Royal Oak board quits, firm in receivership
Witte and directors resign as debt cripples company;
miner unable to find rescue plan
Saturday, April 17, 1999
ALLAN ROBINSON
Mining Reporter
Toronto -- Royal Oak Mines Inc. chairwoman Margaret Witte and her entire board of directors resigned last night, just minutes after the company was put in receivership.
The final blow for the beleaguered head of Royal Oak, it appears, was to lose control of the company that she founded. Kirkland, Wash.-based Royal Oak has been struggling under a debt load of $600-million and its options are quickly running out.
Mr. Justice James Farley of the Ontario Court's General Division appointed PricewaterhouseCoopers Inc. as interim receiver under the Bankruptcy and Insolvency Act, which gives it the power to operate Royal Oak's mines and arrange the sale of its assets.
A spokesman for the company would not give reasons for the resignations.
For more than 60 days, Royal Oak has been unable to come up with a rescue plan and indications are that all but the debt holders at the top of the heap, such as Trilon Financial Corp. and the lien holders, will be fighting for a few paltry remains.
"They [Royal Oak] should gracefully fall on their sword and surrender the keys," said James Grout, a lawyer acting for the lien holders with a claim on the Kemess gold and copper mine in British Columbia. "There is no money, no plan."
Toronto-based Trilon, which is the largest of the secured creditors with about $200-million owed, also wants the Kemess mine sold in order to recoup its money.
The mine, Royal Oak's crown jewel, cost $470-million to construct, although in six months of production it has yet to operate to expectations. The future of Royal Oak's other smaller high-cost mines in Ontario and especially the Giant mine in the Northwest Territories, with its environmental liabilities, appears bleak.
"My client's view is that security represents a vast proportion of the value of the company," said Peter Griffin, a lawyer for a Trilon.
"There has been a sea change in the process," Mr. Griffin said, referring to Royal Oak during the past few weeks. "The company has given up."
Mr. Griffin was one of a dozen lawyers in court. They represent construction companies, several banks, Royal Oak, a metals trader, the government of Newfoundland (where Royal Oak has an abandoned mine), the Department of Indian and Northern Affairs and noteholders who are owed $175-million (U.S.).
Judge Farley's ruling sets the stage for the possible sale of Royal Oak's assets by the end of June, unless an international gold mining company unexpectedly steps forward to take over the company. The noteholders, in particular, want Royal Oak to survive as an operating entity free of bankruptcy proceedings in order to preserve the enormous tax losses.
But more likely is a fire sale of the company's assets.
PricewaterhouseCoopers has indicated in a confidential report that the tax losses within Royal Oak could be used to shelter future profits, although they are far larger than could ever be used up by the company.
Judge Farley's ruling yesterday keeps Royal Oak under the protection of the Companies' Creditors Arrangement Act, in case a buyer can be found that is interested in utilizing the accumulated losses to avoid future taxes.
But the creditors with the best security, such as Trilon and the lien holders, are in pursuit of what they are owed. Mr. Griffin argued that it wanted Royal Oak to be taken out from under the court's protection. It claimed the process is being driven by the noteholders, who are desperate to keep Royal Oak alive for the chance of holding some residual value in the tax losses. But, he said that strategy comes at the risk of Trilon losing money.
Mr. Griffin argued that if the noteholders see value in the tax losses, they should use their money to pay off the debts owed to the secured creditors and take over Royal Oak.
"The tail -- the tax losses -- should not run the show," he said.
Patricia Jackson, a lawyer for Royal Oak, said that "Trilon wants to take the money and run."
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