Royal Oak mine gets last-minute reprieve
B.C. inspectors allow Kemess property to stay open
despite tailings dam not meeting regulations
Thursday, February 11, 1999
PETER KENNEDY
British Columbia Bureau
Vancouver -- After spending the day in talks with provincial mines inspectors, Royal Oak Mines Inc. received a last-minute reprieve for its Kemess mine in British Columbia just days from a crucial restructuring deadline.
After earlier telling the company to shut the mine, inspectors ordered Royal Oak to bring its tailings dam into compliance because the main retaining walls of the dam -- which is set up to contain waste and hazardous materials -- do not meet provincial requirements.
The order comes at a critical time for the Kirkland, Wash.-based company, which is attempting to strike a deal with Trilon Financial Corp. and other creditors who are owed about $330-million (U.S.). The company hopes to reach a deal by Feb. 15.
The company must still present the government with a plan to deal with the tailings issue by Friday at 5:00 p.m. (PST), a B.C. government spokesman confirmed. The government will allow the company to continue production, which accounts for about 30 per cent of Royal Oak's total output.
Despite cost overruns and previous problems with the tailings dam, Kemess has been billed as a low-cost operation that will enable Royal Oak to resolve its financial difficulties and continue operating despite low gold and copper prices.
Because of cold weather and equipment problems, the company had been prevented from raising the retaining wall on the tailings dam to the level needed to keep its operating permit in good standing.
If Royal Oak fails to comply with this order, the company will be ordered to shut the mill, cease mining operations and devote all its attention and heavy equipment to bringing the tailings area into compliance, said B.C. government spokesman Don Zadravec.
"This action has been undertaken to ensure the dam's integrity and to protect both the public and the environment," Mr. Zadravec said.
Royal Oak spokesman Patrick Howe said the dam's retaining wall is about seven centimetres below a target set for the week ended Feb. 7.
While Mr. Howe said problems with the dam are unrelated to the company's restructuring plans, the announcement sparked another round of speculation about the company's ability to survive this latest crisis.
Investors reacted to the initial news that the mine would close by sending Royal Oak shares down 4 cents (Canadian) to 36 cents on the Toronto Stock Exchange yesterday. "This is just one more straw on the camel's back," said Steven Oman, vice-president at Moody's Investors Service which recently lowered its rating on $175-million (U.S.) of Royal Oak senior subordinated debentures. The next $11-million interest payment on the debentures is due Feb 15. The government reversed its decision after North American markets closed.
If the company doesn't meet the deadline, the debenture owners have 30 days to decide whether to push Royal Oak into bankruptcy.
Royal Oak is in financial difficulty because cash flow from Kemess and its two other mines in the Northwest Territories and Ontario is insufficient to meet interest payments on its debt. Company documents show it will cost Royal Oak at least $40-million to service its debt load this year. In addition to the $175-million, Royal Oak owes $120-million to Trilon as well as $19.5-million (Canadian) to Canada's Export Development Corp. for equipment loans. Also outstanding is a $26-million (U.S.) commodity hedge loan.
On Dec. 23, 1998, the company said it was suspending debt payments while it tried to reach a deal with Trilon and the other creditors.
"There are a barrage of rumours floating around," said an executive at one of Royal Oak's main equipment suppliers. "Everyone is running scared." But he said the company is still ordering equipment as it continues negotiations with the B.C. government, Trilon and its other creditors.
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