Wednesday, April 1, 1998
By Allan Robinson
Mining Reporter
Losses and debts continue to mount at Royal Oak Mines Inc. as the
struggling gold producer battles to complete a huge mine in
north-central British Columbia.
The cash-strapped company reported a loss yesterday of
$135.2-million on revenue of $191.2-million for the year ended Dec.
31, 1997, as a result of mine closings, investment writedowns and
losses on currency and commodity dealings. The losses grew
throughout last year from 1996's $6-million.
Royal Oak president and chief executive officer Margaret Witte
described 1997 as a "challenging year."
Mining analysts continue to be leery about Royal Oak's prospects
given the current low prices for both gold and copper. "It's not what I
consider an investment," one analyst said. "I would consider [Royal
Oak] a speculation." Yesterday, Royal Oak's shares fell 9 cents to
$1.63 on the Toronto Stock Exchange.
Royal Oak -- a Canadian-registered company based in Kirkland,
Wash. -- has been forced to contend with low commodity prices as it
pins its hopes for the future on the $470-million Kemess gold and
copper mine now under construction. The mine is scheduled to begin
production in early May.
Cash flow from the mine will result in a turnaround for Royal Oak,
"particularly when gold and copper prices return to levels of the last
three years," the company said.
Gold has been trading around $300 (U.S.) an ounce and copper at 79
cents a pound. Three years ago, gold was trading at $388 and copper
at $1.27. (During the past three years, the average price of gold was
$368 and the average price of copper was $1.13, an analyst said.)
Royal Oak said it has asked the U.S. Securities and Exchange
Commission to extend its deadline for filing the required 10-K form
(an annual statement). The report was due yesterday, Royal Oak
spokesman Nick Volk said.
Royal Oak said it requested the delay to allow a proposed
$120-million bridge financing to be completed so the company would
have the money needed to finish construction of the Kemess mine.
Completion of the financing will be shown as a subsequent event to the
year-end financial report, Mr. Volk said.
Royal Oak is in dire need of the cash. At Dec. 31, 1997, the company
had a working capital deficit of $126.8-million (Canadian).
Royal Oak's total liabilities continue to climb, rising to $527-million at
1997 year-end from $370.3-million a year earlier.
The company said its current liabilities for 1997 stood at
$193.3-million, an increase from $72.6-million the previous year. The
current liabilities included $108.9-million in accounts payable,
$21.3-million in accrued unrealized losses on currency and commodity
derivatives, and $14.7-million on amounts owed but withheld from
contractors working on the Kemess project.
The company's 1997 long-term liabilities of $333.7-million included
$250.3-million in senior subordinated notes and $57.4-million in other
liabilities. The long-term liabilities in 1996 were $297.7-million.
Among the unusual costs reported yesterday were a $46.3-million
provision for losses on foreign currency and commodity contracts, a
$39.7-million asset writedown and a $34.1-million loss on investments
in gold mining companies.
Mr. Volk said the provision for the loss on currency and commodity
contracts reflects a U.S. accounting rule that requires, for the first time,
companies to disclose the loss that would result from an immediate
unwinding of their hedge positions based on current prices. Royal Oak
undertakes gold hedging activities as well as currency hedges.
Mr. Volk said the currency hedging is done because the company's
revenue is in U.S. dollars based on the selling price of gold, while its
operating costs are mainly stated in Canadian dollars. Of the
$46.3-million loss provision, $10-million to $15-million is attributable
to currency hedging activities and the rest to gold hedging, he said.As I reported earlier can RYO handle the debt load.I currently do not believe so, the risk to reward ratio is no longer there.I sold at a significant loss not willing to lose everything.The best to those who remain faithful to RYO, but beware. |
