For Friday, April 2, 1999
Another fortnight's grace for Royal Oak Mines
After this, 'Don't come looking for more time,' judge warns
By KEITH DAMSELL
The Financial Post
Refusing to go down for the count, Royal Oak Mines Inc. has been granted another two weeks to restructure operations despite losing the key support of number one creditor Trilon Financial Corp.
"So that everyone appreciates it, don't come looking for more time," James Farley, Chief Justice of the Ontario Court, told a packed courtroom of lawyers yesterday. He urged Royal Oak creditors to begin "immediate" discussions to mend the insolvent mining company's crisis.
A group of five U.S. senior noteholders, owed the balance of a $278-million debt offering last year by Royal Oak, has agreed to lend the company up to $3.75-million (US) to survive the next two weeks. On April 15, court-appointed monitor PricewaterhouseCoopers Inc. will present valuations of the company, including the troubled Kemess South gold mine in British Columbia.
Swamped with $600-million liabilities due to high costs and the stale gold market, Royal Oak filed for protection from its creditors on Feb. 15. It has 1,000 employees working at four mines in British Columbia, Ontario, and the Northwest Territories.
The U.S. noteholders "have put their money where there mouth is," said Patricia Jackson, a Royal Oak lawyer. "They will provide the financing to let this process continue."
The lifeline was opposed by Trilon, Royal Oak's first secured creditor owed more than $185-million. Trilon had provided Royal Oak with about $14-million in emergency financing but lost faith in the company's ability to restructure. Toronto-based Trilon wanted the court to place Royal Oak in receivership and begin auctioning off assets, including the Kemess mine.
"The company is essentially going nowhere," said Peter Griffin, a Trilon lawyer. Noteholders are making a last-minute bid to protect their unsecured position in the event the company goes bankrupt, he said.
According to Sam Pollock, Trilon managing partner, gold giant Homestake Mining Co. of San Francisco has expressed interest in acquiring the mining property for $175-million (US). Kemess cost an estimated $470-million to bring into production.
The push into receivership was backed by Bank of Nova Scotia. Scotiabank, owed $5.3-million (US) due to Royal Oak's failed gold hedging program, has lost confidence in management.
It's now up to the noteholders to orchestrate a restructuring plan that will win Trilon's support. Trilon has refused to endorse two financing schemes, one supported by Royal Oak, the second backed by noteholders. Both plans required Trilon to convert its $185-million debt into a project financing facility. The failed plans "are faced with daunting conditions and the necessary consent of my client that it is unprepared to give," said Mr. Griffin.
Noteholders "must satisfy Trilon to get them on-board or over-board in a buy-out lifeboat," said Judge Farley.
The noteholders have agreed to raise future funds but want to be released from Royal Oak's environmental liabilities.
The company's cleanup costs are expected to be hundreds of millions of dollars.
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