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Gold/Mining/Energy : Royal Oak-RYO -- Ignore unavailable to you. Want to Upgrade?

To: roger fontaine who wrote (849)	3/28/1998 12:27:00 AM
From: roger fontaine	Respond to of 1706

Royal Oak chief picks debt over dilution Trilon to earn fee, royalty for financing Friday, March 27, 1998 By Ann Gibbon and Allan Robinson Vancouver and Toronto -- BY ANN GIBBON, Vancouver ALLAN ROBINSON, Toronto Margaret Witte, the founder and chief executive officer of Royal Oak Mines Inc. , says she searched high and low for cash sources to save the company's Kemess mine before settling on a $120-million (U.S.) bridge loan with a Toronto investment bank. "Rather than dilute the company, we decided to go the debt route," she said in a telephone interview yesterday from headquarters in Kirkland, Wash. Royal Oak was short of cash following cost overruns at the $470-million (Canadian) copper and gold mine in north-central British Columbia. Ms. Witte said the weak gold market didn't help in efforts to avoid bankruptcy. "I'd call on people who had huge support for the resource industry, but when I said it was a gold project, they thought I had the plague." Trilon Financial Corp. said it will earn a fee along with a royalty for arranging the bridge financing facility. Under the agreement, Royal Oak will pay Trilon a 1.6-per-cent gross royalty a year on Kemess's revenue of up to $14-million (U.S.), at which time the royalty will end. It also agreed to pay a 2-per-cent fee. This "participating interest" is in addition to the interest being charged on the secured notes of six percentage points above Libor, or the London interbank offered rate. Royal Oak's rate is based the one-month Libor rate of about 5.7 per cent. "This is a typical merchant banking transaction for Trilon," said Frank Lochan, executive vice-president and chief financial officer for Trilon. Royal Oak considered among seven or eight different options, selling off half of Kemess or selling some of the company's other mining assets, which are located in the Northwest Territories and Ontario. "We got offers for some of our other assets," Ms. Witte said. "At the end of the day, the Trilon alternative seemed to fit well." With the financing for Kemess now in place, she said, mining can begin in late April or early May. Royal B4 Royal Oak chief picks debt Yesterday, Royal Oak stock rose 47 cents (Canadian) to $1.69 on the Toronto Stock Exchange, as 2,537,547 shares changed hands. The increase reflects short covering and growing confidence among investors that cash-strapped Royal Oak will be able to complete construction and startup of the mine. However, Royal Oak still needs to obtain approval of subordinated bond holders before it can close the Trilon deal. Under the terms of that class of debt, Royal Oak is only allowed to issue up to $44-million (U.S.) in senior financing, said Nick Volk, a spokesman for Royal Oak. Trilon said yesterday that it is in discussions with various parties to take on a portion of the $120-million in senior secured notes. "We would take it all if we had to," Trilon's Mr. Lochan said. Among its long-term clients is Northgate Exploration Ltd. of Toronto, which has agreed to purchase a $35-million junior tranche of secured notes as part of Trilon's senior secured note financing for Royal Oak. Trilon had a close working relationship with Northgate about eight years ago, when Northgate was a much larger company. Trilon continues to own a 3.6-per-cent interest. "We have a pretty strong commitment from Northgate that they will be taking down their junior piece," Mr. Lochan said. Terry Lyons, the president of Northgate, said yesterday that the company has $27-million (Canadian) in cash and will work with Trilon to borrow another $30-million. Northgate said this investment is in keeping with its objective of increasing its stake in the mining industry, with a particular focus on the gold sector. Northgate is a tiny investment and natural resource company with a market capitalization of $32-million. The shares of Northgate fell 1 cent yesterday to $1.06 a share on the TSE. The company has a huge tax loss carry-forward and will not have to pay taxes on its income in the foreseeable future. The losses resulted from a series of disastrous gold mining investments. During 1993, Northgate sold at a huge loss the Colomac gold mine in the Northwest Territories and its 39.3-per-cent interest in Geddes Resources Ltd. to Royal Oak. The Colomac mine has been closed. Royal Oak later acquired all of Geddes after buying its initial interest for $10-million and used the ownership as leverage to negotiate $166-million in compensation from the B.C. government, which expropriated Geddes' Windy Craggy mineral property for a wilderness park. Ms. Witte said that despite having the Trilon rescue financing, discussions continue with the B.C. government, which has paid Royal Oak $154-million. B.C. owes Royal Oak another $12-million, payable over 12 years, but the mining company would like that now in one lump sum. There are an estimated 6.1 million ounces of gold in the Kemess property and its annual production is expected to be about 250,000 ounces at an anticipated cash cost of $128 (U.S.) an ounce. Gold closed yesterday at $301.70.