Receiver feels Royal Oak mines will sell
Confident despite gold prices, fraud allegations
Peter Kennedy
British Columbia Bureau
Tuesday, May 25, 1999
Vancouver -- The receiver appointed to oversee insolvent Royal Oak Mines Inc. is optimistic that buyers will be found for the company's three gold mines, despite low gold prices and allegations of fraud involving its top executives.
"There is a lot of interest out there in the market," said Richard Haygarth, senior vice-president at PricewaterhouseCoopers in Toronto, which is attempting to sell Royal Oak's Kemess mine in British Columbia and the Pamour mine near Timmins, Ont.
After being appointed receiver last month, PricewaterhouseCoopers is trying to sell the mines in a bid to pay off Toronto-based Trilon Financial Corp. and other Royal Oak creditors who are owed about $600-million.
While declining to say what these assets are worth, the receiver is also working on a marketing plan for Royal Oak's Giant mine at Yellowknife, NWT.
Analysts and industry officials say the biggest stumbling block for PricewaterhouseCoopers is the recent drop in the price of gold to a 20-year low, and the fact that Pamour and Giant are considered aging and high cost.
Potential buyers also face the cost -- estimated at up to $250-million -- of cleaning up about 250,000 tonnes of poisonous arsenic stored at the Giant mine.
"This is the worst time to be selling these assets but perhaps the best time to be buying them," said Catherine Gignac, a gold analyst at Deacon Capital Corp. in Toronto.
Assuming Kemess lives up to expectations, the three mines are expected to produce about 420,000 ounces of gold this year.
However, because the mines are only marginally profitable at current gold prices, Ms. Gignac said potential buyers will likely be companies with existing mines near Royal Oak's operations or cash-rich producers who can afford to buy the mines and put them on the shelf until gold prices improve.
Toronto-based Kinross Gold Corp., for example, is considered a possible buyer because it could achieve some synergies by combining the Pamour operation with its nearby Hoyle Pond gold mine.
Sources say Kinross chairman Robert Buchan has already expressed an interest in Pamour. Mr. Buchan could not be reached for comment.
Another Toronto-based gold miner, Wheaton River Minerals Ltd., couldn't afford to buy the mines but may be interested in some of Royal Oak's exploration properties, said Kerry Knoll, Wheaton River's vice-president of investor relations. He declined to say which of the exploration properties has sparked the company's interest.
While PricewaterhouseCoopers hopes to sell all three mines by the end of August, the marketing process is being delayed while the receiver tries to negotiate a first collective agreement with a union that represents about 300 miners at Kemess, sources say.
PricewaterhouseCoopers has also been distracted by the discovery of what the receiver alleges in a report to an Ontario court are potentially fraudulent financial transactions involving former Royal Oak chief executive officer Margaret Witte and four other company officials that the receiver is now trying to reverse.
Soon after it was appointed receiver in April, PricewaterhouseCoopers discovered that Ms. Witte and the other executives allegedly had sold shares to Royal Oak's U.S. subsidiary Arctic Precious Metals Inc. at vastly inflated prices to pay off loans worth $1.5-million (U.S.).
Ms. Witte and the executives are also alleged to have received payouts of about $2.6-million after collapsing life insurance policies and transferring entitlements of the remaining residual value of the policies to themselves.
The receiver is currently working with a U.S. bankruptcy trustee to ensure that the Royal Oak executives repay about $4-million that PricewaterhouseCoopers believes the company owes Arctic.
Ms. Gignac believes all of these factors may force the receiver to sell the mines at fire sale prices. "The buyers may be able to get the assets at substantial discounts to their book value," she said.
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