, the Company's five producing gold mines 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 Colomac Mine, after processing stockpiled
ore, for economic reasons. Both facilities are currently 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
ore reserves in close proximity to its existing mines in order to maximize the
utilization of its processing facilities and to increase processing
efficiencies. As of December 31, 1997, the Company reported approximately 7.0
million ounces of gold in mineable ore reserves, net of reserve additions
through exploration and gold production for the fiscal year. The reduction of
approximately 2.9 million ounces, or 29%, from the 9.9 million ounces reported
at year-end 1996, primarily reflects the estimation of ore reserves at a gold
price of C$495 per ounce (US$350 per ounce) at December 31, 1997 compared to
C$527 per ounce (US$390 per ounce) at the end of 1996.
The Company's principal executive offices are located at 5501 Lakeview Drive,
Kirkland, Washington 98033-7314. Its telephone number is (425) 822-8992 and its
fax number is (425) 822-3552. Its internet address is http://www.royal-oak-
mines.com.
CORPORATE STRUCTURE AT MARCH 23, 1998
<TABLE>
<S> <C>
Royal Oak Mines Inc. Parent
10502 Newfoundland Ltd. Wholly-owned
934962 Ontario Inc. Wholly-owned
Arctic Precious Metals, Inc., doing business as Royal Oak Mines (USA)
and its wholly-owned subsidiary, Oz Investments, Inc. Wholly-owned
Beaverhouse Resources Limited Wholly-owned
Consolidated Professor Mines Limited Wholly-owned
Royal Oak Hope Brook Ltd. Wholly-owned
Royal Oak Timmins Ltd. Wholly-owned
Royal Oak Yellowknife Ltd. Wholly-owned
Witteck Development Inc. Wholly-owned
Ronnoco Gold Mines Limited 89% owned
Northbelt Yellowknife Gold Mines Ltd. 72% owned
Royal Eagle Exploration Inc. and its wholly-owned subsidiary, First
Eagle Holdings, Inc. 60% owned
</TABLE>
In addition, the Company has certain strategic investments (see "Strategic
Investments", page 8).
HISTORY
The Company came into existence on July 23, 1991 as a result of the amalgamation
of five companies: Giant Yellowknife Mines Limited, Pamour Inc., Pamorex
Minerals Inc., Royal Oak Resources Ltd., and Akaitcho Yellowknife Gold Mines
Limited, certain of which commenced operations approximately sixty years ago.
As a result of this amalgamation, the Company had two operating mines, Pamour
and Giant. On January 1, 1992, the Company amalgamated with its wholly-
-7-
<PAGE>
owned subsidiary, Supercrest Mines Limited. In addition to its wholly-owned
subsidiaries, the Company has a majority interest in three companies, Ronnoco
Gold Mines Limited, Northbelt Yellowknife Gold Mines Limited and Royal Eagle
Exploration Inc.
Since 1993, the Company has acquired the following properties and interests:
- - the Colomac Mine in the Northwest Territories (and an existing royalty
interest) from Neptune Resources Corp. (1993);
- - a controlling interest in Kemess Mines Inc. (formerly Geddes Resources
Limited) from Neptune Resources Corp. (1993) which was amalgamated with the
Company on December 29, 1997;
- - an option in respect of the Kim/Cass property in the Northwest Territories
from Echo Bay Mines Ltd., Comaplex Minerals Corp. and Petromet Resources
Limited (1994);
- - the Red Mountain property in British Columbia from Barrick Gold Corporation
(1995);
- - the Nicholas Lake gold property in the Northwest Territories from Athabaska
Gold Resources Ltd. (1995);
- - an 89.4% interest in Ronnoco Gold Mines Limited, thereby providing the
Company with a land position on the Nighthawk Lake Break in Ontario (1995-
6);
- - a leasehold interest in the Copperstone property located in Arizona (1995);
- - all of the outstanding shares of Geddes, El Condor Resources Ltd. and St.
Philips Resources Inc., thereby acquiring the Kemess property in British
Columbia (1996), the later two of which were dissolved on December 16,
1997;
- - all of the outstanding shares of Consolidated Professor Mines Limited,
thereby acquiring the Duport property in Ontario (1996);
- - the Cape Ray gold property in Newfoundland from American Gem Corporation
and the net smelter return royalty on the property from Homestake Canada
Inc. (1996); and
- - the Namosi mineral licenses in Fiji (1997).
STRATEGIC INVESTMENTS
ASIA MINERALS CORP.
In November 1993, the Company formed a strategic alliance with Asia Minerals
Corp. ("Asia Minerals") to identify and acquire gold mining properties in China.
The Company purchased an initial 32% interest for $2 million. In 1996, the
Company increased its interest in Asia Minerals to 44.2% by exercising options
and by purchasing $2.8 million of additional equity. At December 31, 1997, the
Company's interest in Asia Minerals was 44.1%.
Asia Minerals primary business activity has been mineral exploration in China.
In December 1995, Asia Minerals signed a joint venture contract (the "Joint
Venture Contract") to acquire a 50% interest in the Yingezhuang gold mine
located in Shandong Province, China. The Chinese partner is Zhaoyuan City Gold
Corp. The Joint Venture Contract required the approval of the Chinese Ministry
of Foreign Trade and Economic Cooperation ("MOFTEC") which was granted in August
1997. Subsequently, in October 1997, the State Administration for Industry and
Commerce issued a business license to the joint venture.
In January 1998, Asia Minerals announced its intent to terminate the Yingezhuang
gold mining joint venture asserting that its joint venture partner had breached
a number of general principles, provisions and performance requirements of the
Joint Venture Contract. Asia Minerals concluded that the expansion of the
Yingezhuang gold mine would not be commercially viable for technical, economic
and management reasons as a result of its partner's non-compliance with the
contract. In March 1998, Asia Minerals announced that it was terminating all
production activity in China and closing its Beijing office.
In March 1997, Asia Minerals executed an option agreement with the OMNI Mines
Development group to earn a 90% interest in the Aurora property located in the
Sierra Madre mountains on the island of Luzon in the Philippines. The property
consists of one approved exploration permit and seven exploration permit
applications covering a total area of approximately 55,000 hectares. The
geology of the property is highly prospective for epithermal gold, porphyry
copper-gold and polymetallic massive sulphide style mineralization. Asia
Minerals carried out an exploration program on the Aurora property in 1997.
In February 1998, Asia Minerals terminated the option agreement and wrote off
all pre-operating and exploration costs incurred as of December 31, 1997.
-8-
<PAGE>
HIGHWOOD RESOURCES LTD.
In March 1996, Mountain Minerals Co. Ltd. ("Mountain Minerals") completed the
purchase of Conwest Exploration Company Limited's 34.7% interest in Highwood
Resources Ltd. ("Highwood") for $3.4 million. In August 1996, through a Plan of
Arrangement, Highwood acquired all of the outstanding shares of Mountain
Minerals. The companies combined and continued under the name of Highwood
Resources Ltd. The industrial minerals activities continue under the trade
names of Mountain Minerals and Limeco Products. The Company currently has a
38.6% interest in Highwood.
Mountain Minerals produces and markets industrial minerals including barite,
silica, limestone and gypsum products, and zeolites. In 1997, production of
barite and silica increased compared to those in 1996. The Chinese barite plant
is operating satisfactorily and supplies high brightness barite filler and
extender products to Asian markets. Highwood continues to attempt to develop
new markets in order to utilize the plant's full production capacity. Limestone
production decreased while gypsum production increased slightly in 1997 compared
to 1996. Although commercial zeolite production increased in 1997, it remained
at relatively low levels. Revenue of $15 million in 1997 increased
approximately 21% from 1996 while cash flow from operations of $1.4 million
decreased from $2.1 million in the prior year. Operating income increased 110%
in 1997 to approximately $863,000 compared to approximately $410,000 in 1996.
The Company is advised that Highwood is continuing its development plans for its
Thor Lake beryllium property located in the Northwest Territories on which
approximately $12.5 million has been expended. Underground and surface
exploration, metallurgical testwork, and a feasibility study in the late 1980's
established a mineral inventory of approximately 500,000 tons grading 1%
beryllium oxide and outlined a process technology for recovery of a marketable
beryllium product. The feasibility study is in the process of being updated to
take into account recent developments in the beryllium and specialty metals
industry. Surface bulk samples have been taken for further metallurgical
testwork and market development studies. In 1997, Highwood filed an application
for a required water license that would allow for the extraction of a bulk
sample from the property. The application is currently undergoing regulatory
review which Highwood anticipates will be completed in 1998. However, there can
be no assurance that Highwood will be able to develop mineral deposits of
sufficient quality and/or quantity to be mined profitably. See "Special Note
Regarding Forward-Looking Statements."
Highwood has also pursued certain interests in China, including a joint venture
barite plant in Guiyang, and has entered into a strategic joint venture with an
administrative branch of the Chinese provincial government regulating mining and
geological matters. The Company is advised that Highwood is aggressively
looking for other business opportunities that would represent strategic growth
and expansion of its current industrial minerals business.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
In 1997, the Company operated in one dominant industry segment, gold mining,
carried out in Canada in the Northwest Territories and the Provinces of Ontario
and Newfoundland.
REVIEW OF OPERATIONS
GOLD PRODUCTION IN 1997
The Company produced 351,349 ounces of gold in 1997, a decrease of 10% from the
record 389,203 ounces produced in 1996. Gold production in 1997 included 61,128
ounces of recovered silver (compared to 53,995 ounces in 1996) expressed as 699
ounces of gold equivalent (compared to 723 ounces in 1996). Silver production
at the Kemess South Mine is expected to average approximately 375,000 ounces per
year over the life of the mine. See "Special Note Regarding Forward-Looking
Statements."
Copper production in 1997 was 1,050,421 pounds in concentrates, 507,734 pounds,
or 33%, less than the 1,558,155 pounds produced in 1996. The concentrate was
shipped from the Hope Brook Mine to a smelter for processing. Revenue from the
sale of the concentrate is credited to mine site cash costs.
In 1997, average cash costs decreased by 4% to US$330 per ounce from US$343 per
ounce in 1996.
On a per-ton of ore milled basis, production costs decreased from C$31.50 per
ton in 1996 to C$30.59 per ton in 1997, a decrease of 3%.
-9-
<PAGE>
PRODUCTION, RESERVES AND COST DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRODUCTION:
Ore milled (tons) 5,248,102 5,772,771 5,556,450 3,992,472 2,892,891
Recovered gold and equivalent (oz) 351,349 389,203 371,151 318,171 276,320
TOTAL MINERAL INVENTORY:
Mineable ore reserves(oz gold) 7,016,000 9,875,000 9,263,000 2,516,000 2,682,000
Mineralized material (oz gold) 12,500,000 7,384,000 6,303,000 3,969,000 2,327,000
Total mineral inventory (oz gold) 19,516,000 17,259,000 15,566,000 6,485,000 5,009,000
Costs:
Operating cost/ton milled(C$/ton) 30.59 31.50 32.79 39.17 38.27
Cash cost (US$/oz) 330 343 358 311 311
Depreciation and amortization (US$/oz) 43 45 29 22 14
</TABLE>
NORTHWEST TERRITORIES DIVISION
COLOMAC MINE
PRODUCTION, RESERVES AND COST DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Production:
Ore milled (tons) 2,906,081 3,013,156 2,725,388 985,091 --
Head grade (oz/ton) 0.044 0.046 0.047 0.047 --
Recovery (%) 85.43 87.30 92.34 87.10 --
Recovered gold & equivalent (oz) 108,678 122,416 117,646 40,568 --
Total Mineral Inventory:
Mineable ore reserves(oz gold) -- 261,000 711,000 694,000 709,000
Mineralized material (oz gold) 283,000 237,000 260,000 467,000 179,000
Total mineral inventory (oz gold) 283,000 498,000 971,000 1,161,000 888,000
Costs:
Operating cost/ton milled (C$/ton) 18.34 20.51 22.72 -- --
Cash cost (US$/oz) 354 370 383 -- --
Depreciation and amortization (US$/oz) 49 66 46 -- --
</TABLE>
- ---------------------
Note: In 1994, revenue from production at the Colomac Mine was netted
against start-up costs and deferred as pre-production expenses.
At the Colomac Mine gold production decreased by 11% in 1997 to 108,678 ounces
from 122,416 ounces in 1996. Mill throughput in 1997 was 4% below the level in
1996. The overall grade of 0.044 opt gold was 4% below the grade of 0.046 opt
in 1996. Mill recovery in 1997 was 85.43% compared to 87.30% in 1996, a
decrease of 2%.
The Colomac mine tailings impoundment facility continued to operate in 1997 as a
"zero discharge" facility. The total volume of fresh water consumed for all
industrial purposes at the Colomac mine site has been reduced by approximately
75% since 1994 through increased use of recycled water from the tailings
impoundment.
Although the Company completed an all-weather road between Colomac and the
Kim/Cass pits in 1996, it abandoned planned mining of the Kim pit due to high
lake water that encroached inside the ultimate pit limit. Because of these
environmental concerns and because of the closure of the Colomac Mine, the
Kim/Cass pits have not been included in mineable reserves.
The Company expended approximately $1.9 million in exploration expenditures at
Colomac and its surrounding properties in 1997. The program included drill-
testing for mineralization amenable to underground mining. Drill results
included a best intersection of 0.353 opt per 132 feet. The Company is
currently looking for a joint venture partner to assist in development of the
deposit.
-10-
<PAGE>
In September 1997, the Company discontinued mining operations at the Colomac
Mine because of depletion of economic ore reserves. The Colomac Mine was closed
in December 1997 after processing stockpiled ore and has been placed on care and
maintenance.
GIANT MINE
PRODUCTION, RESERVES AND COST DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Production:
Ore milled (tons) 389,443 367,421 410,966 430,238 413,098
Head grade (oz/ton) 0.270 0.262 0.254 0.264 0.264
Recovery (%) 87.35 86.46 86.73 86.95 85.86
Recovered gold and equivalent (oz) 91,805 83,385 91,423 101,176 92,948
Total Mineral Inventory:*
Mineable ore reserves(oz gold) 332,000 702,000 826,000 763,000 840,000
Mineralized material (oz gold) 1,572,000 1,324,000 1,317,000 1,313,000 1,331,000
Total mineral inventory (oz gold) 1,904,000 2,026,000 2,143,000 2,076,000 2,171,000
Costs:
Operating cost/ton milled (C$/ton) 99.25 110.34 100.59 92.71 95.86
Cash cost (US$/oz) 304 357 329 289 330
Depreciation and amortization (US$/oz) 16 14 10 11 9
*1995, 1996 and 1997 reserves include Nicholas Lake.
</TABLE>
The Giant Mine has been in production since 1948 and has produced more than 7.6
million ounces of gold.
In 1997, gold production increased by 10% to 91,805 ounces from the 83,385
ounces of gold produced in 1996. In 1997, mill throughput increased by 6% from
367,421 tons in 1996 to 389,443 tons. Gold recovery was 87.35% in 1997, similar
to recovery of 86.46% in 1996.
Throughout 1996 and 1997, major programs focused on accessing the higher grade
Supercrest, Lower B, LAW and C Zones. The new 1500 Level tram reached its
targeted capacity by the end of 1996 when higher grade ore from the Supercrest
area became available on a consistent basis. In 1997, these higher-grade
development headings increased the average mill head grade.
Cash costs of US$304 per ounce of gold were 15% lower than US$357 per ounce
reported in 1996. On a per ton of ore basis, the operating cost of C$99.25 per
ton was 10% lower than in 1996. See "Special Note Regarding Forward-Looking
Statements." Due to the high cost of electric power (approximately 12
cents/kWh), the Company is reviewing alternatives for generating power at the
mine.
The effluent treatment plant at Giant operated in substantial compliance with
the mine's water use license. The Company's Water Use License expires in 1998
and the permitting process for renewal commenced in the second quarter of 1997.
Production in 1998 is forecast at approximately 94,000 ounces of gold at an
estimated cash cost of US$276 per ounce of gold. See "Special Note Regarding
Forward-Looking Statements."
-11-
<PAGE>
ONTARIO DIVISION
PRODUCTION, RESERVES AND COST DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Production:
Ore milled (tons) 1,365,851 1,381,665 1,329,846 1,350,007 1,330,722
Head grade (oz/ton) 0.086 0.086 0.067 0.069 0.072
Recovery (%) 86.70 87.60 90.20 89.20 89.60
Recovered gold and equivalent (oz) 101,613 104,577 80,120 85,755 87,346
Total Mineral Inventory:*
Mineable ore reserves (oz gold) 2,292,000 3,993,000 2,656,000 716,000 386,000
Mineralized material (oz gold) 3,361,000 3,278,000 1,885,000 1,712,000 506,000
Total mineral inventory (oz gold) 5,653,000 7,271,000 4,541,000 2,428,000 892,000
Costs:
Operating cost/ton milled (C$/ton) 32.06 30.06 30.29 28.34 26.25
Cash cost (US$/oz) 311 291 368 327 310
Depreciation and amortization (US$/oz) 82 53 20 37 20
*Reserves include the Pamour Mine, the Nighthawk Mine, Matachewan, Nighthawk
Lake properties, and Duport project.
</TABLE>
The Pamour Mine is located approximately 15 miles east of the City of Timmins,
Ontario and has been in production for over 60 years since operations commenced
in 1936. During this period the mine has produced more than four million ounces
of gold. Total gold production from the Company's properties in the Timmins
gold camp exceeds 43 million ounces.
The 4,000 tpd capacity mill at the Pamour Mine processes ore from an underground
mine, two open pits, the adjacent Hoyle underground mine and the Nighthawk
underground mine.
In 1997, gold production at the Pamour Mine mill was 101,613 ounces, a decrease
of 3% from 104,577 ounces produced in 1996. Production from the Pamour Mine and
the Hoyle underground operations accounted for 48,348 ounces, and the Pamour
Mine open pits for 18,302 ounces. The Nighthawk Mine produced 34,963 ounces of
gold.
In 1997, 1,365,851 tons of ore were milled, 1% less than the record throughput
of 1,381,665 tons in 1996. In 1997, mill head grade was 0.086 opt gold,
substantially unchanged from 1996. Gold recovery of 86.70% was 1% lower than
the recovery of 87.60% recorded in 1996.
In 1997, cash costs increased by 7% to US$311 per ounce of gold from US$291 per
ounce in the previous year. The operating cost of C$32.06 per ton of ore milled
was 7% higher than the C$30.06 reported in 1996.
In 1998, production at the Pamour Mine is budgeted at approximately 101,275
ounces of gold at an estimated cash cost of US$269 per ounce. See "Special Note
Regarding Forward-Looking Statements."
NIGHTHAWK
The Nighthawk Mine is located 10 miles from the Pamour Mine mill which processes
ore from the Nighthawk Mine. The mine was operated between 1924 and 1927 and
produced 99,628 tons of ore grading an average of 0.32 opt of gold. The Company
developed the Nighthawk Mine, placing it into production in September 1995.
Full production of 750 tpd was attained in May 1996. In 1997, the Nighthawk
Mine produced 34,963 ounces of gold from 334,568 tons of ore.
The Company plans ultimately to extend the ramp to 750 feet below surface.
Mining methods for this underground mine are primarily longhole open stoping,
with 50 feet between sublevels.
The three principal ore zones, the Main Zone, 1 Zone and 4 Zone, have been
developed on the upper levels with the largest tonnage of ore being mined in the
Main Zone. The Ramp Zone, located 500 feet along strike from the Main Zone, has
been drilled to establish continuity within the zone and to explore the
potential between the Ramp Zone and the Main Zone.
-12-
<PAGE>
At the end of 1997, the mineral inventory at the Nighthawk Mine was 972,000
tons grading 0.136 opt of gold.
PAMOUR EXPANSION
At the Pamour Mine, low grade mineralization surrounds the higher grade bulk
stopes and has been drilled to examine the potential for large scale open pit
mining.
The results of recent drilling programs have been included in a geological
database which contains data from over 60 years of exploration, development
and production. Drilling has outlined over 1,093,000 ounces of gold in open
pit reserves with further potential still to be tested to depth and along
strike. See "Special Note Regarding Forward-Looking Statements."
Preliminary studies indicate that there is sufficient geological potential
for open pit ore, when supplemented with ore from the Hallnor, Pamour,
Nighthawk and Ronnoco properties, to justify construction of a new 15,000 tpd
mill. A feasibility study has been carried out to optimize the design of 60
Pit and to determine the most economic production scheduling of underground
and open pit mining at the Company's Timmins operations.
In 1996, the initial phases of development commenced as drilling continued on
60 Pit. Computerized modeling, mine planning, environmental baseline
studies, preliminary engineering and pre-stripping of the pit also commenced
in 1996. Ore from 60 Pit and the other sources is not economic at current
gold prices. Due to low gold prices and the need to conserve cash to complete
construction of the Company's Kemess South project, further work on the
Pamour expansion was postponed in 1997.
NEWFOUNDLAND DIVISION
HOPE BROOK MINE
PRODUCTION, RESERVES AND COST DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Production:
Ore milled (tons) 586,727 1,010,529 1,090,250 1,227,136 1,149,071
Head grade (oz/ton) 0.087 0.087 0.090 0.089 0.101
Recovery (%) 84.10 89.83 84.43 82.10 82.48
Recovered gold and equivalent (oz) 49,253 78,825 81,962 90,672 96,026
Total Mineral Inventory:
Mineable ore reserves (oz gold) -- 63,000 215,000 343,000 746,000
Mineralized material (oz gold) -- 104,000 399,000 477,000 311,000
Total mineral inventory (oz gold) -- 167,000 614,000 820,000 1,057,000
Costs:
Operating cost/ton milled (C$/ton) 42.23 37.58 35.35 32.30 31.48
Cash cost (US$/oz) 363 353 343 320 292
Depreciation and amortization (US$/oz) 0 37 32 23 13
</TABLE>
The Hope Brook Mine experienced a challenging year as ground control problems
affected mining operations. In 1997, gold production was 49,253 ounces, 29,572
ounces less than the 78,825 ounces produced in 1996, reflecting closure of the
mine in September after depletion of ore reserves. Mill throughput was 586,727
tons, 42% below the level in 1996.
Mill recovery of 84.10% was 6% below recovery of 89.83% in 1996. Milling
operations were temporarily suspended in January and February for economic
reasons. During the mill shutdown ore was stockpiled. Mill operations
resumed at full capacity for the remainder of the year until closure of
operations by supplementing mine feed with stockpiled material.
Cash costs of US$363 per ounce were 3% higher than 1996 costs of US$353 per
ounce. Operating costs increased 12% in 1997 to C$42.23 per ton of ore
milled from C$37.58 in 1996. This increase in cost reflects both the
difficult ground conditions experienced as the year progressed and the impact
of grinding harder ore in the mill.
In 1996, the Company purchased the Cape Ray deposit, located 37 miles west of
Hope Brook, which contains 500,000 tons grading 0.294 opt gold. The drilling
program at Cape Ray during the year was designed to follow up on untested and
inadequately tested drill targets and to delineate open pit tonnages on the
51 Zone to supplement feed to the Hope Brook
-13-
<PAGE>
mill. The drilling confirmed earlier indications of high grade material near
surface, however the high cost of transporting the ore to Hope Brook rendered
the project uneconomic. As a result, the Cape Ray deposit was not included
as part of mineable reserves as of December 31, 1996 and instead was
classified at that time as mineralized material.
Due to the depletion of ore reserves, the Company closed all operations at the
Hope Brook Mine in the third quarter of 1997. The Company plans to relocate
substantially all of the components of the facility to the Matachewan site in
Ontario at an undetermined future date.
In preparation for closure, reclamation plans for the Hope Brook mine site were
updated and expanded in detail. The Hope Brook Mine has been placed on care and
maintenance. The Company is currently attempting to sell all of its
Newfoundland properties.
FINANCIAL INFORMATION - FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company currently does not carry on any operations for mining and treatment
of ore outside of Canada (other than through its investments in Asia Minerals
and Highwood). The Company sells its gold production in US dollars that are
converted to Canadian dollars, the currency in which the majority of the
Company's costs are incurred. The Company reports financial data in Canadian
dollars. The Company has United States/Canadian foreign currency derivative
contracts in place, the status of which are described in Note 12(d) to the
Consolidated Financial Statements.
EXPLORATION
The Company's exploration strategy combines the close focus on satellite
deposits adjacent to the existing operations with the acquisition of advanced
stage development properties to ensure a steady supply of projects with the
potential to maintain long-term growth in gold production.
All exploration activities are managed out of the Kirkland, Washington offices
of the Company's wholly-owned U.S. subsidiary, Arctic Precious Metals, Inc. In
addition, the Company has an Eastern Canadian office in Timmins, Ontario and
Western Canadian offices in Yellowknife, Northwest Territories and Smithers,
British Columbia.
Exploration expenditures in 1997, including exploration activities at operating
mines, totaled $8.6 million with the primary focus on outlining additional
reserves proximate to the Company's mines. Due to low gold prices and the
Company's cash position, the exploration budget for 1998 has been reduced to
$5.0 million. See "Special Note Regarding Forward-Looking Statements."
MARKETING
The principal product produced at all the divisions is gold bullion dore bars
which are shipped to refineries for further refining. Sales of the refined gold
are made to various banks and bullion dealers and are based both on previously
hedged prices and on spot market prices. The dore bars also contain silver
which is separated from the gold in the refining process and the Company is
credited with the silver content at spot market rates. In recent years, silver
credits have been approximately 55,000 ounces of silver per year. The Company
anticipates that this will increase significantly after commencement of
production at the Kemess South mine.
U.S. dollar proceeds generated through the sale of gold bullion are converted to
Canadian dollars and are based primarily on the exchange rate in effect at the
date of conversion.
The Company engages in certain derivative transactions in an attempt to minimize
the impact of fluctuations in gold, oil and foreign currency prices. The credit
risk related to derivative activities is limited to the unrealized gains on
outstanding contracts based on current market prices. The Company has also
limited credit risk by dealing with large creditworthy institutions and by
limiting credit exposure to each. See Note 12(d) of the Consolidated Financial
Statements for the particulars on the Company's derivative activities.
-14-
<PAGE>
Benchmark prices for gold are generally based on the London gold market
quotations. The following is a summary of London afternoon fixing prices
(US$ per ounce) for gold bullion for each of the last five years:
<TABLE>
<CAPTION>
HIGH LOW AVERAGE
---- --- -------
<S> <C> <C> <C>
1997 $366.55 $283.25 $330.92
1996 414.80 367.40 387.88
1995 395.55 372.40 384.07
1994 395.80 371.35 384.13
1993 405.60 326.10 359.82
</TABLE>
ENVIRONMENTAL
The Canadian mining industry is subject to stringent environmental regulation
both at the Federal and Provincial Government level. Government regulation of
the industry requires extensive monitoring activities and contingency
planning. All phases of the Company's activities are subject to environmental
legislation from exploration through mine development, and mine operations
through decommissioning and reclamation.
The Company recognizes that it has a responsibility to operate in a manner
that minimizes the impact of its mining operations on the environment. To
this end, the Company regularly reviews and revises its practices with a view
to exceeding regulatory guidelines. In 1994, the Company instituted an
Environmental Code of Practice that established principles under which the
Company manages the environmental performance of its operations. These
principles encompass compliance with all applicable statutory legislation,
minimizing risk to the environment, self monitoring of environmental
protection management programs, and communicating effectively with
governments and the public on environmental protection matters.
In July 1997, the British Columbia Ministry of Environment, Lands and Parks
issued a pollution abatement directed to the Company's Kemess South project.
The order required the Company to undertake a number of activities to curtail
and manage the release of sediment from construction related activities. The
Company has cooperated with the British Columbia government and implemented a
number of programs intended to achieve compliance with this pollution
abatement order. The British Columbia Ministry of Environment, Lands and
Parks, in cooperation with the Federal Department of Fisheries and Oceans,
are continuing a joint investigation into the release of sediment from this
project. To date no other environmental, legal or regulatory actions have
been initiated.
In all other respects, the Company believes that all of the Company's
operations continue to be in compliance in all material respects with
applicable environmental legislation. There were no environmental related
legal proceedings pending against the Company in 1997.
Mining and milling operations were suspended at the Company's Hope Brook
operation in 1997 with the exhaustion of the known economic ore reserve. All
salvageable equipment was removed from the underground workings and the mine
is currently being allowed to naturally flood. The mill equipment was
cleaned of all process slurry and chemical agents and then mechanically
"mothballed". It is the Company's intention to maintain the mill and
associated equipment on a care and maintenance basis for subsequent transfer
and use at the Company's Matachewan Project in Northern Ontario. A small
staff has been retained at the Hope Brook site to keep the plant in a secure
condition, maintain the pumping and treatment works associated with the
remaining waste rock dump and tailings impoundment, and to carry out the work
associated with the ongoing environmental monitoring program.
Based on water quality monitoring and periodic sampling, overflow from the
mine's tailings impoundment continues to meet provincial water quality
requirements established for the Hope Brook site. The mine's operating
Certificate of Approval issued by the Newfoundland Department of Environment
and Labor continues to be in force. The Company intends to apply to the
Government of Newfoundland and Labrador in 1998 for a two-year extension to
the current care and maintenance program.
In 1997, the Pamour Mine and the Nighthawk Mine operated in substantial
compliance with all of the terms and conditions of their respective operating
Certificates of Approval. These Certificates of Approval were issued by the
Ontario Ministry of Environment and Energy and have no fixed expiry term or
date.
In 1997, the Giant Mine operated in substantial compliance with all of the
terms and conditions of its Water Use License, which expires on April 30,
1998. An application to renew this license was filed with the Northwest
Territories Water
-15-
<PAGE>
Board in 1997. Public hearings on this application took place in early 1998.
The Company understands that the Board is currently reviewing and considering
the application, including the appropriate terms and conditions to be included
in any license renewal.
The government of the Northwest Territories continued its deliberations in 1997
on new regulations under the Environmental Protection Act (Northwest
Territories) that would control the amount of permissible sulfur dioxide
emissions from the Company's roaster facility at the Giant Mine. The Company
has undertaken a cooperative program with the regulators to evaluate the
technical feasibility of such emission controls and of the environmental and
economic impact of such regulations on the Giant Mine. The Canadian federal
government continues to consider new regulations under the Environmental
Protection Act (Canada) that would control the amount of permissible airborne
arsenic emissions from the Company's roaster facility at the Giant Mine. The
Company's Giant roaster facility currently operates in compliance with all
existing environmental requirements. The Company cannot estimate at this time
when these regulations will be promulgated or what the final format of the
regulations will be.
Operations at the Colomac Mine were suspended in 1997 due to the low gold price
and the resultant exhaustion of economic open pit ore reserves. The open pit
mine has been cleared of all man-made material and a protective rock berm has
been installed to prevent inadvertent access. The mill equipment has been
cleaned of all slurry and chemical agents and is being mechanically
"mothballed". A small staff has been retained at the Colomac site to keep the
plant in a secure condition, to operate seepage recycle pumps associated with
the tailings impoundment and to carry out the work associated with the ongoing
environmental monitoring program.
The Colomac Mine operated in substantial compliance with all of the terms and
conditions of its Water Use License in 1997. This Water Use License was issued
by the Northwest Territories Water Board and is due to expire in early 1999.
The Company intends to submit an application for renewal of this license in
1998. It is the Company's intention to maintain the Colomac operation on a care
and maintenance basis for a minimum of two years while underground ore reserves
and potential use of the milling facility to treat nearby deposits are
evaluated.
In 1997, the Company expended approximately $778,000 on capital improvements and
$2,746,000 on operations and maintenance for environmental matters at its
operating mines. The Company anticipates expending similar amounts in 1998 for
these matters. The majority of the operating costs incurred are related to
effluent treatment plant operation at the Giant Mine and the Hope Brook Mine,
environmental monitoring, and increasing the height of tailings pond dykes at
the Pamour Mine.
RECLAMATION
Where feasible, reclamation is conducted by the Company concurrently with
mining. In general, the Company is required to mitigate long-term environmental
impacts by stabilizing, contouring, resloping and revegetating various portions
of a site once mining and mineral processing operations are completed as well as
by appropriately managing residual waste products. These reclamation activities
are conducted in accordance with detailed plans which have been reviewed and,
where applicable, approved by the appropriate regulatory agencies. In Ontario,
the Northwest Territories and British Columbia, the Company is required to
maintain bonds or similar undertakings as security for all or part of the
estimated cost of such reclamation and has done so. The Company has completed
and filed reclamation plans for all of its active operations. Reclamation plans
have also been prepared for most of the Company's inactive sites and reclamation
is well advanced at many of these sites. The Company's total estimated cost of
reclamation at all active and inactive mining properties is $41,179,000 as set
forth in the following table. The Company has accrued $24,682,000 in
reclamation and closure costs through December 1997 and will charge the
remaining amount to operations, over the remaining lives of its operations, on a
unit-of-production basis. As of December 31, 1997, the Company had outstanding
bonds and letters of credit for reclamation of $16,127,000 as set forth in the
following table. Further, the Company believes that the salvage value of assets
at its various mine sites will make a substantial contribution towards the
funding of these reclamation costs.
-16-
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED RECLAMATION LIABILITY BONDING AND LETTERS OF CREDIT IN PLACE
------------------------------- ---------------------------------------
<S> <C> <C>
Hope Brook $10,107,000
Pamour 652,000
Nighthawk Lake 125,000 $ 125,000 Letter of Credit
Hoyle Underground 88,000
Matachewan 215,000 215,000 Letter of Credit
Giant 9,437,000 400,000 Surety Bonds
Colomac 5,000,000 1,500,000 Surety Bonds
Nicholas Lake 200,000 15,000 Letter of Credit
Kemess 9,636,000 12,000,000 Treasury Bills
Kemess Power Line Roads 150,000 Letters of Credit
Kemess Highway Permit Security 100,000 Letter of Credit
Red Mountain 3,021,000 1,600,000 Letter of Credit
Schumacher Site 840,000
Concentrate Dump 68,000
Delnite Mine Site 178,000
Ball Park 20,000
Timmins Project (Hollinger) 100,000
Aunor Mine 85,000
Hislop Pit 50,000
Coniaurum 190,000
Gillies Lake Tailings 420,000
Hallnor Mine Site 190,000
Broulan Reef Mine Site 250,000
Timmins PCB Disposal 307,000
Mineral Claims - Brislane Lake, NWT 22,000 Letter of Credit
----------- -----------
TOTAL $41,179,000 $16,127,000
----------- -----------
----------- -----------
</TABLE>
PERMITTING
Permitting of the Company's operating divisions is an ongoing process, and as
the Company expands, it regularly amends its existing permits and obtains new
permits as required to sustain operations in compliance with the appropriate
legislation. The Company believes it has obtained all of the permits and
licenses for its current operations.
The Company has obtained all of the approvals, permits and licenses required to
complete construction of the Kemess South project in north central British
Columbia. The Company has submitted all applications and requested information
to obtain all of the approvals, permits and licenses required to commence mining
and milling operations in the second quarter of 1998.
The Company has submitted an application under the Canadian Environmental
Assessment Act for authorization to commence construction on the Matachewan
Project in Northern Ontario and is well advanced in obtaining all of the
necessary permits, approvals and licenses required to commence construction on
this project when the Company considers financial conditions to be appropriate.
EMPLOYEE RELATIONS
At December 31, 1997, the Company employed 1,039 persons, of which 394 were
salaried, 625 were hourly and 20 were temporary.
The Company has collective bargaining relationships with two primary labor
unions, the United Steelworkers of America, which represents certain employees
at the Colomac, Pamour and Hope Brook mines, and the Canadian Auto Workers which
represents certain employees at the Giant Mine.
On November 1, 1996, the Company and the United Steelworkers of America,
representing hourly paid labor at the Colomac Mine, signed a three-year
collective labor agreement.
-17-
<PAGE>
On July 1, 1996, the Company and the United Steelworkers of America
representing hourly paid labor at the Pamour Mine signed a collective labor
agreement covering a three-year period. Prior agreements were for a two-year
period.
The collective labor agreement with the United Steelworkers of America at the
Hope Brook Mine expires on April 30, 1998.
The collective agreement with the Canadian Auto Workers at the Giant Mine
expires on November 15, 2002.
ITEM 2 - PROPERTIES
The Company maintains an office in Kirkland, Washington through its wholly-owned
U.S. subsidiary, Arctic Precious Metals, Inc. Mine offices are located in or
near Smithers, British Columbia; Yellowknife, Northwest Territories; and
Timmins, Ontario.
SUMMARY OF MINEABLE (PROVEN AND PROBABLE) ORE RESERVES
Future production is contingent on available mineable ore reserves. See
"Special Note Regarding Forward-Looking Statements." Ore reserves were
estimated by the Company at December 31, 1997, using anticipated operating
costs and C$495 (US$350) per ounce as the projected price of gold.
<TABLE>
<CAPTION>
GOLD TONS* GRADE OUNCES*
---- (000'S) (OPT) (000'S)
------- ----- -------
<S> <C> <C> <C>
BRITISH COLUMBIA DIVISION
Kemess 231,708 0.018 4,171
NORTHWEST TERRITORIES DIVISION
Giant Mine 930 0.357 332
ONTARIO DIVISION
Timmins** 29,289 0.044 1,292
Matachewan 10,549 0.058 617
Duport 1,008 0.380 383
------- ----- -----
Total 40,846 0.056 2,292
------- ----- -----
U.S. DIVISION
Copperstone 455 0.486 221
------- ----- -----
TOTAL GOLD 273,939 0.026 7,016
------- ----- -----
------- ----- -----
</TABLE>
*Rounded to nearest thousand
**Includes Nighthawk Mine
<TABLE>
<CAPTION>
COPPER TONS GRADE POUNDS
------ (000'S) (%) (000'S)
------- ----- -------
<S> <C> <C> <C>
BRITISH COLUMBIA DIVISION
Kemess 231,708 0.215 996,346
------- ----- -------
TOTAL COPPER 231,708 0.215 996,346
------- ----- -------
------- ----- -------
</TABLE>
SUMMARY OF MINERALIZED MATERIAL
The following table presents mineralized material by property as of December 31,
1997. Mineralized material is estimated by the Company. This mineralized
material has not been included in the mineable ore reserve estimates. Although
the Company believes that adequate inspection, sampling and measurement has been
done to indicate sufficient tonnage and grade to warrant further exploration or
development expenditures, these resources do not qualify under the U.S.
Securities and Exchange Commission standards as commercially mineable orebodies
until further drilling, metallurgical work, and other economic and technological
feasibility factors based upon such work are resolved.
-18-
<PAGE>
<TABLE>
<CAPTION>
GOLD TONS* GRADE OUNCES*
---- (000'S) (OPT) (000'S)
------- ----- -------
<S> <C> <C> <C>
BRITISH COLUMBIA DIVISION
Red Mountain 13,238 0.074 981
Kemess 173,063 0.011 1,918
--------- ----- ------
Total 186,301 0.016 2,899
--------- ----- ------
NORTHWEST TERRITORIES DIVISION
Giant Mine** 6,770 0.232 1,572
Colomac*** 4,556 0.062 283
--------- ----- ------
Total 11,326 0.164 1,855
--------- ----- ------
ONTARIO DIVISION
Timmins**** 50,549 0.048 2,435
Matachewan 6,244 0.097 604
Duport 1,007 0.320 322
--------- ----- ------
Total 57,800 0.058 3,361
--------- ----- ------
UNITED STATES DIVISION
Copperstone 2,208 0.174 385
INTERNATIONAL DIVISION
Fiji - Namosi 1,046,864 0.004 4,000
--------- ----- ------
TOTAL GOLD 1,304,499 0.010 12,500
--------- ----- ------
--------- ----- ------
</TABLE>
*Rounded to nearest thousand
**Includes Nicholas Lake
***Includes Kim/Cass
****Includes Nighthawk Mine
<TABLE>
<CAPTION>
COPPER TONS GRADE POUNDS
------ (000'S) (%) (000'S)
------- ----- -------
<S> <C> <C> <C>
BRITISH COLUMBIA DIVISION
Kemess 173,063 0.180 623,026
INTERNATIONAL DIVISION
Fiji - Namosi 1,046,864 0.430 9,068,550
--------- ----- ---------
TOTAL COPPER 1,219,927 0.397 9,691,576
--------- ----- ---------
--------- ----- ---------
</TABLE>
For details concerning the total cost of property, plant and equipment at each
of the sites, see Note 4 to the Consolidated Financial Statements.
BRITISH COLUMBIA DIVISION
KEMESS SOUTH
BACKGROUND
The Kemess South project is located 182 miles northwest of Mackenzie, British
Columbia, and to the east of Thutade Lake. Currently, access to the area is by
air from Smithers or Prince George to the airstrip on site (a 5,225 foot gravel
strip), and from the south by an all-weather private road from Fort St. James or
Mackenzie.
In May 1993, the Company acquired 39% of Geddes Resources Limited ("Geddes"), a
company whose only significant asset was a 100% interest in a block of mineral
claims located in the vicinity of Windy Craggy mountain in northwestern British
Columbia. In June 1993, the British Columbia provincial government announced
that it would permanently protect,
-19-
<PAGE>
as a provincial park, the region which included Windy Craggy, and would
provide compensation for holders of mineral claims in the area.
Subsequently, in December 1994, the United Nations Educational, Scientific
and Cultural Organization (UNESCO) designated the Tatshenshini-Alsek
Provincial Park, which includes Windy Craggy, a World Heritage site.
In May 1995, the British Columbia provincial government commenced active
negotiations with senior officers of Geddes pertaining to compensation
respecting Windy Craggy. In order to facilitate such negotiations, the Company
indicated to the British Columbia provincial government a willingness to
purchase the Kemess and Red Mountain properties and to develop these properties,
provided appropriate project support and investment arrangements were provided
by the British Columbia provincial government.
In January 1996, the Company completed the acquisition of Geddes, El Condor
Resources Ltd. ("El Condor") and St. Philips Resources Inc. ("St. Philips").
The remaining outstanding shares of Geddes were acquired for shares of the
Company and cash with a total acquisition cost of $40.9 million; the outstanding
shares of El Condor were acquired for shares of the Company and cash valued at
$110.6 million; and the outstanding shares of St. Philips were acquired for
$38.6 million in cash. El Condor and St. Philips owned the Kemess South
property and El Condor owned the Kemess North property. These properties were
owned by Kemess Mines Inc. (formerly Geddes Resources Limited) until its
amalgamation with the Company on December 29, 1997. Although the Company will
continue to evaluate the potential of the Kemess North property, there is
presently no plan to develop this property until mining and milling operations
are underway on the Kemess South property.
On April 29, 1996, the British Columbia provincial government announced that it
had issued a Project Approval Certificate for the Kemess South project which
entitled the Company to proceed with permitting applications for construction of
a mine site and attendant infrastructure and since then, all of the necessary
permits material to construction have been granted. Federal approval under the
Environmental Assessment Act (Canada) and the Fisheries Act (Canada) was
received on November 6, 1996, and will facilitate completion of all
infrastructure impacting on viable lakes and streams in the project area.
TIMETABLE FOR DEVELOPMENT
Construction of the Kemess South project commenced in July 1996 and by mid-March
1998 was approximately 92% complete. Production is currently scheduled to
commence in May 1998.
The engineering of the processing facilities, which commenced in November 1995,
was completed in February of 1997. Teshmont Consultants Inc. of Winnipeg has
managed construction of the power line and Knight Piesold Ltd. has designed the
tailings dam.
COMPENSATION, FINANCIAL ASSISTANCE AND INVESTMENT
The Company currently estimates that its total capital costs for the Kemess
South project will be approximately $470 million plus the land acquisition cost
of $202 million. The Company estimates that as of March 28, 1998, the Kemess
South project was approximately 92% complete. For a discussion of the Company's
current financial condition and cash position, see "Liquidity and Capital
Resources" included in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operation in Part II herein.
The project development has been partially facilitated by approximately $166
million of economic assistance, investment and compensation from the British
Columbia provincial government as described below, of which approximately $154
million has been provided to date. The Company is not obligated to repay the
British Columbia provincial government any of such amounts. Section 25 of the
Financial Administration Act (British Columbia) provides that, notwithstanding
the commitment to pay, any payment of money by the British Columbia provincial
government pursuant to an agreement is subject to (i) an appropriation being
available for that agreement in the year in which the payment falls due and (ii)
the Treasury Board not having controlled or limited expenditure under any such
appropriation.
The compensation, financial assistance and investment of up to $166 million to
be provided by the British Columbia provincial government consist of the
following components described below:
(i) Compensation - $29 million payable over two years. On April 15, 1996,
the Company's wholly-owned subsidiary, Kemess Mines Inc., received the
first of two equal compensation payments of $14.5 million. The final
payment was made in April 1997.
-20-
<PAGE>
(ii) Royalty interest investment - $50 million to develop on and off-site
mine infrastructure for the Kemess South project. The Company will pay
the British Columbia provincial government a royalty of 4.8% on the
value of all copper extracted and processed from the Kemess South
project.
(iii) Power line installation - $49 million payable over three years to cover
the cost of constructing a 380 kilometre power line from the Kennedy
substation to the Kemess South project site together with related
equipment. The Company is evaluating alternate sources to supply the
power. The power line will be owned and operated by the Company for at
least 20 years.
(iv) Regional resource infrastructure - $14 million payable over 14 years for
emergency health facilities, airport facilities and for developing and
maintaining a connector road.
(v) Human resource development program - $4.0 million payable over two years
to facilitate recruitment, selection, relocation, mobility, training,
upgrading and safety training for personnel working at the Kemess South
project.
(vi) Mining development - $20 million to be matched dollar for dollar for the
development of properties in British Columbia, including the Kemess and
Red Mountain properties and extensions.
(vii) Facilitation and support - The British Columbia provincial government
agreed to facilitate and support the Company with respect to the
negotiation of appropriate contracts of rail transport, port and power
charges and to facilitate the review and consideration of the
development of the orebody and construction of mining and processing
facilities relating to the project pursuant to all applicable
legislative, environmental, permitting and other governmental
requirements.
The compensation, financial assistance and investment outlined above are
documented in a formal written agreement that was signed in June 1997.
OWNERSHIP
The Kemess South property consists of 189 staked mineral claims and a mineral
lease in two distinct groups that cover approximately 66,530 acres. The Kemess
South property was owned by El Condor and St. Philips, and the Kemess North
property was owned by El Condor. The property was transferred to Kemess Mines
Inc. pursuant to the winding up of El Condor and St. Philips. Kemess Mines Inc.
and the Company amalgamated on December 29, 1997. The Company will pay the
British Columbia provincial government a royalty of 4.8% on the value of all
copper extracted and processed from the Kemess South project. In addition,
there are two royalty agreements that affect a small number of claims. At
December 31, 1997, the net book value of the Kemess mine properties and
property, plant and equipment was approximately $202 million and $318 million,
respectively.
GEOLOGY
The Kemess South deposit is a large low grade gold-copper porphyry-type deposit.
It is hosted by a flat-lying porphyritic quartz monzodiorite intrusion. Pyrite,
the dominant sulphide, occurs as veins and fracture coatings accompanying quartz
stringers. Chalcopyrite occurs as disseminated grains and in quartz stockwork
veins. Native gold is included within or is peripheral to grains of
chalcopyrite, and gold grades correlate closely with those of copper in the
hypogene zone.
The highest grade of gold and copper mineralization correlate with zones of
intense quartz stockwork development.
A supergene zone, comprising 20% of the deposit, formed during a period of
weathering synchronous with the formation of the Late Cretaceous Sustut Basin.
Copper grades within this zone are locally leached or enriched, while gold
concentrations remain relatively unchanged. Native copper is the dominant
secondary copper mineral except at the base of the supergene zone where
chalcocite becomes increasingly abundant.
MINING AND MILLING
The development plan contemplates that the deposit will be mined at an average
rate of approximately 107,000 tpd at an estimated cost of $1.73 per ton of ore.
Milling at the rate of approximately 50,000 tpd is projected to cost
approximately $1.98 per ton of ore. At this mining rate, the life of the
project is estimated to be approximately 16 years. See "Special Note Regarding
Forward-Looking Statements".
-21-
<PAGE>
ORE RESERVES
Ore reserves for the Kemess South project were calculated by the Company in
February 1997 and revised for December 1997 to reflect changes in gold and
copper prices. Reserves for this property are estimated at 232 million tons of
ore averaging 0.018 opt of gold and 0.215% copper. These reserve estimates
contain allowances for mining losses and dilution, but not for losses in
milling. Net smelter return calculations were carried out on mineralization at
Kemess South in order to determine the value that would be returned from mining
and processing. These estimates included all transportation, smelter and
refining charges. The prices of gold and copper used in the above feasibility
studies were US$350 per ounce and US$0.95 per pound, respectively, with an
exchange rate of US$0.70/Cdn$1.00.
RED MOUNTAIN
BACKGROUND
The Red Mountain project area is located in the Coastal Mountain Range, 11 miles
east of the seaport of Stewart, in northwestern British Columbia. Currently,
access to the property is by helicopter from Stewart, however, a road has been
constructed to a potential portal site in Bitter Creek adjacent to the ore zone
but at a lower elevation.
OWNERSHIP
The property consists of 132 staked mining claims that cover 85,267 acres. The
Company acquired 100% of the Red Mountain property from Barrick Gold for one
dollar and the obligation to spend $3 million on the property. The Company
assumed all past environmental liabilities, estimated at $3.0 million, as part
of this purchase. The Company expended $8.0 million on a surface and
underground development program which was completed in late 1996, thereby
fulfilling its expenditure obligation. Further development of the project has
been postponed due to low gold prices. The prior owner is entitled to receive a
1% net smelter return royalty on all production from a portion of the property,
and on production over 1.85 million ounces of gold, an additional $10.00 per
ounce of gold is payable. In addition, the Company is required to pay a 2.5%
net smelter return royalty to a third party.
GEOLOGY
The Red Mountain orebody is a hydrothermal gold deposit related to a multiphase
intrusion. The Red Mountain area is underlain by Upper Triassic to Middle
Jurassic sedimentary and volcanic rocks of the Hazelton Group. Early Jurassic
plutons, sills and dykes have intruded this volcanic-sedimentary assemblage, the
largest of which (the Goldslide-Hillslide intrusion) lies beneath Red Mountain.
The orebody currently consists of three northwest plunging, southwest dipping
elliptical zones located beneath the summit approximately at the contact between
two phases of the Goldslide intrusion and hosted within both the stratified
sediments and the Hillslide intrusion. Both the ore zones and the host rocks
have been disrupted by northwest plunging folds and at least two phases of
brittle faulting.
An extensive surface and underground drilling program was completed in 1996.
The drilling showed that the JW Zone was truncated to the north by faulting or
folding. However, drilling intersected Red Mountain type mineralization closer
to the valley floor within a zone now called the SF Zone situated 1,000 feet
below and 1,000 feet due north of the JW Zone. The short field season prevented
sufficient drilling to fully define the SF Zone's extent and grade. No site
work was undertaken in 1997. All permits have been maintained in good standing
and routine environmental sampling was carried out.
MINING AND MILLING
It is estimated that over US$30 million was spent by former owners of this
property, Lac Minerals and Barrick Gold, between 1991 and 1994 outlining and
developing the Marc, AV and JW Zones, which included 300,000 feet of drilling.
These zones remain open down-plunge and the exploration potential for the area
north of the deposit is deemed by the Company to be excellent.
The Red Mountain deposit requires significant further exploration, ore reserve,
and development work before production can commence.
-22-
<PAGE>
ORE RESERVES
800,000 ounces of gold grading 0.262 opt gold previously reported in the
mineable category for the Red Mountain project have been reclassified as
mineralized material and are no longer included as part of mineable ore
reserves.
NORTHWEST TERRITORIES DIVISION
COLOMAC MINE
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Tons of ore milled (000's) 2,906.1 3,013.2 2,725.4 *985.1 --
Average grade of ore milled
(oz of gold per ton or "opt") 0.044 0.046 0.047 0.047 --
Production of gold - ozs 108,678 122,416 117,646 40,568 --
Employees at period end 51 222 194 258 --
Cash cost per ounce (US)** $354 $370 $383 -- --
</TABLE>
* Mine reopened.
**In 1994 revenue from production at Colomac was netted against start-up costs
and the difference was deferred as pre-production costs.
BACKGROUND
The Colomac Mine, which is located approximately 137 miles northwest of
Yellowknife in the vicinity of Indin Lake, was acquired in April 1993 from
Neptune Resources Corp. ("Neptune") after having been shut down in June 1991.
Stripping operations at the Colomac Mine recommenced in March 1993, and the
first gold production was realized in July 1994. Operations at the Colomac Mine
were suspended in December 1997 and clean-up operations are currently underway
in preparation for placing the facilities on care and maintenance. The property
is accessible by winter road from Yellowknife for approximately three months
each year and on a year round basis by chartered aircraft to a 5,000 foot
airstrip at the mine site.
OWNERSHIP
The Company is currently seeking to option or joint venture the Colomac property
which contains approximately 100 square miles of mineral rights and includes the
more advanced areas detailed below. The Colomac property is comprised of 4
mining leases and 3 surface leases which cover approximately 3,400 acres. In
1993, the Company acquired the Colomac Mine and surrounding properties in
exchange for the Company's Common Shares valued at $7,875,000. In a
simultaneous transaction, the Company acquired the gross production royalty on
the Colomac property in exchange for the Company's Common Shares valued at
$4,000,000. The Company holds a 100% interest in the leases. The mining leases
are subject to an operating royalty payable to Neptune, when the average price
of gold for a calendar year exceeds US$400 per ounce. Amounts payable are $1.0
million or $2.0 million annually depending on the average price of gold. No
amount has been payable under this royalty to date. Obligations under this
agreement expire after five years of production. The net book value of the
Colomac property, plant and equipment was approximately $11.9 million as of
December 31, 1997.
The Kim/Cass property consists of 12 leased mining claims covering approximately
15,310 acres and is accessible from Colomac by an all-weather road that was
constructed in 1996.
In 1994, the Company entered into an agreement with Echo Bay Mines Ltd. ("Echo
Bay") as operator of a joint venture pursuant to which the Company was granted
an option to acquire a 100% interest in the Kim/Cass property, exclusive of
diamond rights, if the Company placed the property into production within four
years. Subsequently, a dispute arose as to whether other members of the joint
venture had consented to the option agreement. The Company believes it has
resolved the matter by reaching agreement with Echo Bay, to be set forth in a
final written agreement, by which Echo Bay will transfer its 75% interest in the
Kim/Cass property, exclusive of diamond rights, to the Company in consideration
of the Company's $1 million in expenditures made on the property, subject to
sliding scale net smelter return royalty based on the price of gold.
-23-
<PAGE>
MILLING AND MINING FACILITIES
The Colomac Mine is designed to use conventional open pit mining techniques.
The mill, built in 1989, is a conventional 9,300 tpd CIP circuit with historical
recoveries of approximately 88%. The mill circuitry was modified, including
installation of a pebble crusher bypass in 1996, to overcome operating
difficulties and to facilitate the processing of 10,000 tpd of ore. The plant
and equipment are generally in good to excellent condition. The power for this
property is diesel-generated on site.
GEOLOGY
The Colomac orebody is hosted within a large quartz feldspar porphyry sill of
the Pre-Cambrian age. It was later tilted into a vertically dipping orientation
and has been named the Colomac Dyke. This intrusion was fractured and
recemented by quartz veinlets containing free gold and pyrite. The Colomac Dyke
averages 120 feet wide in the Zone 2.0 pit. It has a strike length of
approximately 7 miles. The Main Zone occurs within a package of steeply dipping
mafic pillowed volcanics. The gold occurs associated with enriched areas of
sulphides. The Kim/Cass zone occurs within a steeply dipping mafic intrusive
body. Gold occurs associated with swarms of quartz veinlets containing minor
amounts of sulphides.
ORE RESERVES
Due to the suspension of operations in 1997, no portion of the Colomac dyke is
included as part of mineable reserves. Similarly, none of the Kim/Cass property
is included as part of mineable reserves and instead has been reclassified to
the mineralized material category.
GIANT MINE
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Tons of ore milled (000 's) 389.4 367.4 411.0 430.2 413.1
Avg grade of ore milled (opt) 0.270 0.262 0.254 0.264 0.264
Production of gold - ozs 91,805 83,385 91,423 101,176 92,948
Employees at period end 270 340 339 351 332
Cash cost per ounce (US) $304 $357 $329 $289 $330
</TABLE>
BACKGROUND
The Giant Mine, located approximately three miles north of Yellowknife, has been
in continuous production since 1948. The Ingraham Trail, a paved all-weather
highway from Yellowknife passes through the center of the property. Mining is
conducted underground and the ore is processed with an on-site mill. Since the
commissioning of the mill in 1948, the Giant Mine has produced in excess of 7.6
million ounces of gold.
In 1996 the Company completed rehabilitation of the infrastructure which
accesses the Supercrest orebody and large scale mining of this orebody is
currently taking place to supplement the ore from the main Giant orebody. The
higher grade mineable ore from Supercrest averages 0.387 opt gold in situ
compared to 0.301 ounces of gold per ton at Giant. The net book value of the
Giant Mine property, plant and equipment was approximately $57.2 million as of
December 31, 1997.
The Nicholas Lake property, which was acquired in 1995 from Athabaska Gold
Resources Ltd., is located 60 miles north of Yellowknife. It can be accessed by
chartered aircraft from Yellowknife or by winter road. See "Special Note
Regarding Forward Looking Statements."
OWNERSHIP
The Company owns 100% interest in the Giant Mine property, consisting of 32
mining leases covering 3,050 acres and one surface lease covering 2,243 acres.
-24-
<PAGE>
The Company purchased 100% interest in the Nicholas Lake property in 1995 from
Athabaska Gold Resources Ltd., for $3.8 million. The Nicholas Lake property is
subject to a 1% net smelter return production royalty and a $10,000 per year
minimum advance royalty.
MILLING AND MINING FACILITIES
The Giant Mine operates as an underground mine with access provided by two large
service raises, five declines and the "C" shaft, which is the principal
operating opening for hoisting, extending to a depth of 2,124 feet. Mining is
by conventional underground mining techniques such as cut and fill. The mine is
mechanized with jumbo drills and 3-1/2 yard scooptrams. The mill at the Giant
Mine is a 1,100 tpd milling and refining complex. The mine and mill operate on
a seven day a week schedule. The power source for this property is Northwest
Territories Power Corp. Power costs have increased significantly in the last
several years and the Company is investigating alternative sources of providing
power.
The Nicholas Lake orebody consists of eleven zones of mineralization. These
zones are near vertical quartz-sulphide veins. The zones have been drilled from
surface and underground at a spacing of approximately 65 feet. The orebody is
accessed by a ramp (driven in 1994) to a depth of 300 feet below surface. A
total of 750 feet of cross-cutting and silling has been conducted on two of the
major zones (including detailed mapping and sampling).
The main infrastructure of the Giant Mine has been in place since 1946. An
Edwards Hearth roaster was constructed in 1948 and a fluid bed roaster was added
in 1950. In the mid-1950's, a two-stage fluid bed roaster was added along with
a roaster gas cleaning plant. In the early 1980's, a new effluent treatment
plant was added, and in 1992 to 1994, the mill's flotation cells were replaced.
The Company's fluid bed roaster currently operates in compliance with all
existing legislation and regulations. The Giant Mine's plant and equipment are
generally in good condition.
GEOLOGY
The Giant Mine is in the Yellowknife Greenstone belt, a package of Precambrian
basic volcanic rocks. Orebodies are hosted in shear zones within the
greenstones. Individual orebodies are veins, quartz lenses, or silicified areas
within the shear. Gold is associated with fine-grained arsenopyrite.
The Nicholas Lake deposit is a series of narrow, steeply dipping quartz veins
containing gold, arsenopyrite and other sulphides. These veins occur within a
granitic intrusive body.
ORE RESERVES
As of December 31, 1997, the Giant Mine had mineable ore reserves (proven and
probable) of approximately 930,000 tons grading 0.357 ounces of gold per ton.
Cutoff grades are determined for each type of ore based on current mining costs
and a gold price of $495 (US$350) per ounce. Allowances are made in these
estimates for dilution and mining losses. Ore reserves do not include
allowances for losses in milling.
Material previously reported in the mineable reserve category for Nicholas Lake
has been reclassified as mineralized material and is not included as part of
mineable reserves.
REGULATIONS
Operations at both the Colomac and Giant mines are governed by Federal and
Territorial statutes, ordinances and regulations. Included under Northwest
Territorial jurisdiction are the Apprentices and Tradesmen Regulations, the
Boiler and Pressure Vessel Regulations, Business License Fire Regulations,
Explosive Use Regulations, Fire Prevention Act, Labour Standards Ordinance, the
Northwest Territories Mining Safety Act, Workers Compensation Act, Public Health
Ordinance, Emergency Measures Act and Environmental Protection Ordinance. Under
Federal jurisdiction are the Clean Air Act, the Fisheries Act, Northwest
Territories Waters Act, Territorial Lands Act, Transportation of Dangerous Goods
Act and the Canada Mining Regulations. Failure to comply may result in cease
work orders and/or fines. The Company believes it is complying with the
foregoing statutes and regulations where applicable and has not been the
recipient of any orders or directions in the past year other than in the
ordinary course of business.
-25-
<PAGE>
ONTARIO DIVISION
TIMMINS OPERATIONS
SELECTED OPERATING DATA - ONTARIO DIVISION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Tons of ore milled (000's) 1,365.9 1,381.7 1,329.8 1,350.0 1,330.7
Avg grade of ore milled (opt) 0.086 0.086 0.067 0.069 0.072
Production of gold - ozs 101,613 104,577 80,120 85,755 87,346
Employees at period end 330 451 476 417 400
Cash cost per ounce (US) $311 $291 $368 $327 $310
</TABLE>
BACKGROUND
The Pamour Mine consists of two underground (Pamour and Hoyle) and two open pit
mining operations. The Pamour Mine is located approximately 15 miles east of the
City of Timmins, Ontario, and has been in production since 1936. Both the
Pamour and Hoyle properties are transected by Highway 101. Since the
commissioning of the mill in 1936, the Pamour Mine has produced in excess of 4.1
million ounces of gold. The net book value of the Company's property, plant and
equipment in the Timmins operations which includes 31,878 acres of exploration
land, including those associated with the Pamour, Hoyle and Nighthawk
properties, was approximately $81.9 million as of December 31, 1997.
OWNERSHIP
The Pamour property consists of 38 patented mining claims, 3 staked claims and
one License of Occupation. Together, the property covers approximately 1,651
acres of mining rights and 1,575 acres of surface rights. Directly adjacent to
the Pamour Mine is the Hoyle property that is comprised of 37 patented mining
claims and 4 leased claims covering approximately 1,608 acres. The Company has a
renewable 10-year lease on that portion of the Hoyle property lying south of the
Timiskaming Unconformity where current mining operations are conducted. The
lease terms include the payment of a minimum annual rent of $100,000 which is
credited against a production royalty being the higher of $0.75 per ton or a 2%
net smelter return. In order to renew the lease, which expires in 1999, for a
further 10-year term, the Company must spend $1.0 million on exploration and
mine one million tons of ore. Both conditions have been satisfied and as a
result the Company is entitled to an automatic renewal of the lease. The
Company has earned a 51% interest in the portion of the Hoyle property north of
the Timiskaming Unconformity, which is not currently in production.
MINING AND MILLING
The Pamour Mine currently operates both open pit and underground mining
operations. The underground operations currently produce approximately 1,500
tpd of ore, while the open pit operations produce approximately 1,500 tpd. The
Pamour Mine is comprised of the Pamour No. 1 Underground Mine, surface pits and
the Hoyle Mine.
The Pamour No. 1 Underground Mine commenced operations in 1936 as the original
Pamour Mine and has operated continuously since. The leased Hoyle Mine
extension, which commenced production in April 1990, is the eastern strike
extension of the Pamour orebody and is a large resource of bulk mineable
conglomerate ore which has been accessed by a decline from surface and by
underground drifts from the Pamour shaft. The underground mine currently
produces approximately 1,500 tpd through a 3,145 foot deep five-compartment
timbered shaft. The Hoyle property has the capacity to produce 50,000 tons per
month. The mine is adjacent to the Pamour No. 1 operation and has higher grade
ore than present reserves at the Pamour No. 1 Mine.
Where possible, bulk mining methods are utilized, primarily by modified vertical
crater retreat as well as sub-level blasthole stoping. The bulk mining areas
are developed with large mechanized drill jumbos, scooptrams and trucks.
Scooptrams and trucks move the blasted ore from the drawpoints to an internal
pass. An electric trolley with 5 ton cars transports the ore from the internal
pass to 3 Shaft where it is skipped to the surface. Higher grade, narrow veins
are mined by a modified open shrinkage method. The ore is developed and mined
with jacklegs and stopers which drill 1-1/4 inch blast holes. The broken ore is
transported to the shaft by mechanized scoops, trucks and/or electric trains and
then hoisted to the surface.
-26-
<PAGE>
The No. 3 Pit is located immediately southeast of the Pamour Mill. This open
pit was developed over the upper workings of the Pamour Mine and first came into
production in 1985. The No. 5 Pit, at the extreme west end of the Pamour No. 1
property, was brought into production in 1989. Total pit production is 1,500
tons of ore per day.
An additional jaw crusher was added to the Pamour Mine in the early 1990's. In
1995, all 25-cycle electrical motors in the mine were replaced due to the change
in the power supply from 25 cycles to 60 cycles. Also in 1995, an additional
ball mill was installed to increase capacity from 3,600 tpd to 4,000 tpd. The
on-site mill at Pamour has the capacity to treat approximately 4,000 tpd. A
gold pyrite flotation concentrate is produced from the ore and is treated by a
conventional cyanidation process to produce a gold precipitate which is refined
into dore. The Pamour Mine plant and equipment are generally in good condition.
The power source for this property is Ontario Hydro.
PAMOUR MINE EXPANSION
As a result of its successful exploration program from 1994 to 1996, the Company
began developing a significant expansion project at the Pamour property by
focusing on developing ore reserves in a low grade halo around mined out stopes
at the Pamour property. The current dimensions of the ultimate pit are
approximately 6,000 feet long, 2,400 feet wide and 1,000 feet deep. In 1997,
preliminary studies of mining and milling operations, together with an
environmental study, were conducted. In the fall of 1997, due to low gold
prices and the need to conserve cash to complete construction of the Kemess
South project, further development of this project was postponed. For
additional information see discussion under "Pamour Expansion" contained in
"Ontario Division" in "Review of Operations" above.
GEOLOGY
The Pamour Mine is located approximately one mile north of the Destor-Porcupine
Fault, an east-northeast to west-southwest striking structure. The majority of
the historic gold producing mines in the Porcupine Gold Camp have been located
near this structure. On the property, a series of basic volcanic rocks are
unconformably overlain by greywackes and a thick conglomerate, known as the
Pamour conglomerate. All rocks are of the Precambrian age. Gold occurs in
narrow high grade quartz veins in the volcanics and in the sediments. The
majority of the gold that has been mined from this property occurs in sheeted
sets of quartz veins in the Pamour conglomerate and in the greywackes on either
side of it. Gold also occurs in broad irregular zones of quartz veinlets in the
volcanic rocks.
ORE RESERVES
As of December 31, 1997, the Pamour Mine had mineable (proven and probable) ore
reserves of approximately 26,369,000 tons grading 0.042 opt gold. Estimated
mineable ore reserves at this division have decreased this year due to the
reclassification of a portion of the open pit reserves to mineralized material
as a result of lower gold prices. Cutoff grades are determined for each type of
ore based on current mining costs and a gold price of $495 (US$350) per ounce.
Allowances are made in these estimates for dilution and mining losses. Ore
reserves do not include allowances for losses in milling.
NIGHTHAWK
BACKGROUND
The Nighthawk Mine, which was operated by Porcupine Peninsular Gold Mines
Limited between 1924 and 1927, is located east of the Pamour Mine and reopened
production in September 1995. Access is via highway, 10 miles from the Pamour
Mill.
OWNERSHIP
The Company's land holdings in the Nighthawk Lake area are extensive with
approximately 12,797 acres held representing 265 claims. Most of the property
is held outright by the Company as staked claims. Other portions are held
through various option agreements which also provide for some form of production
royalty. The Ronnoco claims on the east peninsula of the lake are held through
a subsidiary company, Ronnoco Gold Mines Limited. The current producing
deposit, the Nighthawk Mine, is located on the north peninsula of the lake and
is subject to a production royalty being the higher of (i) $0.003 times tons
mined times dollars per ounce of gold or (ii) 20% of the net profits.
-27-
<PAGE>
MINING AND MILLING FACILITIES
During the period from 1924 to 1927, the Nighthawk Mine produced 99,628 tons of
ore grading 0.32 ounces of gold per ton. Additional exploration was done
periodically over the ensuing years. The Company developed the Nighthawk Mine
and began production in September 1995. Current production is 900 tpd from the
Nighthawk Mine.
The orebody is accessed by a ramp that will ultimately be driven to 750 feet
below surface. Mining methods for this underground mine are primarily longhole
open stoping, with 50 feet between sublevels. Waste rock will be placed in
stopes as delayed backfill. Ore is hauled to surface stockpiles in 30 ton dump
trucks. The material is then hauled by truck 10 miles to the Pamour Mill for
processing. The mine's equipment is generally in excellent condition. The
power source for this property is Ontario Hydro.
GEOLOGY
The Nighthawk Mine is adjacent to a major structure called the Nighthawk Break,
which is thought to be a splay off of the Destor-Porcupine Fault. The geology
in this area consists mainly of steeply dipping volcanic flows. In the mine
area, these have undergone intensive carbonate alteration. Gold occurs in
quartz veins and silicified zones associated with minor amounts of sulphide
minerals.
ORE RESERVES
As of December 31, 1997, the Nighthawk properties had mineable ore reserves
(proven and probable) of 2,920,000 tons grading 0.059 ounces of gold per ton.
Cutoff grades are determined for each type of ore based on mining costs and a
gold price of $495 (US$350) per ounce. Allowances were made in these estimates
for dilution and mining losses. Ore reserves do not include allowances for
losses in milling.
MATACHEWAN
BACKGROUND
The Matachewan site is located approximately 56 miles southeast of the City of
Timmins, Ontario and is accessed directly by Provincial Highway 566. The main
area of interest is the site of two former producing mines located west of the
Town of Matachewan.
The Matachewan property was mined from 1933 to 1957 by Matachewan Consolidated
Mines and Young-Davidson Mines and produced an aggregate of 956,117 ounces of
gold grading 0.10 ounces per ton from both underground and open pit sources.
In 1997, the Company conducted a program of dewatering and rehabilitation of the
Matachewan Consolidated Mine #3 Shaft to facilitate underground exploration of
the existing mine and extensions of the deposit. Extensive design of facilities
and infrastructure related to the final mining and milling plant was also
undertaken. These activities progressed until August 1997, when due to
declining gold prices, the Company placed the project on care and maintenance.
The #3 shaft has been dewatered and rehabilitated to the 1,200-foot level of the
2,450-foot deep shaft. The mine is being maintained in this partially dewatered
state until such time as market conditions improve. There is currently no
schedule for the resumption of dewatering and exploration activities at the
site.
All permits for this advanced exploration phase are being kept in good standing
during this period. Federal permits for the production phase are still in the
review process under the Canadian Environmental Assessment Act. It is
anticipated that this approval will be granted in the spring of 1998, as
previously projected.
The development plan envisages a 5,000-tpd milling facility (relocated from the
Hope Brook Mine) with annual production in excess of 100,000 ounces.
OWNERSHIP
The Matachewan property is held under two lease agreements. The lease agreement
with Matachewan Consolidated Mines Limited provides for advanced royalty
payments of $15,000 per year or rent of $7,500 per year, depending on the
current
-28-
<PAGE>
gold price. The Young Davidson lease agreement provides for advance royalty
payments of approximately $40,000 per year. The property is subject to a
minimum 3% net smelter return royalty.
GEOLOGY
The Matachewan deposit is hosted within a syenite body which has intruded along
and near the highly deformed contact between Timiskaming Group sedimentary rocks
and Larder Lake Group volcanic rocks. The main syenite body is approximately
2,460 feet long, 410 feet wide and dips steeply to the south.
ORE RESERVES
As of December 31, 1997, the Matachewan property had mineable ore reserves
(proven and probable) of 10,549,000 tons grading 0.058 opt gold. Cutoff grades
are determined for each type of ore based on mining costs and a gold price of
$495 (US$350) per ounce. Allowances are made in these estimates for dilution
and mining losses. Ore reserves do not include allowances for losses in
milling.
DUPORT
BACKGROUND
The Duport property is located on Shoal Lake, 28 miles southwest of the town of
Kenora in northwestern Ontario, in the Lake of the Woods District. The
development ramp is located on an island and is accessible by barge.
OWNERSHIP
Intermittent exploration of the Duport deposit was carried out by various
parties from 1930 to 1950, including underground exploration. In 1973,
Consolidated Professor Mines Limited obtained an option on the Duport property
and conducted an extensive sampling and drilling program from 1973 to 1974.
Subsequently, this option was exercised and Consolidated Professor acquired a
100% interest in this property after amalgamating with Duport Mining Company
Limited. The Company completed the acquisition of all of the shares of
Consolidated Professor in May 1996 pursuant to a tender offer followed by a
compulsory acquisition. There is a royalty payable to Union Carbide Canada
Limited ("Union Carbide") equivalent to a 50% net profits interest until
recovery of pre-production expenditures, up to a maximum of $2.0 million.
Thereafter, Union Carbide will receive a 10% net profits interest until a
maximum of $5.0 million in the aggregate has been paid. The Company also has a
right, subject to certain terms and conditions, to buy back the royalty upon
payment of a certain sum.
MINING AND MILLING FACILITIES
The Duport project is situated in the environmentally sensitive area of Shoal
Lake, the source of Winnipeg, Manitoba's residential and commercial water
supply. Environmental concerns were raised in 1989 by local cottagers and the
City of Winnipeg, after Consolidated Professor announced its plans to advance
the project to the permitting stage. The main concern was the perception of
potential environmental hazards associated with the processing of the refractory
gold ore and the disposal of cyanide treated tailings. During the past six
years, impact and sensitivity studies have been conducted by Consolidated
Professor related to these concerns. As a result of the Company's purchase, all
aspects of mining, ore transport, milling, tailings disposal and site
reclamation are being reconsidered with the objective of satisfying all
concerned parties. Among other features, the redesigned development plan will
involve transporting the ore by truck to the mainland via a year-round ferry to
a mill site located 5.2 miles in land, outside of the Shoal Lake watershed. The
new design concept effectively addressed every concern brought forth during the
consultation process. The Company has completed a fisheries study in the
potential tailings area in the Squaw Lake watershed. The Company plans to
conduct studies to revise mining and milling concepts as part of a preliminary
feasibility study on the Duport project. However, the project has been
suspended due to low gold prices.
GEOLOGY
The northern end of the Lake of the Woods District is underlain by the volcanic
and sedimentary rocks of an extensive Keewatin greenstone belt. In the general
Shoal Lake area, two granodiorite intrusions, namely, the Canoe Lake Stock and
the Snowshoe Bay Stock, intrude the greenstone belt assemblage and are separated
by a five mile broad section of volcanic and volcaniclastic rocks. Within this
volcanic pile is a wide deformation zone which hosts the gold mineralized zones
of the Duport project which occur as en echelon lenses within highly sheared
felsic tuffs.
-29-
<PAGE>
ORE RESERVES
The Duport project has mineable ore reserves (proven and probable) of
approximately 1,008,000 tons grading 0.38 opt gold. Cutoff grades are
determined for each type of ore based on mining costs and a gold price of $495
(US$350) per ounce. Allowances are made in these estimates for dilution and
mining losses. Ore reserves do not include allowances for losses in milling.
REGULATIONS
The Ontario Division is governed by the Ontario Mining Act, Occupational and
Health and Safety Act, Environmental Protection Act, Environmental Assessment
Act, Ontario Water Resources Act and the Pits and Quarries Act, and all
regulations passed thereunder. Failure to comply therewith may result in orders
being issued which may require operations to cease or be curtailed or the
installation of additional equipment or remedial work to be carried out. The
Company may be required to compensate those suffering loss or damage by reason
of its mining activities and may be fined if convicted of an offence under any
of such statutes. The Company believes it is complying with the foregoing
statutes and regulations where applicable and has not been the recipient of any
orders or directives other than in the ordinary course of business at its
Ontario Division.
NEWFOUNDLAND DIVISION
HOPE BROOK MINE
SELECTED OPERATING DATA - NEWFOUNDLAND DIVISION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Tons of ore milled (000's) 586.7 1,010.5 1,090.3 1,227.1 1,149.1
Avg grade of ore milled (opt) 0.087 0.087 0.090 0.089 0.101
Production of gold - oz. 49,253 78,825 81,962 90,672 96,026
Employees at period end 6 281 271 285 283
Cash cost per ounce (US) $363 $353 $343 $320 $292
</TABLE>
BACKGROUND
The Hope Brook Mine is located approximately 5 miles inland from the southwest
coast of Newfoundland, between the towns of Burgeo and Port aux Basques.
Reserves and resources were depleted during 1997 which resulted in closure of
the mine in September 1997.
OWNERSHIP
For five years, production from the Hope Brook Mine was subject to an operating
royalty ranging from $1.3 million to $3.3 million annually in favor of the prior
owner when the annual average spot price of gold exceeded US$380 per ounce. In
1996, the year in which the royalty expired, the royalty paid was $1.3 million.
The Hope Brook Mine area consists of a 25-year mining lease, surface lease and
extended exploration licenses which cover approximately 6,800 acres of mining
rights and 490 acres of surface rights. The Company holds a 100% interest in
the property, and all mining activities are confined to the mining leases.
MINING AND MILLING
The mine was shut down in 1997 and the Company currently plans to move the mill
to Matachewan as increases in gold prices justify. The mill is currently on
care and maintenance.
GEOLOGY
Gold mineralization occurs in an alteration zone of pervasive silica, pyrite,
and pyrophyllite which is approximately 4 kilometers long and 300 meters wide.
The alteration zone exists within a mixed volcanic-sedimentary sequence. The
Hope Brook orebody is located in the zone of alteration. Ore covers a strike
length of 500 meters and extends from surface to a depth of 400 meters dipping
steeply at an angle of seventy-five degrees.
-30-
<PAGE>
ORE RESERVES
With the suspension of mining operations, the material inventory for the Hope
Brook Mine is no longer included as part of mineable reserves.
REGULATIONS
The Newfoundland Division is governed by the Government of Newfoundland and
Labrador's Occupational Health and Safety Act, Department of Environment and
Lands Act, The Mineral Act, Waste Material Act, the Regulation of Mines Act, and
the Government of Canada's Fisheries Act and Environmental Protection Act, and
all regulations passed thereunder. Failure to comply therewith can result in
cease work orders and/or fines. The Company believes it is complying with the
foregoing statutes and regulations where applicable and has not been the
recipient of any order or directions in the past year other than in the ordinary
course of business.
UNITED STATES DIVISION
COPPERSTONE MINE
BACKGROUND
In June 1995, the Company entered into a lease agreement for the Copperstone
property. The Copperstone property is located 20 miles north of Quartzsite and
60 miles south of Lake Havasu City in La Paz County, Arizona.
OWNERSHIP
The Copperstone property is held by the Company, under a renewable 10 year lease
agreement and consists of 284 unpatented mining claims totaling 5,680 acres and
2 state leases covering 1,338 acres located in La Paz County, Arizona.
The Company is obligated to pay an advance minimum royalty annually of US$30,000
against a minimum 1% gross production royalty, and must spend US$1 million by
the year 2000. As of December 31, 1997, the Company had expended approximately
US$1.4 million.
MINING AND MILLING
Since late 1995, the Company has drilled in excess of 32,000 feet in 34 dual-
purpose RC/Core holes to investigate the continuity and extent of auriferous,
north-plunging shoots below the Copperstone pit. The Company believes that
excellent potential exists for the discovery of a well-focused, moderate sized,
high-grade underground gold deposit. Several multi-ounce gold intercepts,
including 2.04 opt gold over a core length of 25 feet have been intersected up
to 600 feet north of the Copperstone pit. The mineralization in the D Zone is
entirely oxide ore, is hosted in an intensely silicified and brecciated, semi-
massive specularite-magnetite altered limestone unit, and appears extremely
dense for gold ore.
The contoured grade thickness data suggest a periodicity of north-plunging
auriferous shoots spaced about 300 feet apart. A predictable pattern of ore
shoot geometry is being used successfully to optimize results in drilling for
gold. The Company believes that there is very good potential for the discovery
of additional gold-bearing shoots north of the present drill coverage.
Previous drilling by Cyprus Gold Corp. encountered high-grade gold values over
significant widths from a parallel structure in the footwall below the pit
floor. The intercept includes 0.646 opt gold over a core length of 15 feet and
0.268 opt gold over a core length of 40 feet.
GEOLOGY
Gold mineralization is confined to a moderately dipping, brecciated fault
structure that cuts quartz latite welded tuff and limestone units. Potassium
metasomatism has affected all of the feldspar-bearing rocks at Copperstone.
This is believed to be a consequence of potassium-rich (evaporite) brines
circulating downward in half-grabens developed during regional extension by
detachment faults. Mineralization is present in the main breccia structure and
is accompanied by metasomatic alkali depletion (potassium and sodium loss) and
silica, iron, manganese and barium addition. The highest gold values are
associated with quartz, specular hematite and chrysocolla.
-31-
<PAGE>
ORE RESERVES
As of December 31, 1997, the Copperstone project had mineable (proven and
probable) of 455,000 tons grading 0.486 ounces of gold per ton. Cutoff grades
are determined for each type of ore based on mining costs and a gold price of
$495 (US$350) per ounce. Allowances were made in these estimates for dilution
and mining losses. Ore reserves do not include allowances for losses in
milling.
INTERNATIONAL DIVISION
NAMOSI PROJECT
BACKGROUND
The Namosi property comprises 178,000 acres and is located 30 km northwest of
Suva, the capital of Fiji.
In April 1997, the Company received consent from the Fijian government for the
transfer of Namosi mining tenements SPL 1352 and SPL 1367 from Placer Pacific
Namosi Ltd ("Placer"). Following this consent, the Company, through its wholly-
owned subsidiary, Arctic Precious Metals, Inc., received certification from the
Registrar of Companies to carry out business as a foreign company in Fiji.
OWNERSHIP
Approval of the Namosi licenses was granted in August 1997 and as a result,
Arctic Precious Metals, Inc. was granted the right to carry out exploration and
related activities on the properties throughout 1998.
MINING AND MILLING
A detailed search for porphyry copper deposits began in 1968 when Australian
Anglo American (Fiji) Pty Ltd. acquired the property. Between 1970 and 1990,
various consortia conducted various exploration activities. Viti Copper Ltd.
managed the project during the prefeasibility stage. Over 164,000 feet of
drilling was completed and feasibility studies indicated material grading at
0.43% copper for the two main Waisoi deposits.
From 1986 to 1989, Anglo Pacific Namosi Ltd. and Western Mining Corporation
carried out exploration programs aimed at assessing the gold potential at the
major prospects and in the vein systems peripheral to the porphyry copper
deposits. In 1991, renewed investigations were begun by Placer and included 39
drill holes at Waisoi and 8 holes at Wainabama. Placer conducted a detailed
economic study of the Waisoi deposit and concluded that the project required
further geological exploration success to achieve viability.
GEOLOGY
The major porphyry copper prospects are at Waisoi, Wainabama, Waivaka Corridor
and Wainadoi, and there are a number of polymetallic vein and skarn systems
around the periphery. Porphyry-style mineralization is associated with high
level intrusion of Wainamala tuffs and Namosi andesites. The main controls on
porphyry intrusions are northeast and north northwest trending faults related to
regional tectonics. High copper and gold values occur in the cupola region of
the stocks and around brecciated, faulted and stockworked haloes.
ORE RESERVES
No portion of the Namosi property is included as part of mineable reserves. The
most significant deposit is Waisoi, which is estimated to contain over 1 billion
tons grading 0.43% copper and 0.004 opt gold equivalent to approximately 9
billion pounds of contained copper and 4 million ounces of contained gold.
When implemented, a Phase I program will consist of grid work, geological
mapping, geophysical surveying, rock and soil sampling and multi-element
analysis, dual purpose RC / core drilling and environmental baseline studies.
-32-
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
(a) LEGAL CLAIMS
In the normal course of business, the Company is 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 proceedings lawsuits and other claims.
The resolution of such proceedings, lawsuits and other claims could be material
to the Company's operating results of any particular period, depending upon the
level of income for such period.
MACK LAKE MINING CORP V. GIANT YELLOWKNIFE MINES LIMITED, ET AL, (October 1983,
Supreme Court of the Northwest Territories). The Company is one of nine
defendants (including the original title holders) in an action alleging title to
the Salmita mineral claims, an accounting of profits made, and damages in the
sum of $10 million. In the Company's view, the claim is without merit.
FULLOWKA ET AL V. ROYAL OAK MINES INC. ET AL, (September 1994, Supreme Court of
the Northwest Territories). On September 18, 1992, nine miners were murdered in
an underground explosion at the Company's Giant Mine. A member of the union,
which was on strike at the time, was convicted of nine counts of second degree
murder. Dependents of the deceased miners have sued the Company and two of its
officers and directors, along with 23 other named defendants unrelated to the
Company for losses allegedly suffered as a result of the explosion. The claim
against the Company and all defendants but one totals approximately $10.8
million plus taxes, interest and costs. The claim against the two officers and
directors and all other defendants, excluding the Company, totals approximately
$33.65 million plus taxes, interest and costs. The Company's insurers are
conducting a vigorous defense of the claim. In the Company's view, the
Company's liability insurance coverage will be sufficient to cover any amount
for which the Company could be held responsible.
FALCONBRIDGE LIMITED AND WINDY CRAGGY EXPLORATION LIMITED V. KEMESS MINES INC.
AND ROYAL OAK MINES INC. ET AL, (June 1996, Supreme Court of British Columbia).
Plaintiffs allege breach of contract, good faith and fiduciary duty, and unjust
enrichment arising from and related to agreements entered into in 1983 and 1984
between the plaintiffs and Geddes Resources Limited 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. The Company is vigorously
defending the claim and believes it is without merit.
TSAY KEY DENE AND TAKLA INDIAN BANDS V. KEMESS MINES INC. ET AL, (February 1997,
Supreme Court of British Columbia). The plaintiffs are seeking injunctive
relief and an order setting aside permits and licenses for the operation of the
Kemess mine and its power line, on the basis of the alleged failure on the part
of the British Columbia government to adequately consult with the Bands and the
alleged bias on the part of the Government in the agreement arising from the
settlement of the Windy Craggy claims. (See "Aboriginal Land Claims" below.)
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, Supreme Court of British Columbia). The plaintiff
asserts that federal and provincial approval of the Kemess mine constituted an
infringement of plaintiff's aboriginal rights and a breach of their fiduciary
and constitutional obligations, and is seeking declarations negating the
licenses and permits for the Kemess South mine, damages and injunctive relief.
Although the Company is not a party to this proceeding, the relief claimed could
adversely impact the Kemess South project and as a result the Corporation may
seek intervenor status. (See "Aboriginal Land Claims" below.)
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., and CHIEF MICHAEL TEEGEE, ON HIS
OWN BEHALF, AND ON BEHALF OF ALL MEMBERS OF THE 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, Supreme Court of British Columbia). The
plaintiff is seeking injunctive relief, declarations negating the licenses and
permits for the Kemess mine, and damages. (See "Aboriginal Land Claims" below.)
The Company intends to vigorously defend its rights in the above three actions
with respect to the ownership and operation of the Kemess South mine.
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
project and proceedings commenced in the Supreme Court of British Columbia to
enforce such liens, arising out of work performed at the Kemess South project
by contractors and subcontractors who have provided work and materials to the
site. The stated amount of the asserted liens filed against the Kemess South
project, not
-33-
<PAGE>
including amounts owing to contractors who have not filed liens, was
approximately $47.4 million as of April 6, 1998. These include a proceeding
by Golden Hill Ventures Ltd. for $6.15 million plus holdback, commenced
September 1997. In addition, one of the liens, filed by Tercon Contractors
Ltd. for $5.65 million, is the subject of arbitration (January 1998), the
arbitrator found against the Company generally and directed the parties to
attempt to agree on the amount owing. Tercon is claiming $6.8 million.
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 the WASTE MANAGEMENT ACT (B.C.). The basis for the order was the
release of total suspended solids into Kemess Creek and associated tributary
watercourses 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 is cooperating with both the British Columbia and federal
ministries since issuance of the order and is in the process of formulating a
plan for submission to the ministries dealing 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.
(b) LAWS AND REGULATIONS
GENERAL
The Company's current and proposed mining and exploration activities are
subject to various laws and regulations governing the protection of the
environment, the health and safety of its employees and related matters.
These laws and regulations are continually changing and are generally
becoming more restrictive. The Company conducts its operations so as to
protect its employees, the general public and the environment, and believes
its operations are in compliance with all applicable laws and regulations, in
all material respects. The Company has made, and expects to make in the
future, submissions and expenditures to comply with such laws and regulations.
Where estimated reclamation and closure costs are reasonably determinable,
the Company has recorded a provision for environmental liabilities based on
management's estimate of these costs. Such estimates are subject to
adjustment based on changes in laws and regulations and as additional
information becomes available.
ABORIGINAL LAND CLAIMS
The Kemess property is impacted by various claims of aboriginal rights, which
are the subject of developing case law. On December 11, 1997, the Supreme
Court of Canada, in the landmark decision, DELGAMUUKW V. BRITISH COLUMBIA,
acknowledged the existence of aboriginal title as a type of aboriginal right
and confirmed the fiduciary responsibility of the government to have
meaningful consultation with an aboriginal group when their aboriginal rights
are affected, which in some cases may require that their consent be obtained.
This decision raises the issue of the Crown's right to deal with lands which
are the subject of aboriginal rights where it is subsequently found that the
consultation was insufficient to discharge the Crown's duty. As aboriginal
rights and the requisite consultation are determined on a case by case basis,
it is difficult to predict the outcome of any particular litigation. However,
reference should be had to the recent case, CHESLATTA CARRIER NATION V
BRITISH COLUMBIA, in which Delgamuuk was considered. In this case, the Chief
Justice of the Supreme Court of British Columbia did not enjoin the operation
of the Huckleberry Mine, although he found that consultation with respect to
a particular issue was deficient. Instead, the Chief Justice required the
consultation to take place, which he recognized might result in certain
amendments to the certificate of approval for operation of the mine. Proper
consultation was required as to future permit applications.
-34-
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the Company
during the fourth quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages of each of the present executive officers of
the Company together with the principal positions and offices held for the last
five years. Executive officers are appointed annually by the Board of Directors
to serve for the ensuing year or until their successors have been appointed. No
executive officer or director is related to any other by blood, marriage or
adoption.
<TABLE>
<CAPTION>
NAME TITLE AGE
---- ----- ---
<S> <C> <C>
Joseph A. Brand Controller, since March 1997; Manager of Projects 46
Accounting, ARCO Alaska, Inc., May 1996 to March 1997;
Corporate Controller, ARCO Coal Australia, January 1994
to April 1996; Business Manager, January 1991 to December
1993, ARCO Coal Australia.
Ross F. Burns Vice President, Global Exploration, since March 1997; 54
Vice President, Exploration, July 1989 to March 1997.
J. Graham Eacott Vice President, Investor Relations, since January 1995; 57
Manager, Investor Relations, August 1991 to January 1995.
N. Scott Lampe Treasurer since March 1997; Assistant Treasurer, Maxus 42
Energy Corporation, July 1992 to May 1996.
John R. Smrke Senior Vice President, since July 1993; Vice President, 47
Operations, October 1992 to July 1993; Vice President,
Human Resources, February 1992 to October 1992; Corporate
Director of Human Resources, January 1991 to February
1992.
Edmund Szol Executive Vice President and Chief Operating Officer, 57
since May 1997; Vice President, Human Resources, February
1995 to May 1997; Vice President, Human Resources, Nerco
Inc. (mining operations), April 1990 to February 1995.
Margaret K. Witte President and Chief Executive Officer, since July 1989. 44
James H. Wood Chief Financial Officer, since May 1994; Vice President 51
Finance, Maclean Hunter Publishing Limited, Dec. 1992 to
May 1994; Vice President, Finance and Administration,
Kolmar Laboratories, Inc. (custom manufacturer -
cosmetics), March 1991 to December 1992.
</TABLE>
-35-
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Shares have been listed on the Toronto and American Stock
Exchanges effective July 25, 1991; the principal market now being the American
Stock Exchange. The following table sets out the high and the low prices in
Canadian dollars of the shares as reported by The Toronto Stock Exchange for
board lots, and dividends paid, during the periods indicated:
<TABLE>
<CAPTION>
PERIOD THE TORONTO STOCK EXCHANGE HIGH LOW DIVIDENDS
------ -------------------------- ---- --- ---------
<S> <C> <C> <C> <C>
1997 First Quarter $5.00 $3.77 -0-
Second Quarter 4.34 3.00 -0-
Third Quarter 3.93 2.25 -0-
Fourth Quarter 4.15 1.37 -0-
1996 First Quarter 7.13 4.95 -0-
Second Quarter 6.30 4.95 -0-
Third Quarter 5.70 4.85 -0-
Fourth Quarter 5.55 4.26 -0-
</TABLE>
The following table sets out the high and the low prices in U.S. dollars of the
shares as reported by the American Stock Exchange for board lots, and dividends
paid, during the periods indicated:
<TABLE>
<CAPTION>
PERIOD AMERICAN STOCK EXCHANGE HIGH LOW DIVIDENDS
------- ----------------------- ---- ---- ---------
<S> <C> <C> <C> <C>
1997 First Quarter $3-5/8 $2-13/16 -0-
Second Quarter 3-1/8 2-3/16 -0-
Third Quarter 2-7/8 1-5/8 -0-
Fourth Quarter 3 15/16 -0-
1996 First Quarter 5 1/8 3 9/16 -0-
Second Quarter 4 5/8 3 9/16 -0-
Third Quarter 4 1/8 3 1/2 -0-
Fourth Quarter 4 1/16 3 1/16 -0-
</TABLE>
As of March 23, 1998, the Company's shareholder register indicates that there
were 7,407 holders of record of common shares. Of these, 5,748 record holders
of common shares holding an aggregate of 114,950,380 common shares, representing
approximately 82% of the Company's issued and outstanding common shares, were
resident in the United States.
The Company has not paid dividends in the past and currently does not intend to
pay dividends in the foreseeable future. The Company will retain cash flow for
future exploration, development and acquisitions.
There are no restrictions enforced by Canada or the Province of Ontario, Canada
under which the Company is organized, on the export or import of capital which
affect the remittance of dividends on the Company's securities.
There are no limitations, either by the laws of the Province of Ontario, Canada
under which the Company is organized, or in the charter or other constating
documents of the Company on the right of foreigners to hold or vote securities
of the Company.
TAXES
The following summary describes the principal Canadian federal income tax
considerations generally applicable to a holder of the Company's common shares
who, for purposes of the INCOME TAX ACT (Canada) (the "Canadian Tax Act") and
the CONVENTION BETWEEN CANADA AND THE UNITED STATES OF AMERICA WITH RESPECT TO
TAXES ON INCOME AND ON CAPITAL (the "Convention") and at all relevant times, is
resident in the United States and not resident in Canada, deals at arm's length
with the Company, holds the Company's common shares as capital property and
-36-
<PAGE>
does not use or hold and is not deemed to use or hold the Company's common
shares in or in the course of carrying on business in Canada (a "United
States holder").
This following summary is based upon the current provisions of the Canadian
Tax Act, the regulations thereunder, all specific proposals to amend the
Canadian Tax Act and the regulations announced by the Minister of Finance
(Canada) prior to the date hereof and an understanding of the published
administrative practices of Revenue Canada, Customs, Excise and Taxation.
This summary does not take into account or anticipate any other changes in
the governing law, whether by judicial, governmental or legislative decision
or action, nor does it take into account the tax legislation or
considerations of any province, territory or non-Canadian (including U.S.)
jurisdiction, which legislation or considerations may differ significantly
from those described herein.
This summary is of a general nature only and is not intended to be, and
should not be interpreted as, legal or tax advice to any prospective
purchaser or holder of the Company's common shares and no representation with
respect to the Canadian federal income tax consequences to any such
prospective purchaser is made. Accordingly, prospective purchasers of the
Company's common shares should consult their own tax advisers with respect to
their individual circumstances.
DIVIDENDS
Dividends and amounts deemed for purposes of the Canadian Tax Act to be
dividends, paid or credited on the Company's common shares to non-residents
of Canada will be subject to Canadian withholding tax at the rate of 25% of
the gross amount of such dividends. In the case of United States holders,
under the Convention, the rate of withholding tax is reduced to 15% of the
gross amount of such dividends, unless the holder is a corporation resident
in the United States which owns at least 10% of the voting shares of the
Company, in which case the withholding tax is levied at the rate of 5% of the
gross amount of such dividends paid. Pursuant to the Convention, certain tax
exempt entities resident in the United States may be exempt from Canadian
withholding taxes levied in respect of dividends received on the Company's
common shares.
DISPOSITION OF COMMON SHARES
In general, a United States holder will not be subject to Canadian income tax
on capital gains arising on the disposition of the Company's common shares,
unless: (i) at any time in the five year period immediately preceding the
disposition, not less than 25% of the issued shares of any series or class
(including any interest in, option in respect of or right of conversion into
such shares) of the capital stock of the Company belonged to the United
States holder, to persons with whom the United States holder did not deal at
arm's length or to the United States holder and persons with whom the United
States holder did not deal at arm's length; and (ii) the United States holder
is not entitled to any relief under the Convention. Under the Convention,
capital gains arising on the disposition of the Company's common shares by a
United States holder will not be subject to Canadian tax provided that the
value of the Company's common shares at the time of the disposition is not
derived principally from real property (as defined in the Convention)
situated in Canada. The Convention defines real property situated in Canada
to include rights to explore for or exploit mineral deposits and other
natural resources situated in Canada, certain other rights in respect of
natural resources situated in Canada and shares of a company the value of
whose shares is derived principally from real property situated in Canada.
RECENT SALES OF UNREGISTERED SECURITIES
On January 11, 1996, the Company acquired all of the outstanding shares of
Geddes, El Condor and St. Philips not already owned by the Company pursuant
to a series of signed agreements (the "Plan of Arrangement"), see "Item 7 -
Properties - British Columbia Division - Kemess South - Background". The
Company paid $3.40 cash for each St. Philips share and acquired the Geddes
and El Condor shares on the following terms:
Geddes 0.30 share of the Company for each share of Geddes
El Condor 0.95 share of the Company plus $2.00 cash for each share of
El Condor
In addition to the cash consideration that the Company paid to Geddes, El
Condor and St. Philips shareholders pursuant to the Plan of Arrangement, the
Company issued 19,011,883 common shares at an aggregate offering price of
$114,071,298 or $6.00 per share, which was the closing price of the Company's
common shares on The Toronto Stock Exchange on January 11, 1996. The shares
were issued without registration under the Securities Act of 1933, as amended
in reliance on an exemption provided by Section 3(a)(10) of that Act.
-37-
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF RESULTS
PRODUCTION, RESERVES AND COST DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PRODUCTION
Ore milled (tons) 5,248,102 5,772,771 5,556,450 3,992,472 2,892,891
Recovered gold and equivalent (oz.) 351,349 389,203 371,151 318,171 276,320
Cash cost (US$ per ounce) $330 $343 $358 $311 $311
Total cost (US$ per ounce) $426 $425 $410 $353 $340
RESERVES
GOLD (OUNCES)
Mineable ore 7,016,000 9,875,000 9,263,000 2,516,000 2,682,000
Mineralized material 12,500,000 7,384,000 6,303,000 3,969,000 2,327,000
Total mineral inventory 19,516,000 17,259,000 15,566,000 6,485,000 5,009,000
COPPER (000'S POUNDS)
Mineable ore 996,346 989,843 989,843 -- --
Mineralized material 9,691,576 623,026 623,026 -- --
Total mineral inventory 10,687,922 1,612,869 1,612,869 -- --
FINANCIAL RESULTS (C$000'S)
Revenue $191,167 $255,168 $208,311 $162,111 $135,326
Operating income (loss) (62,848) 29,541 4,933 12,308 15,135
Net income (loss) (135,215) (5,985) 23,169 22,166 15,623
Cash provided by operating activities 67,251 57,259 31,760 55,979 18,921
Additions to property, plant and
equipment 421,343 146,170 66,018 52,461 26,803
FINANCIAL POSITION (C$000'S)
Cash, cash equivalents and marketable
securities $10,443 $226,025 $142,381 $178,937 $79,644
Working capital (deficiency) (126,859) 240,517 158,841 191,050 81,881
Total assets 843,386 821,630 428,963 384,074 217,226
Capital leases (less current) 19,835 2,448 737 1,037 --
Senior subordinated notes 250,338 239,680 -- -- --
Shareholders' equity 316,378 451,366 340,495 302,731 185,362
PER SHARE DATA (C$)
Earnings (loss) $(0.97) $(0.04) $0.20 $0.22 $0.19
Cash provided by operating activities $ 0.48 $ 0.42 $0.27 $0.55 $0.23
Common shares outstanding (year-end) 138,940,263 138,845,263 119,118,714 114,494,747 96,956,213
Weighted average common shares 138,892,346 136,758,106 117,900,306 101,399,347 84,073,179
</TABLE>
-38-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial results of the Company's operations
for the years 1995 through 1997 should be read in conjunction with the review of
operations, financial data, and the Company's Consolidated Financial Statements
and accompanying notes included in this report. The Company's Consolidated
Financial Statements are prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). In all material respects these
statements conform to United States generally accepted accounting principles
("U.S. GAAP"), except as described in Note 14 to the Company's Consolidated
Financial Statements.
SUMMARY OF FINANCIAL RESULTS
For the year ended December 31, 1997, the Company incurred a net loss of $135.2
million, or 97 cents per share, on revenue of $191.2 million compared with a net
loss of $6.0 million, or 4 cents per share, on revenue of $255.2 million in 1996
and net income of $23.2 million, or 20 cents per share, on revenue of $208.3
million in 1995. The 1997 loss was primarily due to an operating loss of $62.8
million, a write-down of $39.7 million for the Colomac Mine assets (see Note 16
to the Consolidated Financial Statements), and a loss on investments in other
gold mining companies of $34.1 million (see Note 2(b) to the Consolidated
Financial Statements).
The 1997 operating loss of $62.8 million compares to operating income of $29.5
million and $4.9 million in 1996 and 1995, respectively, and is primarily
attributable to declines in gold prices, losses on foreign currency and
commodity contracts of $46.3 million (see Note 12(d) to the Consolidated
Financial Statements), and lower production volumes resulting from the closures
of the Hope Brook Mine and the Colomac Mine. To a partial extent, the 1997
operating loss was mitigated by favorable Canadian and United States currency
exchange rates and by efforts to reduce operating costs.
In 1997, net cash provided by operating activities increased 17% to $67.3
million, or 48 cents per share, from $57.3 million, or 42 cents per share, in
1996 and $31.8 million, or 27 cents per share, in 1995.
REVENUE
GOLD PRODUCTION
A high proportion of the Company's revenue is derived from gold production.
Revenue from gold production is recognized when ore is mined and processed at
the on-site milling facility. (See "Revenue Recognition" under Summary of
Significant Accounting Policies in Notes to the Consolidated Financial
Statements.) Changes in revenue from gold production are directly related to
changes in the quantity of gold produced and the price received for that
production. The price of gold is affected by many factors beyond the Company's
control. In an effort to minimize the potential adverse effect of fluctuations
in the price of gold, the Company enters into various gold derivative
transactions from time to time that include spot deferred contracts, forward
sales contracts, and option contracts.
In 1997, revenue, including gains from gold derivative transactions, from
production of 351,349 ounces of gold was $191.2 million, a decrease of 25% from
the prior year, compared to revenue of $255.2 million from production of 389,203
ounces of gold and revenue of $208.3 million from production of 371,151 ounces
of gold in 1996 and 1995, respectively.
The impact of changes in production and in the realized gold price on revenue
for the years 1995 through 1997 are summarized as follows (all amounts in
millions of Canadian dollars):
<TABLE>
<CAPTION>
($ MILLIONS)
IMPACT ON REVENUE DUE TO: 1997 1996 1995
------------------------- ------ ---- ----
<S> <C> <C> <C>
Increased (decreased) production (24.8) 11.8 52.5
Increased (decreased) gold prices (39.2) 35.1 (6.3)
----- ---- ----
Incremental revenue from prior year (64.0) 46.9 46.2
----- ---- ----
----- ---- ----
</TABLE>
The Company estimates that in 1997 for each US$10 per ounce change in the
realized gold price, the Company's revenue changed by approximately $4.9
million.
-39-
<PAGE>
GOLD DERIVATIVE TRANSACTIONS
In 1997, gains from gold derivative transactions were $33.7 million compared to
$51.3 million and $13.3 million in 1996 and 1995, respectively. In 1997, the
Company's average realized gold price was US$393 per ounce, a US$62 per ounce
premium above the 1997 average spot price of US$331 per ounce, a decrease of 18%
from US$481 per ounce realized in 1996 when the premium was US$93 per ounce
above the 1996 average spot price of US$388 per ounce. In 1995, the average
gold price realized by the Company was US$409 per ounce, a premium of US$25 per
ounce above the 1995 average spot price of US$384 per ounce. See Summary of
Significant Accounting Policies and Note 12(d) for descriptions of the Company's
accounting policy on gold derivative transactions and the status of gold
contracts. At December 31, 1997, all of the Company's existing forward
contractual arrangements for the delivery of gold had either been fulfilled or
closed out, and no new forward contractual arrangements had been entered into.
INTEREST AND OTHER INCOME
In 1997, interest and other income decreased to $3.6 million from $5.7 million
and $12.7 million in 1996 and 1995, respectively. (See Note 10 to the
Consolidated Financial Statements.) Interest income in 1996 and 1995 reflected
higher cash balances compared to prior years due to the issuance of additional
equity and debt and to the exercise of warrants. Interest income in 1995
includes $1.3 million of interest received on a refund of 1988 Ontario mining
taxes.
Interest income of $4.4 million in 1997 was $1.8 million less than interest
income of $6.2 million in 1996, primarily due to declining cash balances during
the year resulting from major expenditures on construction of the Kemess South
project. 1996 interest income decreased from $10.8 million in 1995, primarily
due to cash used in the purchases of El Condor Resources Ltd., St. Philips
Resources Inc. and Consolidated Professor Mines Limited. Cash balances
increased significantly in August 1996 when the Company issued US$175 million of
11% Senior Subordinated Notes due in 2006. The Company expects to receive
minimal interest income in 1998. See "Special Note Regarding Forward-Looking
Statements."
In order to provide the Company with maximum liquidity, surplus cash is
currently invested in highly liquid, low risk financial instruments with
relatively short maturities.
Interest and other income is expected to decline significantly in 1998, and for
the foreseeable future the Company anticipates using any excess cash to retire
debt.
GAIN (LOSS) ON INVESTMENTS
In 1997, the Company had a loss on investment securities of $34.1 million
compared to a gain on investment securities of $2.7 million and $8.3 in 1996 and
1995, respectively. During 1996 and early 1997, the Company made significant
strategic equity investments in the common shares of two gold mining companies
to establish ownership positions prior to holding discussions with management of
those companies regarding a potential acquisition, merger or similar other
transaction. When the Company was unable to complete any transaction with
either of those companies, the investments were liquidated, in whole or in part,
resulting in certain gains and losses. The decline in the price of gold in 1997
had a significant adverse impact on the market value of those common shares so
that, during the course of the lengthy discussions with representatives of those
companies, the value of those common shares declined, resulting in a significant
loss when the shares were sold.
COSTS AND EXPENSES
OPERATING
In 1997, operating costs of $160.5 million were approximately 12% lower than
$181.9 million and $182.0 million in 1996 and 1995, respectively, primarily
reflecting a decrease in unit cash costs and lower gold production.
Operating costs consist of direct cash costs incurred at the minesites and
include the mining and processing costs associated with gold production, but do
not include royalties. The most significant of these costs are labor,
consumable materials, fuel and utilities, and maintenance of machinery and
equipment. At the Colomac Mine and the Hope Brook Mine, personnel
transportation and freight costs have also been significant factors. Both mines
were closed in the second half of 1997 and placed on care and maintenance.
-40-
<PAGE>
In 1997, average unit cash operating costs were US$330 per ounce, a 4% decrease
from the prior year, compared to US$343 and US$358 per ounce in 1996 and 1995,
respectively. These decreases reflect cost-reduction and productivity measures,
including workforce reductions, improved productivity and efficiencies, and
closure of higher cost facilities in the second half of 1997. See "Review of
Operations" contained in Item 1 of Part I.
ROYALTIES AND MARKETING
Combined royalties and marketing expense was $2.0 million, $2.9 million and $2.5
million in 1997, 1996 and 1995, respectively. In 1996 and 1995, the Hope Brook
Mine paid an annual royalty of $1.3 million which expired at the end of 1996.
Royalties are payable on gold production from the Nighthawk Mine, which
commenced production in September 1995, and on gold production from the Hoyle
deposit at the Pamour Mine in Timmins. Total royalty expense was $0.8 million,
$2.2 million and $1.9 million in 1997, 1996 and 1995, respectively. Marketing
expense, which is directly a function of gold production and consists primarily
of refining and shipping charges, was $1.2 million, $0.7 million and $0.6
million in 1997, 1996 and 1995, respectively. The 1997 increase in marketing
expense was due to increased shipping and transportation costs incurred as a
result of the Company's effort to improve cash flow by accelerating gold
shipments.
ADMINISTRATIVE AND CORPORATE
In 1997, administrative and corporate expense was $9.6 million, a 3% increase
from the prior year, compared to $9.3 million and $8.5 million in 1996 and 1995,
respectively. In both 1996 and 1995, salary and benefit costs increased due to
staff additions at the corporate office to manage the future growth of the
Company. The Company estimates that administrative and corporate expense will
be approximately $10.0 million annually over the next several years. See
"Special Note Regarding Forward-Looking Statements."
DEPRECIATION AND AMORTIZATION
In 1997, depreciation and amortization expense was $21.3 million (US$44 per
ounce of gold) compared to $24.6 million (US$46 per ounce) in 1996, reflecting
the write-down of the Colomac Mine and the Hope Brook Mine assets and lower
production volumes in 1997. In 1995, depreciation and amortization expense was
$13.6 million (US$27 per ounce). Increases in capital assets and deferred
mining costs over the past several years, primarily at the Colomac Mine and the
Nighthawk Mine, combined with downward adjustments to mining reserves on
specific properties, have resulted in increased depreciation and amortization
expense compared to prior years. Depreciation and amortization expense is
calculated using the unit-of-production method based upon the estimated tons of
ore contained in the Company's total mineral inventory. Depreciation and
amortization expense is expected to increase to approximately $44.1 million in
1998 as a result of bringing the South Kemess project into production during the
second quarter of the year. See "Special Note Regarding Forward-Looking
Statements".
RECLAMATION
The Company makes a provision for future reclamation costs on ultimate closure
of a mine or abandonment of a property. In 1997, the reclamation provision was
$4.1 million compared to $2.7 million in 1996 and $1.3 million in 1995.
Reclamation costs at the Company's minesites have become more significant as the
Company has expanded its operations and as environmental laws and regulations
have become more stringent. Estimated reclamation and site restoration costs
are charged against income in accordance with the unit-of-production method
based upon the estimated tons of ore contained in total mineral inventory. As
of December 31, 1997, the Company had accrued $24.7 million for future
reclamation costs.
EXPLORATION AND OTHER
Excluding exploration costs that were capitalized, exploration and other expense
was $10.3 million in 1997 compared to $4.7 million and $0.6 million in 1996 and
1995, respectively. The Company significantly increased its expenditures on
exploration in 1997 and 1996 in order to increase ore reserves. The decrease in
mineable ore reserves at December 31, 1997 primarily reflects the impact of
lower gold prices. (See discussion under "Property, Plant and Equipment" of
Summary of Significant Accounting Policies to the Consolidated Financial
Statements for a description of the Company's policy on accounting for
exploration expenditures.) The Company has budgeted approximately $5.0 million
in 1998, of which approximately $2.0 million is expected to be expensed. See
"Special Note Regarding Forward-Looking Statements."
-41-
<PAGE>
FOREIGN CURRENCY AND COMMODITY CONTRACTS
In an effort to minimize the potential adverse effect of fluctuations in the
exchange rate between U.S. and Canadian currencies and to provide a minimum
Canadian dollar conversion rate for gold sales, the Company enters into foreign
currency contracts from time to time. These contracts are associated in part
with the Company's contractual obligation to deliver future gold production at
specified prices in U.S. dollars. (See Notes 6(a) and 12(d) to the Consolidated
Financial Statements.) In 1997, the Company recognized a loss on foreign
currency contracts of $23.8 million compared to gains of $0.5 million and $5.2
million in 1996 and 1995, respectively. The Company also enters into various
types of commodity contracts in an effort to minimize exposure to possible
adverse fluctuations in foreign currency exchange rates associated with U.S.
dollar-denominated commodity prices. In 1997, the Company recognized a loss on
commodity contracts of $22.5 million relating primarily to gold and copper put
options issued by the Company.
INTEREST EXPENSE
In August 1996, the Company issued US$175 million of 11% Senior Subordinated
Notes maturing in 2006, the proceeds of which were used to finance construction
of the Kemess South project and other development projects. (See Note 7 to
Consolidated Financial Statements.) In 1997, the Company incurred an interest
expense of $26.7 million on these notes. In 1997, the Company also capitalized
$22.9 million of interest related to funding of development projects compared to
$5.4 million of capitalized interest in 1996. The Company estimates that in
1998 it will incur interest expense on these notes of approximately $27.5
million of which approximately $14.6 million will be capitalized. In January
1998, the Company issued Senior Secured Debentures of $19.5 million and US$30.7
million maturing in January 2003. The Company estimates that interest expense
on these debentures will be approximately $7.5 million in 1998. The Company is
currently in the process of arranging additional financing of US$120 million for
the purpose of retiring the Senior Secured Debentures and bringing the Kemess
mine into production. (See Note 1 to Consolidated Financial Statements.) The
Company estimates that the new financing, if successfully completed, will
increase the Company's interest expense on senior secured indebtedness in 1998
from $7.5 million to approximately $16.0 million and increase total estimated
interest expense to approximately $43.5 million. (See Note 19(a) to
Consolidated Financial Statements.) See "Special Note Regarding Forward-Looking
Statements."
CLOSURE COSTS AND WRITE-DOWN OF RESOURCE PROPERTIES AND OTHER ASSETS
In 1997, the Company wrote-down assets by $39.7 million related to the closure
of the Colomac Mine. In 1996, the Company wrote down assets and recognized
closure costs of $37.6 million primarily related to the Hope Brook Mine and the
Colomac Mine. In 1995, the Company wrote-down mine assets by $0.9 million.
(See Note 16 to the Consolidated Financial Statements.) To the extent
economically feasible, the Company intends to dismantle the remaining Hope Brook
Mine assets at a future date and relocate the equipment to its Matachewan
project in Ontario.
INCOME TAXES
In 1997, the Company reassessed its income and mining tax liabilities for prior
tax years and accordingly recognized a combined reduction in current and
deferred tax liabilities of $4.8 million compared to income tax expense of $0.9
million and $1.5 million in 1996 and 1995, respectively. The Company currently
has tax deductions available of approximately $600 million, including earned
depletion and mining exploration depletion, that may be used to reduce taxes
that would otherwise be payable in connection with the filing of future tax
returns. The ability of the Company to utilize these deductions may depend upon
the future profitability of the Company, and because of past reorganizations
undertaken by the Company, utilization of some of these tax deductions may be
restricted. The Company does not expect to pay significant cash income taxes or
mining taxes in Canada for the next two years. However, the Company is subject
to capital taxes and minimum taxes in certain Canadian jurisdictions. Although
any income earned by the Company in the U.S. would be taxable, U.S. taxes in
1998 are not expected to be material. (See Notes 9 and 14(d) to the
Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY
A significant decline in gold prices occurred in 1997, from a high of US$366 per
ounce at the beginning of the year to a low of US$283 per ounce in early
December. The progressive decline in the gold price during the year adversely
impacted the Company's operating cash flow and ultimately contributed to the
closure of two of the Company's five operating mines in September (the Hope
Brook Mine) and December (the Colomac Mine).
-42-
<PAGE>
In addition, the Company recognized a loss of $34.1 million on the sale of
investments in two gold mining companies as described above. The Company also
recognized, as described above, a loss of $24.3 million on foreign currency and
commodity derivative contracts in 1997, due in part to falling gold prices and a
weakening Canadian dollar during the year, when parties to a number of these
derivative contracts declined to allow these contracts to be rolled forward.
Instead, the Company was required to close out these contracts and make
substantial cash payments to settle amounts currently owing. Capital
expenditures for the ongoing construction of the Kemess South project also
peaked in 1997, and by September the Company recognized that there was an
impending liquidity problem and that significant additional cash would be
required. Taken together, all of these factors contributed to a severe
depletion of cash and cash sources and resulted in a substantial increase in
accounts payable to contractors and suppliers furnishing services and equipment
for the Kemess South project. Commencing in 1997 and continuing through 1998,
the Company has taken a number of actions to conserve its cash resources,
including cost reductions, postponement of development projects, and other
actions intended to improve cash flow at its active operations.
As a result of the above-mentioned factors, the Company had a working capital
deficiency of $126.9 million and approximately $97.6 million as of December 31,
1997 and February 28, 1998, respectively, primarily due to accounts payable of
$123.6 million and $60.5 million, respectively. Working capital was $240.5
million at year-end 1996, of which cash, cash equivalents, and marketable
securities were $226.0 million. The reduction in working capital of $367.4
million between 1997 and 1996 reflects the use of cash for construction of the
Kemess South project and reductions in gold inventory of $18.9 million and
warehouse inventory of $21.8 million due to the closure of the Hope Brook Mine
and the Colomac Mine. Working capital in 1996 reflects the net result of new
debt and equity issuances during the year. The current ratio was 0.34:1 at
December 31, 1997 compared to 4.31:1 as of December 31, 1996. The Company
anticipates that working capital will begin increasing in 1998 after the Company
concludes the startup phase of the Kemess South project and begins to produce
positive cash flow from operations. See "Special Note Regarding Forward-Looking
Statements." As of February 28, 1998, the Company's cash, cash equivalents, and
marketable securities were approximately $80,000.
In September 1997, the Company recognized that it would be necessary to raise
additional funds to allow for the completion and start-up of the Kemess South
mine. With the assistance of one of the Company's investment bankers, numerous
financial institutions were approached and, ultimately, the Company issued
approximately $19.5 million and US$30.7 million in Senior Secured Debentures on
January 27, 1998. Unfortunately, the protracted discussions with these lenders
and their requirement that the Company obtain prior approval from the holders of
the Company's Senior Subordinated Notes delayed the closing of the transaction
by more than six weeks. This delay occurred at a critical time in the
construction schedule for the Kemess South project and the Company was unable to
meet certain payment commitments it had made to its key contractors. A number
of those contractors chose to stop work and would not return to the project on
the same terms and conditions as had previously been in effect.
The Company was concerned about the impact that this delay, interruption of
work, and revised contract terms would have on both the scheduled start-up date
and the total cost of the Kemess South project. The Company conducted a
complete review and revised the cost-to-complete forecast for the Kemess South
project in early February 1998. As a result of this review, it became apparent
that the project cost would be overrun by approximately 10%, or $40 million,
from the previously-estimated project cost of approximately $430 million.
After the Company became aware that the January 1998 financing would not be
sufficient to allow it to complete the Kemess South project, it retained
investment bankers to advise the Company as to the best courses of action to be
taken in seeking additional capital required to complete the Kemess South
project. Some of the alternatives that were investigated and considered
included the sale of other mining assets and properties, mergers with other
mining companies, sale of royalties on the Kemess South project, issuance of
additional equity, and refinancing of the existing Senior Secured Debentures.
Due to depressed gold prices, offers or other expressions of potential interest
that were received for the purchase of certain of the Company's key properties
were, in the Company's opinion, too low. The Company therefore concluded that
these potential sales would not be in the best interests of the Company and its
shareholders. Similarly, no viable royalty sale or merger opportunities was
identified, and it appeared that the equity capital markets had little or no
interest in an offering of the size required to complete the Kemess South
project, in part due to continuing low gold prices.
After pursuing and considering these various alternatives, the Company was able
to identify a potential source of funds, and on March 25, 1988, entered into a
nonbinding agreement by execution of a term sheet outlining the terms of a
transaction by which the Company would obtain US$120 million of additional debt
financing, the purpose of which would be to
-43-
<PAGE>
refinance the Senior Secured Debentures and complete and begin operation of
the Kemess South project. The Company anticipates that the financing will be
in the form of senior secured notes. However, the closing is subject to
execution of a final agreement and other matters, and there can be no
assurance that this financing effort will be successful. The Company
believes that if successful this additional financing will resolve the
current liquidity problem and allow the Company to meet its cash obligations
for at least the remainder of 1998.
SOURCES, USES AND CHANGES OF CASH
The Company's sources, uses, and changes of cash comparing 1997, 1996 and 1995
are summarized as follows (all amounts in millions of Canadian dollars):
<TABLE>
<CAPTION>
SOURCES OF CASH
1997
<S> <C>
Operating activities $ 67.3
Capital lease obligation 19.4
British Columbia government assistance 131.8
Long-term investments/other 8.3
-------
Total $ 226.8
-------
-------
1996 $ 465.2
-------
1995 $ 49.4
USES OF CASH
1997
Reclamation and other deposits $ 14.3
Capital expenditures 421.3
Investments/other 6.8
-------
Total $ 442.4
-------
-------
1996 $ 381.6
1995 $ 86.0
INCREASE (DECREASE) IN CASH AND MARKETABLE SECURITIES
1997 $(215.6)
1996 $ 83.6
1995 $ (36.6)
</TABLE>
OPERATING ACTIVITIES
In 1997, net cash provided by operating activities was $67.3 million, an
increase of 17% from the prior year, compared to $57.3 million and $31.8 million
in 1996 and 1995, respectively. In 1997, operating cash flow consisted
primarily of cash losses from operations of $35.4 million and offsetting
increases in cash resulting from net increases in working capital of $102.7
million. In contrast to the two preceding years, 1997 cash losses from
operations were primarily attributed to losses on foreign currency and commodity
contracts of $22.0 million, declining gold prices, and lower production volumes.
Cash increases from working capital changes were primarily the result of
reductions in gold and stores inventories associated with the closure of the
Hope Brook Mine and the Colomac Mine and of a significant increase in trade
payables. (See Note 13 to Notes to Consolidated Financial Statements.)
FINANCING ACTIVITIES
In 1997, cash provided by financing activities was $19.4 million, consisting of
additional capital lease financing, compared to $349.9 million and $17.3 million
in 1996 and 1995, respectively. In 1996, the Company issued equity and debt
securities, principally to acquire and fund the development and construction of
the Kemess South project. In that year, the Company issued $116.9 million of
common shares, of which $114.1 million were issued to finance the purchase of El
Condor Resources Ltd. and Geddes Resources Limited in a stock-for-stock exchange
and issued debt securities in the form of US$175 million 11% Senior Subordinated
Notes due in 2006 which provided $231.1 million, net of issue costs. In 1995,
the exercise of warrants provided $14.6 million in cash. The Company's debt to
total capitalization at December 31, 1997 was 46% compared to 35% at
December 31, 1996.
-44-
<PAGE>
In January 1998, the Company completed the sale of senior secured debentures
(the "Senior Debentures") in the principal amounts of $19.5 million and US$30.7
million maturing on January 20, 2003. On or about March 17, 1998, the Company
notified the holders of the Senior Debentures that it was in default of certain
covenants of the Senior Debentures in that it had exceeded the allowable amount
of trade payables over 90 days. For a detailed description of the terms of the
Senior Debentures, see Note 19(a) to Notes to Consolidated Financial Statements.
INVESTING ACTIVITIES
In 1997, net cash used in investing activities was $302.2 million compared to
$323.6 million and $85.6 million in 1996 and 1995, respectively. In 1997,
$421.3 million was invested in capital projects, primarily the Kemess South
project, which includes British Columbia government assistance of $131.8
million. In 1996, $61.0 million in cash and $114.1 million of the Company's
common shares were invested to acquire certain properties, including the mineral
rights for the Kemess South project, through the purchase of El Condor Resources
Ltd., Geddes Resources Limited, and St. Philips Resources Inc. In addition, in
1996 approximately $139.9 million in cash, net of $22.3 million assistance from
the British Columbia government, was used for net additions to property, plant
and equipment, of which $49.0 million was used for construction of the Kemess
South project, $16.1 million was used for acquisition of the Duport project, and
the remaining $74.8 million was used on existing operations, development
projects, and other investments.
The Company's net cash requirement to fund capital projects in 1998 is estimated
at approximately $165.5 million, almost all of which will be for the completion
and startup of the Kemess South project, including approximately $6.0 million
for additional working capital.
RISKS AND UNCERTAINTIES
NEW FACILITY AND STARTUP RISKS
A substantial portion of the Company's future revenues and profits are dependent
upon the completion and successful startup of the Kemess South project.
Mineable ore reserves for the Kemess South project are estimates only and have
not been based upon any actual operating history. Both mineable ore reserves
and ore grade recovery at the Kemess South facility may require revisions after
a reasonable period of actual production. Similarly, ultimate costs of
production may be affected by factors that do not become apparent until there
has been a history of production covering the range of conditions and
circumstances that are representative of those that will be encountered during
the operating life of the facility. In addition, as with the startup of all new
facilities, there may arise problems that could not be anticipated in the
planning of the facility, and the transition from startup to regular production
may be accompanied by delays or other similar factors that cause initial
production volumes and costs to be different from the average values that have
been projected for the life of the facility.
The Company believes that it has taken reasonable measures to mitigate these
risks. As part of its due diligence process prior to acquiring the property for
the Kemess South project, the Company carried out an extensive review of a prior
independent study of the property conducted in 1993, including ore reserve
estimates, mine design, capital and operating cost estimates, metallurgical
testwork, gold and copper recovery factors, and plant design criteria. The
Company has continually reviewed and updated this information since the
acquisition of the property, including pilot plant testing of bulk samples taken
from supergene and hypogene ore types, as a result of which design criteria,
operating parameters, and cost estimates for the project were developed. The
Company has also made technical and economic comparisons with other similar
types of mining and milling operations. In addition, a number of independent
reviews of the Kemess South project have been carried out by various independent
consultants in connection with the issuance of debt by the Company.
FINANCIAL RISKS
The Company's profitability is primarily dependent on the quantity of gold and
copper (after the expected startup of the Kemess South project) produced at its
operations, the selling price of gold and copper, the Canadian/U.S. dollar
exchange rate, and future capital and operating costs to produce gold and
copper. The selling price of gold and copper and the exchange rate are beyond
the Company's control and are therefore considered to present the greatest risk
to maintaining profitability. The Company employs hedging strategies in an
attempt to mitigate the risk of these variables. The credit risk related to
derivative transactions is limited to the unrealized gains on outstanding
contracts based on current market prices. The Company believes it has minimized
credit risk by dealing with large creditworthy institutions and by limiting
credit exposure to each.
-45-
<PAGE>
Historically, the Company has been successful in increasing its realized
revenues per ounce of gold through hedging strategies which take advantage of
the volatility in the spot gold price and the contango on future gold prices.
Derivative gains are generated from spot deferred, forward sales and call option
contracts that are employed to provide price protection while retaining the
ability to benefit from higher gold prices. (See Note 12(d) to the Consolidated
Financial Statements.) The Company believes that in general it will continue to
realize an average gold price higher than the average spot price, although there
can be no assurance that it can realize premiums comparable to US$62 per ounce,
US$93 per ounce, and US$25 per ounce in 1997, 1996 and 1995, respectively. See
"Special Note Regarding Forward-Looking Statements." As of March 31, 1998, all
of the Company's prior forward contractual arrangements for the delivery of gold
had either been fulfilled or closed out, and no new forward contractual
arrangements have been entered into after December 31, 1997.
In years prior to 1997, the Company also entered into oil swap agreements to
hedge the cost of crude oil which was purchased for use at the Colomac Mine to
generate electricity, which was a significant cost in the operation of that
facility. In early 1997, the Company had in place oil swap agreements to hedge
the cost of 200,000 barrels of Western Texas Intermediate crude oil at a price
of US$16.85 per barrel. Because the Colomac Mine was closed in 1997, no further
oil hedging arrangements have been entered into.
Although sales of the Company's gold production, and beginning in 1998 expected
sales of its copper production, are in U.S. dollars, a substantial portion of
the Company's operating costs are paid in Canadian dollars. During each of the
years between 1991 to 1997 (other than 1996), the Company's revenue, which is
denominated in Canadian dollars, has been beneficially impacted by the
strengthening of the U.S. dollar against the Canadian dollar. However, there
can be no assurance that this general trend will occur in the future. A high
proportion of the Company's interest expense, which was material to the
Company's financial results in 1997 and is expected to have a similar effect in
1998, is payable in U.S. dollars. For additional information on the Company's
foreign currency contracts, see Note 12(d) to the Consolidated Financial
Statements and discussion under "Foreign Currency and Commodity Contracts"
above.
Operating and capital costs are subject to inflationary factors. The Company's
financial statements reflect historical costs, and therefore do not indicate the
cumulative effects of increasing costs and changes in the purchasing power of
the dollar. Certain of the Company's costs have increased due to inflation.
Overall, costs may increase more or less than the general inflation rate as a
result of factors inherent in the mining industry and the geographical location
of facilities. Historically, the selling prices of gold and copper have been
primarily influenced by international markets and other political, monetary and
economic events and may not necessarily increase with general inflationary
increases either in Canada or the United States. The Company has not been and
does not expect to be in a position to offset the effect of any increases in
production costs with increases in the selling prices of its products. As a
result, the Company is required to control unit costs by continually searching
for, and implementing, methods to increase cost-efficiencies and production in
mining and processing.
Factors affecting the Company's ability to reduce unit costs are ore grades,
production volume, productivity, and controlling operating costs in the
aggregate. In recent years, mill head grades at the Company's operations have
generally declined due to a number of factors including lower ore grades and
mining dilution. The Company has implemented plans to restore mined ore grades
to former levels where possible, and in certain cases to increase mill feed
grades by bringing into production nearby deposits containing higher grades of
ore.
Ore reserve estimates may require revisions based on actual production
experience. Ore grades actually recovered from operations may differ from the
estimated grade of the reserves. Fluctuations in gold and copper prices, 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 require a revision and restatement of reserves.
The Company is continually seeking to replace and expand its ore reserves. The
Company encounters competition from other mining companies, some with
significantly greater financial resources than the Company, in connection with
the acquisition of properties. 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 obtaining appropriate financing. Accordingly, no assurance can be given
that the Company's exploration programs will result in the replacement of
current production with new reserves, or that development programs will be able
to extend the life of existing mines.
The Company takes a prudent approach to business and maintains what it believes
to be adequate insurance at all times to cover normal business risks.
-46-
<PAGE>
ENVIRONMENTAL RISKS
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, labor 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 such laws and regulations could become such that the
Company would elect or not be able to proceed with the development or continued
operation of an existing mine.
The Company conducts its operations so as to protect its employees, the general
public and the environment and believes its operations are generally in
compliance with all applicable laws and regulations in all material respects.
The Company is not able to determine the impact of future changes in
environmental laws and regulations, which are generally becoming more
restrictive, on its operations and future financial position due to the
uncertainty surrounding the ultimate form such changes may take. Insurance
against certain liabilities for environmental pollution or other hazards as a
result of exploration and production has not generally been available at
reasonable cost to the Company. Absent such insurance, the Company's assets are
directly exposed to unknown and unforeseen, but potential, liabilities for
environmental claims and regulations. The satisfaction of any such liabilities
could reduce resources otherwise available for other business purposes.
Nevertheless, the Company believes that it has made adequate financial
provisions for the costs associated with mine closures and reclamation, and is
of the opinion that any changes to environmental laws and regulations in the
future should not have a material effect on the Company.
POLITICAL AND OTHER RISKS
All of the Company's active mining operations are located in Canada and as such
the Company is not exposed to the typical political and economic risks
associated with operating in foreign countries. The Company also has
exploration and development projects in the United States (Copperstone) and in
Fiji (Namosi). The Company believes that the risks and uncertainties of
operating and investing outside of North America can be managed by limiting
initial expenditures and are reasonable relative to the expected benefits.
Because the Company's new development projects are located in remote areas of
Canada, the United States and Fiji, the Company is exposed to intervening
parties such as First Nations and Aboriginal groups and various cottage
residents. In order to minimize any potential risk to a project, the Company
does not proceed with development and commit significant resources until all
permits and licenses have been received. The Company's policy has been to work
with local special interest groups to understand their needs and to provide
contract and employment opportunities to these groups as appropriate.
The Company may have risks and uncertainties arising from aboriginal land claims
on certain of its properties in Canada. See discussion under "Laws and
Regulations" contained in Item 3, Legal Proceedings, and Note 12(b) to the
Consolidated Financial Statements.
YEAR 2000 COMPUTER SYSTEM RISKS
It has been a common design for computer hardware and software to use only two
digits rather than four in processing and recording date information,
particularly in older computer systems. On January 1, 2000, when the year
designated as "00"occurs on such older systems, either computer failure or
creation of erroneous dates may occur.
The Company has a number of financial and technical computer applications at its
minesites and in its corporate office, including general accounting, cost
control and cost reporting, and financial analysis. Other applications at
minesites also include purchasing and materials management, payroll, human
resources, plant maintenance, pension plans, safety and accident records, work
orders, and training.
In addition, the Company has a number of technical applications that include
compilation of geological data and exploration results from which mineable ore
reserves are calculated. Computing systems are also used in mine planning and
mining operations, and for metallurgical process control.
In 1997, the Company, with the assistance of independent consultants, commenced
a review of its computing systems needs, including an assessment of any
requirements to update existing computer systems to ensure addressing the "Year
-47-
<PAGE>
2000" issue. The Company has formulated, and is implementing, an action plan to
deal with this potential problem. Actions to be taken at the Company's
corporate offices and established facilities are in the process of being
implemented and are expected to be completed between late 1998 and early 1999.
The Company is installing a new computer system, which is designed to be fully
compliant with year 2000 requirements, at its new Kemess South project. The
Company anticipates that any necessary changes will be made to its computer
systems such that its operations will not be adversely affected upon arrival of
the year 2000.
OUTLOOK
The statements contained in this outlook are based on current expectations.
These statements are forward-looking and actual results may differ materially.
See "Special Note Regarding Forward-Looking Statements."
The Company is optimistic regarding its outlook over the next few years as it
completes and prepares to bring into production its Kemess South project. The
Company estimates that the Kemess South project is expected to reduce the
Company's cash operating costs of gold production from 1997 cash operating costs
of approximately US$330 per ounce to an estimated range from US$208 to US$220
per ounce in 1998 (after taking into effect the sale of copper at US$0.80 per
pound credited against cash operating costs). In addition to the Kemess South
project, the Company has a number of other projects, including Matachewan,
Copperstone, Duport, Red Mountain and the Pamour expansion, that are currently
in various stages of evaluation and development. Substantially all 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 project. The Company
plans to update feasibility studies on these projects at such time that the
price of gold recovers to approximately US$360 per ounce and to reassess
relative priorities for their development.
The Company recognizes that it needs to conserve cash in order to complete the
construction of the Kemess South project and may need to issue additional debt
and equity to fund the development and construction of its capital projects.
Gold production in 1998 is forecast at approximately 363,000 ounces at an
estimated cash operating cost of an estimated range of US$208 to US$220 per
ounce, net of copper credits at US$0.80 per pound and at approximately 477,000
ounces in 1999 at an estimated cash operating cost of a range of US$180 to
US$200 per ounce, net of copper credits at US$0.90 per pound. Overall
production increases will be primarily from the Kemess South facility.
The Company began 1998 with an estimated 7.0 million ounces of gold in mineable
ore reserves contained in a total resource of 19.5 million ounces using US$350
per ounce (C$495 per ounce) as the projected price of gold. The Company also
has an estimated 996 million pounds of copper in mineable ore reserves contained
in a resource of 10,688 million pounds. The Company plans to maintain an active
exploration program, within available resources, on its properties in order to
increase ore reserves. To the extent that gold and copper prices increase over
the next several years, the Company believes it will realize increased earnings
and cash flow.
-48-
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Report of Management Responsibility
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income (Loss) and Retained Earnings (Deficit) for
each of the three years in the period ended December 31, 1997
Consolidated Changes in Capital Stock for each of the three years in the period
ended December 31, 1997. (See Note 8(a) of the Notes to Consolidated Financial
Statements)
Consolidated Statements of Cash Flow for each of the three years in the period
ended December 31, 1997
Notes to Consolidated Financial Statements
-49-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Accounting Responsibilities, Procedures and Policies
The Board of Directors which, among other things, is responsible for the
Consolidated Financial Statements of the Company, delegates to management the
responsibility for the preparation of the financial statements. Responsibility
for their review is that of the Audit Committee. Each year the shareholders
appoint independent auditors to audit and report directly to them on the
consolidated financial statements.
In preparing financial statements, great care is taken to use the appropriate
generally accepted accounting principles and estimates considered necessary by
management to present fairly and consistently the consolidated financial
position and the results of operations. The significant accounting policies
followed by the Company are summarized on the following pages.
The accounting systems employed by the Company include such appropriate
controls, checks and balances to provide reasonable assurance that the Company's
assets are safeguarded from loss or unauthorized use as well as facilitating the
preparation of comprehensive, timely and accurate financial information. There
are limits inherent in all systems based on the recognition that the cost of
such systems should not exceed the benefits to be derived. The Company believes
its systems provide the appropriate balance in this respect.
The Company's Audit Committee is appointed by the Board of Directors annually
and comprises three members, none of whom are part of management. The Committee
meets with management and with the independent auditors (who have free access to
the Audit Committee) to satisfy itself that each group is properly discharging
its responsibilities and to review the financial statements and the independent
auditors' report. The Audit Committee reports its findings to the Board of
Directors for its consideration in approving the financial statements for
issuance to the shareholders.
April 14, 1998
/s/ Margaret K. Witte
- --------------------------------------
Margaret K. Witte
President and Chief Executive Officer
/s/ James H. Wood
- --------------------------------------
James H. Wood
Chief Financial Officer
-50-
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Royal Oak Mines Inc. as at
December 31, 1997 and 1996 and the consolidated statements of income (loss) and
retained earnings (deficit) and cash flow for the years ended December 31, 1997,
1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these Consolidated Financial Statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and 1996 and the results of its operations and its cash flows for the years
ended December 31, 1997, 1996 and 1995 in accordance with generally accepted
accounting principles.
Vancouver, B.C. Arthur Andersen & Co.
April 6, 1998 Chartered Accountants
COMMENTS BY AUDITORS FOR UNITED STATES READERS ON CANADA/UNITED STATES REPORTING
DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated April
6, 1998 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.
Vancouver, B.C. Arthur Andersen & Co.
April 6, 1998 Chartered Accountants
-51-
<PAGE>
ROYAL OAK MINES INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
December 31 December 31
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 568 $197,766
Marketable securities 9,875 28,259
Receivables 30,923 17,492
Inventories (Note 3) 21,120 61,844
Prepaid expenses 3,967 7,729
-------- --------
Total current assets 66,453 313,090
Property, Plant and Equipment (Note 4) 730,314 482,733
Long-term Investments (Note 5) 12,145 16,586
Reclamation and Other Deposits (Note 17) 14,332 --
Deferred Charges and Other Assets (Note 18) 20,142 9,221
-------- --------
$843,386 $821,630
-------- --------
-------- --------
LIABILITIES
Current Liabilities
Accounts payable $123,586 $ 21,094
Accrued payroll costs 2,599 3,514
Deferred revenue (Note 12(c)) 20,085 10,994
Capital leases 4,531 2,514
Taxes payable 1,723 3,894
Senior subordinated notes interest
payable (Note 7) 10,326 10,180
Accrued unrealized loss on derivatives
(Note 12(d)(iii) and (v)) 21,327 --
Other current liabilities 9,135 20,383
-------- --------
Total Current Liabilities 193,312 72,573
Deferred Revenue (Note 12(c)) 23,330 22,897
Other Liabilities (Note 6) 57,427 29,930
Senior Subordinated Notes (Note 7) 250,338 239,680
Deferred Income Taxes 2,532 5,064
Minority Interest in Subsidiary Companies 69 120
-------- --------
TOTAL LIABILITIES 527,008 370,264
-------- --------
Contingencies and commitments (Note 12)
SHAREHOLDERS' EQUITY
Capital Stock (Note 8)
Common stock
Authorized - unlimited
Outstanding - 138,940,263
(1996 - 138,845,263) 379,040 378,813
Retained Earnings (Deficit) (62,662) 72,553
-------- --------
TOTAL SHAREHOLDERS' EQUITY 316,378 451,366
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $843,386 $821,630
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
-52-
<PAGE>
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUE $191,167 $255,168 $208,311
EXPENSES
Operating 160,522 181,869 182,024
Royalties and marketing 1,986 2,904 2,535
Administrative and corporate 9,617 9,339 8,549
Depreciation and amortization 21,285 24,563 13,645
Reclamation 4,054 2,663 1,250
Exploration and other 10,257 4,742 619
Provision for (Recovery of) loss on foreign currency
and commodity contracts (Note 12(d)) 46,294 (453) (5,244)
-------- -------- --------
Total operating expenses 254,0152 25,627 203,378
-------- -------- --------
OPERATING INCOME (LOSS) (62,848) 29,541 4,933
OTHER INCOME (EXPENSE)
Interest and other income (expense), net (Note 10) 3,634 5,716 12,701
Interest expense (704) (378) (298)
Senior subordinated notes interest (26,737) (10,089) --
Interest capitalized 22,906 5,362 --
Foreign currency translation gain (loss) on senior
subordinated notes (364) 190 --
Write-down of mine assets (Note 16) (39,700) (37,633) (891)
Gain (loss) on investments (Note 2(b)) (34,112) 2,691 8,309
-------- -------- --------
INCOME (LOSS) before undernoted (137,925) (4,600) 24,754
Income and mining taxes (recovery/(expense)) -
current (Note 9) 2,279 (900) (1,542)
Income and mining taxes (recovery/(expense)) -
deferred (Note 9) 2,532 -- --
Minority interest 52 50 594
Equity in income (loss) of associated companies (2,153) (535) (637)
-------- -------- --------
NET INCOME (LOSS) (135,215) (5,985) 23,169
RETAINED EARNINGS - BEGINNING OF PERIOD 72,553 78,538 55,369
-------- -------- --------
RETAINED EARNINGS (DEFICIT) - END OF PERIOD $(62,662) $ 72,553 $ 78,538
-------- -------- --------
-------- -------- --------
EARNINGS (LOSS) PER SHARE - BASIC $ (0.97) $ (0.04) $ 0.20
-------- -------- --------
-------- -------- --------
EARNINGS (LOSS) PER SHARE - FULLY DILUTED $ (0.97) $ (0.04) $ 0.20
-------- -------- --------
-------- -------- --------
Weighted average number of common shares
outstanding (000's) 138,892 136,758 117,900
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
-53-
<PAGE>
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income (loss) for the period $(135,215) $ (5,985) $ 23,169
Items not affecting cash:
Depreciation and amortization 21,285 24,563 13,645
Amortization of deferred finance cost 915 337 --
Reclamation 4,054 2,663 1,250
Deferred income tax (2,532) -- --
Provision for (Recovery of) unrealized loss on
foreign currency and commodity contracts 24,254 (453) (5,244)
Foreign currency translation on senior
subordinated notes 364 (190) --
Write-down of mine assets 39,700 37,633 891
Write-down of resource properties and mine
development 8,229 144 --
Equity loss and write-down of long-term
investments 3,424 535 637
Deferred charges and other 90 335 (593)
--------- -------- --------
(35,432) 59,582 33,755
Net change in other operating items (Note 13) 102,683 (2,323) (1,995)
--------- -------- --------
Net cash provided by operating activities 67,251 57,259 31,760
--------- -------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares 227 116,855 14,595
Capital lease obligation 19,404 1,711 --
Issue of senior subordinated notes -- 239,870 --
Issue costs of senior subordinated notes and secured
debt (254) (8,786) --
Accrued reclamation on acquisition of Red Mountain -- -- 3,000
Deferred credits and other -- 290 (300)
--------- -------- --------
Net cash provided by financing activities 19,377 349,940 17,295
--------- -------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Investment in Kemess capital assets through purchase
of companies -- (201,976) --
Decrease in long-term investments 1,017 26,882 --
Proceeds from asset sales 7,075 -- --
Investment in capital assets through purchase of
Consolidated Professor Mines Limited -- (16,100) --
Additions to property, plant and equipment (421,343) (146,170) (66,018)
British Columbia Government assistance 131,833 22,326 --
Reclamation and other deposits (14,332) -- --
Investment in exploration and non-producing
properties, net (5,252) (7,697) (19,025)
Other assets (1,208) (820) (568)
--------- -------- --------
Net cash used in investing activities (302,210) (323,555) (85,611)
--------- -------- --------
INCREASE (DECREASE) IN CASH AND MARKETABLE
SECURITIES DURING PERIOD (215,582) 83,644 (36,556)
CASH AND MARKETABLE SECURITIES AT BEGINNING OF PERIOD 226,025 142,381 178,937
--------- -------- --------
CASH AND MARKETABLE SECURITIES AT END OF PERIOD $ 10,443 $226,025 $142,381
--------- -------- --------
--------- -------- --------
Cash paid for:
Income taxes $ 1,623 $ 788 $ 1,542
Interest expense $ 27,182 $ 378 $ 298
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
-54-
<PAGE>
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Royal Oak Mines Inc. (the "Company"),
amalgamated under the laws of the province of Ontario, have been prepared by
management in Canadian dollars in accordance with accounting principles
generally accepted in Canada. In all material respects, these accounting
policies are in conformity with accounting principles generally accepted in the
United States except as disclosed in Note 14.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company's principal subsidiaries include: Arctic Precious
Metals, Inc., Consolidated Professor Mines Limited, Beaverhouse Resources Ltd.,
934962 Ontario Inc., 10502 Newfoundland Ltd., and Witteck Development Inc. (all
100% owned); and Ronnoco Gold Mines Limited (89% owned).
Kemess Mines Inc., 100% owned by the Company, was amalgamated with Royal Oak
Mines Inc. on December 29, 1997.
Partnerships are accounted for on the proportionate consolidation method.
CASH EQUIVALENTS
The Company defines cash equivalents as highly liquid financial instruments
purchased with a maturity of ninety days or less.
MARKETABLE SECURITIES
Marketable securities are recorded at the lower of cost or quoted market value.
FINANCIAL INSTRUMENTS
The Company has, where appropriate, estimated the fair value of financial
instruments. These fair value amounts may be significantly affected by the
assumptions used. Accordingly, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market exchange.
INVENTORIES
Bullion that is in process but not yet in deliverable form is recorded at
estimated realizable value. Stores and operating supplies are recorded at the
lower of average cost or replacement cost.
PROPERTY, PLANT AND EQUIPMENT
(i) Plant and equipment and mining properties are recorded at cost.
(ii) For underground operations, development expenditures incurred to
expose ore, increase production or extend the life of a mine that
is currently in production are capitalized.
-55-
<PAGE>
(iii) For open pit operations, mining costs are deferred when the ratio of
waste tons mined to ore tons mined exceeds the estimated life-of-mine
strip ratio. These deferred costs are charged to operating costs when
the actual ratio is below the life-of-mine strip ratio.
(iv) Exploration, development and other pre-production expenditures
incurred on projects under development are capitalized.
(v) Costs relating to the acquisition and exploration of non-producing
properties on which economically recoverable ore reserves have yet
to be identified are capitalized. The ultimate recovery of these costs
depends upon the discovery and development of economic ore reserves or
the sale of the mineral rights. When it has been established that a
mineral property has development potential, the exploration costs
incurred are reclassified to the category of mining properties. If an
exploration property is abandoned, the capitalized costs for that
property are charged to income. The amounts shown for non-producing
properties do not necessarily reflect present or future values.
(vi) Depreciation and amortization of plant and equipment, mining
properties and capitalized expenditures are provided on the
unit-of-production method based upon estimated total mineral
inventory.
(vii) Reviews are undertaken regularly to evaluate the carrying values of
operating mines and development properties. If it is determined that
the net recoverable amount is significantly less than the carrying
value and the impairment in value is permanent, a write-down is made
with a charge to income.
INVESTMENTS IN ASSOCIATED COMPANIES
Investments in associated companies (Highwood Resources Ltd. and Asia Minerals
Corp.) in which the Company has significant influence are accounted for by the
equity method.
DEFERRED FINANCING COSTS
Loan origination fees and other costs associated with the acquisition of long-
term financing are deferred and amortized over the life of the debt.
RECLAMATION AND SITE RESTORATION COSTS
Estimated reclamation and site restoration costs are charged against income on
the unit-of-production method based upon estimated total mineral inventory.
Ongoing reclamation activities are charged against income as incurred.
REVENUE RECOGNITION
Revenue from gold production is recognized when the ore is mined and processed
at the on-site facility. Revenue is subject to adjustment on final settlement to
reflect changes in metal prices, weights and assays.
DERIVATIVE TRANSACTIONS
Derivative transactions include spot deferred contracts, forward sale contracts
and option contracts. Contracted prices on spot deferred and forward sales
contracts are recognized in revenue as production is delivered against the
commitment. If actual delivery is not made against a particular spot deferred
contract at the time of maturity, losses, if any, are recognized at that time.
All option contracts, both gold and foreign currency related, are marked to
market and resulting unrealized gains and losses are recognized in the
Statements of Income (Loss).
Gains and losses arising from the early liquidation of hedging contracts are
deferred and are recognized in revenue when the original contract would have
matured.
Net proceeds realized on the sale of options are deferred and are recognized in
revenue on the expiry date for options which expire or are repurchased, or on
the delivery date for options which have been exercised and for which the
settlement of the underlying ounces has been deferred.
-56-
<PAGE>
INTEREST CAPITALIZED
The Company capitalizes interest on substantial development projects.
INCOME TAXES
The Company follows the deferral method of applying the tax allocation basis of
accounting for income taxes. Under this method, timing differences between the
period when income or expenses are reported for tax purposes and the period when
they are recorded for accounting purposes result in provisions or recoveries of
deferred income taxes.
FOREIGN CURRENCY TRANSLATION
Financial statements of the Company's principal United States subsidiary, Arctic
Precious Metals, Inc., are translated into Canadian dollars using the temporal
method. Under this method, monetary assets and liabilities are translated at the
year-end exchange rate and non-monetary assets and liabilities and operating
results are translated at the historical exchange rate prevailing at the date of
the transaction. Gains and losses arising from the translation of the financial
statements are included in the results of operations.
FOREIGN CURRENCY TRANSACTIONS
Transactions denominated in foreign currencies are recorded in Canadian dollars
at the exchange rate prevailing at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are converted
into Canadian dollars at the exchange rate prevailing at the balance sheet date.
Exchange gains and losses relating to the translation of the Company's senior
subordinated notes are deferred and amortized over the remaining life of the
debt.
SEGMENT INFORMATION
During 1997, the Company operated within one dominant industry segment, gold
mining, carried out in the Northwest Territories, Newfoundland, and Ontario,
Canada. 1998 operations will be carried out in British Columbia, Northwest
Territories, and Ontario, Canada.
COMPARATIVE FIGURES
Certain of prior years' amounts have been reclassified to conform with the
current year's presentation.
1. GOING CONCERN
These financial statements have been prepared on the basis of accounting
principles applicable to a "going concern", which assume that the Company will
continue in operation for at least one year and will be able to realize its
assets and discharge its liabilities in the normal course of operations.
Several conditions and events cast substantial doubt about the Company's ability
to continue as a "going concern". The Company has experienced a liquidity
problem, has a working capital deficiency as at December 31, 1997 and incurred a
substantial loss in 1997. In addition, the Company has a substantial capital
project underway, the construction of its Kemess mine. Furthermore, substantial
settlement payments may be required on the maturity of certain of the Company's
commodity and currency contracts.
In September 1997, the Company recognized that it would be necessary to raise
additional funds to complete construction of, and start operations, at the
Kemess mine. The Company retained financial advisers and ultimately issued
approximately $19.5 million and US$30.7 million of Senior Secured Debentures,
closing in January, 1998. The closing of the financing took longer than
management anticipated as a result of the requirement to obtain subordinated
noteholders' approval. The delay occurred at a critical time in the
construction schedule of the Kemess mine and consequently, the Company was
unable to meet certain supplier and contractor payment commitments, resulting in
work stoppages, disputes and liens being filed. In February, management
undertook a complete review of the Kemess project and revised the cost to
complete forecast, determining the costs would exceed the budgeted amounts by
approximately $40 million.
-57-
<PAGE>
In aggregate, the Company estimates it needs US$120 million of financing to
complete construction of the Kemess mine, retire the Senior Secured Debentures,
settle outstanding accounts payable, and supplement working capital.
The Company is pursuing other financing arrangements in order to raise the
capital it needs for the purposes as described above. A term sheet has been
signed with a prospective lender for the placement of US$120 million Senior
Secured Notes. However, closing is subject to completion of final documents and
other conditions. If the above financing is concluded, the Company believes it
will have sufficient financial resources to continue operations.
The Company's future viability is dependent upon its ability to complete
construction of the Kemess mine, bring the Kemess mine into an efficient
operating state, maintain satisfactory credit relationships with its suppliers
and achieve and maintain profitable operations. Successful operations in the
future are also dependent upon various external factors, the most significant of
which are the prices of the commodities it produces, gold and copper.
These financial statements do not reflect adjustments that would be necessary if
the Company were unable to continue as a "going concern". While management
believes that the actions already taken or planned, as described above, will
mitigate the adverse conditions and events which raise doubts about the validity
of the "going concern" assumption used in preparing these financial statements,
there can be no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then substantial
adjustments would be necessary to the carrying values of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
(a) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying value and fair value of the following financial instruments are:
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------
1997 1996
------------------------------ -------------------------------
Carrying Value Fair Value Carrying Value Fair Value
--------------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 568 $ 568 $197,766 $197,766
Marketable securities $ 9,875 $9,875 $ 28,259 $ 28,259
Long-term investments $12,145 $9,489 $ 16,586 $ 26,788
</TABLE>
The carrying value of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
The fair value of marketable securities and long-term investments is based on
quoted market values.
The carrying value of the Company's senior subordinated notes at December 31,
1997 is $250,338,000. The Company believes that it is not practicable to
determine the fair value of these notes with sufficient reliability due to their
characteristics and the financial position of the Company. Quoted market prices
for these notes do not exist as they are not actively traded and quoted on any
exchange, but instead are traded "over-the-counter" or in private transactions.
Accordingly, fair value estimates of these notes have been omitted.
(b) GAIN (LOSS) ON INVESTMENTS
In 1997, the Company recognized a loss of $34.1 million on its investments in
marketable securities and long-term investments in gold mining companies that
were adversely affected by falling gold prices and/or changes in long-term
operating strategies. $7,627,000 of the total loss represents the loss on the
sale of marketable securities, and the remaining $26,485,000 represents the
write-down of marketable securities and long-term investments to fair value.
-58-
<PAGE>
3. INVENTORIES
<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
---------- --------
<S> <C> <C>
Bullion in process $ 6,751 $25,687
Stores and operating supplies 14,369 36,157
-------- -------
$21,120 $61,844
-------- -------
-------- -------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
----------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- --------------- -------- --------
<S> <C> <C> <C> <C>
Plant and Equipment $419,149 $34,181 $384,968 $200,502
Mining Properties and Deferred Development 370,500 54,115 316,385 255,581
Exploration Costs and Other Non-producing
Properties 28,961 -- 28,961 26,650
-------- ------- -------- --------
$818,610 $88,296 $730,314 $482,733
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
The following is a summary of the net book value of the Property, Plant and
Equipment by location:
<TABLE>
<CAPTION>
December 31
-----------------------
Mining
Properties
Plant and and Deferred Exploration
Location Equipment Development and Other 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACTIVE
Giant $ 26,452 $ 25,145 $ 5,620 $ 57,217 $ 52,542
Timmins 21,591 43,492 16,827 81,910 89,949
Matachewan -- 20,642 -- 20,642 5,351
Duport -- 16,373 -- 16,373 16,133
Kemess 317,663 202,291 29 519,983 257,764
British Columbia
(excluding Kemess) 1,153 8,442 731 10,326 14,180
U.S. and other 3,168 -- 1,603 4,771 4,928
INACTIVE
Colomac 9,083 -- 2,845 11,928 31,573
Newfoundland 5,858 -- 1,306 7,164 10,313
-------- -------- ------- -------- --------
$384,968 $316,385 $28,961 $730,314 $482,733
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
</TABLE>
Kemess plant and equipment net book value is reported net of $154.2 million of
assistance received from the British Columbia government.
-59-
<PAGE>
5. LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
---------- --------
<S> <C> <C>
Highwood Resources Ltd. (formerly Mountain Minerals Co. Ltd.) $10,144 $10,790
Asia Minerals Corp. and other 2,001 5,796
------- -------
$12,145 $16,586
------- -------
------- -------
</TABLE>
In March 1996, Mountain Minerals purchased a 34.7% interest in Highwood
Resources Ltd. ("Highwood"). In August, 1996, through a Plan of Arrangement,
Highwood acquired all of the outstanding shares of Mountain Minerals. The
companies combined and continued under the name of Highwood Resources Ltd. In
December 1996, the Company agreed to convert part of the long-term debt to
Highwood into common shares. $3 million of long-term debt was repaid by
Highwood issuing 1,935,483 common shares. At December 31, 1997, the Company
held a 39% interest in Highwood.
At December 31, 1997, the Company held a 44% interest in Asia Minerals Corp.
6. OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
---------- --------
<S> <C> <C>
Provision for loss on foreign currency contracts $12,497 $ 9,570
Accrued reclamation and provision for closure costs 24,682 17,622
Capital leases 19,835 2,448
Other 413 290
------- -------
$57,427 $29,930
------- -------
------- -------
</TABLE>
(a) PROVISION FOR LOSS ON FOREIGN CURRENCY CONTRACTS
To protect the Company from foreign currency fluctuations and to provide a
minimum Canadian dollar conversion rate for its U.S. dollar gold sales revenue,
the Company enters into foreign currency contracts for conversion into Canadian
dollars. Contracts are associated with the Company's contractual obligation to
deliver future gold production at specified prices in U.S. dollars. At the end
of 1997, the Company had contracts to deliver approximately US$414 million (1996
- - US$116 million) at an average exchange rate of 1.3602 (1996 - 1.2822) C$/US$.
The Company has marked these contracts to market.
(b) CAPITAL LEASE OBLIGATIONS
Capital lease obligations will be settled as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 4,531
1999 4,128
2000 3,826
2001 2,747
2002 2,284
2003 and thereafter 6,850
-------
Total 24,366
Less current portion (4,531)
-------
$19,835
-------
-------
</TABLE>
-60-
<PAGE>
7. SENIOR SUBORDINATED NOTES
On August 12, 1996, the Company completed the sale of US$175 million
principal amount of 11% Senior Subordinated Notes due 2006 (the "Notes").
The Notes were sold in a private placement to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 and to certain other
accredited institutional buyers. On October 9, 1996, an exchange offer was
made to exchange the Notes for Series B 11% Senior Subordinated Notes due
2006 (the "Series B Notes"), pursuant to a Registration Statement on Form S-4
filed under the Securities Act of 1933, as amended. This exchange offer
expired on November 5, 1996 and all US$175 million principal amount of the
Notes were exchanged for Series B Notes.
The Series B Notes are unsecured senior subordinated obligations of the
Company and, as such, will be subordinated in right of payment to all
existing and future senior indebtedness of the Company. The Series B Notes
were previously guaranteed by Kemess Mines Inc., a wholly-owned subsidiary of
the Company up until the time of the amalgamation of Kemess Mines Inc. with
Royal Oak Mines Inc. on December 29, 1997. The Series B Notes and interest
payments are denominated in U.S. dollars.
Under the terms of the subordinated notes the Company must, in certain cases,
meet certain financial and other tests in order to issue additional debt.
8. CAPITAL STOCK
(a) CHANGES IN CAPITAL STOCK
Authorized: An unlimited number of special shares issuable in series and an
unlimited number of common shares.
Issued, outstanding and fully paid - special: nil (1996 - nil)
Issued, outstanding and fully paid - common:
<TABLE>
<CAPTION>
Number of Shares Amount
---------------- ----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1994 114,494,747 $247,362
Exercise of warrants - Series 2 4,475,300 14,545
Issued for share purchase options 148,667 190
Issued to acquire Witteck Development Inc. 1,924,816 8,854
Share issue costs -- (140)
----------- --------
BALANCE, DECEMBER 31, 1995 121,043,530 270,811
Issued to acquire Geddes and El Condor (see
Note 15(a)) 19,011,883 114,071
Issued for share purchase options 714,666 2,785
----------- --------
BALANCE, DECEMBER 31, 1996 140,770,079 387,667
Issued for share purchase options 95,000 227
----------- --------
Balance December 31, 1997 issued and outstanding 140,865,079 387,894
Company shares held by Witteck Development Inc.
(Note 8(b)) (1,924,816) (8,854)
----------- --------
Balance December 31, 1997 for financial reporting
purposes 138,940,263 $379,040
----------- --------
----------- --------
</TABLE>
(b) ACQUISITION OF WITTECK DEVELOPMENT INC.
During 1995, the Board of Directors and the shareholders approved the
acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose
sole asset is an investment in the Company of 1,924,816 shares. This investment
has been recorded as a reduction of capital stock on the balance sheet.
Consequently, the shares of the Company that are held by Witteck have been
excluded from the determination of earnings per share information.
(c) WARRANTS
There were no warrants outstanding at December 31, 1997.
-61-
<PAGE>
(d) WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Earnings per share has been calculated on the basis of the weighted average
number of common shares outstanding for the year which was 138,892,346 shares
(1996 - 136,758,106; 1995 - 117,900,306).
(e) STOCK OPTIONS
The Company grants stock options to employees and directors in recognition of
their service to the Company. Options are considered granted when the required
approvals from the Board of Directors, shareholders and regulatory authorities
are obtained.
The following table outlines activity with respect to the Company's stock
options:
<TABLE>
<CAPTION>
Number of
Shares Price per Share
--------- ---------------
<S> <C> <C>
OUTSTANDING, DECEMBER 31, 1994 2,220,833 $0.48 - $6.25
Granted 605,000 $4.26 - $5.41
Exercised (148,667) $0.90 - $2.85
Canceled/Expired (215,000) $1.70 - $4.90
--------- -------------
OUTSTANDING, DECEMBER 31, 1995 2,462,166 $0.48 - $6.25
Granted 1,482,000 $2.27 - $6.75
Exercised (714,666) $0.48 - $4.50
Canceled/Expired (375,000) $4.50 - $5.41
--------- -------------
OUTSTANDING, DECEMBER 31, 1996 2,854,500 $1.60 - $6.75
Granted 2,622,500 $1.50 - $4.45
Exercised (95,000) $1.60 - $4.50
Canceled/Expired (334,500) $1.50 - $4.38
--------- -------------
OUTSTANDING, DECEMBER 31, 1997 5,047,500 $1.50 - $6.75
--------- -------------
--------- -------------
</TABLE>
In March 1998 the Board of Directors, and in April 1998 the Toronto Stock
Exchange, approved the issuance of 850,000 stock options to the Company's senior
executives and officers and the repricing of all of the Company's outstanding
and unexercised stock options to an exercise price of $1.10 per share. Approval
of both actions requires a majority vote cast by the Company's disinterested
shareholders.
-62-
<PAGE>
9. INCOME TAXES
The following table shows the reconciliation of income and mining taxes expense
(recovery) related to pre-tax income (loss) to the Company's statutory tax
expense (benefit):
<TABLE>
<CAPTION>
December 31
------------------------------------------
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Pre-tax income (loss), as reported $(137,925) $(4,600) $24,754
Combined statutory tax rates 43% 43% 43%
Tax (benefit) at combined statutory rates $ (59,308) $(1,978) $10,644
Adjust for tax effect of:
Resource allowance (1,589) (4,432) (771)
Non-taxable portion of capital (gains)
losses 141 (447) (829)
Deductible financing costs (1,445) (1,147) (1,152)
Other (31) 45 43
Unrecognized deferred tax adjustment 56,083 7,984 (7,157)
Foreign earnings subject to different tax rates -- -- (117)
Large corporation capital tax 1,338 875 639
Corporate minimum tax -- -- 242
---------- ---------- -------
Income and mining taxes expense (recovery) $ (4,811) $ 900 $ 1,542
---------- ---------- -------
---------- ---------- -------
</TABLE>
For income tax purposes, the Company has tax deductions available to be utilized
in future years totaling approximately $600 million. When claimed, a
substantial portion of these tax deductions will result in the creation of
deferred income tax liabilities.
The Company also has $14 million of earned depletion and mining exploration
depletion base carry forward available to be deducted against certain future
resource profits.
Because of reorganizations undertaken by the Company, utilization of tax
deductions and earned depletion base may be restricted.
10. INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net is comprised of:
<TABLE>
<CAPTION>
December 31
------------------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Interest income $4,401 $6,215 $10,776
Amortization of financing costs (915) (337) --
Other, net 148 (162) 1,925
------ ------ -------
$3,634 $5,716 $12,701
------ ------ -------
------ ------ -------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company has defined benefit and defined contribution pension plans covering
substantially all of its regular full-time employees. Pension benefits are
based, in defined benefit plans, on employees' earnings and years of service.
Most of the plans are funded currently by contributions from the Company, based
on periodic actuarial valuations. Contributions to its defined contribution plan
are based on a specific percentage of base earnings. The market related value
of the defined benefit pension plans' assets was $40,420,000 at December 31,
1997 (1996 - $37,811,000) and the actuarial present value
-63-
<PAGE>
of accrued pension benefits was estimated by the plans' actuary to be
$34,055,000 at December 31, 1997 (1996 - $32,978,000). The total pension
expense for the year was $1,096,000 (1996 - $1,439,000; 1995 - $1,324,000).
12. CONTINGENCIES AND COMMITMENTS
(a) LEGAL CLAIMS
In the normal course of business, the Company is 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 proceedings lawsuits and other
claims. The resolution of such proceedings, lawsuits and other claims could
be material to the Company's operating results of any particular period,
depending upon the level of income for such period.
MACK LAKE MINING CORP V. GIANT YELLOWKNIFE MINES LIMITED, ET AL, (October
1983, Supreme Court of the Northwest Territories). The Company is one of
nine defendants (including the original title holders) in an action alleging
title to the Salmita mineral claims, an accounting of profits made, and
damages in the sum of $10 million. In the Company's view, the claim is
without merit.
FULLOWKA ET AL V. ROYAL OAK MINES INC. ET AL, (September 1994, Supreme Court
of the Northwest Territories). On September 18, 1992, nine miners were
murdered in an underground explosion at the Company's Giant Mine. A member
of the union, which was on strike at the time, was convicted of nine counts
of second degree murder. Dependents of the deceased miners have sued the
Company and two of its officers and directors, along with 23 other named
defendants unrelated to the Company for losses allegedly suffered as a result
of the explosion. The claim against the Company and all defendants but one
totals approximately $10.8 million plus taxes, interest and costs. The claim
against the two officers and directors and all other defendants, excluding
the Company, totals approximately $33.65 million plus taxes, interest and
costs. The Company's insurers are conducting a vigorous defense of the
claim. In the Company's view, the Company's liability insurance coverage
will be sufficient to cover any amount for which the Company could be held
responsible.
FALCONBRIDGE LIMITED AND WINDY CRAGGY EXPLORATION LIMITED V. KEMESS MINES
INC. AND ROYAL OAK MINES INC. ET AL, (June 1996, Supreme Court of British
Columbia). Plaintiffs allege breach of contract, good faith and fiduciary
duty, and unjust enrichment arising from and related to agreements entered
into in 1983 and 1984 between the plaintiffs and Geddes Resources Limited 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. The
Company is vigorously defending the claim and believes it is without merit.
TSAY KEY DENE AND TAKLA INDIAN BANDS V. KEMESS MINES INC. ET AL, (February
1997, Supreme Court of British Columbia). The plaintiffs are seeking
injunctive relief and an order setting aside permits and licenses for the
operation of the Kemess mine and its power line, on the basis of the alleged
failure on the part of the British Columbia government to adequately consult
with the Bands and the alleged bias on the part of the Government in the
agreement arising from the settlement of the Windy Craggy claims. (See
"Aboriginal Land Claims" below.)
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, Supreme Court of British Columbia). The
plaintiff asserts that federal and provincial approval of the Kemess mine
constituted an infringement of plaintiff's aboriginal rights and a breach of
their fiduciary and constitutional obligations, and is seeking declarations
negating the licenses and permits for the Kemess South mine, damages and
injunctive relief. Although the Company is not a party to this proceeding,
the relief claimed could adversely impact the Kemess South project and as a
result the Corporation may seek intervenor status. (See "Aboriginal Land
Claims" below.)
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., and CHIEF MICHAEL
TEEGEE, ON HIS OWN BEHALF, AND ON BEHALF OF ALL MEMBERS OF THE 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, Supreme Court of
British Columbia). The plaintiff is seeking injunctive relief, declarations
negating the licenses and permits for the Kemess mine, and damages. (See
"Aboriginal Land Claims" below.)
The Company intends to vigorously defend its rights in the above three
actions with respect to the ownership and operation of the Kemess South mine.
-64-
<PAGE>
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 project and proceedings commenced in the Supreme Court of British
Columbia to enforce such liens, arising out of work performed at the Kemess
South project by contractors and subcontractors who have provided work and
materials to the site. The stated amount of the asserted liens filed against
the Kemess South project, not including amounts owing to contractors who have
not filed liens, was approximately $47.4 million as of April 6, 1998. These
include a proceeding by Golden Hill Ventures Ltd. for $6.15 million plus
holdback, commenced September 1997. In addition, one of the liens, filed by
Tercon Contractors Ltd. for $5.65 million, is the subject of arbitration
(January 1998), the arbitrator found against the Company generally and
directed the parties to attempt to agree on the amount owing. Tercon is
claiming $6.8 million.
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 the WASTE MANAGEMENT ACT (B.C.). The basis for the order was the
release of total suspended solids into Kemess Creek and associated tributary
watercourses 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 is cooperating with both the British Columbia and federal
ministries since issuance of the order and is in the process of formulating a
plan for submission to the ministries dealing 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.
(b) LAWS AND REGULATIONS
GENERAL
The Company's current and proposed mining and exploration activities are
subject to various laws and regulations governing the protection of the
environment, the health and safety of its employees and related matters.
These laws and regulations are continually changing and are generally
becoming more restrictive. The Company conducts its operations so as to
protect its employees, the general public and the environment, and believes
its operations are in compliance with all applicable laws and regulations, in
all material respects. The Company has made, and expects to make in the
future, submissions and expenditures to comply with such laws and regulations.
Where estimated reclamation and closure costs are reasonably determinable,
the Company has recorded a provision for environmental liabilities based on
management's estimate of these costs. Such estimates are subject to
adjustment based on changes in laws and regulations and as additional
information becomes available.
ABORIGINAL LAND CLAIMS
The Kemess property is impacted by various claims of aboriginal rights, which
are the subject of developing case law. On December 11, 1997, the Supreme
Court of Canada, in the landmark decision, DELGAMUUKW V. BRITISH COLUMBIA,
acknowledged the existence of aboriginal title as a type of aboriginal right
and confirmed the fiduciary responsibility of the government to have
meaningful consultation with an aboriginal group when their aboriginal rights
are affected, which in some cases may require that their consent be obtained.
This decision raises the issue of the Crown's right to deal with lands which
are the subject of aboriginal rights where it is subsequently found that the
consultation was insufficient to discharge the Crown's duty. As aboriginal
rights and the requisite consultation are determined on a case by case basis,
it is difficult to predict the outcome of any particular litigation. However,
reference should be had to the recent case, CHESLATTA CARRIER NATION V
BRITISH COLUMBIA, in which Delgamuuk was considered. In this case, the Chief
Justice of the Supreme Court of British Columbia did not enjoin the operation
of the Huckleberry Mine, although he found that consultation with respect to
a particular issue was deficient. Instead, the Chief Justice required the
consultation to take place, which he recognized might result in certain
amendments to the certificate of approval for operation of the mine. Proper
consultation was required as to future permit applications.
-65-
<PAGE>
(c) DEFERRED REVENUE
Deferred revenue represents premiums received relating to derivative
transactions. The following table summarizes the years in which the deferred
revenue is expected to be recorded in income.
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1998 $ 20,085
1999 17,923
2000 2,216
2001 1,499
2002 1,692
--------
Total 43,415
Less current portion (20,085)
--------
$ 23,330
--------
--------
</TABLE>
(d) DERIVATIVE TRANSACTIONS
The Company engages in derivative transactions in order to attempt to mitigate
the impact of fluctuations in gold, copper, and foreign currency prices.
The credit risk related to derivative transactions is limited to the unrealized
gains on outstanding contracts based on current market prices. The Company
believes it has minimized credit risk by dealing with large creditworthy
institutions and by limiting credit exposure to each.
(i) At December 31, 1997, all forward contractual arrangements for the delivery
of gold by the Company had either been fulfilled or closed out, and no new
forward contractual arrangements had been entered into.
(ii) At December 31, 1997, the Company's gold call option position was as
follows:
<TABLE>
<CAPTION>
Gold Call Options U.S. Strike Price
Year Sold (oz) (per oz)
------ ----------------- ------------------
<S> <C> <C>
1998 590,000 $334
1999 311,360 $330
2000 171,360 $343
2001 81,360 $341
2002 81,360 $351
---------
1,235,440
---------
---------
</TABLE>
The Company received $16,685,000 of premiums on the sale of these options. Due
to the volatility of gold prices and foreign exchange rates, it is not
practicable to determine a fair value for these options with sufficient
reliability.
(iii) At December 31, 1997, the Company's gold put option position was as
follows:
<TABLE>
<CAPTION>
Gold Put Options U.S. Strike Price
Year Sold (oz) (per oz)
------ ---------------- -----------------
<S> <C> <C>
1998 90,000 $369
------
90,000
------
------
</TABLE>
-66-
<PAGE>
The Company marks to market these contracts based on the spot price of gold at
the date of the balance sheet, which resulted in an unrealized loss of
approximately $10,000,000.
(iv) At December 31, 1997, the Company had contractual agreements, in
United States dollars, to deliver the following Tonnes of copper:
<TABLE>
<CAPTION>
Copper U.S. Strike Price
Year (metric tons) per metric ton (dollars)
---- ------------- ------------------------
<S> <C> <C>
1998 12,000 $2,133
------
12,000
------
------
</TABLE>
The Company received $893,000 of premiums on the sale of these options.
(v) At December 31, 1997, the Company had contractual agreements to
purchase the following ounces of gold:
<TABLE>
<CAPTION>
Gold Forward U.S. Strike Price
Year Purchase (oz) (per oz)
---- ------------- -----------------
<S> <C> <C>
1998 84,707 $387
------ ----
84,707 $387
------ ----
------ ----
</TABLE>
The Company marks to market these contracts based on the spot price of gold at
the date of the balance sheet, which resulted in an unrealized loss of
approximately $11,327,000.
(vi) At December 31, 1997, the Company's obligations to sell U.S. dollars
were as follows:
<TABLE>
<CAPTION>
U.S. Dollars Exchange Rate Carrying Fair
Year (000's) (C$/US$) Amount Value
---- ------------ ------------- -------- -----
<S> <C> <C> <C> <C>
1998 $294,927 1.3565 $(13,079) $(20,608)
1999 120,000 1.4020 582 (1,543)
-------- ------ -------- --------
$414,927 1.3602 $(12,497) $(22,151)
-------- ------ -------- --------
-------- ------ -------- --------
</TABLE>
The Company marks to market these contracts based on the applicable exchange
rate at the date of the balance sheet, which resulted in an unrealized loss of
$12,497,000 net of deferred revenue premiums of approximately $9,654,000. See
Note 12(c).
(e) OPERATING ROYALTIES
(i) Under the terms of the Hope Brook Mine Asset Purchase Agreement, the
Company was obligated to pay an operating royalty through 1996 when the
average price of gold exceeded US$380 per ounce. Amounts payable have varied
between $1,300,000 and $3,300,000. In both 1996 and 1995, the Company was
obligated to pay $1,300,000. This royalty expired at December 31, 1996.
(ii) Under the terms of the Colomac Mine Asset Purchase Agreement, the
Company is obligated to pay an operating royalty when the average price of
gold exceeds US$400 per ounce. Amounts payable vary between $1.0 million and
$2.0 million annually depending on the average price of gold. In respect of
1997, no amount was payable under this royalty (1996 - nil; 1995 - nil).
Obligations under this agreement expire in 1999.
(iii) At Timmins, the Company has a renewable 10-year lease on a portion of
the Hoyle property which requires the payment of a minimum annual rent of
$100,000, which is credited against a production royalty, being the higher of
$0.75
-67-
<PAGE>
per ton or a 2% net smelter return royalty. The Nighthawk Mine is also
subject to a royalty, being the higher of $0.003 times tons produced times
dollars per ounce of gold or 20% of the net profits.
13. NET CHANGE IN OTHER OPERATING ITEMS
<TABLE>
<CAPTION>
December 31
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash provided by (used for)
Receivables $ (14,031) $(10,354) $ (296)
Inventories 17,924 (17,708) (9,886)
Prepaid expenses 2,562 (2,108) (799)
Accounts payable 103,179 7,454 986
Accrued payroll costs (702) (1,753) (383)
Taxes payable (2,171) 543 935
Deferred revenue 9,524 4,180 5,593
Interest payable 151 10,180 --
Other current liabilities (13,753) 7,243 1,855
-------- ------- -------
$102,683 $(2,323) $(1,995)
-------- ------- -------
-------- ------- -------
</TABLE>
14. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of net income (loss) in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP") to net income (loss) in
accordance with United States generally accepted accounting principles ("U.S.
GAAP") is as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) in accordance
with Canadian GAAP $(135,215) $(5,985) $23,169
Increase in expenses:
Depreciation and amortization (6,925) (4,506) (5,633)
Employee benefit plans (623) (193) (359)
Foreign currency translation
loss on senior subordinated
notes (10,294) -- --
---------- --------- -------
Net income (loss) in accordance
with U.S. GAAP $(153,057) $(10,684) $17,177
---------- --------- -------
---------- --------- -------
Earnings (loss) per share in
accordance with U.S. GAAP:
Basic earnings (loss) $(1.10) $(0.08) $0.15
Diluted earnings (loss) $(1.10) $(0.08) $0.14
</TABLE>
The effects on the balance sheets of the Company at December 31, prepared in
accordance with U.S. GAAP, are:
<TABLE>
<CAPTION>
December 31
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Increase (decrease):
Property, plant and equipment $ (2,203) $ 4,722 $(11,794)
Prepaid expenses (pension asset) $ (1,175) $ (552) $ ( 359)
Deferred charges $ (10,658) $ -- $ --
Deferred income taxes $ 13,005 $ 19,377 $ --
Retained earnings $ (27,041) $(15,207) $(12,153)
</TABLE>
-68-
<PAGE>
(a) DEPRECIATION AND AMORTIZATION
Under U.S. GAAP, depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas under
Canadian GAAP, total mineral inventory may be used in the calculations.
(b) EMPLOYEE BENEFIT PLANS
Under U.S. GAAP, for defined benefit pension plans, the projected benefit
obligation should be discounted using interest rates at which the obligation
could be effectively settled whereas under Canadian GAAP, the projected benefit
obligation may be discounted using interest rates which are consistent with
long-term assumptions. Also, under U.S. GAAP, experience gains and losses as
well as adjustments arising from changes in assumptions must be amortized only
if it exceeds a specified range. Under Canadian GAAP, these amounts must be
amortized over the expected average remaining service life of the employee group
regardless of the amount.
Pension expense is determined each year based on actuarial recommendations. The
actuarial assumptions applied in determining the expense in accordance with U.S.
GAAP include a discount rate on the benefit obligation, rate of compensation
increases and long-term rate of return on the plan assets of 7.5%, 7.0% and
8.5%, respectively. Assets of the plans are held in a range of investments,
which include fixed-income securities, equities and money market securities. At
January 1, 1987, as a result of an actuarial valuation of the plans, a surplus
was identified which is being amortized over the estimated average remaining
service lives of the employees (EARSL) which, for the Company's defined benefit
pension plans, ranges from 12 to 18 years.
The components of pension expense, for the Company's defined benefit pension
plans, calculated in accordance with U.S. GAAP are as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned
during the year $2,013 $1,688 $1,374
Interest cost on projected
benefit obligation 2,768 2,710 2,541
Return on plan assets (2,556) (6,707) (4,999)
Other (618) 3,750 2,575
------ ------ ------
$1,607 $1,441 $1,491
------ ------ ------
------ ------ ------
</TABLE>
-69-
<PAGE>
The funded status and amounts recognized under U.S. GAAP for the Company's
defined benefit pension plans are as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------
1997 1996
------------- ------------- ------------- -------------
Plans where Plans where Plans where Plans where
assets exceed accumulated assets exceed accumulated
accumulated benefits accumulated benefits
benefits exceed assets benefits exceed assets
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Plans' assets at market value $26,056 $17,790 $43,346 $ --
Projected benefits based on:
Employment service to date and present pay levels
Vested 19,273 19,372 33,093 68
Non-vested 215 142 125 19
Additional amount related to compensation increases 3,745 429 3,692 253
------- ------- ------- -----
Projected benefit obligations 23,233 19,943 36,910 340
------- ------- ------- -----
Plans' assets in excess of (less than) projected benefit
obligations 2,823 (2,153) 6,436 (340)
Unamortized January 1, 1987 surplus, net (1,575) (522) (2,402) --
Unamortized net experience (gains) losses (1,502) 3,781 (2,189) --
Unamortized prior service cost -- 1,497 1,301 340
Adjustment for minimum liability -- -- -- (87)
------- ------- ------- -----
Prepaid (accrued) pension cost $ (254) $ 2,603 $ 3,146 $ (87)
------- ------- ------- -----
------- ------- ------- -----
</TABLE>
In addition to the defined benefit pension plans noted above, the Company
maintains a defined contribution pension plan for certain of its hourly
employees. Under this plan, the Company contributes 2.5% of each member's base
earnings to the pension plan. The pension expense for the year under this
pension plan was $113,000 (1996 - $191,000; 1995 - $192,000).
(c) FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM FOREIGN DEBT
Under U.S. GAAP, foreign exchange gains and losses arising from the translation
of long-term foreign debt are recognized in income in the period when exchange
rates change, whereas under Canadian GAAP, such foreign exchange gains and
losses are deferred and amortized on a pro rata basis over the remaining life of
the debt.
(d) INCOME TAXES
In accordance with the Financial Accounting Standards Board Statement No. 109
("SFAS 109"), U.S. GAAP requires that income taxes be accounted for by the
liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial statement reporting and
the tax bases of the assets and liabilities and are measured at the enacted tax
rates that will be in effect when the differences are expected to reverse. Such
differences principally arise from the timing of income and expense recognition
for accounting and tax purposes. The application of SFAS 109 would have no
material effect on the assets, liabilities or operations for the years presented
in these consolidated financial statements as additional deferred tax assets
arising from the table of reconciling items have been offset by the
-70-
<PAGE>
recording of an additional valuation allowance. The following additional
disclosures with respect to income taxes are required by U.S. GAAP:
<TABLE>
<CAPTION>
December 31
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred Tax Liabilities:
Exploration expenditures $ 9,842 $ -- $ 4,643
Mining properties and deferred development 7,880 12,212 6,979
Pension asset 1,228 1,215 985
Investments 357 1,057 1,057
Other -- -- --
------- ------- --------
$19,307 $14,484 $ 13,664
------- ------- --------
------- ------- --------
Deferred Tax Assets:
Exploration expenditures $ -- $ 4,401 $ -
Provision for loss on marketable securities 9,664 515 --
Provision for loss on derivatives 7,464 -- --
Provisions for loss on foreign currency
contracts 4,374 2,832 3,567
Property, plant and equipment 8,414 5,283 7,670
Accrued reclamation costs 9,689 912 648
Other 873 647 1,030
Valuation allowance (21,171) (106) (2,134)
------- ------- --------
$19,307 $14,484 $ 10,781
------- ------- --------
------- ------- --------
</TABLE>
The net change in the valuation allowance from prior year-end was an increase of
$21,065,000.
(e) STOCK BASED COMPENSATION
The Company has granted options to certain of its employees and directors. The
Company accounts for the issuance of these options under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
these options been determined in accordance with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
December 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Income (Loss)
In accordance with U.S. GAAP $(153,057) $(10,684)
Pro Forma $(154,659) $(11,475)
Basic EPS
In accordance with U.S. GAAP $(1.10) $(0.08)
Pro Forma $(1.11) $(0.08)
Diluted EPS
In accordance with U.S. GAAP $(1.10) $(0.08)
Pro Forma $(1.11) $(0.08)
</TABLE>
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
-71-
<PAGE>
A summary of the status of the outstanding stock options at December 31, 1997
and 1996 and changes during the years then ended is presented in the table and
narrative below:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- --------------------------
Weighted
Average
Exercise
Shares Exercise Price Price Shares Exercise Price
--------- -------------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,854,500 $1.60 - $6.75 $4.75 2,462,166 $0.48-$6.25
Granted 2,622,500 $1.50 - $4.45 2.58 1,482,000 $2.27-$6.75
Exercised (95,000) $1.60 - $4.50 2.40 (714,666) $0.48-$4.50
Canceled/Expired (334,500) $1.50 - $4.38 4.20 (375,000) $4.50-$5.41
--------- ------------- ----- --------- -----------
Outstanding at end of year 5,047,500 $1.50 - $6.75 $3.68 2,854,500 $1.60-$6.75
--------- ------------- ----- --------- -----------
--------- ------------- ----- --------- -----------
Exercisable at end of year 2,150,498 $1.50 - $6.25 $4.69 1,324,500 $1.60-$6.38
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 are
$1.86 and $2.48, respectively.
2,150,498 of the 5,047,500 options outstanding at December 31, 1997 are
exercisable and have exercise prices of $1.50 to $6.75 and a weighted average
remaining contractual life of 3 years. The remaining 2,897,002 options have
exercise prices of $1.50 - $6.75 and a weighted average remaining contractual
life of 6 years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: risk-free interest
rates ranging from 5.47 to 5.29 percent and 4.49 and 5.80 percent; expected
dividend yields of zero percent and zero percent; expected lives of 6 years and
5 years; and expected volatility of 118 and 48 percent.
(f) EARNINGS PER SHARE
The Company implemented SFAS No. 128, "Earnings per Share," effective for its
December 31, 1997 financial statements. Accordingly, earnings per share data
have been restated for all periods presented. This standard requires the
presentation of both basic and diluted earnings per share amounts. Basic
earnings per share is calculated by dividing net income attributable to common
shareholders by the weighted average number of common shares outstanding.
Diluted earnings per share is computed similarly, but also gives effect to the
impact convertible securities, such as common stock options and warrants, if
dilutive, would have on net income and average common shares outstanding if
converted at the beginning of the year.
-72-
<PAGE>
COMPUTATIONS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
BASIC INCOME (LOSS) PER SHARE ACCORDING TO U.S. GAAP
Net income (loss) in accordance with U.S. GAAP $(153,057) $(10,684) $17,177
--------- -------- -------
--------- -------- -------
Weighted average number of shares outstanding (000's) 138,892 136,758 117,900
--------- -------- -------
--------- -------- -------
Basic income (loss) per share $(1.10) $(0.08) $0.15
--------- -------- -------
--------- -------- -------
DILUTED INCOME (LOSS) PER SHARE ACCORDING TO U.S. GAAP
Net income (loss) in accordance with U.S. GAAP $(153,057) $(10,684) $17,177
--------- -------- -------
--------- -------- -------
Shares
Weighted average number of shares outstanding (000's) 138,892 136,758 117,900
Assuming exercise of stock options reduced by the
number of shares which could have been purchased
with the proceeds from exercise of such options -- -- 401
Assuming exercise of stock warrants reduced by the
number of shares which could have been purchased
with the proceeds from exercise of such warrants -- -- 280
--------- -------- -------
Weighted average number of shares outstanding (000's),
as adjusted 138,892 136,758 118,581
--------- -------- -------
--------- -------- -------
Diluted income (loss) per share $(1.10) $(0.08) $0.14
--------- -------- -------
--------- -------- -------
</TABLE>
All options and warrants outstanding in 1997 and 1996 were considered
antidilutive due to the net losses. In 1995, options to purchase 410,000 shares
of common stock were outstanding during the year, but were not included in the
computation because the exercise price of the options was greater than the
average market price of the common shares during the year. In addition,
3,000,000 warrants to purchase shares of common stock were not included because
the exercise price of $8.75 was greater than the average market price of the
common shares. See Note 14(e) for additional information.
15. ACQUISITIONS
(a) ACQUISITION OF GEDDES RESOURCES LIMITED, EL CONDOR RESOURCES LTD. AND ST.
PHILIPS RESOURCES INC.
On January 11, 1996, the Company acquired all of the outstanding shares of
Geddes Resources Limited ("Geddes"), El Condor Resources Ltd. ("El Condor") and
St. Philips Resources Inc. ("St. Philips") not already owned by the Company
pursuant to an arrangement (the "Plan of Arrangement") on the following terms:
Geddes: 0.30 shares of the Company for each share of Geddes.
El Condor: 0.95 shares of the Company plus $2.00 cash for each share
of El Condor.
St. Philips: $3.40 cash for each share of St. Philips.
As a result of these transactions, the Company issued 19,011,883 common shares
of the Company and paid approximately $56 million in cash pursuant to the Plan
of Arrangement. The January 11, 1996 closing price on The Toronto Stock
Exchange for the Company's common shares was $6.00. This price was used to
value the common shares of the Company issued under the Plan of Arrangement. At
the time of acquisition, St. Philips, with its wholly-owned subsidiary, and El
Condor, jointly owned the Kemess South property. El Condor owned 100% of the
Kemess North property.
-73-
<PAGE>
The following table outlines the details of the purchase price and its
allocation to the assets and liabilities acquired:
<TABLE>
<CAPTION>
Geddes El Condor St. Philips Total
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Purchase price:
Cash paid, including open-market purchases $ 3,220 $ 34,222 $ 38,562 $ 76,004
Issue of common shares 37,650 76,421 -- 114,071
-------- --------- --------- ---------
40,870 110,643 38,562 190,075
Initial carrying value of Geddes 9,192 -- -- 9,192
Transaction and other costs 2,290 680 679 3,649
-------- --------- --------- ---------
52,352 111,323 39,241 202,916
Cash and cash equivalents acquired from companies (561) (1) (378) (940)
-------- --------- --------- ---------
$51,791 $111,322 $38,863 $201,976
-------- --------- --------- ---------
-------- --------- --------- ---------
Allocated to:
Property, plant and equipment $52,101 $112,087 $39,015 $203,203
Other assets 31 151 9 191
Total liabilities (341) (916) (161) (1,418)
-------- --------- --------- ---------
$51,791 $111,322 $ 38,863 $201,976
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
The following shows pro forma what the results of operations would have been
if the acquisition had occurred at the beginning of the period:
<TABLE>
<CAPTION>
Twelve months ended
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue $255,168 $208,311
Net income (loss) $ (5,985) $ 17,366
Earnings (loss) per share - basic $ (0.04) $ 0.13
Earnings (loss) per share - fully diluted $ (0.04) $ 0.13
</TABLE>
(b) ACQUISITION OF CONSOLIDATED PROFESSOR MINES LIMITED
On February 5, 1996, the Company made a public offer to purchase all of the
outstanding common shares of Consolidated Professor Mines Limited
("Consolidated Professor") consisting of approximately 20 million common
shares, at a cash price of $0.80 per share. By June 30, 1996, the Company had
purchased all shares tendered and acquired all remaining shares in accordance
with compulsory acquisition procedures, for a total purchase price of $16.3
million. The purchase price, net of cash acquired on the acquisition of $0.3
million, has been assigned as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital assets $15.9 million
Miscellaneous net assets 0.1 million
-------------
Purchase price, net of cash acquired $16.0 million
-------------
-------------
</TABLE>
16. CLOSURE COSTS AND WRITE-DOWN OF RESOURCE PROPERTIES AND OTHER ASSETS
In 1997, as a result of the decline in the price of gold and diminishing
mineable ore reserves at the Colomac Mine, the Company made a pre-tax provision
of $39.7 million for the write-down of the Colomac assets.
In 1996, the Company announced it would close the Hope Brook Mine in 1997. In
addition, as a result of a reclassification of mineable reserves at the Colomac
Mine in the Northwest Territories, a provision was made to decrease the carrying
-74-
<PAGE>
value of the Colomac property. In 1996, the Company provided for the
revaluation of the carrying value of the Hope Brook and Colomac assets, and
for a provision for closure costs at Hope Brook. These charges were
approximately $37.6 million in total. This comprises $10.1 million for
closure costs at Hope Brook, the revaluation of Hope Brook assets by a
reduction of $10.1 million, and revaluation of Colomac assets by a reduction
of $17.4 million.
17. RECLAMATION AND ENVIRONMENTAL REMEDIATION
Where feasible, reclamation is conducted concurrently with mining. In general
the Company is required to mitigate long-term environmental impacts by
stabilizing, contouring, resloping and revegetation of various portions of a
site once mining and mineral processing operations are completed. These
reclamation activities are conducted in accordance with detailed plans which
have been reviewed and where applicable approved by the appropriate regulatory
agencies. In Ontario, the Northwest Territories and British Columbia the Company
is required to post security against all or part of the estimated costs of such
reclamation. The Company has completed and filed reclamation plans for all of
its active operations. Reclamation plans have also been prepared for most of the
Company's inactive mine sites and reclamation is well advanced at many of these
sites.
Although the ultimate amount of the obligation to be incurred is uncertain, the
Company has currently estimated these future costs to be $41.2 million. The
Company has accrued $24.7 million of reclamation and closure costs through
December 1997 and will charge the remaining amount to operations, over the
remaining lives of its operations, on a unit-of-production basis.
At December 31, 1997, the Company had reclamation deposits of $14.3 million of
cash and cash equivalents restricted for reclamation purposes. The Company
believes that the current salvage value of its assets at its various minesites
will be sufficient to fund the majority of these reclamation costs.
During 1995, the Company acquired 100% of the Red Mountain property located in
northwestern British Columbia for $1. The Company assumed the environmental
liabilities, estimated at $3.0 million, as part of this purchase. The vendor
will receive a production royalty on all production from the property.
The following table summarizes environmental costs incurred by the operating
mines in 1997:
<TABLE>
<CAPTION>
Capital Operating
Improvements Costs
------------ ----------
<S> <C> <C>
Active
Giant $239 $ 820
Pamour 294 451
Inactive
Colomac 245 193
Hope Brook -- 1,282
---- ------
$778 $2,746
---- ------
---- ------
</TABLE>
Costs for 1998 are expected to be comparable for the mines in operation. The
Hope Brook Mine and the Colomac Mine have been placed on care and maintenance
and these costs are expected to total approximately $2 million in 1998.
18. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Deferred finance costs on long-term debt $ 9,041 $8,787
Amortization of deferred finance costs (1,251) (337)
Deferred foreign exchange (gain) loss on
long-term foreign debt 10,658 --
Amortization of foreign exchange (gain) loss
on long-term foreign debt (364) --
Other assets 2,058 771
------- ------
$20,142 $9,221
------- ------
------- ------
</TABLE>
-75-
<PAGE>
19. SUBSEQUENT EVENTS
(a) SENIOR SECURED DEBENTURES
In January 1998, the Company completed the sale of senior secured debentures
(the "Senior Debentures") in the principal amounts of $19,500,000 and
US$30,700,000 maturing on January 20, 2003. The Senior Debenture denominated in
Canadian dollars bears interest, payable quarterly commencing June 30, 1998, at
the Canadian prime rate plus 5% from December 31, 1997 to and including January
9, 2001 and at the Canadian prime rate plus 6.5% from January 10, 2001 to and
including the maturity date, and the Senior Debentures denominated in U.S.
dollars bear interest, payable quarterly commencing June 30, 1998, at the U.S.
six-month LIBOR rate plus 5% from December 31, 1997 to and including January 9,
2001 and at the U.S. six-month LIBOR rate plus 6.5% from January 10, 2001 to and
including the maturity date. The Senior Debentures are secured by liens against
all present and after acquired property, undertaking and assets of the Company
(except the Windy Craggy property) including, but not limited to, a security
debenture, general security agreement and assignments of the Company's interests
in all material mining claims, concessions and leases relating to the Kemess
mine. The Senior Debentures are redeemable, in whole or in part, at any time at
the option of the Company in aggregate US$5,000,000 amounts at 101% of such
principal prepayment amount if prepaid prior to January 20, 2002 and thereafter
at 100% of the principal prepayment amount and on a Change of Control of the
Company (as defined), as may be required by the holders of the Senior
Debentures, at 101% of the principal amount of the debentures plus interest and
any other amounts outstanding thereunder. The Senior Debentures contain
covenants which limit the amount of additional debt that may be assumed by the
Company. On or about March 17, 1998, the Company notified the holders of the
Senior Debentures that the Company was in default of certain covenants of the
Senior Debentures in that the Company had exceeded the allowable amount of trade
payables over 90 days. The Company is in technical default under covenants of
the Senior Debentures, although it has not received any written demand notice
from the holders of the Senior Debentures.
In the event the Company is successful in obtaining additional financing, it
intends to retire the Senior Debentures by paying them in full. See Note 1 for
a description of the non-binding term sheet the Company has entered into for an
additional US$120 million debt financing.
(b) SHAREHOLDER RIGHTS PLAN
On February 10, 1998, the Board of Directors adopted, subject to regulatory and
shareholder approvals, a Shareholder Rights Plan (the "Rights Plan"), the terms
of which are set forth in a Shareholder Rights Plan Agreement dated as of
February 25, 1998 between the Company and Montreal Trust Company of Canada (the
"Rights Plan Agreement"). Under the Rights Plan, a right to purchase one of the
Company's common shares (the "Right") was issued for each outstanding common
share to the Company's shareholders of record on February 25, 1998. The Rights
expire in 2002 and initially are not separate from the Company's common shares
nor are they represented by separate certificates. However, should a triggering
event occur, as defined in the Rights Plan Agreement (including the acquisition
by a single entity of 20% or more of the Company's common shares), a holder of a
Right (other than the acquiror of 20% or more of the Company's common shares)
becomes entitled to purchase one share of the Company's common shares for each
Right at a 50% discount of market price. Under the Rights Plan Agreement,
purchases of common shares that are made pursuant to certain permitted bids, as
defined in the Rights Plan Agreement, do not constitute a triggering event.
Subject to certain terms and conditions specified in the Rights Plan Agreement,
the Rights may be redeemed by the Company for a price of $0.0001 per Right.
-76-
<PAGE>
SUPPLEMENTARY DATA
The following tables set forth selected quarterly financial data for the years
ended December 31, 1997 and 1996 (unaudited):
<TABLE>
<CAPTION>
Year ended December 31, 1997
---------------------------------------------------------
1st 2nd 3rd 4th
Production Statistics ------------ ------------ ------------ ------------
- ---------------------
<S> <C> <C> <C> <C>
Ore milled - tons 1,262,578 1,603,901 1,443,740 937,883
Production - gold ounces 85,080 104,845 94,505 66,919
Financial Information
- ---------------------
(000's omitted except per share amounts)
Operating revenue
- Canadian GAAP $47,974 $58,872 $53,926 $30,395
- US GAAP $47,974 $58,872 $53,926 $30,395
Operating income (loss)
- Canadian GAAP $(9,192) $(11,865) $(208) $(41,583)
- US GAAP ($9,970) $(8,732) $(150) $(51,544)
Net income (loss)
- Canadian GAAP $(8,113) $(52,089) $(2,362) $(72,651)
- US GAAP $(8,891) $(48,956) $(3,149) $(92,061)
Earnings (loss) per share*
- Canadian GAAP $(0.06) $(0.38) $(0.02) $(0.52)
- US GAAP $(0.07) $(0.35) $(0.02) $(0.66)
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
---------------------------------------------------------
1st 2nd 3rd 4th
Production Statistics ------------ ------------ ------------ ------------
- ---------------------
<S> <C> <C> <C> <C>
Ore milled - tons 1,334,988 1,358,152 1,500,285 1,579,346
Production - gold ounces 88,196 91,447 104,012 105,548
Financial Information
- ---------------------
(000's omitted except per share amounts)
Operating revenue
- Canadian GAAP $51,049 $54,797 $77,323 $71,999
- US GAAP $51,049 $54,797 $77,323 $71,999
Operating income
- Canadian GAAP $881 $4,514 $16,084 $7,726
- US GAAP $165 $2,997 $14,881 $6,799
Net income (loss)
- Canadian GAAP $1,356 $3,749 $10,216 $(21,306)
- US GAAP $891 $2,763 $9,365 $(23,703)
Earnings (loss) per share*
- Canadian GAAP $0.01 $0.03 $0.07 $(0.15)
- US GAAP $0.01 $0.02 $0.07 $(0.17)
</TABLE>
*Quarterly earnings per share are based upon the average number of common shares
outstanding each quarter. Because the average number of shares increased in
each quarter, the sum of quarterly earnings per share may not equal earnings per
share for the year.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-77-
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Part III (Items 10, 11, 12, and 13) will be
included in and is hereby incorporated by reference to the Company's Management
Information Circular (Proxy Statement) to be provided in connection with the
Company's 1998 Annual Meeting of Shareholders which involves the election of
directors and which will be filed within 120 days after December 31, 1977, the
close of the Company's 1997 fiscal year. For a description of the Company's
Executive Officers, see "Executive Officers of the Registrant" following Item 4
in Part I herein.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements filed as part of this report are listed on
the index in Item 8.
2. Financial Statement Schedules:
No financial statement schedules are required.
(b) Reports on Form 8-K:
A report on Form 8-K was filed on October 16, 1997, regarding a press
release from the Company, announcing third quarter 1997 results.
A report on Form 8-K was filed October 21, 1997, regarding a press release
from the Company, announcing the Company's view that recent reports
undervalued the Kemess South project.
A report on Form 8-K was filed November 18, 1997, regarding a press release
from the Company, announcing the signing of a long-term agreement for sale
of the Kemess concentrate.
A report on Form 8-K was filed December 18, 1997, regarding a press release
from the Company, announcing execution of commitment letters with a group
of institutions who have committed to purchase US$45 million of Senior
Secured Debentures.
(c) Exhibits:
Exhibits identified on page 80, on file with the Securities and Exchange
Commission, are incorporated herein by reference as exhibits hereto.
-78-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROYAL OAK MINES INC.
Dated: April 14, 1998 By:/s/ MARGARET K. WITTE
----------------------------------------
Margaret K. Witte
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name and Signature Title Date
------------------ ----- ----
By: /s/ JOSEPH A. BRAND Controller April 14, 1998
------------------------------
Joseph A. Brand
By: /s/ JAMES H. WOOD Chief Financial Officer April 14, 1998
------------------------------
James H. Wood
By: /s/ ROSS F. BURNS Director April 14, 1998
------------------------------
Ross F. Burns
By: /s/ MATTHEW GAASENBEEK Director April 14, 1998
------------------------------
Matthew Gaasenbeek
By: /s/ J. CONRAD LAVIGNE Director April 14, 1998
------------------------------
J. Conrad Lavigne
By: /s/ GEORGE W. OUGHTRED Director April 14, 1998
------------------------------
George W. Oughtred
By: /s/ WILLIAM J. V. SHERIDAN Director April 14, 1998
------------------------------
William J. V. Sheridan
By: /s/ MARGARET K. WITTE Director April 14, 1998
------------------------------
Margaret K. Witte
-79-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Articles of Amalgamation dated January 1, 1992 (incorporated by reference
to Royal Oak Mines Inc. Form 20-F for the year ended December 31, 1991).
3.2 Articles of Amalgamation dated July 23, 1991 (incorporated by reference
to Royal Oak Mines Inc. Form 20-F for the year ended December 31, 1991).
4.1 Indenture, dated as of August 12, 1996, by and among the Company, the
Guarantor and Mellon Bank, F.S.B. (incorporated by reference to Amendment
No. 1 to the Royal Oak Mines Inc. Form S-4 Registration Statement No.
333-11117 filed October 7, 1996).
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit B thereto).
4.3 First Supplemental Indenture, dated as of December 31, 1997, by and among
the Company, and Chase Manhattan Trust Company, National Association, the
successor to Mellon Bank, F.S.B., as Trustee.(1)
4.4 Second Supplemental Indenture, dated as of January 31, 1998, by and among
the Company, and Chase Manhattan Trust Company, National Association, the
successor to Mellon Bank, F.S.B., as Trustee.(1)
10.1 Employment Agreement dated July 21, 1995 between Margaret K. Witte,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by
reference to Royal Oak Mines Inc. Form 10-K for the year ended December
31, 1995).(2)
10.2 Employment Agreement dated July 21, 1995 between Ross F. Burns, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference
to Royal Oak Mines Inc. Form 10-K for the year ended December 31,
1995).(2)
10.3 Employment Agreement dated July 21, 1995 between J. Graham Eacott, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1996 (incorporated by reference to Royal Oak Mines Inc. Form
10-K for the year ended December 31, 1995).(2)
10.4 Employment Agreement dated July 21, 1995 between John R. Smrke, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to Royal Oak Mines Inc.
Exhibit 10.5 Form 10-K for the year ended December 31, 1995).(2)
10.5 Employment Agreement dated May 22, 1997 between Edmund Szol, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated August
1, 1997.(1)(2)
10.6 Employment Agreement dated July 21, 1995 between James H. Wood, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to Royal Oak Mines Inc.
Exhibit 10.7 Form 10-K for the year ended December 31, 1995).(2)
10.7 Senior Secured Debenture in the principal amount of U.S.$16,100,000 dated
as of December 31, 1997 issued by the Company to Goldman, Sachs & Co.(1)
10.8 Amending Agreement dated as of January 23, 1998 between the Company and
Goldman, Sachs & Co., amending Senior Secured Debenture in the principal
amount of U.S.$16,100,000 dated as of December 31, 1997.(1)
10.9 Form of Employee Stock Option Agreement (incorporated by reference to
Exhibit 4 to the Company's Form S-8 Registration Statement filed December
18, 1996).(2)
10.10 Arrangement Agreement dated as of August 29, 1995, between Royal Oak
Mines Inc., El Condor Resources Ltd., St. Philips Resources Inc. and
Geddes Resources Limited (incorporated by reference from the Joint
Management Proxy Circular dated September 1, 1995, starting at page A-1,
filed by El Condor Resources Limited (File No. 0-19555)).
-80-
<PAGE>
10.11 Loan Agreement dated as of July 31, 1997 between the Company and Export
Development Corporation.(1)
10.12 Senior Secured Debenture in the principal amount of Can.$19,500,000 dated
as of December 31, 1997 issued by the Company to DDJ Canadian High Yield
Fund.(1)
10.13 Amending Agreement dated as of January 23, 1998 between the Company and
DDJ Canadian High Yield Fund amending Senior Secured Debenture in the
principal amount of Can.$19,500,000 dated as of December 31, 1997.(1)
10.14 Senior Secured Debenture in the principal amount of U.S.$14,600,000 dated
as of December 31, 1997 issued by the Company to Mellon Bank, N.A.,
solely in its capacity as Trustee for General Motors Employees Domestic
Group Pension Trust.(1)
10.15 Amending Agreement dated as of January 23, 1998 between the Company and
Mellon Bank, N.A., solely in its capacity as Trustee for General Motors
Employees Domestic Group Pension Trust amending Senior Secured Debenture
in the principal amount of U.S.$14,600,000 dated as of December 31,
1997.(1)
21 Subsidiaries of registrant.(1)
23 Consent of Arthur Andersen & Co.(1)
27 Financial Data Schedule.(1)
- ---------------------------------
(1) Filed herewith.
(2) Management contracts or compensatory plans or arrangements filed pursuant
to Item 14(c) of Form 10-K.
-81-
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE dated and effective as of December 31,
1997, by and between Royal Oak Mines Inc., a corporation amalgamated under
the laws of Ontario, Canada (the "Company") and Chase Manhattan Trust
Company, National Association, the successor to Mellon Bank, F.S.B., as
Trustee (the "Trustee").
Royal Oak Mines Inc. issued an aggregate principal amount of
$175,000,000 of 11% Senior Subordinated Notes due 2006 and Series B 11%
Senior Subordinated Notes due 2006 (collectively, "the Notes") pursuant to an
Indenture dated as of August 12, 1996 (the "Indenture") by and among Royal
Oak Mines Inc., the Trustee and Kemess Mines Inc. ("Kemess"). Kemess was a
Guarantor as defined in and for purposes of the Indenture. On December 29,
1997, Royal Oak Mines Inc. and Kemess amalgamated under the laws of Ontario,
Canada and the surviving entity of such amalgamation is the Company. Section
9.02 of the Indenture provides that the Indenture may be amended or
supplemented by the Company and the Trustee when authorized by a resolution
of the board of directors of the Company and consented to in writing by the
holders of at least a majority in aggregate principal amount of the
outstanding Notes. The Company has designated a record date of November 30,
1997 for the purpose of obtaining such written consent and, as of the date
hereof, the holders of a majority in aggregate principal amount of the Notes
have provided their written consent to the amendments and supplements
contained in this First Supplemental Indenture.
Each party hereto agrees as follows for the benefit of the other party
and for the equal and rateable benefit of the Holders of the Notes.
1. Section 1.01 is hereby amended by deleting in its entirety the definition
of "Working Capital Facility" contained in that section and by inserting
in alphabetical order in section 1.01 the following definition:
"Senior Secured Debentures" means, collectively, (i) the Senior
Secured Debenture dated December 31, 1997 issued by the Company to
and in favour of DDJ Canadian High Yield Fund in the principal amount
of Cdn. $19,500,000, (ii) the Senior Secured Debenture dated December
31, 1997 issued by the Company to and in favour of Goldman, Sachs &
Co. in the principal amount of $16,100,000, and (iii) the Senior
Secured Debenture dated December 31, 1997 issued by the Company to
and in favour of Mellon Bank, N.A., solely in its capacity as
Trustee for General Motors Employees Domestic Group Pension Trust,
in the principal amount of $14,600,000; as any or all of such
Senior Secured Debentures may be amended, modified, supplemented,
restated, or assigned from time to time."
2. Clauses (iv) and (vi) of the definition of "Permitted Indebtedness"
contained in section 4.12 of the Indenture are hereby deleted in their
entirety and replaced, respectively, with the following:
"(iv) Indebtedness under or in relation to the Senior Secured
Debentures in aggregate principal amounts not to exceed the
aggregate of Cdn. $19,500,000 and U.S. $30,700,000, together with
all interest, fees, and other amounts payable under or in respect
of the Senior Secured Debentures;" and
<PAGE>
-2-
"(vi) additional Indebtedness of the Company if, and to the extent
that, the principal amount of the Senior Secured Debentures is repaid
so that, to the extent the Company repays obligations under the
Senior Secured Debentures, in whole or in part, the Company may Incur
additional Indebtedness under this clause in aggregate principal
amounts which, as of the date of Incurrence, when added to the
principal amounts of Senior Secured Debentures then outstanding (if
any) do not exceed the aggregate of Cdn. $19,500,000 and U.S.
$30,700,000;".
3. Clauses (i) and (ii) of the definition of "Permitted Liens" contained in
section 1.01 of the Indenture are hereby deleted in their entirety and
replaced, respectively, with the following:
"(i) Liens on the assets or property of the Company or of a
Restricted Subsidiary that, in each case, secure Indebtedness
permitted under paragraph (b) of section 4.12 or clause (vi) of
the definition of Permitted Indebtedness contained in section
4.12;" and
"(ii) Liens on the assets or property of the Company or of a
Restricted Subsidiary that, in each case, secure Indebtedness
permitted under clause (iv) of the definition of Permitted
Indebtedness contained in section 4.12;".
4. Acknowledgement is hereby made of the amalgamation of the former Royal
Oak Mines Inc. and Kemess Mines Inc. on December 29, 1997 under the laws
of the Province of Ontario, Canada in accordance with section 5.01 of the
Indenture and resulting in the surviving entity being the Company. The
Indenture is hereby amended and supplemented in every respect to the
extent necessary to give effect to such amalgamation and conform the
Indenture thereto and to give effect to all sections of this First
Supplemental Indenture and conform the Indenture thereto.
5. This First Supplemental Indenture is entered into, and the amendments and
supplements contained herein are made, pursuant to the provisions of
section 9.02 of the Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed and effective, all as of the date
first written above.
ROYAL OAK MINES INC.
by: /s/ James H. Wood
-------------------------------------
Name: James H. Wood
Title: Chief Financial Officer
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
by:
-------------------------------------
Name:
Title:
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated and effective as of January 31,
1998, by and between Royal Oak Mines Inc., a corporation amalgamated under
the laws of Ontario, Canada (the "COMPANY"), and Chase Manhattan Trust
Company, National Association, the successor to Mellon Bank, F.S.B., as
Trustee (the "TRUSTEE").
Royal Oak Mines Inc. issued an aggregate principal amount of
$175,000,000 of 11% Senior Subordinated Notes due 2006 and Series B 11%
Senior Subordinated Notes due 2006 (collectively, the "NOTES") pursuant to an
Indenture, dated as of August 12, 1996 (as amended and supplemented by the
First Supplemental Indenture dated and effective as of December 31, 1997, the
"INDENTURE"), by and among Royal Oak Mines Inc., the Trustee and Kemess Mines
Inc. ("KEMESS"). Kemess was a Guarantor as defined in and for the purposes of
the Indenture. On December 29, 1997, Royal Oak Mines Inc. and Kemess
amalgamated under the laws of Ontario, Canada and the surviving entity of
such amalgamation in the Company.
Section 9.02 of the Indenture provides that the Indenture may be amended
or supplemented by the Company and the Trustee when authorized by a
resolution of the board of directors of the Company and consented to in
writing by the holders of at least a majority in aggregate principal amount
of the outstanding Notes. The Company has designated a record date of
November 30, 1997 (the "RECORD DATE") for the purpose of obtaining such
consent to this Second Supplemental Indenture and, as of the date hereof, the
holders of a majority in aggregate principal amount of the Notes as of the
Record Date have provided their written consent to the amendments and
supplements contained in this Second Supplemental Indenture.
Each party hereto agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the holders of the Notes:
1. Section 4.06 of the Indenture is hereby amended by adding at the end
thereof a new subsection (d), which shall read in its entirety as follows:
"(d) The Company shall deliver to the Trustee (i) a true and complete
copy of any notice of any default or event of default under the
Senior Secured Debentures delivered by the Company to the holders of
the Senior Secured Debentures, contemporaneously with (and by the
same or an equally expedient means as) the delivery thereof to the
holders of the Senior Secured Debentures and (ii) a true and complete
copy of any
<PAGE>
notice of any default or event of default under the Senior Secured
Debentures received by the Company from the holders of the Senior
Secured Debentures, immediately (but in any event within one Business
Day) after the Company's receipt thereof. The Trustee shall mail a
copy of any notice received by it pursuant to this Section 4.06(d)
to each Holder within one Business Day after the Trustee's receipt
thereof, by first class mail to such Holder's address as set forth
in the Registrar's books. The Trustee shall have no duty under this
Indenture to any holder of a beneficial interest in the Notes,
including without limitation, under this Section 4.06."
2. Article Four of the Indenture is hereby amended by adding at the end
thereof a new Section 4.21, which shall read in its entirety as follows:
"SECTION 4.21. REPLACEMENT SENIOR SECURED DEBENTURES
(a) At any time, the holders of beneficial interests in at least 25%
in aggregate principal amount of the outstanding Notes may deliver a
notice to the Company and the Trustee requesting that the Company make an
offer of Replacement Senior Secured Debentures (as hereinafter defined)
in accordance with this Section 4.21. The holders of beneficial interest
that deliver such notice are herein called the "REQUESTING HOLDERS". In
such notice the Requesting Holders shall specify (i) the respective
principal amounts of the Notes held by them, (ii) their addresses
(including facsimile numbers) for receipt of notices hereunder and (iii)
their intention to deliver Acceptance Notices (as hereinafter defined) to
the Company to purchase in whole the Replacement Senior Secured
Debentures offered to them pursuant to the Offer Notice (as hereinafter
defined). Upon its receipt of such notice, the Company will comply with
all of the provisions of this Section 4.21 unless, within 30 days after
its receipt of such notice, the Company either (x) delivers to the
Requesting Holders and the Trustee an Officer's Certificate stating that,
as of the date the Requesting Holders delivered such notice, the Company
is permitted to Incur Indebtedness in addition to Permitted Indebtedness
pursuant to Section 4.12(b) (assuming for purposes of such Officer's
Certificate that, as of such date, the applicable Consolidated Fixed
Charge Coverage Ratio of the Company set forth in Section 4.12(b)(ii)(x)
is 2.5 to 1.0), or (y) delivers to the Requesting Holders and the Trustee
a notice stating the Company's intention to refinance the Senior Secured
Debentures on terms that are, in the reasonable judgment of the Company,
more favorable to the Company than the terms of the Senior Secured
Debentures (and the Company
-2-
<PAGE>
actually closes such refinancing within 45 days after its receipt of such
notice (or 90 days after its receipt of such notice if, as a condition to
such closing, the Company is required to obtain the consent of the
Holders to an amendment of this Indenture, or if the Company is required
to file a registration statement or prospectus under applicable securities
laws in respect of such refinancing)). If the Company delivers the
Officer's Certificate pursuant to clause (x) above, no Holder or Holders
may thereafter deliver another notice pursuant to this subsection (a)
until the expiration of 90 days after the date of such Officer's
Certificate. If the Company refinances the Senior Secured Debentures upon
terms and within the periods contemplated by clause (y) above, the
Company shall deliver to the Holders and the Trustee an Officer's
Certificate stating that such refinancing has been completed, whereupon
this Section 4.21 shall thereupon terminate in its entirety and be of no
further force and effect.
(b) Upon the Company's receipt of any notice pursuant to Section
4.21(a) and the Company's failure, inability or omission to comply with
either of clause (x) or (y) thereof, then within the next 15 days, the
Company shall fix a record date for the purpose of determining the Holders
entitled to receive notices under this Section 4.21 (which record date
shall be the date of receipt by the Company of notice from the Requesting
Holders pursuant to Section 4.21(a)), shall obtain a participant position
listing for the Notes from the Depositary (the "DTC POSITION LISTING") as
of such record date and shall deliver a notice (an "OFFER NOTICE") to
each such participant listed on the DTC Position Listing (the "DTC
PARTICIPANTS") in form and substance reasonably satisfactory to the
Requesting Holders, which Offer Notice shall state:
(i) a request by the Company that such DTC Participant forward
the Offer Notice to holders of beneficial interests in the Notes for
which such DTC Participant acted as nominee as of such record date
(all holders of beneficial interests in the Notes as of such record
date being the "HOLDERS ENTITLED TO PURCHASE");
(ii) that the Offer Notice is being delivered pursuant to this
Section 4.21(b) at the request of the Requesting Holders (and shall
name the Requesting Holders and the respective principal amounts of
the Notes held by them as of such record date);
(iii) that the Company proposes to issue and sell to the
Holders Entitled to Purchase a new issue of senior secured debentures
of the Company (the "REPLACEMENT SENIOR SECURED DEBENTURES") having
-3-
<PAGE>
substantially the same terms and conditions (including, without
limitation, terms and conditions relating to security for the
Company's obligations thereunder) as the Senior Secured Debentures,
and in an aggregate principal amount (the "MINIMUM AMOUNT") that
will result in net cash proceeds (after payment of all expenses
including, without limitation, legal and accounting fees and
expenses, incurred in connection therewith) to the Company in an
amount at least sufficient to indefeasibly redeem in full all of
the outstanding Senior Secured Debentures in accordance with their
terms;
(iv) all material terms and conditions of the Replacement
Senior Secured Debentures, set forth in a "term sheet" format in
form and detail customary for private placements of debt securities
similar to the Replacement Senior Secured Debentures;
(v) an irrevocable offer by the Company to issue and sell to
each Holder Entitled to Purchase at such record date all or any
part of that aggregate principal amount of the Replacement Senior
Secured Debentures determined by multiplying the aggregate principal
amount of the Replacement Senior Secured Debentures by a fraction,
the numerator of which is the principal amount of the Notes held by
such Holder Entitled to Purchase, and the denominator of which is
the aggregate principal amount of the Notes outstanding;
(vi) that the purchase price for the Replacement Senior
Secured Debentures will be 100% of their principal amount, payable
to the Company or to an escrow agent appointed by the Company and the
holders of the Senior Secured Debentures by wire transfer of
immediately available funds at a simultaneous closing of all sales
and purchases thereof; and that the Company will not pay any
commitment or other fees to any Holder Entitled to Purchase in
connection with the Replacement Senior Secured Debentures except
that the Company has agreed to reimburse the Requesting Holders
for the legal fees and expenses incurred by them up to the
maximum amount of U.S. $50,000 in the aggregate;
(vii) that each Holder Entitled to Purchase may accept the
offer set forth in the Offer Notice, in whole or in part, by
delivering written notice of such acceptance (an "ACCEPTANCE NOTICE")
to the Company specifying the address (including facsimile numbers)
for receipt of notices hereunder for such Holder Entitled to Purchase
and the principal amount of Replacement Senior Secured Debentures
as to which such offer is accepted, at the address and in the manner
-4-
<PAGE>
specified in the Offer Notice, on or before the date specified in the
Offer Notice (which date shall be the 45th day after the date the
Offer Notice is delivered to the DTC Participants); PROVIDED,
HOWEVER, that the Company shall be fully protected in relying upon
any information in any such Acceptance Notice including, without
limitation, the identity of the party delivering such Acceptance
Notice as a Holder Entitled to Purchase;
(viii) that if the offer is accepted, in the aggregate, with
respect to less than 100% of the aggregate principal amount of the
Replacement Senior Secured Debentures so offered, the Company will
re-offer the remaining Replacement Senior Secured Debentures to
the Holders Entitled to Purchase that delivered Acceptance Notices
with respect to all Replacement Senior Secured Debentures offered
to them (the "FULLY ACCEPTING HOLDERS"), PRO RATA based upon the
relative principal amounts of the Replacement Senior Secured
Debentures accepted by them in their Acceptance Notices;
(ix) that notwithstanding any acceptance of the offer made in
the Offer Notice, no Replacement Senior Secured Debentures will be
sold by the Company unless at least the Minimum Amount is sold and
the proceeds are applied to indefeasibly redeem in full all of the
outstanding Senior Secured Debentures in accordance with their terms;
and
(x) that each Holder Entitled to Purchase may revoke its
acceptance of the offer if the Replacement Senior Secured Debentures
have not been issued and sold on or prior to the date that is 90 days
after the date the Offer Notice is delivered to the DTC Participants,
by delivering written notice of such revocation to the Company.
(c) If, at the date specified in the Offer Notice for last receipt
of Acceptance Notices, the offer set forth in the Offer Notice has been
accepted with respect to less than 100% of the aggregate principal amount
of the Replacement Senior Secured Debentures so offered, the Company shall
re-offer the remaining Replacement Senior Secured Debentures to the Fully
Accepting Holders. The Company shall make such re-offer by delivering to
the Trustee and each Fully Accepting Holder, within three Business Days
after the date referred to in the preceding sentence, a second notice
(a "RE-OFFER NOTICE"), which Re-Offer Notice shall state:
-5-
<PAGE>
(i) that the Re-Offer Notice is being delivered pursuant to
this Section 4.21(c);
(ii) the aggregate principal amount of the Replacement Senior
Secured Debentures accepted by all Holders pursuant to Acceptance
Notices and the aggregate principal amount of Replacement Senior
Secured Debentures remaining available for purchase (the "REMAINING
DEBENTURES");
(iii) an irrevocable offer by the Company to issue and sell to
each Fully Accepting Holder all or any part of the Remaining
Debentures;
(iv) that each Fully Accepting Holder may accept the offer set
forth in the Re-Offer Notice, in whole or in part, by delivering
written notice of such acceptance (a "RE-OFFER ACCEPTANCE NOTICE")
to the Company specifying the principal amount of Remaining
Debentures as to which such re-offer is accepted, at the address
and in the manner specified in the Re-Offer Notice, on or before
the date specified in the Re-Offer Notice (which date shall be
the third Business Day after the date the Re-Offer Notice is
delivered);
(v) that in the event that one or more Fully Accepting Holders
deliver Re-Offer Acceptance Notices to the Company that, in the
aggregate, accept the offer made in the Re-Offer Notice with respect
to more than the aggregate principal amount of the Remaining
Debentures, then each such Fully Accepting Holder shall be deemed
to have accepted such offer with respect to its proportionate share
of the Remaining Debentures, based on the proportion which the
principal amount of the Replacement Senior Secured Debentures
accepted by such Fully Accepting Holder in its initial Acceptance
Notice bears to the aggregate principal amount of all the
Replacement Senior Secured Debentures accepted by all such Fully
Accepting Holders in their initial Acceptance Notices;
(vi) that the other statements made in the initial Offer Notice
remain unchanged.
(d) If, at the date specified in the Re-Offer Notice for last
receipt of Re-Offer Acceptance Notices, the offers set forth in the
Offer Notice and the Re-Offer Notice have been accepted with respect
to less than the Minimum Amount of the Replacement Senior Secured
Debentures, such offers, and this Section 4.21 in its entirety, shall
thereupon terminate and be of no further force and effect, and the
Company shall, within 15 days thereafter, deliver notice of such
termination to each of the DTC Participants (together with a request
by the Company that such DTC
-6-
<PAGE>
Participants forward such notice to the Holders Entitled to Purchase) and
to the Trustee.
(e) If, at the date specified in the Re-Offer Notice for last receipt
of the Re-Offer Acceptance Notices, the offers set forth in the Offer
Notice and the Re-Offer Notice have been accepted with respect to the
Minimum Amount of the Replacement Senior Secured Debentures, the Company
shall, within three Business Days thereafter, deliver notice to that
effect to the Trustee and to all Holders that have accepted such offers
(the "Purchasing Holders"), which notice shall specify the date for the
simultaneous closing of all sales and purchases of the Replacement Senior
Secured Debentures (the "CLOSING") (which date shall be not earlier than
three Business Days nor later than 30 days after the date such notice is
delivered unless otherwise extended in writing by the Company and the
Purchasing Holders). The Company and the Purchasing Holders shall
thereafter proceed to close such sales and purchases at the Closing upon
the terms and conditions stated in the Offer Notice and, if applicable,
the Re-Offer Notice. If, at the Closing, any one or more Purchasing
Holders fails to purchase all or any part of the Replacement Senior
Secured Debentures accepted by it in its Acceptance Notice or Re-Offer
Acceptance Notice, any one or more of the other Purchasing Holders may
agree with the Company and among themselves, by any method of allocation
that they mutually deem acceptable, to take up and purchase at the Closing
the Replacement Senior Secured Debentures that were to have been so
purchased by the defaulting Purchasing Holder, upon the terms and subject
to the conditions stated in the Offer Notice and the Re-Offer Notice.
If, notwithstanding the preceding sentence, at the Closing less than the
Minimum Amount of the Replacement Senior Secured Debentures are to be sold
due to the default of any Purchasing Holder, the Closing shall not occur
and this Section 4.21 in its entirety shall thereupon terminate and be of
no further force and effect, and the Company shall, within 15 days
thereafter, deliver notice of such termination to each of the DTC
Participants (together with a request by the Company that such DTC
Participants forward such notice to the Holders entitled to Purchase) and
to the Trustee.
(f) Simultaneously with the Closing, the Company shall use the net
proceeds of the sale of the Replacement Senior Secured Debentures to
indefeasibly redeem in full all of the outstanding Senior Secured
Debentures in accordance with their terms. Any remaining net proceeds
shall be used by the company for general corporate purposes, subject to
the terms and conditions set forth in this Indenture.
(g) All notices provided for in this Section 4.21 shall be in writing
and shall be delivered (i) in the case
-7-
<PAGE>
of the Offer Notice, by first class mail to the address of each DTC
Participant as set forth in the DTC Position Listing, or as set forth
in any notice under this Section 4.21 (which shall be deemed delivered
five calendar days after deposit in the mail) and (ii) in all other
cases, either (A) by confirmed telecopy to the recipient's telecopy
number specified in any notice under this Section 4.21 (which shall
be deemed delivered on the date transmitted and confirmed) or (B) by
personal delivery or overnight delivery via courier to the recipient's
address specified in any notice under this Section 4.21 (which shall be
deemed delivered on the date actually delivered).
(h) If any Offer Notice or Re-Offer Notice is delivered pursuant
to this Section 4.21, the Company shall comply with all requirements
under the TIA and state and Federal securities laws applicable to the
offer made thereby and the issuance and sale of the Replacement Senior
Secured Debentures pursuant thereto.
(i) Notwithstanding anything to the contrary contained in this
Indenture, as amended and supplemented from time to time, the Company and
the Holders of the Notes acknowledge that the Trustee shall have no duty,
responsibility or liability hereunder or under any other instrument,
notice, agreement, disclosure or offering document or any other document
whatsoever, including without limitation the Replacement Senior Secured
Debentures, for (x) any determination by the Company of, or the validity
or sufficiency for any purpose of any notice to or from, the Holders, the
Requesting Holders, the Holders Entitled to Purchase, the Fully Accepting
Holders, the Purchasing Holders, any holder as of any date of any
beneficial or other interest in the Notes or any holder as of any date of
any interest in the Replacement Senior Secured Debentures; (y) the
sufficiency, validity, adequacy of consideration for, or the priority
or maintenance of priority of the security for, the Replacement Senior
Secured Debentures. The Trustee further shall have no responsibility, duty
or liability, either in its individual or any fiduciary capacity, to
any holder of any interest in the Replacement Senior Secured Debentures,
its successors or assigns; and (z) the determination, verification,
adequacy, materiality or sufficiency of any information which the Company
discloses or fails, for any reason, to disclose to any person in
connection with the issuance and sale of the Replacement Senior Secured
Debentures. In furtherance and not in limitation of this paragraph, the
Trustee shall have no duty, responsibility or liability to the persons
named herein, whether or not a Default or an Event of Default shall
have occurred under this Indenture and whether or not a default or event
of default, however defined thereunder,
-8-
<PAGE>
shall have occurred under any Replacement Senior Secured Debentures.
The Company and the Holders further acknowledge that the delivery
to the Trustee of copies of any notices under this Second Supplemental
Indenture is for informational purposes only, and that the Trustee shall
have no duty to any person to examine, and may rely conclusively upon,
the contents, validity and sufficiency of any such notice.
Prior to the issuance and sale of any Replacement Senior Secured
Debentures, the Company shall use reasonable commercial efforts to
provide to the Trustee, together with any other opinions and Officer's
Certificates otherwise required hereunder or under this Indenture and at
the sole expense of the Company, an opinion of counsel to the Company on
which the Trustee can rely to the effect that any such issuance and sale
is in compliance with the securities laws of the United States,
including without limitation the TIA as then in effect."
3. Article Four of the Indenture is hereby amended by adding at the end
thereof a new Section 4.22, which shall read in its entirety as follows:
"SECTION 4.22. CERTAIN ACTIONS AFTER JANUARY 31, 1998
(a) Within the period of approximately 18 months beginning on
January 31, 1998 and ending on July 31, 1999, the Company shall complete
one of the following (the choice of which shall be at the option of the
Company); (i) the indefeasible redemption of not less than
U.S.$25,000,000 aggregate principal amount of the Senior Secured
Debentures (otherwise than in connection with the issuance of Replacement
Senior Secured Debentures pursuant to Section 4.21); (ii) the issuance
and sale of shares of Common Stock, or shares, options, warrants or
similar rights convertible into Common Stock, of the Company in one or
more transactions pursuant to which the Company shall have received
aggregate net cash proceeds (after payment of expenses, commissions and
the like (including, without limitation, brokerage, legal, accounting and
investment banking fees and commissions) incurred in connection
therewith) of not less than U.S.$25,000,000; or (iii) the amendment of
the terms of the Notes solely to increase the interest rate payable on
the Notes from and after August 1, 1999 by 50 basis points, to 11.5% per
annum, without cost of any kind to the Holders; PROVIDED, HOWEVER, that
if at any time prior to or within five Business Days after July 31, 1999,
the Company delivers to the Trustee an Officer's Certificate stating
that, as of the date of such Officer's
-9-
<PAGE>
Certificate, the Company is permitted to Incur Indebtedness in addition
to Permitted Indebtedness pursuant to Section 4.12(b) (assuming for
purposes of such Officer's Certificate that, as of such date, the
applicable Consolidated Fixed Charge Coverage Ratio of the Company set
forth in Section 4.12(b) (ii)(x) is 2.5 to 1.0), the covenant set forth
in this Section 4.22 shall be deemed satisfied notwithstanding that the
Company may not have completed any of the actions set forth in clauses
(i) through (iii) above. The Trustee shall mail a copy of any Officer's
Certificate received by it pursuant to this Section 4.22(a) to each
Holder within five Business Days after the Trustee's receipt thereof, by
first class mail to such Holder's address as set forth in the
Registrar's books.
(b) In the event that, on or prior to the fifth Business Day after
July 31, 1999, the Company has not completed any of the actions
set forth in Sections 4.22(a)(i) through (iii), and the Company has not
delivered the Officer's Certificate referred to in Section 4.22(a), then
the interest rate payable on the Notes shall automatically, and without
any action on the part of any Holder, increase by 50 basis points, to
11.5% per annum, commencing and effective on August 1, 1999. Within five
Business Days after such increase, the Company shall deliver to the
Trustee an Officer's Certificate to the foregoing effect. The Trustee
shall mail a copy of any Officer's Certificate received by it pursuant
to this Section 4.22(b) to each Holder within five Business Days after
the Trustee's receipt thereof, by first class mail to such Holder's
address as set forth in the Registrar's books."
4. Clause (vi) of the definition of "Permitted Indebtedness" contained in
Section 4.12 of the Indenture is hereby deleted in its entirety and
replaced with the following:
"(vi) additional Indebtedness of the Company if, and to the extent
that, the principal amount of the Senior Secured Debentures is
repaid so that, to the extent the Company repays obligations under
the Senior Secured Debentures, in whole or in part, the Company may
Incur additional Indebtedness under this clause in aggregate
principal amounts which, as of the date of Incurrence, when added
to the principal amounts of Senior Secured Debentures then
outstanding (if any) do not exceed the aggregate of Cdn.$19,500,000
and U.S.$30,700,000; PROVIDED, HOWEVER, that if the Company issues
and sells Replacement Senior Secured Debentures concurrently with
the repayment in whole of the obligations under the Senior Secured
Debentures, the obligations under the Senior Secured Debentures,
the Company may Incur additional Indebtedness under this clause in
connection with such issuance and sale in an aggregate principal
amount which, as of the date of
-10-
<PAGE>
Incurrence, does not exceed the Minimum Amount as defined in
Section 4.21 hereof."
5. The Indenture is hereby amended and supplemented in every respect
to the extent necessary to give effect to all sections of this Second
Supplemental Indenture and conform the Indenture thereto.
6. This Second Supplemental Indenture is entered into, and the amendments
and supplements contained herein are made, pursuant to the provisions
of Section 9.02 of the Indenture. On or prior to the date of this
Second Supplemental Indenture, the Company has delivered to the Trustee
an Officer's Certificate and an Opinion of Counsel, in each case
stating the matters required to be stated therein pursuant to Sections
9.07, 13.04 and 13.05 of the Indenture and to the effect that all
conditions precedent to be performed by the Company provided for in the
Indenture relating so this Second Supplemental Indenture have been
complied with.
7. The Company hereby represents and warrants that:
(a) The execution, delivery and performance by the Company of this
Second Supplemental Indenture have been duly authorized by all
necessary corporate action on the part of the Company; and this Second
Supplemental Indenture has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability now or hereafter
in effect relating to or affecting creditors' rights and to general
equity principles.
(b) The execution, delivery and performance by the Company of this
Second Supplemental Indenture do not and will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, (iii) give any Person the right to
accelerate any obligation under, or (iv) result in a violation of, (x)
the constituent documents of the Company, (y) any law, statute, rule,
regulation, instrument, order, judgment or decree to which the Company
is subject, or (z) any agreement, note, mortgage, indenture,
arrangement or other obligation to which the Company is a party or by
which it is bound.
On or prior to the date of this Second Supplemental Indenture, the
Company has delivered to the Trustee, for the benefit of the Holders of
the Notes, an Opinion of Counsel, stating the matters required to be
-11-
<PAGE>
stated in an Opinion of Counsel pursuant to Section 13.05 of the Indenture
and to the effect set forth in subsections (a) and (b) above (and in
giving such opinion, counsel may rely on an Officer's Certificate as to
the matters set forth in clause (z) of subsection (b) above) and to the
effect that this Second Supplemental Indenture complies with the TIA
(as defined in the Indenture) as in effect on the date thereof.
8. For purposes of this Second Supplemental Indenture, the Company hereby
affirms its duty to indemnify and hold the Trustee harmless pursuant to
Section 7.07 of the Indenture. Nothing herein shall be read or interpreted
to limit or otherwise adversely affect the Trustee's rights, protections
and immunities under the Indenture, as amended and supplemented from time
to time.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed and effective, all as of the
date first written above.
ROYAL OAK MINES INC.
By
-----------------------------
Name:
Title:
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
By
-----------------------------
Name:
Title:
-13-
<PAGE>
EX. 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 22nd day of May 1997
BETWEEN:
ARCTIC PRECIOUS METALS, INC.
5501 Lakeview Drive
Kirkland, Washington 98033
(Fax No. 206-822-3552)
(hereinafter called "Arctic")
OF THE FIRST PART
- and -
EDMUND SZOL
4206 E. Lake Sammamish Parkway S.E.
Issaquah, WA 88029
(hereinafter called the "Employee")
OF THE SECOND PART
- and -
ROYAL OAK MINES INC.
BCE Place, Suite 2500
181 Bay Street
Toronto, Ontario
M5J2T7
(Fax No. 416-365-1719)
(hereinafter called "Royal Oak")
OF THE THIRD PART
WHEREAS Arctic and the Employee wish to enter into a written agreement to
record the terms and conditions of the Employee's continued employment with
Arctic.
AND WHEREAS Arctic's parent company, Royal Oak, has agreed to assume certain
obligations herein and to guarantee the performance by Arctic of its
obligations to the Employee hereunder;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein
set out, the parties agree as follows:
<PAGE>
2
1. EMPLOYMENT
Employee commenced employment with Arctic on February 27, 1995 and hereby
accepts continued employment with Arctic from and after May 22, 1997 on the
terms and subject to the conditions herein set forth.
2. DUTIES
Subject to instructions which may be received from time to time by the
Employee from the Chief Executive Officer of Arctic, the Employee is
hereafter engaged by Arctic as Executive Vice-President and Chief Operating
Officer and in such other executive capacities as may be determined by the
Chief Executive Officer of Arctic from time to time; and, in furtherance of
his duties, the Employee shall do the following:
(a) serve Arctic faithfully;
(b) observe all policies of Arctic and perform all services associated
with his position to the best of his ability;
(c) devote substantially all of his working time and attention to the
business of Arctic, except to the extent otherwise permitted by the Chief
Executive Officer;
(d) carry out all lawful instructions given to him by the Chief
Executive Officer; and
(e) endeavour to further the best interests of Arctic.
The Employee will be based in Kirkland, Washington but may from time to time
be called upon and hereby agrees to perform services elsewhere.
3. TERM
The term of this Agreement shall commence May 22, 1997 and continue
thereafter indefinitely unless earlier terminated in accordance with the
provisions of this Agreement.
4. ANNUAL SALARY AND BONUS
In consideration for services rendered hereunder, Arctic shall pay to the
Employee the following:
(a) Salary: Employee's salary shall be US$200,000 per annum. Arctic
agrees to review the salary at least every twelve (12)months and may make
<PAGE>
3
adjustments, in its discretion, based on changes in market pay rates
for jobs similar to the Employee's, cost of living and such other
factors as Arctic deems relevant.
(b) Bonus: Employee will be eligible for an annual bonus award to a
maximum value of 50 percent of the salary unless Arctic, in its discretion,
determines to pay a higher maximum value. The amount of the bonus is based on
achievement of predetermined annual performance objectives set for the
Employee by the Chief Executive Officer of Arctic and communicated to the
Employee at the beginning of the year.
5. OTHER BENEFITS
In addition to the annual salary and bonus award provided in paragraph 4 of
this Agreement, Arctic shall provide the following benefits to the Employee:
(a) Fringe Benefits
Arctic shall furnish to the Employee at Arctic's expense such insurance
(including, without limitation, medical, dental, vision, hospitalization,
life and disability insurance), pension, and other benefits as are provided
to senior executives by Arctic including participation in the Company's
supplementary executive retirement plan and/or split dollar life insurance
program.
(b) Stock Options
The Employee shall be entitled upon execution of this Agreement to receive
65,000 new options to purchase shares of Arctic's parent company, Royal Oak,
which options are exercisable following shareholder approval on a one-third
(1/3) basis per year commencing on the first anniversary of the date of this
Agreement and valid for a term of seven years with the price of those options
fixed at US $2.50. The terms of the option shall be stipulated by Royal Oak
in a separate Stock Option Agreement to be executed by Royal Oak and the
Employee prior to any options being exercised thereunder. The Employee shall
also be eligible for future grants of stock options for shares in Royal Oak
on terms applicable to other senior officers of Arctic.
(c) Business Expenses
Arctic agrees to reimburse the Employee quarterly for all ordinary and
necessary business expenses incurred by the Employee in the performance of
his duties under this Agreement and the Employee shall provide vouchers and
statements in respect of all such expenses in a timely manner.
(d) Membership
Arctic agrees to provide the employee with one reasonably priced business
<PAGE>
4
club membership for the purposes of personal and family use and for
entertaining. All meals and sundry expenses for personal use will be to the
account of the employee, with Arctic responsible for and paying all
reasonable expenses incurred by the Employee for the purpose of entertaining
clients and business associates.
(e) Vacation
The Employee shall be entitled to four weeks of paid vacation during each
full calendar year in which he is employed by Arctic pursuant to this
Agreement, the timing of such vacation being mutually agreed upon between the
Employee and Arctic. Vacation entitlement is non-cumulative and must be taken
in the year in which it is earned unless otherwise agreed to in writing by
the Chief Executive Officer.
(f) Demand Loan
The Employee will be eligible to borrow from Arctic an aggregate maximum
amount of US $90,000.00 interest free for the purpose of financing a home.
Repayment of such loan in the amount of US $15,000.00 per year shall be
guaranteed by the Employee and security, in the form of a second mortgage on
the said home, shall be provided by the Employee to secure repayment of the
loan to Arctic. The terms of the loan shall be stipulated by Arctic in a
separate written Loan Agreement to be executed by the Employee and Arctic
prior to any advances being made thereunder and shall include a requirement
for repayment of any amount then outstanding within 120 days of cessation of
the Employee's employment hereunder for any reason whatsoever.
6. TERMINATION AND COMPENSATION AT TERMINATION
Notwithstanding anything herein contained to the contrary, this Agreement
shall terminate in the following manner and the Employee shall be compensated
as indicated:
(a) Termination by Arctic for Cause
This Agreement and the employment of the Employee may be terminated effective
immediately for cause by the giving of written notice of dismissal by Arctic
to the Employee. As used herein, "cause" includes, but shall not be limited
to, competing with or publicly denigrating the business of Arctic,
unauthorized disclosure or use of Confidential Information in breach of
paragraph 7 herein, repetition of conduct subject and subsequent to
progressive discipline, gross misconduct or gross negligence by the Employee
in the performance of his duties hereunder, the commission by the Employee of
an act of theft, dishonesty, embezzlement or vandalism against Arctic, its
parent Royal Oak or any of their respective related, associated or subsidiary
companies, or the conviction of the Employee for
<PAGE>
5
any indictable criminal offence or a felony or criminal offense of moral
turpitude.
If this Agreement is terminated by Arctic for cause, the Employee shall
continue to accrue and receive his salary and benefits through to the date of
termination indicated in the notice of dismissal only. No additional
compensation or payment shall or need be made by Arctic to the Employee.
(b) Termination by Arctic Without Cause
This Agreement and the employment of the Employee hereunder may be terminated
by Arctic effective at any time without cause by giving the Employee at least
24 months' prior written notice of termination. In the event such notice is
given, the employment of the Employee shall terminate on the date specified
in the said notice. In lieu of notice, Arctic may, in its discretion,
terminate the employment of the Employee immediately by making payments to
the Employee of all salary and bonus, equal to the salary and bonus received
by the Employee with respect to the last completed fiscal year of Arctic
prior to such notice and continuing (if possible, and in accordance with
applicable statutory provisions, or if not, paying the present value of) all
benefits which would have accrued to the benefit of the Employee to the date
of termination had the period of notice of termination required by this
Agreement been given. The parties hereto acknowledge that this Agreement and
the period of notice referred to herein are fair and reasonable in all the
circumstances.
The Employee hereby acknowledges and agrees that, should Arctic or its parent
company, Royal Oak, subsequently take over or otherwise acquire control of
additional properties and/or projects which substantially increases the
duties and responsibilities of the position of Executive Vice-President and
Chief Operating Officer herein assumed, then any reassignment of the Employee
by Arctic to the position of Chief Operating Officer of North American
Operations or some like position, at a salary and benefits comparable to
those held by the Employee prior to any such takeover or acquisition, will
not constitute or be deemed to constitute constructive dismissal or
termination of the employment of the Employee hereunder.
(c) Termination of Change of Control
For purposes of this Agreement, "Change in Control" means any one or more of
the following:
(i) the acquisition by any person or group of related persons or
persons acting jointly or in concert of more than 30% of the issued and
outstanding common shares of Arctic or its parent company Royal Oak
(calculated on a non-diluted basis), whether acquired in a single transaction
or a series of transactions, whether or not one or more of those transactions
occurred before the date hereof;
<PAGE>
6
(ii) the election to the Board of Directors of Arctic or its parent
company Royal Oak of persons employed by or representing any one person or
group of related persons or persons acting jointly or in concert and
constituting 40 percent or more of the Board.
Should a Change of Control occur, the Employee's employment with Arctic or
any successor corporation shall be hereby guaranteed to age 62 in such senior
management or consulting capacity as may be determined by Arctic or its
successor corporation at a salary and bonus equal to the salary and bonus
received by the Employee with respect to the last completed fiscal year of
Arctic, and benefits (on a fully vested basis) comparable to those accorded
the Employee prior to such Change of Control.
Should the Employee elect to pursue such guaranteed employment to age 62, he
hereby agrees to fully and capably perform all duties assigned to him by
Arctic or its successor corporation and waives any subsequent right to or
claim for constructive dismissal during the course of such employment and
compensation on termination after age 62 beyond the minimum required by law.
Conversely, should the Employee elect to reject such guarantee of employment
to age 62 and to terminate his employment with Arctic or its successor
corporation within the period for election specified below, then the Employee
shall be entitled to the compensation and benefit package outlined in
subparagraph (b) above and shall be further given the right to immediately
exercise all approved outstanding options, subject to confirmation of
Exchange approval as specified in each Stock Option Agreement.
The Employee shall have three (3) months from the date of any Change of
Control to make the election whether to pursue or reject the aforesaid
guarantee of employment.
The parties hereto acknowledge that this Agreement and the compensation
packages proposed in lieu of notice in subparagraphs (b) and (c) herein are
fair and reasonable in all the circumstances.
(d) Termination by the Employee
This Agreement and the employment of the Employee hereunder may be terminated
by the Employee upon at least three (3) months' prior written notice to
Arctic given at any time. If the Employee so terminates this Agreement and
his employment hereunder, he shall continue to accrue and will receive his
annual salary and benefits (excluding bonus entitlement) through the date
specified in his notice of termination and no more. Upon receipt of such
notice, Arctic may, in its discretion, immediately terminate the employment
of the Employee by making payment to the Employee of all salary and continue
(if possible, and in accordance with applicable statutory provisions, or if
not possible, paying the present value
<PAGE>
7
of) all benefits which would have accrued to the benefit of the Employee to
the date of termination specified in his notice of termination.
(e) Termination by Mutual Agreement
This Agreement and the employment of the Employee hereunder may be terminated
by mutual agreement in writing of the parties hereto. The Employee shall
continue to accrue and receive his annual salary and benefits through to the
date of termination settled upon pursuant to such mutual agreement.
The fact of termination of the Employee's employment in accordance with
subparagraphs (d) and (e) herein and the terms of such termination shall be
maintained as confidential by the Employee and shall not be disclosed to
anyone other than Employee's legal and financial advisors until the Employee
is so authorized by the Chief Executive Officer of Arctic.
(f) Termination by Death
The Agreement and the employment of the Employee hereunder shall be
terminated by the death of the Employee. All compensation to the Employee
shall cease at his death.
(g) Termination by Permanent Disability
For the purpose of this Agreement, "Permanent Disability" means:
the Employee is unable to perform any and every duty of his employment,
and such disability may reasonably be expected to exceed a period of six
months.
If the Employee's employment is terminated due to Permanent Disability, the
following compensation shall be paid:
1. salary shall stop at the end of the month in which termination occurs;
2. all employee benefits, except Arctic sponsored medical, accidental and
life insurance, shall cease with termination. The medical insurance (with
premium waiver for accidental and life insurance) shall continue for the
Employee and his dependents for two (2) years under the same cost sharing
arrangement as between Arctic and its other employees. Accidental and life
coverage shall continue for as long as the Employee remains disabled under
the disability plan. The Employee will be given the option, consistent with
then existing legislation, to convert medical coverage upon cessation thereof
to an individual policy;
3. the bonus payable under paragraph 4 (b) of this Agreement will be payable
at year end on a pro rata basis based on the period of employment as a
<PAGE>
8
percentage of the full year.
If the parties cannot mutually agree upon whether the Employee has a
Permanent Disability or when the Employee became Permanently Disabled for the
purposes of this Agreement, then Arctic and the Employee shall each appoint
one doctor of medicine licensed to practice in the State of Washington and
the two doctors so appointed shall determine if the Employee has a Permanent
Disability, and the time at which he became so Permanently Disabled for the
purposes of this Agreement. If the two doctors so appointed cannot agree
upon whether the Employee is or when the Employee became Permanently
Disabled, they shall appoint a third doctor of medicine licensed to practice
in the State of Washington and the decision of the majority shall be binding
on both parties hereto and shall not be subject to appeal.
7. CONFIDENTIAL INFORMATION AND TRADE SECRETS
The Employee acknowledges that he has a fiduciary obligation to Arctic and
that, in the course of providing services hereunder, he will be entrusted
with confidential information and trade secrets ("Confidential Information")
concerning the present and contemplated projects, services and techniques
involved and used by Arctic, its parent company Royal Oak and their
respective associated, related and subsidiary companies in connection with
their respective businesses, the disclosure of any of which to competitors of
Arctic, Royal Oak or the general public would be highly detrimental to the
best interests of Arctic and not compensable by damages. The Employee
further acknowledges that the right to maintain all such Confidential
Information as confidential constitutes a proprietary right which Arctic, its
parent company Royal Oak and their respective associated, related and
subsidiary companies are entitled to protect by way of injunctive relief in
addition to other remedies available to each on breach of such
confidentiality.
The Employee further acknowledges that the restrictions and prohibitions set
out herein are reasonable and proper based on the nature of the business of
Arctic, its parent company Royal Oak and their respective associated, related
and subsidiary companies, which businesses as of the date hereof are to a
significant extent carried on in Canada and the United States. Accordingly,
the Employee agrees that:
(a) he will not, during the term of this Agreement or at any time
thereafter, disclose any of such Confidential Information to any person or
use any of such Confidential Information for any purpose other than those of
Arctic and Royal Oak; and
(b) he will not, during the term of this Agreement or at any time
thereafter, disclose any information concerning the business of Arctic, its
parent company Royal Oak or their respective associated, related and
subsidiary companies which could adversely affect the image or reputation of
any of them.
<PAGE>
9
The Employee agrees that the provisions of this paragraph 7 will, in their
entirety, survive termination of this Agreement by any party for any reason
and in any manner whatsoever.
8. PERFORMANCE GUARANTEE
In consideration of the Employee agreeing to transfer to and continue his
employment with Arctic, Royal Oak hereby guarantees to the Employee the full
performance of Arctic of each and every obligation hereunder assumed by
Arctic and further indemnifies and agrees to hold harmless the Employee from
and against any and all loss, damage, injury and expense (including recovery
of all legal fees and disbursements) incurred by the Employee as a result of
any breach by Arctic of its obligations hereunder or in enforcing and
securing to the Employee all of his rights and entitlement hereunder.
9. NOTICES
Wherever this Agreement requires or permits any consent, approval, notice,
request or demand from any party to another, the consent, approval, notice,
request or demand (including, without limitation, telecopied communications)
must be in writing to be effective and shall be deemed to have been given on
the earlier of receipt or five business days after it is enclosed in any
envelope, addressed to the party to be notified at the address first above
written (or such other addresses as may be designated by written notice from
time to time), properly stamped, sealed and deposited in the mail system, in
the case of Arctic, to the attention of the Chief Executive Officer and in
the case of Royal Oak to the attention of Mr. W. J. V. Sheridan, Secretary.
Any consent, approval, notice, request or demand aforesaid if delivered or
telecopied shall be deemed to have been given on the day of such delivery or
telecopied transmission. Any such delivery shall be sufficient, if left with
any person at the above address of the Employee in the case of the Employee,
and with the receptionist at the above addresses of Arctic and Royal Oak in
the case of Arctic and Royal Oak respectively.
10. ENTIRE AND BINDING AGREEMENT
The provisions contained herein and in any Stock Option Agreement or Loan
Agreement created in accordance with paragraphs 5 (b) and (f) herein
constitute the entire Agreement between the parties and supersede all
previous communications, representations, understandings and agreements,
whether oral or written, between the parties with respect to the subject
matter hereof.
Subject to the provisions hereof, this Agreement shall be binding upon and
shall enure to the benefit of the parties hereto and upon their respective
heirs, legal representatives, successors and permitted assigns.
<PAGE>
10
11. AMENDMENTS
No alteration or amendment to this Agreement will take effect unless the same
is in writing duly executed by each of the parties in the same manner as this
Agreement.
12. WAIVERS
One or more consents to or waivers of any breach of the terms or provisions
of this Agreement by any party shall not be construed as a consent or waiver
of a subsequent breach of the same term or provision, nor shall it be
considered a consent to or waiver of any other then existing or subsequent
breach of a different term or provision. The consent or waiver by any party
to or of any act by any other party requiring such consent or waiver shall be
deemed not to waive or render unnecessary consent to or waiver of any
subsequent similar act. No custom or practice of any party shall constitute
a waiver of any other party's right to insist upon strict compliance with the
terms and provisions hereof.
15. SEVERABILITY
If any term or provision of this Agreement shall be or shall become illegal
or unenforceable, the remaining terms and provisions shall nevertheless be
valid, binding, and subsisting.
16. INTERPRETATION
For purposes of this Agreement, "person" includes any body corporate,
government or any subdivision or department thereof, trust, unincorporated
association, joint venture and/or partnership.
17. HEADINGS
Headings are for convenience of reference only and shall not affect the
interpretation of this Agreement.
18. ASSIGNMENT
Neither the rights nor obligations under this Agreement shall be assigned or
otherwise disposed of without the prior written consent of the non-assigning
party, except that Arctic may assign this Agreement to any successor or
related corporation without such consent.
<PAGE>
11
19. APPLICABLE LAW
Whether pursuant to court proceedings or otherwise, the rights and
obligations of the parties under and pursuant to this Agreement shall be
construed under and governed by the laws of State of Washington and the
parties hereby agree to submit to the exclusive jurisdiction of its courts.
IN WITNESS WHEREOF this Agreement is executed by the parties as of the date
first above written.
ARCTIC PRECIOUS METALS, INC.
By: /s/ M. K. Witte c/s
-------------------------
(authorized signing officer)
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF:
/s/ Illegible /s/ Edmund Szol I/S
- ------------------------ -------------------------
Witness Edmund Szol
Notary Public for
the state of Washington
ROYAL OAK MINES INC
By: /s/ M. K. Witte I/S
-------------------------
(authorized signing officer)
<PAGE>
ARCTIC PRECIOUS METALS, INC.
5501 Lakeview Drive
Kirkland, Washington 98033
Phone: (206) 822-8992 Fax: (206) 822-3552
August 1, 1997
Mr. Edmund Szol
4206 E. Lake Sammamish Parkway SE
Issaquah, WA 98029
Dear Mr. Szol:
By written agreement made the 22nd day of May, 1997, the Company agreed to
lend to you the maximum aggregate sum of Ninety Thousand US Dollars
(US$90,000.00) on an interest free basis for the purpose of financing a home
in the Washington Area.
Prior thereto, you had borrowed from Arctic Precious Metals, Inc., upon
commencement of your employment therewith, the sum of Twenty-five Thousand US
Dollars (US$25,000.00) for such a purpose. Seventeen Thousand US Dollars
(US$17,000.00) presently remains outstanding on the said loan, which
indebtedness is secured by a written loan agreement made between you and the
Company on the 26th day of June, 1995. You elected not to move from your
residence (municipally identified as 4206 E. Lake Sammamish Parkway SE).
You have, however, now advised the Company that, pursuant to the terms and
conditions of paragraph 5(f) of your Employment Agreement made the 22nd day
of May, 1997, you wish to borrow the further sum of Seventy-three Thousand US
Dollars (US$73,000.00) for purposes of a home equity loan - which sum takes
you to the maximum aggregate amount specified in your Employment Agreement
aforesaid. You have proposed a second mortgage on your residence as security
for the full indebtedness of Ninety Thousand US Dollars (US$90,000.00).
In consideration of your past performance and ongoing commitment as Chief
Operating Officer of the Company and for other good and valuable
consideration (the sufficiency and receipt of which are hereby acknowledged),
the Company is pleased to grant your request and agrees to amend the first
sentence of paragraph 5(f) of your Employment Agreement to read as follows:
"The Employee will be eligible to borrow from Arctic, during the course
of his employment therewith, an aggregate maximum amount of Ninety Thousand
US Dollars
<PAGE>
(US$90,000.00), interest free, by way of a home equity loan secured against
his principal residence at 4206 E. Lake Sammamish Parkway SE, Issaquah, WA
98029 (the "Home")."
In addition, for and in reliance on the aforesaid consideration, we propose a
further amendment to paragraph 5(f) of your Employment Agreement to add,
after the first two sentences thereof, the words:
"Any amounts repaid by the Employee may be borrowed again from time to
time by way of a home equity loan secured against the Home, provided that the
principal amount of the loan outstanding at any one time shall not exceed the
aggregate maximum amount of US$90,000.00."
The remainder of paragraph 5(f) and of all the other terms and conditions set
forth in your Employment Agreement shall remain in full force and effect
without variation.
If your concur in the amendments outlined above, please execute this document
in the space provided below.
Yours truly,
ARCTIC PRECIOUS METALS, INC.
/s/ Margaret K. Witte
- -------------------------
Margaret K. Witte
Chairman & President
I, Edmund Szol, hereby agree to and accept to be bound by the preceding
amendments to paragraph 5(f) of my Employment Agreement made the 22nd day of
May, 1997.
Dated the 5th day of August, 1997.
Witness:
/s/ Illegible /s/ Edmund Szol
- ------------------------------------- -------------------------------
Edmund Szol
<PAGE>
Exhibit 10.7
ROYAL OAK MINES INC.
- ------------------------------------------------------------------------------
SENIOR SECURED DEBENTURE
- ------------------------------------------------------------------------------
DECEMBER 31, 1997
<PAGE>
ROYAL OAK MINES INC.
(Amalgamated under the laws of Ontario)
SENIOR SECURED DEBENTURE
Royal Oak Mines Inc. (the "Corporation") for value received hereby
acknowledges itself indebted and promises to pay to or to the order of the
Holder, as defined herein, on January 20, 2003 or such dates as all or any
part of the principal amount hereof may become due in accordance with the
provisions hereof, the principal sum of SIXTEEN MILLION ONE HUNDRED THOUSAND
UNITED STATES OF AMERICA DOLLARS (U.S. $16,100,000) (or such parts thereof as
may become due), on presentation and surrender of this Debenture (in the case
of payment of all of the principal amount hereof) to the Corporation at its
registered office or at such place as the Corporation may direct, and to pay
interest on the principal amount of this Debenture outstanding from time to
time at the rates and times and in the amounts set forth herein.
ARTICLE 1
INTERPRETATION
1.1. Definitions
In this Debenture, unless there is something in the subject matter or context
inconsistent therewith, the terms set out in Schedule A shall have the
meanings ascribed to them in that schedule.
1.2. Use of Singular and Plural
Words importing the singular include the plural and vice versa and words
importing gender include all genders.
1.3. Interpretation Not Affected By Headings, etc.
The division of this Debenture into Articles, sections, subsections and
paragraphs and the insertion of headings are for convenience of reference
only and shall not affect the construction or interpretation of this
Debenture.
1.4. Monetary References
Any reference in this Agreement to "Canadian dollars" or "Can. $" or similar
terms shall be deemed to be a reference to lawful money of Canada and any
reference in this Agreement to "United States of America dollars", "United
States dollars" or "U.S. $" or similar terms shall be deemed to be a
reference to lawful money of the United States of America. If no
<PAGE>
2
such references are made with respect to any particular sum or obligation,
the sum or obligation in question shall be deemed to refer to lawful money of
the United States of America.
1.5. Day Not a Business Day
In the event that any day on or before which any action is required to be
taken hereunder is not a Business Day, then such action shall be required to
be taken on or before the requisite time on the first Business Day thereafter.
1.6. Invalidity of Provisions
Each of the provisions contained in this Debenture is distinct and severable
and a declaration of invalidity, illegality or unenforceability of any such
provision or part thereof by a court of competent jurisdiction shall not
affect the validity or enforceability of any other provision hereof or
thereof. Without limiting the generality of the foregoing, if any amounts on
account of interest or fees or otherwise payable by the Corporation to the
Holder hereunder exceed the maximum amount recoverable under Applicable Law,
the amounts so payable hereunder shall be reduced to the maximum amount
recoverable under Applicable Law.
1.7. References
Except as otherwise specifically provided, reference in this Debenture to any
contract, agreement or any other instrument shall be deemed to include
references to the same as varied, amended, supplemented or replaced from time
to time and reference in this Debenture to any enactment, including without
limitation any statute, law, by-law, regulation, ordinance or order, shall be
deemed to include references to such enactment as re-enacted, amended or
extended from time to time.
1.8. Debenture to Govern
If there is any inconsistency between the terms of this Debenture and the
terms of any Security Document, the provisions hereof shall prevail to the
extent of the inconsistency, but the foregoing shall not apply to limit or
restrict in any way the rights and remedies of the Holder under the terms of
the Security Documents after the Liens thereby constituted shall have become
enforceable.
1.9. Generally Accepted Accounting Principles
Unless otherwise specifically provided herein, all accounting terms shall be
applied and construed in accordance with Canadian generally accepted
accounting principles consistently applied. For the purpose of determining
compliance with the financial covenants set forth in section 4.1.19, all
computations shall be calculated on a consolidated basis, where applicable,
and shall be adjusted to eliminate the effect of any discretionary change by
the
<PAGE>
3
Corporation in the application of generally accepted accounting principles since
the date of its most recent audited consolidated financial statements prior to
the date hereof.
ARTICLE 2.
PRINCIPAL AND INTEREST
2.1. Interest
Interest shall accrue from the date hereof, before and after the occurrence
of an Event of Default, demand, maturity or judgment, on the outstanding
principal amount of this Debenture, and on all overdue costs, expenses and
interest payable hereunder, at the Interest Rate and shall be calculated and
compounded and payable on June 30, 1998 and thereafter shall be calculated
and compounded quarterly and payable quarterly in arrears on the last day of
each of the months of March, June, September and December in each year (each
an "Interest Payment Date") and on the Maturity Date.
2.2. Payment of Interest
Except as otherwise provided for herein, as interest on this Debenture
becomes due (except interest payable on the Maturity Date, which shall be
paid upon presentation and surrender of this Debenture for payment), the
Corporation shall pay to the Holder the interest due and payable on each
Interest Payment Date, without deduction or set-off, by wire transfer of
immediately available funds to such account and address of the Holder as may
be provided by the Holder from time to time.
2.3. Principal Repayments
Subject to the terms and conditions of this Debenture, the principal amount
of this Debenture shall be repaid in full on the Maturity Date.
2.4. Optional Prepayment
Subject to the terms and conditions of this Debenture, the Corporation shall
have the privilege of prepaying from time to time, on any Business Day, all
or any part of the principal amount of this Debenture on payment to the
Holder of the Prepayment Amount provided that:
(a) any such prepayment shall only be made on at least five Business
Days' notice to the Holder, which notice, once given, shall be irrevocable
and binding upon the Corporation;
(b) any such prepayment shall, when aggregated with any contemporaneous
prepayments made under sections 2.4 of the Other Senior Secured Debentures,
be in an amount of at least U.S. $5,000,000; and
<PAGE>
4
(c) any such prepayment shall be accompanied by payment of all interest
and other amounts accrued in respect of the principal amount being so prepaid
to the date of prepayment as well as all other amounts due and payable under
this Debenture on the date of prepayment.
ARTICLE 3.
SECURITY
3.1. Security
3.1.1. As security for the due and punctual payment of all of its
obligations to the Holder under or in respect of the Debenture and the other
Documents, the Corporation shall execute and deliver to the Holder,
contemporaneous with the delivery of the Debenture to the Holder, valid and
enforceable Liens against all present and after-acquired property,
undertaking and assets of the Corporation except the Excluded Assets, all in
form and substance satisfactory to the Holder and its counsel, including
without limitation the following:
(i) a security debenture by the Corporation creating fixed and
floating charge security in all of the Corporation's present and
after-acquired property and assets;
(ii) a general security agreement by the Corporation creating a
security interest in all of the Corporation's present and after-acquired
property and assets;
(iii) assignments of the Corporation's interests in all material
mining claims, concessions and leases in any way relating to the Kemess Mine;
(iv) an assignment by the Corporation of its rights and interest in
the Kemess South Resources Limited Partnership;
(v) an undertaking of the Corporation to deliver to the Holder (a)
within 15 days following the Closing Date, pledges of all of the shares in
the capital of Arctic Precious Metals, Inc., Highwood Resources Ltd. and Asia
Minerals Corp. held by the Corporation or any Subsidiary and all of the
shares of publicly traded corporations held by the Corporation or any
Subsidiary (provided that in the case of the shares of publicly traded
corporations held by the Corporation or any Subsidiary physical possession of
the applicable share certificates need not be delivered to the Holder unless
required under applicable legislation to perfect such specific pledges),
together with a mortgage over the Corporation's real property situated at
Smithers, British Columbia and (b) within 30 days following the request of
the Holder, fixed and specific Liens on all property and assets comprising
the mines generally known as the Giant and Matachewan Mines; and
<PAGE>
5
(vi) such other agreements and documents as may, in the sole
discretion of the Holder, be necessary or desirable to grant to the Holder
valid and enforceable Liens on all of the property, undertaking and assets of
the Corporation other than the Excluded Assets.
To the extent any of the Security Documents are not delivered
contemporaneously with the delivery of the Debenture, the Corporation shall
deliver such Security Documents to the Holder forthwith thereafter, provided
that the Corporation shall not be obligated to register the Security against
any real property or mineral claims comprising: (i) the mines generally
known as Pamour/Nighthawk Lake, Hope Brook and Colomac; and (ii) the
Corporation's currently existing exploration properties not in any way
relating to the Kemess Mine or the mines generally known as Matachewan and
Giant.
3.1.2. Contemporaneous with the delivery of the Security Documents
contemplated by section 3.1.1., the Corporation shall deliver to the Holder
legal opinions in form and content, and from legal counsel, satisfactory to
the Holder regarding the validity, enforceability of all Liens created by
such Security Documents and regarding such other matters as the Holder may
require to evidence compliance with the terms of this Debenture and the other
Documents.
3.1.3. The Corporation shall ensure that all of the Security Documents
are executed and delivered in accordance with this Article 3 and the Liens
created thereby are perfected in all jurisdictions and at all times
reasonably required by the Holder.
3.2. No Merger
The Security Documents shall not merge in any other security. No judgment
obtained by the Holder shall in any way affect any of the provisions of this
Debenture or any of the Security Documents. For greater certainty, no
judgment obtained by the Holder shall in any way affect the obligation of the
Corporation to pay principal and interest at the rates, times and in the
manner provided in this Debenture.
3.3. Further Assurances - Security
From time to time following the Closing Date, the Corporation shall take such
action (including, without limitation, the provision of information and
access to property) and execute and deliver to the Holder such agreements,
conveyances, deeds and other documents and instruments as the Holder shall
reasonably request in furtherance of granting to the Holder valid and
enforceable priority Liens on all of the Corporation's present and after
acquired property, undertaking and assets other than the Excluded Assets, and
the Corporation shall register, file or record the same (or a notice or
financing statement in respect thereof) in all offices where such
registration, filing or recording is, in the opinion of the Holder, necessary
or advisable to constitute, perfect and maintain such Liens in all
jurisdictions reasonably required by the Holder, subject only to Permitted
Encumbrances, provided that the Corporation shall not be obligated to register
the Security against any real property or mineral claims comprising: (i) the
mines generally known
<PAGE>
6
as Pamour/Nighthawk Lake, Hope Brook and Colomac; and (ii) the Corporation's
currently existing exploration properties not in any way relating to the
Kemess Mine or the mines generally known as Matachewan and Giant. The
Corporation shall deliver opinions of its Counsel in respect of such matters,
in each case within a reasonable time after the request therefor by the
Holder, and in each case in form and substance reasonably satisfactory to the
Holder.
ARTICLE 4.
COVENANTS
4.1. Affirmative Covenants
So long as the Debenture or any obligation of the Corporation to the Holder
under the Debenture or any other Document remains outstanding, the
Corporation covenants and agrees with the Holder that:
4.1.1. Punctual Payment and Performance of Debenture. The Corporation
shall pay or cause to be paid all amounts payable to the Holder hereunder and
under the other Documents on the dates and in the manner specified therein
and the Corporation shall perform and carry out all of the acts or things to
be done by the Corporation as provided in the Debenture and the other
Documents;
4.1.2. Conduct of Business. The Corporation shall do or cause to be done
all things necessary to maintain its corporate existence in its present
jurisdiction of incorporation and to maintain its corporate power and
capacity to own its properties and assets;
4.1.3. Preservation of Material Authorizations. The Corporation shall
preserve and maintain all Material Authorizations including, without
limitation, all licenses, permits, approvals and franchises necessary or
desirable to carry on mining operations at the Kemess Mine in the manner and
to the full extent contemplated in plans and projections disclosed to the
Holder.
4.1.4. Preservation of Mining Claims, Concessions and Leases. The
Corporation shall preserve and maintain (i) all mining claims, concessions
and leases necessary or desirable to carry on mining operations at the Kemess
Mine in the manner and to the full extent contemplated in plans and
projections disclosed to the Holder, and (ii) subject to the Materiality
Threshold, all other material mining claims, concessions and leases.
4.1.5. Compliance with Applicable Law and Contracts. The Corporation
shall comply with: (i) the requirements of all Applicable Law; (ii) all
obligations which, if contravened, could give rise to a Lien (other than
Permitted Encumbrances) over any of its property; and (iii) all insurance
policies and all contracts to which the Corporation is a party or by which it
or its properties are bound, non-compliance with which would, singly or in
the aggregate, have a material adverse effect upon the business, property or
financial condition of the Corporation or upon its ability to perform its
obligations under this Debenture or any of the other Documents;
<PAGE>
7
4.1.6. Insurance. The Corporation shall:
4.1.6.1. keep its properties and assets insured with reputable
insurers, in amounts not less than the replacement cost thereof and against
such losses as are insured against by comparable corporations engaged in
comparable businesses or which the Holder may reasonably require;
4.1.6.2. maintain public liability insurance in such amounts and
against such risks as is normally carried by comparable corporations engaged
in comparable businesses or which the Holder may reasonably require;
4.1.6.3. provide the Holder with certificates for all insurance
policies; and
4.1.6.4. provide that any loss under all such insurance policies
(other than policies in respect of third party liability and business
interruption insurance) in excess of Can. $500,000 shall be payable to the
Holder subject only to any prior rights which may be specifically held in
such proceeds by the holders of Permitted Encumbrances, provided that if the
Corporation is not in default of any of its obligations under the Documents
it shall be entitled to receive such loss payment directly if the entire
amount thereof is (i) used to repair or replace the lost or damaged property
in question or (ii) if the lost or damaged property does not in any way
relate to the Kemess Mine, invested in any property or assets of the
Corporation used for the purpose of exploring for or mining precious or base
metals;
4.1.7. Accounting Methods and Financial Records. The Corporation shall,
and shall cause each of its Subsidiaries to, maintain a system of accounting
which is established and administered in accordance with generally accepted
accounting principles and keep adequate records and books of account in which
accurate and complete entries shall be made in accordance with such
accounting principles reflecting all transactions required to be reflected by
such accounting principles;
4.1.8. Maintenance of Mortgaged Property. The Corporation shall maintain
the Mortgaged Property comprising the Kemess Mine and all other Mortgaged
Property used by the Corporation from time to time in good repair, working
order and condition (reasonable wear and tear excepted) and from time to time
make or cause to be made all necessary and appropriate repairs, renewals,
replacements, additions and improvements thereto;
4.1.9. Payment of Taxes and Claims. The Corporation shall:
4.1.9.1. pay and discharge all lawful claims for labour, material and
supplies;
4.1.9.2. pay and discharge all Taxes payable by it;
<PAGE>
8
4.1.9.3. withhold and collect all Taxes required to be withheld and
collected by it and remit such Taxes to the appropriate Governmental Body at
the time and in the manner required; and
4.1.9.4. pay and discharge all obligations incidental to any trust
imposed upon it by statute which, if unpaid, might become a Lien upon any of
the Mortgaged Property;
4.1.10. Inspections. The Corporation shall permit the Holder and its
authorized employees, representatives and agents to (i) visit and inspect its
properties during normal business hours, (ii) inspect and make extracts from
and copies of its books and records, and (iii) discuss with its senior
management its businesses, property, financial condition and prospects, all
on a reasonable basis and frequency;
4.1.11. Notice of Litigation and Other Matters. The Corporation shall,
as soon as practicable after it shall become aware of the same, give notice
to the Holder of the following events:
4.1.11.1. the commencement or threat of a material nature of any
action, proceeding, arbitration or investigation against or in any other way
relating adversely to the Corporation or the Subsidiaries or any of their
respective properties, assets or businesses which, if adversely determined,
would singly or when aggregated with all other such actions, proceedings,
arbitrations and investigations have a material adverse effect on the
business, property or financial condition of the Corporation or on the
ability of the Corporation to perform its obligations under this Debenture or
any of the other Documents;
4.1.11.2. any amendment of its articles, by-laws or other
organizational documents;
4.1.11.3. any actual or threatened revocation, termination,
modification, amendment, substitution, issuance or other material event
relating to Material Authorizations or to mining claims, concessions or
leases respecting the Kemess Mine and, following any such event, the
Corporation shall at the request of the Holder use its best efforts to obtain
from governmental authorities or other Persons such consents, approvals,
acknowledgements or other documents as the Holder may consider necessary,
acting reasonably, to ensure that the Holder has valid and enforceable
security on all such Material Authorizations, mining claims, concessions or
leases and may avail itself of the rights and privileges of the Corporation
thereunder and assign such rights and privileges should the Holder enforce
its rights and remedies in respect of the Security and the other Documents;
4.1.11.4. any development which has had or will have a material
adverse effect upon its business, property or financial condition or its
ability to perform its obligations under this Debenture or any of the other
Documents or which should
<PAGE>
9
reasonably be expected to be of material interest to the Holder,
other than any changes in the market prices of gold or copper or
changes in the Can.$/U.S.$ currency exchange rate;
4.1.11.5. any Default or Event of Default; and
4.1.11.6. any default or event of default, or the occurrence or
non-occurrence of any event which constitutes, or which with the passage of
time or giving of notice or both would constitute, a material default under
any other agreement to which the Corporation or any Subsidiary is a party or
by which they or any of their properties may be bound which has a material
adverse effect on the business, property or financial condition of the
Corporation or its ability to perform its obligations under this Debenture or
any other Document;
giving in each case the details thereof and specifying the action proposed to
be taken with respect thereto.
4.1.12. Monthly Financial Statements. At the request of the Holder, the
Corporation shall, as soon as practicable, deliver to the Holder the interim
unaudited consolidated financial statements of the Corporation for the
monthly period requested including in each case a balance sheet, statement of
profit and loss and a statement of changes in financial position, together
with comparative figures for the corresponding month in the previous
Financial Year;
4.1.13. Interim Financial Statements. The Corporation shall, as soon as
practicable and in any event within 60 days after the end of each of the
first three Financial Quarters of each Financial Year, deliver to the Holder
the interim unaudited consolidated financial statements of the Corporation
and, at the request of the Holder, interim unaudited unconsolidated financial
statements of the Corporation and of the Subsidiaries, including in each case
a balance sheet, statement of profit and loss and a statement of changes in
financial position, together with comparative figures for the corresponding
period in the previous Financial Year;
4.1.14. Annual Financial Statements. The Corporation shall, as soon as
practicable and in any event within 120 days after the end of each Financial
Year, deliver to the Holder the annual audited consolidated financial
statements of the Corporation and, at the request of the Holder, annual
unaudited unconsolidated financial statements of the Corporation and of each
Subsidiary including in each case a balance sheet, statement of profit and
loss, a statement of changes in financial position and a statement of
retained earnings, together with comparative figures for the previous
Financial Year;
4.1.15. Officers' Certificate. The Corporation shall deliver to the
Holder, together with the financial statements referred to in sections
4.1.12, 4.1.13, and 4.1.14, an officers' certificate certifying (i) that such
financial statements were prepared in accordance with generally accepted
accounting principles (subject to normal year-end adjustments in the case of
interim unaudited financial statements) and fairly present the financial
condition
<PAGE>
10
of the Corporation and the other Subsidiaries and the financial information
presented therein for the period and as at the date thereof, (ii) that no
Default or Event of Default has occurred hereunder or, if any Default or
Event of Default has occurred, specifying the relevant particulars and the
period of existence thereof and the action taken or proposed to be taken by
the Corporation with respect thereto, and (iii) demonstrating in reasonable
detail compliance (or, as the case may be, non-compliance) with the covenants
contained in section 4.1.19;
4.1.16. Public Information. The Corporation shall from time to time
deliver to the Holder copies of all reports, financial statements,
information or proxy circulars and other information sent by the Corporation
to its shareholders at the same time as the Corporation sends such material
to its shareholders, and the Corporation shall deliver to the Holder copies
of all press releases, material change reports and similar disclosures filed
by the Corporation with any securities regulatory authority or stock
exchange, provided that, if any such reports or disclosures are filed on a
confidential basis, then the Corporation shall not be required to deliver the
same to the Holder until such time as they are no longer filed on a
confidential basis;
4.1.17. Change of Control. In the event of a Change of Control of the
Corporation, the Corporation shall immediately notify the Holder thereof and
the Holder may, by giving notice in writing to the Corporation within 30 days
of the Holder receiving such notice of the Corporation or otherwise becoming
aware of such Change of Control of the Corporation, whichever is earlier,
require the Corporation to pay to the Holder within 30 days of the Holder
giving such notice all principal, interest and other amounts outstanding
under this Debenture and the other Documents, whether due and payable,
accrued or otherwise, plus an additional amount equal to one per cent (1%) of
the principal component thereof, such payment on the part of the Corporation
being in satisfaction of the Corporation's indebtedness under this Debenture;
4.1.18. Other Information. The Corporation shall furnish to the Holder,
as soon as practicable following a request therefor from the Holder, such
other information as the Holder may reasonably request from time to time; and
4.1.19. Financial Covenants. The Corporation shall ensure that:
(a) EBITDA shall not be less than:
(i) for the Financial Quarter ending March 31, 1999,
Can. $11,000,000;
(ii) for the two Financial Quarters ending June 30, 1999,
Can. $22,000,000;
(iii) for the three Financial Quarters ending September 30, 1999,
Can. $33,000,000; and
<PAGE>
11
(iv) following September 30, 1999, Can. $44,000,000 as at the end
of each Financial Quarter and calculated in each case for the preceding 12
months; and
(b) the EBITDA/Interest Ratio shall not be less than 1.2:1 as at
March 31, 1999 (calculated for the preceding three months), June 30, 1999
(calculated for the preceding six months), September 30, 1999 (calculated for
the preceding nine months), and as at the end of each subsequent Financial
Quarter (calculated for the preceding twelve months).
4.2. Holder's Right to Decline to Receive Information
Notwithstanding the obligations of the Corporation to provide the notices,
documents and information referred to in sections 4.1.11, 4.1.12, 4.1.13 and
4.1.14, the Holder shall be entitled to decline to receive any or all such
notices, documents and information by giving written notice thereof to the
Corporation. In the event the Holder gives any such notice to the
Corporation, the Corporation shall withhold the notices, documents and
information expressly stated in the written notice of the Holder for such
periods of time and on such terms as the Holder may direct. The Holder may
at any time supplement, revoke or otherwise change its directions to the
Corporation under this section 4.2 by further written notice to the
Corporation. Nothing in this section 4.2 or in any written notice given by
the Holder hereunder in any way reduces or otherwise affects the obligation
of the Corporation to provide to the Holder the information referred to in
sections 4.1.16 and 4.1.18.
4.3. Negative Covenants
So long as this Debenture or any obligations of the Corporation under this
Debenture or any other Document remain outstanding, the Corporation covenants
and agrees that without the prior written consent of the Holder it shall not:
4.3.1. Encumber Property. Create, grant, assume or suffer to exist any
Lien upon any of its properties or assets other than Permitted Encumbrances.
4.3.2. Loans and Investments. Except for (i) loans by the Corporation to
its employees not at any time exceeding in the aggregate U.S. $2,250,000,
(ii) APM Transactions, and (iii) payments of up to Can. $1,325,000 made to
exercise the Corporation's options to purchase shares in the capital of Asia
Minerals Corp. (such shares to be pledged to the Holder pursuant to the terms
hereof), make any loans to, or acquire or invest in any securities issued by,
any Person other than currently existing loans to any Subsidiaries of which
notice in writing has been provided to the Holder.
4.3.3. Non-Arm's Length Transactions. Except for (i) loans by the
Corporation to its employees not at any time exceeding in the aggregate U.S.
$2,250,000, (ii) APM Transactions, and (iii) the acquisition by the
Corporation of the Mikwam property from Highwood Resources Ltd. on the terms
disclosed to the Holder in writing prior to the date
<PAGE>
12
hereof, repay any indebtedness or liabilities owed to, transfer assets to,
purchase assets from, lease property to or from, pay any monies to, guarantee
Debt of, provide other financial assistance to, or otherwise enter into any
transaction or agreement (other than as may be expressly contemplated by the
Documents) with or in respect of any Affiliate (or any corporation which,
after the transaction in question becomes effective, would become an
Affiliate) or with any officer, director, employee, shareholder or other
related Person of the Corporation or any Subsidiary, provided that if the
Corporation is not in default of any of its obligations under this Debenture
and the other Documents the Corporation may pay ordinary course compensation
to officers, directors and employees consistent with past practice and
additional ordinary course compensation under the Corporation's head office
employee plans, in an aggregate amount not exceeding Can. $5,000,000 in any
one Financial Year.
4.3.4. Restricted Distributions. Except for APM Transactions, declare,
pay or make any dividend or other distribution on any shares of the capital
of the Corporation or purchase, redeem, retire, cancel or acquire (a) any
shares of the capital of the Corporation or any Subsidiary (except shares
acquired upon the conversion thereof into other shares of its capital) or (b)
any option, warrant or other right to acquire shares of the capital of the
Corporation or any Subsidiary, provided that the Corporation shall be
entitled to wind-up Witteck Development Inc. and transfer to the Corporation
all the property and assets of Witteck Development Inc.;
4.3.5. Disposition of Assets. Sell, lease, consign or otherwise dispose
of, or agree to sell, lease, consign or otherwise dispose of, any assets or
property other than, if the Corporation is not in default of any obligations
to the Holder under this Debenture or any other Document:
(i) at any time prior to June 30, 1998, assets of the Corporation,
other than assets in any way material to the Kemess Mine, sold at fair market
value, provided that at least 85% of the proceeds of any such disposition are
in cash and either are (a) used to prepay obligations to the Holder (in which
case sections 2.4(a) and 2.4(c) shall apply or (b) within six months of
receipt are invested in the Kemess Mine (if the assets sold relate in any way
to the Kemess Mine) or are invested in any property or assets used for the
purpose of exploring for or mining precious or base metals (if the assets
sold do not relate to the Kemess Mine); and
(ii) at any time following June 30, 1998, assets of the Corporation,
other than assets in any way material to the Kemess Mine, sold at fair market
value, provided that at least 85% of the proceeds of any such disposition are
in cash and that 25% of all such proceeds of disposition (other than proceeds
of disposition from the sale of shares of publicly traded corporations
currently held by the Corporation for investment purposes) exceeding in the
aggregate Can. $5,000,000 in any one Financial Year are used to prepay
obligations to the Holder (in which case sections 2.4(a) or 2.4(c)
<PAGE>
13
shall apply) while the balance of such proceeds are either (a) invested
within six months of receipt in the Kemess Mine (if the assets sold relate in
any way to the Kemess Mine) or in any other property or assets of the
Corporation used for the purpose of exploring for or mining precious or base
metals (if the assets sold do not relate to the Kemess Mine) or (b) also used
to prepay obligations to the Holder (in which case sections 2.4(a) and 2.4(c)
shall apply);
provided that the cumulative prepayments of principal made pursuant to this
section 4.3.5 shall never exceed U.S. $4,025,000. In addition to the
foregoing, and notwithstanding the Security, the Corporation may without the
consent of the Holder: (a) at any time dispose of any or all of the shares
of publicly traded corporations currently held by it or a Subsidiary; and (b)
at any time sell the Proposed Leaseback Assets as part of an operating
leaseback agreement (which, for greater certainty, shall not result in the
incurrence of Debt by the Corporation); provided, in both cases, that the
consideration is cash, that the transaction is with an arm's length Person
and on reasonable commercial terms and that the proceeds of disposition
become immediately subject to the Liens in favour of the Holder created
pursuant to the Security Documents. In the event of any disposition or sale
referred to in the immediately preceding sentence, the Holder will deliver
such acknowledgements and discharges of the Security as the Corporation may
reasonably request for the purpose of giving effect to such sale rights on
the part of the Corporation.
4.3.6. Debt. Create, incur, assume or suffer to exist, contingently or
otherwise, Debt other than Permitted Debt.
4.3.7. Repayment of Debt. Pay any principal, interest, fees or any other
amounts in respect of Debt other than, if the Corporation is not in default
of any obligations to the Holder under this Debenture or any other Document:
(i) payments of interest on the Subordinated Notes ordinarily due
and payable in accordance with the terms and conditions contained in the
Subordinated Note Trust Indenture ; and
(ii) other amounts ordinarily due and payable in respect of Permitted
Debt provided that such payments shall not be inconsistent with the terms and
conditions of applicable documents provided to the Holder prior to December
31, 1997.
4.3.8. Guarantees. Other than as may constitute Permitted Debt,
guarantee, give financial assistance to or render itself liable in any manner
whatsoever, directly or indirectly, conditionally or otherwise for any Debt
or obligation whatsoever of a third party.
4.3.9. Amalgamations, etc. Enter into any transaction (including by way
of reorganization, consolidation, amalgamation, merger, reconstruction,
liquidation, transfer, sale, lease or otherwise) whereby all or any material
portion or significant operating
<PAGE>
14
division of the undertaking, property and assets of the Corporation
would become the property of any other Person or, in the case of any
such amalgamation, of the continuing corporation resulting therefrom.
4.3.10. Change in Business. (i) Enter into any contract, agreement or
commitment out of the ordinary course of business or (ii) acquire or
establish any business unrelated to the current business of the Corporation
or (iii) make any material change in, or terminate or suspend (other than in
the ordinary course of operations) any material part of, the construction,
development and operation of the Kemess Mine.
4.3.11. Pricing, Hedging Protection. Enter into any hedging or related
arrangements (including, without limitation, forward sale contracts, options,
currency swap agreements, interest swap agreements, and similar arrangements)
which provide for (i) the granting of any Lien against the property, assets
and undertaking of the Corporation other than Permitted Encumbrances or (ii)
production advances or any other disposition of any property, assets or
undertaking of the Corporation in consideration for advance or accelerated
payment or other manner of prepayment or payment not contemporaneous with
delivery, other than the one-time sale of not more than U.S. $5,000,000 of
copper concentrate pursuant to the existing agreement previously delivered to
the Holder.
4.4. Environmental Matters
4.4.1. The Corporation shall establish and maintain, and shall cause each
of the Subsidiaries to establish and maintain, a system to assure and monitor
continued compliance with all Applicable Laws relating to the environment,
which system shall include periodic reviews of such compliance.
4.4.2. Subject to the Materiality Threshold, if the Corporation or any
Subsidiary (a) receives written notice that any violation of any Applicable
Law relating to the environment may have been committed or is about to be
committed by it, (b) receives written notice that any administrative or
judicial complaint or order has been filed or is about to be filed against it
alleging violations of any Applicable Law relating to the environment or
requiring it to take any action in connection with the release of Hazardous
Substances into the environment, or (c) receives any written notice from a
Governmental Body or other Person alleging that it may be liable or
responsible for costs associated with a response to or clean-up of a release
of a Hazardous Substance into the environment or any damages caused thereby,
the Corporation or Subsidiary, as the case may be, shall provide the Holder
with a copy of such notice within ten days of receipt thereof. Subject to the
Materiality Threshold, the Corporation or Subsidiary, as the case may be,
shall also provide to the Holder, as soon as practicable after it becomes
available, a copy of any environmental site assessment or audit report
required to be submitted to any Governmental Body.
4.4.3. The Corporation shall indemnify the Holder and its officers,
directors, employees, agents and shareholders, and shall hold each of them
harmless, from and against any and
<PAGE>
15
all losses, liabilities, damages, costs, expenses and claims (including legal
fees on a solicitor and his own client basis) suffered or incurred by such
party in respect of (a) any violation by the Corporation or any Subsidiary of
Applicable Law related to the environment including the assertion of any Lien
thereunder, (b) the presence of any Hazardous Substance affecting the
Mortgaged Property or any adjacent real estate, or (c) the release of any
Hazardous Substance by the Corporation or any Subsidiary into the
environment, provided that the foregoing indemnity shall not apply in
connection with any negligence, willful misconduct or violation of any
Applicable Law relating to the environment affecting the Mortgaged Property
by the Holder or its agents after taking possession of the Mortgaged
Property. The Corporation's obligations and indemnification under this
section shall survive the satisfaction and release of the Security Documents
and the repayment of this Debenture. The Holder shall hold the benefit of
this indemnity in trust for those indemnified parties who are not parties to
this Debenture.
ARTICLE 5.
DEFAULT AND ACCELERATION
5.1. Events of Default
The occurrence of any of the following events shall constitute an Event of
Default:
(a) if the Corporation defaults in payment of all or any part of the
principal of this Debenture when due;
(b) if the Corporation defaults in payment of any interest or any other
amount due hereunder;
(c) if the Corporation defaults in observing or performing any other
covenant or condition of this Debenture, the Purchase Agreement, the Security
Documents or any other Document on its part to be observed or performed, and,
if the default in question is one which is reasonably capable of being cured
or remedied, such default continues for a period of 20 days after notice has
been given to the Corporation by the Holder specifying such default and
requiring the Corporation to rectify the same or cause to be rectified the
same;
(d) if any representation and warranty made by the Corporation in any
Document is found to be false or incorrect in any material respect;
(e) if an order is made or an effective resolution is passed for the
winding-up or liquidation of the Corporation, or in the event of any other
dissolution of the Corporation by operation of law;
(f) if the Corporation defaults in any way in the performance of any
obligations to any holders of (i) Subordinated Notes or (ii) any of the
Permitted Encumbrances referred
<PAGE>
16
to in clauses (b) and (c) of the definition of Permitted Encumbrances or
(iii) the Other Senior Secured Debentures; or if any such holder asserts any
claim or takes any proceeding against the Corporation and such claim or
proceeding is not being contested in good faith by all appropriate actions
or, if proceedings are commenced against the Corporation, the rights of such
holders are at any time unstayed or undismissed;
(g) if the Corporation shall generally not pay its debts as such debts
become due, or shall admit its inability to pay its debts generally as they
become due or otherwise acknowledge its insolvency, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by the Corporation seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts, or a
proposal is made by the Corporation under any Applicable Law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its property,
including without limitation any such proceeding under the Companies'
Creditors Arrangement Act (Canada); or the Corporation shall take any action
to consider, approve or authorize any of the actions set forth above;
(h) if any proceeding shall be instituted against the Corporation
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding-up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts, or a proposal is made against the Corporation
under any Applicable Law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for the appointment of
a receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, including without limitation any such
proceeding under the Companies' Creditors Arrangement Act (Canada), and such
proceeding is at any time not being contested in good faith by all
appropriate proceedings or, if so contested, remains outstanding, undismissed
and unstayed, more than 30 days from the institution of such proceeding;
(i) if any execution, distress or other enforcement process, whether by
court order or otherwise, becomes enforceable against any property of the
Corporation or any judgment or order for the payment of money in excess of
Can. $1,000,000 shall be rendered against the Corporation and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(j) if any event or proceeding is taken with respect to any part of the
Mortgaged Property in any jurisdiction outside Canada which has an effect
equivalent or similar to any of the events described in sections 5.1(e),
5.1(g) or 5.1(h); or
<PAGE>
17
(k) if the Corporation fails to make to any Person when due any payment
(whether at scheduled maturity or by required prepayment, acceleration,
demand or otherwise, but excluding trade payables incurred in the ordinary
course of business which are not overdue by 90 days or more or are being
contested in good faith by all appropriate proceedings promptly instituted
and diligently conducted by the Corporation) in respect of indebtedness which
exceeds individually Can. $1,000,000 or in the aggregate Can. $3,000,000 (in
the case of indebtedness to holders of Permitted Encumbrances not referred to
in section 5.1(f)) and individually Can. $3,000,000 or in the aggregate Can.
$5,000,000 (in any other case); or any other event shall occur or condition
shall exist specified in any agreement or instrument relating to any such
indebtedness or liability of the Corporation if the effect of such event or
condition is to accelerate, or to permit the acceleration of the maturity of
such indebtedness or liability of the Corporation; or any such indebtedness
or liability of the Corporation which is outstanding shall be declared to be
due and payable prior to the stated maturity thereof.
5.2. Acceleration on Default
Upon the occurrence of an Event of Default, the Holder may, in its discretion:
(a) declare the principal amount of this Debenture then outstanding, all
accrued and unpaid interest hereunder and any other moneys payable hereunder
to be immediately due and payable by the Corporation to the Holder; and
(b) realize upon all or any part of the Security constituted by the
Security Documents; and
(c) take such actions and commence such proceedings as may be
contemplated by the Documents or permitted at law or in equity (whether or
not provided for herein or in the Security Documents or other Documents) at
such times and in such manner as the Holder in its sole discretion may
consider expedient;
all without, except as may be required by Applicable Law, any additional notice,
presentment, demand, protest, notice of protest, dishonour or any other action.
5.3. Remedies Cumulative
No remedy conferred upon or reserved to the Holder herein or in the Security
Documents or any other Document is intended to be exclusive of any other
remedy, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
by law or by statute.
<PAGE>
18
5.4. Debenture Not Required
All rights of action under the Security Documents or hereunder may be
enforced by the Holder without the possession of the Debenture or the
production thereof on the trial or other proceedings relating thereto.
ARTICLE 6.
MISCELLANEOUS
6.1. Notice
Any notice or other communication required or permitted to be given hereunder
shall be in writing and shall be given by facsimile or other means of
electronic communication or by delivery as hereafter provided. Any such
notice or other communication, if sent by facsimile or other means of
electronic communication, shall be deemed to have been received on the
Business Day following the sending, or, if delivered by hand, shall be deemed
to have been received at the time it is delivered to the applicable address
noted below either to the individual designated below or to an individual at
such address having apparent authority to accept deliveries on behalf of the
addressee. Notice of change of address shall also be governed by this
section. Notices and other communications shall be addressed as follows:
(a) if to the Corporation:
Royal Oak Mines Inc.
c/o Royal Oak Mines (U.S.A.) Inc.
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
Attention: President
Facsimile Number: (425) 822-3349
with a copy to:
Lang Michener
BCE Place, Box 747
2500 - 181 Bay Street
Toronto, Ontario
M5J 2T7
Attention: William Sheridan and David Thring
Facsimile No.: (416) 365-1719
<PAGE>
19
(b) if to the Holder:
Goldman, Sachs
85 Broad Street
28th Floor
10004
New York, N.Y.
Attention: Jonathan Kolatch
Facsimile No.: (212) 357-0922
with a copy to:
Tory Tory DesLauriers & Binnington
Suite 3000, Aetna Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1N2
Attention: Tony DeMarinis and Bradley P. Martin
Facsimile No.: (416) 856-7380
6.2. Assignment
The Corporation may not assign this Debenture. This Debenture and the
Holder's rights hereunder may be assigned at any time by the Holder in whole
or in part (including, without limitation, by the grant or conveyance of
participations in its interests hereunder), together with, at its discretion,
its corresponding rights in any or all of the Security Documents and other
Documents. Upon an assignment pursuant to this section, the Corporation
shall, at the request of the assignee, issue a replacement Debenture
registered in the name of the assignee (and, in the case of a partial
assignment, shall also issue a replacement Debenture to the Holder in respect
of the principal balance held by it), upon surrender and cancellation of the
existing Debenture, and shall also, at the Holder's request, execute and
deliver new Security Documents and other Documents to and in favour of the
assignee. The Corporation shall also, and shall cause the Subsidiaries to,
execute and deliver such other agreements, documents and instruments as the
Holder or the assignee may request in connection with such assignment. The
Holder may provide to any proposed assignee or participant such information
concerning the financial position and the operations of the Corporation and
its Subsidiaries as, in the opinion of the Holder, may be relevant or useful
in connection with this Debenture or any other Document or any portion
thereof proposed to be acquired by such assignee or participant.
Notwithstanding anything else in this section 6.2, if the Corporation is not
in default of any of its obligations under the Documents the Holder shall not
be entitled to assign this Debenture to any corporation whose principal
business is the exploration for or mining of precious or base metals. Any
assignment hereunder shall be subject to the assignee acknowledging and
confirming that it is
<PAGE>
20
bound by the terms and conditions of the Intercreditor Agreement dated
December 31, 1997 made between DDJ Canadian High Yield Fund, Goldman Sachs &
Co., Mellon Bank, N.A. solely in its capacity as trustee for General Motors
Employees Domestic Group Pension Trust and the Corporation, as it may be
amended, supplemented or restated from time to time.
6.3. Exchange of Information
The Holder may provide to any proposed assignee or participant such
information concerning the financial position and the operations of the
Corporation and its Subsidiaries as, in the opinion of the Holder, may be
relevant or useful in connection with this Debenture or any other Document or
any portion thereof proposed to be acquired by such assignee or participant.
6.4. Reliance and Non-Merger
All covenants, agreements, representations and warranties of the Corporation
made herein or in any other Document or in any certificate or other document
signed by any of its directors or officers and delivered by or on behalf of
either of them pursuant hereto or thereto are material, shall be deemed to
have been relied upon by the Holder notwithstanding any investigation
heretofore or hereafter made by the Holder or the Holder's Counsel or any
employee or other representative of the Holder and shall survive the
execution and delivery of this Debenture and the other Documents until the
Corporation shall have satisfied and performed all of its obligations
thereunder.
6.5. Amendment, Waiver
No amendment or waiver of this Debenture shall be binding unless executed in
writing by the Corporation if it is to be bound thereby, or by the Holder if
the Holder is to be bound thereby (any such amendment or waiver to be
contemporaneously made in respect of the Debenture). No waiver of any
provision of this Debenture will constitute a waiver of any other provision
nor will any waiver of any provision of this Debenture constitute a
continuing waiver unless otherwise expressly provided.
6.6. No Set-Off by the Corporation
The amounts payable by the Corporation under this Debenture or any other
Document shall not be subject to any deduction, withholding, set-off or
counterclaim by the Corporation for any reason whatsoever.
6.7. Employment of Experts
The Holder may, at any time and from time to time, retain and employ legal
counsel, independent accountants, consultants and other experts in order to
perform or assist it in the performance of its rights and powers under this
Debenture or the other Documents, and the Corporation shall pay to the Holder
on demand all proper and reasonable compensation paid or
<PAGE>
21
payable to such counsel, accountant, consultant or other expert retained or
employed pursuant to this provision, provided that if the Corporation is not
in default of its obligations under any of the Documents the Corporation
shall not be obligated to pay to the Holder pursuant to this section 6.7 more
than Can. $25,000 in any one Financial Year.
6.8. Further Assurances
Whether before or after the happening of an Event of Default, the Corporation
shall at its own expense do, make, execute or deliver, or cause to be done,
made, executed or delivered by its Subsidiaries or other Persons, all such
further acts, documents and things in connection with this Debenture and the
other Documents as the Holder may reasonably require from time to time for
the purpose of giving effect to the Documents including, without limitation,
for the purpose of facilitating the enforcement of the Security, all
immediately upon the request of the Holder.
6.9. Governing Law
This Debenture shall be governed by and construed in accordance with the laws
of the Province of Ontario and the federal laws of Canada applicable therein.
6.10. Payment of Costs and Expenses
The Corporation shall pay to the Holder on demand all costs and expenses of
the Holder, its agents, officers and employees, and any receiver or
receiver-manager appointed by the Holder or by a court, in connection with
this Debenture, the Security Documents and the other Documents including,
without limitation:
6.10.1. the preparation, execution, filing and registration of the
Debenture, the Security Documents, and the other Documents (including,
without limitation, any Security Documents and other Documents to be
delivered following the Closing Date pursuant to Article 3 hereto) and any
actual or proposed amendment or modification hereof or thereof or any waiver
hereunder or thereunder and all instruments supplemental or ancillary thereto;
6.10.2. obtaining advice as to the Holder's rights and responsibilities
under this Debenture, the Security Documents and the other Documents at any
time after an Event of Default; and
6.10.3. the defence, establishment, protection or enforcement of any of
the rights or remedies of the Holder under this Debenture, any of the
Security Documents or any other Documents including, without limitation, all
costs and expenses of establishing the validity and enforceability of, or of
collection of amounts owing under, this Debenture, any of the Security
Documents or any other Documents or of any enforcement of the Security,
<PAGE>
22
and all of the fees, expenses and disbursements of any advisors to the Holder
including, Counsel to the Holder on a solicitor and his own client basis,
incurred in connection therewith, and including all sales or value-added
taxes payable by the Holder (whether refundable or not) on all such costs and
expenses.
6.11. Payment Agreements for Debenture
Notwithstanding anything contained herein, the Corporation may enter into an
agreement with the Holder providing for the payment to such Holder of the
principal of and interest on this Debenture at a place and in a manner other
than the place and manner specified herein as the place and manner for such
payment. Any payment of the principal of and interest on this Debenture at
such other place and in such other manner pursuant to such agreement shall,
notwithstanding any other provision of this Debenture, be valid and binding
on the Corporation and the Holder.
6.12. Entire Agreement
The Documents constitute the entire agreement between the parties hereto
pertaining to the matters therein set forth and supersede and replace any
prior understandings or arrangements pertaining to such matters. There are
no warranties, representations or agreements between the parties in
connection with such matters except as specifically set forth or referred to
in the Documents.
IN WITNESS WHEREOF the Corporation has executed this Debenture on the date
first above written.
ROYAL OAK MINES INC.
By:
---------------------------------------
Name:
Title:
Dated as of December 31, 1997
<PAGE>
SCHEDULE A
Definitions
"Affiliate" has the meaning ascribed thereto in the Business Corporations Act
(Ontario) and includes, for greater certainty, all Subsidiaries; "APM
Transactions" means ordinary course transactions between the Corporation and
Arctic Precious Metals, Inc. in accordance with past practice and generally
as described in Schedule B provided, however that such transactions shall not
in any one Financial Year involve transactions of the kind referred to in
sections 4.3.2, 4.3.3 and 4.3.4 aggregating more than Can. $13,500,000 and
provided further that following the occurrence of a Default such transactions
may relate only to payment by the Corporation for essential administrative
services provided to it by Arctic Precious Metals, Inc.;
"Applicable Law" means, in respect of any Person, property, transaction or
event, all applicable laws, statutes, rules, by-laws and regulations, and all
applicable official written directives, orders, judgments and decrees of
Governmental Bodies;
"Business Day" means any day, other than Saturday, Sunday or any statutory
holiday in Toronto, Canada;
"Capital Expenditures" means, for any period, those expenditures of the
Corporation (on a consolidated basis) which would, in accordance with
generally accepted accounting principles, be considered expenditures for
capital assets of the Corporation (on a consolidated basis) for such period;
"Capital Lease Obligations" of the Corporation means the obligations of the
Corporation to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet under generally accepted accounting principles and, for purposes of
this Debenture, the amount of such obligations shall in each case be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles;
"Change of Control of the Corporation" means if any Person acquires or
becomes the beneficial owner of, or a combination of Persons acting jointly
acquire or become the beneficial owners of, directly or indirectly, more than
35% of the common shares of the Corporation or any shares of the Corporation
which in the aggregate represent 35% of the voting shares of the Corporation,
whether through the acquisition of previously issued and outstanding shares,
or of shares that have not been previously issued, or any combination
thereof, or any other transaction having a similar effect;
"Confidentiality Agreement" means the Confidentiality Agreement dated
December 15, 1997 between the Corporation and the Holder;
<PAGE>
2
"Counsel" means a barrister or solicitor or firm of barristers and solicitors
retained by the Holder or retained by the Corporation and acceptable to the
Holder acting reasonably;
"Debenture" means this Senior Secured Debenture of the Corporation as it may
be amended, modified, restated or replaced from time to time;
"Debt" of any Person means all indebtedness including, without limitation (i)
all indebtedness of such Person for and in respect of borrowed money,
including obligations with respect to bankers' acceptances, letters of credit
and letters of guarantee; (ii) all indebtedness of such Person for the
deferred purchase price of property or services represented by a note or
other evidence of indebtedness or other security; (iii) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property); (iv) all
obligations under leases which, in accordance with generally accepted
accounting principles (or accounting principles generally accepted in the
jurisdiction of incorporation or organization of such Person), are recorded
as capital leases, in respect of which such Person is liable as lessee; and
(v) all Debt Guaranteed by such Person;
"Debt Guaranteed" by any Person means Debt of the kinds referred to in (i)
through (iv) of the definition of Debt which is directly or indirectly
guaranteed by such Person or which such Person has agreed (contingently or
otherwise) with the creditor to purchase or otherwise acquire or assume, or
in respect of which such Person has otherwise assured a credit against loss
by means of an indemnity, security or bond;
"Default" means any event which, but for the lapse of time, giving of notice
or both, would constitute an Event of Default;
"Documents" means, collectively, the Debenture, the Purchase Agreement, the
Security Documents, the Confidentiality Agreement and any other document
delivered to the Holder by the Corporation or any Subsidiary pursuant to or
in connection therewith;
"EBITDA" means, for any period, Net Income for such period, plus (i)
consolidated interest expense of the Corporation and its Subsidiaries for
such period, plus (ii) provision for income taxes of the Corporation and its
Subsidiaries for such period, plus (iii) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges (excluding any such non-cash charge to the extent that
it represents an accrual of or reserve for cash charges in any future period
or amortization of a prepaid cash expense that was paid in a prior period) of
the Corporation and its Subsidiaries to the extent that such depreciation,
amortization and other non-cash charges were deducted in computing Net Income
for such period, minus (iv) non-cash items increasing consolidated revenues
of the Corporation and its Subsidiaries in determining Net Income for such
period, in each case on a consolidated basis and determined in accordance
with generally accepted accounting principles; provided that the following
<PAGE>
3
shall not be included in the calculation of EBITDA as either a charge or
revenue: (a) non-cash changes in the carrying value of the Subordinated Notes
and other Debt which is not denominated in Canadian dollars and is translated
to Canadian dollars at the balance sheet date; and (b) non-cash changes
resulting from the marking to market of foreign currency and commodity
contracts; and provided further that premiums paid or received on options,
warrants or similar instruments shall be recognized, for the purposes of
EBITDA, as expenses or revenue, as the case may be, only on the date on which
the option, warrant or other instrument in question expires, matures, is
exercised or otherwise terminates;
"EBITDA/Interest Ratio" means, for any period, the quotient obtained when the
EBITDA for such period is divided by the Total Interest Expense of the
Corporation for such period;
"Eligible Capital Lease Obligations and Purchase Money Security Interests"
means (a) Capital Lease Obligations and Purchase Money Security Interests
existing as at December 31, 1997 or any renewals or replacements thereof on
materially the same terms and in amounts not materially exceeding those
existing as at December 31, 1997; and (b) Capital Lease Obligations and
Purchase Money Security Interests incurred following December 31, 1997 if the
claims of the lessor or creditor thereunder are limited to recovery or
repossession of the leased or financed property in question and if such
leased or financed property is newly acquired by the Corporation;
"Event of Default" has the meaning attributed to such term in section 5.1;
"Excluded Assets" means the Windy Craggy Property;
"Existing Encumbrances" means the Liens specifically described in Schedule C;
"Financial Quarter" means, in relation to the Corporation or any Subsidiary,
the four periods each consisting of three months in each Financial Year of
the Corporation or such Subsidiary ending on the last day of each of the
third, sixth, ninth and twelfth months in such Financial Year;
"Financial Year" means, in relation to the Corporation or any Subsidiary, the
period beginning on January 1 and ending on December 31 of each calendar year;
"Fixed Charge Coverage Ratio" means the EBITDA/Interest Ratio for the four
Financial Quarters ending on or prior to the date of the transaction or event
giving rise to the need to calculate the Fixed Charge Coverage Ratio,
calculated after giving effect on a pro forma basis to such transaction or
event;
"generally accepted accounting principles" means the accounting principles so
described and promulgated by the Canadian Institute of Chartered Accountants
from time to time;
<PAGE>
4
"Governmental Body" means any government, parliament, legislature, or any
regulatory authority, agency, commission or board of any government,
parliament or legislature, or any court or (without limitation to the
foregoing) any other law, regulation or rule-making entity (including,
without limitation, any central bank, fiscal or monetary authority or
authority regulating banks), having jurisdiction in the relevant
circumstances, or any Person acting under the authority of any of the
foregoing (including, without limitation, any arbitrator);
"Hazardous Substance" includes but is not limited to any contaminants,
pollutants, dangerous substances, liquid wastes, industrial wastes, toxic
substances, hazardous wastes, hazardous materials of whatsoever nature or
kind or any other hazardous substance within the meaning of any Applicable
Law;
"Holder" means Goldman, Sachs & Co. and its successors and permitted assigns;
"Interest Payment Date" means each day on which interest is payable hereunder
pursuant to section 2.1;
"Interest Rate" means U.S. Six Month Libor Rate plus 5.00% per annum for the
period from December 31, 1997 to and including January 9, 2001 and U.S. Six
Month Libor Rate plus 6.50% per annum for the period from January 10, 2001 to
and including the Maturity Date;
"Kemess Mine" means all present and future property and assets comprising or
relating to what is generally referred to as the Kemess South Mine and the
Kemess North property in British Columbia, Canada including, without
limitation, all mineral claims and leases referred to in Schedule D, all
buildings, equipment, fixtures and other property and assets owned or leased
by the Corporation (or in which the Corporation otherwise has an interest)
situated or used at the Kemess Mine sites, all operations, exploration and
other activities carried on at such sites and all permits, authorizations,
licences and similar approvals relating thereto;
"Lien" means any mortgage, lien, pledge, assignment, charge, security
interest, lease intended as security, title retention agreement, rights
reserved in any Governmental Body, registered lease of real property,
hypothec, levy, execution, seizure, attachment, garnishment or other similar
encumbrance and includes any contractual restriction which, if contravened,
may give rise to an encumbrance;
"Material Authorization" means, with respect to the Corporation or any
Subsidiary, any approval, permit, licence or similar authorization from, and
any filing or registration with, any Governmental Body required by such
Person to own its property and assets or to carry on its business in each
jurisdiction in which it does so or is contemplated to do so, where the
failure to have such approval, permit, licence, authorization, filing or
registration would have a material adverse effect upon its business,
financial condition or prospects;
<PAGE>
5
"Maturity Date" means January 20, 2003 or such earlier day as the principal
amount of this Debenture is due and payable in full in accordance with the
terms hereof;
"Materiality Threshold" means that the representation, warranty, covenant or
other obligation in question shall apply only to subject matter which
individually or in the aggregate is or should reasonably be expected to be
material to:
(i) the business, property or affairs of the Corporation taken as a
whole;
(ii) the construction, ownership, operation or scheduled April 1998
start-up date of the Kemess Mine; or
(iii) the Holder, in its capacity as a secured creditor of the
Corporation under the Documents;
"Mortgaged Property" means all of the property, assets and undertaking of the
Corporation of every nature and kind, both present and future, real and
personal, tangible and intangible, other than Excluded Assets, including
without limitation all proceeds of disposition of any such property, assets
and undertaking;
"Net Income" means, for any period, the aggregate of the net income of the
Corporation and its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles (for greater
certainty, after taxes), but excluding therefrom (i) extraordinary items,
(ii) any gains or losses from the sale of any assets (other than inventory
sold in the ordinary course of business) of the Corporation or its
Subsidiaries, (iii) the net income of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that
Subsidiary of that net income is not permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its shareholders, or is not permitted without prior
governmental approval (that has not been obtained), and (iv) the income or
loss from any entity in which the Corporation's or its Subsidiary's, as
applicable, investment is classified pursuant to generally accepted
accounting principles as a minority interest. "Other Senior Secured
Debentures" means, collectively, the Senior Secured Debenture dated December
31, 1997 in the principal amount of Can. $19,500,000 issued by the
Corporation to DDJ Canadian High Yield Fund and the Senior Secured Debenture
dated December 31, 1997 in the principal amount of U.S. $14,600,000 issued by
the Corporation to Mellon Bank, solely in its capacity as trustee for General
Motors Employees Domestic Group Pension Trust;
"Permitted Additional Working Capital Facility" has the meaning given to it
in paragraph (iii) of the definition of Permitted Debt;
"Permitted Debt" means, collectively, the indebtedness pursuant to the
Debenture and the Other Senior Secured Debentures and:
<PAGE>
6
(i) indebtedness of the Corporation under the Subordinated Notes;
(ii) indebtedness of the Corporation which, pursuant to agreements and
confirmations delivered by the applicable creditor to and in favour of the
Corporation and the Holder in form and content satisfactory to the Holder, is
fully subordinated and postponed to the obligations of the Corporation to the
Holder under the Debenture and the other Documents, provided that at the time
any or all such indebtedness is incurred or reincurred the Corporation is not
in default of any of its obligations under the Documents and that the Fixed
Charge Coverage Ratio is not less than 2.0:1.0, for the period prior to
December 31, 1998, and 2.5:1.0 thereafter;
(iii) indebtedness of the Corporation under an additional working capital
facility (the "Permitted Additional Working Capital Facility") in an
aggregate amount not exceeding U.S. $12,500,000 which, pursuant to agreements
and confirmations delivered by the applicable creditor to and in favour of
the Corporation and the Holder in form and content satisfactory to the
Holder, ranks in priority of payment pari passu with the obligations of the
Corporation to the Holder under the Debenture and the other Documents,
provided that at the time any or all such indebtedness is incurred or
reincurred the Corporation is not in default of any of its obligations under
the Documents and that the Fixed Charge Coverage Ratio is not less than
2.0:1.0, for the period prior to December 31, 1998, and 2.5:1.0 thereafter;
(iv) indebtedness of the Corporation to Persons under interest swap,
currency swap, commodity agreements and similar hedging agreements in an
aggregate amount not at any time exceeding U.S. $50,000,000 (the "Permitted
Hedging Indebtedness");
(v) Debt under or secured by Eligible Capital Lease Obligations and
Purchase Money Security Interests, not at any time exceeding in the aggregate
Can.. $30,000,000;
(vi) indebtedness of the Corporation to Arctic Precious Metals, Inc. in
respect of APM Transactions not at any time exceeding Can. $1,000,000 in the
aggregate; and
(vii) Debt by way of trade payables or the endorsement of negotiable
instruments incurred or created in the ordinary course of business for the
purpose of carrying on same.
<PAGE>
7
"Permitted Encumbrances" means Liens granted to secure indebtedness under
this Debenture and under the Other Senior Secured Debentures and:
(a) the Existing Encumbrances and extensions, renewals or refinancings
thereof on materially the same terms and in amounts not materially exceeding
those existing at December 31, 1997;
(b) Liens on the Mortgaged Property granted by the Corporation to
holders of Permitted Hedging Indebtedness to secure the Corporation's
obligations in respect of Permitted Hedging Indebtedness, provided that each
such holder delivers to and in favour of the Corporation and the Holder a
full subordination and postponement of rights agreement, in form and content
satisfactory to the Holder, providing for, among other things, the
postponement of all of such holder's rights and remedies in respect of such
Liens until such time as all of the obligations of the Corporation to the
Holder are satisfied in full;
(c) Liens to a lender on the property, assets and undertaking of the
Corporation granted by the Corporation to secure the Corporation's
obligations under the Permitted Additional Working Capital Facility, provided
always that the Fixed Charge Coverage Ratio requirements set out in paragraph
(iii) of the definition of "Permitted Debt" herein are complied with and that
the agreement of such lender to rank pari passu in priority of payment also
referred to in such paragraph (iii) of the definition of "Permitted Debt"
herein remains in full force and effect, unchallenged;
(d) cash collateral accounts for the letters of credit specifically
described in Schedule E and extensions, renewals or refinancings thereof on
materially the same terms and in amounts not materially exceeding those
existing at December 31, 1997;
(e) Liens for taxes, assessments or governmental charges incurred in the
ordinary course of business that are not yet due and payable (taking into
account any relevant grace periods), in respect of which the Corporation or a
Subsidiary, as the case may be, has established on its books reserves to the
extent required by generally accepted accounting principles considered by it
and its auditors to be adequate therefor;
(f) rights reserved to or vested in any Governmental Body by the terms
of any lease, licence, franchise, grant or permit, or by any statutory
provision, to terminate the same, to take action which results in an
expropriation, to designate a purchaser of any Mortgaged Property or to
require annual or other payments as a condition to the continuance thereof;
(g) construction, contractors', mechanics', carriers', warehousemen's,
suppliers' and materialmen's Liens and Liens in respect of vacation pay,
workers' compensation, unemployment insurance or similar statutory
obligations, provided the obligations
<PAGE>
8
secured by such Liens are not yet due and payable and, in the case of
construction Liens, which have not yet been filed or for which the
Corporation or a Subsidiary has not received written notice of a Lien,
provided that in any case the Corporation may permit to exist construction
Liens (in addition to those included in the definition of Existing
Encumbrances) which do not individually or in the aggregate relate to
indebtedness exceeding Can. $5,000,000 and which the Corporation is
contesting in good faith by all appropriate proceedings promptly instituted
and diligently conducted;
(h) zoning restrictions, easements, rights of way, leases or other
similar encumbrances or privileges in respect of real property which in the
aggregate do not materially impair the use of such property by the
Corporation or a Subsidiary in the operation of its business;
(i) Liens in connection with any Eligible Capital Lease Obligations and
Purchase Money Security Interests in respect of Debt not at any time
exceeding in the aggregate Can. $30,000,000;
(j) security given by the Corporation or a Subsidiary to a public
utility or any Governmental Body, when required by such utility or
Governmental Body in connection with the operations of the Corporation or
Subsidiary in the ordinary course of its business, which singly or in the
aggregate do not materially detract from the value of the asset concerned or
materially impair its use in the operation of the business of the Corporation
or Subsidiary;
(k) the reservation in any original grants from the Crown of any land or
interest therein and statutory exceptions to title;
(l) title defects or irregularities which are of a minor nature and
which do not materially detract from the value of the assets of the
Corporation or its Subsidiaries encumbered thereby; and
(m) any other Lien which the Holder approves in writing as a Permitted
Encumbrance;
"Permitted Hedging Indebtedness" has the meaning given to it in paragraph
(iv) of the definition of Permitted Debt;
"Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, unincorporated association, trust, trustee, executor,
administrator or other legal personal representative, government or
governmental authority or entity, however designated or constituted;
"Prepayment Amount" means the principal amount of this Debenture which the
Corporation proposes to prepay under section 2.4 plus, if the prepayment is
to be made at any time prior to January 20, 2002, one per cent (1%) of such
principal amount;
<PAGE>
9
"Proposed Leaseback Assets" means one P & H model 2800 x PB Electric Mining
Shovel and one P & H model 100 x P Rotary Blast Hole Drill;
"Purchase Agreement" means the Securities Purchase Agreement dated December
31, 1997 entered into by the Holder and the Corporation in respect of, inter
alia, the purchase of the Debenture;
"Purchase Money Security Interest" means any Lien given, assumed or arising
by operation of law, including capital leases, to provide or secure, or to
provide the obligor with funds to pay, the whole or any part of the
consideration for the acquisition of property where the principal amount of
the obligation secured by such Lien (i) is not in excess of the cost to the
obligor of the property encumbered thereby and (ii) is secured only by the
property being acquired by the obligor, and includes the renewal or
refinancing of any such Lien upon the same property provided that the
indebtedness secured and the security therefor are not increased thereby;
"Security" means the Liens created by the Security Documents; "Security
Documents" means, collectively, the agreements, instruments and documents
delivered from time to time (both before and after the date of this
Debenture) to the Holder by the Corporation for the purpose of creating,
perfecting, preserving or protecting the security of the Holder in respect of
the Debenture and in respect of amounts outstanding thereunder (including,
without limitation, the documents referred to in Article 3);
"Subordinated Notes" means the outstanding 11% Senior Subordinated Notes of
the Corporation due 2006 in the aggregate principal amount of U.S.
$175,000,000;
"Subordinated Note Trust Indenture" means the Trust Indenture dated as of
August 12, 1996 among the Corporation, Kemess Mines Inc. and Mellon Bank,
F.S.B. relating to the Subordinated Notes;
"Subsidiaries" means all of the corporations listed on Schedule F and any
other corporation or limited liability company which is or hereafter becomes
directly or indirectly controlled by the Corporation, and for the purposes of
this definition, the Corporation shall be deemed to control a corporation if
the Corporation beneficially owns, directly or indirectly, shares to which
are attached more than 50% of the voting rights ordinarily exercisable at
meetings of shareholders of such corporation, and the Corporation shall be
deemed to own beneficially shares beneficially owned by a corporation
controlled by it, and so on indefinitely, and the Corporation shall be deemed
to control a limited liability company where it owns more than 50% of the
equity interests in such limited liability company;
"Taxes" means all taxes of any kind or nature whatsoever including, without
limitation, income taxes, sales or value-added taxes, levies, stamp taxes,
royalties, duties, and all fees, deductions, compulsory loans and
withholdings imposed, levied, collected, withheld
<PAGE>
10
or assessed as of the date hereof or at any time in the future, by any
Governmental Body of or within Canada or any other jurisdiction whatsoever
having power to tax, together with penalties, fines, additions to tax and
interest thereon;
"this Debenture" and "the Debenture" refer to this Debenture and, unless
otherwise expressly provided, not to any particular Article, section,
subsection, paragraph, clause, subdivision or other portion hereof, and
includes any and every instrument supplemental or ancillary hereto or in
implement hereof;
"Total Interest Expense" of the Corporation for any period means the
aggregate amount of:
(i) interest (including amortization of original issue discount on any
indebtedness); and
(ii) all but the principal component of rentals in respect of Capital
Lease Obligations;
all such amounts being for the Corporation and its Subsidiaries on a
consolidated basis in accordance with generally accepted accounting
principles;
"U.S. Six Month Libor Rate" means, in respect of the period from the date
hereof up to and including March 31, 1998 and thereafter for each three month
period beginning on the first day of April, July, October and January of each
year up to and including the Maturity Date, the rate of interest (rounded up
to the nearest 1/16% and expressed as a percentage per annum on the basis of
a 360 day year) at which for a six month period leading banks in the London
interbank eurocurrency market will offer U.S. dollar deposits in an amount
approximately equal to the principal amount outstanding under the Debenture,
as quoted by Bloomberg Financial Services (or a similar service if Bloomberg
Financial Services quotes are no longer available) at or about 11:00 a.m.
London time on the Business Day which is two Business Days prior to the
commencement of each such period; and
"Windy Craggy Property" means the mineral claims in and around Windy Craggy
mountain in the Tatshenshini/Alsek region of northwestern British Columbia,
more particularly described in Schedule G hereto;
<PAGE>
SCHEDULE B
MEMORANDUM
Date: December 22, 1997
To: David Thring
From: Jim Wood
Subject: INTER-COMPANY TRANSACTIONS--ROYAL OAK MINES INC. ("ROYAL OAK") AND
ARTIC PRECIOUS METALS, INC. ("APM")
- -------------------------------------------------------------------------------
The purpose of this memo is to document how funds are transferred between
Royal Oak, an Ontario company, and Royal Oak's wholly-owned subsidiary, APM,
a Nevada company, doing business in Washington.
APM employs the senior officers and key employees of Royal Oak and provides
management services and offices in Kirkland, Washington to Royal Oak. The
services of these individuals and the other services are supplied to Royal
Oak in return for a management fee equal to the monthly costs to APM plus a
3% mark-up. This management fee is the only source of revenue for APM.
Naturally, the 3% mark-up on the total annual expenses of approximately $4.5
to $5 million is insufficient to provide sufficient additional cash to allow
APM to make any significant investments. Examples of investments made by APM
to date include purchase of the office building in Kirkland, Washington,
employee housing and investment loans, Senior Employees Retirement Plan
(SERP) payments, investment and exploration of the Copperstone property in
Arizona, acquisition of mining rights and further exploration in Fiji and, on
a historical basis, the investment through a wholly-owned subsidiary (Oz
Investments Inc.) in the shares of a third party Australian gold mining
company.
The funds to carry out these latter activities have been provided to APM by
Royal Oak by way of subscriptions and purchase of shares of APM as opposed to
loans. APM on a periodic basis reviews the inter-company account between
itself and Royal Oak and issues Royal Oak additional share capital in
satisfaction of these advances.
The most significant of these advances relates to approximately $20 million
(U.S.) advanced in the latter part of '96 and early '97 for the purposes of
acquiring a significant position in the third party gold company. Because
funds are necessary to complete the construction of the Kemess Mines project,
it is the intention to liquidate these investments at the Oz Investments,
Inc. level and to pass these funds back through APM and in turn to Royal Oak.
In that these monies were
<PAGE>
not advanced by way of loan then the only way to return these funds from APM
to Royal Oak is by share redemption.
On an ongoing basis, monies must be advanced by Royal Oak to APM from time to
time in satisfaction of the management fees and to allow for further
exploration of both the Cooperstone and Fiji properties. It is expected that
these costs will approximate U.S.$2,000,000 in 1998.
J.H.W.
JHW/re
2
<PAGE>
SCHEDULE C
EXISTING ENCUMBRANCES
BRITISH COLUMBIA
Kemess Mines Inc.
(a) Unrecorded Security Interests
Unrecorded security interest in favour of Kemess South Resources Limited
Partnership in certain real property of Kemess Mines Inc. pursuant to Section
7.6.1 of an agreement dated June 27, 1997 among Her Majesty the Queen in
Right of the Province of British Columbia, Kemess Mines Inc. and Royal Oak
Mines Inc.
(b) PPSA Search Results (currency date December 11, 1997)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Base
Registration
No. Date Secured Party Collateral Description
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
6405325 May 29, 1996 The Bank of Nova Scotia MV-96 Chevrolet 4 WHDR
V.I.N.
1GCGK24F9TZ173633
- ---------------------------------------------------------------------------------
6405331 May 19, 1996 The Bank of Nova Scotia MV-96 Chevrolet 4 WHDR
V.I.N.
1GCGK24F4TZ128308
- ---------------------------------------------------------------------------------
6454671 June 25, 1996 Coast Mountain Chev Olds MV-2-96 GMC 3/4 Ton
Ltd. 4x4s
V.I.N.
1GTGK29F5TE520066
V.I.N.
1GTGK29F9TE533225
- ----------------------------------------------------------------------------------
6465835 June 27, 1996 Dueck Chevrolet MV-96 Chevrolet Pick-Up
Oldsmobile Cadillac Ltd V.I.N.
1GCGK29F8TE207335
- ----------------------------------------------------------------------------------
6534057 August 6, 1996 Dueck Chevrolet MV-96 Chevrolet Pick-Up
Oldsmobile Cadillac Ltd V.I.N.
1GCGK29F7TE197820
- ----------------------------------------------------------------------------------
6575699 September 3, Xerox Canada Inc. All present and future
1996 goods (including without
limitation office
equipment) financed
by Xerox Canada Inc.
- ----------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------
6585032 September 9, Finning International Inc. Caterpillar 375L (S/N
1996 IJM00269), and all
proceeds therefrom.
- ----------------------------------------------------------------------------------------
6694731 November 12, Wood Wheaton Chevrolet Geo MV-84 Ford F250 Pick-Up
(NB: This 1996 Oldsmobile Cadillac Ltd. V.I.N.
registration 1FTHKX261XEKA48126
has expired)
- -----------------------------------------------------------------------------------------
6724789 November 27, Finning International Inc. Caterpillar D10N Tractor
1996 (S/N 3SK01099), 10U
Bulldozer and #10 Ripper
Single Shank vehicles, and
all proceeds therefrom
- -----------------------------------------------------------------------------------------
6724884 November 27, Finning International Inc. Caterpillar 988F WH LDR
1996 (S/N 2ZR00262) and
Finning 7.0 Cu Yard Rock
Bucket (S/N S04864)
vehicles, and all proceeds
therefrom.
- ------------------------------------------------------------------------------------------
6724977 November 27, Finning International Inc. Caterpillar 950F WH LDR,
1996 (S/N 5SK02344) Finning
4.0 Cu Yd. Gp Penetration
Bucket (S/N E22004),
IMAC Classic Pallet Fork
(S/N E220055), and Dozer
(snow) Blade (S/N E22006)
vehicles, and all proceeds
therefrom.
- --------------------------------------------------------------------------------------------
6725006 November 27, Finning International Inc. Caterpillar 16H (S/N
1996 6ZJ00137), and all proceeds
therefrom.
- --------------------------------------------------------------------------------------------
6740900 December 5, Coast Mountain Chev Olds MV-96 Chev Truck
1996 Ltd. V.I.N.
1GCGK29F7VE115829
- ---------------------------------------------------------------------------------------------
6740910 December 5, Coast Mountain Chev Olds MV-96 Chev Truck
1996 Ltd. V.I.N.
1GCGK29FXVE114965
- ----------------------------------------------------------------------------------------------
6740924 December 5, Coast Mountain Chev Olds MV-96 Chev Truck
1996 Ltd. V.I.N.
1GCGK29FOVE115624
- ----------------------------------------------------------------------------------------------
6740942 December 5, Coast Mountain Chev Olds MV-96 Chev Truck
1996 Ltd. V.I.N.
1GCGK29F3VE115987
- ----------------------------------------------------------------------------------------------
2
<PAGE>
- ----------------------------------------------------------------------------------------
6740968 December 6, Coast Mountain Chev Olds Ltd MV-96 Chev Truck
1996 V.I.N. IGCGK29FIVE120024
- ----------------------------------------------------------------------------------------
6766918 December 20, Finning International Inc. Caterpillar TH83
1996 (S/N 3RN00634), and
all proceeds therefrom.
- ----------------------------------------------------------------------------------------
6775713 December 30, Coast Mountain Chev Old Ltd MV-97 Chev 3/4 Truck
1996 V.I.N. IGCGK24F8VZ116715
- ----------------------------------------------------------------------------------------
6861988 February 17, Finning International Inc. Caterpillar TH83
1997 (S/N 3RN00634), and
all proceeds therefrom.
- ----------------------------------------------------------------------------------------
7054630 May 30, 1997 GE Capital Vehicle and 10 x 54 Modular Unit
Equipment Leasing Inc. (S/N Q15415012)
- ----------------------------------------------------------------------------------------
7173310 August 5, 1997 Export Development MV
Corporation 97 Letourneau L1400,
V.I.N. 2037
97 Euclid R260,
V.I.N. 401ADD75749
97 Euclid R260,
V.I.N. 401ADD75767
97 Euclid R260,
V.I.N. 401ADD75782
97 Euclid R260,
V.I.N. 401ADD75800
97 Euclid R260,
V.I.N. 401ADD75906
97 Euclid R260,
V.I.N. 401ADD75907
97 Euclid R260,
V.I.N. 401ADD75909
Intangibles of the debtor
being all right, title and
interest of the debtor in and
to the Contract (as defined)
and all proceeds therefrom.
- ----------------------------------------------------------------------------------------
7207511 August 25, GE Capital Vehicle and 10 x 40 Modular Unit (S/N
1997 Equipment Leasing Inc. 140959328)
- ----------------------------------------------------------------------------------------
7264359 September 25, Wajax Industries Limited Goods, including
1997 automotive, mobile
equipment and machine parts
supplied by Wajax Industries
Limited; and all proceeds
therefrom.
- ----------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------
7292792 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7293206 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7293216 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7293219 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7293221 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7293229 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7293938 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295319 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295328 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295343 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295346 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295349 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295353 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295420 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295592 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295596 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
7295600 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ----------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
7295605 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295609 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295615 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295618 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295619 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295625 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295632 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295639 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295643 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295652 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
7295808 October 8, Visa Truck Rentals (1991) Ltd. Motor Vehicle
1997 and Alberta Treasury Branch
- ------------------------------------------------------------------------------------------
*7290478 October 8, Wajax Industries Limited Motor Vehicle (S/N 731620).
1997 Amount of lien is $91,604.52
- ------------------------------------------------------------------------------------------
</TABLE>
* This registration is pursuant to the Repairers Lien Act.
<PAGE>
ROYAL OAK MINES INC.
PPSA SEARCH RESULTS (CURRENCY DATE DECEMBER 11, 1997)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
BASE
REGISTRATION
NO. DATE SECURED PARTY COLLATERAL DESCRIPTION
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4319819 November 19, PHH Canada Inc. Motor Vehicles,
(NB: This 1992 Automotive Equipment
registration and Materials-Handling
has expired) Equipment leased
by the Debtor from the
secured party with all
attachments.
Proceeds: All of the
Debtor's present and
after-acquired
personal property.
- ------------------------------------------------------------------------------------------
4937941 November 24, Royal Bank of H1066RA Tamrock Drill
1993 Canada (S/N 1523) and
reconditioned Drifter.
- ------------------------------------------------------------------------------------------
5023118 January 19, Royal Bank of MV - 53 JCI 300M LHD
1994 Canada Loaders
(S/Ns: 64493, 64693,
64893, 64993, 65293)
- ------------------------------------------------------------------------------------------
5095075 March 4, 1994 Imperial Oil All Petroleum Products,
Fuels and Lubricants now
or hereafter supplied by
Imperial Oil, and the
proceeds therefrom.
- ------------------------------------------------------------------------------------------
5367126 August 17, Associates 2 Toro 501 LHD Scoop
1994 Commercial Trams (S/Ns 24005303,
Corporation Ltd. 24005300), and all
attachments and
proceeds therefrom
- ------------------------------------------------------------------------------------------
"" July 10, 1996 Associates Leasing Registration 6493954 is an
(Canada) Ltd. amendment to change the
name of the secured party.
- ------------------------------------------------------------------------------------------
"" July 10, 1996 Associates Registration 6494120 is an
Commerical addition of collateral
Corporation description to include one
of Canada Ltd. Toro LHD Scoop Tram
(S/N 1587).
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
BASE
REGISTRATION
NO. DATE SECURED PARTY COLLATERAL DESCRIPTION
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5975111 September 11, 1091064 Ontario All ore extracted from the
1995 Limited mineral claims comprised in
the property as defined in
the security agreement made
by Royal Oak Mines Inc. in
favour of 1091064 Ontario
Limited as of August 17,
1995, and all proceeds
therefrom.
- ------------------------------------------------------------------------------------------
6163099 January 8, Chrysler Credit MV - 96 Dodge Club Cab
1996 Canada Ltd. 4x4
V.I.N.
3B7HF13Y8TM119506
- ------------------------------------------------------------------------------------------
6394990 May 17, 1996 GMAC Leaseco Limited MV - 96 Chevrolet
V.I.N.
IGCGK29R4TE179186
- ------------------------------------------------------------------------------------------
6504600 July 23, 1996 Telecom Leasing Canada Telecommunications
(TLC) Limited Equipment (Lease
#406029)
- ------------------------------------------------------------------------------------------
7061560 June 4, 1997 Caterpillar Financial MV - 97 Cat D10R (S/N
Services Limited 3KR00772), and 97
Cat 16H
(S/N 6ZJ00287) and
proceeds therefrom.
- ------------------------------------------------------------------------------------------
"" June 23, 1997 Caterpillar Financial Registration 7109685
Services Limited is an amendment to
add another
Caterpillar Vehicle
(97 Cat D105R S/N
3KR00757).
- ------------------------------------------------------------------------------------------
"" June 30, 1997 Caterpillar Financial Registration 7124060
Services Limited is an amendment to add
another Vehicle (Tiger
590B S/N O5A - 11309).
- ------------------------------------------------------------------------------------------
7108498 June 30, 1997 Caterpillar Financial Caterpillar vehicle
Limited (97 Cat 416C S/N 5YN01380),
and all proceeds therefrom.
- ------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
7171544 August 1, 1997 Export Development MV
Corporation 97 Letourneau L1400.
V.I.N. 2037
97 Euclid R260, V.I.N.
401 ADD75749
97 Euclid R260, V.I.N.
401 ADD75767
97 Euclid R260, V.I.N.
401 ADD75782
97 Euclid R260, V.I.N.
401 ADD75800
97 Euclid R260, V.I.N.
401 ADD75906
97 Euclid R260, V.I.N.
401 ADD75907
97 Euclid R260, V.I.N.
401 ADD75909
- ------------------------------------------------------------------------------------------
Intangibles of the debtor
being all right, title and
interest of the debtor in
and to the Contract (as
defined) and all proceeds
therefrom.
- ------------------------------------------------------------------------------------------
*7290478 October 8, Wajax Industries Motor Vehicle (Drilltek
1997 Limited C40KH Drill S/N 731620)
Amount of lien is
$91,604.52.
- ------------------------------------------------------------------------------------------
7313252 October 22, Royal Bank of Money or amounts that may
1997 Vancouver Non- from time to time be on
Negotiable deposit in the name of the
Securities Centre debtor with or owed to
debtor by the secured party
and all proceeds.
- ------------------------------------------------------------------------------------------
7324259 October 29, Commcorp Financial Photocopy Equipment (C/N
1997 Services Inc. 455637), (L/N 750799).
- ------------------------------------------------------------------------------------------
</TABLE>
* This registration is pursuant to the Repairers Lien Act.
<PAGE>
ONTARIO
Kemess Mines Inc.
PPSA Search Results (currency date December 28, 1997 NB: - period from
December 16-28 only updated by on-line search)
The following abbreviations are used to identify collateral classifications
under the Personal Property Security Act (Ontario):
A - Accounts (formerly known I - Inventory
as "Book Debts") MV - includes Motor Vehicle
CG - Consumer Goods O - Other
E - Equipment
<TABLE>
<CAPTION>
Reference
File No. Date Secured Party Collateral Description
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
836980236 December 23, Mellon Bank, N.A., I,E,A,O
1997 as trustee
- ---------------------------------------------------------------------------------------
836980227 December 23, Goldman, Sachs I,E,A,O
1997
- ---------------------------------------------------------------------------------------
836980218 December 23, DDJ Capital Management, LLC I,E,A,O
1997
- ----------------------------------------------------------------------------------------
833122953 July 31, 1997 Export Development E,A,O,MV
Corporation
Amended by Registration
Number 970821 1450 1590
7839 to add the following
motor vehicle identification
numbers:
97 Letourneau L1400,
V.I.N. 2037
97 Euclid R260,
V.I.N. 401ADD75749
97 Euclid R260,
V.I.N. 401ADD75767
97 Euclid R260,
V.I.N. 401ADD75782
97 Euclid R260,
V.I.N. 401ADD75800
97 Euclid R260,
V.I.N. 401ADD75906
97 Euclid R260,
V.I.N. 401ADD75907
97 Euclid R260,
V.I.N. 401ADD75909
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Royal Oak Mines Inc.
PPSA Search Results (currency date December 28, 1997 - NB: period from
December 17-28 only updated by on-line search)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Reference Date Secured Party Collateral Description
File No.
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
836980263 December 23, Mellon Bank, N.A. as trustee A,O,
1997 Collateral described in pledge
agreement dated as of
December 24, 1997 by the
debtor including without
limitation, all shares of
Kemess Mines Inc. owned
by the debtor and all
dividends and all shares and
other securities that may be
paid or distributed in respect
of such shares. The debtor
may not sell, lend or
otherwise dispose of, or
create security interests in,
any such shares.
- ---------------------------------------------------------------------------------------------
836980254 December 23, Goldman, Sachs' A.O,
1977 Collateral described in pledge
agreement dated as of
December 24, 197 by the
debtor including without
limitation, all shares of
Kemess Mines Inc. owned
by the debtor and all
dividends and all shares and
other securities that may be
paid or distributed in respect
of such shares. The debtor
may not sell, lend or
otherwise dispose of, or
create security interests in,
any such shares.
- ---------------------------------------------------------------------------------------------
836980245 December 23, DDJ Capital Management, LLC A,O,
1997 Collateral described in pledge
agreement dated as of
December 24, 1997 by the
debtor including without
limitation, all shares of
Kemess Mines Inc. owned
by the debtor and all
dividends and all shares and
other securities that may be
paid or distributed in respect
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Reference Date Secured Party Collateral Description
File No.
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
of such shares. The debtor
may not sell, lend or
otherwise dispose of or
create security interests in
any such shares.
- ---------------------------------------------------------------------------------------------
836980209 December 23, Mellon Bank, N.A., I,E,A,O
1997 as trustee
- ---------------------------------------------------------------------------------------------
836980191 December 23, Goldman, Sachs I,E,A,O
1997
- ---------------------------------------------------------------------------------------------
836980182 December 23, DDJ Capital Management, LLC I,E,A,O
1997
- ---------------------------------------------------------------------------------------------
081383022 December 15, Murdoch Group Inc. E,MV
1997 97 Chev 3/4T 4x4
V.I.N.
1GCGK24R4VZ126815
- ---------------------------------------------------------------------------------------------
081383031 December 15, Murdoch Group Inc. E,MV
1997 98 Chev 3/4T 4x4
V.I.N.
1GCGK24F7WZ147942
- ---------------------------------------------------------------------------------------------
834999588 October 7, Caterpillar Financial E,O,MV
1997 Services Ltd. 88 Caterpillar 992C
V.I.N. 49Z01131
- ---------------------------------------------------------------------------------------------
833122944 July 31, 1997 Export Development E,A,O,MV
Corporation
Amended by Registration
Number 970821 1450 1590
7838 to and the following
motor vehicle identification
numbers:
97 Letourneau L1400,
V.I.N. 2037
97 Euclid R260,
V.I.N. 401ADD75749
97 Euclid R260,
V.I.N. 401ADD75767
97 Euclid R260,
V.I.N. 401ADD75782
97 Euclid R260,
V.I.N. 401ADD75800
97 Euclid R260,
V.I.N. 401ADD75906
97 Euclid R260,
V.I.N. 401ADD75907
97 Euclid R260,
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Reference Date Secured Party Collateral Description
File No.
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
401ADD75909
- -----------------------------------------------------------------------------------------
073314792 April 17, 1997 Murdoch Group Inc. E,MV
97 GMC K1500 X-Cab
Short Box
V.I.N.
1GTEK19M9VE531722
- -----------------------------------------------------------------------------------------
073314657 March 20, Murdoch Group Inc. E,MV
1997 96 GMC S-15 Jimmy 4x4
V.I.N.
1GKDT13WIT2258898
- -----------------------------------------------------------------------------------------
073314666 March 20, Murdoch Group Inc. E,MV
1997 96 GMC 3/4 T 4x4
V.I.N.
1GCGK24RITE179296
- -----------------------------------------------------------------------------------------
826960185 December 9, Mining Technologies E,O
1996 International Inc. O/A MTI
Leasing
- -----------------------------------------------------------------------------------------
" April 16, 1997 " Amendment of registration
961209 1901 1529 6050 to
change address of secured
party.
- -----------------------------------------------------------------------------------------
073897533 November 29, Murdoch Group, Inc. E,MV
1996 96 Chev Cheyenne 1/2 T
2WD Pickup
V.I.N.
1GCEC14M7TE172193
- -----------------------------------------------------------------------------------------
073777815 October 11, Murdoch Group Inc. E,MV
1996 96 GMC 3/4Ton 4x4
V.I.N.
1GTGK24R4TE532775
- -----------------------------------------------------------------------------------------
073777824 October 11, Murdoch Group Inc. E,MV
1996 96 Chevrolet 1/2Ton 2WD
V.I.N.
1GCEC14W2TZ109187
- -----------------------------------------------------------------------------------------
076843386 October 3, Murdoch Group Inc. E,MV
1996 96 GMC 3/4Ton 4x4
V.I.N.
1GTGK24R6TE533040
- -----------------------------------------------------------------------------------------
076843395 October 3, Murdoch Group Inc. E,MV
1996 96 GMC 3/4Ton 4x4
V.I.N.
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Reference
File No. Date Secured Party Collateral Description
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
IGTGK24R71E532706
- --------------------------------------------------------------------------------------
825300603 October 1, IBM Canada Limited-Attn. E,A,O
1996 Marty Pager
- --------------------------------------------------------------------------------------
823593393 July 18, 1996 PHH Vehicle Management E,O,MV
Services Inc.
- --------------------------------------------------------------------------------------
076047993 May 27, 1996 Murdoch Group Inc. E,MV
96 GMC K-2500 4x4
V.I.N.
1GTGK24R6TE524662
- --------------------------------------------------------------------------------------
076048002 May 27, 1996 Murdoch Group Inc. E,MV
96 GMC K-2500 4x4
V.I.N.
1GCGK24RXTE178387
- --------------------------------------------------------------------------------------
076048011 May 27, 1996 Murdoch Group Inc. E,MV
96 GMC K-2500 4x4
V.I.N.
1GTGK24R2TE532581
- --------------------------------------------------------------------------------------
822114351 May 23, 1996 Teletech Financial Corporation E,O
- --------------------------------------------------------------------------------------
076047885 April 25, 1996 Murdoch Group Inc. E,MV
96 Chevrolet
K-2500 4x4
V.I.N.
1GCGK24FOTE177531
- --------------------------------------------------------------------------------------
076047903 April 25, 1996 Murdoch Group Inc. E,MV
96 Chevrolet
S-10 Sonoma
V.I.N.
1GCCT19X7TK167362
- --------------------------------------------------------------------------------------
079194744 February 8, Murdoch Group Inc. E,MV
1996 95 GMC K-2500 4x4
V.I.N.
1GTGK24K4SE541249
- --------------------------------------------------------------------------------------
079194294 October 20, Murdoch Group Inc. E,MV
(This 1995 95 Ford F350 4x4
registration V.I.N.
has been 2FDKF38F2SCA70320
discharged)
- --------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
079194303 October 20, Murdoch Group Inc. E,MV
1995 95 Ford F350 4x4
V.I.N.
2FDKF38=F45CA70319
- ------------------------------------------------------------------------------------------
816853779 September 20, B.G. Stewart Leasing CG, E,O
1995 1 Canon NP-6025 (S/N
NBV 14840)
RDF-CI (S/N ZNP 47715)
Duplex Unit A1 (S/N ZPG
34255)
- ------------------------------------------------------------------------------------------
079193979 August 17, Murdoch Group Inc. E,MV
1995 95 Chevrolet K2500 Pickup
V.I.N.
1GCFK24H1SZ224635
- ------------------------------------------------------------------------------------------
079193853 June 28, 1995 Murdoch Group Inc. E,MV
95 Chevrolet K 2500
Diesel
V.I.N.
1GCFK24S4SE214586
- ------------------------------------------------------------------------------------------
079193862 June 28, 1995 Murdoch Group Inc. E,MV
95 Ford F3500 Crew Cab
V.I.N.
1FTJW35H7SEA55067
- ------------------------------------------------------------------------------------------
058786146 May 17, 1995 Murdoch Group Inc. E,MV
95 Chevrolet Cheyenne
V.I.N.
1GCEC14H7SZ198576
- ------------------------------------------------------------------------------------------
076465071 March 15, Murdoch Group Inc. E,MV
(This 1995 94 Ford F-350 4x4
registration V.I.N.
has been 1FTJW36MOREA62615
discharged)
- ------------------------------------------------------------------------------------------
076464738 December 22, Murdoch Group Inc. E,MV
1994 95 Chevrolet Cheyenne K-
2500
V.I.N.
1GCFK24H5SZ127907
- ------------------------------------------------------------------------------------------
076464315 September 26, Murdoch Group Inc. E,MV
1994 94 Chevrolet K2500 Pickup
V.I.N.
2GCFK29S5R1295344
- ------------------------------------------------------------------------------------------
808902783 August 16, Associates Commercial I,E,A,O,MV
1994 Corporation of Canada Ltd. Two 94 Toro 501 LHD
Scoop Trans (S/Ns
24005303, 24005300)
- ------------------------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------------------------------
complete with
all present and
future attachmens
and all proceeds
thereof.
- ---------------------------------------------------------------------------------
April 26, Associates Leasing (Canada) Amendment of
-- 1996 Ltd. secured party's
name
- ---------------------------------------------------------------------------------
076466079 July 29, 1994 Murdoch Group Inc. E,MV
94 Chevrolet
Cheyenne
V.I.N.
1GCFK24H7RZ247671
- ---------------------------------------------------------------------------------
076466088 July 29, 1994 Murdoch Group Inc. E,MV
94 Chevrolet
Cheyenne
V.I.N.
1GCFK24S5RE263757
- ---------------------------------------------------------------------------------
076465665 April 28, 1994 Murdoch Group Inc. E,MV
93 Ford Crew
Cab 4x4
V.I.N.
2FTJW36MXPCA50096
- ---------------------------------------------------------------------------------
076465503 March 30, 1994 Murdoch Group Inc. E,MV
94 Chevrolet
Suburban 4x4
V.I.N.
1GNGK26KXRJ363255
- ---------------------------------------------------------------------------------
076466835 March 30, 1994 Murdoch Group Inc. E,MV
93 Chevrolet
V.I.N.
1GCDC14H3PE214931
- ---------------------------------------------------------------------------------
</TABLE>
(c) Builder's lien claim by Golden Hill Ventures Ltd. for the amount of
$61,053,000, which Royal Oak is disputing.
(d) Builder's lien claim by Willow Creek Industries for approximately
Cdn.$970,000 in connection with the supply of pipe.
<PAGE>
SCHEDULE D
Annual rental $8,630,000 Mining Lease No. 354991
Map No. 94E/2E, 94E/2W, Mining Division Omineca
94D/15E, 94D/15W [LOGO] Land District Cassiar
Area (hectares) 862.33 Date of Lease Sept. 15/97
Province of
British Columbia
Ministry of
Energy, Mines and
Petroleum Resources
Mineral Tenure Act
Section 37
Kemess Mines Inc.
Lessee -----------------------------------------------------------------------
5501 Lakeview Drive, Kirkland WA 98033
Address ----------------------------------------------------------------------
The lessor, in accordance with and subject to the provisions of the
Mineral Tenure Act, hereby demises unto the lessee, for a term of 30 years
from the date first above written, all Crown minerals available under the
terms of the Mineral Tenure Act within and under the leasehold together with
the rights the lessee held as the holder of the cclaim or claims herein
described.
Ron 4, Tiszi 3, Tiszi 4, Ron 5, Due 1 to 4, Due 7 to 10
Name of claim(s) -------------------------------------------------------------
238404, 243444, 243445, 350858, 242575 to 242578, 242581 to 242584
Title No(s). ------------------------------------------------------------------
7198, 7201, 7204, 7207, 7199, 7200
Lot No(s). -------------------------------------------------------------------
The lessee shall save harmless and keep the lessor indemnified against
all actions, claims, and demands that may be brought or made against the
lessor by reason of anything done by the lessee, his servants, workmen, or
agents in the exercise or purported exercise of the rights, powers, and
privileges hereby granted.
The lessee hereby covenants and agrees at all times to perform, observe,
and comply with the provisions of the Mineral Tenure Act, and the Mines Act
and amendments made thereto from time to time, and the provisions of any
regulations which may from time to time be made under authority thereof, as
to the same apply to the said leasehold, and all such amendments or
regulations as are from time to time made shall be deemed to be incorporated
into these presents and shall bind the lesseee in the same manner and to the
same extent as if the same as made, or amended, were set out herein as
covenants on the part of the lessor.
The lessee shall make application for an extension of the term of this
lease prior to the expiry of the current term.
PROVISOS
Subject to all prior rights.
IN WITNESS WHEREOF, the lessor and lessee have hereunto set their hands
and seals as of this day and year first above written.
/s/ ILLEGIBLE /s/ ILLEGIBLE V.P. Exploration
- ---------------------------------- ---------------------------------------
Witness Kemess Mines Inc. Lessee
/s/ ILLEGIBLE /s/ ILLEGIBLE President
- ---------------------------------- ---------------------------------------
Witness Lessee
/s/ ILLEGIBLE /s/ ILLEGIBLE
- ---------------------------------- ---------------------------------------
Witness CHIEF GOLD COMMISSIONER
<PAGE>
<TABLE>
<CAPTION>
ACRES ACRES
PROJECT CLAIM SURFACE MINING
NAME NUMBER CLAIM NAME UNITS LEASE NO. STATUS RIGHTS RIGHTS
- ------------ ------ ------------- ----- --------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMESS NORTH 237800 NEW KEMESS NO. 18 0 STAKED 0.00 1111.93
KEMESS NORTH 237801 NEW KEMESS NO. 20 0 STAKED 0.00 1235.48
KEMESS NORTH 238706 RON 11 10 0 STAKED 0.00 617.74
KEMESS NORTH 241957 NRK 1 12 0 STAKED 0.00 741.29
KEMESS NORTH 241958 NRK 2 10 0 STAKED 0.00 617.74
KEMESS NORTH 241959 NRK 3 20 0 STAKED 0.00 1235.48
KEMESS NORTH 241950 NEW KEMESS 3 15 0 STAKED 0.00 926.55
KEMESS NORTH 242574 NRK 4 14 0 STAKED 0.00 864.84
KEMESS NORTH 242581 DUE 7 1 354991 3OYR.LEASE 0.00 61.77
KEMESS NORTH 242582 DUE 8 1 354991 3OYR.LEASE 0.00 61.77
KEMESS NORTH 242583 DUE 9 1 354991 3OYR.LEASE 0.00 61.77
KEMESS NORTH 242584 DUE 10 1 354991 3OYR.LEASE 0.00 61.77
KEMESS NORTH 243063 CAN 1 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243064 DUNC 1 4 0 STAKED 0.00 247.10
KEMESS NORTH 243065 DUNC 2 4 0 STAKED 0.00 247.10
KEMESS NORTH 243066 DUNC 3 6 0 STAKED 0.00 370.64
KEMESS NORTH 243067 CREEK 12 0 STAKED 0.00 741.29
KEMESS NORTH 243068 SKP 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243069 RATED 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243070 FRED 6 0 STAKED 0.00 370.64
KEMESS NORTH 243071 RIK 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243072 SQN 1 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243073 SQN 2 10 0 STAKED 0.00 617.74
KEMESS NORTH 243074 CRIKA 1 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243075 CRIKA 2 8 0 STAKED 0.00 494.19
KEMESS NORTH 243076 POND 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 243077 POND 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 243078 POND 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 243079 POND 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 243165 RAT 2 10 0 STAKED 0.00 617.74
KEMESS NORTH 243166 RAT 3 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243354 LA 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 243355 LA 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 243356 LA 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 243357 LA 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 243358 LA 5 1 0 STAKED 0.00 61.77
KEMESS NORTH 243359 LA 6 1 0 STAKED 0.00 61.77
KEMESS NORTH 243360 LA 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 243361 LA 8 1 0 STAKED 0.00 61.77
KEMESS NORTH 243362 LAKE 1 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243363 LAKE 2 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243441 ALISON 1 20 0 STAKED 0.00 1235.48
KEMESS NORTH 243441 ALISON 2 20 0 STAKED 0.00 1235.48
KEMESS NORTH 304008 FREDDY 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 304009 FREDDY 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 304010 FREDDY 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 304011 FREDDY 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 304012 FREDDY 5 1 0 STAKED 0.00 61.77
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACRES ACRES
ACT CLAIM SURFACE MINING
NAME NUMBER CLAIM NAME UNITS LEASE NO. STATUS RIGHTS RIGHTS
- ------------ ------ ------------- ----- --------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMESS NORTH 304013 FREDDY 6 1 0 STAKED 0.00 61.77
KEMESS NORTH 304014 FREDDY 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 304015 D.C. 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 304016 D.C. 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 304017 D.C. 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 304018 D.C. 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 304019 D.C. 5 1 0 STAKED 0.00 61.77
KEMESS NORTH 304020 SR 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 304021 SR 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 304022 SR 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 304023 SR 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 304706 COZ 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 304707 COZ 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 305548 GOLD 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 305549 GOLD 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 305550 GOLD 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 305551 GOLD 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 305552 GOLD 5 1 0 STAKED 0.00 61.77
KEMESS NORTH 305553 GOLD 6 1 0 STAKED 0.00 61.77
KEMESS NORTH 305554 GOLD 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 305555 GOLD 8 1 0 STAKED 0.00 61.77
KEMESS NORTH 309045 KC 1 20 0 STAKED 0.00 1235.48
KEMESS NORTH 309046 KC 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 309047 KC 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 309048 KC 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 309049 KC 5 1 0 STAKED 0.00 61.77
KEMESS NORTH 309050 KC 6 1 0 STAKED 0.00 61.77
KEMESS NORTH 309051 KC 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 309052 KC 8 1 0 STAKED 0.00 61.77
KEMESS NORTH 309053 KC 9 1 0 STAKED 0.00 61.77
KEMESS NORTH 309054 KC 10 1 0 STAKED 0.00 61.77
KEMESS NORTH 309055 KC 11 1 0 STAKED 0.00 61.77
KEMESS NORTH 309056 KC 12 1 0 STAKED 0.00 61.77
KEMESS NORTH 309057 KC 13 1 0 STAKED 0.00 61.77
KEMESS NORTH 310032 KC 14 1 0 STAKED 0.00 61.77
KEMESS NORTH 310033 KC 15 1 0 STAKED 0.00 61.77
KEMESS NORTH 310034 KC 16 1 0 STAKED 0.00 61.77
KEMESS NORTH 310035 KC 17 1 0 STAKED 0.00 61.77
KEMESS NORTH 310036 KC 18 1 0 STAKED 0.00 61.77
KEMESS NORTH 310037 KC 19 1 0 STAKED 0.00 61.77
KEMESS NORTH 310054 SR 6 1 0 STAKED 0.00 61.77
KEMESS NORTH 310055 SR 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 310056 SR 8 1 0 STAKED 0.00 61.77
KEMESS NORTH 310075 SR 5 8 0 STAKED 0.00 494.16
KEMESS NORTH 310076 DUN 1 9 0 STAKED 0.00 555.97
KEMESS NORTH 310077 DUN 2 9 0 STAKED 0.00 555.97
KEMESS NORTH 310078 DUN 3 9 0 STAKED 0.00 555.97
KEMESS NORTH 311261 KETA 33 1 0 STAKED 0.00 61.77
KEMESS NORTH 311262 KETA 34 1 0 STAKED 0.00 61.77
KEMESS NORTH 311263 KETA 35 1 0 STAKED 0.00 61.77
KEMESS NORTH 311264 KETA 36 1 0 STAKED 0.00 61.77
KEMESS NORTH 311265 KETA 37 1 0 STAKED 0.00 61.77
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACRES ACRES
CLAIM SURFACE MINING
NAME NUMBER CLAIM NAME UNITS LEASE NO. STATUS RIGHTS RIGHTS
- ------------ ------ ------------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMESS NORTH 311266 KETA 38 1 0 STAKED 0.00 61.77
KEMESS NORTH 311267 KETA 39 1 0 STAKED 0.00 61.77
KEMESS NORTH 311268 KETA 40 1 0 STAKED 0.00 61.77
KEMESS NORTH 311291 KETA 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 311292 KETA 8 1 0 STAKED 0.00 61.77
KEMESS NORTH 311293 KETA 9 1 0 STAKED 0.00 61.77
KEMESS NORTH 311294 KETA 10 1 0 STAKED 0.00 61.77
KEMESS NORTH 311242 NORTH 1 1 0 STAKED 0.00 123.55
KEMESS NORTH 311243 NORTH 2 1 0 STAKED 0.00 123.55
KEMESS NORTH 315244 NORTH 3 1 0 STAKED 0.00 123.55
KEMESS NORTH 315245 NORTH 4 1 0 STAKED 0.00 123.55
KEMESS NORTH 315246 NORTH 5 1 0 STAKED 0.00 123.55
KEMESS NORTH 315247 NORTH 6 1 0 STAKED 0.00 123.55
KEMESS NORTH 315248 AIR 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 315249 AIR 2 1 0 STAKED 0.00 61.77
KEMESS NORTH 315250 AIR 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 315251 AIR 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 315252 AIR 5 1 0 STAKED 0.00 61.77
KEMESS NORTH 315253 AIR 6 1 0 STAKED 0.00 61.77
KEMESS NORTH 315254 AIR 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 315255 AIR 8 1 0 STAKED 0.00 61.77
KEMESS NORTH 315256 AIR 9 1 0 STAKED 0.00 61.77
KEMESS NORTH 315257 AIR 10 1 0 STAKED 0.00 61.77
KEMESS NORTH 315258 AIR 11 1 0 STAKED 0.00 61.77
KEMESS NORTH 315259 AIR 12 1 0 STAKED 0.00 61.77
KEMESS NORTH 315260 AIR 13 1 0 STAKED 0.00 61.77
KEMESS NORTH 315261 AIR 14 1 0 STAKED 0.00 61.77
KEMESS NORTH 315262 AIR 15 1 0 STAKED 0.00 61.77
KEMESS NORTH 315263 AIR 16 1 0 STAKED 0.00 61.77
KEMESS NORTH 315264 AIR 17 1 0 STAKED 0.00 61.77
KEMESS NORTH 315265 AIR 18 1 0 STAKED 0.00 61.77
KEMESS NORTH 315266 AIR 19 1 0 STAKED 0.00 61.77
KEMESS NORTH 315267 AIR 20 1 0 STAKED 0.00 61.77
KEMESS NORTH 315268 AIR 21 1 0 STAKED 0.00 61.77
KEMESS NORTH 315269 AIR 22 1 0 STAKED 0.00 61.77
KEMESS NORTH 315270 AIR 23 1 0 STAKED 0.00 61.77
KEMESS NORTH 315271 AIR 24 1 0 STAKED 0.00 61.77
KEMESS NORTH 315272 AIR 25 1 0 STAKED 0.00 61.77
KEMESS NORTH 315273 AIR 26 1 0 STAKED 0.00 61.77
KEMESS NORTH 315274 AIR 27 1 0 STAKED 0.00 61.77
KEMESS NORTH 315275 AIR 28 1 0 STAKED 0.00 61.77
KEMESS NORTH 325176 WASTE 1 FR. 1 0 STAKED 0.00 61.77
KEMESS NORTH 343143 ATTY 1 20 0 STAKED 0.00 1235.48
KEMESS NORTH 343144 ATTY 2 20 0 STAKED 0.00 1235.48
KEMESS NORTH 343145 ATTY 3 20 0 STAKED 0.00 1235.48
KEMESS NORTH 343146 ATTY 4 20 0 STAKED 0.00 1235.48
KEMESS NORTH 343147 ATTY 5 15 0 STAKED 0.00 926.61
KEMESS NORTH 343148 ATTY 6 15 0 STAKED 0.00 926.61
KEMESS NORTH 343149 ATTY 7 20 0 STAKED 0.00 1235.48
KEMESS NORTH 343150 ATTY 8 20 0 STAKED 0.00 1235.48
KEMESS NORTH 343151 AERO 1 1 0 STAKED 0.00 61.77
KEMESS NORTH 343152 AERO 2 1 0 STAKED 0.00 61.77
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACRES ACRES
PROJECT CLAIM SURFACE MINING
NAME NUMBER CLAIM NAME UNITS LEASE NO. STATUS RIGHTS RIGHTS
- ------------ --------- ---------- ----- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMESS NORTH 343153 AFRO 3 1 0 STAKED 0.00 61.77
KEMESS NORTH 343154 AFRO 4 1 0 STAKED 0.00 61.77
KEMESS NORTH 343155 AFRO 5 1 0 STAKED 0.00 61.77
KEMESS NORTH 343156 AFRO 6 1 0 STAKED 0.00 61.77
KEMESS NORTH 343157 AFRO 7 1 0 STAKED 0.00 61.77
KEMESS NORTH 343158 AFRO 8 1 0 STAKED 0.00 61.77
KEMESS NORTH 343159 AFRO 9 1 0 STAKED 0.00 61.77
KEMESS NORTH 343160 AFRO 10 1 0 STAKED 0.00 61.77
KEMESS NORTH 350860 RON 10 20 0 STAKED 0.00 1235.48
KEMESS NORTH-DL COOK 239994 RAT 1 9 0 STAKED 0.00 555.93
KEMESS NORTH-DL COOK 241014 SEM 16 16 0 STAKED 0.00 988.32
KEMESS SOUTH 238404 RON 4 20 354991 3OYR.LEASE 0.00 1235.48
KEMESS SOUTH 238819 DU 20 0 STAKED 0.00 1235.48
KEMESS SOUTH 242573 DU 2 20 0 STAKED 0.00 1235.48
KEMESS SOUTH 242575 DUE 1 1 354991 3OYR.LEASE 0.00 61.77
KEMESS SOUTH 242576 DUE 2 1 354991 3OYR.LEASE 0.00 61.77
KEMESS SOUTH 242577 DUE 3 1 354991 3OYR.LEASE 0.00 61.77
KEMESS SOUTH 242578 DUE 4 1 354991 3OYR.LEASE 0.00 61.77
KEMESS SOUTH 242579 DUE 5 1 0 STAKED 0.00 61.77
KEMESS SOUTH 242580 DUE 6 1 0 STAKED 0.00 61.77
KEMESS SOUTH 243442 TISSI 1 20 0 STAKED 0.00 1235.48
KEMESS SOUTH 243443 TISSI 2 20 0 STAKED 0.00 1235.48
KEMESS SOUTH 243444 TISSI 3 20 354991 3OYR.LEASE 0.00 1235.48
KEMESS SOUTH 243445 TISSI 4 20 354991 3OYR.LEASE 0.00 1235.48
KEMESS SOUTH 305630 NOR 15 8 0 STAKED 0.00 494.21
KEMESS SOUTH 355405 MILL CREEK 1 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355406 MILL CREEK 2 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355407 MILL CREEK 3 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355408 MILL CREEK 4 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355409 FORK 1 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355410 FORK 2 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355411 FORK 3 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355412 FORK 4 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355413 DAN 1 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355414 DAN 2 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355415 DAN 3 1 0 STAKED 0.00 61.77
KEMESS SOUTH 355416 DAN 4 1 0 STAKED 0.00 61.77
KEMESS SOUTH L0703497 POWER LINE 1 703497 LIC.OCCUP. 0.00 0.00
KEMESS SOUTH-DLC SYN 239096 NOR 2 10 0 STAKED 0.00 617.74
KEMESS SOUTH-DLC SYN 239097 NOR 3 9 0 STAKED 0.00 555.97
KEMESS SOUTH-DLC SYN 239098 NOR 4 18 0 STAKED 0.00 1111.93
KEMESS SOUTH-DLC SYN 242991 NOR 5 16 0 STAKED 0.00 988.38
KEMESS SOUTH-DLC SYN 242992 NOR 6 16 0 STAKED 0.00 988.38
KEMESS SOUTH-DLC SYN 301219 NOR 8 6 0 STAKED 0.00 370.64
KEMESS SOUTH-DLC SYN 303614 NOR 10 8 0 STAKED 0.00 494.19
KEMESS SOUTH-DLC SYN 303615 NOR 11 4 0 STAKED 0.00 247.10
KEMESS SOUTH-DLC SYN 303616 NOR 12 3 0 STAKED 0.00 185.32
KEMESS SOUTH-DLC SYN 350858 RON 5 8 354991 30YR.LEASE 0.00 494.19
KEMESS SOUTH-DLC SYN 350859 NOR 7 18 0 STAKED 0.00 1111.93
GRAND TOTAL 201 CLAIMS 0.00 65294.93
</TABLE>
<PAGE>
SCHEDULE E
Royal Oak Mines Inc.
Corporate Office
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
CONFIDENTIAL
VIA FAX
December 29, 1997
Ms. Wendy Del Mul
Tory Tory DesLauriers & Binnington
Suite 3000
Aetna Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1N2
Dear Ms. Del Mul:
Re: Royal Oak Mines Inc. -Loan from DDJ Capital Management, LLC
You have asked us to provide a description of outstanding letters of credit and
other obligations which are cash collateralized. Attached is a schedule
listing outstanding letters of credit which are cash collateralized with a
Cdn.$2,300,000 term deposit at the Bank of Nova Scotia. The schedule also
describes cash collateral of $12,000,000 which we have delivered to the
Province of British Columbia under the Kerness Mines Safekeeping Agreement.
We also have a Cdn.$5,000,000 cash collateralized borrowing facility with
Royal Bank of Canada for overdrafts on the operating accounts of Royal Oak
Mines Inc., including the operating accounts for each mine, and Kerness Mines
Inc.
Yours truly,
ROYAL OAK MINES INC.
Per: /s/ James H. Wood
-----------------------
James H. Wood
Chief Financial Officer
c.c. David Thring (Lang Michener)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Royal Oak Mines Letters of Credit and Safekeeping Agreement Date: 21-Dec-97
</TABLE>
Letters of Credit - Cash Collateralized with $2.3 Million Term Deposit at the
Bank of Nova Scotia
<TABLE>
<CAPTION>
Beneficiary Amount Expiration Date Purpose
- ----------- ------- --------------- -------
<S> <C> <C> <C>
Minister of Forests, British Columbia 50,000 June 2, 2001 Kemess access road permit 22414
Minister of Forests, British Columbia 50,000 June 2, 2001 Kemess access road permit 22376
Minister of Forests, British Columbia 50,000 June 2, 2001 Kemess access road permit 22412
Receiver General for Canada, N.W.T. 8,471 July 13, 1998 Mineral claims-Brislane Lane-span 4-5
Receiver General for Canada, N.W.T. 7,190 May 25, 1998 Mineral claims-Brislane Lake-ford 1-2
Receiver General for Canada, N.W.T. 5,891 March 28, 1998 Mineral claims-Brislane Lake-R013-R015
Northern Ontario Electric 61,000 February 1, 1998 Power supply payment guarantee
Minister of Northern Development & Mines 125,000 July 31, 1998 Nighthawk Mine closure costs
Director of Mines, Suva, Fiji 10,000 May 1, 1998 Security for special prospecting license
(Fiji$)
Minister of Northern Development & Mines 215,000 July 31, 1998 Matachewan closure plan
Minister of Transportation & Highways, B.C. 100,000 June 2, 2001 Kemess highway permit no. 10943.0
Receiver General for Canada 15,000 May 27, 1998 Nicholas Lake, N.W.T. water license
Minister of Finance & Corporate
Relations, B.C. 100,000 July 31, 1998 Red Mountain road construction permit S19752
Minister of Employment and investment, B.C. 1,500,000 July 31, 1998 Red Mountain reclamation permit MX-1-422
----------
----------
Subtotal 2,287,552
</TABLE>
Kemess Mines Safekeeping Agreement-Cash Collateralized with $12.0 Million Govt
of Canada Treasury Bills in Safekeeping At Montreal Trust
<TABLE>
<CAPTION>
Beneficiary Amount Expiration Date Purpose
- ----------- --------- -------------- --------
<S> <C> <C> <C>
British Columbia Minister of Finance and Corporate Relations 12,000,000 Ongoing Security for Permit M-206 with
the Province of British Columbia
Total Cash-collateralized Securities 14,287,552
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROYAL OAK MINES INC. AND SUBSIDIARIES
Corporate Organization Chart
As of May 12, 1997
Royal Oak
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APM Royal Eagle DRL Wittock CPML Kennoce 10502 NSI 93-4962 319443 200,000 Kemess Northbeck Male YK
100% 60% 100% 100% 100% 89% 100% 100% 100% GP Units 100% 72% 39%
OZ 1st Eagle Beamchastel I LP mill KSRLP(2) Alsek
100% 100% 54.9% 100% 100%
Asia Min Highwood HB-Trust YK-Trust TNS-Trust EI Condor St Philip
41% 39% 100% 100% 100% 100% 100%
RYO-HB RYO-YK RYO-TMS
100% 100% 100%
RYO-HBLP RYO-YKLP RYO-TMSLP
(1) (1) (1)
</TABLE>
<TABLE>
<CAPTION>
LEGEND
- ------
Abbrv. Legal Name Abbrv. Legal Name
- ------ ---------- ------ ----------
<S> <C> <C> <C>
Royal Oak Royal Oak Mines Inc. Asia Min. Asia Mineral Corp.
APM Arctic Metals Inc. Highwood Highwood Resources Ltd.
OZ OZ Investments Inc. EI Condor EI Condor Resources Ltd.
Royal Eagle Royal Eagle Exploration Inc. HB Trust
First Eagle First Eagle Holdings Inc. YK Trust
BRL Beaverhomes Resources Ltd. TMS-Trust
WMdrk WMark Devleopment Inc. RYO-HB Royal Oak Hope Brook Ltd.
CPML Consolidated Professor Mines Limited RYO-YK Royal Oak YellowKnife Ltd.
Beamchastel Beamchastel Copper Mines Limited RYO-TMS Royal Oak Timmins Ltd.
Kennoce Kennoce Gold Mines Limited RYO-HBLP Royal Hopebrook 1992 Limited Partnership
10502 NSI 10502 Newfoundland Limited RYO-YKLP RYO YellowKnife 1991 Limited Partnership
934962 934962 Canada Inc. RYO-TMSLP RYO Timmins 1991 Limited Partnership
319443 319443 Canada Inc. Alsek Alsek Mining Limited
Kemess Kemess Mines Inc. St Philips St Philips Resources Inc.
Northbeck Northbeck YellowKnife Gold Mines Ltd.
Male YK Male YellowKnife Gold Mines Limited Partnership
KSRLP Kemese South Resources Limited
</TABLE>
NOTES
- -----
(1) These are the gain sharing companies for benefit of mine site employees.
Royal Oak acts as the general partners the limited partners are employees.
(2) KSRLP holds a 19.2% copper royalty interest in the Kemess South production.
<PAGE>
SCHEDULE G
THE WINDY CRAGGY PROPERTY
<TABLE>
<CAPTION>
CLAIM ACRES
RECORD CLAIM MINING
NUMBER NAME UNITS RIGHTS
- ------- -------- --------- -------
<S> <C> <C> <C>
201775 WC-1 20 1235.60
201776 WC-2 4 247.12
201777 WC-3 20 1235.60
201835 ALSEK 20 1235.60
201836 ALSEK 2 20 1235.60
201895 ALSEK #3 8 494.24
201896 W-C-7 8 494.24
201897 W-C-8 16 988.48
201898 W-C-9 9 556.02
201916 W-C-14 20 1235.60
201917 W-C-15 18 1112.04
201918 W-C-16 14 864.92
201919 W-C-17 12 741.36
201949 W-C-18 18 1112.04
201950 W-C-19 18 1112.04
201951 W-C-20 18 1112.04
201952 W-C-21 18 1112.04
201976 W-C-22 18 1112.04
201977 W-C-23 FR. 1 61.78
201978 W-C-24 5 308.90
201979 W-C-25 18 1112.04
201999 W-C-26 2 123.56
202000 W-C-27 2 123.56
202001 W-C-28 4 247.12
202002 W-C-29 5 308.90
202033 W-C-30 20 1235.60
202034 W-C-31 15 926.70
202035 W-C-32 18 1112.04
202036 W-C-33 18 1112.04
202037 W-C-34 18 1112.04
202038 W-C-35 18 1112.04
202039 W-C-36 9 556.02
202164 ALSEK 4 6 370.68
202165 ALSEK 5 9 556.02
202167 WC 37 18 1112.04
202168 WC 38 4 247.12
202169 WC 39 12 741.36
202171 WC 40 1 61.78
202333 W-C-41 20 1235.60
202334 W-C-42 3 185.34
202335 W-C-43 FR. 1 61.78
202336 W-C-44 12 741.36
202337 W-C-45 15 926.70
202338 W-C-46 FR. 1 61.78
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLAIM ACRES
RECORD CLAIM MINING
NUMBER NAME UNITS RIGHTS
- ------- -------- --------- -------
<S> <C> <C> <C>
202339 W-C-47 20 1235.60
202340 W-C-48 16 988.48
202341 W-C-49 FR. 1 61.78
202342 W-C-50 16 988.48
202343 W-C-51 16 988.48
202344 W-C-52 16 988.48
202345 W-C-53 16 988.48
202346 W-C-54 16 988.48
202347 W-C-55 16 988.48
202348 W-C-56 16 988.48
202349 W-C-57 9 556.02
202350 W-C-58 16 988.48
202842 PUP 1 20 1235.60
202843 PUP 2 20 1235.60
203211 W-C-64 6 370.68
203212 W-C-65 6 370.68
203782 WINDY #1 1 51.65
203783 WINDY #2 1 51.65
203784 WINDY #3 1 51.65
203785 WINDY #4 1 51.65
203786 WINDY #5 1 51.65
203787 WINDY #6 1 51.65
203788 WINDY #7 1 51.65
203789 WINDY #8 1 51.65
203790 CRAGGY #1 1 51.65
203791 CRAGGY #2 1 51.65
203792 CRAGGY #4 1 51.65
TOTAL 47520.95
</TABLE>
<PAGE>
Exhibit 10.8
AMENDING AGREEMENT
THIS AGREEMENT dated as of the 23rd day of January, 1998,
B E T W E E N:
ROYAL OAK MINES INC.
(hereinafter called the "Corporation")
OF THE FIRST PART
-AND-
GOLDMAN, SACHS & CO.
(hereinafter called the "Holder")
OF THE SECOND PART
WHEREAS the Corporation issued to the Holder a Senior Secured Debenture
(the "Debenture") dated as of December 31, 1997 in the principal amount of
U.S.$16,100,000;
AND WHEREAS the Corporation and the Holder wish to amend the Debenture
on the terms hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises herein contained and other good and valuable consideration, the
receipt and adequacy of which consideration are hereby acknowledged, the
parties hereto agree as follow:
1. In paragraph (g) of the definition of "Permitted Encumbrances" in
Schedule "A" to the Debenture, the reference to "Cdn. $5,000,000" is hereby
amended and revised to "Cdn. $10,000,000".
2. Subparagraph (i) of section 4.3.7 of the Debenture is hereby amended by
adding the following words in the last line thereof after the words
"Subordinated Note Trust Indenture":
"together with additional interest if and when due of one-half of one
percent (.50%) per annum for the period following 18 months after the date
hereof".
3. The foregoing amendments shall be effective as of and from the date
hereof.
4. In all other respects the parties hereto confirm the terms of the
Debenture.
<PAGE>
Page 2
5. This Agreement may be signed in counterparts and each of such
counterparts shall constitute an original document and such counterparts,
taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
----------------------------------
Name : James H. Wood
Title: Chief Financial Officer
GOLDMAN, SACHS & CO.
By:
----------------------------------
Name :
Title:
<PAGE>
Exhibit. 10.11
EDC LOAN NO. 880-CAN-7559
DATED AS OF JULY 31, 1997
ROYAL OAK MINES INC.
AND
EXPORT DEVELOPMENT CORPORATION
LOAN AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
----
PARTIES................................................................. 1
RECITALS................................................................ 1
ARTICLE I............................................................... 1
DEFINITIONS............................................................. 1
Section 1.01 -- Definitions........................................ 1
Section 1.02 -- Rules of Interpretation............................ 5
Section 1.03 -- Currency of Account and Currency of Payment........ 5
ARTICLE II.............................................................. 6
REPRESENTATIONS AND WARRANTIES.......................................... 6
Section 2.01 -- Representations and Warranties..................... 6
ARTICLE III............................................................. 8
LOAN.................................................................... 8
Section 3.01 -- Loan............................................... 8
Section 3.02 -- Disbursement....................................... 8
Section 3.03 -- Currency of Advances............................... 9
Section 3.04 -- Disclaimer......................................... 9
Section 3.05 -- Third Country Supply............................... 9
ARTICLE IV.............................................................. 10
REPAYMENT OF PRINCIPAL, PAYMENT OF INTEREST............................. 10
AND OTHER CHARGES....................................................... 10
Section 4.01 -- Principal.......................................... 10
Section 4.02 -- Interest........................................... 10
Section 4.03 -- Additional Cost and Illegality..................... 11
Section 4.04 -- Place and Manner of Payment........................ 12
Section 4.05 -- No Deduction for Taxes............................. 12
Section 4.06 -- Administration Fee................................. 12
Section 4.07 -- Costs and Expenses................................. 13
Section 4.08 -- Application of Payments............................ 13
Section 4.09 -- Voluntary Prepayment............................... 13
Section 4.10 -- Mandatory Prepayment............................... 14
Section 4.11 -- Optional Prepayment................................ 14
Section 4.12 -- Indemnities........................................ 14
ARTICLE V............................................................... 15
SECURITY................................................................ 15
Section 5.01 -- Security........................................... 15
ARTICLE VI.............................................................. 15
LOAN ACCOUNTS........................................................... 15
Section 6.01 -- Loan Accounts...................................... 15
<PAGE>
ARTICLE VII............................................................. 15
PREDISBURSEMENT CONDITIONS.............................................. 15
Section 7.01 -- First Advance...................................... 15
Section 7.02 -- Each Advance....................................... 16
Section 7.03 -- Waiver of Predisbursement Conditions............... 17
ARTICLE VIII............................................................ 17
COVENANTS OF BORROWER................................................... 17
Section 8.01 -- Covenants of Borrower.............................. 17
ARTICLE IX.............................................................. 19
CANADIAN BENEFIT........................................................ 19
Section 9.01 -- Canadian Benefit................................... 19
ARTICLE X............................................................... 20
DEFAULT................................................................. 20
Section 10.01 -- Events of Default................................. 20
Section 10.02 -- Suspension of Advances............................ 21
Section 10.03 -- Termination of Advances and Acceleration.......... 22
Section 10.04 -- Remedies Cumulative............................... 22
Section 10.05 -- Performance of Borrower's Covenants............... 22
ARTICLE XI.............................................................. 23
NOTICE.................................................................. 23
Section 11.01 -- Notice............................................ 23
ARTICLE XII............................................................. 24
PROPER LAW, SUBMISSION TO JURISDICTION AND WAIVERS...................... 24
Section 12.01 -- Proper Law........................................ 24
Section 12.02 -- Waiver of Immunity................................ 24
Section 12.03 -- Waiver of Prior Proceeding........................ 24
Section 12.04 -- Submission to Jurisdiction........................ 24
ARTICLE XIII............................................................ 25
MISCELLANEOUS........................................................... 25
Section 13.01 -- Insurance......................................... 25
Section 13.02 -- Severability of Provisions........................ 25
Section 13.03 -- Judgment Currency................................. 25
Section 13.04 -- Counterparts and Telefax.......................... 25
ARTICLE XIV............................................................. 25
SUCCESSORS AND ASSIGNS.................................................. 25
Section 14.01 -- Successors and Assigns............................ 25
SCHEDULE "A" DISBURSEMENT TERMS
SCHEDULE "B" SECURITY DOCUMENTS
SCHEDULE "C" OPINION OF BORROWER'S COUNSEL
SCHEDULE "D" LEGAL PROCEEDINGS -- S. 2.01(g)
SCHEDULE "E" PPSA SEARCH RESULTS -- S. 2.01(f)
<PAGE>
EDC LOAN NO. 880-CAN-7559
THIS LOAN AGREEMENT dated as of July 31, 1997 is made
BETWEEN
ROYAL OAK MINES INC.,
a corporation incorporated under the laws of the
Province of Ontario, having its registered head
office at Suite 2500, 181 Bay Street, Toronto, Ontario, Canada
and its executive offices at 5501 Lakeview Drive,
Kirkland, Washington, U.S.A.
(hereinafter called the "BORROWER")
AND
EXPORT DEVELOPMENT CORPORATION,
a corporation established by an Act of the
Parliament of Canada, having its head office
at Ottawa, Canada
(hereinafter called "EDC")
WHEREAS EDC, at the request of the BORROWER, is prepared to lend to the
BORROWER up to the amount of the CANADIAN DOLLAR equivalent of USD15,000,000,
on the terms and subject to the conditions of this Agreement, in order to
assist in financing the purchase of the GOODS and SERVICES from the SELLER;
AND WHEREAS as security for the performance of the BORROWER's obligations
hereunder, the BORROWER has agreed to cause to be delivered the SECURITY
DOCUMENTS;
NOW THEREFORE EDC and the BORROWER agree that:
ARTICLE I
DEFINITIONS
Section 1.01-Definitions
In this Agreement and the recitals, unless the context otherwise requires:
"ADVANCE" means an amount loaned or, as the context may require, to be loaned
to the BORROWER pursuant to this Agreement and "ADVANCED" means loaned or, as
the context may require, to be loaned to the BORROWER pursuant to this
Agreement;
<PAGE>
2
"BANK" means the Bank of Montreal, having its offices at First Canadian
Place, Toronto, Ontario,
"BUSINESS DAY" means any day on which banks are open for business in Toronto,
Canada and New York, New York, U.S.A. and any place where a payment is
required on that day under this Agreement;
"BUY-BACK RIGHT" means the option of the BORROWER pursuant to Section 2.1.2
of the CONTRACT (Purchase Order No. 1834 dated February 7, 1997) to require
the SELLER to repurchase one or more of the R260 Euclid-Hitachi Hauler
vehicles delivered to the BORROWER for a predetermined percentage of the
purchase price under the CONTRACT if such vehicles do not meet certain agreed
mechanical availability criteria during the first six (6) months of operation;
"CAD-BA-CDOR" means, for each INTEREST PERIOD, the rate per annum determined
as of 10:00 a.m., Toronto time, on the first day of such INTEREST PERIOD, as
the average rate for CANADIAN DOLLAR bankers' acceptances quoted on the
REUTERS SCREEN CDOR PAGE by the banks used as reference banks for such
service for six-month periods. If CAD-BA-CDOR does not appear on the REUTERS
SCREEN CDOR PAGE, the rate for that INTEREST PERIOD will be determined as if
the parties had specified "CAD-BA-REFERENCE BANKS" as the applicable rate;
"CAD-BA-REFERENCE BANKS" means, for each INTEREST PERIOD, the rate per annum
determined as of 10:00 a.m., Toronto time, on the first day of such INTEREST
PERIOD on the basis of the average of the bid rates of the Bank of Montreal,
Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto Dominion
Bank for CANADIAN DOLLAR bankers' acceptances for six-month periods. If
applicable, EDC will request the principal Toronto office of each bank to
provide a quotation of its rate;
"CANADA" means the Dominion of Canada, its provinces and territories and
includes any political sub-division thereof;
"CANADIAN DOLLARS" and "CAD" each means the currency of Canada;
"COLLATERAL" has the meaning ascribed to it in the SECURITY AGREEMENT;
"CONTRACT" means (a) Purchase Order No. 1835 dated February 7, 1997; (b)
Purchase Order No. 1834 dated February 7, 1997; (c) Purchase Order No. 4139
dated June 20, 1997; (d) Purchase Order No. 1931 dated April 21, 1997; (e)
Purchase Order No. 4236 dated May 6, 1997; and (f) Purchase Order No. 4235
dated May 6, 1997, as issued by Kemess Mines Inc. to the SELLER and as
amended by the Letter of the BORROWER dated July 31, 1997, and further
detailed in the Memorandum of the SELLER entitled "EDC Financing Update"
dated July 30,1997 for the purchase of the GOODS and SERVICES, as same may be
amended from time to time with the consent of EDC if required hereunder;
<PAGE>
3
"EVENT OF DEFAULT" means any of the events or circumstances described in
Section 10.01;
"EXPORTER" means Euclid-Hitachi Heavy Equipment Ltd., a corporation
incorporated under the laws of Canada, having its head office at Guelph,
Ontario, Canada;
"FMAR" means the Fleet Mechanical Availability Report to be prepared by the
BORROWER;
"FIRST REPAYMENT DATE" means June 30, 1998, or if such date is not a BUSINESS
DAY, the next BUSINESS DAY;
"GOODS" means the seven R260 Euclid-Hitachi Hauler vehicles manufactured by
the EXPORTER and one LeTourneau Front-End loader manufactured by LeTourneau
Inc., together with associated spare parts to be supplied by the SELLER
pursuant to the CONTRACT and meeting the Canadian benefit requirements of EDC;
"INDEBTEDNESS" means, with respect to any person, any amount payable by that
person as debtor, borrower, issuer or guarantor pursuant to an agreement or
instrument involving or evidencing money borrowed or received or the deferred
purchase price of goods or services, the advance of credit, a conditional
sale or a transfer with recourse or with an obligation to repurchase, or
pursuant to a lease with substantially the same economic effect as any such
agreement or instrument, whether present or future, actual or contingent,
direct or indirect;
"INTEREST PAYMENT DATE" means:
(a) prior to the FIRST REPAYMENT DATE, June 30 and December 30 in each
year;
(b) the FIRST REPAYMENT DATE; and
(c) the dates which fall six and twelve months after the FIRST REPAYMENT
DATE and each anniversary of those dates;
or, if any such date is not a BUSINESS DAY, the next BUSINESS DAY;
"INTEREST PERIOD" means:
(a) for each ADVANCE, the period commencing on and including the date on
which that ADVANCE is made and ending on and including the date preceding the
next INTEREST PAYMENT DATE; or
(b) for those amounts in default payable pursuant to Section 4.06 and
Section 4.07, the period commencing on and including the date of default and
ending on and including the date preceding the next INTEREST PAYMENT DATE;
and thereafter the period commencing on and including an INTEREST PAYMENT
DATE and ending on and including the date preceding the next INTEREST PAYMENT
DATE;
<PAGE>
4
"LIENS" means any mortgage, leasehold mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, encumbrance, privilege, preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
securing the obligations of any person individually in excess of USD1,000,000
or collectively in excess of USD10,000,000, but excluding:
(a) security interests in favour of EDC under the SECURITY AGREEMENT or the
KM SECURITY AGREEMENT
(b) security interests incurred, or pledges and deposits in connection
with, workers' compensation, unemployment insurance and other social security
benefits, and surety or appeal bonds and other obligations of like nature
incurred by the BORROWER or Kemess Mines Inc. in the ordinary course of
business;
(c) security interests imposed by law, including without limitation,
mechanics', carriers', repairmen's, warehousemen's, materialmen's and
suppliers' liens incurred by the BORROWER or Kemess Mines Inc. in the
ordinary course of business;
(d) liens for ad valorem, income, business or property taxes or
assessments and similar charges which either are not delinquent or are being
contested in good faith by appropriate proceedings for which the BORROWER or
Kemess Mines Inc. has set aside on its books reserves to the extent required
by GAAP; and
(e) undetermined or inchoate liens and charges incidental to current
operations which relate to obligations not due or delinquent;
"POTENTIAL DEFAULT" means any event or circumstance that, with notice, lapse
of time or a determination hereunder or any combination thereof would
constitute an EVENT OF DEFAULT
"SECURITY DOCUMENTS" means the Security Agreement of even date herewith of
the BORROWER (individually the "SECURITY AGREEMENT"), the Limited Recourse
Guarantee of Kemess Mines Inc. of even date herewith (individually the
"LRG"), and the Security Agreement of Kemess Mines INc. of even date
herewith (individually the "KM SECURITY AGREEMENT"), substantially in the
form of Schedule "B";
"SELLER" means Wajax Industries Limited, a corporation incorporated under the
laws of Canada, having an office at Langley, British Columbia, Canada;
"SERVICES" means the services to be supplied in connection with the GOODS
pursuant to the CONTRACT and meeting the Canadian benefit requirements of EDC;
"TAXES" means all present or future taxes of any kind or nature whatsoever
(other than TAXES imposed in Canada) including, without limitation, income
taxes, sales or value-added taxes, stamp taxes, levies, imposts, duties,
fees, royalties and all deductions and withholdings together with any
<PAGE>
5
fines, penalties and interest thereon and any restrictions or conditions
resulting in an obligation to pay monies to a government or governmental
agency; and
"UNITED STATES DOLLARS" and "USD" each means the currency of the United
States of America.
Section 1.02 - Rules of Interpretation
In this Agreement unless the context requires otherwise:
(a) the singular will include the plural and vice versa;
(b) references to a "person" will be construed as references to any
individual, firm, company, corporation, unincorporated body of persons or any
state or political subdivision thereof or any government or any agency
thereof;
(c) whenever any person is referred to, such reference will be deemed to
include the permitted assignees and successors of such person, whether by
operation of law, consolidation, merger, sale, amalgamation or otherwise as
applicable;
(d) references to a specified Article, Section or Schedule will be
construed as references to that specified Article or Section of, or Schedule
to, this Agreement
(e) references to any agreement or other instrument will be deemed to
include such agreement or other instrument as it may from time to time be
modified, amended, supplemented or restated in accordance with its terms and,
where required hereunder, with the consent of EDC;
(f) the terms "hereof", "herein" and "hereunder" will be deemed to refer
to this Agreement; and
(g) the headings of the Articles and Sections are inserted for
convenience only and will not affect the construction or interpretation of
this Agreement.
Section 1.03 - Currency of Account and Currency of Payment
In this Agreement, each specification of CANADIAN DOLLARS is of the essence
and CANADIAN DOLLARS are both the currency of account and the currency of
payment.
<PAGE>
6
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01 -- Representations and Warranties
The BORROWER represents and warrants to EDC and except as otherwise permitted
or required hereunder, will be deemed to represent and warrant as of the date
of each ADVANCE (and it will be a condition of EDC's obligation to make each
ADVANCE and the making of any ADVANCE will not constitute a waiver thereof),
that:
(a) the BORROWER is a corporation duly incorporated, organized and
validly existing under the laws of Ontario and has its registered head office
at Toronto Ontario;
(b) the BORROWER has the power and authority to own its property and
assets and to carry on business as it is being carried on;
(c) the entering into and the performance by the BORROWER of the terms
of this Agreement and of each document to be delivered by the BORROWER with
respect thereto:
(i) are within its corporate powers and have been duly authorized by
all necessary corporate action;
(ii) are not in violation of any law, statute, regulation, ordinance
or decree of CANADA and are not contrary to public policy or public order in
CANADA; and
(iii) except for the security interest created hereunder, will not
result in or require the creation or imposition of a LIEN upon the COLLATERAL
ranking prior to or pari passu with the security constituted by the SECURITY
AGREEMENT whether created or imposed at law or pursuant to the terms of any
instrument to which the BORROWER is subject or by which any of its properties
or assets are bound;
(d) this Agreement has been duly executed and delivered and constitutes
the direct, legal, valid and binding obligations of the BORROWER enforceable
against the BORROWER in accordance with its terms;
(e) all registrations, consents, licences and approvals required under
the laws of CANADA in connection with the execution and delilvery by the
BORROWER of this Agreement, the performance by the BORROWER of the terms
thereof and the validity and enforceability and admissibility in evidence
thereof, have been effected or obtained and are in full force and effect
(f) based on researches conducted under personal property security
legislation in the provinces on Ontario and British Columbia, no third party
has perfected by registration any mortgage, charge, pledge or security
interest of any kind in personal property of the BORROWER as of the date of
this Agreement, except as disclosed in Schedule "E";
<PAGE>
7
(g) the audited financial statements of the BORROWER dated as of December 31,
1996, copies of which have been delivered to EDC, are true and correct and
accurately present the financial condition of the BORROWER and the results of
its operations for the period covered; such financial statements have been
prepared in accordance with GAAP applied on a consistent basis and between
the date of the financial statements and the date of this Agreement or, as
the case may be, between the date of any statements subsequently delivered to
EDC pursuant to Section 8.01(d) and the date of the ADVANCE on which this
representation is deemed to be made; there has been no material adverse
change in the financial condition or in the business or assets of the
BORROWER;
(h) there are no legal proceedings pending or, so far as is known to the
BORROWER, threatened before any court, arbitral tribunal, administrative
agency or governmental or other body having authority over it which could or
would materially adversely affect the financial condition or the operations
of the BORROWER or its ability to perform its obligations hereunder, except
for those listed at Schedule "D" hereto;
(i) to the best of its knowledge after due investigation, the BORROWER
is not in material violation of any term of its incorporating instrument and
by-laws or of any agreement, instrument evidencing indebtedness, mortgage,
franchise, license, judgment, decree, order, statute, rule, law, ordinance or
regulation to which it or its business or assets are subject; the entering
into, performance and compliance by the BORROWER with this Agreement and each
document to be delivered by the BORROWER with respect thereto will not result
in any such violation or constitute a default under or be in conflict with
any such term, or create any LIEN upon any of the assets of the BORROWER
pursuant to any such term including without limitation on the COLLATERAL; and
there is no such term which materially adversely affects or in the future may
(so far as the BORROWER can now foresee) materially adversely affect the
financial condition or the business or assets of the BORROWER or its ability
to perform its obligations hereunder;
(j) the irrevocable submission by the BORROWER to the non-exclusive
jurisdiction of the Courts of the Province of Ontario is legal, valid,
binding and enforceable;
(k) In respect of the security interest granted by the BORROWER in the
COLLATERAL pursuant to the SECURITY AGREEMENT:
(i) except for the security interests set out in Schedule "E" and
rights in the COLLATERAL acquired by Kemess Mines Inc. after the date hereof,
the BORROWER is, or with respect to COLLATERAL acquired after the date hereof
will be, the sole beneficial owner of the COLLATERAL, free and clear of any
TAXES or LIENS ranking prior to or pari passu with the security constituted
by the SECURITY AGREEMENT;
(ii) the BORROWER has, or with respect to COLLATERAL acquired after
the date hereof will have, the right to grant a security interest in the
COLLATERAL in favor of EDC on the terms of the SECURITY AGREEMENT;
<PAGE>
8
(iii) the location specified in Schedule "B" of the SECURITY
AGREEMENT hereto as to business operations and records of the BORROWER is
accurate and complete and the COLLATERAL will be kept at such location except
to the extent that any of the COLLATERAL becomes obsolete or is no longer
required in connection with the operation of the BORROWER's business at such
location, the BORROWER may move the COLLATERAL to such other location(s) of
the BORROWER in CANADA or the United States of America as the BORROWER may
specify by prior written notice to EDC and which EDC shall approve if, acting
reasonably, it is satisfied that it shall be in no less advantageous a
position as regards its security interests in the COLLATERAL (or such part
thereof as is to be moved) as it was prior to such move;
(iv) the COLLATERAL is properly insured with reputable insurers
against loss or damage by fire and such other risks as EDC may reasonably
require to the full insurable value thereof, and the loss payable under the
insurance policies is payable to EDC in accordance with EDC's interest in the
said COLLATERAL; and
(1) that at least USD15,000,000 worth of the output of gold and/or copper of
the BORROWER will be exported annually from CANADA.
ARTICLE III
LOAN
Section 3.01 -- Loan
Subject to the terms and conditions of this Agreement and in reliance on the
foregoing representations and warranties, EDC agrees to lend to the BORROWER
the following in order to assist in financing the purchase of the GOODS and
SERVICES.
(a) up to the CANADIAN DOLLAR equivalent of USD12,500,000 to finance the
acquisition of that part of the GOODS and SERVICES consisting of seven R260
Euclid-Hitachi Hauler vehicles and associated spare parts and services
("Tranche "A""); and
(b) up to the CANADIAN DOLLAR equivalent of USD2,500,000 to finance the
acquisition of that part of the GOODS and SERVICES consisting of one
LeTourneau Front-End loader and associated spare parts and services ("Tranche
"B"").
Section 3.02 -- Disbursements
(a) The BORROWER authorizes EDC to make disbursements in accordance with
the terms of this Agreement (including Schedule "A") and all such
disbursements will constitute ADVANCES under this Agreement. The BORROWER
acknowledges that the disbursement terms set out herein may be different from
the payment terms under the CONTRACT.
<PAGE>
9
(b) EDC will advise the BORROWER, of the particulars of each ADVANCE,
including the amount in CANADIAN DOLLARS charged to the loan account of the
BORROWER pursuant to Section 3.03 and the rate of exchange used by EDC for
the purposes of Section 3.03 if applicable.
Section 3.03 -- Currency of Advances
(a) Subject to the provisions of Section 3.03 (b), each ADVANCE under
this Agreement will be disbursed by EDC either (i) if to the SELLER in
CANADIAN DOLLARS or UNITED STATES DOLLARS, in accordance with the
instructions received pursuant to Schedule "A", or (ii) if as a reimbursement
to the BORROWER, in CANADIAN DOLLARS.
(b) For each disbursement in UNITED STATES DOLLARS, EDC will obtain
the buying rate of the BANK for CANADIAN DOLLARS with UNITED STATES DOLLARS
on the date of each ADVANCE for delivery on the date of the ADVANCE. EDC will
use such rate to determine the amount of CANADIAN DOLLARS to be charged to
the loan account, of the BORROWER to provide the amount of UNITED STATES
DOLLARS required for a disbursement of an ADVANCE to the SELLER. The
indebtedness of the BORROWER for each such disbursement in UNITED STATES
DOLLARS will be the amount of CANADIAN DOLLARS so determined.
Section 3.04 -- Disclaimer
Notwithstanding that ADVANCES under this Agreement are to be used to finance
the purchase of the GOODS and/or SERVICES, the BORROWER agrees that EDC is
under no obligation to determine the validity, legality or enforceability of
the CONTRACT. If part or all of the CONTRACT or any related document is
repudiated or proves to be void, invalid, illegal or unenforceable, or if
there is any dispute relating to the CONTRACT, such event will not in any way
affect or impair the rights of EDC against the BORROWER under this Agreement
or any related document executed or issued by the BORROWER, or change in any
way the obligations of the BORROWER to EDC hereunder.
Section 3.05 -- Third Country Supply
Other than with respect to amounts to be ADVANCED under Section 3.01(b), no
amount will be ADVANCED by EDC pursuant to Section 3.01 of this Agreement in
respect of goods supplied to the BORROWER from a country other than Canada or
in respect of non-Canadian services, as determined by EDC, provided to the
BORROWER without EDC's prior written consent.
<PAGE>
10
ARTICLE IV
REPAYMENT OF PRINCIPAL, PAYMENT OF INTEREST
AND OTHER CHARGES
Section 4.01 -- Principal
Subject to the provisions of Sections 4.03, 4.09 and 4.10, the BORROWER will
repay to EDC or its order, the aggregate principal amount of all ADVANCES in
up to sixteen (16) consecutive installments on successive INTEREST PAYMENT
DATES commencing on the FIRST REPAYMENT DATE. Each installment will be in an
amount equal to the result obtained by dividing the aggregate of all ADVANCES
outstanding and not overdue hereunder thirty (30) days prior to the INTEREST
PAYMENT DATE on which such installment is due by the number of installments
then remaining to be paid with the last installment in each case being in the
amount necessary to repay in full the aggregate of all ADVANCES then
outstanding.
Section 4.02 -- Interest
(a) The BORROWER will pay to EDC interest on the aggregate of the Section
3.01(a) ADVANCES outstanding from time to time at the rate per annum equal to
the sum of (i) the six (6) month CAD-BA-CDOR, and (ii) 1.10% per annum.
(b) The BORROWER will pay to EDC interest on the aggregate of the Section
3.01(b) ADVANCES outstanding from time to time at the rate per annum equal to
the sum of (i) the six (6) month CAD-BA-CDOR; and (ii) 1.60% per annum.
(c) The BORROWER will pay on demand default interest if the BORROWER
fails to pay any amount due and payable hereunder at the rate per annum equal
to the pre-default rate for the applicable Tranche, increased in each case by
2.0% from the date of the payment default so long as such default will
continue and before and after demand and judgment until paid.
(d) If an ADVANCE is made within thirty (30) days before an INTEREST
PAYMENT DATE, interest will be calculated from the date of the ADVANCE but
will be paid starting only on the second INTEREST PAYMENT DATE after the
ADVANCE is made.
(e) Each determination of a rate of interest by EDC will be conclusive
evidence, in the absence of manifest error, of such rate of interest.
Interest will be calculated on the basis of the actual number of days elapsed
divided by 365. The actual yearly rate of interest to which the said rate so
calculated is equivalent to is the said rate multiplied by the actual number
of days in the year divided by 365.
(f) EDC shall, if so requested, confirm to the BORROWER the CAD-BA-CDOR
used to determine the applicable interest rate.
<PAGE>
11
(g) Interest at the rates herein provided will be calculated
semi-annually not in advance; will be due and payable on each INTEREST
PAYMENT DATE, and will be payable both before and after default, maturity and
judgment.
Section 4.03 -- Additional Cost and Illegality
(a) In the event that a law or regulation is enacted or changed, or the
interpretation or administration thereof is changed by the administering
governmental authority, or in the event that a judgment is rendered which:
(i) subjects EDC to any tax with respect to payments to be made by
the BORROWER to EDC hereunder (except for taxes on the overall net income of
EDC and those taxes contemplated by Section 4.07), or
(ii) imposes or modifies any reserve or similar requirement against
assets held by, or deposits in or for the account of, or loans by, an office
of EDC;
with the result that the cost to EDC of making or maintaining ADVANCES is
increased or the income receivable by EDC in respect of the principal
indebtedness of the BORROWER to EDC hereunder is reduced, the BORROWER will
pay to EDC on demand that amount which will compensate EDC for such
additional cost or reduction in income. Upon EDC having determined that it is
entitled to additional compensation in accordance with the provisions of this
Section 4.03(a), EDC will promptly notify the BORROWER thereof. A certificate
of EDC setting forth the amount of such additional compensation and the basis
therefor will be submitted by EDC to the BORROWER and will be conclusive
evidence of such amount in the absence of manifest error. EDC will have no
obligation to make any further ADVANCES after such event until EDC has
received the additional compensation.
In the event EDC gives the notice provided for in this Section 4.03(a), the
BORROWER will have the right, upon written notice to that effect (which will
be irrevocable and will constitute the BORROWER's undertaking to prepay
accordingly) delivered to EDC at least thirty (30) days prior to the next
INTEREST PAYMENT DATE, to prepay in full on such INTEREST PAYMENT DATE, the
said principal indebtedness of the BORROWER together with accrued interest
thereon and all other sums due hereunder (but without the premium
contemplated in Sections 4.09(b) and 4.10).
In the event of such prepayment, the obligation of EDC to make any further
ADVANCES will, at the option of EDC, thereupon terminate.
(b) If it will become unlawful in any relevant jurisdiction for EDC to
continue to make or to maintain ADVANCES or for EDC to make or receive any
payment or to perform, exercise or to give effect to any obligation, right or
benefit under this Agreement or any related document, the BORROWER will
prepay to EDC, if requested by EDC, forthwith or at the end of such period as
EDC will have permitted, the principal indebtedness of the
<PAGE>
12
BORROWER together with interest accrued thereon and all other sums due
hereunder to the date of such prepayment (but without the premium
contemplated in Sections 4.09(b) and 4.10). In the event of any such
illegality or prepayment, the obligation of EDC to make any further ADVANCES
will, at the option of EDC, thereupon terminate.
Section 4.04 -- Place and Manner of Payment
Amounts payable by the BORROWER to EDC pursuant hereto in CANADIAN DOLLARS
will be paid in CANADIAN DOLLARS without set-off or counterclaim not later
than 11:00 a.m. (Toronto time) on the day such payment is due and in funds
for same-day settlement, at Bank of Montreal, First Bank Tower, First
Canadian Place, Toronto, Ontario M5X 1A1 for the credit of EDC, account
number 0000-876 in favour of EDC, or at such other account or financial
institution as EDC may, from time to time, notify the BORROWER
Section 4.05 -- No Deduction for Taxes
(a) All payments by the BORROWER to EDC hereunder will be made free and
clear of and without deduction or withholding for or on account of any TAXES
unless the BORROWER is required by law to make such a payment subject to the
deduction or withholding of such TAXES, in which case the sum payable by the
BORROWER in respect of which such deduction or withholding is required to be
made will be increased to the extent necessary to ensure that, after the
making of the required deduction or withholding, EDC receives and retains
(free from any liability in respect of any such deduction or withholding) a
net sum equal to the sum which it would have received and so retained had no
such deduction or withholding been made or required. The BORROWER will pay or
cause to be paid all TAXES imposed on or in connection with the execution
issuance, delivery, registration and enforcement of this Agreement or the
payment of principal, interest or any other charges payable by the BORROWER
hereunder, including all additional amounts and penalties payable in respect
of any delay or failure of the BORROWER to pay such TAXES.
(b) If the BORROWER cannot legally pay or remit such TAXES, or have them
paid as provided in Section 4.05(a), the rate of interest payable under this
Agreement will be increased to such rate as will yield to EDC, after payment
of such TAXES, the principal amounts ADVANCED by EDC with interest at the
rate specified in this Agreement, and all other amounts payable by the
BORROWER hereunder. The BORROWER will, at the request of EDC, execute and
deliver any further instrument necessary or advisable to reflect such
increase in the rate of interest.
Section 4.06 -- Administration Fee
The BORROWER acknowledges that the SELLER is required to pay to EDC an
administration fee in respect of this Agreement and the BORROWER authorizes
EDC to withhold for EDC's account a portion of the first disbursement to the
SELLER hereunder in payment of this fee. The SELLER has complete discretion
to disclose the administration fee to the BORROWER.
<PAGE>
13
Section 4.07 -- Costs and Expenses
(a) In respect of an amendment of this Agreement made at the request of
the BORROWER, preservation of rights under or enforcement of this Agreement,
the BORROWER will pay to EDC, within thirty (30) days of EDC's billing
therefor, all reasonable costs and expenses incurred by EDC in connection
with this Agreement, including without limitation, the fees and expenses of
independent legal counsel for EDC and all necessary travel costs of EDC and
its independent legal counsel.
(b) All documents or information to be furnished to EDC by the BORROWER
will be supplied at the BORROWER's expense.
Section 4.08 -- Application of Payments
All payments (other than a prepayment pursuant to Sections 4.09 and 4.10)
made by or for the account of the BORROWER under this Agreement will be
applied first to any payment which may be due and owing under Section 4.07,
then to interest due and payable, then to principal due and payable, and
lastly, to prepayment of installments of principal in inverse order of
maturity.
Section 4.09 -- Voluntary Prepayment
The BORROWER may, when not in default hereunder, prepay the principal
indebtedness of the BORROWER hereunder, in whole or from time to time in part,
provided that:
(a) each partial prepayment will be in an amount not less than the amount
of one installment of principal payable pursuant to Section 4.01 or a whole
multiple thereof,
(b) any such prepayment will be made only on the FIRST REPAYMENT DATE
and any INTEREST PAYMENT DATE thereafter,
(c) the BORROWER gives notice to EDC of its intention to make any such
prepayment not less than ninety (90) days prior to such prepayment, which
notice will be irrevocable and will constitute the BORROWER's undertaking to
prepay accordingly or in lieu of giving ninety (90) days notice of
prepayment, the BORROWER may pay to EDC, in addition to any other amounts
payable under this Section 4.09, an additional amount equal to ninety (90)
days interest on the principal amount being prepaid calculated at the rate
per annum set out in Sections 4.02(a) and (b) hereof;
(d) the BORROWER pays interest accrued on such principal amount being
prepaid to the date of prepayment as well as all other amounts due and
payable on the date of prepayment in respect of such principal amount being
prepaid; and
(e) amounts prepaid will be applied to installments payable in inverse
order of maturity and will not be re-ADVANCED.
<PAGE>
14
Section 4.10 -- Mandatory Prepayment
(a) If the CONTRACT is terminated by the BORROWER before completion, then
on the next INTEREST PAYMENT DATE following such event the BORROWER will
prepay to EDC the amount ADVANCED by EDC to the BORROWER in excess of the
purchase price of vehicles purchased pursuant to the CONTRACT prior to the
termination, plus, in each case, accrued interest and all other charges
payable hereunder.
(b) If the BORROWER exercises the BUY-BACK RIGHT before completion of the
CONTRACT, then on the later of the next INTEREST PAYMENT DATE following such
event and the INTEREST PAYMENT DATE following receipt by the BORROWER from
the SELLER of such sums of money as the BORROWER is entitled to receive from
the SELLER pursuant to the exercise of the BUY-BACK RIGHT the BORROWER will
repay to EDC the amount of Tranche "A" funds ADVANCED by EDC to the BORROWER
in respect of each vehicle subject to the BUY-BACK RIGHT, plus, in each case
accrued interest with respect to Tranche "A" and all other charges payable
hereunder.
(c) THE BORROWER shall give notice of its intention to make a prepayment
pursuant to Section 4.10(a) or (b) not less than ninety (90) days prior to
such prepayment, which notice will be irrevocable and will constitute the
BORROWER's undertaking to prepay accordingly or in lieu of giving ninety (90)
days notice of prepayment, the BORROWER may pay to EDC, in addition to any
other amounts payable under this Section 4.10, an additional amount equal to
ninety (90) days interest on the principal amount being prepaid calculated at
the rate per annum set out in Sections 4.02(a) and (b) hereof.
(d) Prepaid amounts will be applied to installments in inverse order of
their due dates.
Section 4.11 -- Optional Prepayment
In the event the BORROWER is required to prepay Tranche "A" in accordance
with Section 4.10(b), EDC may request that the BORROWER also simultaneously
repay the amount of Tranche "B" funds ADVANCED by EDC to the BORROWER, plus,
in each case accrued interest with respect to Tranche "B" and the BORROWER
may, but shall not be required to, make such payment.
Section 4.12 -- Indemnities
The BORROWER will indemnify and hold harmless EDC against any loss
(including loss of profit) costs, damage, liability or expense sustained or
incurred by EDC as a consequence of:
(a) any default in repayment of principal or payment of interest or any
other amount due hereunder;
(b) the delay or failure of the BORROWER to make payment of or in respect
of any TAXES pursuant to Section 4.05; or
<PAGE>
15
(c) any payment or prepayment of principal being made on other than an
INTEREST PAYMENT DATE,
including, in any such case, but not limited to, any loss, cost, damage,
liability or expenses sustained or incurred by EDC in liquidating or
re-employing deposits or funds from third parties acquired or to be acquired
to make ADVANCES or maintain or continue any amount already advanced or any
part thereof.
ARTICLE V
SECURITY
Section 5.01 -- Security
As security for the due and punctual payment and performance of all the
BORROWER's obligations to EDC hereunder, the BORROWER will deliver to EDC the
SECURITY DOCUMENTS. The security interests constituted under the SECURITY
AGREEMENT and the KM SECURITY AGREEMENT will be effective and the
undertakings thereunder in respect thereto will be continuing, whether the
ADVANCES hereby or thereby secured or any part thereof will be ADVANCED
before or after or at the same time as the creation of any such security
interest or before or after or upon the date of execution of this Agreement
and will not be affected by any payments made by the BORROWER hereunder or by
the balance of ADVANCES fluctuating from time to time.
ARTICLE VI
LOAN ACCOUNTS
Section 6.01 -- Loan Accounts
EDC will maintain one or more loan accounts in the name of the BORROWER in
accordance with normal business practices. The loan accounts of EDC will be
prima facie evidence (in the absence of manifest error) of the indebtedness
of the BORROWER to EDC and of the amounts due from time to time by the
BORROWER to EDC under this Agreement.
ARTICLE VII
PREDISBURSEMENT CONDITIONS
Section 7.01 -- First Advance
EDC will have no obligation to make any ADVANCES until it has received:
(a) an executed copy of each of the SECURITY DOCUMENTS;
<PAGE>
16
(b) evidence satisfactory to EDC that the security interest granted
pursuant to the SECURITY AGREEMENT and the KM SECURITY AGREEMENT has been
duly perfected by registration in the Province of British Columbia;
(c) an executed copy of the CONTRACT;
(d) relevant corporate documents showing due authorization, executions
and delivery of this Agreement such as resolutions, specimen signatures and
certificates of authorization, together with a certificate of status for the
BORROWER issued by the Ministry of Consumer and Commercial Relations of the
Province of Ontario or other appropriate entity satisfactory to EDC;
(e) satisfactory evidence of insurance coverage reasonably acceptable to
EDC with respect to the GOODS and that EDC has been named as a first loss
payee under the insurance policies effecting such coverage;
(f) a certificate of incumbency satisfactory to EDC, setting out the
names of persons authorized to sign any document relating to this Agreement
on behalf of the BORROWER, with specimen signatures of such persons. The
BORROWER agrees that EDC may rely on the authority of any such person until
notified in writing to the contrary (effective only upon actual receipt by
EDC), and any documents related to this Agreement signed by any person will
be binding upon the BORROWER;
(g) confirmation satisfactory to EDC from the SELLER that the SELLER has
received from the BORROWER an amount equivalent to any Goods and Services Tax
owing with respect to those GOODS and/or SERVICES financed with the ADVANCE.
(h) the opinion of counsel for the BORROWER, substantially in the form of
Schedule "C", respectively, and
(i) the opinion of counsel for EDC in British Columbia, to such effect as
EDC may reasonably require.
Section 7.02 -- Each Advance
EDC will have no obligation to make any ADVANCE unless each of the following
additional terms and conditions have been satisfied at the time the ADVANCE
is to be made:
(a) except as permitted or required hereunder, each of the
representations and warranties in Section 2.01 hereof and in Section 3 of the
SECURITY AGREEMENT will be true and correct as if made and repeated on the
date of the ADVANCE with reference to the facts then existing;
<PAGE>
17
(b) there will have been no material adverse change in the financial
condition or business or assets of the BORROWER since the date of the last
financial statements received pursuant to Section 2.01(g);
(c) the provisions of the Disbursement Terms contained in Schedule "A"
have been complied with in respect of the ADVANCE; and
(d) no EVENT OF DEFAULT or POTENTIAL DEFAULT will have occurred and be
continuing.
Section 7.03 -- Waiver of Predisbursement Conditions
The conditions in Sections 7.01 and 7.02 are for the benefit of EDC only and
may be waived by EDC, in whole or in part, and with or without conditions,
for any ADVANCE, without affecting EDC's right to require that such
conditions be satisfied for any other ADVANCE or ADVANCES.
ARTICLE VIII
COVENANTS OF BORROWER
Section 8.01 -- Covenants of Borrower
The BORROWER covenants and agrees with EDC that, unless compliance has been
waived by EDC, it will:
(a) punctually pay to EDC all principal, interest and any other amounts
owing by it to EDC under this Agreement on the dates, at the place, in the
currency or currencies and in the manner specified herein;
(b) maintain its corporate existence in good standing;
(c) carry on its business in a proper and businesslike manner, and
maintain all material properties, material rights, material contracts and
material authorizations necessary or useful in the conduct of its business;
(d) within one hundred and twenty (120) days after the end of each
financial year, deliver to EDC a copy of its audited financial statements
(including a balance sheet and statement of profit and loss), with a
certificate of its independent auditors (who shall be auditors experienced in
auditing public companies of similar size), stating that in their opinion,
without any material qualification, the statements accurately present the
financial position of the BORROWER and the results of its operations for the
financial year being reported on, in accordance with GAAP consistently
applied;
<PAGE>
18
(e) keep its assets and business, including the COLLATERAL, insured in
the manner and to the extent customary in Canada for similar businesses;
(f) obtain and maintain in force any authorization or registration from
any administrative or governmental agency or other body required under the
laws of CANADA which is or may become necessary for the BORROWER to fulfill
its obligations hereunder and under the CONTRACT;
(g) not consolidates or merge into another corporation, or sell or assign
all or substantially all of its assets (determined on a consolidated basis),
unless as a result of such merger or consolidation, sale or assignment the
surviving corporation shall have a consolidated net worth equal to or greater
than the consolidated net worth of the BORROWER immediately prior to such
transaction;
(h) provide a FMAR to EDC on a monthly basis for the six (6) months
following the date of this Agreement and thereafter on an annual basis if so
requested by EDC;
(i) not create or permit to exist or continue any LIENS over the
COLLATERAL as security for any INDEBTEDNESS of the BORROWER ranking prior to
or pari passu with the security constituted by the SECURITY AGREEMENT or the
KM SECURITY AGREEMENT;
(j) not sell, lease, assign or otherwise dispose of the COLLATERAL other
than:
(i) sale or lease of any COLLATERAL to Kemess Mines Inc.; and
(ii) sale, trade-in or other dispositions of any of the COLLATERAL
which becomes obsolete to any supplier or vendor of replacement vehicles or
equipment of comparable value upon prior written notice to EDC, provided EDC
receives a security interest in form and content satisfactory to EDC in such
replacement vehicles or equipment;
(k) not, without the consent of EDC, and except as otherwise provided for
in the CONTRACT, cancel or terminate or permit the cancellation or
termination of the CONTRACT or make or permit the making of any material
amendments to the CONTRACT which relate to the purchase price, the terms and
manner of payment, the time and manner of delivery of any GOODS or SERVICES
or which reduce the Canadian benefit derived from the sale of any GOODS or
SERVICES;
(l) promptly notify EDC of any material dispute under the CONTRACT of
which it becomes aware;
(m) promptly notify EDC of the occurrence of any EVENT OF DEFAULT or
POTENTIAL DEFAULT;
<PAGE>
19
(n) comply in all material respects with the requirements of all laws,
statutes, regulations, authorizations, approvals, licenses or registrations
required to own its properties and assets, including without limitation, the
COLLATERAL, and carry on its business as currently carried on and to perform
its obligations under the SECURITY AGREEMENT;
(o) in respect of the COLLATERAL;
(i) maintain and preserve all of the COLLATERAL in good repair,
working order and condition, subject to normal wear and tear, and, from time
to time, make all needful and proper repairs, renewals, replacements,
additions and improvements thereto and carry on its business in a proper and
efficient manner so as to preserve and protect the COLLATERAL and the
earnings, incomes, issues and profits thereof;
(ii) at any reasonable time and from time to time, upon reasonable
prior notice, the BORROWER, will permit EDC (at EDC's expense) or any
representative thereof to verify the existence and state of the COLLATERAL in
any manner EDC may consider appropriate;
(iii) keep the COLLATERAL free and clear of all TAXES, LIENS,
assessments and claims ranking prior to or pari passu with the security
constituted by the SECURITY AGREEMENT and the KM SECURITY AGREEMENT;
(iv) promptly notify EDC of any loss of or material damage to the
COLLATERAL;
(v) promptly notify EDC of any change in the name of the BORROWER
or the location of its chief executive offices;
(vi) take all steps and all actions as may be reasonably required or
deemed advisable by EDC to perfect or more fully evidence EDC's rights and
interest in the COLLATERAL over which a security interest has been granted to
EDC under the SECURITY AGREEMENT and the KM SECURITY AGREEMENT.
ARTICLE XI
CANADIAN BENEFIT
Section 9.01 -- Canadian Benefit
The BORROWER acknowledges that EDC has entered into this Agreement to finance
goods and services of Canadian manufacture and origin (with the exception of
the equipment to be financed under Tranche "B"). The BORROWER and EDC both
acknowledge and confirm that the EXPORTER has advised them that the
COLLATERAL (other than the equipment to be financed under Tranche "B") is of
Canadian manufacture and origin; that the GOODS and/or SERVICES
<PAGE>
20
will have the maximum practicable Canadian benefit, and that it is the
responsibility of the EXPORTER to satisfy EDC that EDC's Canadian benefit
requirements are met.
ARTICLE X
DEFAULT
Section 10.01 -- Events of Default
The occurrence of any of the following will be a default by the BORROWER
under this Agreement:
(a) the non-payment within three (3) BUSINESS DAYS of the due date
thereof of any sum payable hereunder or under the SECURITY AGREEMENT, whether
at maturity, by acceleration or otherwise;
(b) if the BORROWER (i)makes an assignment for the benefit of its
creditors; or (ii)petitions or applies to any tribunal for the appointment of
a receiver or trustee for itself or any substantial part of its assets;
or(iii) starts any proceeding relating to itself under any present or future
reorganization, arrangement, adjustment of debt, dissolution or liquidation
law of any jurisdiction; or (iv)in any way consents to, approves or
acquiesces in any bankruptcy, reorganization or insolvency proceeding started
by any other person, or any proceeding by any other person for the
appointment of a receiver or trustee for the BORROWER or any substantial part
of its assets; or (v)allows any receivership or trusteeship to remain
undischarged for a period of thirty (30) days; or (vi)becomes or is declared
by any competent authority to be bankrupt or insolvent;
(c) if the BORROWER consolidates or merges into another corporation, or
sells or assigns all or substantially all of its assets (determined on a
consolidated basis), and as a result of such merger, consolidation, sale or
assignment the surviving corporation has a consolidated net worth less than
the consolidated net worth of the BORROWER immediately prior to such
transaction;
(d) if the BORROWER (i)fails to pay any amount due under the Indenture
between the BORROWER, Kemess Mines Inc. and Mellon Bank dated August 12, 1996
(the "Indenture"); (ii)fails to pay in the aggregate any amount due in excess
of USD10,000,000 (or its equivalent in other currencies as determined by EDC)
under any loans, guarantees or security agreements (other than that
instrument referred to in sub-section (i)hereof to which it is a party, on
the due date or within any applicable grace period; or (iii)defaults under
any other term of the Identure which would allow (assuming the giving of
appropriate notice if required) the holder of the Indenture to declare the
indebtedness thereunder to be immediately due and payable or to be due and
payable on demand or to suspend of advances thereunder.
<PAGE>
21
(e) if any representation or warranty made by or on behalf of the
BORROWER in this Agreement or in any related document or opinion will have
been incorrect in any material respect when made or deemed to be made.
(f) if any court makes any judgment or order, or any law, ordinance,
decree or regulation is enacted the effect of which is to make this Agreement
or the SECURITY AGREEMENT or any material provision hereof or thereof invalid
or unenforceable, and the BORROWER fails to provide replacement documents
satisfactory to EDC evidencing, and where applicable, securing its
INDEBTEDNESS under this Agreement within thirty (30) days of such event.
(g) if the BORROWER creates or permits to exist or continue any LIENS
over the COLLATERAL as security for the INDEBTEDNESS of the BORROWER or any
other person ranking prior to or pari passu with the security constituted by
the SECURITY AGREEMENT and the KM SECURITY AGREEMENT.
(h) if the BORROWER fails to take all steps and all actions as may be
reasonably required or deemed advisable by EDC to perfect or more fully
evidence EDC's rights and interest in the COLLATERAL over which a security
interest has been granted by the BORROWER to EDC under the SECURITY AGREEMENT.
(i) if the BORROWER fails to obtain or maintain in force any material
authorization or registration from any administrative or governmental agency
or other body required under the laws of CANADA which is or may become
necessary for the BORROWER to fulfill its obligations hereunder and under the
SECURITY AGREEMENT; or
(j) if the BORROWER defaults in the due performance or observance of any
term of this Agreement or the SECURITY AGREEMENT other than those
specifically dealt with in this Section 10.01, which is not remedied with
forty-five (45) days after notice by EDC to do so.
Section 10.02 - Suspension of Advances
If at any time, (a) an EVENT OF DEFAULT or a POTENTIAL DEFAULT occurs and is
continuing, or (b) in the reasonable judgment of EDC, an event or
circumstance occurs which makes it unlikely that the BORROWER will be able to
perform its obligations under this Agreement or the SECURITY AGREEMENT on a
timely basis, EDC may, without prejudice to the obligations of the BORROWER
hereunder or under the SECURITY AGREEMENT, including without limitation, the
obligation to pay interest and to repay principal, by notice to the BORROWER,
suspend EDC's obligation to make ADVANCES, which suspension will continue
until EDC notifies the BORROWER that the suspension is removed.
<PAGE>
22
Section 10.03 -- Termination of Advances and Acceleration
If an EVENT OF DEFAULT occurs and is continuing, EDC may by one or more
notices to the BORROWER do one or more of the following:
(a) declare that EDC is under no further obligation to make ADVANCES,
whereupon such obligation will cease,
(b) declare that all or part of the indebtedness of the BORROWER under
this Agreement to be payable on demand whereupon the same together with all
accrued interest and any other amounts payable under this Agreement will
immediately become payable on demand, and
(c) declare all or part of the indebtedness of the BORROWER under this
Agreement to be immediately due and payable, whereupon the same will become
immediately due and payable, together with all accrued interest and any other
amounts payable under this Agreement without any further demand or notice of
any kind, and
(d) exercise all other rights and remedies available to it under the
SECURITY AGREEMENT.
Section 10.04 -- Remedies Cumulative
The rights and remedies of EDC under this Agreement are cumulative and are in
addition to, and not in substitution for, any rights or remedies provided by
law. Any single or partial exercise by EDC of any rights under this Agreement
or any failure to exercise or delay in exercising any such right or remedy
will not be or be deemed to be a waiver of, or will not prejudice, any other
rights or remedies to which EDC may be entitled for any EVENT OF DEFAULT or
POTENTIAL DEFAULT. Any waiver by EDC of the strict compliance with any term
of this Agreement or any related document will not be deemed to be a waiver
of any subsequent EVENT OF DEFAULT or POTENTIAL DEFAULT.
Section 10.05 -- Performance of Borrower's Covenants
If the BORROWER is in default of any obligation hereunder, then EDC may,
without waiving or releasing the BORROWER from any of its obligations and
without prejudice to any right or remedy of EDC, observe and perform or cause
to be performed such obligations and in that connection pay such monies as
may be required. Any such monies paid out by EDC will be repayable to EDC on
demand, with interest at the rate specified and calculated in the manner
described in Section 4.02(b) from the date of payment by EDC.
<PAGE>
23
ARTICLE XI
NOTICE
Section 11.01 -- Notice
Every notice, demand, request, consent, waiver or agreement under this
Agreement will be in writing, and in English, English being the governing
language of this Agreement. All documents will be hand-delivered or sent by
prepaid air mail or by telefax to the following addresses:
for the BORROWER,
ROYAL OAK MINES, INC.
c/o Royal Oak Mines (U.S.A.) Inc.
5501 Lakeview Drive
Kirkland, Washington, U.S.A.
Attention: Chief Financial Officer
Telefax: (425)822-3552
for EDC,
EXPORT DEVELOPMENT CORPORATION
151 O'Connor Street
Ottawa, Canada, K1A 1K3
Attention: Loans Operations
Telefax: (613)598-2514
or such other address or numbers which either party may from time to time
notify the other in writing. Documents if delivered by hand will be deemed
to be received upon delivery, if sent by prepaid air mail on the second
Business Day after mailing and if transmitted by telefax the day of
transmission unless such day is not a Business Day, in which case the Business
Day following. In this Agreement, "in writing" includes printing,
typewriting, or any electronic transmission that can be reproduced as printed
text, on paper, at the point of reception. In this Section 11.01 "Business
Day" means a day in the recipient's jurisdiction when banks are generally
open for public business.
<PAGE>
24
ARTICLE XII
PROPER LAW, SUBMISSION TO JURISDICTION AND WAIVERS
Section 12.01 -- Proper Law
This Agreement is made under and will be governed by and construed in
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein and will not be governed by public international law
or the laws of any other jurisdiction.
Section 12.02 -- Waiver of Immunity
The BORROWER agrees that this Agreement and the transactions contemplated
herein constitute commercial activity within the meaning of the State
Immunity Act of Canada. The BORROWER irrevocably waives, for each relevant
jurisdiction, any right of immunity which it or any of its property has or
may acquire in respect of its obligations hereunder, including, without
limitation, any immunity from jurisdiction, suit, judgment, set-off,
execution, attachment (and in an action in rem, arrest, detention, seizure
and forfeiture) or other legal process (including, without limitation, relief
by way of injunction and specific performance).
Section 12.03 -- Waiver of Prior Proceeding
The BORROWER irrevocably waives, to the fullest extent permitted by
applicable law, any claim that any action or proceeding commenced by EDC
relating in any way to this Agreement should be dismissed or stayed by
reason, or pending the resolution of, any action or proceeding commenced by
the BORROWER relating in any way to the Agreement, whether or not commenced
earlier. To the fullest extent permitted by applicable law, the BORROWER
will take all measures necessary for any such action or proceeding commenced
by EDC to proceed to judgment or award prior to the entry of judgment in any
such action or proceeding commenced by the BORROWER.
Section 12.04 -- Submission to Jurisdiction
Any legal proceeding with respect to this Agreement or to enforce any
judgment obtained against the BORROWER or its assets may be brought by EDC in
the Courts of the Province of Ontario, Canada, in the Courts of the Province
of British Columbia, in the courts of any jurisdiction where the BORROWER may
have assets or carries on business or in the courts where payments are to be
made hereunder and the BORROWER hereby irrevocably submits to the
non-exclusive jurisdiction of each such court and acknowledges its competence.
The BORROWER agrees that a final judgement against it in any such legal
proceeding will be conclusive and may be enforced in any other jurisdiction
by suit on the judgment (a certified or exemplified copy of which judgment
will be conclusive evidence of the fact and of the amount of the BORROWER's
indebtedness) or by such other means provided by law.
<PAGE>
25
ARTICLE XIII
MISCELLANEOUS
Section 13.01 -- Insurance
Notwithstanding any other provision to the contrary herein contained, in the
event that any of COLLATERAL is damaged or destroyed, the net proceeds of any
such insurance shall be released by EDC to the BORROWER to be used solely for
repairing and/or replacing the COLLATERAL which is damaged or destroyed.
Section 13.02 -- Severability of Provisions
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction will, as to that jurisdiction, be ineffective to the extent of
that prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of that
provision in any other jurisdiction.
Section 13.03 -- Judgment Currency
The obligation of the BORROWER under this Agreement to make payments in
CANADIAN DOLLARS will not be discharged or satisfied by any payment or
recovery, whether pursuant to any judgment or otherwise, expressed in or
converted into any other currency except to the extent of the amount of
CANADIAN DOLLARS that is actually received by EDC as a result of such payment
recovery. Accordingly, the obligation of the BORROWER to pay in CANADIAN
DOLLARS will be enforceable as an alternative or additional cause of action
for the purpose of recovery in such other currency of the amount by which
such actual receipt by EDC falls short of the full amount of CANADIAN DOLLARS
payable under this Agreement and such obligation will not be affected by
judgment being obtained for any other sums due under this Agreement.
Section 13.04 -- Counterparts and Telefax
This Agreement may be executed in any number of counterparts, each of which
will be deemed to be an original and all of which will constitute together
one and the same instrument and the parties agree that receipt by telefax of
an executed copy of this Agreement will be deemed to be receipt of an
original.
ARTICLE XIV
SUCCESSORS AND ASSIGNS
Section 14.01 -- Successors and Assigns
This Agreement will be binding upon and enure to the benefit of the parties
and their respective successors and assigns. The BORROWER may not assign or
transfer all or any part of its rights
<PAGE>
26
or obligations hereunder. EDC may syndicate or participate to any Canadian
chartered bank all or part of the loan contemplated in this Agreement.
IN WITNESS WHEREOF the parties hereto have signed and delivered this
Agreement.
ROYAL OAK MINES INC.
Signature /s/ Margaret K. Witte
-------------------------
(Print Name): MARGARET K. WITTE
EXPORT DEVELOPMENT CORPORATION
Signature /s/ Kevin Dodds
-------------------------
(Print Name): KEVIN DODDS
Signature /s/ Frank Kelly
-------------------------
(Print Name): FRANK KELLY
<PAGE>
Schedule "A" to the Loan Agreement No. 880-CAN-7559 made between ROYAL OAK
MINES INC. and EXPORT DEVELOPMENT CORPORATION.
DISBURSEMENT TERMS
1. Each amount charged to the account of the BORROWER by EDC in respect of
amounts ADVANCED pursuant to Section 3(c) below will be disbursed to the
SELLER in UNITED STATES DOLLARS by deposit to the account and bank designated
in writing to EDC by the SELLER. Each amount charged to the account of the
BORROWER by EDC in respect of amounts ADVANCED pursuant to Section 3(d) below
will be disbursed to the BORROWER in CANADIAN DOLLARS by deposit to the
account and bank designated in writing to EDC by the BORROWER.
2. If the BORROWER has already paid part or all OF the purchase price of the
GOODS and/or SERVICES, at the request of the BORROWER and on confirmation
from the SELLER that it has received such payment, EDC will disburse an
ADVANCE in respect thereof directly to the BORROWER, with any wire transfer
costs to be payable by the BORROWER.
3. EDC is hereby authorized to make ADVANCES for the account of the BORROWER
up to the amount being financed by EDC upon receipt by EDC of the following:
(a) prior to the first ADVANCE hereunder, a statement from the SELLER
naming the individuals authorized to sign documents on its behalf, with
specimen signatures of such individuals;
(b) prior to the first ADVANCE hereunder, the SELLER's banking
instructions;
(c) for each ADVANCE in respect of Purchase Order Nos. 1834 or 1835;
(i) an invoice, numbered and dated, of the SELLER, expressed in UNITED
STATES DOLLARS and issued pursuant to the relevant Purchase Order and
referring to the GOODS and/or SERVICES to which it relates;
(ii) a photocopy of the Commissioning Report issued in respect of the
GOODS which are the subject of that ADVANCE and issued by Euclid-Hitachi
Heavy Equipment Ltd. (for GOODS supplied pursuant to Purchase Order No. 1835);
(iii) an approval issued by the Chief Financial Officer or Treasurer
of the BORROWER to pay each invoice which is the subject of that ADVANCE;
<PAGE>
2
(d) for each ADVANCE in respect of Purchase Order Nos. 1931, 4139, 4235
or 4236:
(i) an invoice, numbered and dated, expressed in CANADIAN DOLLARS
and issued pursuant to the relevant Purchase Order and referring to the GOODS
and/or SERVICES to which it relates;
(ii) confirmation from the BORROWER that is has made full payment
against each invoice to the relevant supplier or that it will use the
proceeds of the ADVANCE being requested to make full payment to that supplier
on or before the due date of each invoice.
4. A copy of these Disbursement Terms shall be delivered to the SELLER by
EDC.
<PAGE>
Schedule "B" to the Loan Agreement No. 880-CAN-7559 made between ROYAL OAK
MINES INC. and EXPORT DEVELOPMENT CORPORATION.
SECURITY DOCUMENTS
<PAGE>
SECURITY AGREEMENT
1. SECURITY INTEREST
(a) For value received the UNDERSIGNED (the "Debtor") hereby grants to
EXPORT DEVELOPMENT CORPORATION ("EDC"), by way of mortgage, charge,
assignment and transfer, a security interest ("Security Interest") in the
following:
(i) intangibles of the Debtor being all right, title and interest of
the Debtor in and to: (1) Purchase Order No. 1835 dated February 7, 1997; (2)
Purchase Order No. 1834 dated February 7, 1997; (3) Purchase Order No. 4139
dated June 20, 1997; (4) Purchase Order No. 1931 dated April 21, 1997; (5)
Purchase Order No.4236 dated May 6, 1997; and (6) Purchase Order No. 4235
dated May 6, 1997, each as issued by Kemess Mines Inc. to Wajax Industries
Limited (the "Seller") and as amended by the Letter of the Debtor dated July
28, 1997 and further detailed in the Memorandum of the Seller entitled "EDC
Financing Update" dated July 14, 1997 (collectively, as the same may be
amended from time to time with the consent of EDC if required under the Loan
Agreement (as defined below), the "Contract"), including without limitation,
all summary and working purchase order drafts, the Buy-Back Right (as defined
in the Loan Agreement (as defined below)) and any warranties or other rights
under or in respect of the Contract;
(h) the following goods (including without limitation all parts,
accessories, attachments, replacements, additions, repairs and accessions
thereto whether or not acquired by the Debtor under the Contract) now owned
or hereafter owned or acquired by the Debtor or Kemess Mines Inc. under the
contract (collectively, the "Equipment"):
Unit Description Serial Number
--------- ----------------- ---------------
1. Loader LeTourneau D1400 2037
2. Truck#1 Euclid R260 401ADD75749
3. Truck#2 Euclid R260 401ADD75767
4. Truck#3 Euclid R260 401ADD75782
5. Truck#4 Euclid R260 401ADD75800
6. Truck#5 Euclid R260 401ADD75906
7. Truck#6 Euclid R260 410ADD75907
8. Truck#7 Euclid R260 401ADD75909
<PAGE>
2
and in all proceeds thereof, accretions thereto and substitutions therefor
and in all of the following now owned or hereafter owned or acquired by or on
behalf of the Debtor, namely:
(iii) all deeds, documents, writing, papers and books relating to or
being records of the Equipment or the Contract or their proceeds or by which
the Equipment or the Contract or their proceeds are or may hereafter be
secured, evidenced, acknowledged or made payable including Documents of
Title, Chartel Paper, Securities and Instruments relating to the Equipment or
the Contract; and
(iv) all contractual rights and insurance claims relating to the
Equipment or the Contract;
all of the foregoing being hereinafter collectively called
"Collateral".
(b) Unless otherwise limited herein, the terms "Goods", "Chartel Paper",
"Documents of Title", "Instruments", "Securities", "proceeds", "accession",
"Money", "financing statements" and "financing change statements" whenever
used herein shall be interpreted pursuant to their respective meanings when
used in The Personal Property Security Act of the province of British
Columbia, as amended from time to time, which Act, including amendments
thereto and any Act substituted therefor and amendments thereto is herein
referred to as the "P.P.S.A." Provided always that the term "Goods" when used
herein shall not include "consumer goods" or "inventory" of the Debtor as
those terms are defined in the P.P.S.A. Any reference herein to "Collateral"
shall, unless the context otherwise requires, be deemed a reference to
"Collateral or any part thereof".
2. INDEBTEDNESS SECURED
The Security Interest granted by the Debtor to EDC secures payment and
performance of any and all obligations, indebtedness and liability of the
Debtor to EDC (including interest thereon), present or future, direct or
indirect, absolute or contingent, matured or not, extended or renewed,
pursuant to the loan agreement dated July 31, 1997 between the Debtor and
EDC, as amended, restated, replaced, modified, supplemented or novated from
time to time (the "Loan Agreement"), and any ultimate unpaid balance thereof
and whether the same is from time to time reduced and thereafter increased or
entirely extinguished and thereafter incurred again and whether the Debtor be
bound alone or with another or others and whether as principal or surety
(hereinafter collectively called the "Indebtedness").
3. REPRESENTATIONS AND WARRANTIES OF THE DEBTOR
The Debtor represents and warrants and so long as this Security Agreement
remains in effect shall be deemed to continuously represent and warrant that:
(a) the Collateral is genuine and owned by the Debtor free of all Liens
(as defined in the Loan Agreement) ranking prior to or pari passu with the
Security Interest:
<PAGE>
3
(b) the Debtor is authorized to enter into this Security Agreement;
(c) each debt, Chattel Paper and Instrument constituting proceeds of the
Equipment is enforceable in accordance with its terms against the party
obligated to pay the same; and
(d) the locations specified in Schedule "A" are accurate and complete
save for Equipment in transit to such locations.
4. COVENANTS OF THE DEBTOR
So long as this Security Agreement remains in effect the Debtor covenants
and agrees;
(a) to notify EDC in accordance with the Loan Agreement of:
(i) any change in the information contained herein or in the
Schedules hereto relating to the Debtor, the Debtor's business or Collateral.
(ii) the details of any material claims or litigation affecting the
Debtor or Collateral.
(iii) any loss or material damage to Collateral,
(iv) any default by any obligor under any agreement, instrument or
other document, the obligations under which constitute proceeds of
Collateral, in payment or other performance of his obligations; and
(v) the return to or repossession by the Debtor of Collateral;
(b) to do, execute, acknowledge and deliver such financing statements,
financing change statements and further assignments, transfers, documents,
acts, matters and things (including further schedules hereto) as may be
reasonably requested by EDC of or with respect to Collateral in order to give
effect to these presents and to pay all costs for searches and filings in
connection therewith;
(c) to pay all taxes, rates, levies, assessments and other charges of
every nature which may be lawfully levied, assessed or imposed against or in
respect of the Debtor or Collateral as and when the same become due and
payable;
(d) to prevent Collateral from being or becoming an Accession to other
property not covered by this Security Agreement;
(e) to deliver to EDC from time to time promptly upon request:
(i) any Documents of Title, Instruments, Securities and Chattel
Paper constituting, representing or relating to Collateral,
<PAGE>
4
(ii) all books of account and all records, ledgers, reports,
correspondence, schedules, documents, statements, lists and other writings
relating to Collateral for the purpose of inspecting, auditing or copying the
same,
(iii) the annual financial statements prepared by or for the Debtor
regarding the Debtor's business.
(iv) all policies and certificates of insurance relating to
Collateral, and
(v) such information concerning Collateral, the Debtor and the
Debtor's business and affairs as EDC may reasonably request;
(f) not to remove the Collateral from the Province of British Columbia to
another jurisdiction, unless it is to another jurisdiction in Canada or the
United States of America and:
(i) the Debtor give EDC prior written notice;
(ii) the Debtor makes any registrations required in order to
continue the validity, effectiveness and perfection of the security interests
of EDC in the Collateral in the jurisdiction into which the Collateral is to
be moved, and evidence thereof is provided to EDC; and
(iii) the Debtor delivers to EDC an opinion of the Debtor's counsel,
in form satisfactory to EDC, to the effect that EDC's security interests in
the Collateral are enforceable and have been duly registered and perfected in
the jurisdiction into which the collateral is to be moved.
5. USE AND VERIFICATION OF COLLATERAL
Subject to compliance with the Debtor's covenants contained herein and Clause
7 hereof, the Debtor may, until default, possess, operate, collect, use and
enjoy and deal with Collateral in the ordinary course of the Debtor's
business in any manner not inconsistent with the provisions hereof; provided
always that EDC shall have the right at any time and from time to time to
verify the existence and state of the Collateral in any manner EDC may
consider appropriate and the Debtor agrees to furnish all assistance and
information and to perform all such acts as EDC may reasonably request in
connection therewith and for such purpose to grant to EDC or its agents
access to all places where Collateral may be located and to all premises
occupied by the Debtor.
6. SECURITIES
If Collateral at any time includes Securities, the Debtor authorizes EDC to
transfer the same or any part thereof into its own name or that of its
nominee(s) so that EDC or its nominee(s) may appear of record record as the
sole owner thereof, provided that, until default, EDC shall deliver promptly
to the Debtor all notices or other communications received by it or its
nominee(s) as such registered owner and, upon demand and receipt of payment
of any necessary expenses thereof, shall issue to the Debtor or its order a
proxy to vote and take all action with respect to such Securities. After
default, the Debtor waives all rights to receive any notices or
<PAGE>
5
communications received by EDC or its nominee(s) as such registered owner and
agrees that no proxy issued by EDC to the Debtor or its order as aforesaid
shall thereafter be effective.
7. COLLECTION OF DEBTS
Before or after default under this Security Agreement, EDC may notify all or
any obligors under any agreement, instrument or other document, the
obligations under which constitute proceeds of Collateral, of the Security
Interest and may also direct such obligors to make all payments on Collateral
to EDC. The Debtor acknowledges that any payments on or other proceeds of
Collateral received by the Debtor from such obligors, whether before or after
notification of this Security Interest to such obligors and whether before or
after default under this Security Agreement, shall be received and held by
the Debtor in trust for EDC and shall be turned over to EDC upon request.
8. DISPOSITION OF MONEY
Subject to any applicable requirements of the P.P.S.A., all Money collected
or received by EDC pursuant to or in exercise of any right it possesses with
respect to Collateral shall be applied on account indebtedness in accordance
with the provisions of the Loan Agreement.
9. EVENTS OF DEFAULT
The nonpayment when due, whether by acceleration or otherwise, of any
principal or interest forming part of the Indebtedness or the failure of the
Debtor to observe or perform to any obligation, covenant, term, provision or
condition contained in this Security Agreement or the Loan Agreement or any
other agreement between the Debtor and EDC relating to the Collateral,
including without limitation the Loan Agreement shall constitute default
hereunder which is herein referred to as "default".
10. ACCELERATION
EDC, in its sole discretion, may declare all or any part of the Indebtedness
which is not by its terms payable on demand to be immediately due and
payable, without demand or notice of any kind, in the event of default. The
provisions of this clause are not intended in any way to affect any rights of
EDC with respect to any Indebtedness which may now or hereafter to be payable
on demand.
11. REMEDIES
(a) Upon default, EDC may appoint or reappoint by instrument in writing,
any person or persons, whether an officer or officers or an employee or
employees of EDC or not, to be a receiver or receivers(hereinafter called a
"Receiver" which term when used herein shall include a receiver and manager)
of the Collateral and may remove any Receiver so appointed and appoint
another in his stead. Any such Receiver shall, so far as concerns
responsibility for his acts, be deemed the agent of the Debtor and not the
EDC, and EDC shall not be in any way responsible for any agent misconduct,
negligence, or non-feasance on the part of any such Receiver, his servants,
agents or employees. Subject to the provisions of the instrument
<PAGE>
6
appointing him, any such Receiver shall have power to take possession of the
Collateral, to preserve the Collateral or its value, and to sell, lease or
otherwise dispose of or concur in selling, leasing or otherwise disposing of
the Collateral. To facilitate the foregoing powers, any such Receiver may
enter upon all premises owned or occupied by the Debtor wherein the
Collateral may be situate, maintain the collateral upon such premises, and
borrow money on a secured or unsecured basis as such Receiver shall, in his
discretion, determine. Except as may be otherwise directed by EDC, all Money
received from time to time by such Receiver in carrying out his appointment
shall be received in trust for and paid over to EDC. Every such Receiver may,
in the discretion of EDC, be vested with all or any of the rights and powers
of EDC.
(b) Upon default, EDC may, either directly or through its agents or
nominees, exercise any or all of the powers and rights given to a Receiver by
virtue of the foregoing sub-clause (a).
(c) EDC may take possession of, collect, demand, sue on, enforce, recover
and receive the Collateral and give valid and binding receipts and discharges
therefor and in respect thereof and, upon default, EDC may sell, lease or
otherwise dispose of the Collateral in such manner, at such time or times
and place or places, for such consideration and upon such terms and
conditions as to EDC may seem reasonable.
(d) In addition to those rights granted herein and in any other agreement
now or hereafter in effect between the Debtor and EDC and in addition to any
other rights EDC may have at law or in equity, EDC shall have, both before
and after default, all rights and remedies of a secured party under the
P.P.S.A.. Provided always, that EDC shall not be liable or accountable for
any failure to exercise its remedies, take possession of, collect, enforce,
realize, sell, lease or otherwise dispose of the Collateral or to institute
any proceedings for such purposes. Furthermore, EDC shall have no obligation
to take any steps to preserve rights against prior parties to any Instruments
or Chattel Paper, whether Collateral or proceeds and whether or not in EDC's
possession and shall not be liable or accountable for failure to do so.
(e) the Debtor acknowledges that EDC or any Receiver appointed by it may
take possession of the Collateral whereever it may be located and by any
method permitted by law and the Debtor agrees upon request from EDC or any
such Receiver to assemble and deliver possession of the Collateral at such
place or places as directed.
(f) The Debtor agrees to pay all costs, charges and expenses reasonably
incurred by EDC or any Receiver appointed by it, whether directly or for
services rendered (including reasonable solicitors' and auditors' costs and
other legal expenses and Receiver renumeration), in enforcing this Security
Agreement, taking and maintaining custody of, preserving, repairing,
processing, preparing for disposition and disposing of the Collateral and in
enforcing or collecting Indebtedness and all such costs, charges and expenses
together with any amounts
<PAGE>
8
owing as a result of any borrowing by EDC or any Receiver appointed by it, as
permitted hereby, shall be a first charge on the proceeds of realization,
collection or disposition of the Collateral and shall be secured hereby.
(g) EDC will give the Debtor such notice, if any, of the date, time and
place of any public sale or of the date after which any private disposition
of Collateral is to be made, as may be required by the PPSA.
12. MISCELLANEOUS
(a) The Debtor hereby authorizes EDC to file such financing statements,
financing change statements and other documents and do such acts, matters and
thing (including completing and adding schedules hereto identifying the
Collateral or any permitted Liens affecting the Collateral or identifying
the locations at which the Debtor's business is carried on and the Collateral
and records relating thereto are situate) as EDC may deem appropriate to
perfect on an ongoing basis and continue the Security Interest, to protect
and preserve the Collateral and to realize upon the Security Interest and,
effective upon default, the Debtor hereby irrevocably constitutes and
appoints any Loans Operations officer from time to time of EDC the true and
lawful attorney of the Debtor, with fill power of substitution, to do any of
the foregoing in the name of the Debtor whenever and wherever it may be
deemed necessary or expedient.
(b) Without limiting any other right of the EDC, whenever Indebtedness is
immediately due and payable or EDC has the right to declare Indebtedness to
be immediately due and payable (whether or not it has so declared), EDC may,
in its sole discretion, set off against Indebtedness any and all amounts then
owed to the Debtor by EDC in any capacity, whether or not due, and EDC shall
be deemed to have exercised such right of setoff immediately at the time of
making its decision to do so even through any charge therefor is made or
entered on EDC's records subsequent thereto.
(c) Upon the Debtor's failure to perform any of its duties hereunder, EDC
may, but shall not be obligated to, perform any or all of such duties, and
the Debtor shall pay to EDC, forthwith upon written demand therefor, an
amount equal to the expense incurred by EDC in so doing plus interest thereon
from the date such expense is incurred until it is paid at the rate specified
in the Loan Agreement.
(d) EDC may grant extensions of time and other indulgences, take and give
up security, accept compositions, compound, compromise, settle, grant
releases and discharges and otherwise deal with the Debtor, the debtors of the
Debtor, the principal obligant on any indebtedness guaranteed by the Debtor,
sureties and others and with the Collateral and other security as EDC may see
fit without prejudice to the liability of the Debtor or EDC's right to hold
and realize the Security Interest. Furthermore, EDC may demand, collect and
sue on Collateral in either the Debtor's or EDC's name, at EDC's option, and
may endorse the
<PAGE>
8
Debtor's name on any and all cheques, commercial paper, and any other
Instruments pertaining to or constituting the Collateral.
(e) No delay or omission by EDC in exercising any right or remedy
hereunder or with respect to any Indebtedness shall operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise
of any other right or remedy. Furthermore, EDC may remedy any default by the
Debtor hereunder or with respect to any Indebtedness in any reasonable manner
without waiving the default remedied and without waiving any other prior or
subsequent default by the Debtor. All rights and remedies of EDC granted or
recognized herein are cumulative and may be exercised at any time and from
time to time independently or in combination.
(f) The Debtor waives protest of any Instrument constituting Collateral
at any time held by EDC on which the Debtor is in any way liable and, subject
to Clause 11(g) hereof, notice of any other action taken by EDC.
(g) This Security Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
(h) Save for any schedules which may be added hereto pursuant to the
provisions hereof, no modification, variation or amendment of any provision
of this Security Agreement shall be made except by a written agreement,
executed by the parties hereto and no waiver of any provision hereof shall be
effective unless in writing.
(i) Subject to the requirements of Clause 11(g), whenever either party
hereto is required or entitled to notify or direct the other or to make a
demand or request upon the other, such notice, direction, demand or request
shall be in writing and shall be sufficiently given, in the case of EDC, if
delivered to it or sent by prepaid registered mail addressed to it at its
address herein set forth or as changed pursuant hereto and, in the case of
the Debtor, if delivered to it or if sent by prepaid registered mail
addressed to it at its last address known to EDC. Either party may notify the
other pursuant hereto of any change in such party's principal address to be
used for the purposes hereof.
(j) This Security Agreement and the security afforded hereby is in
addition to and not in substitution for any other security now or hereafter
held by EDC, and is intended to be a continuing Security Agreement and shall
remain in full force and effect until all Indebtedness shall be paid in full.
(k) The headings used in this Security Agreement are for convenience only
and are not to be considered a part of this Security Agreement and do not in
any way limit or amplify the terms and provisions of this Security Agreement.
(l) When the context so requires, the singular number shall be read as if
the plural were expressed and the provisions hereof shall be read with all
grammatical changes necessary dependent upon the person referred to being a
male, female, firm or corporation.
<PAGE>
9
(m) In the event any provision of this Security Agreement, as amended
from time to time, shall be deemed invalid or void, in whole or in part, by
any court of competent jurisdiction, the remaining terms and provisions of
this Security Agreement shall remain in full force and effect.
(n) Nothing herein contained shall in any way obligate EDC to grant,
continue, renew, extend time for payment of or accept anything which
constitutes or would constitute Indebtedness.
(o) The Security Interest created hereby is intended to attach when this
Security Agreement is signed by the Debtor and delivered to EDC.
(p) The Debtor acknowledges and agrees that in the event it amalgamates
with any other company or companies it is the intention of the parties hereto
that the term "Debtor" when used herein shall apply to each of the
amalgamating companies and to the amalgamated company, such that the Security
Interest granted hereby (i) shall extend to "Collateral" (as that term is
herein defined) owned by each of the amalgamating companies and the
amalgamated company at the time of amalgamation and to any "Collateral"
thereafter owned or acquired by the amalgamated company, and (ii) shall
secure the "Indebtedness" (as the term is herein defined) of each of the
amalgamating companies and the amalgamated company to EDC at the time of
amalgamation and any "Indebtedness" of the amalgamated company to EDC
thereafter arising. The Security Interest shall attach to "Collateral" owned
by each company amalgamating with the Debtor, and by the amalgamated company,
at the time of amalgamation, and shall attach to any "Collateral" thereafter
owned or acquired by the amalgamated company when such becomes owned or is
acquired.
(q) This security agreement and the transactions evidenced hereby shall
be governed by and construed in accordance with the laws of the province of
British Columbia as the same may from time to time be in effect, including,
where applicable, the P.P.S.A.
13. COPY OF AGREEMENT
(a) The Debtor hereby acknowledges receipt of a copy of this Security
Agreement.
(b) The Debtor hereby waives all right to receive a copy of any financing
statement or financing change statement filed or registered by EDC or any
verification statement issued by the Personal Property Registry established
under the P.P.S.A. that relates to such financing statement or financing
change statement.
<PAGE>
10
14. The Debtor represents and warrants that the following information is
accurate:
BUSINESS DEBTOR NAME AND ADDRESS
Royal Oak Mines Inc.
Suite 2500, 181 Bay Street
Toronto, Ontario
c/o Royal Oak Mines (U.S.A.) Inc.
5501 Lakeshore Drive
Kirkland, Washington
U.S.A.
IN WITNESS WHEREOF the Debtor has executed this Security Agreement as of this
31st day of July, 1997.
ROYAL OAK MINES INC.
)
)
)
Per _________________________ )
Authorized Signatory )
) C/S
Per: _________________________ )
Authorized Signatory )
)
)
)
ADDRESS FOR EDC:
Export Development Corporation
151 O'Connor Street
Ottawa, Ontario
K1A 1K3
Attention: Loans Operations
Telex: 053-4136EXCREDCORP.OTT
Fax: (613) 598-2514
<PAGE>
11
SCHEDULE "A"
1. Locations of the Debtor's Business Operations
2. Locations of Records relating to Collateral
3. Locations of Collateral
<PAGE>
SECURITY AGREEMENT
1. SECURITY INTEREST
(a) For value received the undersigned (the "Debtor") hereby grants
to EXPORT DEVELOPMENT CORPORATION ("EDC"), by way of mortgage, charge,
assignment and transfer, a security interest ("Security Interest") in the
following:
(i) intangibles of the Debtor being all right, title and interest of
the Debtor in and to: (1) Purchase Order No. 1835 dated February 7,
1997; (2) Purchase Order No. 1834 dated February 7, 1997; (3) Purchase
Order No. 4139 dated June 20, 1997; (4) Purchase Order
No. 1931 dated April 21, 1997; (5) Purchase Order No. 4236 dated
May 6, 1997; and (6) Purchase Order No. 4235 dated May 6, 1997,
each as issued by the Debtor to Wajax Industries Limited (the "Seller") and
as amended by the Letter of Royal Oak Mines Inc. (the "Borrower") dated
July 28, 1997 and further detailed in the Memorandum of the Seller
entitled "EDC Financing Update" dated July 14, 1997 (collectively, as
the same may be amended from time to time with the consent of EDC if required
under the Loan Agreement (as defined below) the "Contract"), including
without limitation, all summary and working purchase order drafts, the
Buy-Back Right (as defined in the Loan Agreement (as defined below)) and any
warranties or other rights under or in respect of the Contract;
(ii) the following goods (including without limitation all parts,
accessories, attachments, replacements, additions, repairs and accessions
thereto whether or not acquired by the Debtor under the Contract) now owned or
hereafter owned or acquired by the Debtor or the Borrower under the Contract
(collectively, the "Equipment"):
<TABLE>
<CAPTION>
Unit Description Serial Number
--------- ---------------- -------------
<S> <C> <C> <C>
1. Loader LeTourneau L1400 2037
2. Truck #1 Euclid R260 401ADD75749
3. Truck #2 Euclid R260 401ADD75767
4. Truck #3 Euclid R260 401ADD75782
5. Truck #4 Euclid R260 401ADD75800
6. Truck #5 Euclid R260 401ADD75906
7. Truck #6 Euclid R260 401ADD75907
8. Truck #7 Euclid R260 401ADD75909
</TABLE>
<PAGE>
2
and in all proceeds thereof, accretions thereto and substitutions therefor
and in all of the following now owned or hereafter owned or acquired by or on
behalf of the Debtor, namely:
(iii) all deeds, documents, writing, papers and books relating to or
being records of the Equipment or the Contract or their proceeds or by which
the Equipment or the Contract or their proceeds are or may hereafter be
secured, evidenced, acknowledged or made payable including Documents of
Title, Chattel Paper, Securities and Instruments relating to the Equipment or
the Contract; and
(iv) all contractual rights and insurance claims relating to the
Equipment or the Contract:
all of the foregoing being hereinfafter collecitvely called
"Collateral".
(b) Unless otherwise limited herein, the terms "Goods", "Chattel
Paper", "Documents of Title", "Instruments", "Securities", "proceeds",
"accession", "Money", "financing statements" and "financing change
statements" whenever used herein shall be interpreted pursuant to their
respective meanings when used in the Personal Property Security Act of the
province of British Columbia, as amended from time to time, which Act,
including amendments thereto and any Act substituted therefor and amendments
thereto is herein referred to as the "P.P.S.A.". Provided always that the
term "Goods" when used herein shall not include "consumer goods" or
"inventory" of the Debtor as those terms are defined in the P.P.S.A. Any
reference herein to "collateral" shall, unless the context otherwise
requires, be deemed a reference to "Collateral or any part thereof".
2. INDEBTEDNESS SECURED
The Security Interest granted by the Debtor to EDC secures payment and
performance of any and all obligations, indebtedness and liability of the
Debtor to EDC (including interest thereon), present or future, direct or
indirect, absolute or contingent, matured or not, extended or renewed,
pursuant to the Limited Recourse Guarantee dated as of July 31, 1997
between the Debtor and EDC, as amended, restated, replaced, modified,
supplemented or novated from time to time (the "Guarantee") pursuant to
which the Debtor guarantees payment by the Borrower of all debts and
liabilities, present or future, owing by the Borrower to EDC pursuant to the
loan agreement dated as of July 31, 1997 between the Borrower and EDC, as
amended, restated, replaced, modified, supplemented or novated from time to
time ("Loan Agreement"), and any ultimate unpaid balance thereof and
whether the same is from time to time reduced and thereafter increased or
entirely extinguished and thereafter incurred again, and whether the Debtor
be bound alone or with another or others and whether as principal or surety
(hereinafter collectively called the "Indebtedness").
<PAGE>
3
3. REPRESENTATIONS AND WARRANTIES OF THE DEBTOR
The Debtor represents and warrants and so long as this Security Agreement
remains in effect shall deemed to continuously represent and warrant that:
(a) the Collateral is genuine and owned by the Debtor free of all Liens
(as defined in the Loan Agreement) ranking prior to or pari passu with the
Security Interest;
(b) the Debtor is authorized to enter into this Security Agreement;
(c) each debt, Chattel Paper and Instrument constituting proceeds of the
Equipment is enforceable in accordance with its terms against the party
obligated to pay the same; and
(d) the locations specified in Schedule "A" are accurate and complete
save for Equipment in transit to such locations.
4. COVENANTS OF THE DEBTOR
So long as this Security Agreement remains in effect the Debtor covenants and
agrees:
(a) to notify EDC in accordance with the Loan Agreement of:
(i) any change in the information contained herein or in the Schedules
hereto relating to the Debtor, the Debtor's business or Collateral,
(ii) the details of any material claims or litigation affecting the
Debtor or Collateral,
(iii) any loss or material damage to Collateral,
(iv) any default by any obligor under any agreement, instrument or
other document, the obligations under which constitute proceeds of Collateral,
in payment or other performance of his obligations; and
(v) the return to repossession by the Debtor of Collateral;
(b) to do, execute, acknowledge and deliver such financing statements,
financing change statements and further assignments, transfers, documents,
acts, matters and things (including further schedules hereto) as may be
reasonably requested by EDC of or with respect to Collateral in order to give
effect to these presents and to pay all costs for searches and filings in
connection therewith;
(c) to pay all taxes, rates, levies, assessments and other charges of
every nature which may be lawfully levied, assessed or imposed against or in
respect of the Debtor or Collateral as and when the same become due and
payable;
<PAGE>
4
(d) to prevent Collateral from being or becoming an Accession to other
property not covered by this Security Agreement;
(e) to deliver to EDC from time to time promptly upon request:
(i) any Documents of Title, Instruments, Securities and Chattel Paper
constituting, representing or relating to Collateral,
(ii) all books of account and all records, ledgers, reports,
correspondence, schedules, documents, statements, lists and other writings
relating to Collateral for the purpose of inspecting, auditing or copying the
same,
(iii) the annual financial statements prepared by or for the Debtor
regarding the Debtor's business,
(iv) all policies and certificates of insurance relating to
Collateral, and
(v) such Information concerning Collateral, the Debtor and the
Debtor's business and affairs as EDC may reasonably request;
(f) not to remove the Collateral from the Province of British Columbia to
another jurisdiction, unless it is to another jurisdiction in Canada or the
United States of America and:
(i) the Debtor gives EDC prior written notice;
(ii) the Debtor makes any registrations required in order to continue
the validity, effectiveness and perfection of the security interests of EDC
in the Collateral in the jurisdiction into which the Collateral is to be
moved, and evidence thereof is provided to EDC; and
(iii) the Debtor delivers to EDC an opinion of the Debtor's counsel,
in form satisfactory to EDC, to the effect that EDC's security interests, in
the Collateral are enforceable and have been duly registered and perfected in
the jurisdiction into which the collateral is to be removed.
5. USE AND VERIFICATION OF COLLATERAL
Subject to compliance with the Debtor's covenants contained herein and Clause
7 hereof, the Debtor may, until default, possess, operate, collect, use and
enjoy and deal with Collateral in the ordinary course of the Debtor's
business in any manner not inconsistent with the provisions hereof; provided
always that EDC shall have the right at any time and from time to time verify
the existence and state of the Collateral in any manner EDC may consider
appropriate and the Debtor agrees to furnish all assistance and information
and to perform all such acts as EDC may reasonably request in connection
therewith and for such purpose to grant to EDC or its agents access to all
places where Collateral may be located and to all premises occupied by the
Debtor.
<PAGE>
5
6. SECURITIES
If Collateral at any time includes Securities, the Debtor authorizes EDC to
transfer the same or any part thereof into its own name or that of its
nominees(s) so that EDC or its nominee(s) may appear of record as the sole
owner thereof; provided that, until default, EDC shall deliver promptly to
the Debtor all notices or other communications received by it or its
nominee(s) as such registered owner and, upon demand and receipt of payment
of any necessary expenses thereof, shall issue to the Debtor or its order a
proxy to vote and take all action with respect to such Securities. After
dafault, the Debtor waives all rights to receive any notices or communications
received by EDC or its nominee(s) as such registered owner and agrees that
no proxy issued by EDC to the Debtor or its order as aforesaid shall
thereafter be effective.
7. COLLECTION OF DEBTS
Before or after default under this Security Agreement, EDC may notify all or
any obligors under any agreement, instrument or other document, the
obligations under which constitute proceeds of Collateral, of the Security
Interest and may also direct such obligors to make all payments on
Collateral to EDC. The Debtor acknowledges that any payments on or other
proceeds of Collateral received by the Debtor from such obligors, whether
before or after notification of this Security Interest to such obligors and
whether before of after default under this Security Agreement, shall be
received and held by the Debtor in trust for EDC and shall be turned over to
EDC upon request.
8. DISPOSITION OF MONEY
Subject to any applicable requirements of the P.P.S.A., all Money collected or
received by EDC pursuant to or in exercise of any right it possesses with
respect to Collateral shall be applied on account of Indebtedness in
accordance with the provisions of the Guarantee and the Loan Agreement.
9. EVENTS OF DEFAULT
The nonpayment when due, whether by acceleration or otherwise, of any
principal or interest forming part of the Indebtedness or the failure of the
Debtor to observe or perform any obligation, covenant, term provision or
condition contained in this Security Agreement or the Guarantee or any other
agreement between the Debtor and EDC relating to the Collateral, shall
constitute default hereunder which is herein referred to as "default".
10. ACCELERATION
EDC, in its sole discretion, may declare all or any part of the Indebtedness
which is not by its terms payable on demand to be immediately due and payble,
without demand or notice of any kind, in the event of default. The provisions
of this clause are not intended in any way to affect any rights of EDC with
respect to any Indebtedness which may now or hereafter be payable on demand.
<PAGE>
6
11. REMEDIES
(a) Upon default, EDC may appoint or reappoint by instrument in writing,
any person or persons, whether an officer or officers or an employee or
employees of EDC or not, to be a receiver or receivers (hereinafter called a
"Receiver" which term when used, herein shall include a receiver and
manager) of the Collateral and may remove any Receiver so appointed and
appoint another in his stead. Any such Receiver shall, so far as concerns
responsibility for his acts, be deemed the agent of the Debtor and not EDC,
and EDC shall not be in any way responsible for any misconduct, negligence,
or non-feasance on the part of any such Receiver, his servants, agents or
employees. Subject to the provisions of the instrument appointing him, any such
Receiver shall have power to take possession of the Collateral, to preserve
the Collateral or its value, and to sell, lease or otherwise dispose of or
concur in selling, leasing or otherwise disposing of the Collateral. To
facilitate the foregoing powers, any such Receiver may enter upon all
premises owned or occupied by the Debtor wherein the Collateral may be
situate, maintain the Collateral upon such premises, and borrow money on a
secured or unsecured basis as such Reciever shall, in his discretion,
determine. Except as may be otherwise directed by EDC, all Money received from
time to time by such Receiver in carrying out his appointment shall be
received in trust for and paid over to EDC. Every such Receiver may, in the
discretion of EDC, be vested with all or any of the rights and powers of EDC.
(b) Upon default, EDC may, either directly or through its agents or
nominees, exercise any or all of the powers and rights given to a Receiver by
virtue of the foregoing sub-clause (a).
(c) EDC may take possession of, collect, demand, sue on, enforce, recover
and receive the Collateral and give valid and binding receipts and discharges
therefor and in respect thereof and, upon default, EDC may sell, lease or
otherwise dispose of the Collateral in such manner, at such time or times and
place or places, for such consideration and upon such terms and conditions
as to EDC may seem reasonable.
(d) In addition to those rights granted herein and in any other agreement
now or hereafter in effect between the Debtor and EDC and in addition to any
other rights EDC may have at law or in equity, EDC shall have, both before
and after default, all rights and remedies of a secured party under the
P.P.S.A. Provided always, that EDC shall not be liable or acocuntable for any
failure to exercise its remedies, take possession of, collect, enforce,
realize, sell, lease or otherwise dispose of the Collateral or to institute any
proceedings for such purposes. Furthermore, EDC shall have no obligation to
take any steps to preserve rights against prior parties to any Instrument or
Chattel Paper, whether Collateral or proceeds and whether or not in EDC's
possesion and shall not be liable or accountable for failure to do do.
<PAGE>
7
(e) The Debtor acknowledges that EDC or any Receiver appointed by it may
take possession of the Collateral wherever it may be located and by any
method permitted by law and the Debtor agrees upon request from EDC or any
such Receiver to assemble and deliver possession of the Collateral at such
place or places as directed.
(f) The Debtor agrees to pay all costs, charges and expenses reasonably
incured by EDC or any Receiver appointed by it, whether directly or for
services rendered (including reasonable solicitors' and auditors' costs and
other legal expenses and Receiver remuneration), in enforcing this Security
Agreement, taking and maintaining custody of, preserving, repairing,
processing, preparing for disposition and disposing of the Collateral and in
enforcing or collecting Indebtedness and all such costs, charges and expenses
together with any amounts owing as a result of any borrowing by EDC or any
Receiver appointed by it, as permitted hereby, shall be a first charge on the
proceeds of realization, collection or disposition of the Collateral and
shall be secured hereby.
(g) EDC will give the Debtor such notice, if any, of the date, time and
place of any public sale or of the date after which any private disposition
of Collateral is to be made, as may be required by the P.P.S.A.
12. MISCELLANEOUS
(a) The Debtor hereby authorizes EDC to file such financing statements,
financing change statements and other documents and do such acts, matters and
things (including completing and adding schedules hereto identifying the
Collateral or any permitted Liens affecting the Collateral or identifying the
locations at which the Debtor's business is carred on and the Collateral and
records relating thereto are situate) as EDC may deem appropriate to perfect
on an ongoing basis and continue the Security Interest, to protect and
preserve the Collateral and to realize upon the Security Interest and,
effective upon default, the Debtor hereby irrevocably constitutes and
appoints any Loans Operations officer from time to time of EDC the true and
lawful attorney of the Debtor, with full power of substitution, to do any of
the foregoing in the name of the Debtor whenever and wherever it may be
deemed necessary or expedient.
(b) Without limiting any other right of EDC, whenever Indebtedness is
immediately due and payable or EDC has the right to declare Indebtedness to
be immediately due and payable (whether or not it has so declared), EDC may,
in its sole discretion, set off against Indebtedness any and all amounts then
owed to the Debtor by EDC in any capacity, whether or not due, and EDC shall
be deemed to have exercised such right of setoff immediately at the time of
making its decision to do so even though any charge therefor is made or
entered on EDC's records subequent thereto.
<PAGE>
8
(c) Upon the Debtor's failure to perform any of its duties hereunder, EDC
may, but shall not be obligated to, perform any or all of such duties, and
the Debtor shall pay to EDC, forthwith upon written demand therefor, an
amount equal to the expense incurred by EDC in so doing plus interest thereon
from the date such expense is incurred until it is paid at the rate specified
in the Guarantee.
(d) EDC may grant extensions of time and other indulgences, take and give
up security, accept compositions, compound, compromise, settle, grant
releases and discharges and otherwise deal with the Debtor, the debtors of the
Debtor, the principal obligant on any indebtedness guaranteed by the Debtor,
sureties and others and with the Collateral and other security as EDC may see
fit without prejudice to the liability of the Debtor or EDC's right to hold and
realize the Security Interest. Furthermore, EDC may demand, collect and sue on
Collateral in either the Debtor's or EDC's name, at EDC's option, and may
endorse the Debtor's name on any and all cheques, commercial paper, and any
other Instruments pertaining to or constituting the Collateral.
(e) No delay or omission by EDC in exercising any right or remedy
hereunder or with respect to any Indebtedness shall operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise
of any other right or remedy. Furthernmore, EDC may remedy any default by
the Debtor hereunder or with respect to any Indebtedness in any reasonable
manner without waiving the default remedied and without waiving any other
prior or subsequent default by the Debtor. All rights and remedies of EDC
granted or recognized herein are cumulative and may be exercised at any time
and from time to time independently or in combination.
(f) The Debtor waives protest of any Instrument constituting Collateral at
any time held by EDC on which the Debtor is in any way liable and, subject to
Clause 11(g) hereof, notice of any other action taken by EDC.
(g) This Security Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
(h) Save for any schedules which may be added hereto pursuant to the
provisions hereof, no modification, variation or amendment of any provision
of this Security Agreement shall be made except by a written agreement,
executed by the parties hereto and no waiver of any provision hereof shall be
effective unless in writing.
(i) Subject to the requirements of Clause 11(g), whenever either party
hereto is required or entitled to notify or direct the other or to make a
demand or request upon the other, such notice, direction, demand or request
shall be in writing and shall be sufficiently given, in the case of EDC, if
delivered to it or sent by prepaid registered mail addressed to it at its
address herein set forth or as chnaged pursuant hereto and, in the case of
the Debtor, if delivered to it or if sent by prepaid registered mail addressed
to it at is last address known to EDC. Either
<PAGE>
9
party may notify the other pursuant hereto of any change in such party's
principal address to be used for the purposes hereof.
(j) This Security Agreement and the security afforded hereby is in
addition to and not in substitution for any other security now or hereafter
held by EDC, and is intended to be a continuing Security Agreement and shall
remain in full force and effect until all Indebtedness shall be paid in full.
(k) The headings used in this Security Agreement are for convenience only
and are not to be considered a part of this Security Agreement and do not in
any way limit or amplify the terms and provisions of this Security Agreement.
(l) When the context so requires, the singluar number shall be read as if
the plural were expressed and the provisions hereof shall be read with all
grammatical changes necessary dependent upon the person referred to being a
male, female, firm or corporation.
(m) In the event any provision of this Security Agreement, as amended from
time to time, shall be deemed invalid or void, in whole or in part, by any
court of competent jurisdiction, the remaining terms and provisions of this
Security Agreement shall remain in full force and effect.
(n) Nothing herein contained shall in any way obligate EDC to grant,
continue, renew, extend time for payment of or accept anything which
constitutes or would constitute Indebtedness.
(o) The Security Interest created hereby is intended to attach when this
Security Agreement is signed by the Debtor and delivered to EDC.
(p) The Debtor acknowledges and agrees that in the event it amalgamates
with any other company or companies it is the intention of the parties hereto
that the term "Debtor" when used herein shall apply to each of the
amalgamating companies and to the amalgamated company, such that the Security
Interest granted hereby (i) shall extend to "Collateral" (as that term is
herein defined) owned by each of the amalgamating companies and the amalgamated
company at the time of amalgamation and to any "Collateral" thereafter owed
or acquired by the amalgamated company, and (ii) shall secure the
"Indebtedness" (as that term is herein defined) of each of the amalgamating
companies and the amalgamated company to EDC at the time of amalgamation and
any "Indebtedness" of the amalgamated company to EDC thereafter arising. The
Security Interest shall attach to "Collateral" owned by each company
amalagamating with the Debtor, and by the amalgamated company, at the time of
amalgamation, and shall attach to any "Collateral" thereafter owned or
acquired by the amalgamated company when such becomes owned or is acquired.
<PAGE>
10
(q) This security agreement and the transactions evidenced hereby shall
be governed by and construed in accordance with the laws of the province of
British Columbia as the same may from time to time be in effect, including,
where applicable, the P.P.S.A.
13. COPY OF AGREEMENT
(a) The Debtor hereby acknoweldges receipt of a copy of this Security
Agreement.
(b) The Debtor hereby waives all right to receive a copy of any financing
statement or fianncing change statement filed or registered by EDC or any
verification statement issued by the Personal Property Registry established
under the P.P.S.A. that relates to such financing statement or financing
change statement.
14. The Debtor represents and warrants that the following information is
accurate:
BUSINESS DEBTOR NAME AND ADDRESS
Kemess Mines Inc.
c/o Royal Oak Mines Inc.
Suite 2500, 181 Bay Street
Toronto, Ontario
c/o Royal Oak Mines (U.S.A.) Inc.
5501 Lakeshore Drive
Kirkland, Washington
U.S.A.
<PAGE>
11
DULL HOUSSER TUPPER
IN WITNESS WHEREOF the Debtor has executed this Security Agreement as of this
31st day of July, 1997.
KEMESS MINES INC. )
)
)
Per: )
-------------------------- )
Authorized Signatory ) C/S
)
)
Per: )
-------------------------- )
Authorized Signatory )
)
ADDRESS FOR FDC:
Export Development Corporation
151 O'Connor Street
Ottawa Ontario
K1A 1K3
Attention: Loans Operations
Telex: 053-4136EXCREDCORP.OTT
Fax: (613) 598-2514
- --insert starting with MS97
<PAGE>
SCHEDULE "A"
1. Locations of the Debtor's Business Operations
2. Locations of Records relating to Collateral
3. Locations of Collateral
<PAGE>
LIMITED RECOURSE GUARANTEE
TO: EXPORT DEVELOPMENT CORPORATION
FOR VALUABLE CONSIDERATION, receipt whereof is hereby acknowledged, the
undersigned hereby guarantees payment on demand to EXPORT DEVELOPMENT
CORPORATION ("EDC") of all debts and liabilities, present or future, direct or
indirect, absolute or contingent, matured or not, at any time owing by ROYAL OAK
MINES INC. ("ROM") to EDC or remaining unpaid by ROM to EDC, pursuant to the
Loan Agreement dated as of July 31, 1997 between ROM and EDC, as amended,
restated, replaced, modified, supplemented or novated from time to time ("Loan
Agreement") and whether ROM be bound alone or with another or others and whether
as principal or surety (such debts and liabilities being hereinafter called the
"liabilities"), together with interest thereon from the date of demand for
payment at the rate per annum equal to the sum of (i) the six (6) month
"CAD-BA-CDOR" (as defined in the Loan Agreement) and (ii) 2% per annum.
AND THE UNDERSIGNED HEREBY AGREES WITH EDC AS FOLLOWS:
(1) Deal Freely With ROM
EDC may grant time, renewals, extensions, indulgences, releases and
discharges to, take securities (which word as used herein includes securities
taken by EDC from ROM and others, other assets of ROM held by EDC in safekeeping
or otherwise, and other guarantees) from and give the same and any or all
existing securities up to, abstain from taking securities from or from
perfecting securities of, cease or refrain from giving credit or making loans or
advances to, accept compositions from and otherwise deal with, ROM and others
and with all securities as EDC may see fit, and may apply all moneys at any time
received from ROM, or others or from securities upon such part of the
liabilities as required under the Loan Agreement, the whole without in any way
limiting or lessening the liability of the undersigned under this guarantee, and
no loss of or in respect of any securities received by EDC from ROM or others,
whether occasioned by the fault of EDC or otherwise, shall in any way limit or
lessen the liability of the undersigned under this guarantee.
(2) Continuing Guarantee
This guarantee shall be a continuing guarantee and shall cover all the
liabilities, and it shall apply to and secure any ultimate balance due or
remaining unpaid to EDC.
(3) Immediate Payment
EDC shall not be bound to exhaust its recourse against ROM or others or any
securities it may at any time hold before being entitled to payment from the
undersigned of the liabilities. The undersigned renounces all benefits of
discussion and division.
(4) Determining Liability
The undersigned may, by notice in writing delivered to EDC, determine its
liability under this guarantee in respect of liabilities thereafter incurred or
arising but not in respect of any liabilities theretofore incurred or arising
even though not then matured, provided, however, that notwithstanding receipt of
any such notice EDC may fulfil any requirements of ROM based on
<PAGE>
2
agreements express or implied made prior to the receipt of such notice and
any resulting liabilities shall be covered by this guarantee.
(5) Changes in ROM Constitution
This guarantee and agreement shall not be affected by any change in the
name of ROM, or by the acquisition of ROM's business by a corporation, or by any
change whatsoever in the objects, capital structure or constitution of ROM, or
by ROM's business being amalgamated with a corporation, but shall
notwithstanding the happening of any such event continue to apply to all the
liabilities whether theretofore or thereafter incurred or arising and in this
instrument the word "ROM" shall include every such corporation.
(6) No Satisfaction or Subrogation
This guarantee shall not be considered as wholly or partially satisfied by
the payment or liquidation at any time or times of any sum or sums of money for
the time being due or remaining unpaid to EDC, and all dividends, compositions,
proceeds of security valued and payments received by EDC from ROM or from others
or from estates shall be regarded for all purposes as payments in gross without
any right on the part of the undersigned to claim in reduction of the liability
under this guarantee the benefit of any such dividends, compositions, proceeds
or payments or any securities held by EDC or proceeds thereof, and the
undersigned shall have no right to be subrogated in any rights of EDC until EDC
shall have received payment in full of the liabilities.
(7) The "Liabilities"
All moneys, advances, renewals, credits and credit facilities in fact
borrowed or obtained from EDC shall be deemed to form part of the liabilities,
notwithstanding any lack or limitation of status or of power, incapacity or
disability of ROM or of the directors, partners or agents of ROM, or that ROM
may not be a legal or suable entity, or any irregularity, defect or informality
in the borrowing or obtaining of such monies, advances, renewals, credits or
credit facilities, or any other reason, similar or not, the whole whether known
to EDC or not. Any sum which may not be recoverable from the undersigned on the
footing of a guarantee, whether for the reasons set out in the previous
sentence, or for any other reason, similar or not, shall be recoverable from the
undersigned as sole or principal debtor in respect of that sum and shall be paid
to EDC on demand with interest and accessories.
(8) Not Substitution
This guarantee is in addition to and not in substitution for any other
guarantee, by whomsoever given, at any time held by EDC, and any present or
future obligation to EDC incurred or arising otherwise than under a guarantee,
of the undersigned or of any other obligant, whether bound with or apart from
ROM.
<PAGE>
3
(9) Bound by Accounts
The undersigned shall be bound by any account settled between EDC and ROM,
and if no such account has been so settled immediately before demand for payment
under this guarantee any account stated by EDC shall be accepted by the
undersigned as conclusive evidence of the amount which at the date of the
account so stated is due by ROM to EDC or remains unpaid by ROM to EDC, absent
manifest error.
(10) Binding and Unconditional
This guarantee shall be operative and binding upon every signatory hereof
notwithstanding the non-execution thereof by any other proposed signatory or
signatories, and possession of this instrument by EDC shall be conclusive
evidence against the undersigned that this instrument was not delivered in
escrow or pursuant to any agreement that it should not be effective until any
conditions precedent or subsequent had been complied with.
(11) Demand Before Suit
No suit based on this guarantee shall be institued until demand for payment
has been made, and demand for payment shall be deemed to have been effectually
made upon any guarantor if and when an envelope containing such demand,
addressed to such guarantor at the address of such guarantor last known to EDC,
is posted, postage prepaid, in the post office. Moreover, when demand for
payment has been made, the undersigned shall also be liable to EDC for all legal
costs (on a solicitor and own client basis) incurred by or on behalf of EDC
resulting from any action instituted on the basis of this guarantee. All
payments hereunder shall be made to EDC at the address set out herein.
(12) Whole Agreement
This instrument covers all agreements between the parties hereto relative
to this guarantee and none of the parties shall be bound by any representation
or promise made by any person relative thereto which is not embodied herein.
(13) Enurement
This guarantee shall extend to and enure to the benefit of EDC and its
successors and assigns, and every reference herein to the undersigned is a
reference to and shall be construed as including the undersigned and the
successors and assigns of the undersigned, to and upon whom this guarantee shall
extend and be binding.
(14) Governing Law
This guarantee shall be governed by and construed in accordance with the
laws of the Province of British Columbia ("Jurisdiction"). The undersigned
irrevocably submits to the courts of the Jurisdiction in any action or
proceeding arising out of or relating to this guarantee, and irrevocably agrees
that all such actions and proceedings may be heard and determined in such
courts, and irrevocably waives, to the fullest extent possible, the defence of
an inconvenient forum. The undersigned agrees that a judgment or order in any
such action or proceeding may be enforced in other jurisdictions in any manner
provided by law. Provided, however, that EDC may serve legal process in any
manner permitted by law or may bring an action or proceeding against the
undersigned or the property or assets of the undersigned in the courts of any
other jurisdiction.
<PAGE>
4
(15) Receipt Acknowledged
The undersigned hereby acknowledges receipt of a copy of this agreement.
(16) Limited Recourse
The rights of EDC to pursue full payment by the undersigned will be limited
to accordance with the letter agreement from EDC to the undersigned dated as of
July 31, 1997, concerning limitation of recourse.
GIVEN UNDER SEAL AT ____________, as of this 31st day of July, 1997
THE CORPORATE SEAL of )
KEMESS MINES INC. was hereunto )
affixed in the presence of: )
)
- --------------------------- )
Authorized Signatory )
)
) C/S
)
- --------------------------- )
Authorized Signatory )
<PAGE>
(on EDC letterhead)
as of July 31, 1997
Kemess Mines Inc.
Suite 2500
181 Bay Street
Toronto, Ontario
M5J2T7
Dear Sirs:
Re: Limitation of Recourse
Kemess Mines Inc. ("Kemess") has executed and delivered to Export Development
Corporation ("EDC") a limited recourse guarantee and a security agreement, both
dated as of July 31, 1997 (collectively, the "Documents").
This letter confirms that notwithstanding anything expressed or implied in the
Documents:
1. the right of EDC to recover from Kemess or its successors or assigns
(collectively, the "Debtor") any amounts, indebtedness or damages owing under or
in connection with the Documents, at law or in equity or by statute or contract
in connection with the Documents, or to any other remedy thereunder will be
limited and restricted to rights of EDC to realize upon the "Collateral" (as
defined in the Documents), including the obtaining of any judgment in respect
thereof that is necessary to effect such realization;
2. the Debtor will not have any personal liability for the payment of any such
amounts, indebtedness or damages or any judgment therefor; and
3. EDC will have no recourse against the Debtor for the deficiency, if any,
which may exist after EDC has realized on the Collateral,
PROVIDED THAT the Debtor will be liable to EDC for, and will pay to EDC the
amount of, any losses, liabilities, claims, damages and expenses caused by the
fraud (a) committed by the Debtor, or (b) committed by or participated in by one
or more persons as officers or directors of the Debtor.
Yours truly,
EXPORT DEVELOPMENT CORPORATION
- ------------------------------
Authorized Signatory
- ------------------------------
Authorized Signatory
<PAGE>
2
I am of the opinion that:
1. the borrower is a BLANK duly incorporated, organized and validly existing
under the laws of Canada and any other jurisdiction where it carries on business
and has its registered head office at BLANK;
2. the Borrower has power and authority to own its property and assets and to
carry on business as it is being carried on at the date of the Loan Agreement;
3. the entering into, delivery of and performance of the terms by the Borrower
of the Loan Agreement, the Contract and the Security Agreement and of each
document to be delivered by the Borrower with respect thereto:
(i) are within its corporate powers and have been duly authorized by all
necessary corporate action;
(ii) are not in violation of any law, statue, regulation, ordinance or
decree of [Country] and are not contrary to public policy or public order in
[Country]; and
[(iii) except for the security interest created under the Loan Agreement,
will not result in or require the creation or imposition of a Lien upon the
Collateral whether created or imposed at law or pursuant to the terms of any
instrument to which the Borrower is subject or by which it or any of its
properties or assets are bound;]
4. the Loan Agreement, the Contract and the Security Agreement constitutes
direct, legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms;
5. all registrations, consents, licenses and approvals of any administrative
or governmental agency or other body required pursuant to the laws of [Country]
or any political subdivision thereof in connection with the execution and
delivery by the Borrower of the Loan Agreement, [the Contract and the Security
Agreement] and each document to be delivered by the Borrower with respect
thereto, the performance by the Borrower of the terms thereof, for the making of
the payment in United States Dollars of amounts due under the Loan Agreement
(including all amounts of principal, interest and any additional amounts payable
in respect thereof and all administration, commitment and other fees and all
costs and expenses due under the Loan Agreement) to EDC at the place and at the
times specified therein when and as the same will become due and payable whether
as maturity by acceleration or otherwise, and the validity and enforceability
and admissibility in evidence thereof, have been effected or obtained and are in
full force and effect, including BLANK except BLANK;
6. it is not necessary in order to ensure the legality, validity, binding
nature, enforceability or admissibility in evidence of the Loan Agreement, the
Contract or the Security Agreement in Canada that any document be filed,
recorded or enrolled with any court or authority in
<PAGE>
3
Canada or that any stamp, registration or other like taxes by paid on or in
relation to the Loan Agreement, the Contract or the Security Agreement except
BLANK;
7. the obligations of the Borrower under the Loan Agreement rank and will rank
at least equally with all other unsecured and unsubordinated Indebtedness of the
Borrower;
8. the properties, assets and revenues of the Borrower are not subject to any
Liens including the Collateral of any kind save and except BLANK;
9. the audited financial statements of the Borrower dated as of BLANK, copies
of which have been delivered to EDC, are true and correct and accurately present
the financial condition of the Borrower and the results of its operations for
the period covered; such financial statements have been prepared in accordance
with GAAP applied on a consistent basis;
10. there are no legal proceedings pending or, so far as is known to me,
threatened before any court, arbitral tribunal, administrative agency or
governmental or other body having authority over it which could or would
materially adversely affect the financial condition or the operations of the
Borrower or its ability to perform its obligations under the Loan Agreement, the
Security Agreement or under the Contract;
11. the Borrower is not in violation of any term of its incorporating
instrument and by-laws or of any agreement, instrument evidencing indebtedness,
mortgage; franchise, license, judgment, decree, order, statute, rule, law,
ordinance or regulation to which it or its business or assets are subject; the
entering into and performance of and compliance with the Loan Agreement, the
Contract and the Security Agreement and each document to be delivered thereunder
will not result in any such violation or constitute a default under or be in
conflict with any such term or result in the creation of any Lien upon any of
the assets of the Borrower pursuant to any such term including without
limitation the Collateral; and there is no such term which materially adversely
affects or in the future may (so far as I can now foresee) materially adversely
affect the financial condition or the business or assets of the Borrower or its
ability to perform its obligations under the Loan Agreement, the Contract or the
Security Agreement;
12. all payments to be made by the Borrower under the Loan Agreement are exempt
from any present Taxes of or in Canada and the Borrower is not required by law
to make any deduction or withholding therefrom;
13. the security interest granted to EDC pursuant to the Security Agreement has
been [perfected/registered].
Yours truly,
<PAGE>
Schedule "D" to the Loan Agreement No. 880-CAN-7559 made between ROYAL OAK MINES
INC. and EXPORT DEVELOPMENT CORPORATION.
LEGAL PROCEEDINGS - S.2.01(g)
<PAGE>
SCHEDULE "D"
LEGAL PROCEEDINGS
A. Sheila Fullowka et al v. Royal Oak Mines Inc., et al, Supreme court of
NWT, (commenced September, 1994) - pleadings largely complete; productions
on-going.
On September 18, 1992, nine miners were murdered in an underground explosion
at the Company's Giant Mine. A member of the union which was on strike at
the time was charged and convicted of nine counts of second degree murder.
In September, 1994, dependents of the deceased miners sued the Company and
two of its officers and directors, along with 23 other named defendants, for
losses allegedly suffered as a result of the explosion. The claim against
the Company totals approximately $10.8 million plus taxes, interest and
costs. The claim against the two officers and directors, excluding the
Company, totals approximately $33.65 million plus taxes, interest and costs.
The claim is being vigorously defended. Counsel for the Company's insurer has
stated that, based on allegations in the amended Statement of Claim, any
possible liability exposure would be within the Company's liability insurance
coverage.
B. The Tsay Keh Dene Band, et al v. Kemess Mines Inc., et al, Supreme Court
of B.C., (commenced February, 1997) - interim and interlocutory petitions for
injunction by the Dene and Takla Lake Bands denied; judicial review hearing
scheduled for last week of September, 1997.
The Dene and Takla Bands sued three B.C. government ministries, the District
Manager of Forests for MacKenzie, Kemess Mines Inc. and two of its logging
contractors in a bid to stop development of the power line being built to the
Kemess site. The Petition was only filed after the Company advised that it
would not sign the lucrative Benefits and Impact Agreement sought by the
Dene. Injunction proceedings by the Bands have been unsuccessful to date.
In September, 1997 the Court will hear argument on the issues of whether
there was adequate consultation with the Bands during the government's
lengthy environmental assessment process for approval of the Kemess Project;
and whether the government, in granting the Approval Certificate, was biased
by its execution of the Heads of Agreement with Royal Oak Mines Inc. in
August, 1995. The Company's defence is that of an innocent party unfairly
caught in the middle. The court's denial of injunctive relief would seem to
lend credence to the Company's position.
<PAGE>
Schedule "E" to the Loan Agreement No. 880-CAN-7559 made between ROYAL OAK
MINES INC. and EXPORT DEVELOPMENT CORPORATION.
PPSA SEARCH RESULTS - S.2.01(f)
<PAGE>
SCHEDULE "E"
PPSA SEARCH RESULTS
BRITISH COLUMBIA
(a) Kemess Mines Inc. (currency date July 15, 1997)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Base
Registration
No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6405325 May 29, 1996 The Bank of Nova Scotia Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6405331 May 29, 1996 The Bank of Nova Scotia Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6454671 June 25, 1996 Coast Mountain Chev Olds 2 Motor Vehicles
Ltd.
- -----------------------------------------------------------------------------------------------------------------------
6465835 June 27, 1996 Dueck Chevrolet Oldsmobile Motor Vehicle
Cadillac Ltd
- -----------------------------------------------------------------------------------------------------------------------
6518446 July 30, 1996 Finning Ltd. Caterpillar Tractor,
Bulldozer, and Ripper-Single
Shank vehicles, and
proceeds therefrom
- -----------------------------------------------------------------------------------------------------------------------
6534057 August 6, 1996 Dueck Chevrolet Oldsmobile Motor Vehicle
Cadillac Ltd
- -----------------------------------------------------------------------------------------------------------------------
6542476 August 13, 1996 Finning Ltd. Caterpillar Loader, Finning
4.0 Cu. Yd. Gp Penetration
Bucket, IMAC Classic Pallet
Pork, Dozer (snow) blade,
and all proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6542499 August 13, 1996 Finning Ltd. Caterpillar Loader, Finning
7.0 Cu. Yd. Rocket Bucket,
and all proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6542510 August 13, 1996 Finning Ltd. Caterpillar 16H Grader, and
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6575699 September 3, 1996 Xerox Canada Inc. All present and future goods
(including without limitation
office equipment) financed
by Xerox.
- -----------------------------------------------------------------------------------------------------------------------
6585032 September 9, 1996 Finning Ltd. Caterpillar 375L, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6694731 November 12, 1996 Wood Wheaton Chevrolet Geo Motor Vehicle
Oldsmobile Cadillac Ltd.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Base
Registration
No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6724789 November 27, 1996 Finning Ltd. Caterpillar D10N Tractor,
100 Bulldozer, and #10
Ripper Single Shank
vehicles, and all proceeds
therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6724884 November 27, 1996 Finning Ltd. Caterpillar Vehicle, Finning,
7.0 Cu Yd. Rock Bucket,
and all proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6724977 November 27, 1996 Finning Ltd. Caterpillar Vehicle, Finning,
4.0 Cu Yd. Gp Penetration
Bucket, IMAC Classic Pallet
Fork, Dozer (snow) Blade,
and all proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6725006 November 27, 1996 Finning Ltd. Caterpillar Vehicle, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6740900 December 5, 1996 Coast Mountain Chev Olds Ltd Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6740910 December 5, 1996 Coast Mountain Chev Olds Ltd Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6740924 December 5, 1996 Coast Mountain Chev Olds Ltd Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6740942 December 5, 1996 Coast Mountain Chev Olds Ltd Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6740968 December 6, 1996 Coast Mountain Chev Olds Ltd Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6766918 December 20, 1996 Finning Ltd. Caterpillar Vehicle, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6775713 December 30, 1996 Coast Mountain Chev Olds Ltd Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6861988 February 17, 1997 Finning Ltd. Caterpillar Vehicle, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
7033085 May 21, 1997 Finning Ltd. Caterpillar Vehicle, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
7051166 May 29, 1997 Finning Ltd. Caterpillar Vehicle, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Base
Registration
No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7054630 May 30, 1997 GE Capital Vehicle and 10 X 54 Modular Unit
Equipment Leasing Inc.
- -----------------------------------------------------------------------------------------------------------------------
7086908 June 17, 1997 Finning Ltd. Caterpillar Vehicle, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
7086926 June 17, 1997 Finning Ltd. Caterpillar Vehicle, and all
proceeds therefrom
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Royal Oak Mines Inc. (currency date July 15, 1997)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Base
Registration
No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4319819 November 19, 1992 PHH Canada Inc Motor Vehicles, Automotive
Equipment and Materials-
Handling Equipment leased
by the Debtor from the
secured party with all
attachments.
Proceeds: All of the Debtor's
present and after-acquired
personal property.
- -----------------------------------------------------------------------------------------------------------------------
4937941 November 24, 1993 Royal Bank of Canada Tamrock Drill and
reconditioned Drifter.
- -----------------------------------------------------------------------------------------------------------------------
50223118 January 19, 1994 Royal Bank of Canada 5 Motor Vehicles.
- -----------------------------------------------------------------------------------------------------------------------
5095075 March 4, 1994 Imperial Oil All Petroleum Products,
Fuels and Lubricants now or
hereafter supplied by the
secured party, and the
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
5336630 July 27, 1994 BT Bank of Canada All of the Debtor's present
and after-acquired personal
property and assets including
without limitation:
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Base
Registration
No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All of the common shares of
the debtor in the capital of
LAC Minerals Ltd., and
proceeds therefrom.
All funds and amounts
deposited by or on behalf of
the debtor with the R-M
Trust Company for the
purpose of purchasing the
securities in connection with
the offer made by the debtor
dated July 11, 1994 to
acquire not less than 66-
2/3% of the issued and
outstanding common shares
of LAC Minerals Ltd., and
all proceeds therefrom.
*
- -----------------------------------------------------------------------------------------------------------------------
" August 3, 1994 Bankers Trust Company Registration 5355355 is an
amendment to change the
name of the secured party.
- -----------------------------------------------------------------------------------------------------------------------
5367126 August 17, 1994 Associates Commercial 2 Toro Scoop Trams, and all
Corporation of Canada Ltd. attachments and proceeds
therefrom.
- -----------------------------------------------------------------------------------------------------------------------
" July 10, 1996 Associates Leasing (Canada) Registration 6493954 is an
Lt. amendment to change the
name of the secured party.
- -----------------------------------------------------------------------------------------------------------------------
" July 10, 1996 Associates Commercial Registration 6494120 is an
Corporation of Canada Ltd. addition of collateral
description to include one
Toror LHD Scoop Tram.
- -----------------------------------------------------------------------------------------------------------------------
5975111 September 11, 1995 1091064 Ontario Limited All ore extracted from the
mineral claims comprised in
the property as defined in the
security agreement made by
debtor in favour of secured
party as of August 17, 1995,
and all proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
6163099 January 8, 1996 Chrysler Credit Canada Ltd. Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
6394990 May 17, 1996 GMAC LeaseCo Limited Motor Vehicle
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Base
Registration
No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6504600 July 23, 1996 Telecom Leasing Canada Telecommunications
(TLC) Limited Equipment
- -----------------------------------------------------------------------------------------------------------------------
7061560 June 4, 1997 Caterpillar Financial Services 2 Caterpillar Vehicles, and all
Limited proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
" June 23, 1997 Caterpillar Financial Services Registration 7109685 is an
Limited amendment to add another
Caterpillar Vehicle.
- -----------------------------------------------------------------------------------------------------------------------
" June 30, 1997 Caterpillar Financial Services Registration 7124060 is an
Limited amendment to add another
Vehicle
- -----------------------------------------------------------------------------------------------------------------------
7108498 June 30, 1997 Caterpillar Financial Services Caterpillar Vehicle, and all
proceeds therefrom.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
ONTARIO
(a) Kemess Mines Inc. - CLEAR
(b) Royal Oak Mines Inc. (currency date July 27, 1997)
The following abbreviations are used to identify collateral
classifications under the Personal Property Security Act (Ontario)
A - Accounts (formerly known I - Inventory
as "Book Debts") MV - includes Motor Vehicle
CG - Consumer Goods O - Other
E - Equipment
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Reference
File No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
073314792 April 17, 1997 Murdoch Group, Inc. E, MV
97 GMC K1500 X-Cab
Short Box
- -----------------------------------------------------------------------------------------------------------------------
073314657 March 20 1997 Murdoch Group, Inc. E, MV
96 GMC S-15 Jimmy 4x4
- -----------------------------------------------------------------------------------------------------------------------
073314666 March 20, 1997 Murdoch Group, Inc. E, MV
96 GMC 3/4 T 4x4
- -----------------------------------------------------------------------------------------------------------------------
826960185 December 9, 1996 Mining Technologies E,O
International Inc. O/A MTI
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Reference
File No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Leasing
- -----------------------------------------------------------------------------------------------------------------------
* April 16, 1997 Amendment of registration
961209 1901 1529 6050 to
change address of secured
party.
- -----------------------------------------------------------------------------------------------------------------------
073897533 November 29, 1996 Murdoch Group Inc. E, MV
96 Chev Cheyenne 1/2 T
2WD Pickup
- -----------------------------------------------------------------------------------------------------------------------
073897308 November 15, 1996 Murdoch Group Inc. E, MV
96 Chevrolet 3/4T 4x4 Diesel
- -----------------------------------------------------------------------------------------------------------------------
073777815 October 11, 1996 Murdoch Group Inc. E, MV
96 GMC 3/4 Ton 4x4
- -----------------------------------------------------------------------------------------------------------------------
073777824 October 11, 1996 Murdoch Group Inc. E, MV
96 Chevrolet 1/2 Ton 2WD
- -----------------------------------------------------------------------------------------------------------------------
076843386 October 3, 1996 Murdoch Group Inc. E, MV
96 GMC 3/4 Ton 4x4
- -----------------------------------------------------------------------------------------------------------------------
076843395 October 3, 1996 Murdoch Group Inc. E, MV
96 GMC 3/4 Ton 4x4
- -----------------------------------------------------------------------------------------------------------------------
825300603 October 1, 1996 IBM Canada Limited-Attn. E, A, O
Marny Paget
- -----------------------------------------------------------------------------------------------------------------------
823593393 July 18, 1996 PHH Vehicle Management E, O, MV
Services Inc
- -----------------------------------------------------------------------------------------------------------------------
076047993 May 27, 1996 Murdoch Group Inc. E, MV
96 GMC K-2500 4x4
- -----------------------------------------------------------------------------------------------------------------------
076048002 May 27, 1996 Murdoch Group Inc. E, MV
96 GMC K-2500 4x4
- -----------------------------------------------------------------------------------------------------------------------
076048011 May 27, 1996 Murdoch Group Inc. E, MV
96 GMC K-2500 4x4
- -----------------------------------------------------------------------------------------------------------------------
822114351 May 23, 1996 Teletech Financial Corporation E, O
- -----------------------------------------------------------------------------------------------------------------------
076047885 April 25, 1996 Murdoch Group Inc. E, MV
96 Chevrolet K-2500 4x4
- -----------------------------------------------------------------------------------------------------------------------
076047903 April 25, 1996 Murdoch Group Inc. E, MV
96 Chevrolet S-10 Sonoma
- -----------------------------------------------------------------------------------------------------------------------
079194744 February 8, 1996 Murdoch Group Inc. E, MV
95 GMC K-2500 4x4
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Reference
File No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
079194294 October 20, 1995 Murdoch Group Inc. E, MV
95 Ford F350 4x4
- -----------------------------------------------------------------------------------------------------------------------
079194303 October 20, 1995 Murdoch Group Inc. E, MV
95 Ford F350 4x4
- -----------------------------------------------------------------------------------------------------------------------
816853779 September 20, 1995 B.G. Stewart Leasing G, E, O
1 Canon NP-6025
RDF-CI
Duplex Unit A1
- -----------------------------------------------------------------------------------------------------------------------
079193979 August 17, 1995 Murdoch Group Inc. E, MV
95 Chevrolet K2500 Pickup
- -----------------------------------------------------------------------------------------------------------------------
079193853 June 28, 1995 Murdoch Group Inc. E, MV
95 Chevrolet K2500 Diesel
- -----------------------------------------------------------------------------------------------------------------------
079193862 June 28, 1995 Murdoch Group Inc. E, MV
95 Ford F3500 Crew Cab
- -----------------------------------------------------------------------------------------------------------------------
058786146 May 17, 1995 Murdoch Group Inc. E, MV
95 Chevrolet Cheyenne
- -----------------------------------------------------------------------------------------------------------------------
076465071 March 15, 1995 Murdoch Group Inc. E, MV
94 Ford F-350 4x4
- -----------------------------------------------------------------------------------------------------------------------
076464738 December 22, 1994 Murdoch Group Ind. E, MV
95 Chevrolet Cheyenne K-
2500
- -----------------------------------------------------------------------------------------------------------------------
076464315 September 26, 1994 Murdoch Group Inc. E, MV
94 Chevrolet Pickup
- -----------------------------------------------------------------------------------------------------------------------
808902783 August 16, 1994 Associates Commercial I, E, A, O, MV
Corporation of Canada Ltd. Two 94 Toro 501 LHD
Scoop Trams complete with
all present and future
attachments and all proceeds
thereof.
- -----------------------------------------------------------------------------------------------------------------------
* April 26, 1996 Associates Leasing (Canada) Amendment of secured
Ltd. party's name.
- -----------------------------------------------------------------------------------------------------------------------
076466079 July 29, 1994 Murdoch Group Inc. E, MV
94 Chevrolet Cheyenne
- -----------------------------------------------------------------------------------------------------------------------
076466088 July 29, 1994 Murdoch Group Inc. E, MV
94 Chevrolet Cheyenne
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Reference
File No. Date Secured Party Collateral Description
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
053741529 July 28, 1994 Bankers Trust Company I, E, A, O, MV
- -----------------------------------------------------------------------------------------------------------------------
077545935 July 27, 1994 BT Bank of Canada I, E, A, O, MV
- -----------------------------------------------------------------------------------------------------------------------
" July 28, 1994 Bankers Trust Company Amendment to change name
of secured creditor.
- -----------------------------------------------------------------------------------------------------------------------
076465665 April 28, 1994 Murdoch Group Inc. E, MV
93 Ford Crew Cab 4x4
- -----------------------------------------------------------------------------------------------------------------------
076465503 March 30, 1994 Murdoch Group Inc. E, MV
94 Chevrolet Suburban 4x4
- -----------------------------------------------------------------------------------------------------------------------
076466835 March 30, 1994 Murdoch Group Inc. E, MV
93 Chevrolet
- -----------------------------------------------------------------------------------------------------------------------
058788873 July 26, 1993 Mel Murdoch Limited E, MV
93 GMC 1/2-Ton Sierra
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Discharged
8
<PAGE>
Exhibit 10.12 -- Explanatory Schedule
Pursuant to Instruction 2 to Item 601, Registrant has elected not to file a
copy of Exhibit 10.12 which is substantially identical in all material
respects to Exhibit 10.7 of Registrant's Form 10-K for the year ended
December 31, 1997, except that the principal sum thereof is Can.$19,500,000
and the holder thereof is DDJ Canadian High Yield Fund.
<PAGE>
EXHIBIT 10.13
AMENDING AGREEMENT
THIS AGREEMENT dated as of the 23rd day of January, 1998
B E T W E E N:
ROYAL OAK MINES INC.
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
DDJ CANADIAN HIGH YIELD FUND
(hereinafter called the "Holder")
OF THE SECOND PART
WHEREAS the Corporation issued to the Holder a Senior Secured Debenture
(the "Debenture") dated as of December 31, 1997 in the principal amount of
Cdn.$19,500,000;
AND WHEREAS the Corporation and the Holder wish to amend the Debenture
on the terms hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises herein contained and other good and valuable consideration, the
receipt and adequacy of which consideration are hereby acknowledged, the
parties hereto agree as follows:
1. In paragraph (g) of the definition of "Permitted Encumbrances" in
Schedule "A" to the Debenture, the reference to "Cdn. $5,000,000" is hereby
amended and revised to "Cdn. $10,000,0000".
2. Subparagraph (i) of section 4.3.7 of the Debenture is hereby amended by
adding the following words in the last line thereof after the words
"Subordinated Note Trust Indenture":
"together with additional interest if and when due of one-half of one
percent (.50%) per annum for the period following 18 months after the date
hereof".
3. The foregoing amendment shall be effective as of and from the date hereof.
4. In all other respects the parties hereto confirm the terms of the
Debenture.
<PAGE>
Page 2
5. This Agreement may be signed in counterparts and each of such
counterparts shall constitute an original document and such counterparts,
taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto
as of the date first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
------------------------------
Name: James H. Wood
Title: Chief Financial Officer
DDJ CANADIAN HIGH YIELD FUND
By:
-------------------------------
Name:
Title:
<PAGE>
Exhibit 10.14 -- Explanatory Schedule
Pursuant to Instruction 2 to Item 601, Registrant has elected not to file a
copy of Exhibit 10.14 which is substantially identical in all material
respects to Exhibit 10.7 of Registrant's Form 10-K for the year ended
December 31, 1997, except that the principal sum thereof is U.S.$14,600,000
and the holder thereof is Mellon Bank, N.A., solely in its capacity as
Trustee for General Motors Employees Domestic Group Pension Trust.
<PAGE>
EXHIBIT 10.15
AMENDING AGREEMENT
THIS AGREEMENT dated as of the 23rd day of January, 1998.
BETWEEN:
ROYAL OAK MINES INC.
(hereinafter called the "Corporation")
OF THE FIRST PART
- AND -
MELLON BANK, N.A. solely in its capacity as the Trustee for
GENERAL MOTORS EMPLOYEES DOMESTIC GROUP
PENSION TRUST
(hereinafter called the "Holder")
OF THE SECOND PART
WHEREAS the Corporation issued to the Holder a Senior Secured Debenture
(the "Debenture") dated as of December 31, 1997 in the principal amount of
U.S. $14,600,000,
AND WHEREAS the Corporation and the Holder wish to amend the Debenture
on the terms hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises herein contained and other good and valuable consideration,the
receipt and adequacy of which consideration are hereby acknowledged, the
parties hereto agree as follows:
1. In paragraph (g) of the definition of "Permitted Encumbrances" in
Schedule "A" to the Debenture, the reference to Cdn. $5,000,000" is hereby
amended and revised to "Cdn. $10,000,000".
2. Subparagraph (i) of section 4.3.7 of the Debenture is hereby amended by
adding the following words in the last line thereof after the words
"Subordinated Note Trust Indenture":
"together with additional interest if and when due of one-half of one
percent (.50%) per annum for the period following 18 months after the date
hereof".
3. The foregoing amendments shall be effective as of and from the date
hereof.
<PAGE>
Page 2
4. In all other respects the parties hereto confirm the terms of the
Debenture.
5. This Agreement may be signed in counterparts and each of such
counterparts shall constitute an original document and such counterparts,
taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
--------------------------------------
Name: James H. Wood
Title: Chief Financial Officer
MELLON BANK, N.A., solely in its capacity as
Trustee for GENERAL MOTORS
EMPLOYEES DOMESTIC GROUP
PENSION TRUST
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 17, 1998
Royal Oak Mines Inc. (Amalgamated in the province of Ontario)
- - 10502 Newfoundland Ltd. (Incorporated in the province of Newfoundland; 100%
owned)
- - 934962 Ontario Inc. (Incorporated in the province of Ontario; 100% owned)
- - Arctic Precious Metals, Inc., doing business as Royal Oak Mines (USA)
(Incorporated in the state of Nevada; 100% owned)
- Oz Investments, Inc. (Incorporated in the state of Washington; 100%
owned)
- - Beaverhouse Resources Ltd. (Incorporated in the province of Ontario; 100%
owned)
- - Consolidated Professor Mines Limited (Amalgamated in the province of
Ontario; 81% owned)
- - Kemess South Resources Limited Partnership (Organized under the laws of the
province of British Columbia; ____% owned)
- - Northbelt Yellowknife Gold Mines Ltd. (Incorporated in the province of
Ontario; 72% owned)
- - Ronnoco Gold Mines Limited (Incorporated in the province of Ontario; 89%
owned)
- - Royal Eagle Exploration Inc. (Incorporated in the province of Ontario; 60%
owned)
- First Eagle Holdings, Inc. (Incorporated in the state of Nevada; 100%
owned)
- - Royal Oak Hope Brook Ltd. (Incorporated in the province of Ontario; 100%
owned)
- - Royal Oak Timmins Ltd. (Incorporated in the province of Ontario; 100%
owned)
- - Royal Oak Yellowknife Ltd. (Incorporated in the province of Ontario; 100%
owned)
- - Witteck Development Inc. (Incorporated in the province of Ontario; 100%
owned)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the inclusion in the Royal Oak Mines Inc. Form 10-K and
previously filed Form S-8 Registration Statements No. 33-89202 and
No. 333-06186 of our audit report dated April 6, 1998 to the shareholders of
Royal Oak Mines Inc. on the consolidated balance sheets as at December 31,
1997 and 1996, and the consolidated statements of income (loss), retained
earnings (deficit) and cash flow for the years ended December 31, 1997, 1996
and 1995.
Vancouver, B.C. Arthur Andersen & Co.
April 15, 1998 Chartered Accountants
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 0.7305
<CASH> 34,244
<SECURITIES> 6,818
<RECEIVABLES> 7,408
<ALLOWANCES> 0
<INVENTORY> 74,562
<CURRENT-ASSETS> 129,497
<PP&E> 462,265
<DEPRECIATION> 39,420
<TOTAL-ASSETS> 565,236
<CURRENT-LIABILITIES> 62,434
<BONDS> 0
0
0
<COMMON> 375,957
<OTHER-SE> 79,894
<TOTAL-LIABILITY-AND-EQUITY> 565,236
<SALES> 51,049
<TOTAL-REVENUES> 51,049
<CGS> 42,029
<TOTAL-COSTS> 48,786
<OTHER-EXPENSES> (767)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,224
<INCOME-TAX> 895
<INCOME-CONTINUING> 1,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,356
<EPS-PRIMARY> 0.01<F1>
<EPS-DILUTED> 0.01<F1>
<FN>
<F1>USING US GAAP NET INCOME AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $0.01.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 0.7316
<CASH> 14,797
<SECURITIES> 24,886
<RECEIVABLES> 7,505
<ALLOWANCES> 0
<INVENTORY> 72,829
<CURRENT-ASSETS> 128,542
<PP&E> 481,045
<DEPRECIATION> 45,355
<TOTAL-ASSETS> 580,118
<CURRENT-LIABILITIES> 57,234
<BONDS> 0
0
0
<COMMON> 376,316
<OTHER-SE> 83,643
<TOTAL-LIABILITY-AND-EQUITY> 580,118
<SALES> 105,846
<TOTAL-REVENUES> 105,846
<CGS> 81,383
<TOTAL-COSTS> 96,566
<OTHER-EXPENSES> (976)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,857
<INCOME-TAX> 2,729
<INCOME-CONTINUING> 5,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,105
<EPS-PRIMARY> 0.04<F1>
<EPS-DILUTED> 0.04<F1>
<FN>
<F1>USING US GAAP NET INCOME AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $0.03.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 0.7310
<CASH> 233,042
<SECURITIES> 20,779
<RECEIVABLES> 16,577
<ALLOWANCES> 0
<INVENTORY> 69,413
<CURRENT-ASSETS> 349,271
<PP&E> 522,417
<DEPRECIATION> 52,627
<TOTAL-ASSETS> 844,950
<CURRENT-LIABILITIES> 79,596
<BONDS> 238,385
0
0
<COMMON> 378,255
<OTHER-SE> 93,859
<TOTAL-LIABILITY-AND-EQUITY> 844,950
<SALES> 183,169
<TOTAL-REVENUES> 183,169
<CGS> 130,926
<TOTAL-COSTS> 155,927
<OTHER-EXPENSES> (1,597)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,877
<INCOME-PRETAX> 25,364
<INCOME-TAX> 9,904
<INCOME-CONTINUING> 15,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,321
<EPS-PRIMARY> 0.11<F1>
<EPS-DILUTED> 0.11<F1>
<FN>
<F1>USING US GAAP NET INCOME AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $0.10.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-K FOR THE YEAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 0.7333
<CASH> 197,766
<SECURITIES> 28,259
<RECEIVABLES> 17,492
<ALLOWANCES> 0
<INVENTORY> 61,844
<CURRENT-ASSETS> 313,090
<PP&E> 538,574
<DEPRECIATION> 55,841
<TOTAL-ASSETS> 821,630
<CURRENT-LIABILITIES> 72,573
<BONDS> 239,680
0
0
<COMMON> 378,813
<OTHER-SE> 72,553
<TOTAL-LIABILITY-AND-EQUITY> 821,630
<SALES> 255,168
<TOTAL-REVENUES> 255,168
<CGS> 181,869
<TOTAL-COSTS> 217,078
<OTHER-EXPENSES> (453)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,105
<INCOME-PRETAX> (4,600)
<INCOME-TAX> 900
<INCOME-CONTINUING> (5,985)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,985)
<EPS-PRIMARY> (0.04)<F1>
<EPS-DILUTED> (0.04)<F1>
<FN>
<F1>USING US GAAP NET INCOME AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $(0.08).
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 0.7361
<CASH> 113,761
<SECURITIES> 590
<RECEIVABLES> 50,858
<ALLOWANCES> 0
<INVENTORY> 82,965
<CURRENT-ASSETS> 262,185
<PP&E> 555,575
<DEPRECIATION> 61,394
<TOTAL-ASSETS> 810,207
<CURRENT-LIABILITIES> 76,872
<BONDS> 242,218
0
0
<COMMON> 378,925
<OTHER-SE> 64,440
<TOTAL-LIABILITY-AND-EQUITY> 810,207
<SALES> 47,484
<TOTAL-REVENUES> 47,484
<CGS> 43,052
<TOTAL-COSTS> 51,745
<OTHER-EXPENSES> 2,518
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,042
<INCOME-PRETAX> (12,059)
<INCOME-TAX> (3,895)
<INCOME-CONTINUING> (8,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,113)
<EPS-PRIMARY> (0.06)<F1>
<EPS-DILUTED> (0.06)<F1>
<FN>
<F1>USING US GAAP NET INCOME AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $(0.07).
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 0.7228
<CASH> 72,254
<SECURITIES> 590
<RECEIVABLES> 66,344
<ALLOWANCES> 0
<INVENTORY> 51,485
<CURRENT-ASSETS> 199,035
<PP&E> 573,376
<DEPRECIATION> 79,818
<TOTAL-ASSETS> 763,876
<CURRENT-LIABILITIES> 70,291
<BONDS> 241,728
0
0
<COMMON> 378,989
<OTHER-SE> 12,351
<TOTAL-LIABILITY-AND-EQUITY> 763,876
<SALES> 106,463
<TOTAL-REVENUES> 106,463
<CGS> 94,058
<TOTAL-COSTS> 111,921
<OTHER-EXPENSES> 9,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,070
<INCOME-PRETAX> (63,848)
<INCOME-TAX> (3,582)
<INCOME-CONTINUING> (60,202)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,202)
<EPS-PRIMARY> (0.43)<F1>
<EPS-DILUTED> (0.43)<F1>
<FN>
<F1>USING US GAAP NET INCOME AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $(0.42).
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 0.7264
<CASH> 36,862
<SECURITIES> 590
<RECEIVABLES> 60,345
<ALLOWANCES> 0
<INVENTORY> 34,540
<CURRENT-ASSETS> 136,962
<PP&E> 661,655
<DEPRECIATION> 84,183
<TOTAL-ASSETS> 783,375
<CURRENT-LIABILITIES> 77,962
<BONDS> 241,728
0
0
<COMMON> 378,989
<OTHER-SE> 9,989
<TOTAL-LIABILITY-AND-EQUITY> 783,375
<SALES> 160,579
<TOTAL-REVENUES> 160,579
<CGS> 134,653
<TOTAL-COSTS> 160,034
<OTHER-EXPENSES> 13,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,529
<INCOME-PRETAX> (65,838)
<INCOME-TAX> (3,269)
<INCOME-CONTINUING> (62,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,564)
<EPS-PRIMARY> (0.45)<F1>
<EPS-DILUTED> (0.45)<F1>
<FN>
<F1>USING US GAAP NET INCOME AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $(0.44).
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-K FOR THE YEAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 0.7222
<CASH> 568
<SECURITIES> 9,875
<RECEIVABLES> 30,923
<ALLOWANCES> 0
<INVENTORY> 21,120
<CURRENT-ASSETS> 66,453
<PP&E> 818,610
<DEPRECIATION> 88,296
<TOTAL-ASSETS> 843,386
<CURRENT-LIABILITIES> 193,312
<BONDS> 250,338
0
0
<COMMON> 379,040
<OTHER-SE> (62,662)
<TOTAL-LIABILITY-AND-EQUITY> 843,386
<SALES> 191,167
<TOTAL-REVENUES> 191,167
<CGS> 160,522
<TOTAL-COSTS> 198,104
<OTHER-EXPENSES> 46,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,535
<INCOME-PRETAX> (137,925)
<INCOME-TAX> (4,811)
<INCOME-CONTINUING> (135,215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,215)
<EPS-PRIMARY> (0.97)<F1>
<EPS-DILUTED> (0.97)<F1>
<FN>
<F1>USING US GAAP AND SFAS 128, BASIC AND DILUTED EPS ARE BOTH $(1.10).
</FN>
</TABLE>
