SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
September 22, 1998
ROYAL OAK MINES INC.
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(Exact name of registrant as specified in its charter)
Commission File Number 1-4350
ONTARIO, CANADA 98-0160821
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
c/o Royal Oak Mines (USA) Inc.
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
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(Address of principal executive offices) (Postal/Zip Code)
(425) 822-8992
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Registrant's telephone number, including
area code
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Item 5. Other Events
On September 22, 1998, the Registrant issued the following
press release:
[Royal Oak Mines Inc. Press Release Letterhead]
FOR IMMEDIATE RELEASE FROM TORONTO, CANADA
September 22, 1998
Royal Oak Plans for Write Down of Assets in Third Quarter
Royal Oak Mines Inc. (TSE and AMEX: RYO) announced today that in
view of the continuing weak gold price, which has averaged US$294
per ounce in 1998 to date, the Company has completed an analysis
of the carrying value of its assets at a gold price of US$300 per
ounce to determine recoverability of its investments.
A key part of this analysis is the absence of gold production
sold forward which historically Royal Oak has entered into from
time to time to reduce certain of the risks associated with gold
price volatility. These historic hedge positions have
significantly increased the realized price received for gold
production sold by the Company with premiums above spot price
ranging from US$20 per ounce to US$93 per ounce over the last six
years. Currently, the Company has no gold production sold
forward and is selling all gold production into the spot market.
In addition, the Company is limited in its ability to hedge its
gold production because of certain covenants related to its
indebtedness. This restriction limits the premium above the spot
gold price that the Company is able to realize on its gold sales.
As a result of this analysis, the Company plans to make a pre-tax
provision of approximately $81 million for the revaluation of the
carrying value of its assets to their estimated realizable value.
This writedown will be reflected as a non-cash charge in the
consolidated financial statements for the period ending September
30, 1998 and is not expected to significantly affect cash flow
from operations and/or EBITDA (earnings before interest, taxes,
depreciation and amortization) in 1998. The writedown of
approximately $81 million affects the carrying value of the
Company's assets at its mining operations in Timmins, Ontario and
Yellowknife, Northwest Territories, as well as certain
exploration and development properties. The carrying value of
the Company's new Kemess South Mine and total Kemess property
position is not affected by the writedown.
At year-end 1997, the Company valued its ore reserves at a gold
price of C$495 per ounce (equivalent to US$350 an ounce at that
time). The steady decline in the gold price over the last three
years (1996 average US$388 per ounce; 1997 average US$331 per
ounce; 1998 year-to-date average US$294 per ounce) will likely
result in the Company valuing its ore reserves at a gold price of
US$300 per ounce at year-end 1998. Whereas this is expected to
result in a downward revision of mineable ore reserves at its
Timmins and Yellowknife mining operations (net of production and
exploration in 1998), the Company believes that the amount of
gold contained in mineable ore reserves at the Kemess South
property, which accounted for approximately 60% of the Company's
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total gold contained in mineable ore reserves at year-end 1997,
will not be affected by valuation at a gold price of US$300 per
ounce.
Commenting on the planned writedown, Royal Oak's President and
Chief Executive Officer, Margaret K. Witte said, "We believe it
is prudent to take the writedown in the third quarter as we do
not expect the gold price to increase significantly in the near
term. Although we have been successful in reducing average cash
costs at our Timmins and Giant operations to below US$270 an
ounce in the first half of this year, the current gold price is
expected to decrease the amount of gold contained in mineable ore
reserves and therefore could affect mine life. The Company has
no plans at the present time to temporarily suspend or close down
its operations at Timmins and Yellowknife. Despite the current
weakness in the gold price, our new Kemess South Mine has started
to make a positive contribution to the Company's cash flow."
For further information, contact: or in Europe contact:
Investor Relations Mr. David Williamson
Royal Oak Mines Inc. David Williamson Associates
International Investor
Voice mail: (425) 822-8992, or Relations
Facsimile: (425) 822-3552, or 15 St. Helen's Place, 3rd Floor
Web site: http//www.royal-oak-mines.com London, England EC3A 6DE
Telephone: 011-44-171-628-3989
Facsimile: 011-44-171-920-0563
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROYAL OAK MINES INC.
Date: September 22, 1998 By: /s/ James H. Wood
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James H. Wood
Chief Financial Officer
