Trilon moves to pull plug on Royal Oak
Will ask court to put gold miner into receivership
Thursday, April 1, 1999
Paul Waldie
The Globe and Mail
Royal Oak Mines Inc.'s largest creditor will move to put the company into receivership today and sell its flagship Kemess gold mine.
Trilon Financial Corp. of Toronto, owed $185-million, says in a court filing that it has no confidence Royal Oak can restructure and a judge should appoint Deloitte & Touche Inc. as receiver.
"There is no prospect of any proposal for restructuring being successful without the consent of which consent not prepared to give," the filing says.
The motion will be argued this morning in the Ontario Court's General Division and could spell the end for Royal Oak, which is based in Kirkland, Wash., and trades on the Toronto Stock Exchange.
A group of Royal Oak creditors owed $175-million (U.S.) had until today to try and work out a restructuring plan with the company. However, as of late yesterday, there was no deal and any agreement would require Trilon's consent as the largest secured creditor.
Royal Oak filed for court protection from creditors on Feb. 15, citing more than $600-million (Canadian) in debt. The company has 1,000 employees at four mines in Ontario, British Columbia and the Northwest Territories.
Shortly after Royal Oak filed for protection, Trilon lent the company $11.9-million to keep operating until today.
Sam Pollock, Trilon's managing partner, said in an affidavit filed yesterday that any restructuring plan would have to include either a new project lender to take out Trilon's debt or a reorganized company that Trilon was prepared to support. Both are unlikely, he said.
"There is simply no project lender who has come forward to pay out the Trilon-Northgate loans," he said in the affidavit.
Trilon and its Vancouver-based affiliate, Northgate Exploration Ltd., "are not prepared to support the continued [court protection] proceedings and are seeking to enforce their security by way of appointment of an interim receiver, Deloitte & Touche Inc."
Royal Oak officials have argued against receivership.
Company president and chief executive officer Margaret Witte said in an affidavit that a receiver would diminish the company's assets and lay off employees. Ms. Witte added that the company was working with a group of creditors on a draft restructuring plan.
Trilon wants the receiver to only take over the company's Kemess mine in British Columbia and its two mines in Timmins, Ont.
The $470-million Kemess mine opened last year and Royal Oak has called it its "crown jewel." It contributes about one-third of the company's total annual gold production and is supposed to be its most profitable mine. About 350 people work at Kemess. The mine was shut down briefly two weeks ago when five massive trucks required repair.
The B.C. government is also requiring Royal Oak to build a higher dam for the mine's tailings by April 6 or the mine will be shut down.
If Trilon's motion is approved, the receiver would not take control of Royal Oak's other assets including its Giant mine in NWT and exploration properties in British Columbia, NWT and Newfoundland.
Those assets would remain with the company's current managers until a court or creditors decide what to do with them.
Trilon's motion is a change in strategy for the lender. Two weeks ago, it opposed a similar motion by Bank of Nova Scotia, owed $7.3-million. At that time, Trilon argued that the bank's motion was improper.
Last week, lawyers for Trilon also argued that receivership would do more harm than good. "Employees will be scattered to the four winds and supplier relationships will wither away," Peter Griffin, a Toronto lawyer representing Trilon, said during a hearing.
But yesterday Mr. Pollock said Trilon has given up on the restructuring.
"Given the unsatisfactory state of the [court protection] proceedings and the continued requirement for funding the operations of [Royal Oak], Trilon-Northgate believe that their security is being put at risk by continued [protection] which will not be successful," he said.
"The continued requirement for monies to preserve these assets with no prospect of a successful [court protection] proceedings is prejudicial to Trilon-Northgate. The assets and undertaking of [Royal Oak], and most particularly the Kemess mine, are at risk in a manner which is unacceptable to Trilon-Northgate. Trilon-Northgate wish to enforce on their security."
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