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
March 11, 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 March 11, 1998, the Registrant issued the following press release:
[Royal Oak Mines Inc. Press Release Letterhead]
FOR IMMEDIATE RELEASE FROM KIRKLAND
March 11, 1998
Royal Oak Announces Cost Overrun
on Kemess Project
Royal Oak Mines Inc. (TSE and AMEX: RYO) announced that it has completed today a
detailed review of the capital cost on the Company's Kemess gold-copper project
located in north central British Columbia. The review indicates that the
capital cost is expected to be approximately C$470 million, an increase of 9.3%
from the previously announced estimate in September 1997 of approximately C$430
million.
The overrun of approximately C$40 million is attributed to a number of
unforeseen construction-related situations which have arisen. The prime issue
relates to the continued escalating costs associated with the tailings dam
construction which is now complete and the tailings line system which, when
combined, account for over one half of the cost overrun. At the Company's
request, the tailings pipeline design was changed to increase the number of
tailings lines from one to two, in order to decrease the operating risk, adding
additional costs to the previous estimates. In the dam and pipeline areas the
previously estimated budgets had not adequately allowed for the added
difficulties in handling of materials, nor for the control of sediments
resulting from the earthworks program, nor for the substantial increase in the
volumes of materials to be moved as a consequence of redesign.
In addition, an increase of $4.5 million has been incurred in the power line
clearing and government-assessed stumpage costs and over $3 million for the
project indirects associated with increased costs primarily for the staff
requirements, site accommodations, travel, freight and fuel. The remaining
overrun amounts are associated with redesign requirements during the mechanical,
piping, and electrical stage of the project construction, and bulk construction
material quantity reconciliations. In addition, the sizeable development of the
infrastructure and site development earthworks, undertaken during the unexpected
mild temperatures of the fall and winter, caused special handling precautions to
be taken at a much higher cost than anticipated.
Construction of the Kemess Mine is estimated to be approximately 92% complete.
Start-up is planned for late April of this year. Contrary to the misleading
articles in The Financial Post today, construction is continuing at the site on
the mill facilities, tailings pipeline system and all other areas.
As a result of the project overrun, the Company is evaluating a number of
alternatives to fund the completion of construction at the Kemess Mine and
provide sufficient working capital until Kemess generates positive cash flow.
The Company is considering a number of funding alternatives and has hired
investment bankers to assist in this review.
<PAGE>
Margaret K. Witte, president and chief executive officer of Royal Oak said, "We
are naturally disappointed that the capital cost has increased above our budget
estimate but compared to other major projects recently constructed, we believe
the project team has done an admirable job in minimizing the overruns to less
than 10%.
"We believe that the economics of the Kemess project are still excellent even at
these depressed gold and copper prices. The project will provide an attractive
return to the Company and to our shareholders given the long mine life of
approximately 16 years which should enable production to benefit from higher
gold and copper prices in the future. The net cost of the Kemess project to
Royal Oak is estimated at approximately C$518 million, including the acquisition
cost of C$202 million, construction costs of C$470 million, and a contribution
of C$154 million from the provincial government of British Columbia. This
capital investment is equivalent to approximately US$60 per ounce of gold for
the estimated 6 million ounces of gold that exist at Kemess North and South.
Based upon the average life-of-mine production rate of 250,000 ounces of gold
per year, the estimated average cash cost is US$128 per ounce of gold, net of
copper credits at US$0.80 per pound of copper, and is well below the average for
the industry.
Margaret Witte concluded, "Kemess is a key element in Royal Oak's return to
profitability. Cost-cutting measures implemented in the fourth quarter of last
year at the Company's Pamour and Giant mines resulted in an average cash cost of
US$285 per ounce of gold at these operations which is below the current gold
price of approximately US$294 per ounce."
In 1998, Royal Oak expects to produce approximately 382,000 ounces of gold at an
estimated cash cost of US$202 per ounce, net of copper credits at US$0.80 per
pound. In 1999, with a full year of production from the Kemess Mine, the
Company plans to produce approximately 477,000 ounces of gold at an estimated
cash cost of US$182 per ounce, net of copper credits at US$0.90 per pound.
For further information, contact: or in Europe contact:
Mr. J. Graham Eacott Mr. David Williamson
Vice-President, Investor Relations David Williamson Associates
Royal Oak Mines International Investor Relations
5501 Lakeview Drive 15 St. Helen's Place, 3rd Floor
Kirkland, WA 98033-7314 London, England EC3A 6DE
Telephone (425)822-8992 Telephone 011-44-171-628-3989
Facsimile (425)822-3552 Facsimile 011-44-171-920-0563
Internet site: http://www.royal-oak-mines.com
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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: March 11, 1998 By: /s/ James H. Wood
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James H. Wood
Chief Financial Officer
