1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1996
REGISTRATION NO. 333-11117
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT No. 1
to
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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ROYAL OAK MINES INC.*
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ONTARIO, CANADA 1040 NONE
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
5501 LAKEVIEW DRIVE
KIRKLAND, WASHINGTON 98033
(206) 822-8992
(Address, including zip code, and telephone number, including
area code, of the Company's principal executive offices)
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DAVID A. KATZ, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
(Name, address and the telephone number of
agent for service in the United States)
Copies to:
JAMES H. WOOD WILLIAM J.V. SHERIDAN, ESQ.
CHIEF FINANCIAL OFFICER LANG MICHENER
ROYAL OAK MINES INC. BCE PLACE, SUITE 2500
5501 LAKEVIEW DRIVE TORONTO, ONTARIO M5J 2TJ
KIRKLAND, WASHINGTON 98033 (416) 360-8600
(206) 822-8992
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. / /
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The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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*OTHER REGISTRANT
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD
INCORPORATION INDUSTRY I.R.S. EMPLOYER
NAME, ADDRESS AND TELEPHONE NUMBER OR ORGANIZATION CLASSIFICATION NUMBER IDENTIFICATION NUMBER
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Kemess Mines Inc........................... Ontario, Canada 1040 None
Unit 9
3167 Tatlow Road
P.O. Box 3519
Smithers, British Columbia
V0J 2N0
(604) 847-5667
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CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
ITEM NUMBER AND CAPTION LOCATION IN THE PROSPECTUS
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A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of the
Prospectus............................ Front Cover Page of the Registration
Statement; Outside Front Cover Page of the
Prospectus
2. Inside Front and Outside Back Cover
Pages of the Prospectus............... Inside Front Cover Page of the Prospectus;
Outside Back Cover Page of the Prospectus
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information... Prospectus Summary; Risk Factors; Business;
Selected Historical Consolidated Financial
and Operating Data
4. Terms of the Transaction.............. Prospectus Summary; Risk Factors; The
Exchange Offer; Certain Federal Income Tax
Consequences of The Exchange Offer;
Description of Exchange Notes; Exchange
Offer and Registration Rights
5. Pro Forma Financial Information....... *
6. Material Contracts with the Company
Being Acquired........................ *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............. *
8. Interest of Named Experts and
Counsel............................... Validity of Exchange Notes
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... *
B. Information About the Registrant
10. Information with Respect to S-3
Registrants........................... *
11. Incorporation of Certain Information
by Reference.......................... Information Incorporated by Reference
12. Information With Respect to S-2 or S-3
Registrants........................... *
13. Incorporation of Certain Information
by Reference.......................... *
14. Information With Respect to
Registrants Other Than S-3 or S-2
Registrants........................... Prospectus Summary; Risk Factors;
Capitalization; Selected Historical
Consolidated Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Relationships and Related Transactions;
Security Ownership; Financial Statements
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ITEM NUMBER AND CAPTION LOCATION IN THE PROSPECTUS
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C. Information About the Company Being Acquired
15. Information With Respect to S-3
Companies............................. *
16. Information with Respect to S-2 or S-3
Companies............................. *
17. Information With Respect to Companies
Other Than S-3 or S-2 Companies....... *
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited.... *
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited, or in an Exchange Offer.... Management; The Exchange Offer; Certain
Relationships and Related Transactions
- ---------------
*Item is omitted because response is negative or item is inapplicable.
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Offer to Exchange
all outstanding
11% Senior Subordinated Notes due 2006
(US$175,000,000 principal amount outstanding)
for
Series B 11% Senior Subordinated Notes due 2006
(US$175,000,000 principal amount)
of
Royal Oak Mines Inc.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON NOVEMBER 7, 1996, UNLESS EXTENDED.
Royal Oak Mines Inc., an Ontario, Canada corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal"), to exchange up to an aggregate principal amount of
US$175,000,000 of its Series B 11% Senior Subordinated Notes due 2006 (the
"Exchange Notes") for an equal principal amount of its outstanding 11% Senior
Subordinated Notes due 2006 (the "Notes"), in integral multiples of US$1,000.
The Exchange Notes will be fully and unconditionally guaranteed on a senior
subordinated basis by Kemess Mines Inc., an Ontario, Canada corporation which is
a wholly owned subsidiary of the Company (the "Guarantor"). The Exchange Notes
will be senior subordinated unsecured obligations of the Company and are
substantially identical (including principal amount, interest rate, maturity and
redemption rights) to the Notes for which they may be exchanged pursuant to this
offer, except that (i) the offering and sale of the Exchange Notes will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and (ii) holders of Exchange Notes will not be entitled to certain rights
of holders under a Registration Rights Agreement of the Company dated as of
August 12, 1996 (the "Registration Rights Agreement"). The Notes have been, and
the Exchange Notes will be, issued under the indenture (the "Indenture") dated
as of August 12, 1996, among the Company, the Guarantor and Mellon Bank, F.S.B.,
as trustee (the "Trustee"). See "Description of Exchange Notes." There will be
no proceeds to the Company from this offering; however, pursuant to the
Registration Rights Agreement, the Company will bear certain offering expenses.
The Exchange Notes will be general, unsecured obligations of the Company,
will be subordinated to all Senior Indebtedness of the Company, will rank pari
passu with all senior subordinated indebtedness of the Company and will be
senior in right of payment to all future subordinated indebtedness, if any, of
the Company. The claims of holders of the Exchange Notes will be effectively
subordinated to the Senior Indebtedness of the Company which, as of June 30,
1996, was $1,991,000, consisting of capitalized lease obligations, and as of
August 27, 1996 also included $1,940,000 in outstanding letters of credit issued
under the Credit Facility (as defined herein), and such claims will be
effectively subordinated to all indebtedness and other liabilities (including
trade payables and capital lease obligations) of the subsidiaries of the Company
that are not Guarantors. Such indebtedness and other liabilities of such
subsidiaries on an adjusted basis (giving effect to the issuance of the Notes)
aggregated approximately $675,000 as of June 30, 1996. The Company's pro forma
ratio of debt to total capitalization at June 30, 1996 was approximately 34.4%.
See "Capitalization." The Notes are not currently, and the Exchange Notes upon
issuance are not expected to be, senior in priority to any outstanding
indebtedness of the Company or its subsidiaries. The Company has no current plan
or intention to incur any indebtedness to which the Notes or the Exchange Notes
would be senior in priority. The Notes and the Exchange Notes rank pari passu
with one another.
(Cover text continued on next page)
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SEE "RISK FACTORS," COMMENCING ON PAGE 16, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER.
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THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES
LAWS MAY BE ADVERSELY AFFECTED BY THE FACT THAT THE COMPANY AND THE GUARANTOR
ARE INCORPORATED OR ORGANIZED UNDER THE LAWS OF A FOREIGN COUNTRY, THAT SOME OR
ALL OF THE EXPERTS NAMED IN THIS PROSPECTUS MAY BE RESIDENTS OF A FOREIGN
COUNTRY AND THAT ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF THE COMPANY AND
THE GUARANTOR AND SAID PERSONS MAY BE LOCATED OUTSIDE THE UNITED STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR
PROVINCIAL SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 9, 1996.
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The Company will accept for exchange any and all validly tendered Notes on
or prior to 5:00 p.m. New York City time, on November 7, 1996, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date; otherwise such tenders are irrevocable. Mellon Bank, F.S.B. will act as
Exchange Agent (in such capacity, the "Exchange Agent") in connection with the
Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal
amount of Notes being tendered for exchange, but is otherwise subject to certain
customary conditions.
The Notes were sold by the Company on August 12, 1996 (the "Offering") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Notes were
subsequently resold to qualified institutional buyers in reliance upon Rule 144A
under the Securities Act and to a limited number of institutional accredited
investors in a manner exempt from registration under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred in
the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
certain obligations of the Company under the Registration Rights Agreement. See
"The Exchange Offer."
The Exchange Notes will bear interest from August 12, 1996, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined herein) to which interest on
such Notes has been paid), at a rate equal to 11% per annum. Interest on the
Exchange Notes will be payable semi-annually on February 15 and August 15 of
each year, commencing February 15, 1997. The Exchange Notes are redeemable at
the option of the Company (i) in whole or in part at any time on or after March
15, 2001, (ii) on or prior to August 15, 1999 in an amount of up to 35% of the
aggregate principal amount of the Notes originally issued with the net cash
proceeds of certain public equity offerings and (iii) in whole but not in part
in the event of certain changes affecting Canadian withholding taxes, in each
case at the redemption prices set forth herein, plus accrued and unpaid interest
to the date of redemption. See "Prospectus Summary -- Summary of Terms of
Exchange Notes."
Upon the occurrence of a Change of Control (as defined herein), each holder
of Exchange Notes may require the Company to repurchase all or a portion of such
holder's Exchange Notes at 101% of the aggregate principal amount of the
Exchange Notes, together with accrued and unpaid interest, if any, to the date
of repurchase. In addition, subject to certain conditions, the Company will be
obligated to make an offer to repurchase the Exchange Notes at 100% of their
principal amount, plus accrued and unpaid interest to the date of repurchase,
with the net cash proceeds of certain sales or other dispositions of assets. See
"Risk Factors -- Change of Control" and "Description of Exchange Notes."
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the United States Securities and
Exchange Commission (the "Commission") which require each tendering noteholder
to represent that it is acquiring the Exchange Notes in the ordinary course of
its business and that such holder does not intend to participate and has no
arrangement or understanding with any person to participate in a distribution of
the Exchange Notes. In some cases, certain broker-dealers may be required to
deliver a prospectus in connection with the resale of the Exchange Notes that
they receive in the Exchange Offer. See "Prospectus Summary -- The Exchange
Offer."
There has not previously been any public market for the Exchange Notes. The
Company does not intend to list the Exchange Notes on any securities exchange or
to seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the Exchange Notes will develop. To
the extent that an active market for the Exchange Notes does develop, the market
value of the Exchange Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition, and other factors. Such conditions might cause the Exchange Notes, to
the extent that they are actively traded, to trade at a significant discount
from face value. See "Risk Factors -- Lack of Public Market for the Exchange
Notes."
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE
(ii)
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ADVERSELY AFFECTED. FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF
NOTES WILL CONTINUE TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER
THEREOF AND THE COMPANY WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES
GENERALLY WILL NOT HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION
RIGHTS AGREEMENT OR OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF
FAILURE TO EXCHANGE."
The Exchange Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global Exchange Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Exchange Notes representing the Exchange Notes will be
shown on, and transfers thereof will be effected through, records maintained by
DTC and its participants. Notwithstanding the foregoing, Notes held in
certificated form will be exchanged solely for the Exchange Notes in
certificated form. After the initial issuance of the Global Exchange Notes,
Exchange Notes in certificated form will be issued in exchange for the Global
Exchange Notes only on the terms set forth in the Indenture. See "Book-Entry;
Delivery and Form."
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
UNTIL JANUARY 6, 1997 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
(iii)
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Company has filed with the Commission a Registration Statement
on Form S-4 under the Securities Act for the registration of the Exchange Notes
offered hereby (the "Registration Statement"). This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company or the Exchange Notes offered hereby, reference is made
to the Registration Statement, including the exhibits and financial statement
schedules thereto, which may be inspected without charge at the public reference
facility maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the Commission at
prescribed rates. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Such documents and other information filed by the Company can be inspected
and copied at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048 and 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at its public reference
facilities in New York, New York and Chicago, Illinois at prescribed rates. The
Company makes its filings with the Commission electronically. The Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically, which
information can be accessed at http://www.sec.gov.
The Guarantor is not currently subject to the informational requirements of
the Exchange Act. As a result of the offering of the Exchange Notes, the
Guarantor will become subject to the informational requirements of the Exchange
Act. The Company will fulfill its obligations with respect to such requirements
by including information regarding the Guarantor in the Company's periodic
reports. In addition, the Company will send to each holder of Exchange Notes
copies of annual reports and quarterly or financial reports containing the
information required to be filed under the Exchange Act if furnished by it to
stockholders generally.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the Commission to the Trustees and the holders of the Notes and the
Exchange Notes. The Company has agreed that, even if it is not required under
the Exchange Act to furnish such information to the Commission, it will
nonetheless continue to furnish information that would be required to be
furnished by the Company by Section 13 of the Exchange Act to the Trustees and
the holders of the Notes or Exchange Notes as if it were subject to such
periodic reporting requirements.
In addition, the Company has agreed that, for so long as any of the Notes
remain outstanding, it will make available, upon request, to any seller of such
Notes the information specified in Rule 144(d)(4) under the Securities Act,
unless the Company and the Guarantor are then subject to Section 13 or 15(d) of
the Exchange Act.
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THIS PROSPECTUS INCLUDES REFERENCES TO THE FUTURE PERFORMANCE, PLANS AND
EXPECTATIONS OF THE COMPANY WHICH ARE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A(i)(1) OF THE SECURITIES ACT, INCLUDING WITHOUT LIMITATION
STATEMENTS MADE UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS" AND "BUSINESS." SUCH STATEMENTS ARE BASED ON NUMEROUS
VARIABLES AND ASSUMPTIONS THAT ARE INHERENTLY UNCERTAIN, INCLUDING WITHOUT
LIMITATION FACTORS RELATED TO THE COMPANY'S ABILITY TO SUCCESSFULLY COMPLETE
DEVELOPMENT PROJECTS WITHIN PROJECTED CAPITAL BUDGETS OR TO CARRY ON MINING
OPERATIONS WITHIN PROJECTED OPERATING BUDGETS, VOLATILITY IN THE PRICE OF GOLD,
COPPER AND OTHER COMMODITIES, INTEREST AND FOREIGN EXCHANGE RATES, GOVERNMENT
REGULATION AND AGENCY ACTION, COMPETING LAND CLAIMS, THE ACCURACY OF ESTIMATES
OF ORE RESERVES AND MINERAL INVENTORY AND GENERAL ECONOMIC AND COMPETITIVE
CONDITIONS. ACCORDINGLY, ACTUAL FUTURE RESULTS OR VALUES MAY BE SIGNIFICANTLY
MORE OR LESS FAVORABLE THAN PROVIDED BY SUCH REFERENCES.
INFORMATION INCORPORATED BY REFERENCE
All documents filed with the Commission by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the Expiration Date are incorporated herein by reference
and such documents shall be deemed to be a part hereof from the date of filing
of such documents. Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
EXCHANGE RATE DATA
The Company publishes its consolidated financial statements in Canadian
dollars. All dollar amounts set forth in this Prospectus are expressed in
Canadian dollars unless otherwise specifically indicated. The following table
sets forth, for the periods indicated, the high and low exchange rates (i.e.,
the highest and lowest rates at which Canadian dollars were sold), the average
exchange rate (i.e., the average of the exchange rates on the last business day
of each month during the applicable period) and the period end exchange rate of
the Canadian dollar in exchange for the United States dollar, as calculated from
the inverse of the exchange rate reported by the Federal Reserve Bank of New
York for cable transfers payable in Canadian dollars as certified for customs
purposes (the "Noon Buying Rate"). On August 27, 1996, the inverse of the Noon
Buying Rate was Cdn $1.00 equals US$0.7312.
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------------------ -------------
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ -------------
Exchange rate at period end............... 0.8652 0.7867 0.7544 0.7129 0.7323 0.7322
Average exchange rate during the period... 0.8726 0.8276 0.7751 0.7321 0.7305 0.7310
Highest exchange rate during the period... 0.8941 0.8760 0.8046 0.7632 0.7527 0.7381
Lowest exchange rate during the period.... 0.8573 0.7760 0.7439 0.7105 0.7023 0.7265
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
the notes thereto appearing elsewhere in this Prospectus. References to the
"Company" or "Royal Oak" mean Royal Oak Mines Inc., an Ontario, Canada
corporation and its subsidiaries, unless the context otherwise requires. The
consolidated financial statements of Royal Oak included herein have been
prepared in accordance with Canadian generally accepted accounting principles
and are subject to Canadian auditing and independent auditor standards and thus
may not be comparable to financial statements of United States companies.
Certain terms relating to the mining industry as used herein are defined in the
"Glossary of Certain Mining Terms" beginning on page 106. Reserve data in this
Prospectus dated as of December 31, 1995, includes data for the Kemess, Duport
and Cape Ray properties acquired by the Company in 1996. IN THIS PROSPECTUS,
UNLESS OTHERWISE SPECIFIED OR THE CONTEXT OTHERWISE REQUIRES, ALL DOLLAR AMOUNTS
ARE EXPRESSED IN CANADIAN DOLLARS. See "Exchange Rate Data."
The financial information presented below includes operating results
expressed in terms of EBITDA, which represents net income before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. EBITDA information is included as supplemental information herein
because the Company understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
EBITDA is not intended to represent, and should not be considered more
meaningful than, or an alternative to measures of, performance determined in
accordance with generally accepted accounting principles.
THE COMPANY
Royal Oak is a major North American gold mining company which, together
with its predecessors, has produced in excess of 50 million ounces of gold over
a 60-year period. The Company, which owns and operates five producing gold
mines, is in the process of expanding one producing mine and is developing four
major new projects. The Company has extensive land positions in Canada covering
approximately 704,000 acres, as well as over 7,000 acres in the United States,
which provide it with the opportunity to expand its reserves through focused
exploration and development. As of and for the fiscal year ending December 31,
1995, Royal Oak had approximately 9.8 million ounces of mineable gold reserves
and had produced 371,151 ounces of gold.
The Company's five producing gold mines consist of the Colomac and Giant
Mines in the Northwest Territories, the Pamour and Nighthawk Mines in Ontario
and the Hope Brook Mine in Newfoundland. Through acquisitions, exploration and
the implementation of more advanced and efficient mining methods, the Company
has increased its annual production by a compounded annual growth rate of 17.5%
since 1991. The Company conducts a focused exploration program to develop
additional mineable gold reserves in close proximity to its existing mines in
order to maximize the utilization of its processing facilities and to increase
processing efficiencies. In 1995, the Company's exploration efforts resulted in
the addition of approximately 2.2 million ounces of mineable gold reserves to
its existing reserve base at a cost of approximately $6.95 per ounce. A
significant part of this exploration program was focused on the Pamour Mine open
pit expansion which is expected to contribute approximately 60,000 ounces of
gold annually when production commences in the first half of 1998.
DEVELOPMENT PROJECTS
Royal Oak's four major development projects consist of the Kemess South,
Matachewan, Red Mountain and Duport gold properties. (These properties are
collectively referred to herein as the "Development Projects.") The addition of
these four projects has contributed approximately 6.1 million ounces of gold to
the Company's mineable ore reserves. The Company believes that the development
of these properties will extend the Company's overall reserve life, dramatically
increase production and decrease overall cash costs per ounce of gold produced.
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- - Kemess -- In January 1996, the Company completed a series of transactions
which resulted in the acquisition of the Kemess gold-copper ore body
comprised of Kemess South and Kemess North located in British Columbia. The
aggregate consideration for the Kemess acquisition was approximately $202
million in cash and common shares. Construction of the Kemess South open
pit mine and processing facility (the "Kemess South Project") began in July
1996 and is expected to be completed in the first half of 1998. The Company
estimates that the aggregate development costs of the Kemess South Project
will be approximately $390 million, of which up to $166 million will be
provided in the form of economic assistance, compensation and investment by
the British Columbia provincial government ($14.5 million of which has been
received) with the remainder to be provided from proceeds of the Offering,
vendor financing, borrowings under the Credit Facility and cash flow from
operations. The Kemess South Project contains approximately 4.1 million
ounces of mineable gold reserves and approximately 1.0 billion pounds of
copper. The Company estimates that the average annual production of Kemess
South will be approximately 250,000 ounces of gold with an estimated
average cash cost of US$189 per ounce and approximately 60 million pounds
of copper with an estimated average cash cost of US$0.48 per pound over the
life of the mine.
- - Matachewan -- The Company expects to complete the construction of the open
pit mine and concentrator at the Matachewan property located in Ontario in
the second half of 1998 with an underground mine to follow. Concentrate
from Matachewan will be transported to the Pamour Mill for cyanidation.
Total capital costs to develop the property are expected to be
approximately $115 million. The property was previously an active producing
mine which presently contains approximately 884,000 ounces of mineable gold
reserves. Annual production is targeted at approximately 100,000 ounces of
gold with an estimated average cash cost of US$227 per ounce.
- - Red Mountain -- Following the commencement of construction in 1998, the
Company expects to complete construction of the underground mine and
processing operation at the Red Mountain property located in British
Columbia in 1999. Total capital costs to develop the property are expected
to be approximately $113 million. The property contains approximately
800,000 ounces of mineable gold reserves with annual production targeted at
approximately 150,000 ounces of gold with an estimated average cash cost of
US$162 per ounce.
- - Duport -- Following the commencement of construction in 1999, the Company
expects to complete construction of the underground mine and processing
operation at the Duport property located in Ontario in 2000. Total capital
costs to develop the property are expected to be approximately $70 million.
The property contains approximately 383,000 ounces of mineable gold
reserves with annual production targeted at approximately 47,250 ounces of
gold per year with an estimated average cash cost of US$224 per ounce.
While the Company intends to proceed with the Development Projects on the
schedule outlined above, the Company's initial priority is completion of the
development of the Kemess South Project. The timing of the other Development
Projects will be dependent in part upon completion of the Kemess South Project
and other factors such as available financing and receipt of required government
approvals and permits.
BUSINESS STRENGTHS
Royal Oak believes it has certain strengths that provide the Company with
advantages in successfully pursuing its operating strategy, including the
following:
- - Long Reserve Life -- Royal Oak's properties contain approximately 9.8
million ounces of mineable gold ore reserves with an estimated reserve
life, based on estimated future production, of over 15 years.
- - Attractive Development Projects -- The Company's Development Projects will,
upon completion, increase the Company's annual gold production, extend
overall mine operating life and significantly reduce the Company's average
cash costs.
5
12
- - Extensive Exploration Property Portfolio -- The Company owns an extensive
portfolio of mineral properties covering 711,000 acres of prospective
mining rights in Canada and the United States. Royal Oak's exploration
program is primarily focused on those properties that are adjacent to its
producing mines in order to maximize the utilization of the Company's
existing processing facilities and to increase processing efficiencies.
- - Management Expertise -- Royal Oak's senior management team has extensive
operating and exploration experience in the mining industry. Management's
significant experience has been instrumental in helping the Company achieve
its historical growth and provides a significant base upon which to expand
the Company's future operations. In addition, the Company has recently
formed a 21-member project development team to construct, develop and
manage the Kemess South Project as well as a separate team to focus on the
other Development Projects.
OPERATING STRATEGY
In order to capitalize on its business strengths, the Company has developed
the following operating strategy to continue its growth:
- - Increase Production and Reduce Average Cash Costs -- As a result of
increased production at the Colomac Mine and the first full year of
production at the Nighthawk Mine, the Company expects to increase its gold
production in 1996 to approximately 415,000 ounces from 371,151 ounces in
1995. In addition, through the successful implementation of advanced mining
technologies accompanied by cost reduction programs, the Company believes
that its average cash costs will decrease from US$358 per ounce of gold in
1995 to approximately US$315 per ounce of gold in 1996. The Company's cash
costs for the six months ended June 30, 1996 were US$331 per ounce of gold
compared to US$351 in the same period in 1995.
- - Complete Development of Major Projects -- The Company's primary objective
with respect to the Development Projects is to efficiently complete the
development of the Kemess South Project. The Company estimates that, upon
completion, the Development Projects will generate additional annual
production of approximately 547,000 ounces of gold and 60 million pounds of
copper with an average estimated cash cost of US$192 per ounce of gold and
US$0.48 per pound of copper over the life of the properties.
- - Expand Reserve Base Through Focused Exploration -- The Company's exploration
program focuses on identifying additional mineable ore reserves in close
proximity to its existing mines. This strategy allows the Company to
maximize utilization of existing processing facilities, to increase
processing efficiencies and to capitalize on its extensive land position in
Canada. In 1995, the Company's $15.3 million exploration program delineated
approximately 2.2 million ounces of mineable gold reserves. The Company has
budgeted $12 million for its 1996 exploration program.
Management believes that the gold mining industry will continue to
consolidate over the next several years and that numerous acquisition
opportunities will become available to the Company. In 1996, the Company
acquired the Kemess, Duport and Cape Ray properties. In addition to the
operating strategy described above, the Company intends to review acquisition
opportunities as they become available and will pursue selective acquisitions of
gold properties that will increase production, mineable ore reserves and cash
flow from operations while reducing average cash costs. These acquisitions could
be an important component of the Company's future growth.
6
13
THE NOTE OFFERING
THE NOTES.................. The Notes were sold by the Company in the Offering
on August 12, 1996, and were subsequently resold to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to institutional
investors that are accredited investors in a manner
exempt from registration under the Securities Act.
REGISTRATION RIGHTS
AGREEMENT.................. In connection with the Offering, the Company
entered into the Registration Rights Agreement,
which grants holders ("Holders") of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... US$175,000,000 aggregate principal amount of Series
B 11% Senior Subordinated Notes due August 15,
2006.
THE EXCHANGE OFFER......... US$1,000 principal amount of the Exchange Notes in
exchange for each US$1,000 principal amount of
Notes. As of the date hereof, US$175,000,000
aggregate principal amount of Notes are
outstanding. The Company will issue the Exchange
Notes to Holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Notes received in exchange for Notes
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale.
Any Holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the SEC enunciated in Exxon Capital Holdings
Corporation (available April 13,
7
14
1989), Morgan Stanley & Co., Inc. (available June
5, 1991) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with the resale of the Exchange Notes. Failure to
comply with such requirements in such instance may
result in such Holder incurring liability under the
Securities Act for which the Holder is not
indemnified by the Company.
In any State where the Exchange Offer does not fall
under a statutory exemption to such State's Blue
Sky laws, the Company has filed the appropriate
registrations and notices, and has made the
appropriate requests, to permit the Exchange Offer
to be made in such State.
EXPIRATION DATE............ 5:00 p.m., New York City time, on November 7, 1996,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST ON THE EXCHANGE
NOTES
AND THE NOTES............ The Exchange Notes will bear interest from August
12, 1996, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined
below in the Summary of Terms of Exchange Notes) to
which interest on such Notes has been paid).
Accordingly, Holders of Notes that are accepted for
exchange will not receive interest on the Notes
that is accrued but unpaid at the time of tender,
but such interest will be payable on the first
Interest Payment Date after the Expiration Date.
CONDITIONS TO THE
EXCHANGE OFFER........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
PROCEDURES FOR
TENDERING NOTES.......... Each Holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or such facsimile, together
with the Notes and any other required documentation
to the Exchange Agent at the address set forth in
the Letter of Transmittal. By executing the Letter
of Transmittal, each Holder will represent to the
Company that, among other things, the Holder or the
person receiving such Exchange Notes, whether or
not such person is the Holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the Holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes. In lieu of physical delivery
of the certificates representing Notes, tendering
Holders may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own
8
15
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
its Notes, either make appropriate arrangements to
register ownership of the Notes in such owner's
name or obtain a properly completed bond power from
the registered Holder. The transfer of registered
ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawals of Tenders."
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE
NOTES.................... The Company will accept for exchange any and all
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES............. The issuance of the Exchange Notes to Holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain
or loss would be recognized by Holders of the Notes
upon receipt of the Exchange Notes. See "Certain
Federal Income Tax Consequences of the Exchange
Offer."
EFFECT ON HOLDERS OF
NOTES...................... As a result of the making of this Exchange Offer,
the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and Holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such Holders will continue
to hold the untendered Notes and will be entitled
to all the rights and subject to all the
limitations applicable thereto under the Indenture,
except to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Notes will continue to be subject to
certain restrictions on transfer. Accordingly, if
any Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Notes
could be adversely affected.
EXCHANGE AGENT............. Mellon Bank, F.S.B.
9
16
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) the holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
SECURITIES OFFERED......... US$175,000,000 aggregate principal amount of Series
B 11% Senior Subordinated Notes due 2006 (equal to
Cdn $239,332,604 based upon the exchange rate on
August 27, 1996).
ISSUER..................... Royal Oak Mines Inc.
MATURITY DATE.............. August 15, 2006.
INTEREST PAYMENT DATES..... Interest on the Exchange Notes will accrue from
August 12, 1996 (the "Issue Date") and is payable
semi-annually on each of February 15 and August 15
of each year, commencing February 15, 1997.
RANKING.................... The Exchange Notes will be general unsecured
obligations of the Company and will be subordinated
in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company
(which includes the Credit Facility). The Exchange
Notes will rank pari passu with all future senior
subordinated indebtedness of the Company and will
rank senior to all other subordinated indebtedness,
if any, of the Company. As of June 30, 1996, there
was no Guarantor Senior Indebtedness and $1,991,000
of Senior Indebtedness consisting of capitalized
lease obligations. In addition, as of August 27,
1996, the Company had outstanding under its Credit
Facility letters of credit in the aggregate amount
of $1,940,000.
OPTIONAL REDEMPTION........ The Exchange Notes are redeemable, in whole or in
part, at the option of the Company, on or after
August 15, 2001, at the redemption prices set forth
herein, plus accrued interest to the date of
redemption. In addition, on or prior to August 15,
1999, the Company, at its option, may redeem an
amount of Exchange Notes equal to up to 35% of the
aggregate principal amount of the Notes originally
issued in the Offering with the net cash proceeds
of one or more Public Equity Offerings (as
defined), at the redemption prices set forth herein
plus accrued interest to the date of redemption.
The Exchange Notes are also redeemable at the
option of the Company, in whole but not in part, at
a redemption price equal to 100% of the aggregate
principal amount so redeemed, plus accrued and
unpaid interest thereon to the date of the
redemption, in the event of certain changes
affecting Canadian withholding taxes. See
"Description of Exchange Notes -- Optional
Redemption."
SUBSIDIARY GUARANTEE....... The Exchange Notes will be guaranteed on a senior
subordinated basis by the Guarantor.
CHANGE OF CONTROL.......... Upon a Change of Control Triggering Event (as
defined), each holder will have the right to
require the Company to offer to repurchase such
holder's Exchange Notes at a price equal to 101% of
the principal amount thereof plus accrued interest
to the date of repurchase.
CERTAIN COVENANTS.......... The Indenture contains certain covenants that limit
the ability of the Company and its Restricted
Subsidiaries to, among other things, incur
10
17
additional indebtedness, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur indebtedness
that is subordinated in right of payment to any
Senior Indebtedness and senior in right of payment
to the Exchange Notes, incur liens, in the case of
a subsidiary, to pay dividends or make certain
payments to the Company and its Restricted
Subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
the assets of the Company or its Restricted
Subsidiaries.
EXCHANGE OFFER;
REGISTRATION RIGHTS........ In the event that applicable law or interpretations
of the staff of the Commission do not permit the
Company to effect the Exchange Offer, or if certain
holders of the Notes are not permitted to
participate in, or do not receive the benefit of,
the Exchange Offer, the Registration Rights
Agreement provides that the Company and the
Guarantor will use all reasonable efforts to cause
to become effective a shelf registration statement
with respect to the resale of the Notes and to keep
such shelf registration statement effective until
three years after the Issue Date or such shorter
period ending when all the Notes have been sold
thereunder. The interest rate on the Notes is
subject to increase under certain circumstances if
the Company and the Guarantor are not in compliance
with their obligations under the Registration
Rights Agreement. See "Exchange Offer and
Registration Rights."
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
See "Risk Factors," which begins on page 16, for a discussion of certain
factors that should be considered by prospective investors in evaluating an
investment in the Exchange Notes.
11
18
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial data for
the Company as of and for the periods noted. The consolidated balance sheet and
income statement data as of and for the years ended December 31, 1991 through
1995 has been derived from the audited consolidated financial statements of
Royal Oak. The consolidated balance sheet and income statement data as of and
for the six months ended June 30, 1995 and 1996 has been derived from the
unaudited financial statements of Royal Oak which, in the opinion of management
of the Company, contain all adjustments necessary for a fair presentation of
this information. The historical data with respect to the results of operations
for the six months ended June 30, 1996 should not be regarded as necessarily
indicative of the results that may be expected for the entire year. The
Operating Data presented below has been derived from the Company's accounting
and other records. The consolidated financial statements of Royal Oak and the
notes thereto have been prepared in accordance with accounting principles
generally accepted in Canada ("Cdn GAAP"). These principles are also in
conformity, in all material respects, with accounting principles generally
accepted in the United States ("US GAAP") except as described in Note 13 of the
notes to the audited consolidated financial statements of Royal Oak and the
notes thereto as of December 31, 1994 and 1995 and for each fiscal year in the
three-year period ended December 31, 1995 (the "Annual Consolidated Financial
Statements"). All dollar amounts are expressed in Canadian dollars except as
noted below. The following table should be read together with the Annual
Consolidated Financial Statements and the unaudited consolidated financial
statements of Royal Oak and the notes thereto as of and for the six months ended
June 30, 1995 and 1996 (the "Unaudited Consolidated Financial Statements" and,
together with the Annual Consolidated Financial Statements, the "Consolidated
Financial Statements") appearing elsewhere in this Prospectus. See "Index to
Consolidated Financial Statements."
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
INCOME STATEMENT DATA:
CDN GAAP
Revenue.................................... $96,433 $113,673 $135,326 $162,111 $208,311 $100,839 $105,846
Operating expenses......................... 72,581 89,874 110,258 117,790 182,214 89,714 81,383
Royalties and marketing expenses........... 830 881 1,248 2,490 2,535 1,108 1,408
Administrative and corporate expenses...... 3,500 4,082 3,411 5,271 8,549 4,945 4,861
Depreciation and amortization.............. 4,966 4,275 4,998 8,525 14,895 6,270 11,366
Exploration expenses(1).................... -- -- -- -- -- 254 2,409
Provision for (recovery of) loss on foreign
currency contracts....................... -- -- -- 15,267 (5,244) (3,772) (976)
-------- -------- -------- -------- -------- -------- --------
Operating income........................... 14,556 14,561 15,411 12,768 5,362 2,320 5,395
Interest and other income, net(2).......... 1,314 638 2,289 7,074 20,902 12,135 2,462
Other(1)................................... (7,124) (3,654) (1,862) 2,960 (1,553) (235) (23)
Provision for income taxes................. (105) (108) (215) (636) (1,542) (969) (2,729)
-------- -------- -------- -------- -------- -------- --------
Net income................................. $ 8,641 $ 11,437 $ 15,623 $ 22,166 $ 23,169 $ 13,251 $ 5,105
======== ======== ======== ======== ======== ======== ========
US GAAP(3)
Net income................................. $ 8,226 $ 9,562 $ 13,940 $ 19,978 $ 17,177 $ 9,762 $ 3,654
OPERATING DATA:
Recovered gold ounces...................... 194,952 245,469 276,320 318,171 371,151 184,206 179,643
Average spot gold price per ounce (US$).... 362 344 360 384 384 383 395
Average realized gold price per ounce
(US$).................................... 432 383 380 428 409 394 431
Cash cost per ounce (US$).................. 327 304 311 311 358 351 331
Total cost per ounce (US$)(4).............. 367 346 340 353 410 400 413
Total cost excluding depreciation and
amortization (US$)....................... 345 332 326 333 381 375 367
OTHER DATA:
EBITDA(5).................................. $19,522 $ 18,836 $ 20,409 $ 21,293 $ 20,257 $ 8,590 $ 16,761
Net additions to property, plant and
equipment(6)............................. 6,513 19,889 26,803 52,461 66,018 22,943 255,728
Ratio of earnings to fixed charges......... 4.43 N.A. 163.93 376.02 84.85 150.32 92.57
12
19
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
BALANCE SHEET DATA (AT PERIOD END)
CDN GAAP
Cash and cash equivalents.................. $ 4,935 $ 12,719 $ 79,644 $148,524 $139,410 $164,294 $ 14,797
Property, plant and equipment.............. 58,200 77,547 99,218 137,954 191,381 154,824 435,690
Total assets............................... 74,484 111,670 217,226 384,074 428,963 421,312 580,118
Long-term debt(2)(7)....................... -- -- -- -- -- -- --
Shareholders' equity....................... 49,273 81,935 185,362 302,731 340,495 330,556 459,959
US GAAP(3)
Total assets............................... $73,319 $108,630 $213,253 $377,913 $416,810 $411,662 $646,636
Shareholders' equity....................... 48,533 79,320 181,389 296,570 328,342 320,906 446,355
- ---------------
(1) Prior to January 1, 1996, the Company's exploration expenses were not
material and were classified under "Other."
(2) The Company historically has had no material long-term debt and,
accordingly, has had no material interest expense. As a result of the
Offering, the Company would have had as of June 30, 1996 annual interest
expense of approximately US$19.25 million (or approximately Cdn $26.3
million based upon the exchange rate as of June 30, 1996) associated with
the Notes.
(3) Under US GAAP (i) depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas
under Cdn GAAP, total mineral inventory may be used in the calculations; and
(ii) for defined benefit pension plans, the projected benefit obligation
should be discounted using interest rates at which the obligation could be
effectively settled whereas under Cdn GAAP, the projected benefit obligation
may be discounted using interest rates which are consistent with long-term
assumptions. See Note 13 to the Annual Consolidated Financial Statements.
(4) Total cost per ounce includes depreciation and amortization.
(5) "EBITDA," as used in this Prospectus, means operating income plus
depreciation and amortization. EBITDA differs from the definition of
Consolidated EBITDA under the Indenture. See "Description of Notes." EBITDA
is not a measure of financial performance under US GAAP. Accordingly, it
does not represent net income or cash flows from operations as defined by US
GAAP and does not necessarily indicate that cash flows will be sufficient to
fund cash needs. As a result, EBITDA should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity.
(6) Net additions to property, plant and equipment for the six months ended June
30, 1996 include investments in Kemess capital assets of $202 million
through the acquisitions of Geddes Resources Limited, El Condor Resources
Ltd. and St. Philips Resources Inc. and Duport capital assets through the
acquisition of Consolidated Professor Mines Limited.
(7) As of June 30, 1996, the Company had capital lease obligations in the amount
of $1,991,000.
13
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SUMMARY RESERVE DATA(1)
The following table lists the Company's mineable ore reserves for the years
noted:
YEAR ENDED DECEMBER 31
--------------------------------------------------
1991 1992 1993 1994 1995(2)
----- ------ ------ ------ -------
GOLD RESERVES (AT END OF PERIOD):
Northwest Territories Division
Giant Mine(3)
Mineable ore (000s tons)......................................... 2,339 2,821 2,617 2,395 2,466
Average grade (ounces per ton)................................... 0.311 0.319 0.321 0.319 0.335
Contained ounces (000s).......................................... 727 899 840 763 826
Colomac Mine(4)
Mineable ore (000s tons)......................................... -- -- 13,618 13,054 12,255
Average grade (ounces per ton)................................... -- -- 0.052 0.053 0.058
Contained ounces (000s).......................................... -- -- 709 694 711
Ontario Division
Pamour and Nighthawk Mines
Mineable ore (000s tons)......................................... 3,812 3,825 3,993 9,398 38,471
Average grade (ounces per ton)................................... 0.099 0.099 0.097 0.067 0.046
Contained ounces (000s).......................................... 379 378 386 629 1,771
Matachewan
Mineable ore (000s tons)......................................... -- -- -- 1,400 13,253
Average grade (ounces per ton)................................... -- -- -- 0.062 0.067
Contained ounces (000s).......................................... -- -- -- 87 884
Duport
Mineable ore (000s tons)......................................... -- -- -- -- 1,008
Average grade (ounces per ton)................................... -- -- -- -- 0.380
Contained ounces (000s).......................................... -- -- -- -- 383
Newfoundland Division
Hope Brook Mine
Mineable ore (000s tons)......................................... -- 8,255 7,300 3,936 2,448
Average grade (ounces per ton)................................... -- 0.104 0.102 0.087 0.087
Contained ounces (000s).......................................... -- 856 746 343 215
Cape Ray
Mineable ore (000s tons)......................................... -- -- -- -- 502
Average grade (ounces per ton)................................... -- -- -- -- 0.294
Contained ounces (000s).......................................... -- -- -- -- 147
British Columbia Division
Kemess South
Mineable ore (000s tons)......................................... -- -- -- -- 220,947
Average grade (ounces per ton)................................... -- -- -- -- 0.018
Contained ounces (000s).......................................... -- -- -- -- 4,056
Red Mountain
Mineable ore (000s tons)......................................... -- -- -- -- 3,053
Average grade (ounces per ton)................................... -- -- -- -- 0.262
Contained ounces (000s).......................................... -- -- -- -- 800
Royal Oak Consolidated
Total mineable ore (000s tons)................................... 6,151 14,901 27,527 30,183 294,402
Average grade (ounces per ton)................................... 0.180 0.143 0.097 0.083 0.033
Total Company contained ounces (000s)............................ 1,106 2,133 2,682 2,517 9,793
COPPER RESERVES (AT END OF PERIOD):
British Columbia Division
Kemess South
Mineable ore (000s tons)......................................... -- -- -- -- 220,947
Average grade (%)................................................ -- -- -- -- 0.224
Content (000s pounds)............................................ -- -- -- -- 989,843
- ---------------
See footnotes on following page.
14
21
(1) "Mineable ore reserves" include both proven and probable reserves. The term
"reserves" means that part of a mineral deposit which can be reasonably
assumed to be economically extracted or produced at the time of the reserves
determination. The term "economically," as used in the definition of
reserves, implies that profitable extraction or production under defined
investment assumptions has been established or analytically demonstrated.
The assumptions made must be reasonable, including assumptions concerning
the prices and costs that will prevail during the life of the project.
The term "proven reserves" means reserves for which (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings and drill holes;
grade and/or quality are computed from the results of detailed sampling; and
(b) the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well established.
The term "probable reserves" means reserves for which quantity and grade
and/or quality are computed from information similar to that used for
reserves, but the sites for inspection, sampling and measurement are farther
apart or are otherwise less adequately spaced. The degree of assurance,
although lower than that for proven reserves, is high enough to assume
continuity between points of observation.
The term "contained ounces" means that the reserves are estimated to
encompass a stated number of ounces of gold in place. The number of ounces
ultimately recovered and available for sale depends upon mining efficiency
and processing efficiency.
See "Risk Factors -- Reserve Estimates; Mineral Inventory."
(2) Reserve data dated as of December 31, 1995 includes data for the Kemess,
Duport and Cape Ray properties acquired by the Company in 1996.
(3) Reserve data includes data for the Nicholas Lake property. See "Business --
Operating Properties -- Giant."
(4) Reserve data includes data for the Kim-Cass property on a 100% ownership
basis. See "Business -- Operating Properties -- Colomac." As of June 30,
1996, the mine plan at the Colomac Mine was under review by the Company's
management which could affect the reserves at such property; however, based
upon information currently available to the Company, any adjustment to such
reserves is not anticipated to be material to the Company's total mineable
inventory in the Indin Lake area that would be processed by the Colomac
Mill.
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RISK FACTORS
Prospective participants should consider carefully the risk factors set
forth below as well as the other information contained in this Prospectus before
participating in the Exchange Offer.
ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
Following the sale of the Notes, the Company increased its level of
indebtedness and debt service obligations. As of June 30, 1996, after giving
effect to the sale of the Notes, the Company would have had approximately
US$176.5 million (Cdn $241 million based upon the exchange rate in effect on
such date) aggregate amount of indebtedness outstanding, representing 34.4% of
total capitalization. See "Capitalization." The Company's average annual
interest expense in respect of the Notes is approximately US$19.25 million
(approximately Cdn $26.3 million based upon the exchange rate as of June 30,
1996).
The degree of the Company's leverage could have important consequences to
holders of the Exchange Notes including: (i) limiting the Company's ability to
obtain additional financing to fund future working capital requirements, capital
expenditures, acquisitions or other general corporate requirements; (ii)
requiring a portion of the Company's cash flow from operations to be dedicated
to debt service requirements, thereby reducing the funds available for
operations and future business opportunities; and (iii) increasing the Company's
vulnerability to adverse economic and industry conditions.
The Company may incur additional indebtedness in the future, including
Senior Indebtedness. See " -- Subordination." The ability of the Company to make
scheduled payments under its present and future indebtedness will depend on,
among other things, the future operating performance of the Company and the
Company's ability to refinance its indebtedness when necessary. Each of these
factors is to a large extent subject to economic, financial, competitive and
other factors beyond the Company's control.
SUBORDINATION
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior
Indebtedness. Subject to certain limitations, the Indenture permits the Company
to incur additional Senior Indebtedness. See "Description of Exchange Notes --
Certain Covenants -- Limitation on Indebtedness." As a result of the
subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency, holders of Senior Indebtedness and trade creditors of
the Company and the Guarantor may recover more, ratably, than the holders of the
Exchange Notes. The holders of any indebtedness of the Company's subsidiaries
(other than the Guarantor) will be entitled to payment of their indebtedness
from the assets of such subsidiaries prior to the holders of any general
unsecured obligations of the Company, including the Exchange Notes. In addition,
substantially all of the assets of the Company and its subsidiaries may in the
future be pledged to secure other indebtedness of the Company. See "Description
of Exchange Notes."
DEVELOPMENT PROJECTS
General -- The Company from time to time engages in the development of new
ore bodies, both at newly acquired properties and currently existing mining
operations. The Company's ability to sustain or increase its present level of
gold production is dependent in part on the successful development of such new
ore bodies and/or expansion of existing mining operations. The economic
feasibility of any individual development project and all such projects
collectively is based upon, among other things, estimates of ore reserves,
metallurgical recoveries, production rates and capital and operating costs of
such development projects, and future metal prices. Development projects are
also subject to the completion of favorable feasibility studies, the issuance of
necessary permits and the receipt of adequate financing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." Development projects may have no operating
history upon which to base estimates of future operating costs and capital
requirements. Particularly for development projects, estimates of ore reserves,
metal recoveries and cash operating costs are to a large extent based upon the
interpretation of geological data obtained from drill holes and other sampling
techniques and feasibility studies which derive estimates of cash operating
costs based
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upon anticipated tonnage and grades of ore to be mined and processed, the
configuration of the ore body, expected recovery rates of metals from the ore,
comparable facility and equipment costs, anticipated climate changes and other
factors. As a result, actual cash operating costs and economic returns of any
and all development projects may materially differ from the costs and returns
currently estimated.
Pending Projects -- The development and construction cost requirements for
the Development Projects and the Pamour open pit expansion are significant. For
the development of the Kemess South Project, the Company is relying on the
updated cost estimates developed by the Company in 1996 and completion of the
development is subject to receipt of adequate financing and receipt of all
remaining governmental approvals and permits. See "Business -- Development
Projects -- Kemess South." The Company's other pending Development Projects are
subject to the completion of favorable feasibility studies on each of such
properties and the receipt of adequate financing and all required governmental
approvals and permits.
GOLD AND METAL PRICE VOLATILITY
The Company's profitability is significantly affected by changes in the
market price of gold, and upon completion of the Kemess South Project, may be
significantly affected by changes in the market price of copper. Gold prices may
fluctuate dramatically and are affected by numerous industry factors, such as
demand for precious metals, forward selling by producers, central bank sales and
purchases of gold, and production and cost levels in major gold-producing
regions such as North America, South Africa and the former Soviet Union.
Moreover, gold prices are also affected by macro-economic factors such as
expectations for inflation, interest rates, currency exchange rates, and global
or regional political and economic situations. The current demand for, and
supply of, gold affects gold prices, but not necessarily in the same manner as
current demand and supply affect the prices of other commodities. The potential
supply of gold consists of new gold mine production plus existing stocks of
bullion and fabricated gold held by governments, financial institutions,
industrial organizations and individuals. Since mine production in any single
year constitutes a very small portion of the total potential supply of gold,
normal variations in current production do not necessarily have a significant
effect on the supply of gold or on its price. If gold prices should decline
below the Company's cash costs and remain at such levels for any sustained
period, the Company could determine that it is not economically feasible to
continue commercial production at any or all of its mines. Although the Company
has hedging programs in place to reduce certain of the risks associated with
gold price volatility, there can be no assurance that such hedging strategies
will be successful. See " -- Hedging Activities." The aggregate effect of these
factors, all of which are beyond the Company's control, is impossible to
predict.
Copper prices may also fluctuate dramatically and are affected by numerous
factors beyond the Company's control, including expectations of inflation,
speculative activities, the relative exchange rate of the United States dollar,
global and regional demand, production and production costs in major producing
regions. For example, between January 1, 1996 and July 31, 1996, the price per
pound of copper fluctuated between a high of US$1.288 and a low of US$0.829. The
aggregate effect of these factors, all of which are beyond the Company's
control, is impossible to predict.
The volatility of gold and copper prices is illustrated in the following
table which sets forth the average of the daily closing prices in United States
dollars of gold and copper for 1980, 1985, 1990 and each year thereafter until
1996:
1980 1985 1990 1991 1992 1993 1994 1995 1996(3)
------- ------- ------- ------- ------- ------- ------- ------- -------
Gold(1) (per ounce)......... $614.32 $317.22 $383.64 $362.23 $343.94 $359.86 $384.15 $384.08 $391.59
Copper(2) (per pound)....... $ 0.990 $ 0.643 $ 1.208 $ 1.059 $ 1.035 $ 0.866 $ 1.049 $ 1.331 $ 1.06
- ---------------
(1) London Bullion Market
(2) London Metal Exchange
(3) Through September 30, 1996
As of October , the closing price for gold was US$ per ounce and the
closing price for copper was US$ per pound.
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HEDGING ACTIVITIES
In the normal course of its business, the Company uses gold spot deferred
contracts, gold forward sales commitments and gold call option contracts to
manage its exposure to fluctuations in the price of gold. Contracted prices on
spot deferred and forward sales contracts are recognized in revenue when
production is delivered against the commitment. If actual delivery is not made
against a particular spot deferred contract at the time of maturity, gains and
losses, if any, are recognized at that time. In addition, the Company uses oil
swap agreements and foreign exchange contracts to minimize the impact of
fluctuations in oil and foreign currency prices, respectively. Contract
positions are designed to ensure that the Company will receive a defined minimum
price for certain quantities of its production. The related costs paid or
premiums received for option contracts which hedge the sales prices of
commodities are deferred and included in income as part of the hedged
transaction. Revenues from the aforementioned contracts are recognized at the
time contracts expire or are closed out by either delivery of the underlying
commodity or settlement of the net position in cash. The Company is exposed to
certain losses on forward sales contracts, generally the amount by which the
contract price exceeds the spot price of the commodity, in the event of
non-performance by the counterparties to these agreements. The Company believes
that it has minimized credit risk relating to its hedging activities by dealing
with large credit-worthy institutions and by limiting its credit exposure to
such institutions.
As of December 31, 1995, the Company had contractual arrangements, in both
United States and Canadian dollars (i) to deliver an aggregate of 459,028 ounces
of gold between 1996 and 1999 at prices of US$385 to $654 per ounce, (ii) for
892,792 ounces of gold call options written with expiry dates between 1996 and
1999 at strike prices of US$410 to $664, (iii) to sell an aggregate of
approximately US$115.9 million at an exchange rate of Cdn$1.28/US$1.00, and (iv)
to purchase an aggregate of 400,000 barrels of crude oil between 1996 and 1997
at a price per barrel of US$16.85 to US$17.40. See Note 11 to the Annual
Consolidated Financial Statements. In 1996, the Company closed out the contracts
referred to in clause (i) above, resulting in the generation of cash and
deferred revenue of $20,131,000, exchanged the gold call options expiring
between 1997 and 1999 referred to in clause (ii) above for call options with
strike prices of $549 to $561, resulting in the generation of cash and deferred
revenue of $11,235,000, and settled contracts for 200,000 barrels of crude oil
which matured in 1996 referred to in clause (iv) above, resulting in the
generation of cash of $537,000 which was used to reduce fuel costs.
FOREIGN EXCHANGE
Currency fluctuations may affect the cash flow which the Company will
realize from its operations as gold and copper are sold in world markets in
United States dollars and the Company's costs are incurred primarily in Canadian
dollars. Although the Company has hedging programs in place to reduce certain
risks associated with foreign exchange exposure, there can be no assurance that
such hedging strategies will be successful. See Note 6 to the Annual
Consolidated Financial Statements for a further discussion of such activities as
of December 31, 1995.
RESERVE ESTIMATES; MINERAL INVENTORY
The reserves presented in this Prospectus are estimates and no assurance
can be given that the indicated amount of gold or other minerals may be
economically recovered. Reserve estimates may require revisions based on actual
production experience. The ore grade actually recovered by the Company may
differ from the estimated grade of the reserves. The Company's reserve estimates
are revised annually based on the previous year's operating history. Many
factors relating to each mine, such as the design of the mine plan, unexpected
operating and processing problems, increases in the stripping ratio in open pit
mines, unforeseen geotechnical conditions which may result in increased ground
support or dilution in underground operations, and the complexity of the
metallurgy of an ore body, may adversely affect cash costs. Moreover,
fluctuations in the market price of gold or other minerals, as well as increased
production costs or reduced recovery rates, may render reserves containing
relatively lower grades of mineralization uneconomical to recover and may
ultimately result in a restatement of reserves.
References in this Prospectus to "mineral inventory" refer to the
combination of mineable ore reserves and the Company's estimates of mineralized
material which is either not sufficiently delineated as to size, tonnage and
grade or, even if delineated, cannot be economically extracted at the time of
the reserve
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determination and accordingly, cannot be classified as mineable ore reserves.
Information described in this Prospectus as "mineral inventory" and "mineralized
material" is provided for informational purposes only as the Commission
generally permits disclosure of only proven ore reserves, probable ore reserves
and mineable ore reserves. There can be no assurance that any mineralized
material will ever become mineable ore reserves.
GOVERNMENT PERMITS AND PAYMENTS
In the ordinary course of business, mining companies are required to seek
governmental permits for expansion of existing operations or for the
commencement of new operations. Obtaining the necessary governmental permits is
a complex and time-consuming process involving numerous jurisdictions and often
involving public hearings and costly undertakings on the part of the Company.
The duration and success of permitting efforts are contingent upon many
variables not within the Company's control. Environmental protection permitting,
including the approval of reclamation plans, may increase costs and cause delays
depending on the nature of the activity to be permitted and the interpretation
of applicable requirements implemented by the permitting authority. There can be
no assurance that all necessary permits will be obtained and, if obtained, that
the costs involved will not exceed those previously estimated by the Company. It
is possible that the costs and delays associated with the compliance with such
standards and regulations could become such that the Company would not proceed
with the development or operation of a mine or mines.
The Company, through an agreement with the British Columbia provincial
government which settled the issue of compensation pertaining to the Windy
Craggy property and provided grants and investment for the development of the
Kemess South Project and other properties in British Columbia, is expected to
bring the Kemess South Project into production in the second quarter of 1998.
The development of the Kemess South Project will be facilitated by up to $166
million of compensation, economic assistance and investment from the British
Columbia provincial government, subject to the satisfaction of certain
conditions which the Company expects to meet. Section 25 of the Financial
Administration Act (British Columbia) provides that, notwithstanding the
commitment to pay, any payment of money by the British Columbia provincial
government pursuant to an agreement is subject to (i) an appropriation being
available for that agreement in the year in which the payment falls due and (ii)
the Treasury Board (as defined in the Financial Administration Act) not having
controlled or limited expenditure under any such appropriation. Although the
Company fully expects that adequate appropriations will be made for all amounts
to be paid by the British Columbia provincial government and that the Treasury
Board will not control or limit such appropriations, there can be no assurance
that this will be the case. To the Company's knowledge, the British Columbia
provincial government has never failed to make an appropriation for a payment of
money pursuant to an agreement in the year in which a payment was due and the
Treasury Board has not controlled or limited any such appropriation. See
"Business -- Development Projects -- Kemess South."
REGULATIONS AND MINING LAW
The Company's mining operations and exploration activities are subject to
extensive federal, provincial, state and local laws and regulations governing
exploration, development, production, exports, taxes, labour standards,
occupational health and safety, waste disposal, monitoring, protection and
remediation of the environment, reclamation, mine safety, toxic substances and
other matters. Compliance with such laws and regulations increases the costs of
planning, designing, drilling, developing, constructing, operating and closing
mines and other facilities. It is possible that the costs and delays associated
with compliance with such laws and regulations could become such that the
Company would not proceed with the development or continue the operation of a
mine or mines.
The Company has expended significant resources, both financial and
managerial, to comply with environmental protection laws, regulations and
permitting requirements and the Company anticipates that it will continue to do
so in the future. Although the Company believes that its operations and
facilities comply in all material respects with applicable environmental
protection requirements, there can be no assurance that additional significant
costs and liabilities will not be incurred to comply with current and future
requirements. Moreover, it is possible that future developments, such as
increasingly strict environmental protection laws, regulations and enforcement
policies thereunder, and claims for damages to natural resources, property and
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persons resulting from or alleged to result from the Company's operations, could
result in substantial costs and liabilities in the future.
MINING RISKS AND INSURANCE
The business of mining for gold and other metals is generally subject to a
number of risks and hazards, including environmental hazards, industrial
accidents, labour disputes, encountering unusual or unexpected geological
conditions, stope failures, changes in the regulatory environment and natural
phenomena such as inclement weather conditions, floods, blizzards and
earthquakes. Such occurrences could result in damage to, or destruction of,
mineral properties or production facilities, personal injury or death,
environmental damage, delays in mining, monetary losses and possible legal
liability. The Company maintains insurance against risks that are typical in the
mining industry, but which may not provide adequate coverage in certain
unforeseen circumstances. Moreover, insurance against certain risks (including
certain liabilities for environmental pollution or other hazards as a result of
exploration and production) is not generally available to companies within the
industry. Without such insurance, if the Company becomes subject to
environmental liabilities, the payment of such liabilities would reduce its
available funds.
EXPLORATION AND RESERVE GROWTH
Exploration for gold and other precious metals is highly speculative in
nature, involves many risks and is frequently unsuccessful. There can be no
assurance that exploration efforts will result in the discovery of gold
mineralization or that any mineralization discovered will result in an increase
of reserves. If reserves are developed, it may take a number of years and
substantial expenditures from the initial phases of drilling until production is
possible, during which time the economic feasibility of production may change.
No assurance can be given that the exploration programs will result in the
replacement of current production with new reserves or that the development
programs will be able to extend the life of existing mines or locate new mines.
In the event that new reserves are not developed, the Company may not be able to
sustain its current level of gold production.
COMPETITION
Because mines have limited lives based on proven and probable ore reserves,
the Company is continually seeking to replace and expand its reserves. The
Company encounters competition from other mining companies in connection with
the acquisition of properties producing or capable of producing gold and in the
recruitment and retention of qualified employees. As a result of this
competition, some of which is with companies having significantly greater
financial resources, the Company may be unable to acquire attractive mining
properties on terms it considers acceptable. In addition, there are a number of
uncertainties inherent in any program relating to the location of economic ore
reserves, the development of appropriate metallurgical processes, the receipt of
necessary governmental permits and the construction of mining and processing
facilities and the appropriate financing thereof. Accordingly, there can be no
assurance that the Company's programs will yield new reserves to replace mined
reserves and expand current reserves. The Indenture contains limitations on the
ability of the Company to acquire additional properties. See "Description of
Exchange Notes -- Certain Covenants -- Limitation on Indebtedness," and "--
Limitation on Restricted Payments."
ABORIGINAL LAND CLAIMS
Aboriginal groups have made claims in Canada asserting aboriginal rights to
land located within their "traditional territory" or resource tenure. In order
to pursue a claim, an aboriginal group must notify the responsible federal,
provincial or territorial government where the land is located. Each
jurisdiction has one or more procedures in place to review and resolve any such
claim, failing which judicial consideration may prevail. No government has
advised the Company to date of any formal title claim or award that would
include the Company's properties. There is, however, no assurance that future
claims negotiations or judgments will not affect the Company's properties. If
the Company's properties are included in any future negotiated settlements or
awards, there can be no assurance that the Company would receive adequate
compensation.
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LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act or any state
securities laws and, unless so registered and to the extent not exchanged for
the Exchange Notes, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws.
The Exchange Notes will constitute a new class of securities with no
established trading market. Although the Exchange Notes will generally be
permitted to be resold or otherwise transferred by nonaffiliates of the Company
without compliance with the registration requirements under the Securities Act,
the Company does not intend to list the Exchange Notes on any national
securities exchange or to seek admission thereof to trading in the Nasdaq
National Market. BT Securities Corporation and Scotia Capital Markets (USA) Inc.
(the "Initial Purchasers") have advised the Company that they currently intend
to make a market in the Exchange Notes. The Initial Purchasers are not obligated
to do so, however, and any market-making with respect to Exchange Notes may be
interrupted or discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Exchange
Act. See "Exchange Offer and Registration Rights." Accordingly, no assurance can
be given that an active public or other market will develop for the Exchange
Notes or as to the liquidity of the trading market for the Exchange Notes. If a
trading market does not develop or is not maintained, holders of the Exchange
Notes may experience difficulty in reselling the Exchange Notes or may be unable
to sell them at all. If a market for the Exchange Notes develops, any such
market may be discontinued at any time. If a public trading market develops for
the Exchange Notes future trading prices of such Exchange Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's financial condition and results of operations, and the market for
similar notes. Depending on these and other factors, the Exchange Notes may
trade at a discount from their principal amount.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of any Change of Control
Triggering Event (as defined), which requires both a Change of Control (as
defined) and a Rating Event (as defined), the Company will be required to make
an offer (a "Change of Control Offer") to purchase all of the Exchange Notes
issued and then outstanding under the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest thereon
and Additional Interest (as defined), if any, to the date of purchase. There can
be no assurance that the Company would be able to obtain financing on
commercially reasonable terms or at all at such time, and consequently no
assurance can be given that the Company would be able to purchase any of the
Exchange Notes tendered pursuant to a Change of Control Offer. See "Description
of Exchange Notes." Clause (i) of the definition of "Change of Control" under
"Description of Exchange Notes" includes a sale, lease, exchange or other
transfer of "all or substantially all" of the assets of the Company to a person
or group of persons. There is little case law interpreting the phrase "all or
substantially all" in the context of an indenture. Because there is no precise
established definition of this phrase, the ability of a holder of Exchange Notes
to require the Company to repurchase such Notes as a result of a sale, lease,
exchange or other transfer of all or substantially all of the Company's assets
to a person or group of persons may be uncertain.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, Holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any Holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a
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distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Notes could be
adversely affected. See "The Exchange Offer."
RESTRICTIONS ON TRANSFER
The Notes were offered and sold by the Company in a private offering exempt
from registration pursuant to the Securities Act and have been resold pursuant
to Rule 144A under the Securities Act and to a limited number of other
institutional "accredited investors" (as defined in Rule 501(a) (1), (2), (3) or
(7) under the Securities Act). As a result, the Notes may not be reoffered or
resold by purchasers except pursuant to an effective registration statement
under the Securities Act, or pursuant to an applicable exemption from such
registration, and the Notes are legended to restrict transfer as aforesaid. Each
Holder (other than any Holder who is an affiliate or promoter of the Company)
who duly exchanges Notes for Exchange Notes in the Exchange Offer will receive
Exchange Notes that are freely transferable under the Securities Act. Holders of
Notes who participate in the Exchange Offer should be aware, however, that if
they accept the Exchange Offer for the purpose of engaging in a distribution,
the Exchange Notes may not be publicly reoffered or resold without complying
with the registration and prospectus delivery requirements of the Securities
Act. As a result, each Holder of Notes accepting the Exchange Offer will be
deemed to have represented, by its acceptance of the Exchange Offer, that it
acquired the Exchange Notes in the ordinary course of business and that it is
not engaged in, and does not intend to engage in, a distribution of the Exchange
Notes. If existing Commission interpretations permitting free transferability of
the Exchange Notes following the Exchange Offer are changed prior to
consummation of the Exchange Offer, the Company will use its best efforts to
register the Notes for resale under the Securities Act. See "Prospectus Summary
- -- The Exchange Offer" and "Exchange Offer and Registration Rights."
The Notes currently may be sold pursuant to the restrictions set forth in
Rule 144A under the Securities Act or pursuant to another available exemption
under the Securities Act without registration under the Securities Act. To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for the untendered and tendered but unaccepted Notes could be adversely
affected.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
to be the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
herein by reference.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on August 12, 1996, and were
subsequently resold to qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to institutional investors that are accredited
investors in a manner exempt from registration under the Securities Act. In
connection with the Note Offering, the Company entered into the Registration
Rights Agreement, which requires, among other things, that promptly following
the Issue Date the Company and the Guarantor (i) file with the Commission a
registration statement under the Securities Act with respect to an issue of new
notes of the Company identical in all material respects (other than transfer
restrictions) to the Notes (which obligation has been satisfied by the filing of
the Registration Statement of which this Prospectus is a part), (ii) use their
best efforts to cause such registration statement to become effective under the
Securities Act and (iii) upon the effectiveness of that registration statement,
offer to the Holders of the Notes the opportunity to exchange their Notes for a
like principal amount of Exchange Notes, which would be issued without a
restrictive legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act). A copy of the Registration Rights Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part. The
term "Holder" with respect to the Exchange Offer means any person in whose name
the Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
Any Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Notes outstanding. Following the consummation of the
Exchange Offer, Holders of the Notes who did not tender their Notes generally
will not have any further registration rights under the Registration Rights
Agreement, and such Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Notes could be
adversely affected. The Notes are currently eligible for sale pursuant to Rule
144A through the PORTAL System of the National Association of Securities
Dealers, Inc. Because the Company anticipates that most Holders of Notes will
elect to exchange such Notes for Exchange Notes due to the absence of
restrictions on the resale of Exchange Notes under the Securities Act, the
Company anticipates that the liquidity of the market for any Notes remaining
after the consummation of the Exchange Offer may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time on the
Expiration Date. The Company will issue US$1,000 principal amount of Exchange
Notes in exchange for each US$1,000 principal amount of outstanding Notes
accepted in the Exchange Offer. Holders may tender some or all of their Notes
pursuant to the Exchange Offer. However, Notes may be tendered only in integral
multiples of US$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the Exchange Notes generally will not be entitled to
certain rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indenture.
Holders of Notes do not have any appraisal or dissenters' rights under the
Ontario Business Corporations Act or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange
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Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, including Rule 14e-1
thereunder. The Exchange Offer will not necessarily be conducted in compliance
with the securities laws of the province of Ontario, Canada.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
November 7, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for a period of five to ten business days if the Exchange Offer
would otherwise expire during such five to ten business day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, liquidated
damages will accrue and be payable on the Notes either temporarily or
permanently. See "Exchange Offer and Registration Rights."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON EXCHANGE NOTES
The Exchange Notes will bear interest from August 12, 1996, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date to which interest on such Notes has been
paid). Accordingly, holders of Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Notes at the time of tender,
but such interest will be payable on the first Interest Payment Date after the
Expiration Date. Interest on the Exchange Notes will be payable semiannually on
each February 15 and August 15, commencing on February 15, 1997.
24
31
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent so as to be received by the Exchange
Agent at the address set forth below prior to 5:00 p.m., New York City time, on
the Expiration Date. Delivery of the Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the DTC may make book-entry delivery of the Notes by causing the
DTC to transfer such Notes into the Exchange Agent's account with respect to the
Notes in accordance with the DTC's procedures for such transfer. Although
delivery of the Notes may be effected through book-entry transfer into the
Exchange Agent's account at the DTC, a Letter of Transmittal properly completed
and duly executed with any required
25
32
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the DTC does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the DTC) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the DTC) and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at the
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of notes transferred
26
33
by book-entry transfer, the name and number of the account at the DTC to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee register the transfer of such Notes into
the name of the person withdrawing the tender and (iv) specify the name in which
any such Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time or
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
Exchange Notes will be issued with respect thereto unless the Notes so withdrawn
are validly retendered. Any Notes which have been tendered but which are not
accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
"-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, the Company will extend the Exchange Offer for a period of
five to 10 business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
Mellon Bank, F.S.B. will act as Exchange Agent for the Exchange Offer with
respect to the Notes.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
By Registered or Certified Mail, Overnight Mail or Courier Service or in
Person by Hand:
Mellon Bank, F.S.B.
c/o Mellon Bank, N.A.
Corporate Trust Operations
2 Mellon Bank Center, Room 325
Pittsburgh, PA 15259-0001
Attention: Elaine Renn, Vice President
By Facsimile:
(412) 234-9196
27
34
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone, facsimile or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and pay
other registration expenses, including fees and expenses of the Trustee, filing
fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. A gain or loss, however, may be recognized due to changes in the carrying
value of the Notes or the Exchange Notes during an accounting period due to, for
example, fluctuations in the exchange rate for United States and Canadian
dollars (due to the fact that the Notes and Exchange Notes are denominated in
United States dollars and the value thereof is recorded on the Company's books
in Canadian dollars). The expenses of the Exchange Offer will be amortized over
the term of the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder of such Exchange
Notes (other than any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holder does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the SEC enunciated
in Exxon Capital Holdings Corporation (available April 13, 1989) and Morgan
Stanley & Co., Incorporated (available June 5, 1991), or similar no-action
letters, but rather must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K of the Securities Act. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Notes, where
such Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, may be a statutory underwriter and must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the
registered Holder, (ii) neither the Holder nor any such other person has an
arrangement or understanding with any person to
28
35
participate in the distribution of such Exchange Notes and (iii) the Holder and
such other person acknowledge that if they participate in the Exchange Offer for
the purpose of distributing the Exchange Notes (a) they must, in the absence of
an exemption therefrom, comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes and cannot rely on the no-action letters referenced above and (b) failure
to comply with such requirements in such instance could result in such Holder or
such other person incurring liability under the Securities Act for which such
Holder or such other person is not indemnified by the Company. Further, by
tendering in the Exchange Offer, each Holder and such other person that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company will represent to the Company that such Holder and such other person
understand and acknowledge that the Exchange Notes may not be offered for
resale, resold or otherwise transferred by that Holder or such other person
without registration under the Securities Act or an exemption therefrom.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act, to a qualified institutional buyer within the meaning of Rule
144A under the Securities Act in a transaction meeting the requirements of Rule
144A, (iv) outside the United States to a foreign person pursuant to the
exemption from the registration requirements of the Securities Act provided by
Regulation S thereunder, (v) pursuant to an exemption from registration under
the Securities Act provided by Rule 144 thereunder (if available) or (vi) to an
institutional accredited investor in a transaction exempt from the registration
requirements of the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States or other
jurisdiction. See "Risk Factors -- Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such State.
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36
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
Note should consult his, her or its own tax advisor as to the particular tax
consequences of exchanging such Holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for United
States federal income tax purposes. Consequently, no gain or loss would be
recognized by Holders of the Notes upon receipt of the Exchange Notes, and
ownership of the Exchange Notes will be considered a continuation of ownership
of the Notes. For purposes of determining gain or loss upon the subsequent sale
or exchange of the Exchange Notes, a Holder's basis in the Exchange Notes should
be the same as such Holder's basis in the Notes exchanged therefor. A Holder's
holding period for the Exchange Notes should include the Holder's holding period
for the Notes exchanged therefor. The issue price, original issue discount
inclusion and other tax characteristics of the Exchange Notes should be
identical to the issue price, original issue discount inclusion and other tax
characteristics of the Notes exchanged therefor.
See also "Certain Income Tax Considerations."
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37
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to the issuance of the Notes. The
information presented below should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this Prospectus. See "Index to
Consolidated Financial Statements."
AS OF JUNE 30, 1996
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(DOLLARS IN THOUSANDS)
CDN GAAP
Cash and cash equivalents........................................ $ 14,797 $246,804
======== ========
Credit Facility(1)............................................... $ -- $ --
Long-term debt (including current portion):
11% Senior Subordinated Notes due 2006(2)...................... $ -- $239,006
Capital leases................................................. 1,991 1,991
-------- --------
Total long-term debt........................................ 1,991 240,997
-------- --------
Shareholders' equity:
Common shares.................................................. 376,316 376,316
Retained earnings.............................................. 83,643 83,643
-------- --------
Total shareholders' equity.................................. 459,959 459,959
-------- --------
Total capitalization............................................. $461,950 $700,956
======== ========
US GAAP
Total shareholders' equity....................................... $446,355 $446,355
Total capitalization............................................. 448,346 687,352
- ---------------
(1) The Company entered into the Credit Facility on February 15, 1996. As of
August 27, 1996, $1,940,000 was outstanding under the Credit Facility in the
form of letters of credit issued thereunder. The Credit Facility matures on
February 14, 1997 and is renewable annually at the option of the lender. See
"Description of Credit Facility."
(2) Reflects the full face amount of the Notes converted to Canadian dollars
based on the Noon Buying Rate on June 30, 1996 of Cdn $1.00 equals
US$0.7322.
(3) After giving effect to the issuance of the Notes.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth historical consolidated financial and
operating data for the Company as of and for the periods noted. The consolidated
balance sheet and income statement data as of and for the years ended December
31, 1991 through 1995 has been derived from the audited consolidated financial
statements of Royal Oak. The consolidated balance sheet and income statement
data as of and for the six months ended June 30, 1995 and 1996 has been derived
from the unaudited financial statements of Royal Oak which, in the opinion of
management of the Company, contain all adjustments necessary for a fair
presentation of this information. The historical data with respect to the
results of operations for the six months ended June 30, 1996 should not be
regarded as necessarily indicative of the results that may be expected for the
entire year. The Operating Data presented below has been derived from the
Company's accounting and other records. The Consolidated Financial Statements
have been prepared in accordance with Cdn GAAP. These principles are also in
conformity, in all material respects, with US GAAP except as described in Note
13 of the notes to the Annual Consolidated Financial Statements. The following
table should be read together with the Consolidated Financial Statements
(including the notes thereto) appearing elsewhere in this Prospectus. See "Index
to Consolidated Financial Statements."
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
-------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
INCOME STATEMENT DATA:
CDN GAAP
Revenue................................... $ 96,433 $113,673 $135,326 $162,111 $208,311 $100,839 $105,846
Operating expenses........................ 72,581 89,874 110,258 117,790 182,214 89,714 81,383
Royalties and marketing expenses.......... 830 881 1,248 2,490 2,535 1,108 1,408
Administrative and corporate expenses..... 3,500 4,082 3,411 5,271 8,549 4,945 4,861
Depreciation and amortization............. 4,966 4,275 4,998 8,525 14,895 6,270 11,366
Exploration expenses(1)................... -- -- -- -- -- 254 2,409
Provision for (recovery of) loss on
foreign currency contracts.............. -- -- -- 15,267 (5,244) (3,772) (976)
------- -------- -------- -------- -------- -------- --------
Operating income (loss)................... 14,556 14,561 15,411 12,768 5,362 2,320 5,395
Interest and other income, net(2)......... 1,314 638 2,289 7,074 20,902 12,135 2,462
Other(1).................................. (7,124) (3,654) (1,862) 2,960 (1,553) (235) (23)
Provision for income taxes................ (105) (108) (215) (636) (1,542) (969) (2,729)
------- -------- -------- -------- -------- -------- --------
Net income................................ $ 8,641 $ 11,437 $ 15,623 $ 22,166 $ 23,169 $ 13,251 $ 5,105
======= ======== ======== ======== ======== ======== ========
US GAAP(3)
Net income................................ $ 8,226 $ 9,562 $ 13,940 $ 19,978 $ 17,177 $ 9,762 $ 3,654
OPERATING DATA:
Recovered gold ounces..................... 194,952 245,469 276,320 318,171 371,151 184,206 179,643
Average spot gold price per ounce (US$)... 362 344 360 384 384 383 395
Average realized gold price per ounce
(US$)................................... 432 383 380 428 409 394 431
Cash cost per ounce (US$)................. 327 304 311 311 358 351 331
Total cost per ounce (US$)(4)............. 367 346 340 353 410 400 413
Total cost excluding depreciation and
amortization (US$)...................... 345 332 326 333 381 375 367
OTHER DATA:
EBITDA(5)................................. $ 19,522 $ 18,836 $ 20,409 $ 21,293 $ 20,257 $ 8,590 $ 16,761
Net additions to property, plant and
equipment(6)............................ 6,513 19,889 26,803 52,461 66,018 22,943 255,728
Ratio of earnings to fixed charges........ 4.43 N.A. 163.93 376.02 84.85 150.32 92.57
BALANCE SHEET DATA (AT PERIOD END):
CDN GAAP
Cash and cash equivalents................. $ 4,935 $ 12,719 $ 79,644 $148,524 $139,410 $164,294 $ 14,797
Property, plant and equipment............. 58,200 77,547 99,218 137,954 191,381 154,824 435,690
Total assets.............................. 74,484 111,670 217,226 384,074 428,963 421,312 580,118
Long-term debt(2)(7)...................... -- -- -- -- -- -- --
Shareholders' equity...................... 49,273 81,935 185,362 302,731 340,495 330,556 459,959
32
39
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
US GAAP(3)
Total assets.............................. $ 73,319 $108,630 $213,253 $377,913 $416,810 $411,662 $646,636
Shareholders' equity...................... 48,533 79,320 181,389 296,570 328,342 320,906 446,355
- ---------------
(1) Prior to January 1, 1996, the Company's exploration expenses were not
material and were classified under "Other."
(2) The Company historically has had no material long-term debt and,
accordingly, has had no material interest expense. As a result of the
Offering, the Company would have had, as of June 30, 1996, annual interest
expense of approximately US$19.25 million (or approximately Cdn $26.3
million based upon the exchange rate as of June 30, 1996) associated with
the Notes.
(3) Under US GAAP (i) depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas
under Cdn GAAP, total mineral inventory may be used in the calculations; and
(ii) for defined benefit pension plans, the projected benefit obligation
should be discounted using interest rates at which the obligation could be
effectively settled whereas under Cdn GAAP, the projected benefit obligation
may be discounted using interest rates which are consistent with long-term
assumptions. See Note 13 to the Annual Consolidated Financial Statements.
(4) Total cost per ounce includes depreciation and amortization.
(5) "EBITDA," as used in this Prospectus, means operating income plus
depreciation and amortization. EBITDA differs from the definition of
Consolidated EBITDA under the Indenture. See "Description of Exchange
Notes." EBITDA is not a measure of financial performance under US GAAP.
Accordingly, it does not represent net income or cash flows from operations
as defined by US GAAP and does not necessarily indicate that cash flows will
be sufficient to fund cash needs. As a result, EBITDA should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flows as a measure of liquidity.
(6) Net additions to property, plant and equipment for the six months ended June
30, 1996 include investments in Kemess capital assets of $202 million
through the acquisitions of Geddes Resources Limited, El Condor Resources
Ltd. and St. Philips Resources Inc. and Duport capital assets through the
acquisition of Consolidated Professor Mines Limited.
(7) As of June 30, 1996, the Company had capital lease obligations in the amount
of $1,991,000.
33
40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the information
contained in Royal Oak's Consolidated Financial Statements (including the notes
thereto) appearing elsewhere in the Prospectus. See "Index to Consolidated
Financial Statements."
GENERAL
The majority of the Company's revenue is derived from gold sales. Revenue
varies with the volume of gold produced and the price received for that
production. Set out below is a table indicating the impact on revenue of
increased production and of prices for the years 1993 through 1995.
1993 1994 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
Impact on revenue due to:
Increased Production...................................... $15,126 $ 750 $52,480
Increased (Decreased) Prices(1)........................... 6,527 26,035 (6,280)
------- ------- -------
Incremental revenue from prior year......................... $21,653 $26,785 $46,200
======= ======= =======
- ---------------
(1) Based upon realized prices and includes impact of changes in relative
exchange rates.
In 1995, a US$10 per ounce increase in the gold price would have increased
revenue for the year ended December 31, 1995 by approximately $5.1 million.
Each year since the acquisition of the Pamour and Giant Yellowknife Groups
in November 1990, the Company has increased its gold production, mineral
inventory, revenue, net income, and total assets through a number of
acquisitions and development of several properties. This growth has been
reflected in the market capitalization of the Company which has increased
significantly, from $90 million at the end of 1991 to approximately $690 million
as of June 30, 1996.
Gold production has increased since 1990 primarily through the acquisition
of the Hope Brook Mine and the Colomac Mine. Gold production is currently
expected to increase from 371,151 ounces in 1995 to approximately 415,000 ounces
in 1996. This increase is expected to come from increased production at the
Colomac Mine and the first full year of production at the Nighthawk Mine. Future
increases in production are expected to come from the Pamour Mine open pit
expansion and the Development Projects.
The majority of the Company's expenses consist of operating costs
associated with recovering gold from the Company's mines. Operating costs
include mining and processing costs for gold. The most significant of these
costs are labour, consumable materials, repairs of machinery and equipment, fuel
and utilities. The Company's average cash costs increased from US$311 per ounce
in 1994 to US$358 per ounce in 1995 due primarily to a change in mining methods
at the Pamour Mine and start-up costs at the Colomac Mill. The Company expects
that average cash costs will decrease to approximately US$315 per ounce in 1996
with the implementation of more effective mining methods and the full year's
operation of the Colomac Mill. See "Business -- Operating Strategy."
34
41
RESULTS OF OPERATIONS
The following table indicates the Company's expenses and income as a
percentage of revenue for the periods indicated:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
Revenue................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses........................ 81.4 72.7 87.5 89.0 76.9
Royalties and marketing expenses.......... 0.9 1.5 1.2 1.1 1.3
Administrative and corporate expenses..... 2.5 3.2 4.1 4.9 4.6
Depreciation and amortization............. 3.7 5.3 7.1 6.2 10.7
Exploration expense(1).................... -- -- -- 0.2 2.3
Provision for (recovery of) loss on
foreign currency contracts.............. -- 9.4 (2.5) (3.7) (0.9)
----- ---- - ---- - ---- - ---- -
Operating income (loss)................... 11.5 7.9 2.6 2.3 5.1
Interest and other income, net(2)......... 1.6 4.4 10.0 12.0 2.3
Other(1).................................. (1.4) 1.8 (0.8) (0.2) --
Provision for income taxes................ (0.2) (0.4) (0.7) (1.0) (2.6)
----- ---- - ---- - ---- - ---- -
Net income................................ 11.5% 13.7% 11.1% 13.1% 4.8%
===== ===== ===== ===== =====
- ---------------
(1) Prior to January 1, 1996, the Company's exploration expenses were not
material and were classified under "Other."
(2) The Company historically has had no material long-term debt and,
accordingly, has had no material interest expense. As a result of the
Offering, the Company as of June 30, 1996 would have had annual interest
expense of approximately US$19.25 million (or approximately Cdn$26.3 million
based upon the exchange rate as of June 30, 1996) associated with the Notes.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenue from the sale of gold for the three months ended June 30, 1996
increased 3% to $54.8 million compared to the same period of 1995. In the second
quarter of 1996, a 9% increase in the average realized price of US$439 per ounce
of gold compared to US$401 in the same period in 1995 accounted for this
increase. However, this increase was partially offset by a 6% decrease in
production to 91,447 ounces (compared to 97,246 ounces in the second quarter of
1995) and a strengthening of the Canadian dollar from US$0.729 in the second
quarter of 1995 to US$0.733 in the same period of 1996 which reduced revenue by
approximately $0.2 million in the second quarter of 1996 compared to the same
period in 1995.
Revenue from the sale of gold for the six months ended June 30, 1996
increased 5% to $105.8 million compared to the same period of 1995. In the
year-to-date, a 9% increase in the average realized price of US$431 per ounce of
gold compared to US$394 in the same period in 1995 accounted for this increase.
However, this increase was partially offset by a 2% decrease in production to
179,643 ounces (compared to 184,206 ounces in the year-to-date 1995) and a
strengthening of the Canadian dollar from US$0.720 in the six months ended June
30, 1995 to US$0.732 in the same period of 1996 which reduced revenue by
approximately $1.6 million in the first six months of 1996 compared to the same
period in 1995.
The increase in production at the Company's Ontario operations for the
three months and the six months ended June 30, 1996 is mainly attributable to
the production from the Nighthawk Mine which commenced operation in late 1995.
The decrease in production at the Company's Newfoundland operations for the
three months and the six months ended June 30, 1996 resulted from the fact that
the Hope Brook Mill was temporarily shut down in March and April, as planned.
Mining operations continued during this period and ore was stockpiled. This
shutdown not only enabled the Company to reduce operating costs but also has
allowed the mill to operate more efficiently for the balance of 1996. The Hope
Brook Mill resumed operations on May 1 and all ore stockpiled during the
shutdown is expected to be milled by the end of 1996.
35
42
Operating costs decreased 14% from $45.7 million in the second quarter of
1995 to $39.4 million in the same period in 1996. Operating costs decreased 9%
on a year-to-date basis from $89.7 million for the six months ended June 30,
1995 to $81.4 million for the same period in 1996. The decreases were mainly
attributable to the shutdown of the Hope Brook Mill in the months of March and
April 1996. Operations recommenced on May 1, 1996. Mining costs incurred during
the planned shutdown at the Hope Brook Mine have been deferred and will be
charged to operating costs as the ore mined during the shutdown is milled during
the balance of 1996.
Cash operating costs on a per ounce basis decreased 8% from US$342 in the
second quarter of 1995 to US$315 in the second quarter of 1996. For the
year-to-date, the decrease was 6% from US$351 in the second quarter of 1995 to
US$331 in the second quarter of 1996. These decreases reflect the cost controls
implemented during 1996 and steps taken to reduce the average cash operating
cost per ounce.
Royalties and marketing expenses remained relatively constant for the
second quarter. However, on a year-to-date basis, these expenses have increased
by $0.3 million mainly due to royalties on production from the Nighthawk Mine
where substantial mining began in 1996.
Administrative and corporate expenses decreased to $2.7 million in the
second quarter of 1996 from $3.3 million in the same period in 1995. This
decrease was attributable to timing differences as certain expenses were
incurred in the first quarter of 1996 whereas those similar expenses were
incurred in the second quarter of 1995. For the six months ended June 30, 1996
and 1995, respectively, the administrative and corporate expenses were not
significantly different. This reflects a decrease in corporate expenses as a
result of cost controls, offset by an increase in capital taxes pursuant to the
exercise of warrants and as a result of the issuance of shares of the Company in
connection with the acquisitions of Geddes Resources Limited ("Geddes") and El
Condor Resources Ltd. ("El Condor").
Depreciation and amortization increased from $3.0 million in the second
quarter of 1995 to $6.1 million in the same period in 1996 and from $6.3 million
in the first six months of 1995 to $11.4 million in the same period in 1996.
Increases in capital assets and deferred mining costs over the past several
years, combined with adjustments to mineral inventory on specific properties
have led to these increases. Depreciation and amortization of the Nighthawk Mine
assets and deferred development costs commenced in early 1996.
Exploration expenses increased from $0.1 million in the second quarter of
1995 to $1.4 million in the same period in 1996 and from $0.3 million in the
first six months of 1995 to $2.4 million in the same period in 1996. The Company
has been evaluating its exploration projects as part of its overall strategic
plan and to the extent that certain exploration costs are determined not to be
recoverable due to insufficient or lack of expected mineralized material or
otherwise, exploration costs have been charged to operations.
Recovery of loss on foreign currency contracts resulted in a recovery of
$0.2 million with respect to these contracts for the three months ended June 30,
1996 as a result of the strengthening of the Canadian dollar. The comparable
recovery in the same period of 1995 was $3.8 million which reflected a
substantial strengthening of the Canadian dollar compared to the United States
dollar for that period. For the six months ended June 30, 1996 and 1995,
respectively, the recovery balances were $1.0 million and $3.8 million. The
Company's hedging strategies for foreign currency attempt to protect the Company
from exchange rate fluctuations.
Operating income in the second quarter of 1996 increased to $4.5 million
from $4.2 million in the second quarter of 1995, and in the first six months of
1996 increased to $5.4 million from $2.3 million in the first six months of
1995.
Interest and other income decreased from $6.4 million in the second quarter
of 1995 to $1.1 million in the same period in 1996. Interest and other income
for the six month periods ended June 30, 1995 and 1996, respectively, were $12.1
million and $2.5 million. These decreases reflect the reduction of cash balances
due to the acquisitions of Geddes, El Condor, St. Philips Resources Inc. ("St.
Philips") and Consolidated Professor Mines Limited ("Consolidated Professor"),
and capital expenditures in the last 12 months which, in total, have reduced
investment income in 1996.
36
43
Income taxes increased by $1.1 million from $0.7 million in the second
quarter of 1995 to $1.8 million in the same period in 1996 while the increase
was $1.7 million from $1.0 million in the six months ended June 30, 1995 to $2.7
million in the same period in 1996. The 1996 balances include a provision for
deferred taxes of $1.5 million and $2.0 million for the three months and the six
months ended June 30, 1996, respectively. No such provision for deferred taxes
was required for 1995 because the Company had unrecognized deferred tax assets.
However, the balance of the Company's unrecognized deferred tax assets has
virtually been utilized such that an accrual for deferred income taxes is
necessary for 1996.
Net income for the second quarter of 1996 decreased by $6.0 million, or
62%, to $3.7 million from net income of $9.7 million during the same period in
1995. Net income for the six months ended June 30, 1996 decreased by $8.2
million, or 62%, to $5.1 million from net income of $13.3 million during the
same period in 1995. Significantly lower investment income after the completion
of the purchases of Geddes, El Condor, St. Philips and Consolidated Professor,
combined with a reduction of the Company's unrecognized deferred tax assets,
which have necessitated the accrual of deferred income taxes in 1996, were
mainly responsible for the lower net income in the second quarter and the
year-to-date.
1995 Compared to 1994
Revenue from gold sales of 371,151 ounces was $208.3 million in 1995, which
was 28% higher than revenue of $162.1 million in 1994. Production in 1994
included 40,568 ounces from the Colomac Mine. Revenue from this production was
netted against start-up costs which were deferred as pre-production costs in
1994 because the mine had not reached commercial levels of production by the end
of 1994. Revenue in 1995 includes a full year of production from the Colomac
Mine of 117,646 ounces. The increase in production at Colomac in 1995 from the
level in 1994 was offset by 24,098 fewer ounces of production at three of the
Company's other operating mines (i.e. Giant, Pamour and Hope Brook). The
Company's average realized price decreased to US$409 per ounce in 1995 as
compared to US$428 per ounce in 1994. In 1995, the Canadian/United States dollar
exchange rate adversely affected the Company's revenue whereas in 1994, the
exchange rate positively affected revenues.
Operating costs increased to $182.2 million in 1995 from $117.8 million in
1994. The inclusion in 1995 of the Colomac Mine operating costs contributed
approximately $61.5 million to this increase. In 1994, because the Colomac Mill
had not reached commercial levels of production, start-up costs net of revenue
generated from gold sales were deferred to pre-production costs. Operating costs
at both the Giant and Pamour Mines increased slightly while the operating cost
at the Hope Brook Mine decreased in 1995. Operating costs include mining and
processing costs for gold. The most significant of these costs are labour,
consumable materials, repairs of machinery and equipment, fuel and utilities.
The costs of transporting personnel and freight to the Colomac and Hope Brook
Mines are also significant costs for those operations. Average cash costs
increased by 15% to US$358 per ounce in 1995 from US$311 per ounce in 1994. The
increase reflected a change in mining methods at the Pamour Mine which resulted
in lower mill feed grades and tonnages mined and milled, and costs at Colomac
that were significantly above budget as a result of overcoming the difficulties
associated with the start-up of the mill. These problems at both operations have
been addressed in 1996.
Royalties and marketing expenses increased marginally in 1995 as a result
of increased marketing costs related to increased production at the Colomac
Mine. Should the average selling price of gold exceed US$400 per ounce in 1996,
an additional $1.0 million in royalties will be payable under the terms of the
Colomac Mine asset purchase agreement.
Administrative and corporate expenses increased 62% to $8.5 million in 1995
from $5.3 million in 1994. The corporate office relocated from Vancouver,
British Columbia to Kirkland, Washington in March 1995. Costs associated with
this relocation were approximately $0.5 million. Salary and benefit costs
increased as a number of personnel were added in both 1994 and 1995 to
strengthen the corporate office and position the Company for future growth.
Travel, telephone and professional fees increased in 1995 as the Company
examined various acquisition and merger opportunities and dealt with bringing
cash operating costs under control. In 1994, much of the travel costs and
professional fees related to the bid to acquire Lac Minerals Ltd. ("Lac
Minerals") were netted against the gain on sale of securities when the shares
acquired by the Company
37
44
in connection with the bid were sold. Corporate expenses are expected to
decrease in 1996 as many of the one-time costs associated with moving the
corporate office in 1995 will be eliminated.
Depreciation and amortization increased in 1995 to $14.9 million (US$29.24
per ounce) from $8.5 million (US$22.48 per ounce) in 1994. Increases in capital
assets and deferred mining costs over the past several years, combined with
adjustments to mining reserves on specific properties, have led to these
increases. Depreciation and amortization are provided on the unit-of-production
method. Higher production in 1995 associated with the Colomac Mine increased
depreciation and amortization by $7.4 million in 1995, while lower production at
the other three mines in 1995 reduced the difference to $6.4 million.
Provision for (recovery of) loss on foreign currency contracts resulted in
a recovery of $5.2 million in 1995 as compared to a loss of $15.3 million in
1994 as a result of the strengthening of the Canadian dollar in 1995 (see below
under "1994 Compared to 1993" for a discussion of the 1994 loss). These
contracts were associated with the Company's contractual obligation to deliver
future gold production at specified prices in United States dollars. The
Company's hedging strategies for foreign currency attempt to protect the Company
from exchange rate fluctuations.
Operating income in 1995 was $5.4 million as compared to $12.8 million in
1994 for the reasons described above.
Interest and other income increased 195% to $20.9 million in 1995 from $7.1
million in 1994. (See Note 9 to the Annual Consolidated Financial Statements for
a breakdown and comparison of these amounts.) Interest income was significantly
higher in 1995 as a result of the Company's high cash balances which increased
due to a $100 million equity issue in 1994. Interest income in 1995 includes
$1.3 million of interest received on a refund of 1988 Ontario mining taxes.
Surplus cash is primarily invested in highly liquid, low risk financial
instruments with relatively short maturities. This strategy gives the Company
maximum flexibility should funds be needed for acquisitions or other purposes.
The gain on sale of securities was $8.3 million in 1995 compared to $1.2 million
in 1994. In 1994, the Company acquired approximately 1.83 million shares of
Barrick Gold Corporation ("Barrick Gold") in exchange for shares of Lac Minerals
which it tendered to the Barrick Gold bid for Lac Minerals. While the Company
made a partial disposition of the Barrick Gold shares in 1994, it sold the
remaining 978,000 Barrick Gold shares that it held during 1995. In 1995, the
Company established an acquisition team to evaluate many opportunities in North
America and overseas. Consistent with the approach taken in 1994 when the
Company bid for Lac Minerals, the Company purchased shares in certain companies
to establish an equity position prior to holding discussions with management
regarding a merger or takeover. These positions were subsequently sold when
discussions and negotiations with such companies were terminated, resulting in
gains on sale of securities. Other income in 1995 includes a $2.0 million refund
of 1988 Ontario mining taxes previously paid. Other income in 1994 includes
dividends and option premiums earned on the shares of both Lac Minerals and
Barrick Gold.
Income taxes for 1995 were minimal. The Company has tax deductions,
including earned depletion and mining exploration depletion, available to be
utilized in future years totaling $183 million. Because of past reorganizations
undertaken by the Company, utilization of some of these tax deductions may be
restricted. The Company does not expect to pay cash income taxes or mining taxes
in Canada for at least the next two years. However, the Company is subject to
capital taxes and minimum taxes in certain Canadian jurisdictions. The Company's
United States operations are taxable, however, the total of 1996 United States
taxes is not expected to be material. The balance of the Company's unrecognized
deferred income tax assets is decreasing. Accordingly, the Company expects to
report a deferred income tax provision in 1996 which will increase the Company's
effective tax rate above the 6% level in 1995.
Net income for the year ended December 31, 1995 increased 5% to $23.2
million on revenues of $208.3 million. This compares with $22.2 million on
revenues of $162.1 million in 1994.
1994 Compared to 1993
Revenue in 1994 increased 19.8% to $162.1 million from $135.3 million in
1993. This increase was primarily the result of higher gold production,
favorable exchange rates and the Company's hedging program.
38
45
Gold production increased 15.1% from 276,320 ounces in 1993 to 318,171 ounces in
1994. Gold production of 40,568 ounces at the Colomac Mine, which began
production in July 1994, was primarily responsible for this increase. All
revenue from gold production at the Colomac Mine in 1994 was netted against
start-up costs and deferred as pre-production cost. The Company's hedging
strategy allowed it to realize an average gold price of US$428 per ounce in
1994, the highest in the industry, up from US$380 per ounce in 1993. The average
spot price in 1994 was US$384 per ounce. The US$44 premium contributed $16.5
million to revenue.
Operating costs in 1994 increased 6.8% to $117.8 million from $110.3
million in 1993, but the average cost per ounce remained at US$311. The 15.1%
increase in gold production offset utility rate increases at the Giant Mine and
increased labour rates, which are tied to gold prices, at the Giant and Hope
Brook Mines.
Royalties and marketing expenses doubled in 1994 to $2.5 million from $1.2
million in 1993 primarily as a result of royalty increases at the Hope Brook
Mine. Under the terms of the Hope Brook Mine purchase agreement, the Company is
obligated to pay an operating royalty of $1.3 million to $3.3 million annually
depending on the average price of gold when the average price exceeds US$380 per
ounce in respect of gold production from the Hope Brook Mine. Since the average
price of gold was US$384 in 1994, the Company made a $1.3 million royalty
payment in respect of the Hope Brook Mine. Obligations under this agreement
expire in 1996.
Administrative and corporate expenses in 1994 increased 54.5% to $5.3
million from $3.4 million in 1993. This increase was the result of (i) the
addition of key personnel to the corporate office in late 1993 and early 1994,
(ii) investor relations fees associated with the attempted takeover by the
Company of Lac Minerals, (iii) higher capital taxes due to the increase in
shareholders' equity and (iv) one-time costs related to the relocation of the
corporate office from Vancouver.
Depreciation and amortization in 1994 increased 70.6% to $8.5 million from
$5.0 million in 1993. The increase is primarily due to the increase in capital
assets and deferred mining costs, as well as adjustments to mining reserves on
specific properties.
Provision for (recovery of) loss on foreign currency contracts recorded by
the Company in 1994 included a $15.3 million provision for loss on foreign
currency contracts. Prior to 1994, the Company had entered into a series of
foreign currency contracts at an average exchange rate of Cdn $1.2744/US$1.00 to
hedge contractual obligations to deliver future gold production at specified
prices in United States dollars. In November 1994, the Emerging Issues Committee
of the Canadian Institute of Chartered Accountants issued an abstract
restricting the use of hedge accounting when spot deferred forward contracts
mature and are rolled forward to future periods. In view of this recommendation,
the Company adopted a conservative approach and provided for the loss on foreign
currency contracts which matured subsequent to November 1994 and prior to the
end of 1994 and as well provided for the potential future loss related to its
currency contracts by marking them to market at the end of 1994. The Company
intends to continue to roll these foreign exchange contracts forward as they
mature and will continue to mark-to-market these contracts in the future. The
effect of this provision was to adjust the book carrying value of the contracts
to Cdn $1.4028/US$1.00 as of December 31, 1994.
Gain on issuance of shares by associated company recorded by the Company in
1994 consisted of a $3.0 million gain. Mountain Minerals Co. Ltd. ("Mountain
Minerals") issued stock in 1994 which reduced the Company's equity interest from
51.1% to 41.2%. On August 12, 1996, Highwood Resources Ltd. ("Highwood"), in
which the Company has a 32% interest, acquired all of the outstanding shares of
Mountain Minerals. See "Business -- Strategic Investments."
Operating income in 1994 decreased 16.9% to $12.8 million from $15.4
million in 1993.
Interest and other income in 1994 increased to $7.1 million from $2.3
million in 1993. This increase was primarily the result of higher cash balances
resulting from equity issues in 1993 and 1994.
Income taxes were $0.6 million in 1994, up from $0.2 million in 1993. The
Company continued to pay minimal income taxes as it utilized tax deductions from
earned depletion and mining exploration depletion which it was able to carry
forward.
Net income in 1994 increased 41.9% to $22.2 million from $15.6 million in
1993.
39
46
SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Company, as a Canadian company, uses Canadian dollars as the basis of
measurement and follows Cdn GAAP in reporting its financial results. The
differences in the reported results that would have resulted from using US GAAP
as opposed to Cdn GAAP are summarized in Note 13 to the Annual Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash, cash equivalents and short-term
investments of $39.7 million compared to $41.1 million at March 31, 1996 and
$142.4 million at December 31, 1995.
Operating Activities. Net cash provided by operating activities for the
second quarter of 1996 was $0.2 million compared to $6.3 million in the same
period in 1995. However, for the six months ended June 30, 1996, the net cash
used amounted to $9.5 million compared to net cash provided by operating
activities of $7.7 million in the first six months of 1995. These changes for
the second quarter and the year-to-date reflected a reduction in interest and
other income due to reduced cash balances as well as the impact of a seasonal
increase in inventory net of an increase in current liabilities which financed
much of this increase in inventory. (See Note 5 to the Unaudited Consolidated
Financial Statements). The increase in inventory and current liabilities was
attributable to the need to supply operating and maintenance materials to the
Colomac Mine site over a winter ice road, as weather conditions permit. The
change was more pronounced in 1996 compared to the prior year because management
decided to transport more supplies over the winter ice road than by airplane.
Financing Activities. Net cash provided by financing activities for the
second quarter of 1996 was $20.5 million compared to $2.3 million in the same
period in 1995. The higher cash provided in the 1996 period of $18.2 million
compared to 1995 was mainly the result of the early settlement of forward
contracts which the Company had at December 31, 1995. For the six months ended
June 30, net cash provided in 1996 amounted to $141.9 million compared to $21.1
million in 1995. This higher cash provided in 1996 resulted mainly from the
issuance of share capital which generated proceeds of $114.0 million and the
above-noted settlement of forward contracts in the second quarter. The issuance
of shares was part of the consideration for the acquisition of the Kemess
property. (See Note 8 to the Unaudited Consolidated Financial Statements.)
Investing Activities. Net cash used in investing activities for the second
quarter of 1996 was $22.0 million compared to $14.4 million in the same period
in 1995. The higher use of cash in the 1996 period primarily reflected a higher
investment in property, plant and equipment at the Company's current mines and
development projects including $1.1 million for mining equipment related to the
Pamour Mine open pit expansion, $6.0 million for the advanced exploration and
development of the Red Mountain property and $7.9 million for the development of
the Kemess property, among other items. The latter two investments were offset
by an initial $14.5 million compensation payment received from the British
Columbia provincial government.
Net cash used in investing activities for the six months ended June 30,
1996 was $235.1 million compared to $24.6 million in the corresponding period in
1995. The Company completed the acquisition of the Kemess property in January
1996 for aggregate consideration of approximately $202.0 million. This included
cash consideration of $87.8 million of which $26.9 million was incurred in prior
periods in respect of open market purchases of shares of Geddes, El Condor and
St. Philips. (See Note 8 to the Unaudited Consolidated Financial Statements.) In
addition, during the second quarter of 1996, the Company completed the
acquisition of all of the shares of Consolidated Professor for total
consideration of approximately $16.2 million. (See Note 9 to the Unaudited
Consolidated Financial Statements.) For the six months ended June 30, 1996, the
Company had also invested $37.9 million in property, plant and equipment at its
various mines and development projects including $5.1 million for mining
equipment related to the Pamour Mine open pit expansion, $6.4 million for the
advanced exploration and development of the Red Mountain property, $9.5 million
for the development of the Kemess property and $22.6 million on mine site
maintenance capital and development. The expenditures on the Red Mountain and
Kemess properties were offset by an initial $14.5 million compensation payment
received from the British Columbia provincial government. Also during 1996,
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the Company made $6.3 million of additional investments in Mountain Minerals and
Asia Minerals Corp. ("Asia Minerals"), two strategic long-term investments. Asia
Minerals has recently completed a private placement offering, the proceeds of
which will provide funds to allow the company to pursue its ventures in China.
Capital Expenditures. The Company currently expects to spend $129 million
for capital expenditures in 1996, of which approximately $45 million has been or
is expected to be funded by the British Columbia provincial government.
Approximately $102 million of the total will be spent on the Development
Projects. See "Business -- Development Projects." The balance of the budget will
be used for exploration and sustaining capital for the Company's existing
operations.
The Company expects that the approximately US$170.6 million of proceeds
received from the Offering, together with its current cash position, amounts
available under the Credit Facility, vendor financing, compensation from the
British Columbia provincial government and its investment and economic
assistance package (see "Business -- Development Projects -- Kemess South") and
the cash flow from existing operations will be sufficient to fund the Company's
capital expenditure and exploration programs and ongoing operations until 1998,
when the Kemess South Project is expected to be brought into production and to
generate sufficient cash flow to fund future growth.
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BUSINESS
THE COMPANY
Royal Oak is a major North American gold mining company which, together
with its predecessors, has produced in excess of 50 million ounces of gold over
a 60-year period. The Company, which owns and operates five producing gold
mines, is in the process of expanding one producing mine and is developing four
major new projects. The Company has extensive land positions in Canada covering
approximately 704,000 acres, as well as over 7,000 acres in the United States,
which provide it with the opportunity to expand its reserves through focused
exploration and development. As of and for the fiscal year ending December 31,
1995, Royal Oak had approximately 9.8 million ounces of mineable gold reserves
and produced 371,151 ounces of gold.
The Company's five producing gold mines consist of the Colomac and Giant
Mines in the Northwest Territories, the Pamour and Nighthawk Mines in Ontario
and the Hope Brook Mine in Newfoundland. Through acquisitions, exploration and
the implementation of more advanced and efficient mining methods, the Company
has increased its annual production by a compounded annual growth rate of 17.5%
since 1991. The Company conducts a focused exploration program to develop
additional mineable gold reserves in close proximity to its existing mines in
order to maximize the utilization of its processing facilities and to increase
processing efficiencies. In 1995, the Company's exploration efforts resulted in
the addition of approximately 2.2 million ounces of mineable gold reserves to
its existing reserve base at a cost of approximately $6.95 per ounce. A
significant part of this exploration program was focused on the Pamour Mine open
pit expansion which is expected to contribute approximately 60,000 ounces of
gold annually when production commences in the first half of 1998.
As of June 30, 1996, the Company employed 1,461 people, of which 937 are
represented by one of two unions. The Company's principal executive offices are
located at 5501 Lakeview Drive, Kirkland, Washington 98033, and its telephone
number is (206) 822-8992.
MINING PROCESS
The business of gold mining is essentially divided into four phases:
exploration, development, production and reclamation. During the exploration
phase, geologists search for indications of mineralization. Quite often, large
areas of land must be examined. Consequently, geologists rely on such general
techniques as the review of geological maps, the interpretation of satellite or
aerial surveys and the review of historical mining data in order to search for
possible indications of mineralization. Once an area of interest has been
identified, surface samples are taken and analyzed for the presence of anomalous
levels of mineralization. Trenches are often dug in order to take sub-surface
samples and better determine the geological structure. The final step in the
identification of a mineralized body involves drilling of the identified targets
by either reverse circulation or diamond core drills.
Before proceeding further, a determination must be made as to whether the
mineralization represents an economic ore body. To accomplish this, a
feasibility study is completed. The feasibility study involves the comprehensive
analysis of the entire proposed mine operation and ultimately determines whether
the mine will be placed into production. The results from exploratory trenching
and drilling, and in certain instances, additional work, including bulk sampling
and underground development, together with estimates of capital and operating
costs, are used to assess the economics of the deposit.
Once a decision has been made to proceed, permission is sought and the
infrastructure for the mine is constructed, including access roads, runways,
power lines, living quarters, maintenance sheds and processing facilities.
Concurrently, the mine is developed. In the case of an underground mine, access
to the ore body must be provided. This may include the sinking of shafts and/or
the development of declines, ramps or drifts. In an open pit mine, development
will generally involve the removal of non-mineralized surface rock in order to
allow access to the ore body.
Once construction and development have been completed, the mine is brought
into production with the mining of both ore and waste rock. Ore is segregated
from the waste rock and then sent to the mill for further processing in order to
extract the gold. Ore is first crushed in order to reduce the size of the larger
pieces. If
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the concentration of gold is high enough, the crushed ore will typically be
processed further in a mill. In the mill, crushed ore is ground to a size small
enough to ensure liberation of the gold from the associated rock, thereby
forming a fine ore slurry. A gravity circuit may be employed to remove free gold
or, if the gold is still associated with the waste rock, the gold is dissolved
in a cyanide solution, thereby allowing the waste rock to be discarded as
tailings. The goldbearing cyanide solution is then processed to remove the gold,
typically through the use of either a carbon adsorption or a zinc precipitation
circuit. Once extracted, the gold is smelted in a furnace and poured into molds,
creating dore bars. These bars are then sent to a refinery for final
purification.
If the grade of the ore is low, it may be more economical to use heap
leaching rather than milling to extract the gold. In heap leaching, the crushed
ore is placed on lined leach pads where a weak cyanide solution is applied to
the surface of the heap. The solution percolates down through the ore where it
dissolves the gold and flows to a central collection location. The gold-bearing
solution is then processed further at the mill (as described above).
Although reclamation of a mine may occur concurrently during the production
phase, it will begin in earnest once all the economic mineralization has been
extracted from the ore body. Reclamation involves the returning of land
disturbed by mining, including waste dumps, tailings ponds and pits, to
environmentally acceptable conditions and disposal of the remaining waste in an
approved manner. Reclamation may include revegetation and recontouring of the
disturbed land and removal of all buildings, machinery and equipment. If
necessary, monitoring of the site for potential leakage of acid rock drainage or
other soluble elements may be undertaken. Reclamation requirements vary greatly
according to location of the property.
HISTORY
The Company came into existence on July 23, 1991 as a result of the
amalgamation of five companies: Giant Yellowknife Mines Limited, Pamour Inc.,
Pamorex Minerals Inc., Royal Oak Resources Ltd. and Akaitcho Yellowknife Gold
Mines Limited, certain of which commenced operations approximately 60 years ago.
As a result of this amalgamation, the Company had two operating mines, Pamour
and Giant. On January 1, 1992, the Company amalgamated with its wholly-owned
subsidiary, Supercrest Mines Limited. In addition to its wholly owned
subsidiaries, the Company has a majority interest in three companies, Ronnoco
Gold Mines Limited, Northbelt Yellowknife Gold Mines Limited and Royal Eagle
Exploration Inc.
Since 1991, Royal Oak has acquired the following properties and interests:
- the Broulan property in Ontario from Balmoral Mines Ltd. (1991);
- a 20% interest in Athabaska Gold Resources Ltd. (1991-1993);
- the Hope Brook Mine in Newfoundland from Hope Brook Gold Inc. (1992);
- the Colomac Mine in the Northwest Territories (and an existing royalty
interest) from Neptune Resources Corp. (1993);
- a controlling interest in Geddes Resources Limited from Neptune
Resources Corp. (1993);
- an option in respect of the Kim-Cass property in the Northwest
Territories from Echo Bay Mines Ltd. (1994);
- the Red Mountain property in British Columbia from Barrick Gold
Corporation (1995);
- the Nicholas Lake gold property in the Northwest Territories from
Athabaska Gold Resources Ltd. (1995);
- an 89.4% interest in Ronnoco Gold Mines Limited, thereby providing the
Company with a strategic land position on the Nighthawk Lake Break in
Ontario (1995-6);
- a leasehold interest in the Copperstone property located in Arizona
(1995);
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- all of the outstanding shares of Geddes, El Condor and St. Philips,
thereby acquiring the Kemess property in British Columbia (1996);
- all of the outstanding shares of Consolidated Professor, thereby
acquiring the Duport property in Ontario (1996); and
- the Cape Ray gold property in Newfoundland from American Gem Corporation
and the net smelter return royalty on the property from Homestake Canada
Inc. (1996).
In addition, the Company has certain strategic investments. See "--
Strategic Investments."
OPERATING STRATEGY
In order to capitalize on its business strengths, the Company has developed
the following operating strategy to continue its growth:
- Increase Production and Reduce Average Cash Costs -- As a result of
increased production at the Colomac Mine and the first full year of
production at the Nighthawk Mine, the Company expects to increase its
gold production in 1996 to approximately 415,000 ounces from 371,151
ounces in 1995. In addition, through the successful implementation of
advanced mining technologies accompanied by cost reduction programs, the
Company believes that its average cash costs will decrease from US$358
per ounce of gold in 1995 to approximately US$315 per ounce of gold in
1996. The Company's cash costs for the six months ended June 30, 1996
were US$331 per ounce of gold compared to US$351 in the same period in
1995.
- Complete Development of Major Projects -- The Company's primary
objective with respect to the Development Projects is to efficiently
complete the development of the Kemess South Project. The Company
estimates that, upon completion, the Development Projects will generate
additional annual production of approximately 547,000 ounces of gold and
60 million pounds of copper with an average estimated cash cost of US$192
per ounce of gold and US$0.48 per pound of copper over the life of the
properties.
- Expand Reserve Base Through Focused Exploration -- The Company's
exploration program focuses on identifying additional mineable ore
reserves in close proximity to its existing mines. This strategy allows
the Company to maximize utilization of existing processing facilities, to
increase processing efficiencies and to capitalize on its extensive land
position in Canada. In 1995, the Company's $15.3 million exploration
program delineated approximately 2.2 million ounces of mineable gold
reserves. The Company has budgeted $12 million for its 1996 exploration
program.
Management believes that the gold mining industry will continue to
consolidate over the next several years and that numerous acquisition
opportunities will become available to the Company. In 1996, the Company
acquired the Kemess, Duport and Cape Ray properties. In addition to the
operating strategy described above, the Company intends to review acquisition
opportunities as they become available and will pursue selective acquisitions of
gold properties that will increase production, mineable ore reserves and cash
flow from operations while reducing average cash costs. These acquisitions could
be an important component of the Company's future growth.
OPERATING PROPERTIES
The Company produced a record 371,151 ounces of gold in 1995, an increase
of 17% from the 318,171 ounces produced in 1994. This production came from the
Company's five operating gold mining properties: the Colomac and Giant Mines in
the Northwest Territories, the Pamour and Nighthawk Mines in Ontario and the
Hope Brook Mine in Newfoundland.
Set forth on the following page is a summary, on a property-by-property
basis, of the Company's production, reserve and cost data:
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PRODUCTION, RESERVE & COST DATA
RESERVES AT
PRODUCTION YEAR END(1)
------------------------------------------------ -----------
RECOVERED MINEABLE
ORE MILLED HEAD GRADE RECOVERY GOLD ORE
(TONS) (OUNCES/TON) (%) (OUNCES) (000S TONS)
---------- ------------ -------- --------- -----------
GOLD
Gold Colomac Mine(2)
1995..................................................... 2,725,388 0.047 92.34 117,646 12,255
1994..................................................... 985,091 0.047 87.10 40,568 13,054
1993..................................................... -- -- -- -- 13,618
Giant Mine(3)
1995..................................................... 410,966 0.254 86.73 91,423 2,466
1994..................................................... 430,238 0.264 86.95 101,176 2,395
1993..................................................... 413,098 0.264 85.86 92,948 2,617
Pamour and Nighthawk Mines
1995..................................................... 1,329,846 0.067 90.20 80,120 38,471
1994..................................................... 1,350,007 0.069 89.20 85,755 9,398
1993..................................................... 1,330,722 0.072 89.60 87,346 3,993
Hope Brook Mine
1995..................................................... 1,090,250 0.090 84.43 81,962 2,448
1994..................................................... 1,227,136 0.089 82.10 90,672 3,936
1993..................................................... 1,149,071 0.101 82.48 96,026 7,300
Kemess South(4)
1995..................................................... -- -- -- -- 220,947
Kemess North(4)
1995..................................................... -- -- -- -- --
Red Mountain
1995..................................................... -- -- -- -- 3,053
Matachewan
1995..................................................... -- -- -- -- 13,253
1994..................................................... -- -- -- -- 1,400
Duport(4)
1995..................................................... -- -- -- -- 1,008
Cape Ray(4)
1995..................................................... -- -- -- -- 502
Copperstone
1995..................................................... -- -- -- -- --
Royal Oak Consolidated
1995..................................................... 5,556,450 -- -- 371,151 294,402
1994..................................................... 3,992,472 -- -- 318,171 30,183
1993..................................................... 2,892,891 -- -- 276,320 27,527
MINERALIZED MATERIAL
AT YEAR END(1)
-------------------------------------
AVERAGE MINERALIZED AVERAGE
GRADE GOLD MATERIAL GRADE GOLD
(OUNCES/TON) (OUNCES) (000S TONS) (OUNCES/TON) (OUNCES)
------------ -------- ----------- ------------ --------
GOLD
Gold Colomac Mine(2)
1995..................................................... 0.058 711,000 4,438 0.058 260,000
1994..................................................... 0.053 694,000 7,375 0.060 467,000
1993..................................................... 0.052 709,000 4,026 0.044 179,000
Giant Mine(3)
1995..................................................... 0.335 826,000 6,043 0.218 1,317,000
1994..................................................... 0.319 763,000 6,066 0.216 1,313,000
1993..................................................... 0.321 840,000 6,171 0.216 1,331,000
Pamour and Nighthawk Mines
1995..................................................... 0.046 1,771,000 19,927 0.081 1,611,000
1994..................................................... 0.067 629,000 6,223 0.086 536,000
1993..................................................... 0.097 386,000 5,615 0.090 506,000
Hope Brook Mine
1995..................................................... 0.088 215,000 3,960 0.101 399,000
1994..................................................... 0.087 343,000 4,389 0.109 477,000
1993..................................................... 0.102 746,000 2,673 0.116 311,000
Kemess South(4)
1995..................................................... 0.018 4,056,000 --(5) -- --
Kemess North(4)
1995..................................................... -- -- 173,063 0.011 1,918,000
Red Mountain
1995..................................................... 0.262 800,000 525 0.203 106,000
Matachewan
1995..................................................... 0.067 884,000 1,976 0.139 274,000
1994..................................................... 0.062 87,000 11,409 0.103 1,176,000
Duport(4)
1995..................................................... 0.380 383,000 1,007 0.320 322,000
Cape Ray(4)
1995..................................................... 0.294 147,000 -- -- --
Copperstone
1995..................................................... -- -- 2,424 0.172 417,000
Royal Oak Consolidated
1995..................................................... 0.033 9,793,000 213,363 0.031 6,625,000
1994..................................................... 0.083 2,517,000 35,822 0.111 3,969,000
1993..................................................... 0.097 2,682,000 18,485 0.126 2,327,000
COSTS
--------------------------------
OPERATING CASH DEPRECIATION
TOTAL MINERAL COST/TON COST AND
INVENTORY(1) MILLED (US$/ AMORTIZATION
(OUNCES GOLD) ($/TON) OUNCE) (US$/OUNCE)
------------- --------- ------ -----------
GOLD
Gold Colomac Mine(2)
1995..................................................... 970,000 $ 22.72 $383 $46
1994..................................................... 1,162,000 -- -- --
1993..................................................... 888,000 -- -- --
Giant Mine(3)
1995..................................................... 2,143,000 100.59 329 10
1994..................................................... 2,076,000 92.71 289 11
1993..................................................... 2,171,000 95.86 330 9
Pamour and Nighthawk Mines
1995..................................................... 3,382,000 30.39 368 20
1994..................................................... 1,165,000 28.34 327 37
1993..................................................... 892,000 26.25 310 20
Hope Brook Mine
1995..................................................... 614,000 35.35 343 32
1994..................................................... 820,000 32.30 320 23
1993..................................................... 1,057,000 31.48 292 13
Kemess South(4)
1995..................................................... 4,056,000 -- -- --
Kemess North(4)
1995..................................................... 1,918,0000 -- -- --
Red Mountain
1995..................................................... 906,000 -- -- --
Matachewan
1995..................................................... 1,159,000 -- -- --
1994..................................................... 1,263,000 -- -- --
Duport(4)
1995..................................................... 705,000 -- -- --
Cape Ray(4)
1995..................................................... 147,000 -- -- --
Copperstone
1995..................................................... 417,000 -- -- --
Royal Oak Consolidated
1995..................................................... 16,418,000 32.79 358 29
1994..................................................... 6,485,000 39.17 311 22
1993..................................................... 5,009,000 38.27 311 14
RESERVES AT YEAR END(1)
--------------------------
MINEABLE
ORE AVERAGE
COPPER (000S TONS) GRADE (%)
----------- ------------
Kemess South(4)
1995................................................................................................ 220,947 0.224
Kemess North(4)
1995................................................................................................ -- --
MINERALIZED
MATERIAL
AT YEAR
END(1)
-----------
COPPER MINERALIZED
(000S MATERIAL
COPPER POUND) (000S TONS)
-------- -----------
Kemess South(4)
1995................................................................................................ 989,843 --(5)
Kemess North(4)
1995................................................................................................ -- 173,063
COPPER
AVERAGE (000S
COPPER GRADE (%) POUNDS)
------------ --------
Kemess South(4)
1995................................................................................................ --
Kemess North(4)
1995................................................................................................ 0.180 623,026
COPPER
Kemess South(4)
1995................................................................................................
Kemess North(4)
1995................................................................................................
COPPER
Kemess South(4)
1995................................................................................................
Kemess North(4)
1995................................................................................................
- ---------------
(1) See "Risk Factors -- Reserve Estimates; Mineral Inventory."
(2) In 1994, revenue from production at Colomac was netted against start-up
costs and deferred as pre-production costs, and 1994 and 1995 include data
with respect to the Kim-Cass property on a 100% ownership basis. See
"Business -- Operating Properties -- Colomac." As of June 30, 1996, the mine
plan at the Colomac Mine was under review by the Company's management which
could affect the reserves at such property; however, based upon information
currently available to the Company, any adjustment to such reserves is not
anticipated to be material to the Company's total mineral inventory in the
Indin Lake area that would be processed by the Colomac Mill.
(3) 1995 reserves include data with respect to the Nicholas Lake property.
(4) Property acquired in 1996.
(5) In addition, the Kemess South property includes in-situ mineralization of
approximately 151 million tons. The Company intends to further delineate
such mineralization during the development of Kemess South.
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COLOMAC
Background
The Colomac Mine, which is located approximately 137 miles northwest of
Yellowknife in the vicinity of Indin Lake, was acquired in April 1993 from
Neptune Resources Corp. ("Neptune") after having been shut down since June 1991.
Stripping operations at the Colomac Mine recommenced in March 1994, and the
first gold production was realized in July 1994. During 1995, the Colomac Mine
produced 117,646 ounces of gold at an average cash cost per ounce of US$383. For
the six months ended June 30, 1996, the Colomac Mine produced approximately
60,552 ounces of gold at an average cash cost per ounce of US$356. As of
December 31, 1995, the Colomac Mine and the nearby Kim-Cass deposit had mineable
ore reserves of 711,000 ounces of gold and additional mineralized material of
260,000 ounces of gold. As of June 30, 1996, the mine plan at the Colomac Mine
was under review by the Company's management which could affect the reserves at
such property; however, based upon information currently available to the
Company, any adjustment to such reserves is not anticipated to be material to
the Company's total mineral inventory in the Indin Lake area that would be
processed by the Colomac Mill. The property is accessible by winter road from
Yellowknife for approximately three months each year or on a year round basis by
chartered aircraft to a 5,000 foot airstrip at the mine site. The Kim-Cass
property, which is located 9 miles southwest of the Colomac Mine, contains two
deposits, the Main Zone and the Cass Zone, that will become feed for the Colomac
Mill. The Kim-Cass property consists of 12 leased mining claims covering
approximately 15,322 acres and will be accessible from Colomac by an all-weather
road. Currently, the Kim-Cass property is accessible by chartered aircraft from
Yellowknife or by winter road from Colomac.
Ownership
The Colomac property is comprised of four mining leases and three surface
leases which cover approximately 3,400 acres. In 1993, the Company acquired the
Colomac Mine for shares of Royal Oak worth $7,875,000 and the gross production
royalty on the Colomac property for shares of Royal Oak worth $4,000,000. The
Company holds a 100% interest in the leases. The mining leases are subject to an
operating royalty payable to Neptune. The Company is obligated to pay an
operating royalty when the average price of gold for a calendar year exceeds
US$400 per ounce. Amounts payable are $1.0 million or $2.0 million annually
depending on the average price of gold. No amount has been payable under this
royalty to date. Obligations under this agreement expire after five years of
production, which is currently expected to be reached at the end of 1999. The
net book value of the Colomac property, plant and equipment was approximately
$45.9 million as of December 31, 1995.
In 1994, the Company entered into an agreement with Echo Bay Mines Ltd.
("Echo Bay") pursuant to which Echo Bay granted the Company an option to acquire
up to a 100% interest in the Kim-Cass property, exclusive of diamond rights, by
placing the property into production within a four-year period. The Company is
obligated to incur minimum annual exploration expenses of $250,000 on the
property during the four-year earn-in period and has the right to extend the
earn-in period for consideration of $100,000 per year. Upon the Company placing
the Kim-Cass property into production, the property will be subject to a net
smelter return royalty which will be on a sliding scale based on the price of
gold. The Company has spent over $1.0 million for exploration on the property to
date, which spending satisfies the option requirements.
Mining and Milling Facilities
The Colomac Mine uses conventional open pit mining techniques. The mill,
built in 1989, is a conventional 9,300 tons per day CIP circuit with historical
recoveries of approximately 90%. The mill circuitry was modified, including
installation of a pebble crusher by-pass, in 1996 to overcome operating
difficulties and to facilitate the processing of 10,000 tons of ore per day. The
plant and equipment are generally in good to excellent condition. The design of
the open pit was carried out with computer-aided mine design software which
allows for block model generation, reserve calculation and interactive pit
design. The power for this property is diesel-generated on site.
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Geology
The Colomac ore body is hosted within a large quartz feldspar porphyry sill
of the Pre-Cambrian age. It was later tilted into a vertically dipping
orientation and has been named the Colomac Dyke. This intrusion was fractured
and recemented by quartz veinlets containing free gold and pyrite. The Colomac
Dyke averages 120 feet wide in the Zone 2.0 pit. It has a strike length of
approximately 7 miles. The Main Zone occurs within a package of steeply dipping
mafic pillowed volcanics. The gold occurs associated with enriched areas of
sulphides. The Cass Zone occurs within a steeply dipping mafic intrusive body.
Gold occurs associated with swarms of quartz veinlets containing minor amounts
of sulphides.
Ore Reserves
As of December 31, 1995, the Colomac operation, including its satellite
deposits, the Main and Cass Zones, had proven and probable ore reserves of
approximately 12,255,000 tons grading 0.058 ounces of gold per ton. As of June
0, 1996, the mine plan at the Colomac Mine was under review by the Company's
management which could affect the reserves at such property; however, based upon
information currently available to the Company, any adjustment to such reserves
is not anticipated to be material to the Company's total mineral inventory at
Indin Lake area that would be processed by the Colomac Mill. The cut-off grade
used in estimating these reserves of 0.030 ounces of gold per ton for the open
pit is based on current mining costs and a gold price of $517 (US$383) per
ounce. Allowances are made in these estimates for dilution and mining losses.
Ore reserves do not include allowances for losses in milling.
GIANT
Background
The Giant Mine, located approximately three miles north of Yellowknife, has
been in production continuously since 1948. The Ingraham Trail and Vee Lake Road
from Yellowknife both pass through the centre of the property. Mining is
conducted underground and there is an on-site mill. In 1995, the Giant Mine
produced 91,423 ounces of gold at an average cash cost per ounce of US$329. For
the six months ended June 30, 1996, the Giant Mine produced approximately 40,049
ounces of gold at an average cash cost per ounce of US$352. Since the
commissioning of the mill in 1948, the Giant Mine has produced in excess of
7,000,000 ounces of gold.
The Company has undertaken a number of development initiatives on
properties in the vicinity of the Giant Mine, namely the Supercrest deposit and
the Nicholas Lake property. The Company has begun rehabilitation of the
infrastructure which accesses the Supercrest ore body and which enables large
scale mining of this ore body. The higher grade mineable ore from Supercrest,
which averages 0.384 ounces of gold per ton in situ compared to 0.301 ounces of
gold per ton at Giant, is expected to have a beneficial impact on production and
cash cost of the Company beginning in the second half of 1996. The net book
value of the Giant Mine property, plant and equipment was approximately $49.9
million as of December 31, 1995.
The Nicholas Lake property, which was acquired in 1995 from Athabaska Gold
Resources Ltd., is located 60 miles north of Yellowknife. It can be accessed by
chartered aircraft from Yellowknife or by winter road. Production is expected to
commence in 1998. Ore will be mined year round, and stockpiled at site, for
shipment to the Giant Mine in Yellowknife on the winter ice road. The ore will
be processed at the Giant facility in a parallel circuit that will utilize
common infrastructure where possible, namely buildings, power and tailing ponds.
The Nicholas Lake parallel circuit is expected to operate at a capacity of 200
to 300 tons per day.
Ownership
The Company owns a 100% interest in the Giant Mine property which consists
of six mining leases covering 1,636 acres and one surface lease covering 2,243
acres.
The Company purchased a 100% interest in the Nicholas Lake property in 1995
from Athabaska Gold Resources Ltd., for $3.8 million. The Nicholas Lake property
is subject to a 1% net smelter return royalty.
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Mining and Milling Facilities
The Giant Mine currently operates underground with access provided by two
large service raises, five declines and the "C" shaft, which is the principal
operating opening for hoisting and extends to a depth of 2,124 feet. Mining is
by conventional underground mining techniques utilizing equipment to drill small
diameter holes for blasting the ore. The ore is carried to the ore dumps by
mechanized scooptrams and/or battery operated trains. Development is carried out
by conventional equipment as well as with some mechanized drill jumbos. The mill
at the Giant Mine is a 1,100 ton per day milling and refining complex. The power
source for this property is Northwest Territories Power Corp.
The Nicholas Lake ore body consists of eleven zones of mineralization.
These zones are near vertical quartz-sulphide veins. The zones have been drilled
from surface and underground at a spacing of approximately 65 feet. The ore body
is accessed by a ramp (driven in 1994) to a depth of 300 feet below surface. A
total of 750 feet of cross-cutting and silling has been conducted on two of the
major zones (including detailed mapping and sampling). Mining methods during the
production phase will be shrinkage. Access will be provided by deepening the
existing ramp as mining progresses.
The main infrastructure of the Giant Mine has been in place since 1946. An
Edwards Hearth roaster was added in 1948 and a fluid bed roaster was added in
1950. In the mid-1950s, a two-stage fluid bed roaster was added along with a
roaster gas cleaning plant. In the early 1980s, a new effluent treatment plant
was added, and in 1992 to 1994, the mill's flotation cells were replaced. As a
result of the Company's operations at the Giant Mine, there are small amounts of
sulphur dioxide and arsenic emissions, but the Company's roaster currently
operates in compliance with all existing legislation and regulations in this
regard. The Giant Mine's plant and equipment are generally in good condition.
Geology
The Giant Mine is in the Yellowknife Greenstone belt, a package of
Pre-Cambrian basic volcanic rocks. Ore bodies are hosted in shear zones within
the greenstones. Individual ore bodies are veins, quartz lenses or silicified
areas within the shear. Gold is associated with fine-grained arsenopyrite.
The Nicholas Lake deposit is a series of narrow, steeply dipping quartz
veins containing gold, arsenopyrite and other sulphides. These veins occur
within a granitic intrusive body.
Ore Reserves
As of December 31, 1995, the Yellowknife operation, including Nicholas
Lake, had remaining proven and probable ore reserves of approximately 2,466,000
tons grading 0.335 ounces of gold per ton. A cut-off grade of 0.20 ounces of
gold per ton, based on current mining costs and a gold price of $517 (US$383)
per ounce, was used in calculating these reserves. Allowances are made in these
estimates for dilution and mining losses. Ore reserves do not include allowances
for losses in milling. In some areas, such as Nicholas Lake, higher cut-off
grades were used.
PAMOUR
Background
The Pamour Mine consists of two underground and two open pit mining
operations. The Pamour Mine is located approximately 15 miles east of the City
of Timmins, Ontario, and has been in production since 1936. Both the Pamour and
Hoyle properties are transected by Highway 101. In 1995, the Pamour and
Nighthawk Mines produced approximately 80,120 ounces of gold at an average cash
cost per ounce of US$368. For the six months ended June 30, 1996, the Pamour and
Nighthawk Mines produced approximately 47,977 ounces of gold at an average cash
cost per ounce of US$287. Since the commissioning of the mill in 1936, the
Pamour Mine has produced in excess of 4.0 million ounces of gold. The net book
value of the Company's property, plant and equipment in the Ontario operations,
including those associated with the Pamour, Hoyle and Nighthawk properties, was
approximately $57.2 million as of December 31, 1995.
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Ownership
The Pamour property consists of 38 patented mining claims and one License
of Occupation. Together, the property covers approximately 1,531 acres of mining
and surface rights. Directly adjacent to the Pamour Mine is the Hoyle property
which is comprised of 37 patented mining claims and 4 leased claims covering
approximately 1,608 acres. The Company has a renewable 10-year lease on that
portion of the Hoyle property lying south of the Timiskaming Unconformity. The
lease terms include the payment of a minimum annual rent of $100,000 which is
credited against a production royalty, being the higher of $0.75 per ton or a 2%
net smelter return. In order to renew the lease, which expires in 1999, for a
further 10-year term, the Company must spend $1.0 million on exploration and
mine one million tons of ore. The Company has a 51% interest in the portion of
the Hoyle property north of the Timiskaming Unconformity, which is not currently
in production.
Mining and Milling Facilities
The Pamour Mine currently operates both open pit and underground mining
operations. The underground mine currently produces approximately 2,000 tons of
ore per day, while the open pit operations produce approximately 1,500 tons per
day. The Pamour Mine is comprised of the Pamour No. 1 Underground Mine, surface
pits and the Hoyle Mine.
The Pamour No. 1 Underground Mine commenced operations in 1936 as the
original Pamour Mine and has operated continuously since. The leased Hoyle Mine
extension, which commenced production in April 1990, is the eastern strike
extension of the Pamour ore body and is a large resource of bulk mineable
conglomerate ore which has been accessed by a decline from surface and by
underground drifts from the Pamour shaft. The underground mine currently
produces approximately 2,000 tons per day through a 3,145 foot deep
five-compartment timbered shaft. The Hoyle property has the capacity to produce
18,000 tons per month. The mine is adjacent to the Pamour No. 1 operation and
has higher grade ore than present reserves at the Pamour No. 1 Mine.
Where possible, bulk mining methods are utilized, primarily by modified
vertical crater retreat as well as sublevel blasthole stoping. The bulk mining
areas are developed with large mechanized drill jumbos, scooptrams and trucks.
The blocks are drilled off with 4.5 inch and/or 6.5 inch diameter blastholes and
blasted into drawpoints located at the bottom of the block. Scooptrams and
trucks move the blasted ore from the drawpoints to an internal pass. An electric
trolley with 5 ton cars transports the ore from the internal pass to 3 Shaft
where it is shipped to the surface. Higher grade, narrow veins are mined by a
modified open shrinkage method. The ore is developed and mined with jacklegs and
stopers which drill narrow blastholes (1.25 inch in diameter). The broken ore is
transported to the surface through mechanized scoops, trucks and/or electric
trains.
The No. 3 Pit is located immediately southeast of the Pamour Mill. This
open pit was developed over the workings of the Pamour Mine and first came into
production in 1985. The No. 5 Pit, at the extreme west end of the Pamour No. 1
property, was brought into production in 1989. Total pit production is 1,500
tons of ore per day.
An additional jaw crusher was added to the Pamour Mine in the early 1990s.
In 1995, all 25-cycle electrical motors in the mine were replaced due to the
change in the power supply from 25 cycles to 60 cycles. Also in 1995, an
additional ball mill was installed to increase capacity from 3,600 to 4,500 tons
per day. The on-site mill at Pamour has the capacity to treat approximately
4,000 tons per day and is expected to increase to 8,000 tons per day after the
completion of modifications which are underway. The Pamour Mine plant and
equipment are generally in good condition. A gold pyrite flotation concentrate
is produced from the ore and is treated by a conventional cyanidation process to
produce a gold precipitate which is refined into dore. The power source for this
property is Ontario Hydro.
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Pamour Mine open pit expansion
As a result of its successful exploration program, the Company is
developing a significant expansion project at the Pamour property. The Company
has focused on examining the low grade halo around the mined out stopes at the
Pamour Mine. As of December 31, 1995, the Company had added approximately 1.14
million ounces of gold to mineable ore reserves from this exploration.
Production from the site is expected to commence in 1998 at a rate of 60,000
ounces of gold per year. The current dimensions of the planned pit are
approximately 6,000 feet long, 2,400 feet wide and 800 feet deep. However, the
ultimate extent of the pit will be determined by staged drilling over the next
few years. Total capital costs to complete the expansion are expected to be
approximately $22 million.
Geology
The Pamour Mine is located approximately one mile north of the
Destor-Porcupine Fault, an east-northeast to west-southwest striking structure.
The majority of the historic gold producing mines in the Porcupine Gold Camp
have been located near this structure. On the property, a series of basic
volcanic rocks are unconformably overlain by greywackes and a thick
conglomerate, known as the Pamour conglomerate. All rocks are of the
Pre-Cambrian age. Gold occurs in narrow high grade quartz veins in the volcanics
and in the sediments. The majority of the gold that has been mined from this
property occurs in sheeted sets of quartz veins in the Pamour conglomerate and
in the greywackes on either side of it. Gold also occurs in broad irregular
zones of quartz veinlets in the volcanic rocks.
Ore Reserves
As of December 31, 1995, the Pamour and Nighthawk operations had remaining
proven and probable ore reserves of approximately 38,471,000 tons grading 0.046
ounces of gold per ton. The ore reserves at this division have increased in each
of the last three years due to expansion of open pit reserves. A major drilling
campaign was undertaken in 1995 for this purpose. Cut-off grades (which range
from 0.023 to 0.200 ounces per ton) are determined for each type of ore based on
current mining costs, and a gold price of $517 (US$383) per ounce. Allowances
are made in these estimates for dilution and mining losses. Ore reserves do not
include allowances for losses in milling.
NIGHTHAWK
Background
The Nighthawk Mine, which was operated by Porcupine Peninsular Gold Mines
Limited between 1924 and 1927, is located east of the Pamour Mine and commenced
production in September 1995. Access is via highway, 10 miles from the Pamour
Mill. The Company and its predecessors paid a total of $287,500 from 1973 to
1994 in the form of cash payments and work requirements of the Nighthawk Mine.
The net book value of the Company's properties and the associated plants and
equipment in its Ontario division, which includes the Nighthawk Mine, was
approximately $57.2 million as of December 31, 1995. In 1995, the Pamour and
Nighthawk Mines produced approximately 80,120 ounces of gold at an average cash
cost per ounce of US$368. For the six months ended June 30, 1996 the Pamour and
Nighthawk Mines produced approximately 47,977 ounces of gold at an average cash
cost per ounce of US$287.
Ownership
The Company's land holdings in the Nighthawk Lake area are extensive with
approximately 11,726 acres held representing 254 claims. Most of the property is
held outright by the Company as staked claims. Other portions are held through
various option agreements which also provide for some form of production
royalty. The Ronnoco claims on the east peninsula of the lake are held through a
subsidiary company, Ronnoco Gold Mines Limited. The current producing deposit,
the Nighthawk Mine, is located on the north peninsula of the lake and is subject
to a production royalty being the higher of (i) $0.003 times tons times dollars
per ounce of gold or (ii) 20% of the net profits.
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Mining and Milling Facilities
During the period from 1924 to 1927, the Nighthawk Mine produced 99,628
tons of ore grading 0.32 ounces of gold per ton. Additional exploration was done
periodically over the ensuing years. The Company developed the Nighthawk Mine
and began production in September 1995. Full production levels of 750 tons per
day were reached in May 1996.
The ore body is accessed by a ramp currently at 450 feet below surface,
which will ultimately be driven to 750 feet below surface. Mining methods for
this underground mine are primarily longhole open stoping, with 50 feet between
sublevels. Waste rock will be placed in stopes as delayed backfill. Ore is
hauled to surface stockpiles in 30 ton dump trucks. The material is then hauled
by truck 10 miles to the Pamour Mill for processing. The mine's equipment is
generally in excellent condition. The power source for this property is Ontario
Hydro.
Geology
The Nighthawk Mine is adjacent to a major structure called the Nighthawk
Break, which is thought to be a splay off of the Destor-Porcupine Fault. The
geology in this area consists mainly of steeply dipping volcanic flows. In the
mine area, these have undergone intensive carbonate alteration. Gold occurs in
quartz veins and silicified zones associated with minor amounts of sulphide
minerals.
Ore Reserves
As of December 31, 1995, the Nighthawk Mine had mineable ore reserves of
853,000 tons grading 0.166 ounces of gold per ton and mineralized material of
599,000 tons grading 0.164 ounces of gold per ton. A cut-off grade of 0.100
ounces per ton, based on current mining costs and a gold price of $517 (US$383)
per ounce, was used in calculating these reserves. Allowances are made in these
estimates for dilution and mining losses. Ore reserves do not include allowances
for losses in milling.
HOPE BROOK
Background
The Hope Brook Mine is located approximately 5 miles inland from the
southwest coast of Newfoundland, between the towns of Burgeo and Port aux
Basques. It was acquired in April 1992 from Hope Brook Gold Inc., which had shut
down operations in May 1991. The mine currently produces 3,000 tons of ore per
day. For 1995, the Hope Brook Mine produced 81,962 ounces of gold at a cash cost
per ounce of US$343. For the six months ended June 30, 1996, the Hope Brook Mine
produced approximately 31,065 ounces of gold at an average cash cost per ounce
of US$327. As of December 31, 1995, the Hope Brook Mine had mineable ore
reserves of 215,000 ounces of gold and mineralized material of 399,000 ounces of
gold. Access to the mine is restricted to air or sea travel. A 4,000 foot
airstrip was constructed in 1992 to provide transportation for the mine
employees. The mine is being operated as a fly-in, fly-out camp. The principal
mode of access for supplies is by a ship owned and operated by the Company
exclusively for the mine. The ship is based in Rose Blanche, Newfoundland. The
net book value of the Hope Brook Mine property, plant and equipment was
approximately $19.7 million as of December 31, 1995.
Ownership
Production from the Hope Brook Mine is subject to an operating royalty for
five years ranging from $1.3 million to $3.3 million annually in favour of the
prior owner when the annual average spot price of gold exceeds US$380 per ounce.
In 1995, the Company paid $1.3 million in respect of such royalty. This
operating royalty expires at the end of 1996. The Hope Brook Mine area consists
of a 25-year mining lease, surface lease and extended exploration licenses which
cover approximately 6,800 acres of mining rights and 490 acres of surface
rights. The Company holds a 100% interest in the property subject to the above
operating royalty. All mining activities are confined to the mining leases.
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Mining and Milling Facilities
The Hope Brook Mill was first commissioned in September 1988. The Hope
Brook ore body is intersected by a number of mafic dykes which have proven to be
significantly harder to grind than the ore material. In 1990, Hope Brook Gold
Inc., owned by B.P. Resources Canada Inc., added a pebble crushing circuit to
the primary grinding circuit. This circuit was intended to extract the mafic
pebbles from the SAG mill and to crush them externally, thereby increasing
overall throughput. The circuit was not totally successful and was subsequently
shut down.
In May 1991, operations at the mine were voluntarily suspended by Hope
Brook Gold Inc. due to an unacceptable level of contamination in the tailings
pond and concern about its ability to continue operations while meeting the
environmental discharge specifications set by the federal and provincial
authorities. In 1992, Royal Oak successfully modified the mafic pebble crushing
circuit. This action, coupled with other circuit modifications, has
significantly increased overall throughput. In 1995, Hope Brook produced an
average of 2,987 tons per day. Ore is delivered to the surface and crushed to a
nominal minus 6 inch using a primary gyratory crusher. The crushed ore is
stockpiled and withdrawn as required to feed the mill grinding circuit. Grinding
to 70% minus 200 mesh is accomplished in a conventional SAG circuit followed by
a conventional ball mill grinding circuit operating in closed circuit with
cyclones. Gold is extracted from the grinding circuit product in a conventional
60 hour cyanide leach circuit followed by 6 stages of CIP. Gold is recovered
from activated carbon in a pressure stripping-electrowinning circuit. Gold is
stripped from the electrowinning cell cathodes and melted in an induction
furnace to yield dore bullion. The dore is subsequently shipped to a refinery
for final refining.
In 1993, a sulphide flotation circuit was added to the mill flowsheet. The
final tailings from the CIP circuit are treated through an effluent treatment
plant utilizing the INCO SO2-Air process. The treated slurry is conditioned and
then subjected to a conventional copper rougher-scavenger flotation process. The
resulting concentrate is upgraded through several stages of cleaner flotation to
yield a concentrate grading 20 to 22% copper. The concentrate also bears
significant gold values increasing overall mill gold recovery by up to 4%. The
concentrate is dewatered, dried and shipped to a custom smelter for processing
of both the contained copper and gold values.
The Hope Brook effluent treatment circuit achieved wastewater quality that
was in substantial compliance with the mine's Certificate of Approval in 1993,
1994 and 1995. However, in 1994 and 1995, while the effluent treatment circuit
was in full compliance with the mine's certificate of approval, the discharge
from the mine's tailings impoundment area did not consistently pass Environment
Canada's LC50 fish toxicity test. Although, in Canada, gold mining operations
are exempt from Environment Canada's Metal Mining Liquid Effluent Regulations,
including the LC50 fish toxicity test, remedial actions have been taken to
eliminate the problem and for the last several months, the Company's effluent
has met the LC50 fish toxicity test.
The main access to the underground mine is by ramp which has been driven to
a vertical depth of 1,000 feet below surface. The haulage component of the
ramp-haulage system installed at Hope Brook uses 55 ton capacity electric Kiruna
trucks and diesel trucks. The prior owner of the Hope Brook Mine conducted its
operations using a blasthole stoping and fill method. In 1995, the Company
changed the mining method to sublevel stoping, similar to that used at its Hoyle
property. The Hope Brook plant and equipment are generally in good condition.
The source of power for this property is Newfoundland Hydro.
Geology
Gold mineralization occurs in an alteration zone of pervasive silica,
pyrite and pyrophyllite which is approximately 4 kilometres long and 300 metres
wide. The alteration zone exists within the Mid-Ordovician Georges Brook
Formation which consists of a mixed volcanic-sedimentary sequence. The Hope
Brook ore body is located in the zone of alteration. Ore covers a strike length
of 500 metres and extends from surface to a depth of 400 metres, dipping steeply
at an angle of seventy-five degrees.
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Ore Reserves
As of December 31, 1995, the Hope Brook Mine had remaining proven and
probable ore reserves of approximately 2,448,000 tons grading 0.088 ounces of
gold per ton. A cut-off grade of 0.079 ounces per ton, based on current mining
costs and a gold price of $517 (US$383) per ounce, was used in calculating stope
reserves. Allowances are made in these estimates for dilution and mining losses.
Ore reserves do not include allowances for losses in milling. The Company
expects that the Cape Ray acquisition will extend the life of the Hope Brook
Mine.
Cape Ray Acquisition
In July, 1996, the Company purchased the Cape Ray gold property from
American Gem Corporation for $500,000, and purchased Homestake Canada Inc.'s net
smelter return royalty on the property for $425,000. The acquisition of the Cape
Ray property is of strategic importance to Royal Oak's Newfoundland operations.
The Cape Ray deposit is expected to provide high grade feed over the next
several years to the Hope Brook Mill for processing in combination with lower
grade ore from the Hope Brook Mine. Ore will be transported to the mill using a
combination of truck and the Company's supply ship.
A feasibility study completed by Kilborn Inc. in 1989 indicates that the
Cape Ray property contains a diluted mineable ore reserve of 501,619 tons at a
grade of 0.294 ounces of gold per ton. Underground work in the 1980s included a
decline facilitating development on the 90 foot and 200 foot levels of the 04
Zone.
The Cape Ray property is located 12 miles northeast of the town of Port aux
Basques in southeast Newfoundland. Access to the Cape Ray property is by a 12
mile gravel road from the community of Isle aux Morts. The property consists of
an extensive land position of 62 square miles covering 29 miles of strike length
on the Cape Ray fault. In addition to the existing reserve within the Main Zone,
the property hosts several known mineralized zones including Windowglass Hill,
Gulch, Sleeper and Big Pond. Previous drilling on the Big Pond Zone returned a
significant intersection of 0.62 ounces of gold per ton over 7.7 feet. The Main
Zone is located along a shear zone diverging from the Cape Ray Fault within the
Windsor Point Group, which is comprised of a discontinuous sequence of
volcaniclastics, associated argillaceous sediments, mafic volcanics, schists and
mylonites. The access road will be rehabilitated in the summer of 1996 and the
decline will be dewatered when permitting has been arranged so that underground
development and mining can commence. The Company currently intends to operate
the Cape Ray property as an underground mine. The power source for the property
is expected to be either an on-site diesel generator or Newfoundland Hydro.
The Company plans to conduct geochemical and geophysical surveys and 25,000
feet of diamond drilling over four areas of this property during the summer
field season.
The Company has also optioned the Coast property owned by Coast Petroleum
Transport Ltd., which lies on strike with the Cape Ray deposit. This property is
located 35 miles west of the Hope Brook Mine.
DEVELOPMENT PROJECTS
KEMESS SOUTH
Background
The Kemess South Project is located 186 miles northwest of Mackenzie,
British Columbia, and to the east of Thutade Lake. Currently, access to the area
is by air from Smithers or Prince George to the Sturdee airstrip (a 4,500 foot
gravel strip) 24 miles to the north, or from the south via an all-weather road
from Fort St. James or Mackenzie. As part of the Kemess South Project, the
Company intends to construct an airstrip adjacent to the mine site.
In May 1993, Royal Oak acquired 39% of Geddes, a company whose only
significant asset was a 100% interest in a block of mineral claims located in
the vicinity of Windy Craggy mountain in northwestern British Columbia. In June
1993, the British Columbia provincial government announced that it would
permanently protect, as a provincial park, the region which included Windy
Craggy, and would provide compensation for holders of mineral claims in the
area. Subsequently, in December 1994, the United Nations Educational,
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Scientific and Cultural Organization (UNESCO) designated the Tatshenshini-Alsek
Provincial Park, which includes Windy Craggy, a World Heritage site.
In May 1995, the British Columbia provincial government commenced active
negotiations with senior officers of Geddes pertaining to compensation
respecting Windy Craggy. In order to facilitate such negotiations, Royal Oak
indicated to the British Columbia provincial government a willingness to
purchase the Kemess and Red Mountain properties and to develop these properties,
provided appropriate project support and investment arrangements were provided
by the British Columbia provincial government.
In January 1996, the Company completed the acquisition of Geddes, El Condor
and St. Philips. The remaining outstanding shares of Geddes were acquired for
shares of the Company and cash with a total acquisition cost of $40.9 million;
the outstanding shares of El Condor were acquired for shares of the Company and
cash worth $110.6 million; and the outstanding shares of St. Philips were
acquired for $38.6 million in cash. El Condor and St. Philips owned the Kemess
South property and El Condor owned the Kemess North property. These properties
are now owned by Kemess Mines Inc. (formerly Geddes Resources Limited). Although
the Company will continue to evaluate the potential of the Kemess North
property, there is presently no plan to develop this property.
On April 29, 1996, the British Columbia provincial government announced
that it had issued a Project Approval Certificate for the Kemess South Project
which entitles the Company to proceed with permitting applications for
construction of the mine site and attendant infrastructure. Federal approval
under the Environmental Assessment Act (Canada) and the Fisheries Act (Canada)
is expected shortly and will facilitate completion of all infrastructure
impacting on viable lakes and streams in the project area.
Timetable for Development
The phases of development of the Kemess South Project are: (i) completion
of permitting and planning; (ii) preparation of detailed design and procurement;
and (iii) project management and construction.
Construction of the Kemess South Project commenced in July 1996 and is
anticipated to take 24 months to complete. The construction phase will employ a
work force of approximately 350 persons, peaking at 450 to 550 persons.
The engineering of the processing facilities, which commenced in November
1995, is being carried out by Kilborn Engineering Pacific Ltd. Teshmont
Consultants Inc. of Winnipeg is designing the power line and Knight & Piesold
has commenced engineering studies for the design of the tailings dam.
Compensation, Financial Assistance and Investment
The Company currently estimates that its total capital costs for the Kemess
South Project will be approximately $390 million. The net book value of the
plant and equipment of the Company's British Columbia operations which include
the Kemess South Project, was approximately $10.7 million as of December 31,
1995.
The Company is expecting to bring the Kemess South Project into production
in the second quarter of 1998. The project development will be facilitated by up
to $166 million of economic assistance, investment and compensation from the
British Columbia provincial government as described below. The Company is not
obligated to repay the British Columbia provincial government any of such
amounts. Section 25 of the Financial Administration Act (British Columbia)
provides that, notwithstanding the commitment to pay, any payment of money by
the British Columbia provincial government pursuant to an agreement is subject
to (i) an appropriation being available for that agreement in the year in which
the payment falls due and (ii) the Treasury Board not having controlled or
limited expenditure under any such appropriation. See "Risk Factors --
Government Permits and Payments."
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The compensation, financial assistance and investment of up to $166 million
to be provided by the British Columbia provincial government consist of the
following components described below:
(i) Compensation -- $29 million payable over two years. On April 15,
1996, the Company's wholly owned subsidiary, Kemess Mines Inc., received
the first of two equal compensation payments of $14.5 million. The final
payment is due in April 1997.
(ii) Royalty interest investment -- $50 million to develop on- and
off-site mine infrastructure for the Kemess South Project. The Company
will pay the British Columbia provincial government a royalty of 4.8% on
all copper extracted and processed from the Kemess South Project. The
Company is the general partner and a wholly owned subsidiary of the
Company is currently the sole limited partner of a limited partnership
which is entitled to a royalty on the copper from the Kemess South
Project. The royalty payable to the British Columbia provincial
government will form a portion of the royalty held by the limited
partnership.
(iii) Power line installation -- $49 million payable over three years to
cover the cost of constructing a 320 kilometre power line from the
Kennedy substation to the Kemess Mine site together with related
equipment. The power will initially be supplied by B.C. Hydro. The power
line will be owned and operated by the Company for at least 20 years.
(iv) Regional resource infrastructure -- $14 million payable over 14 years
for emergency health facilities, airport facilities and for developing
and maintaining a connector road.
(v) Human resource development program -- $4.0 million payable over two
years to facilitate recruitment, selection, relocation, mobility,
training, upgrading and safety training for personnel working at the
Kemess South Project.
(vi) Mining development -- $20 million to be matched dollar for dollar for
the development of properties in British Columbia, including the Kemess
and Red Mountain properties and extensions.
(vii) Facilitation and support -- The British Columbia provincial
government agreed to facilitate and support the Company with respect to
the negotiation of appropriate contracts of rail transport, port and
power charges and to facilitate the review and consideration of permits
and other authorizations required for the development of the project.
Ownership
The Kemess property consists of 404 staked mineral claims in three distinct
groups that cover approximately 68,259 acres. The Kemess South property was
owned by El Condor and St. Philips, and the Kemess North property was owned by
El Condor. The property was transferred to Kemess Mines Inc. pursuant to the
winding up of El Condor and St. Philips. There are two royalty agreements that
affect a small number of claims. The Company will pay the British Columbia
provincial government a royalty of 4.8% on all copper extracted and processed
from the Kemess South Project.
Geology
The Kemess South deposit is a large low grade gold-copper porphyry-type
deposit. It is hosted by a flat-lying porphyritic quartz monzodiorite intrusion.
Pyrite, the dominant sulphide, occurs as veins and fracture coatings
accompanying quartz stringers. Chalcopyrite occurs as disseminated grains and in
quartz stockwork veins. Native gold is included within or is peripheral to
grains of chalcopyrite, and gold grades correlate closely with those of copper
in the hypogene zone.
The highest grade of gold and copper mineralization correlate with zones of
intense quartz stockwork development.
A supergene zone, comprising 20% of the deposit, formed during a period of
weathering synchronous with the formation of the Late Cretaceous Sustut Basin.
Copper grades within this zone are locally leached or enriched, while gold
concentrations remain relatively unchanged. Native copper is the dominant
secondary copper mineral except at the base of the supergene zone where
chalcocite becomes more and more abundant.
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Mining and Milling
The deposit will be mined at an average rate of approximately 107,000 tons
per day at an estimated cost of $1.56 per ton. Milling at the rate of
approximately 50,000 tons per day will cost approximately $1.81 per ton. At this
mining rate, the life of the project is estimated to be approximately 15 years.
Ore Reserves
Ore reserves for the Kemess South Project were calculated in a 1993
pre-feasibility study completed by Kilborn Engineering Pacific Ltd., for El
Condor and St. Philips, the former owners of the property. These reserves were
reviewed by Royal Oak prior to the purchase of the property in 1995. In
addition, they were verified for the Company in February, 1996. Reserves for
this property are 221 million tons of ore averaging 0.018 ounces per ton of gold
and 0.224% copper. These reserve estimates contain allowances for mining losses
and dilution, but not for losses in milling. Net smelter return calculations
were carried out on mineralization at Kemess South in order to determine the
value that would be returned from mining and processing. These estimates
included all transportation and smelter charges. The prices of gold and copper
used in the above feasibility studies were US$350 per ounce and US$1.00 per
pound, respectively, with an exchange rate of US$0.78/Cdn $1.00.
RED MOUNTAIN
Background
The Red Mountain project area is located in the Coastal Mountain Range, 11
miles east of the seaport of Stewart, in northwestern British Columbia.
Currently, access to the property is by helicopter from Stewart; however, a road
has been constructed to a potential portal site in Bitter Creek adjacent to the
ore zone but at a lower elevation. The net book value of the plant and equipment
of the Company's British Columbia operations, which include the Red Mountain
deposit, was approximately $10.7 million as of December 31, 1995.
Ownership
The property consists of 147 staked mining claims that cover 86,070 acres.
The Company acquired 100% of the Red Mountain property from Barrick Gold for $1.
The Company assumed all past environmental liabilities, estimated at $3.0
million, as part of this purchase. The Company is committed to spend $3.0
million in exploration and development on the Red Mountain property over three
years. The Company has budgeted for a $9.0 million development program for 1996.
The prior owner will receive a 1% net smelter return royalty on production from
the property, and on production over 1.85 million ounces of gold, an additional
$10.00 per ounce of gold is payable. In addition, the Company is required to pay
a 2.5% net smelter return royalty to a third party.
Geology
The Red Mountain orebody is a hydrothermal gold deposit related to a
multiphase intrusion. The Red Mountain area is underlain by Upper Triassic to
Middle Jurassic sedimentary and volcanic rocks of the Hazelton Group. Early
Jurassic plutons, sills and dykes have intruded this volcanic-sedimentary
assemblage, the largest of which (the Goldslide-Hillside intrusion) lies beneath
Red Mountain. The orebody currently consists of three northwest plunging,
southwest dipping elliptical zones located beneath the summit approximately at
the contact between two phases of the Goldslide intrusion and hosted within both
the stratified sediments and the Hillside intrusion. Both the ore zones and the
host rocks have been disrupted by northwest plunging folds and at least two
phases of brittle faulting.
Mining and Milling
It is estimated that over US$30 million was spent by the former owners of
this property, Lac Minerals and Barrick Gold, between 1991 and 1994 outlining
and developing the Marc, AV and JW Zones, which
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included 300,000 feet of drilling. These zones remain open down-plunge and the
exploration potential for the area north of the deposit is deemed by the Company
to be excellent.
The main development focus for 1996 will be to expand the mineable reserves
at Red Mountain by 500,000 ounces, from the current 800,000 ounces to 1,300,000
ounces of gold through underground and surface delineation drilling of the
down-plunge extension of the orebody. The decline will be extended approximately
1,000 feet to facilitate the drilling.
A joint federal-provincial committee has been established to address
environmental assessment and permitting of the Red Mountain project. Currently,
an updated feasibility study is being completed and the Company expects to file
a development plan with the British Columbia provincial government in the third
quarter of 1996. Subject to receipt of the necessary permits, the project is
expected to produce approximately 150,000 ounces of gold per year commencing in
the fourth quarter of 1999. It is expected that the Red Mountain mine will be
operated as an underground mine. The source of power for this property will be
British Columbia Hydro.
Ore Reserves
The Red Mountain deposit contains 800,000 ounces of gold in the mineable
category, grading 0.262 ounces of gold per ton.
MATACHEWAN
Background
The Matachewan project is located approximately 56 miles southeast of the
City of Timmins, Ontario and is accessed directly by either two-way highway
and/or all-weather roads from Timmins. The main area of interest is called the
Young Davidson property, located two miles west of the Town of Matachewan.
The Matachewan property was mined from 1933 to 1957 by Young Davidson Mines
Limited and Matachewan Consolidated Mines Limited and produced an aggregate of
956,117 ounces of gold grading 0.10 ounces per ton from both underground and
open pit developments. The Matachewan deposit was milled historically using
flotation and cyanidation which achieved excellent recoveries. The current plan
is to produce a concentrate on site that would be transported to the Pamour Mill
for cyanidation. The presence of free gold and the metallurgical testing at
Lakefield Research Limited has necessitated the addition of a gravity circuit to
the mill design. A very coarse cost effective grind was used historically and it
is expected that this will not change. The source of power for this property
will be Ontario Hydro.
To date, the Company has received permits necessary to dewater the existing
mine shaft, to cross the highway with a pipeline and to proceed with advanced
exploration. Discussions are currently underway with respect to environmental
assessment and permitting of the full project. The current discussions relate to
a fish compensation plan and tailings as well as approval under the
Environmental Assessment Act (Canada).
The development plan calls for milling of the open pit ore to commence by
the second half of 1998 while the underground mine is being developed.
Production is targeted for 100,000 ounces of gold per year at an average cash
cost of US$227 per ounce. The existence of a 2,450 foot deep shaft will allow
the underground mine to be economically developed.
Ownership
The Matachewan property is held under two lease agreements. The lease
agreement with Matachewan Consolidated Mines Limited provides for advanced
royalty payments of $15,000 per year or rent of $7,500 per year, depending on
the current gold price. The Young Davidson lease agreement provides for advance
royalty payments of approximately $40,000 per year. The property is subject to a
minimum 3% net smelter return royalty.
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Geology
The Matachewan deposit is hosted within a syenite body which has intruded
along and near the highly deformed contact between Timiskaming Group sedimentary
rocks and Larder Lake Group volcanic rocks. The main syenite body is
approximately 2,460 feet long, 410 feet wide and dips steeply to the south.
Ore Reserves
As of December 31, 1995, the Matachewan property had proven and probable
ore reserves of 13,253,000 tons grading 0.067 ounces of gold per ton. Allowances
are made in these estimates for dilution and mining losses. Ore reserves do not
include allowances for losses in milling. Cut-off grades used in estimating
these mineable reserves are 0.021 ounces per ton for open pit reserves and 0.080
ounces per ton for underground reserves and are based on current mining costs
and a gold price of $517 (US$383) per ounce.
DUPORT
Background
The Duport property is located on Shoal Lake, 28 miles southwest of the
Town of Kenora in northwestern Ontario. The development ramp is located on an
island and is accessible by barge.
Ownership
Intermittent exploration of the Duport deposit was carried out by various
parties from 1930 to 1950, including underground exploration. In 1973,
Consolidated Professor obtained an option on the Duport property and conducted
an extensive sampling and drilling program from 1973 to 1974. Subsequently, this
option was exercised and Consolidated Professor acquired a 100% interest in this
property after amalgamating with Duport Mining Company Limited. The Company
completed the acquisition of all of the shares of Consolidated Professor in May
1996 pursuant to a tender offer followed by a compulsory acquisition. There is a
royalty payable to Union Carbide Canada Limited ("Union Carbide") equivalent to
a 50% net profits interest until recovery of pre-production expenditures, up to
a maximum of $2.0 million. Thereafter, Union Carbide will receive a 10% net
profits interest until a maximum of $5.0 million in the aggregate has been paid.
There is a buyout provision for this royalty.
Mining and Milling Facilities
The Duport project is situated in the environmentally sensitive area of
Shoal Lake, the source of Winnipeg, Manitoba's residential and commercial water
supply. Environmental concerns were raised in 1989 by local cottagers and the
City of Winnipeg, after Consolidated Professor announced its plans to advance
the project to the permitting stage. The main concern was the perception of
potential environmental hazards associated with the processing of the refractory
gold ore and the disposal of cyanide treated tailings. For the past six years,
Consolidated Professor conducted impact and sensitivity studies related to these
concerns. All aspects of mining, ore transport, milling, tailings disposal and
site reclamation were reconsidered and re-engineered with the objective of
alleviating the fears of all concerned parties. Among other features, the
redesigned development plan involved transporting the ore by truck to the
mainland via a year-round ferry to a mill site located 5.2 miles inland, outside
of the Shoal Lake watershed. The new design concept effectively addressed every
concern brought forth during the consultation process. Consolidated Professor
has since submitted a detailed environmental study of the project to the
Ontario, Manitoba and Canadian governments for review.
The Company plans to continue the environmental permitting process
initiated by Consolidated Professor. Development of the project is anticipated
shortly after the permitting process is completed.
Geology
The northern end of the Lake of the Woods District is underlain by the
volcanic and sedimentary rocks of an extensive Keewatin greenstone belt. In the
general Shoal Lake area, two granodiorite intrusions, namely,
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the Canoe Lake Stock and the Snowshoe Bay Stock, intrude the greenstone belt
assemblage and are separated by a five mile broad section of volcanic and
volcaniclastic rocks. Within this volcanic pile is a wide deformation zone which
hosts the gold mineralized zones of the Duport project which occur as en echelon
lenses within highly sheared felsic tuffs.
Ore Reserves
The Duport project has proven and probable ore reserves of approximately
1,008,000 tons grading 0.38 ounces of gold per ton. A cut-off grade of 0.15
ounces per ton, based on current mining costs and a gold price of $517 (US$383)
per ounce, was used in calculating these reserves. Allowances are made in these
estimates for dilution and mining losses. Ore reserves do not include allowances
for losses in milling.
OTHER EXPLORATION PROPERTIES
In June 1995, the Company entered into a lease agreement, which includes a
production royalty, with the owner of the Copperstone gold property, located in
La Paz County, southwestern Arizona. The Company proposes to carry out a 10,000
foot reverse circulation drilling program on the Copperstone property which
consists of 284 unpatented mining claims totalling 5,680 acres and two state
leases totaling 1,300 acres. Mineralized material has been estimated by the
Company at 2,424,000 tons at a grade of 0.172 ounces of gold per ton containing
approximately 417,000 ounces of gold.
Cyprus Gold Corp. operated the Copperstone property between 1987 and 1992
and produced in excess of 500,000 ounces of gold from ore grading 0.10 ounces of
gold per ton in the Main Zone by open pit mining and heap leaching. Compiled
data indicates a down dip extension of the Main Zone as well as parallel
structures in the footwall areas that could possibly be economically mined by
underground methods. The Main Zone has been traced an additional 950 feet along
the dip of the structure below the floor of the pit as well as 425 feet along
strike to the north. Gold mineralization remains open at depth and along strike.
Previous drilling encountered high gold values over significant widths: 0.225
ounces of gold per ton over a core length of 50 feet (0.225/50), and 0.602/10
approximately 2,000 feet to the north of the previous hole. Other intersections
below the Main Zone recorded 0.646/15 at a vertical depth of 900 feet and
collared at the pit floor, and 0.268/40 in another hole.
The objective of the first phase of the Company's drill program is to
develop continuity and expand the existing mineral resource of the Main Zone,
and to evaluate additional high priority gold targets in the footwall of the
deposit.
STRATEGIC INVESTMENTS
The Company has strategic investments in a number of junior resource
companies including Highwood (32% interest) and Asia Minerals (40.1% interest).
Pursuant to an arrangement with the effective date of August 12, 1996,
Highwood acquired all of the outstanding shares of Mountain Minerals. Mountain
Minerals (in which the Company had held a 45.1% interest prior to the
arrangement) is a diversified producer and marketer of high quality industrial
minerals, particularly barite and silica. Mountain Minerals has expanded into
the Chinese barite market and entered the zeolite business in British Columbia.
The principal business of Highwood is the exploration for specialty mineral
deposits such as beryllium, yttrium and zirconium and the development thereof,
where warranted.
Asia Minerals is active in mineral exploration in China. Asia Minerals
recently announced that it had signed a joint venture contract to acquire a 50%
interest in the Yingezhuang gold mine located in Shandong Province, China. The
Chinese partner is Zhaoyuan City Gold Corp. The Yingezhuang gold mine began
production in 1992 and in 1993, 154,280 tons of ore was mined and 12,000 ounces
of gold were produced at a total cost of US$173 per ounce. In July 1994, Asia
Minerals and the Company jointly completed a pre-feasibility study to evaluate a
proposed expansion which outlined a global geological resource of 21.4 million
tons at a grade of 0.09 ounces of gold per ton, based on a 0.06 ounce per ton
cut-off grade. The total contained gold is estimated at 1.76 million ounces.
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Asia Minerals can earn a 50% interest in the Yingezhuang joint venture by
making staged investments in the project. The first stage requires Asia Minerals
to fund a US$3.5 million mine expansion feasibility study. The total investment
required to earn a full 50% interest is estimated to be US$36 million.
Asia Minerals filed a final prospectus dated August 12, 1996 in British
Columbia, Alberta and Ontario qualifying the distribution in such provinces of
common shares issuable upon the exercise of special warrants previously issued
for aggregate gross proceeds of $7.0 million. Royal Oak subscribed for and
purchased 3,531,250 of such special warrants for $2,825,000. Royal Oak has
advised Asia Minerals that it intends to exercise options that it holds to
purchase an aggregate of 2,750,000 common shares of Asia Minerals for an
aggregate exercise price of $1,675,000 on or before December 31, 1996. After
exercise of such options, Royal Oak will hold approximately 46.5% of the shares
of Asia Minerals (on an undiluted basis).
ENVIRONMENTAL
The Canadian mining industry is subject to stringent environmental
regulations. Government regulation of the industry requires extensive monitoring
activities and contingency planning. All phases of the Company's activities are
subject to legislation from exploration through mine development, and mine
operations through decommissioning and reclamation. In 1995, and to date in
1996, all of the Company's operations have continued to be in compliance in all
material respects with applicable environmental legislation. There were no
environmental related legal proceedings pending against the Company in 1995 or
to date in 1996.
The Hope Brook Mine operated in substantial compliance with the terms and
conditions contained in the mine's operating Certificate of Approval in 1995 and
to date in 1996. This Certificate is a perpetual certificate. In December 1995,
the operation failed to comply with effluent quality limits on a weighted
monthly average basis. This noncompliance arose from a circuit upset which
occurred over a three day period. Steps have been taken by management to respond
to such circuit upsets in a more timely fashion. The Newfoundland Department of
Environment was advised of the non-compliance condition and of the action plan
initiated by the Company to prevent reoccurrence. To the Company's knowledge, no
action has been taken at this time by the regulator.
The Pamour Mine and the Nighthawk Mine operated in substantial compliance
with all of the terms and conditions of their respective operating Certificates
of Approval in 1995 and to date in 1996. Both of these certificates are
perpetual.
In 1995 and to date in 1996, the Giant Mine operated in substantial
compliance with all of the terms and conditions of its Water Use Licence. In
response to a complaint filed under the Northwest Territories Environmental
Rights Act alleging damages to vegetation to the northwest of the mine site, the
Northwest Territories government is considering draft regulations under the
Environmental Protection Act (Northwest Territories) that would control the
amount of permissible sulphur dioxide emissions from the Company's roaster
facility at the Giant Mine. The Company has undertaken a cooperative program
with the regulators to evaluate the technical feasibility of such emission
controls and of the environmental and economic impact of such regulations on the
Giant Mine. The Company believes that the economic impact of such regulations on
the Giant Mine will not be material, as installation of a taller roaster stack
in the ordinary course at a cost of $1.5-2.0 million should be sufficient for
compliance. The federal government of Canada is considering the drafting of new
regulations under the Environmental Protection Act (Canada) that would control
the amount of permissible airborne arsenic emissions from the Company's roaster
facility at the Giant Mine. The government is currently assessing the
socio-economic benefits and impacts that would accrue from implementing new
regulations in the area of airborne arsenic emissions. The Company's Giant
roaster facility currently operates in compliance with all existing
environmental requirements. On May 1, 1993, Royal Oak was granted a five-year
renewal of its licence to use water at the Giant Mine to a new expiry date of
April 30, 1998.
The Colomac Mine operated in substantial compliance with all of the terms
and conditions of its Water Use Licence in 1995, which is effective through
February 1999. The Company has recently implemented measures to reduce fresh
water consumption in the Colomac Mill in compliance with new standards that came
into effect in 1996.
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In 1995, the Company spent approximately $0.8 million on capital
improvements and $2.8 million on operations and maintenance for environmental
matters. The Company expects to spend the same amount in 1996 for these matters.
The majority of the operating costs are related to effluent treatment plants at
the Giant Mine and the Hope Brook Mine, as well as increasing the height of
tailings pond dykes at the Pamour Mine.
The Company recognizes that it has a responsibility to operate in a manner
that minimizes the impact of its mining operations on the environment. To this
end, the Company upgrades its policies and practices on a continuing basis with
a view to surpassing regulatory guidelines. In 1994, the Company instituted an
Environmental Code of Practice which established the principles under which the
Company manages the environmental performance of its operations. These
principles encompass compliance with all applicable statutory legislation,
minimizing risk to the environment, self monitoring of environmental protection
management programs, and communicating effectively with governments and the
public on environmental protection matters. In 1996, the Company expects to
commence development of a formal environmental management system, including
periodic internal audits and reporting of results, based on standards developed
by the Canadian Standards Association.
RECLAMATION
Where feasible, reclamation is conducted by the Company concurrently with
mining. In general, the Company is required to mitigate long-term environmental
impacts by stabilizing, contouring, resloping and revegetating various portions
of a site once mining and mineral processing operations are completed as well as
by appropriately managing residual waste. These reclamation activities are
conducted in accordance with detailed plans which have been reviewed and, where
applicable, approved by the appropriate regulatory agencies. In Ontario, the
Northwest Territories and British Columbia, the Company is required to post
security against all or part of the estimated cost of such reclamation and has
done so. The Company has completed and filed reclamation plans for all of its
active operations. Reclamation plans have also been prepared for most of the
Company's inactive sites and reclamation is well advanced on many of these
sites. The Company's total estimated cost of reclamation at all active and
inactive mining properties is $25.8 million. The Company has accrued $4.9
million through December 1995 and will charge the remaining amount to
operations, over the remaining lives of its operations, on a unit-of-production
basis. As of December 31, 1995 and 1994, the Company had outstanding bonds for
reclamation of $3.5 million and $0.8 million, respectively, and letters of
credit for reclamation of $1.4 million in 1995. Further, the Company believes
that the salvage value of its assets at its various mine sites will be
sufficient to fund the majority of these reclamation costs.
LEGAL MATTERS
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims, including proceedings under laws and regulations
related to environmental and other matters. It is the belief of management that
the various asserted claims and litigation in which the Company is currently
involved will not have, individually or in the aggregate, a material adverse
effect on its financial position. However, no assurance can be given as to the
ultimate outcome with respect to such claims and litigation. The resolution of
such claims and litigation could be material to the Company's operating results
of any particular period, depending upon the level of income for such period.
On September 18, 1992, nine miners were murdered in an underground
explosion at the Company's Giant Mine. A member of the union which was on strike
at the time was charged and convicted of nine counts of second degree murder. In
September 1994, dependents of the deceased miners sued the Company and two of
its officers and directors, along with 23 other named defendants unrelated to
the Company, for losses allegedly suffered as a result of the explosion. The
claim against the Company and all defendants but one totals approximately $10.8
million plus taxes, interest and costs. The claim against the two officers and
directors and all other defendants, excluding the Company, totals approximately
$33.65 million plus taxes, interest and costs. The Company's insurers have been
notified and a vigorous defense of the claim is intended. Any liability that
might be imposed in the matter as presently pleaded would be within the
Company's liability insurance coverage.
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EMPLOYEE RELATIONS
As of June 30, 1996, the Company employed 1,461 people, of which 937 are
represented by either the United Steelworkers of America (177 employees at
Colomac, 308 employees at Pamour and at Nighthawk and 202 employees at Hope
Brook) or the Canadian Auto Workers Union (250 employees at Giant). The Company
is currently negotiating a collective agreement with the United Steelworkers of
America in respect of 177 employees employed at the Colomac Mine. Effective July
1, 1996, the Company and the United Steelworkers of America reached a new
collective agreement, expiring June 30, 1999, in respect of the employees
employed at the Pamour and Nighthawk Mines. The collective agreement with the
United Steelworkers of America in respect of 202 of the Hope Brook Mine
employees expires on April 30, 1997 and the collective agreement with the
Canadian Auto Workers Union in respect of 250 of the Giant Mine employees
expires in November 1996. The current agreement with the Canadian Auto Workers
Union provides that there cannot be a strike or a lockout in November 1996 when
the collective agreement expires.
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MANAGEMENT
The following table and associated notes set forth the names of each
director and executive officer of the Company, their age as of August 28, 1996
and their respective positions with the Company.
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------
Margaret K. Witte(1)(2).............. 42 President, Chief Executive Officer and
Chairman of the Board
Ross F. Burns(3)..................... 52 Vice-President, Exploration and a Director
James H. Wood........................ 49 Chief Financial Officer
John R. Smrke........................ 46 Senior Vice-President
J. Graham Eacott..................... 55 Vice-President, Investor Relations
Edmund Szol.......................... 55 Vice-President, Human Resources
George W. Oughtred(1)(4)............. 66 Director
Matthew Gaasenbeek(1)(2)............. 66 Director
William J. V. Sheridan(2)............ 51 Secretary and a Director
J. Conrad Lavigne(4)................. 79 Director
John L. May(2)(4).................... 61 Director
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Pension Committee.
(4) Member of the Governance and Nominating Committee.
Margaret K. (Peggy) Witte has served as President and Chief Executive
Officer and Chairman of the Board of Royal Oak or a predecessor thereof since
1989. From 1986 to 1989, Ms. Witte was President and Chief Executive Officer of
Neptune Resources Corp. Ms. Witte has a Master of Science degree in
Metallurgical Engineering from the Mackay School of Mines and Geology in Reno,
Nevada and a Bachelor of Science degree in Chemistry from the University of
Nevada. Ms. Witte is a member of the American Institute of Mining, Metallurgical
and Petroleum Engineers and the Canadian Institute of Mining and Metallurgy and
a past director of the Mining Association of Canada and the Prospectors and
Developers Association of Canada. Ms. Witte is the recipient of several awards,
including Special Achievement Award, Canadian Mineral Processors (1985), Woman
of Distinction Award Y.W.C.A. (1991), Developer of the Year, Prospectors and
Developers Association of Canada (1993) and the Financial Post's Newsmaker of
the Year (1994). Ms. Witte is also a director and Chairman of Mountain Minerals,
Talisman Energy, an oil and gas company, and Trans Canada Pipelines, an oil and
gas pipeline company.
Ross F. Burns has served as Vice-President, Exploration of Royal Oak or a
predecessor thereof since 1989. From 1986 to 1989, Mr. Burns was Vice-President
of Neptune Resources Corp. Mr. Burns has a Bachelor of Science (Honours) degree
in Geology from Queens University and is a Fellow of the Geological Association
of Canada, a registered professional geologist in the Northwest Territories, and
a member of the Prospectors and Developers Association and the British Columbia
and Yukon Chambers of Mines. Mr. Burns is also the President and a director of
Ronnoco Gold Mines Limited and a director of Asia Minerals.
James H. Wood has served as Chief Financial Officer of Royal Oak since May
1994. From 1992 to 1994, Mr. Wood was Vice-President, Finance of Maclean Hunter
Publishing Limited and from 1980 to 1992 he held various senior financial
positions at CCL Industries Inc. and its subsidiary companies. Mr. Wood has a
Bachelor of Commerce (Honours) degree from Laurentian University and is a
Chartered Accountant. Mr. Wood is a member of the Canadian Institute of
Chartered Accountants, the British Columbia Institute of Chartered Accountants
and the Ontario Institute of Chartered Accountants.
John R. Smrke has served as Senior Vice-President of Royal Oak since 1993.
From 1989 to 1993, Mr. Smrke held the positions of General Manager,
Vice-President, Corporate and Employee Development, and Vice-President,
Operations of Royal Oak or a predecessor thereof. Mr. Smrke received a diploma
in Mining Engineering Technology (Honours) from Cambrian College, Sudbury. Mr.
Smrke is Chief Executive
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Officer and Chairman of the Board of Highwood, Chief Executive Officer and a
director of Mountain Minerals and a director of Asia Minerals.
J. Graham Eacott joined Royal Oak in 1991 as Manager, Investor Relations
and has served as Vice-President, Investor Relations since 1995. From 1987 to
1991, Mr. Eacott was a Senior Financial Analyst at Maison Placements Canada
Inc., Merrill Lynch Canada Inc. and ScotiaMcLeod Inc. Mr. Eacott has a Master of
Science degree in Industrial Metallurgy & Management Techniques from the
University of Aston, Birmingham, and a Bachelor of Science (Honours) degree in
Metallurgy from Manchester University. Mr. Eacott is a professional engineer in
the Province of Ontario and is a graduate of the Canadian Securities Course and
a Registered Representative. He is a member of the Canadian Institute of Mining
and Metallurgy and is the author of several technical papers.
Edmund Szol has served as Vice-President, Human Resources since 1995. Prior
to joining the Company, Mr. Szol was Vice-President, Human Resources and
Administration of Nerco Inc., where he was responsible for all human resources
and administrative functions. Mr. Szol has a Bachelor of Arts degree from
Youngstown University, Youngstown, Ohio and is a graduate of the Advanced
Executive Development Program, Harvard University. Mr. Szol is a member of the
Society for Human Resource Management.
George W. Oughtred has served as a director of Royal Oak since 1991. Mr.
Oughtred is President of Privatbanken Holdings Inc., a private holding company
and a director of C.I. Fund Management Inc., an investment fund manager. Mr.
Oughtred has served as a director and/or officer of numerous other public
companies. Mr. Oughtred has a Bachelor of Commerce degree from McGill University
and a Master of Business Administration degree from the University of Western
Ontario.
Matthew Gaasenbeek has served as a director of Royal Oak since 1993. Mr.
Gaasenbeek is President of Northern Crown Capital Corporation, a private venture
capital company and Chairman of the Ontario Development Corporation. Mr.
Gaasenbeek has been and continues to serve as a director or officer of various
public and private resource and finance companies. Mr. Gaasenbeek has a Bachelor
of Arts (Honours) degree in Business Administration from the University of
Western Ontario. Prior to October 1991, Mr. Gaasenbeek was President and a
director of Camreco Inc., a mining exploration company.
William J.V. Sheridan has served as a director of Royal Oak since 1991. Mr.
Sheridan has a Bachelor of Commerce degree from the University of Toronto and a
law degree from Osgoode Hall Law School, Toronto. Mr. Sheridan joined Lang
Michener, a Canadian law firm, in 1972, became a partner in 1974 and is
currently the Managing Partner. He specializes in mergers and acquisitions,
mining, securities and international joint ventures. Mr. Sheridan is also a
director and/or officer of Eden Roc Mineral Corp., Hydra Capital Corp.,
Pinkerton's of Canada Limited, Witco Canada Inc. and other public and private
companies, and a Governor of the Queen Elizabeth Hospital, Toronto.
J. Conrad Lavigne has served as a director of Royal Oak since 1991. Mr.
Lavigne is President of JCL Corporation, a broadcast consulting firm. Mr.
Lavigne is the former Chairman of Northern Telephone Co. Ltd. and a former
director of Ontario Hydro and National Bank of Canada. Mr. Lavigne is a Lifetime
Honorary Associate Member of the Central Canadian Broadcast Association and was
inducted into the Canadian Broadcasters Hall of Fame in 1990.
John L. May has served as a director of Royal Oak since 1991. Mr. May is a
retired mining executive and prior to his retirement in 1991 was Vice-President
of Exploration of Teck Corporation. Mr. May has a Bachelor of Science degree in
Applied Geology from the University of Toronto. During his career, he has been
an officer and/or director of a number of public natural resource companies. He
is currently a director of HRC Development Corporation.
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The table below sets forth certain information regarding equity ownership
of each director or executive officer of the Company and all directors and
executive officers of the Company as a group as of August 28, 1996, and the
percentages set forth are based upon 138,319,213 shares outstanding on such date
(excluding the 1,924,816 shares owned by a wholly owned subsidiary of the
Company, see "Certain Relationships and Related Transactions").
NUMBER OF PERCENTAGE OF
DIRECTORS AND EXECUTIVE OFFICERS COMMON SHARES(1)(2) COMMON SHARES(1)(2)
- -------------------------------- ------------------- -------------------
Margaret K. Witte(3)................................. 2,930,376 2.1%
Ross F. Burns........................................ 349,129 *
William J.V. Sheridan................................ 30,000 *
J. Conrad Lavigne.................................... 55,000 *
John L. May(3)....................................... 22,500 *
George W. Oughtred................................... 530,000 *
Matthew Gaasenbeek................................... 52,500 *
John R. Smrke........................................ 211,370 *
James H. Wood........................................ 112,500 *
J. Graham Eacott..................................... 111,000 *
Edmund Szol.......................................... 50,000 *
All directors and executive officers as a group
(11 persons)....................................... 4,454,375 3.2%
- ---------------
* The percentage of shares beneficially owned does not exceed 1% of the class.
(1) The information as to shares beneficially owned, not being to the knowledge
of the Company, has been furnished by the respective directors and officers
individually.
(2) Includes and assumes the issuance of the following number of common shares
issuable upon the exercise by the following individuals of options which are
currently exercisable or exercisable within 60 days of the date hereof: Ms.
Witte 350,000; Mr. Burns 95,000; Mr. Sheridan 15,000; Mr. Lavigne 40,000;
Mr. Gaasenbeek 50,000; Mr. Smrke 160,000; Mr. Wood 110,000; Mr. Eacott
48,000; and Mr. Szol 50,000.
(3) Subsequent to August 28, 1996, Ms. Witte acquired 17,200 common shares of
Royal Oak in connection with the exercise of put options previously granted
by Ms. Witte. In addition, Ms. Witte has granted 2,028 put options which
oblige Ms. Witte to purchase 202,800 common shares of Royal Oak at a price
of $6.00 per share if the holder requires her to do so prior to the expiry
of the options on December 6, 1996. Subsequent to August 28, 1996, Mr. May
acquired 5,000 common shares of Royal Oak in connection with the exercise of
put options previously granted by Mr. May. Further, Mr. May has granted 50
put options which oblige Mr. May to purchase 5,000 common shares of Royal
Oak at a price of $5.00 per share if the holders require him to do so prior
to the expiry of the options on December 5, 1996 and 100 put options which
oblige Mr. May to purchase 10,000 common shares of Royal Oak at a price of
$6.00 per share if the holders require him to do so prior to the expiry of
the options on December 6, 1996.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation for the fiscal years ended
December 31, 1995, 1994 and 1993 for the Chief Executive Officer and the four
other most highly compensated executive officers of the Company (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ----------------
OTHER ANNUAL SECURITIES UNDER
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS
PRINCIPAL POSITION YEAR ($) ($) ($)(3) GRANTED(#)
- ----------------------------- ----- ------------ ------------ ------------ ----------------
M.K. Witte................... 1995 US$250,200 US$150,000 US$132,735(4) --
Chairman, President and 1994 Cdn $250,000 Cdn $75,250 50,000
Chief Executive Officer 1993 Cdn $206,250 Cdn $100,000 -- 300,000
--
J.R. Smrke................... 1995 US$132,800 US$30,000 US$63,400(5) --
Senior Vice-President (4)
US$41,034
1994 Cdn $145,000 Cdn $60,250 -- 50,000
1993 Cdn $136,250 Cdn $40,000 Cdn $52,038 --
J.H. Wood.................... 1995 US$123,600 US$30,000 US$41,034(4) --
Chief Financial Officer(1) 1994 Cdn $87,917 Cdn $40,250 230,000
1993 -- -- -- --
--
R.F. Burns................... 1995 US$124,500 US$30,000 US$25,452(4) --
Vice-President, Exploration 1994 Cdn $145,000 Cdn $5,250 50,000
1993 Cdn $127,500 Cdn $40,000 -- --
Cdn $430,360
J. Graham Eacott............. 1995 US$102,800 US$30,000 US$30,825(4) --
Vice-President, 1994 -- -- --
Investor Relations(2) 1993 -- -- -- --
--
- ---------------
(1) Mr. Wood was hired and appointed Chief Financial Officer in May 1994.
(2) Mr. Eacott was appointed Vice-President, Investor Relations in January 1995.
Prior to that time, Mr. Eacott was Manager, Investor Relations.
(3) Except as otherwise indicated, the value of perquisites and benefits do not
exceed the lesser of $50,000 and 10% of the total annual salary and bonus.
(4) Relocation payments upon the Company's move of its executive offices to the
United States were made to Ms. Witte for US$100,000, Mr. Smrke for
US$40,000, Mr. Wood for US$40,000, Mr. Burns for US$15,000 and to Mr. Eacott
for US$30,000. Directors' fees were paid to Ms. Witte and Mr. Burns of Cdn
$14,500 and Cdn $13,000, respectively. Other than with respect to Ms. Witte,
the balance relates to the Company's contribution to the employees' 401(k)
savings plan. In respect of Ms. Witte, the balance relates to payment of
life insurance premiums of US$15,396, car lease payments and reimbursements
of US$4,653 and the Company's contribution to the 401(k) savings plan of
US$2,102.
(5) Represents the difference between the market price of the Company's common
shares on the date of exercise and the option exercise price, multiplied by
the number of shares acquired.
STOCK OPTIONS
During 1995, no options were granted to any of the Named Executive
Officers. During 1995, options to purchase a total of 605,000 common shares of
the Company were granted to officers and employees of the Company. Particulars
of the grants of options are as follows:
DATE OF GRANT NUMBER OF SHARES EXERCISE PRICE
- -------------------------------------------------------- ---------------- -------------------
February 17, 1995....................................... 260,000 US$3.15, Cdn $4.60
June 29, 1995........................................... 70,000 US$3.15
September 6, 1995....................................... 220,000 US$3.85, Cdn $5.13
November 21, 1995....................................... 55,000 US$4.00
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AGGREGATE OPTION EXERCISES DURING 1995 AND 1995 YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY
SECURITIES AGGREGATE YEAR END OPTIONS AT YEAR END
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- --------- ----------- ------------- ----------- -------------
M.K. Witte.............. -- -- 383,333 50,000 $ 364,165 $17,500
J.R. Smrke.............. 20,500 $86,612 100,000 60,000 $ 331,000 $49,000
R.F. Burns.............. -- -- -- 50,000 -- $17,500
J.H. Wood............... -- -- 40,000 190,000 -- $10,500
J.G. Eacott............. -- -- 61,000 30,000 $ 247,050 $10,500
RETIREMENT PLAN
The officers of the Company participate in the Royal Oak Mines (USA)
Retirement Plan, which covers substantially all of the head office employees of
the Company. Contributions to the Retirement Plan, and the related expense or
income, are based on general actuarial calculations and accordingly, no portion
of the Company's contributions, and related expenses or income, is specifically
attributable to the Company's officers. The current maximum annual pension
benefit payable by the Retirement Plan to any employee is $120,000, subject to
specified adjustments. Upon reaching the normal retirement age of 65, each
participant is eligible to receive annual retirement benefits in monthly
installments for life equal to, for each year of credited service, 1.2% of Final
Average Earnings ("FAE") (defined as the average of the highest 60 consecutive
months of earnings during the 120 months preceding severance date). Officers of
the Company are eligible to receive reduced retirement benefits as early as age
55 with 5 years of eligible service. For purposes of the Retirement Plan,
earnings include "regular salary or wages and any base salary deferrals under
the 401(k) savings plan. Earnings do not include any bonus or commissions,
overtime pay, moving expenses, car allowances, other business expense
reimbursement or non-qualified deferrals."
The following table shows estimated aggregate annual benefits under the
Retirement Plan payable upon retirement to a participant who retires in 1996 at
age 65 having the years of service and FAE, as specified.
YEARS OF CREDITED SERVICE
--------------------------------------------------------------
FAE 5 10 15 20 25 30
- ---------------------------------- ------ ------ ------ ------ ------ -------
$ $ $ $ $ $
75,000............................ 4,500 9,000 13,500 18,000 22,500 27,000
100,000........................... 6,000 12,000 18,000 24,000 30,000 36,000
125,000........................... 7,500 15,000 22,500 30,000 37,500 45,000
150,000........................... 9,000 18,000 27,000 36,000 45,000 54,000
175,000........................... 10,500 21,000 31,500 42,000 52,500 63,000
200,000........................... 12,000 24,000 36,000 48,000 60,000 72,000
225,000........................... 13,500 27,000 40,500 54,000 67,500 81,000
275,000........................... 16,500 33,000 49,500 66,000 82,500 99,000
300,000........................... 18,000 36,000 54,000 72,000 90,000 108,000
Benefits listed in the pension table are not subject to any deduction for
social security or other offset amounts. As of December 31, 1995, the Named
Executive Officers have completed the indicated number of years of credited
service: R. Burns, five years; G. Eacott, four years; J. R. Smrke, six years, M.
K. Witte, five years and J. Wood, 1.6 years.
SUPPLEMENTAL LIFE INSURANCE PLAN
The Company has established a plan effective January 1, 1996 to provide
certain executives of Royal Oak with supplemental life insurance protection for
their families in the event of death under a split dollar life insurance
arrangement. Under this plan, upon the death of a participant, beneficiaries
designated by such
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participant will be entitled to receive that portion of the policy proceeds
equal to the greater of the total cash value of the policy or two times the
participant's highest annual compensation from the Company during the three
consecutive calendar years prior to death. The cost to the Company of this plan
in 1996 is estimated to be approximately US$110,000.
EMPLOYMENT AGREEMENTS
Following the transfer in March 1995 of head office staff to its corporate
offices in Kirkland, Washington, the Company guaranteed the performance of
employment agreements (collectively, the "Agreements") made by its wholly-owned
United States subsidiary, Arctic Precious Metals, Inc., carrying on business as
Royal Oak Mines (USA) Inc. ("Arctic"), with Margaret K. Witte, President and
Chief Executive Officer of the Company, and Ross F. Burns, Vice-President of
Exploration. The Company also guaranteed the performance by Arctic of employment
agreements with the Company's Chief Financial Officer and three Vice-Presidents
(collectively, the "Executives"), being Messrs. Wood, Smrke, Szol, and Eacott.
The Agreements, which for the four Executives are substantially identical
except for the compensation provisions, were reviewed and approved by the Board
of Directors of the Company following the recommendation of the Compensation
Committee. The Agreements are for initial fixed terms of two years in the case
of Ms. Witte and Mr. Burns and one year for the Executives, with identical
automatic renewal terms of additional 12-month periods until termination. In the
event of a termination of employment without cause and in certain other
specified circumstances, including a change of control of Arctic or the Company,
each employee is entitled to compensation. In the case of Ms. Witte and Mr.
Burns, the acquisition by any person or group acting in concert of more than 30%
of the issued and outstanding common shares of Arctic or the Company or the
election to the Board of Directors of Arctic or the Company of persons employed
by or representing any one person or group acting in concert and constituting
40% or more of the Board of Directors would constitute a "Terminating Event."
In the event that the employment of either Ms. Witte or Mr. Burns is
terminated without cause, each is entitled to 24 months' notice of termination
or payment in lieu thereof, with full continuation of benefits for the notice
period. In the event of termination of either employee upon the occurrence of a
Terminating Event, Ms. Witte is entitled to receive a lump sum representing
three years salary, together with all benefits for a 24-month period and Mr.
Burns is entitled to receive a lump sum representing two years salary, together
with all benefits for the 24-month period. In addition, Ms. Witte and Mr. Burns
will have the right for a period of six months from such Terminating Event to
require the Company to purchase or arrange for the purchase of up to 2,000,000
common shares (in the case of Ms. Witte) and up to 50,000 common shares (in the
case of Mr. Burns) held by them or their spouses or any corporation controlled
by any of them, respectively, for a price per share equal to the simple average
of the closing price of the common shares of the Company on The Toronto Stock
Exchange for each of the business days on which there was a closing price
falling not more than 20 business days prior to the receipt by the Company of
the notice of exercise of the right herein described. If such right is not
exercised and Ms. Witte or Mr. Burns, as the case may be, is then indebted to
the Company, the outstanding principal amount of such loan will be forgiven by
the Company. As of the date hereof, Mr. Burns is currently not indebted to the
Company and Ms. Witte is indebted to the Company in the amount of US$700,000.
See "Certain Relationships and Related Transactions."
In the event that the employment of any one of the five Executives is
terminated without cause, including a dismissal arising from or related to a
change of ownership of Arctic or the Company, each is entitled to receive
compensation tied to length of service. When termination occurs prior to the
completion of 12 months of service, the employee is entitled to payment of an
amount equal to one year's salary plus the cost to the Company of one year of
benefits; where termination occurs after 12 months of service but before the
completion of 48 months of service, the employee is entitled to 18 months' base
salary plus the cost to the Company of 18 months of benefits; and where
termination occurs any time after 48 months of service, the employee is entitled
to 24 months' base salary including bonus, plus the cost to the Company of two
years of benefits. In the event of a change of control of Arctic or the Company,
the Executive is entitled upon dismissal to payments of any bonus earned but
unpaid and has the immediate right to exercise all valid option agreements.
Loans outstanding under the Agreements with the Executives are secured and must
be repaid in
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full within 120 days following termination of employment. Several of the
Executives are indebted to Arctic. See "Certain Relationships and Related
Transactions." Each of Ms. Witte, Mr. Burns and the Executives are participants
in the Company's Retirement Plan. See "-- Retirement Plan."
COMPENSATION OF DIRECTORS
The directors of the Company are entitled to receive an annual fee of
$8,000 plus $1,000 for each meeting of the Board of Directors or a committee
thereof attended. The directors are also entitled to reimbursement from the
Company for all reasonable out-of-pocket expenses incurred in connection with
their attendance at meetings of the Board of Directors or a committee thereof.
DESCRIPTION OF SHARE CAPITAL
The attributes of the common and special shares of the Company are
summarized below.
SHARE CAPITAL
The authorized capital of Royal Oak consists of an unlimited number of
common shares and an unlimited number of special shares, issuable in series, of
which, as of October 3, 1996, 138,680,213 common shares (excluding the 1,924,816
common shares owned by a wholly owned subsidiary of the Company, see "Certain
Relationships and Related Transactions") and no special shares were issued and
outstanding.
COMMON SHARES
Holders of common shares are entitled to one vote for each share held on
all votes taken at meetings of the shareholders of Royal Oak (other than
meetings at which only holders of another class or series of shares will be
entitled to vote). Subject to the rights of holders of the special shares and
other shares of Royal Oak ranking prior to the common shares, holders of common
shares participate ratably in any dividend declared by the directors of Royal
Oak on the common shares and the common shares carry the right to receive a
proportionate share of the assets of Royal Oak available for distribution to
holders of common shares in the event of the liquidation, dissolution or
winding-up of Royal Oak.
SPECIAL SHARES
The special shares may be issued from time to time in one or more series
with such rights, privileges, restrictions, conditions and designations attached
thereto as are fixed by resolution of the board of directors of Royal Oak. Each
series of special shares will rank on a parity with the special shares of every
other series. The special shares as a class rank prior to the common shares and
any other shares ranking junior to the special shares with respect to the
payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of Royal Oak. Except in limited
circumstances, holders of the special shares will not be entitled to receive
notice of any meeting of the shareholders of Royal Oak (except a meeting called
for the purpose of authorizing the dissolution of Royal Oak or the sale of all
or a substantial part of its undertaking) or to attend or vote thereat.
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STOCK OPTIONS
As of October 3, 1996, 3,454,500 common shares of the Company are reserved
for issuance upon exercise of options to purchase such shares. The following
table sets out information with respect to such options:
EXECUTIVE OFFICERS (6)
MARKET PRICE ON
NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE
- ------------------------------------------- --------------- -------------- -------------------
40,000.................................... $1.40 $1.40 December 12, 1996
40,000.................................... $1.75 $1.60 May 14, 1997
30,000.................................... $1.70 $1.70 October 27, 1997
300,000.................................... $5.25 $4.90 September 19, 2000
200,000.................................... $5.50 $5.50 April 19, 2000
210,000.................................... $4.15 $4.50 December 18, 1999
200,000.................................... $4.10 US$3.15 February 16, 2000
360,000.................................... $4.85 $4.90 January 2, 2001
63,000.................................... n.a.(1) $2.67 May 10, 2000
DIRECTORS OTHER THAN EXECUTIVE OFFICERS (5)
MARKET PRICE ON
NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE
- ------------------------------------------- --------------- -------------- -------------------
50,000.................................... $4.80 $3.95 April 5, 2000
40,000.................................... $4.45 $4.45 April 21, 2000
300,000.................................... $4.85 $4.90 January 2, 2001
15,000.................................... n.a.(1) $2.67 May 10, 2000
EMPLOYEES
MARKET PRICE ON
NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE
- ------------------------------------------- --------------- -------------- -------------------
30,000.................................... $1.70 $1.70 October 27, 1997
27,500.................................... $4.45 $4.45 April 21, 1998
65,000.................................... $6.25 $6.25 October 18, 1998
50,000.................................... $6.00 $6.00 December 2, 1998
640,000.................................... $4.15 $4.50 December 18, 1999
60,000.................................... $4.10 $4.60 February 16, 2000
180,000.................................... $4.70 $5.13 September 6, 2000
40,000.................................... $4.70 US$3.85 September 6, 2000
55,000.................................... $5.50 US$4.00 November 20, 2000
24,000.................................... n.a.(1) $2.67 May 10, 2000
60,000.................................... $4.25 $4.90 January 2, 2001
50,000.................................... $6.00 $6.00 January 31, 2001
20,000.................................... $6.75 $6.75 February 15, 2001
35,000.................................... $6.50 $6.38 February 15, 2001
40,000.................................... $6.50 $6.50 February 15, 2001
100,000.................................... $5.30 $5.30 July 30, 2001
50,000.................................... $5.25 $5.25 August 28, 2001
20,000.................................... $5.30 $5.30 September 30, 2001
- ---------------
(1) Outstanding options to purchase common shares of Geddes, converted to
options to purchase shares of the Company upon the arrangement involving the
Company, Geddes, El Condor and St. Philips becoming effective on January 11,
1996.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1995, the only transactions involving the Company, in
which any director, executive officer or any member of their immediate family
had any material interest are as set out below.
Witteck Development Inc. ("Witteck"), a private Ontario, Canada
corporation, was wholly-owned by Margaret K. Witte, a director and the Chairman,
Chief Executive Officer and President of the Company. Ms. Witte was a director
and the sole officer of Witteck. Witteck's only asset consisted of 1,924,816
common shares of the Company. Pursuant to the terms of an agreement dated April
28, 1995, the Company acquired all of the outstanding shares of Witteck in
exchange for 1,924,816 common shares of the Company. The common shares of the
Company owned by Witteck will be disposed of by Witteck within five years of the
acquisition of Witteck by the Company in accordance with the requirements of the
Business Corporations Act (Ontario). The shares of the Company owned by Witteck
may not be voted for as long as the shares are owned by Witteck (and such shares
are not considered to be outstanding for financial reporting purposes, including
the calculation of the Company's earnings per share). All costs and expenses
associated with the transaction were paid by Ms. Witte. In addition, Ms. Witte
has agreed to indemnify the Company for any and all losses incurred by the
Company as a result of the transaction, including any liabilities of Witteck and
any costs incurred by the Company in connection with this transaction. The
acquisition was approved by the shareholders of the Company on May 31, 1995.
The aggregate amount of indebtedness to the Company or its subsidiaries
incurred in connection with the purchase of securities of the Company by all
present and former officers, directors and employees of the Company outstanding
as at June 30, 1996 was US$31,525. The following table sets forth the
indebtedness incurred by directors, senior officers and executive officers of
the Company for the purchase of securities of the Company:
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS UNDER
SECURITIES PURCHASE PROGRAMS
FINANCIALLY
AMOUNT ASSISTED
INVOLVEMENT LARGEST AMOUNT OUTSTANDING SECURITIES
OF ISSUER OUTSTANDING AS OF PURCHASES
NAME AND PRINCIPAL POSITION OR SUBSIDIARY(1) DURING 1995(1) JUNE 30, 1996 DURING 1995
- --------------------------------- ------------------ -------------- ------------- -------------
J.R. Smrke, Senior Loan by Subsidiary US$31,525 US$31,525 20,500 shares
Vice-President.................
- ---------------
(1) Arctic Precious Metals, Inc., a subsidiary of Royal Oak, provided loans to
Mr. Smrke. The loans do not bear interest and will be secured by a mortgage
on real property owned by Mr. Smrke. The loans are repayable from future
bonus amounts earned by Mr. Smrke and from the aggregate net value of any
stock options exercised by Mr. Smrke at the rate of one-half of the
after-tax value to Mr. Smrke of such amounts.
As of June 30, 1996, the aggregate amount of indebtedness to Royal Oak
incurred, other than in connection with the purchase of securities of Royal Oak,
by all current and former directors, officers and employees of Royal Oak was
US$1,080,000.
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The following table sets forth the indebtedness to Royal Oak incurred by
the executive officers, senior officers and directors of Royal Oak, other than
for the purchase of securities of the Royal Oak:
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS
LARGEST AMOUNT AMOUNT OUTSTANDING
INVOLVEMENT OF ISSUER OUTSTANDING DURING AS OF JUNE 30,
NAME AND PRINCIPAL POSITION OR SUBSIDIARY 1995 1996
- ---------------------------------------- --------------------- ------------------ ------------------
M.K. Witte.............................. Subsidiary(1) -- US$700,000
Chairman, President and
Chief Executive Officer
J. Wood................................. Subsidiary(2) US$75,000 US$66,300
Chief Financial Officer
J.R. Smrke.............................. Subsidiary(3) US$31,400 US$23,000
Senior Vice-President
- ---------------
(1) In 1996, loans were made to Ms. Witte by Arctic Precious Metals, Inc., a
subsidiary of Royal Oak. The loans bear interest at prescribed rates, are
repayable on demand, provided that the maximum amount repayable in any one
year is one third of the principal amount of the loans and will be secured
by a mortgage on real property owned by Ms. Witte. Ms. Witte's compensation
will be increased to the extent that any interest is paid.
(2) In May 1995, a housing loan was made to Mr. Wood by Arctic Precious Metals,
Inc. The loan does not bear interest and is secured against Mr. Wood's
residence. The loan is repayable over a maximum of ten years from future
bonus amounts earned by Mr. Wood and from the aggregate net value of any
stock options exercised by Mr. Wood, at the rate of one-half of the
after-tax value to Mr. Wood of such amounts.
(3) In January 1995, a loan was made to Mr. Smrke by Arctic Precious Metals,
Inc. The loan does not bear interest and will be secured by a mortgage on
real property owned by Mr. Smrke. The loan is repayable from future bonus
amounts earned by Mr. Smrke and from the aggregate net value of any stock
options exercised by Mr. Smrke, at the rate of one-half of the after-tax
value to Mr. Smrke of such amounts.
SECURITY OWNERSHIP
To the knowledge of the directors and officers of the Company, no person or
corporation beneficially owns, directly or indirectly, or exercises control or
direction over shares carrying more than 5% of the voting rights attached to the
Company's common shares. The Company's class of common shares is the only class
of shares outstanding.
DESCRIPTION OF CREDIT FACILITY
Currently, the Company has a $28 million unsecured, revolving term credit
facility (the "Credit Facility") with The Bank of Nova Scotia ("BNS"). As of
August 27, 1996, the Company had outstanding under the Credit Facility letters
of credit in the aggregate amount of $1,940,000. The Credit Facility was
established for the Company's general corporate purposes, matures on February
14, 1997 and is renewable annually at the discretion of BNS. At the Company's
option, loans under the Credit Facility will bear interest at either the
lender's prime rate ("Prime Rate Loans"), the lender's base rate ("Base Rate
Loans") or the lender's reserve adjusted LIBOR rate ("LIBOR Loans"), plus the
applicable margin. The applicable margin for Base Rate Loans and LIBOR Loans is
1/2% and 3/4%, respectively. No margins are applicable to Prime Rate Loans.
The Credit Facility requires the Company to meet certain financial tests
which, among other things, limit the incurrence of additional indebtedness. The
Credit Facility contains customary representations, warranties, covenants and
events of default, including payment defaults, incorrectness of representations
and warranties, covenant defaults, cross-defaults to certain other indebtedness
and certain events relating to bankruptcy and insolvency.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under the same Indenture, dated as of
August 12, 1996, by and among the Company, the Guarantor and Mellon Bank,
F.S.B., as Trustee (the "Trustee"), under which the Notes were issued. The
following summary of certain provisions of the Indenture, the Exchange Notes and
the Guarantee does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the United States Trust Indenture Act
of 1939, as amended, (the "TIA") and to all of the provisions of the Indenture
(a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part, and is incorporated by reference herein), including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. The
definitions of certain capitalized terms used in the following summary are set
forth under "-- Certain Definitions."
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of US$1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the Exchange Notes. The Company will pay principal (and premium, if any) on the
Exchange Notes at the Trustee's corporate office in New York, New York. At the
Company's option, interest may be paid at the Trustee's corporate trust office
or by check mailed to the registered addresses of holders.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be general unsecured obligations of the Company
limited in aggregate principal amount to US$175,000,000 and will mature on
August 15, 2006. Interest on the Exchange Notes will accrue at the rate per
annum set forth on the cover page of this Prospectus and will be payable
semi-annually on each of February 15 and August 15 in each year commencing on
February 15, 1997, to the persons who are registered holders thereof at the
close of business on the February 1 and August 1 immediately preceding the
applicable interest payment date. Interest on the Exchange Notes will accrue
from and including the most recent date to which interest has been paid or, if
no interest has been paid, from and including the Issue Date. The Company will
pay interest on overdue principal and on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of 2% per annum in excess of the rate shown on the cover page of this
Prospectus. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after August 15, 2001, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on August 15 of the year
set forth below, plus, in each case, accrued interest thereon to the date of
redemption:
YEAR PERCENTAGE
-------------------------------------------------------------------------- ----------
2001...................................................................... 105.500%
2002...................................................................... 103.667%
2003...................................................................... 101.833%
2004 and thereafter....................................................... 100.000%
Notwithstanding the foregoing, at any time prior to August 15, 1999, the
Company may redeem up to 35% of the aggregate principal amount of the Notes and
the Exchange Notes with the net proceeds from one or more Public Equity
Offerings of the Company at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the twelve-month period
commencing on August 15 of the year set forth below, plus, in each case, accrued
interest thereon to the date of redemption:
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YEAR PERCENTAGE
-------------------------------------------------------------------------- ----------
1996...................................................................... 111.000%
1997...................................................................... 109.778%
1998...................................................................... 108.556%
Any such redemption must occur on or prior to 120 days after the receipt of
such net proceeds.
In addition, the Notes and the Exchange Notes are redeemable, as a whole
but not in part, at the option of the Company at any time upon not less than 30
nor more than 60 days' notice at a redemption price equal to 100% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest thereon
to the date of redemption, if the Company has become or would become obligated
to pay, on the next date on which any amount would be payable under or with
respect to the Notes or Exchange Notes, any additional amounts ("Additional
Amounts") as a result of any change in, or amendment to, the laws (or any
regulations promulgated thereunder) of Canada (or any political subdivision or
taxing authority thereof or therein), or any change in, or amendment to, any
official position regarding the application or interpretation of such laws or
regulations, which change or amendment is announced or becomes effective on or
after August 5, 1996.
ADDITIONAL AMOUNTS
The Indenture provides that if the Company is required to make any
withholding or deduction for or on account of any Canadian taxes from any
payment made under or with respect to the Exchange Notes, the Company will pay
such Additional Amounts as may be necessary so that the net amount received by
each holder of the Exchange Notes (including Additional Amounts) will not be
less than the amount such holder would have received had such Canadian taxes not
been withheld or deducted; provided that no Additional Amounts will be payable
with respect to a payment made to a holder (an "Excluded Holder") (i) with which
the Company does not deal at arm's length (within the meaning of the Income Tax
Act (Canada)) at the time of making such payment, or (ii) which is subject to
such Canadian taxes by reason of its being connected with Canada otherwise than
by the mere holding of the Exchange Notes or the receipt of payments thereunder.
The Company will also (i) make such withholding or deduction and (ii) remit
the full amount deducted or withheld to the relevant authority in accordance
with applicable law. The Company will furnish, within 30 days after the date the
payment of any Canadian taxes is due pursuant to applicable law, to the holders
of Exchange Notes that are outstanding on the date of the withholding or
deduction copies of tax receipts evidencing that such payment has been made by
the Company. The Company will indemnify and hold harmless each holder of
Exchange Notes that are outstanding on the date of the withholding or deduction
(other than an Excluded Holder) and upon written request reimburse each such
holder for the amount of (i) any Canadian taxes so levied or imposed and paid by
such holder as a result of payments made under or with respect to the Exchange
Notes, (ii) any liability (including penalties, interest and expense) arising
therefrom or with respect thereto, and (iii) any Canadian taxes imposed with
respect to any reimbursement under clause (i) or (ii) above.
At least 30 days prior to each date on which any payment under or with
respect to the Exchange Notes is due and payable, if the Company becomes
obligated to pay Additional Amounts with respect to such payment, the Company
will deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable, and the amounts so payable and will set
forth such other information as is necessary to enable the Trustee to pay such
Additional Amounts to the holders of Exchange Notes on the payment date.
Whenever in the Indenture there is mentioned, in any context, (a) the payment of
principal (and premium, if any), (b) purchase prices in connection with a
repurchase of Exchange Notes, (c) interest, or (d) any other amount payable on
or with respect to any of the Exchange Notes, such mention shall be deemed to
include mention of the payment of Additional Amounts provided for in this
section to the extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof.
For a discussion of the exemption from Canadian withholding taxes
applicable to payments under or with respect to the Exchange Notes, see "Certain
Income Tax Considerations -- Certain Canadian Federal Income Tax
Considerations." If, as a result of a change to Canadian withholding tax laws,
the Company has
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become or would become obligated to pay, on the next date on which any amount
would be payable under or with respect to the Notes or the Exchange Notes, any
Additional Amounts, the Company may redeem all, but not less than all, the Notes
and the Exchange Notes at a redemption price equal to 100% of the aggregate
principal amount so redeemed, plus accrued and unpaid interest thereon to the
date of redemption. See "-- Optional Redemption."
SINKING FUND
There will be no mandatory sinking fund payments for the Exchange Notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Exchange Notes are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed or, if such Exchange
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Exchange Notes of a principal amount of US$1,000 or
less shall be redeemed in part. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each holder of Exchange Notes to be redeemed at its registered address.
If any Exchange Note is to be redeemed in part only, the notice of redemption
that relates to such Exchange Note shall state the portion of the principal
amount thereof to be redeemed. A new Exchange Note in a principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Exchange Note. On and after the
redemption date, interest will cease to accrue on Exchange Notes or portions
thereof called for redemption.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the
Exchange Notes will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the Issue Date or thereafter incurred, including, without
limitation, any interest accruing subsequent to a bankruptcy or other similar
proceeding whether or not such interest is an allowed claim enforceable against
the Company in a bankruptcy case under applicable law.
Upon any distribution of assets of the Company of any kind or character,
whether in cash, property or securities upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company (including, without
limitation, in bankruptcy, insolvency, or receivership proceedings or upon any
assignment for the benefit of creditors or any other marshalling of the
Company's assets and liabilities), the holders of Senior Indebtedness shall
first be entitled to receive payment in full of all amounts payable under Senior
Indebtedness (including, without limitation, interest after the commencement of
any such proceeding at the rate specified in the applicable Senior Indebtedness
whether or not interest is an allowed claim enforceable against the Company in
any such proceeding) before the holders will be entitled to receive any payment
with respect to the Exchange Notes, and until all Obligations with respect to
Senior Indebtedness are paid in full, any distribution to which the holders
would be entitled shall be made to the holders of Senior Indebtedness.
No direct or indirect payment by or on behalf of the Company of principal
of, premium, if any, or interest on, the Exchange Notes whether pursuant to the
terms of the Exchange Notes or upon acceleration or otherwise shall be made if,
at the time of such payment, there exists a default in the payment of all or any
portion of principal of, premium, if any, or interest on, any Senior
Indebtedness with a principal amount in excess of US$5.0 million (and the
Trustee has received written notice thereof), and such default shall not have
been cured or waived or the benefits of this sentence waived by or on behalf of
the holders of Senior Indebtedness. In addition, during the continuance of any
other event of default with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated, upon the occurrence
of (a) receipt by the Trustee of written notice from the holders of a majority
of the outstanding principal amount of the Designated Senior Indebtedness or
their representative, or (b) if such event of default results from the
acceleration of the Exchange Notes, the date of such acceleration, no such
payment may be made by the
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Company upon or in respect of the Exchange Notes for a period ("Payment Blockage
Period") commencing on the earlier of the date of receipt of such notice or the
date of such acceleration and ending 179 days thereafter (unless such Payment
Blockage Period shall be terminated by written notice to the Trustee from the
holders of a majority of the outstanding principal amount of such Designated
Senior Indebtedness or their representative who delivered such notice).
Notwithstanding anything herein to the contrary, in no event will a Payment
Blockage Period extend beyond 179 days from the date on which such Payment
Blockage Period was commenced. Not more than one Payment Blockage Period may be
commenced with respect to the Exchange Notes during any period of 360
consecutive days. For all purposes of this paragraph, no event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by the holders of such
Designated Senior Indebtedness or their representative whether or not within a
period of 360 consecutive days unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or the
holders of the Exchange Notes or any Paying Agent (or, if the Company is acting
as its own Paying Agent, money for any such payment or distribution shall be
segregated or held in trust) on account of principal of, premium, if any, or
interest on, the Exchange Notes before all Senior Indebtedness is paid in full,
such payment or distribution shall be received and held in trust by the Trustee
or such holder or Paying Agent for the benefit of the holders of the Senior
Indebtedness, or their respective representative, ratably according to the
respective amounts of Senior Indebtedness held or represented by each, and shall
be paid over or delivered to the holders of the Senior Indebtedness remaining
unpaid to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid after giving effect to all concurrent payments and
distributions to or for the holders of such Senior Indebtedness.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of the Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Indebtedness or
trade creditors. The Indenture limits, subject to certain financial tests, the
amount of additional Indebtedness, including Senior Indebtedness, that the
Company and its Subsidiaries can incur. See "-- Certain Covenants -- Limitation
on Indebtedness."
SUBSIDIARY GUARANTEE
Each Guarantor unconditionally guarantees, jointly and severally, on a
senior subordinated basis to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Exchange
Notes, including the payment of principal of, and interest on, the Exchange
Notes. As of the date of this Prospectus, there is a single Guarantor, Kemess
Mines Inc., a wholly owned subsidiary of the Company. The obligations of each
Guarantor are limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in a pro rata amount, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a wholly owned Restricted Subsidiary of the
Company without limitation, or with other Persons upon the terms and conditions
set forth in the Indenture. See "-- Certain Covenants -- Mergers, Consolidations
and Sale of Assets." In the event all of the capital stock of a Guarantor is
sold by the Company and the sale complies with the provisions set forth in "--
Certain Covenants -- Limitation on Sale of Assets," the Guarantor's Guarantee
will be released.
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Separate financial statements of the Guarantor are not included herein
because the aggregate net assets, earnings and equity of the Guarantor and the
Company are substantially equivalent to the net assets, earnings and equity of
the Company on a consolidated basis.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control
Triggering Event, the Company will be required to offer to repurchase (the
"Change of Control Offer") all of the outstanding Notes and Exchange Notes
pursuant to the offer described below, at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase.
Within 30 days following the date upon which the Change of Control
Triggering Event occurred, the Company must send, by first class mail, a notice
to each holder of Exchange Notes, with a copy to the Trustee, which notice shall
govern the terms of the Change of Control Offer. Such notice will state, among
other things, the purchase date, which must be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be required
by law (the "Change of Control Payment Date"). The Change of Control Offer is
required to remain open for at least 20 Business Days and until the close of
business on the Change of Control Payment Date.
A Change of Control Triggering Event requires both the occurrence of a
Change of Control and a Rating Event. A Rating Event will occur if the rating on
the Notes or Exchange Notes is downgraded by one or more Gradations at any time
within a specified 90-day period (subject to extension under certain
circumstances). See "-- Certain Definitions -- Change of Control," "-- Certain
Definitions -- Change of Control Triggering Event" and "-- Certain Definitions
- -- Rating Event."
If a Change of Control Triggering Event were to occur, there can be no
assurance that the Company would have sufficient funds to pay the repurchase
price for all Notes and Exchange Notes that the Company is required to
repurchase. In the event that the Company were required to repurchase
outstanding Notes and Exchange Notes pursuant to a Change of Control Offer, the
Company expects that it would need to seek third-party financing to the extent
it does not have available funds to meet its repurchase obligations. However,
there can be no assurance that the Company would be able to obtain such
financing.
If an offer is made to repurchase the Notes and Exchange Notes pursuant to
a Change of Control Offer, the Company will comply with all tender offer rules
under state and Federal securities laws, including, but not limited to, Section
14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable
to such offer.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Indebtedness. (a) The Indenture provides that neither the
Company nor any of its Restricted Subsidiaries will, directly or indirectly,
Incur any Indebtedness, including, without limitation, any Acquired Indebtedness
(other than Permitted Indebtedness).
(b) Notwithstanding the foregoing limitations, in addition to Permitted
Indebtedness, the Company may Incur Indebtedness (including, without limitation,
Acquired Indebtedness) and Restricted Subsidiaries of the Company may Incur
Acquired Indebtedness, in each case, if (i) no Default or Event of Default shall
have occurred and be continuing on the date of the proposed Incurrence thereof
or would result as a consequence of such proposed Incurrence and (ii)
immediately after giving effect to such proposed Incurrence, (x) the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.0
to 1.0 if such proposed Incurrence is on or prior to December 31, 1998, at least
equal to 2.5 to 1.0 if such proposed Incurrence is after December 31, 1998 and
on or prior to December 31, 1999, and at least equal to 2.75 to 1.0 if such
proposed Incurrence occurs after December 31, 1999 and (y) the Adjusted
Consolidated Net Tangible Assets of the Company are at least equal to 150% of
the aggregate consolidated Indebtedness of the Company.
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(c) The Company will not, directly or indirectly, in any event Incur any
Indebtedness which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated to any other Indebtedness of the Company ranking
pari passu with the Notes or the Exchange Notes unless such Indebtedness is also
by its terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate to the Notes and the Exchange Notes to the same extent and
in the same manner as such Indebtedness is subordinated to such pari passu
Indebtedness pursuant to the subordination provisions that are most favorable to
the holders of any such pari passu Indebtedness of the Company.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Exchange Notes, the Indenture
and the Guarantee;
(ii) Commodity Agreements of the Company; provided, however, that such
Commodity Agreements are entered into to reduce the exposure of the Company
and its Restricted Subsidiaries to fluctuations in the prices of
commodities, in each case consistent with past practice of the Company;
(iii) Interest Swap Obligations and Foreign Exchange Obligations of
the Company; provided, however, that such Interest Swap Obligations and
Foreign Exchange Obligations are entered into to protect the Company and
its Restricted Subsidiaries from fluctuations in interest or exchange rates
on Indebtedness Incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligation or Foreign
Exchange Obligation does not exceed the principal amount of the
Indebtedness to which such Obligation relates; and provided, further, that
the Company may enter into Foreign Exchange Obligations to protect the
Company and its Restricted Subsidiaries from fluctuations in exchange rates
related to the operating costs of the Company and its Restricted
Subsidiaries, in each case consistent with past practice of the Company;
(iv) Indebtedness under the Working Capital Facility not to exceed $28
million, less any amounts repaid from Net Cash Proceeds pursuant to the
"Limitation on Asset Sales" covenant;
(v) Capitalized Lease Obligations and Purchase Money Obligations of
the Company or any Restricted Subsidiary not to exceed US$20 million
outstanding at any one time;
(vi) additional Indebtedness Incurred by the Company not to exceed
US$25 million outstanding at any time;
(vii) Indebtedness of a direct or indirect Restricted Subsidiary of
the Company to the Company or to a direct or indirect wholly owned
Restricted Subsidiary of the Company for so long as such Indebtedness is
held by the Company or a direct or indirect wholly owned Restricted
Subsidiary of the Company in each case subject to no Lien held by a Person
other than the Company or a direct or indirect wholly owned Restricted
Subsidiary of the Company; provided that if as of any date any Person other
than the Company or a direct or indirect wholly owned Restricted Subsidiary
of the Company owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the Incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(viii) Indebtedness of the Company to a direct or indirect wholly
owned Restricted Subsidiary of the Company for so long as such Indebtedness
is held by a direct or indirect wholly owned Restricted Subsidiary of the
company in each case subject to no Lien; provided that (a) any Indebtedness
of the Company to any direct or indirect Restricted Subsidiary of the
Company is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Indenture and the Exchange Notes, and
(b) if as of any date any Person other than a direct or indirect wholly
owned Restricted Subsidiary of the Company owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the Incurrence of Indebtedness not constituting
Permitted Indebtedness under this clause (viii) by the issuer of such
Indebtedness;
(ix) guarantees by Restricted Subsidiaries of the Company of
Indebtedness of the Company (other than Permitted Indebtedness) Incurred on
or after the Issue Date; provided that such Indebtedness was Incurred in
compliance with the covenant " -- Limitation on Indebtedness"; and
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(x) Refinancing Indebtedness.
Limitation on Restricted Payments. The Indenture provides that neither the
Company nor any of its Restricted Subsidiaries will, directly or indirectly (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable solely in Qualified Capital Stock of the Company) on
shares of the Company's Capital Stock to holders of such Capital Stock, (b)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, or any warrants, rights or options to acquire shares of any class
of such Capital Stock, other than through the exchange therefor solely of
Qualified Capital Stock of the Company or warrants, rights or options to acquire
Qualified Capital Stock of the Company, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or the Exchange Notes or (d) make any
Investment (other than Permitted Investments) in any Person (each of the
foregoing prohibited actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such proposed
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default has occurred and is continuing or would result therefrom, or
(ii) the Company is not able to Incur at least US$1.00 of additional
Indebtedness in accordance with paragraph (b) of "-- Limitation on Indebtedness"
above (as if such Restricted Payment had been made as of the last day of the
Four Quarter Period), or (iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in good faith by the
board of directors of the Company) exceeds or would exceed the sum of: (x) 50%
of the cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) of the Company during the
period (treating such period as a single accounting period) subsequent to the
Issue Date and prior to the date of the making of such Restricted Payment; and
(y) 100% of the aggregate Net Equity Proceeds received by the Company from any
Person (other than from a Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date of Qualified Capital Stock of the Company
(excluding (A) any Qualified Capital Stock of the Company paid as a dividend on
any Capital Stock of the Company and (B) any Qualified Capital Stock of the
Company with respect to which the purchase price thereof has been financed
directly or indirectly using funds (i) borrowed from the Company or from any of
its Subsidiaries, unless and until and to the extent such borrowing is repaid,
or (ii) contributed, extended, guaranteed or advanced by the Company or by any
of its Subsidiaries (including, without limitation, in respect of any employee
stock ownership or benefit plan)).
Notwithstanding the foregoing, these provisions do not prohibit: (1) the
payment of any dividend or making of any distribution within 60 days after the
date of its declaration if the dividend or distribution would have been
permitted on the date of declaration; (2) the acquisition of Capital Stock of
the Company or warrants, rights or options to acquire Capital Stock of the
Company either (i) solely in exchange for shares of Qualified Capital Stock of
the Company or warrants, rights or options to acquire Qualified Capital Stock of
the Company, or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of shares
of Qualified Capital Stock of the Company or warrants, rights or options to
acquire Qualified Capital Stock of the Company; and (3) the acquisition of any
Indebtedness of the Company that is subordinate or junior in right of payment to
the Notes and the Exchange Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company, or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of (A) shares of Qualified Capital Stock of the Company or
warrants, rights or options to acquire Qualified Capital Stock of the Company or
(B) Refinancing Indebtedness; provided, however, that in the case of clauses (2)
and (3) of this paragraph, no Default or Event of Default shall have occurred
and be continuing at the time of such payment or as a result thereof. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date, amounts expended pursuant to clauses (1) and (2) shall, in each
case, be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment complies with the Indenture and setting forth in
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reasonable detail the basis upon which the required calculations were computed,
which calculations may be based upon the Company's latest available internal
quarterly financial statements.
Limitation on Sale of Assets. Neither the Company nor any of its
Restricted Subsidiaries will consummate any Asset Sale unless (i) such Asset
Sale is for at least fair market value, (ii) at least 85% of the consideration
therefrom received by the Company or such Restricted Subsidiary is in the form
of cash or Cash Equivalents, and (iii) the Company or such Subsidiary shall
apply the Net Cash Proceeds of such Asset Sale within 180 days of receipt
thereof as follows:
(a) to repay any Indebtedness secured by the assets involved in such
Asset Sale together with a concomitant permanent reduction in the amount of
such Indebtedness (including a permanent reduction in committed amounts
therefor in the case of any revolving credit facility so repaid); and
(b) with respect to any Net Cash Proceeds remaining after application
pursuant to the preceding paragraph (a) (the "Available Proceeds Amount"),
the Company shall make an offer to purchase (the "Asset Sale Offer") from
all holders of Notes and Exchange Notes up to a maximum principal amount
(expressed as an integral multiple of US$1,000) of Notes and Exchange Notes
equal to the Available Proceeds Amount at a purchase price equal to 100% of
the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of purchase; provided, that the Company will not be
required to apply pursuant to this paragraph (b) Net Cash Proceeds received
from any Asset Sale if, and only to the extent that, such Net Cash Proceeds
are (i) applied to or invested in Mining Related Assets, within 180 days of
such Asset Sale or (ii) applied on or prior to the date of such Asset Sale,
to the purchase, redemption, payment or other permanent reduction of then
outstanding Senior Indebtedness. If at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall
be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this "Limitation on Sale of
Assets" covenant. The Company may defer the Asset Sale Offer until there is
an aggregate unutilized Available Proceeds Amount equal to or in excess of
US$10 million resulting from one or more Asset Sales (at which time, the
entire unutilized Available Proceeds Amount, and not just the amount in
excess of US$10 million, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Mergers,
Consolidations and Sale of Assets," the successor corporation shall be deemed to
have sold the properties and assets of the Company and its Restricted
Subsidiaries not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale. In addition, the fair market value of such properties and
assets of the Company or its Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant.
Notice of an Asset Sale Offer will be mailed to the holders of Exchange
Notes as shown on the register of such holders not less than 30 days nor more
than 60 days before the payment date for the Asset Sale Offer, with a copy to
the Trustee, and shall comply with the procedures set forth in the Indenture.
Upon receiving notice of the Asset Sale Offer, such holders may elect to tender
their Exchange Notes in whole or in part in integral multiples of US$1,000
principal amount at maturity in exchange for cash. To the extent holders thereof
properly tender Exchange Notes and Notes in an amount exceeding the Available
Proceeds Amount, Exchange Notes and Notes of such tendering holders will be
repurchased on a pro rata basis (based on the aggregate amount tendered). An
Asset Sale Offer shall remain open for a period of 20 Business Days or such
longer periods as may be required by law.
Notwithstanding the foregoing, the Company shall not be obligated to
purchase Notes or Exchange Notes pursuant to an Asset Sale Offer on or prior to
the fifth anniversary of the Issue Date to the extent that such purchase would
result in the aggregate of the principal amount of Exchange Notes and Notes
purchased pursuant thereto or prior thereto being in excess of 25% of the
principal amount of Notes originally issued; provided, however, that to the
extent that the Available Proceeds Amount is not required to be applied to
purchase Exchange Notes or Notes pursuant to an Asset Sale Offer, the Company
shall apply such proceeds
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to make an Asset Sale Offer immediately after the fifth anniversary of the Issue
Date. The Company has no present intention to trigger an Asset Sale Offer on or
prior to the fifth anniversary of the Issue Date which would result in a
purchase of the aggregate of the principal amount of Exchange Notes and Notes
purchased pursuant thereto or prior thereto being in excess of 25% of the
principal amount of Notes originally issued.
If an offer is made to repurchase the Exchange Notes or Notes pursuant to
an Asset Sale Offer, the Company will and will cause its Subsidiaries to comply
with all tender offer rules under state and federal securities laws, including,
but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1
thereunder, to the extent applicable to such offer.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, create or otherwise cause
or permit or suffer to exist or become effective any encumbrance or restriction
on the ability of any Restricted Subsidiary to (a) pay dividends or make any
other distributions on its Capital Stock; (b) make loans or advances or pay any
Indebtedness or other obligation owed to the Company or to any Restricted
Subsidiary of the Company; or (c) transfer any of its property or assets to the
Company or to any Restricted Subsidiary of the Company (each such encumbrance or
restriction in clause (a), (b), or (c) a "Payment Restriction"), except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Indenture; (3) customary non-assignment provisions of any lease
governing a leasehold interest of any Restricted Subsidiary of the Company; (4)
any instrument governing Acquired Indebtedness Incurred in accordance with
paragraph (b) of the covenant "-- Limitation on Indebtedness," provided that
such encumbrance or restriction is not, and will not be, applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or asset of the Person, becoming a Restricted Subsidiary of the
Company; (5) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (6) restrictions imposed
by Liens granted pursuant to clauses (v) and (vii) - (ix) of the definition of
Permitted Liens solely to the extent such Liens encumber the transfer or other
disposition of the assets subject to such Liens; (7) any restriction or
encumbrance contained in contracts for the sale of assets to be consummated in
accordance with the Indenture solely in respect of the assets to be sold
pursuant to such contract; or (8) any encumbrance or restriction contained in
Refinancing Indebtedness Incurred to Refinance the Indebtedness issued, assumed
or Incurred pursuant to an agreement referred to in clause (2), (4) or (5)
above; provided that the provisions relating to such encumbrance or restriction
contained in any such Refinancing Indebtedness are no less favorable to the
Company or to the holders of Exchange Notes and Notes in any material respect in
the reasonable and good faith judgment of the board of directors of the Company
than the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Restricted Subsidiaries. The Indenture
provides that the Company will not cause or permit any of its Restricted
Subsidiaries to issue any Preferred Stock (other than to the Company or to a
wholly owned Restricted Subsidiary of the Company) or permit any Person (other
than the Company or a wholly owned Restricted Subsidiary of the Company) to own
or hold any Preferred Stock of any Restricted Subsidiary of the Company or any
Lien or security interest therein.
Limitation on Liens. The Indenture provides that the Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or permit or suffer to exist or remain in
effect any Liens (other than Permitted Liens) upon any properties or assets of
the Company or of any of its Restricted Subsidiaries whether owned on the Issue
Date or acquired after the Issue Date, or on any income or profits therefrom, or
assign or otherwise convey any right to receive income or profits thereon;
provided that in addition to creating Permitted Liens on its properties or
assets, (i) the Company may create any Lien upon any of its properties or assets
(including, but not limited to, any Capital Stock of its Subsidiaries) if the
Notes and the Exchange Notes are equally and ratably secured thereby, and (ii) a
Guarantor may create any Lien upon any of its properties or assets (including,
but not limited to, any Capital Stock of its Subsidiaries) if its Subsidiary
Guarantee is equally and ratably secured thereby; and provided, further, that if
(a) the Company creates any Lien on its assets to secure any Indebtedness of the
Company subordinated to the Notes and the Exchange Notes, the Lien securing such
Indebtedness shall be subordinated and junior to the Lien securing the Notes and
the Exchange Notes with the same or lesser
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priorities as the subordinated Indebtedness shall have with respect to the Notes
and the Exchange Notes, and (b) a Guarantor creates any Lien on its assets to
secure any Indebtedness of such Guarantor subordinated to the Notes and the
Exchange Notes, the Lien securing such subordinated Indebtedness shall be
subordinated and junior to the Lien securing the Guarantee of such Guarantor
with the same or lesser priorities as the subordinated Indebtedness shall have
with respect to the Guarantee.
Mergers, Consolidations and Sale of Assets. The Indenture provides that the
Company will not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person, or sell, assign, transfer, lease,
convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of
the Company to sell, assign, transfer, lease, convey or otherwise dispose of)
all or substantially all of the Company's assets (determined on a consolidated
basis for the Company and the Company's Restricted Subsidiaries) whether as an
entirety or substantially as an entirety to any Person unless: (i) either (1)
the Company shall be the surviving or continuing corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and of the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia or Canada or any province thereof and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
Exchange Notes and the performance of every covenant of the Notes and the
Exchange Notes, the Indenture and the Registration Rights Agreement on the part
of the Company to be performed or observed; (ii) immediately after giving effect
to such transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness Incurred
or anticipated to be Incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to Incur at least US$1.00 of additional Indebtedness pursuant to paragraph
(b) of " -- Limitation on Indebtedness"; provided that in determining the
Consolidated Fixed Charge Coverage Ratio of the resulting, transferee or
surviving Person, such ratio shall be calculated as if the transaction
(including the Incurrence of any Indebtedness or Acquired Indebtedness) took
place on the first day of the Four Quarter Period; (iii) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness Incurred or anticipated to
be Incurred and any Lien granted in connection with or in respect of the
transaction), no Default and no Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied, which Opinion of Counsel may
rely, as to factual matters, upon an Officer's Certificate.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, lease or
transfer is made will succeed to, and be substituted for, and may exercise every
right and power of, the Company under the Indenture with the same effect as if
such successor had been named as the Company therein, and thereafter (except in
the case of a sale, assignment, transfer, lease, conveyance or other
disposition) the predecessor corporation will be relieved of all further
obligations and covenants under the Indenture, the Notes and the Exchange Notes.
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Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of " -- Limitation on Sale of
Assets") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantors unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor), or to which sale, lease,
conveyance or other disposition shall have been made, is a corporation organized
and existing under the laws of the United States, any state thereof or the
District of Columbia, or under the laws of Canada or any province thereof; (ii)
such entity assumes by supplemental indenture all of the obligations of the
Guarantor on the Guarantee; (iii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (ii) of the first paragraph of this covenant.
Any merger or consolidation of a Guarantor with and into the Company (with the
Company being the surviving entity) or another Guarantor that is a wholly owned
Restricted Subsidiary of the Company need only comply with clause (iv) of the
first paragraph of this covenant.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any Subsidiary of the Company will conduct any business
or enter into any transaction or series of transactions with or for the benefit
of any of their Affiliates (each an "Affiliate Transaction"), except in good
faith and on terms that are no less favorable to the Company or such Subsidiary,
as the case may be, than those that could have been obtained in a comparable
transaction on an arm's-length basis from a Person not an Affiliate of the
Company or such Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other property with a fair market value in
excess of US$5 million shall be approved by the board of directors of the
Company, such approval to be evidenced by a Board Resolution stating that such
board of directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than US$15 million, the Company or such Subsidiary shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to customary directors' fees, indemnification and similar
arrangements.
Additional Subsidiary Guarantees. The Indenture provides that in the event
that any Subsidiary, directly or indirectly, guarantees any Indebtedness of the
Company other than the Notes or the Exchange Notes (the "Other Indebtedness")
the Company shall cause such Subsidiary (an "Additional Guarantor") to
concurrently guarantee (an "Additional Guarantee") the Company's Obligations
under the Indenture, the Notes and the Exchange Notes to the same extent that
such Subsidiary guaranteed the Company's Obligations under the Other
Indebtedness (including waiver of subrogation, if any); provided that if such
Other Indebtedness is (i) Senior Indebtedness, the Additional Guarantee shall be
subordinated in right of payment to the guarantee of such Other Indebtedness on
the same basis that the Notes and the Exchange Notes are subordinated to such
Other Indebtedness, (ii) pari passu Indebtedness, the Additional Guarantee shall
be pari passu in right of payment to the guarantee of such Other Indebtedness or
(iii) subordinated Indebtedness, the Additional Guarantee shall be senior in
right of payment with respect to the guarantee of the Other Indebtedness,
provided, however, that each Additional Guarantor will be automatically and
unconditionally released and discharged from its obligations under such
Additional Guarantee upon the release or discharge of the guarantee of the Other
Indebtedness that resulted in the creation of such Additional Guarantee, except
(i) a discharge or release by, or as a result of, any payment under the
guarantee of such Other Indebtedness by such Additional Guarantor or (ii) a
discharge or release of an initial Guarantee.
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Limitation on Conduct of Business. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, engage in
the conduct of any business other than the Mining Business on a basis congruent
with the conduct of such business as conducted on the Issue Date.
Senior Subordinated Indebtedness. The Company shall not incur or suffer to
exist any Indebtedness that is senior in right of payment to the Exchange Notes
and subordinate in right of payment to any other Indebtedness of the Company.
Reports to Holders. The Company will file with the Commission all
information, documents and reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company
is then subject to such filing requirements. The Company will file with the
Trustee, within 15 days after it files them with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Regardless of whether the Company is
required to furnish such reports to its stockholders pursuant to the Exchange
Act, the Company will cause its consolidated financial statements, comparable to
that which would have been required to appear in annual or quarterly reports, to
be delivered to the Trustee and the holders of the Exchange Notes. The Company
will also make such reports available to prospective investors, securities
analysts and broker-dealers upon their request. In addition, the Indenture
requires that the Company provide on request to any holder of the Exchange Notes
any information reasonably requested concerning the Company necessary to permit
such holder to sell or transfer Exchange Notes in compliance with Rule 144A
under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Note or Exchange Note for a
period of 30 days or more after such interest becomes due and payable; or
(ii) the failure to pay the principal on any Note or Exchange Note,
when such principal becomes due and payable, at maturity, upon redemption,
pursuant to an Asset Sale Offer or a Change of Control Offer or otherwise;
or
(iii) (x) the failure of the Company or any Guarantor to comply with
any of the terms or provisions described under "-- Certain Covenants --
Mergers, Consolidations and Sale of Assets" or (y) a default in the
observance or performance of any other covenant or agreement contained in
the Indenture which default continues for a period of 30 days after the
Company receives written notice specifying the default from the Trustee or
from Holders of at least 25% in aggregate principal amount of outstanding
Notes and Exchange Notes; or
(iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary of the Company
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary of the Company) which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness after any
applicable grace period provided in such Indebtedness on the date of such
default (a "payment default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates US$10 million; or
(v) one or more judgments in an aggregate amount in excess of US$10
million (which are not covered by third-party insurance as to which a
financially sound insurer has not disclaimed coverage) being rendered
against the Company or any of its Subsidiaries and such judgments remain
undischarged, or unstayed or unsatisfied for a period of 60 days after such
judgment or judgments become final and non-appealable; or
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(vi) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any of its Restricted Subsidiaries; or
(vii) any of the Guarantees cease to be in full force and effect or
any of the Guarantees are declared to be null and void and unenforceable or
any of the Guarantees are found to be invalid or any of the Guarantors
denies its liability under its Guarantee (other than by reason of release
of a Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) occurs and is continuing, then and in
every such case the Trustee or the holders of not less than 25% in aggregate
principal amount of the then outstanding Notes and Exchange Notes may declare
the unpaid principal of, premium, if any, and accrued and unpaid interest on,
all the Notes and Exchange Notes then outstanding to be due and payable, by a
notice in writing to the Company (and to the Trustee, if given by such holders)
and upon such declaration such principal amount, premium, if any, and accrued
and unpaid interest will become immediately due and payable. If an Event of
Default with respect to the Company specified in clause (vi) above occurs, all
unpaid principal of, and premium, if any, and accrued and unpaid interest on,
the Notes and Exchange Notes then outstanding will ipso facto become due and
payable without any declaration or other act on the part of the Trustee or any
such holder.
The holders of a majority in aggregate principal amount of the Notes and
Exchange Notes then outstanding by notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default (other than
the nonpayment of principal of and premium, if any, and interest on the Notes
and Exchange Notes which has become due solely by virtue of such acceleration)
have been cured or waived and if the rescission would not conflict with any
judgment or decree. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
The holders of a majority in aggregate principal amount of the Notes and
Exchange Notes may waive any existing Default or Event of Default under the
Indenture, and its consequences, except a Default in the payment of the
principal of or interest on any Notes or Exchange Notes or a Default in respect
of any term or provision of the Notes or Exchange Notes or the Indenture that
cannot be modified or amended without the consent of all holders.
Holders of the Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the holders of the
Exchange Notes, unless such holders have offered to the Trustee reasonable
indemnity. Subject to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the then outstanding
Notes and Exchange Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have the obligations of the Company and the Guarantors discharged in
accordance with the provisions set forth below with respect to the Exchange
Notes then outstanding. Such defeasance means that the Company shall be deemed
to have paid and discharged the entire indebtedness represented by such
outstanding Exchange Notes and the Company and the Guarantors shall be deemed to
have satisfied all their respective other obligations under the Exchange Notes,
the Guarantees and the Indenture, except for (i) the rights of holders of such
outstanding Exchange Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Exchange Notes when such payments are due,
(ii) the Company's and the Guarantors' respective obligations
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with respect to the Exchange Notes concerning issuing temporary Exchange Notes,
registration of Exchange Notes, mutilated, destroyed, lost or stolen Exchange
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
respective obligations of the Company and the Guarantors released with respect
to certain covenants in the Indenture ("covenant defeasance"), and any omission
to comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Exchange Notes. In order to exercise either
defeasance or covenant defeasance, (i) the Company must irrevocably deposit with
the Trustee, in trust, for the benefit of the holders of the Notes and Exchange
Notes, cash in U.S. dollars, U.S. Government Obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on such outstanding Notes and Exchange Notes on
the stated maturity of such principal and each installment of interest; (ii) in
the case of defeasance, the Company shall have delivered to the Trustee an
opinion of counsel stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding Notes and Exchange Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (iii) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that the holders of the outstanding Notes and Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit; (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, the Indenture or any other material agreement or
instrument to which the Company is a party or by default under, the Indenture or
any other material agreement or instrument to which the Company is a party or by
which it is bound; (vi) in the case of defeasance or covenant defeasance, the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that, assuming no intervening bankruptcy of the Company between the date of
deposit and the 91st day following the deposit, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar law affecting creditors'
rights generally and that such defeasance or covenant defeasance will not result
in the Trustee or the trust arising from such deposit constituting an Investment
Company as defined in the Investment Company Act of 1940, as amended; and (vii)
the Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
holders of the Notes or Exchange Notes, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, so
long as such change does not, in the opinion of the Trustee, adversely affect
the rights of any of such holders. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an Opinion of Counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the holders of a majority in aggregate principal amount of the then outstanding
Notes and Exchange Notes issued under the Indenture, except that, without the
consent of each holder of Notes or Exchange Notes affected thereby, no amendment
may, directly or indirectly: (i) reduce the amount of Notes or Exchange Notes
whose Holders must consent to an amendment; (ii) reduce the rate of or change
the time for payment of interest, including defaulted interest, on any Notes or
Exchange Notes; (iii) reduce the principal of or change the fixed maturity of
any Notes or Exchange Notes, or change the date on which any Notes or Exchange
Notes may be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor; (iv) make any Notes or Exchange Notes
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payable in money other than that stated in such Notes or Exchange Notes; (v)
make any change in provisions of the Indenture protecting the right of each
holder of Notes or Exchange Notes to receive payment of principal of and
interest on such Notes or Exchange Notes on or after the due date thereof or to
bring suit to enforce such payment, or permitting holders of a majority in
aggregate principal amount of the Notes and Exchange Notes to waive Defaults or
Events of Default; (vi) amend, modify or change the obligation of the Company to
make or consummate a Change of Control Offer, an Asset Sale Offer or waive any
default in the performance thereof or modify any of the provisions or
definitions with respect to any such offers; (vii) adversely affect the ranking
of the Notes, Exchange Notes or the corresponding Guarantees; or (viii) release
any Guarantor from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Exchange Notes will be governed by,
and construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person s own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of its Subsidiaries existing at the time such other Person becomes a
Restricted Subsidiary of such Person or at the time it merges or consolidates
with such Person or any of such Person's Restricted Subsidiaries or is assumed
by such Person or any Restricted Subsidiary of such Person in connection with
the acquisition of assets from such other Person and in each case not Incurred
by such Person or any Restricted Subsidiary of such Person or such other Person
in connection with, or in anticipation or contemplation of, such other Person
becoming a Restricted Subsidiary of such Person or such acquisition, merger or
consolidation, and which Indebtedness is without recourse to the Company or any
of its Restricted Subsidiaries or to any of their respective properties or
assets other than the Person or the assets to which such Indebtedness related
prior to the time such Person becomes a Restricted Subsidiary of the Company or
the time of such acquisition, merger or consolidation.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
consolidated assets of the Company and its Restricted Subsidiaries (net of
applicable depletion, depreciation, amortization and other valuation reserves),
except to the extent resulting from write-ups of capital assets (excluding
write-ups in connection with accounting for acquisitions in conformity with
GAAP), after deducting therefrom (i) all current liabilities of the Company and
its Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recently
available quarterly or annual consolidated balance sheet of the Company and its
Restricted Subsidiaries, prepared in conformity with GAAP.
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"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For the purposes of this definition, "control"
when used with respect to any specified Person means the power to direct or
cause the direction of management or policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth in "-- Certain Covenants
- -- Limitation on Transactions with Affiliates."
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
with or into the Company or any Restricted Subsidiary of the Company or (ii) the
acquisition by the Company or any Restricted Subsidiary of the Company of assets
of any Person comprising a division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value by the Company or by any
of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than to the Company or to a direct or indirect wholly owned
Restricted Subsidiary of the Company of (i) any Capital Stock of any Restricted
Subsidiary of the Company or (ii) any other property or assets of the Company or
of any Restricted Subsidiary of the Company, other than with respect to this
clause (ii) any disposition of mineral products for value in the ordinary course
of business.
"Asset Sale Offer" has the meaning set forth in "-- Certain Covenants --
Limitation on Sale of Assets."
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the board of directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the City of New York are required or authorized
by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease that are required to be
classified and accounted for as capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall be
the capitalized amount of such obligations at such date, determined in
accordance with GAAP. The stated maturity of such obligations shall be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or Canadian
Government or issued by any agency thereof and backed by the full faith and
credit of the United States or Canada, in each case maturing within one year
from the date of acquisition thereof; (ii) marketable direct obligations issued
by any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof or any province of Canada or
any political subdivision of any such province or any public instrumentality
thereof maturing within one year from the date of acquisition thereof and, at
the time of acquisition, having one of the two highest ratings obtainable from
either S&P or Moody's; (iii) commercial paper maturing no more than one year
from the date of creation thereof and, at the time of acquisition, having a
rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates
of deposit or bankers' acceptances maturing within one year from the date of
acquisition thereof issued by any commercial bank organized under the laws of
the United States of America
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or any state thereof or the District of Columbia or Canada or any province
thereof or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than US$250 million; and (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the board of directors of the Company): (i)
the Company or any of its Restricted Subsidiaries, directly or indirectly,
sells, assigns, conveys, transfers, leases or otherwise disposes of, in one
transaction or a series of related transactions, all or substantially all of the
property or assets of the Company and its Restricted Subsidiaries (determined on
a consolidated basis) to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act other than the Company or a Person which is a
Restricted Subsidiary (a "Group of Persons"); or (ii) the adoption of any plan
of liquidation or dissolution of the Company; or (iii) any Person or Group of
Persons is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 30% or more of the Voting Stock of the
Company; or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors. See "Risk Factors --
Change of Control."
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Event.
"Commodity Agreement" of any Person means any option or futures contract
or similar agreement or arrangement.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income plus (ii) to the
extent that any of the following shall have been taken into account in
determining Consolidated Net Income, (A) all income taxes of such Person and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or non-recurring
gains or losses or taxes attributable to sales or dispositions of assets outside
the ordinary course of business), Consolidated Interest Expense, amortization
expense and depreciation expense, and (B) other non-cash items (other than
non-cash interest) reducing Consolidated Net Income, other than any non-cash
item which requires the accrual of or a reserve for cash charges for any future
period and other than any non-cash charge constituting an extraordinary item of
loss, less other non-cash items increasing Consolidated Net Income, all as
determined on a consolidated basis for such Person and its Restricted
Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction or event giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed
Charges of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect
on a pro forma basis for the period of such calculation to (i) the Incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any Incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
Incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, at any time
subsequent to the first day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including
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any Person who becomes a Restricted Subsidiary as a result of any such Asset
Acquisition) Incurring, assuming or otherwise being liable for Acquired
Indebtedness at any time subsequent to the first day of the Four Quarter Period
and on or prior to the Transaction Date, as if such Asset Sale or Asset
Acquisition (including the Incurrence, assumption or liability for any such
Indebtedness or Acquired Indebtedness) and also including any Consolidated
EBITDA associated with such Asset Acquisition) occurred on the first day of the
Four Quarter Period; provided that the Consolidated EBITDA of any Person
acquired shall be included only to the extent includable pursuant to the
definition of "Consolidated Net Income." If such Person or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third person,
the preceding sentence shall give effect to the Incurrence of such guaranteed
Indebtedness as if such Person or any Restricted Subsidiary of such Person had
directly Incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date (including Indebtedness actually Incurred on
the Transaction Date) and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; and (2)
notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Swap Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(including amortization or write-off of deferred financing costs of such Person
and its consolidated Restricted Subsidiaries during such period and any premium
or penalty paid in connection with redeeming or retiring Indebtedness of such
Person and its consolidated Restricted Subsidiaries prior to the stated maturity
thereof pursuant to the agreements governing such Indebtedness) and (ii) the
product of (x) the amount of all dividend payments on any series of Preferred
Stock of such Person (other than dividends paid in Common Stock) paid, accrued
or scheduled to be paid or accrued during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Restricted Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, and including (a) all
amortization of original issue discount; (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries during such period; (c)
net cash costs under all Interest Swap Obligations (including amortization of
fees); (d) all capitalized interest; and (e) the interest portion of any
deferred payment obligations for such period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or non-recurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a wholly
owned Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a
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transferee of the referent Person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, less
(without duplication) amounts attributable to Disqualified Capital Stock of such
Person.
"Continuing Director" means, as of the date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
election or nomination; provided, however, that in the event of a business
combination involving the Company, by merger or consolidation or otherwise, from
the time of effectiveness of such business combination until the next annual
general meeting of the shareholders of the surviving entity, Continuing
Directors shall only be directors of the Company not elected in anticipation of,
or in connection with, any such transaction who are also directors of the
surviving entity.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means Indebtedness constituting Senior
Indebtedness which, at the time of designation, has an aggregate principal
amount of at least US$25 million and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the final maturity date of the Exchange Notes.
"Events of Default" has the meaning set forth in "Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended or
any successor statute or statutes thereto.
"fair market value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair market value shall be determined by
the board of directors of the Company acting reasonably and in good faith and
shall be evidenced by a Board Resolution delivered to the Trustee; provided,
however, that if the aggregate non-cash consideration to be received by the
Company or any of its Restricted Subsidiaries from any Asset Sale could be
reasonably likely to exceed US$15 million the fair market value shall be
determined by an Independent Financial Advisor.
"Financial Advisor" means an accounting, appraisal or investment banking
firm of nationally recognized standing that is, in the reasonable and good faith
judgment of the board of directors of the Company, qualified to perform the task
for which such firm has been engaged.
"Foreign Exchange Obligations" means the obligations of any Person under
any foreign currency future, option, swap or cap or other foreign currency hedge
or arrangement.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
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"Gradation" means a gradation within a Rating Category, which shall be "+"
and "-", in the case of S&P's current Rating Categories (e.g., a decline from
BB+ to BB would constitute a decrease of one gradation); "1", "2" and "3", in
the case of Moody's current Rating Categories (e.g., a decline from B1 to B2
would constitute a decrease of one gradation); or the equivalent in respect of
successor Rating Categories of S&P or Moody's or Rating Categories used by
Rating Agencies other than S&P and Moody's.
"Guarantor" means (i) Kemess Mines Inc. and (ii) each of the Company's
Subsidiaries that in the future executes a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"Holder" or "Noteholder" means the Person in whose name a Note or
Exchange Note is registered on the Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the initial recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that (A) any Indebtedness
assumed in connection with an acquisition of assets and any Indebtedness of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) of the Company or at the
time such Person is merged or consolidated with the Company or any Restricted
Subsidiary of the Company shall be deemed to be Incurred at the time of the
acquisition of such assets or by such Restricted Subsidiary at the time it
becomes, or is merged or consolidated with, a Restricted Subsidiary of the
Company or by the Company at the time of such merger or consolidation, as the
case may be, and (B) any amendment, modification or waiver of any document
pursuant to which Indebtedness was previously Incurred shall be deemed to be an
Incurrence of Indebtedness unless such amendment, modification or waiver does
not (i) increase the principal or premium thereof or interest rate thereon
(including by way of original issue discount) or (ii) change to an earlier date
the stated maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under which such Indebtedness shall
be redeemed.
"Indebtedness" means, with respect to any Person, any liability of such
Person or such Person's Restricted Subsidiaries, without duplication, (i) for
borrowed money, (ii) evidenced by bonds, debentures, notes or other similar
instruments, (iii) for Capitalized Lease Obligations, (iv) issued or assumed as
the deferred purchase price of property, all conditional sale obligations and
under any title retention agreement (but excluding trade accounts payable and
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) for all Indebtedness of others (including all
dividends of other Persons for the payment of which is) guaranteed, directly or
indirectly, by such Person or its Restricted Subsidiaries or that is otherwise
its legal liability or which such Person or its Restricted Subsidiaries has
agreed to purchase or repurchase or in respect of which such Person or its
Restricted Subsidiaries has agreed contingently to supply or advance funds,
(vii) comprising net liabilities under Interest Swap Obligations and Commodity
Agreements, (viii) for all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on any asset or property (including, without limitation,
leasehold interests and any other tangible or intangible property) of such
Person or its Restricted Subsidiaries, whether or not such Indebtedness is
assumed by such Person or its Restricted Subsidiaries or is not otherwise such
Person's or its Restricted Subsidiaries' legal liability; provided that if the
Obligations so secured have not been assumed by such Person or its Restricted
Subsidiaries or are otherwise not such Person's or its Restricted Subsidiaries'
legal liability, the amount of such Indebtedness for the purposes of this
definition shall be limited to the lesser of the amount of such Indebtedness
secured by such Lien or the fair market value of the assets or property securing
such Lien, and (ix) all Disqualified Capital Stock issued by such Person with
the amount of Indebtedness represented by such Disqualified
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Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
accrued dividends if any. The amount of Indebtedness of any Person or its
Restricted Subsidiaries at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date; provided that the amount outstanding
at any time of any Indebtedness issued with original issue discount is the full
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.
"Independent" means, when used with respect to any specified Person, such
a Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries
and (c) is not an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions for the Company or any of its
Subsidiaries. Whenever it is provided in the Indenture that any Independent
Person's opinion or certificate shall be furnished to the Trustee, such Person
shall be appointed by the Company and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
thereof.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate option,
interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Investment" by any Person means any direct or indirect (i) loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property (valued at the fair market value thereof as of the date
of transfer) to others or payments for property or services for the account or
use of others, or otherwise); (ii) purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by any other Person; (iii) guarantee or assumption of any Indebtedness or any
other obligation of any other Person (except for an assumption of Indebtedness
for which the assuming Person receives consideration at the time of such
assumption in the form of property or assets with a fair market value at least
equal to the principal amount of the Indebtedness assumed); and (iv) all other
items that would be classified as investments (including, without limitation,
purchases of assets outside the ordinary course of business) on a balance sheet
of such Person prepared in accordance with GAAP. The amount of any Investment
shall not be adjusted for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Common
Stock of any direct or indirect Restricted Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Common Stock of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction other than to reflect ownership by a
third party of property leased to the referent Person or any of its Subsidiaries
under a lease that is not in the nature of a conditional sale or title retention
agreement).
"Mining Business" means (i) the acquisition, exploration, development,
operation and disposition of mineral interests, (ii) the gathering, marketing,
treating, processing, storage, selling and transporting of any production from
such interests and (iii) ancillary activities that are directly related to, and
necessary in connection with, the activities described in clauses (i) and (ii)
above.
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"Mining Related Assets Investment" means any Investment or capital
expenditure (but not including additions to working capital or repayments of any
revolving credit or working capital borrowings) by the Company or any Restricted
Subsidiary of the Company which is related to the business of the Company and
its Restricted Subsidiaries as it is conducted on the date of the Asset Sale
giving rise to the Net Cash Proceeds to be reinvested.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, brokerage, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable ((1)
including, without limitation, income taxes reasonably estimated to be actually
payable as a result of any disposition of property within two years of the date
of disposition and (2) after taking into account any reduction in tax liability
due to available tax credits or deductions and any tax sharing arrangements) and
(c) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds received
by the Company, after payment of expenses, commissions and the like (including,
without limitation, brokerage, legal, accounting and investment banking fees and
commissions) incurred in connection therewith, and (b) in the case of any
exchange, exercise, conversion or surrender of any outstanding Indebtedness of
the Company or any Restricted Subsidiary issued after the Issue Date for or into
shares of Qualified Capital Stock of the Company, the amount of such
Indebtedness (or, if such Indebtedness was issued at an amount less than the
stated principal amount thereof, the accrued amount thereof as determined in
accordance with GAAP) as reflected in the consolidated financial statements of
the Company prepared in accordance with GAAP as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder of such Indebtedness to the
Company or to any wholly owned Restricted Subsidiary of the Company upon such
exchange, exercise, conversion or surrender and less any and all payments made
to the holders of such Indebtedness, and all other expenses incurred by the
Company in connection therewith), in each case (a) and (b) to the extent
consummated after the Issue Date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two officers of the
Company.
"Opinion of Counsel" means a written opinion from legal counsel which and
who are acceptable to the Trustee.
"Paying Agent" shall initially be Mellon Securities Trust Co., a New York
chartered trust company, until a successor paying agent for the Notes is
selected in accordance with the Indenture.
"payment default" has the meaning set forth in "Events of Default."
"Permitted Investments" means (a) investments in cash and Cash Equivalents;
(b) Investments by the Company or by any Restricted Subsidiary of the Company in
any Person (i) that is or will become immediately after such Investment a direct
or indirect Restricted Subsidiary of the Company, or (ii) such that such
Investment, when combined with all other outstanding Investments of the Company
permitted pursuant to this clause (ii) would not exceed, in the aggregate, 5% of
the Company's Adjusted Consolidated Net Tangible Assets; (c) any Investments in
the Company by any Restricted Subsidiary of the Company; provided that any
Indebtedness evidencing such Investment is unsecured and subordinated, pursuant
to a written
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agreement, to the Company's obligations in respect of the Notes and the
Indenture; and (d) Investments made by the Company or by its Restricted
Subsidiaries as a result of an Asset Sale made in compliance with the covenant
described under "-- Certain Covenants -- Limitation on Sale of Assets".
"Permitted Liens" means (i) Liens on assets or property of the Company
that secure Senior Indebtedness of the Company and Liens on assets or property
of a Restricted Subsidiary that secure Senior Indebtedness of such Restricted
Subsidiary, in each case to the extent such Senior Indebtedness is permitted
under paragraph (b) of the covenant described under "-- Certain Covenants --
Limitation on Indebtedness" or clause (vi) of the definition of Permitted
Indebtedness; (ii) Liens securing Indebtedness permitted under clause (iv) of
the definition of Permitted Indebtedness; (iii) Liens securing Indebtedness of a
Person existing at the time that such Person is merged into or consolidated with
the Company or a Restricted Subsidiary, provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of such Person; (iv) Liens on property
acquired by the Company or a Restricted Subsidiary, provided that such Liens
were in existence prior to the contemplation of such acquisition and do not
extend to any other property; (v) Liens relating to royalty payments to be made
by the Company to the British Columbia provincial government in respect of
copper extracted and processed from the Kemess South property; (vi) Liens in
respect of Interest Swap Obligations, Commodity Agreements, Capitalized Lease
Obligations or Purchase Money Obligations, in each case permitted under the
Indenture; (vii) Liens in favor of the Company or any Restricted Wholly Owned
Subsidiary; (viii) Liens incurred, or pledges and deposits in connection with,
workers' compensation, unemployment insurance and other social security
benefits, and leases, appeal bonds and other obligations of like nature incurred
by the Company or any Restricted Subsidiary in the ordinary course of business;
(ix) Liens imposed by law, including, without limitation, mechanics', carriers',
warehousemen's, materialmen's, suppliers' and vendors' Liens, incurred by the
Company or any Restricted Subsidiary in the ordinary course of business; and (x)
Liens for ad valorem, income or property taxes or assessments and similar
charges which either are not delinquent or are being contested in good faith by
appropriate proceedings for which the Company has set aside on its books
reserves to the extent required by GAAP.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Public Equity Offering" means a public offering of Common Stock of the
Company resulting in net proceeds to the Company in excess of US$20 million.
"Purchase Money Obligations" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in connection with the purchase of property or
assets of the business of the Company; provided that any Lien so created in
connection with such incurrence is limited solely to the property or assets so
purchased.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Rating Agencies" mean (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both of them are not making publicly available ratings of the Notes, a
nationally recognized U.S. rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories: Aaa,
Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and
(iii) the equivalent of any such categories of S&P or Moody's used by another
Rating Agency, if applicable.
"Rating Event" means that at any time within 90 days (which period shall
be extended so long as the rating of the Notes or the Exchange Notes is under
publicly announced consideration for possible downgrade or for review without
indication of direction by any Rating Agency) after the earlier of the date of
public
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notice of a Change of Control or of the intention of the Company or of any
Person to effect a Change of Control, the rating of the Notes is decreased by
any Rating Agency by one or more Gradations.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company of
Indebtedness Incurred in accordance with "-- Certain Covenants -- Limitation on
Indebtedness" (other than pursuant to clause (iv), (v), (vi), (vii) or (viii) of
the definition of Permitted Indebtedness), in each case that does not (1) result
in an increase in the aggregate principal amount of Indebtedness of such Person
as of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company, and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes and the
Exchange Notes, then such Refinancing Indebtedness shall be subordinate to the
Notes and the Exchange Notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Registrar" shall initially mean the Trustee, as the registration agent for
the Exchange Notes, until a successor registrar for the Exchange Notes is
appointed in accordance with the Indenture.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"Senior Indebtedness" means any Indebtedness of the Company (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Exchange Notes.
Notwithstanding the foregoing, Senior Indebtedness shall not include (i) any
Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness
to, or guaranteed on behalf of, any shareholder, director, officer or employee
of the Company or any Subsidiary (including, without limitation, amounts owed
for compensation), (iii) Indebtedness and other amounts incurred in connection
with obtaining goods, materials or services owing to trade creditors, (iv)
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of
the covenant described in "-- Certain Covenants -- Limitation on Indebtedness"
and (vii) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Company.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
an Unrestricted Subsidiary by the Board of Directors of the Company; provided,
however, that (i) the Subsidiary to be so designated (x) (I) has total assets
with a fair market value at the time of such designation of US$1,000 or less or
(II) is being so designated prior to the acquisition by the Company of such
Subsidiary by merger or consolidation with an Unrestricted Subsidiary, and (y)
does not own any Capital Stock of the Company or any Restricted Subsidiary, (ii)
if such Subsidiary is acquired by the Company, such Subsidiary is designated as
an Unrestricted Subsidiary prior to the consummation of such acquisition, (iii)
no Default or Event of Default
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shall have occurred and be continuing, (iv) no portion of any Indebtedness or
any other obligation (contingent or otherwise) of such Subsidiary (a) is
guaranteed by, or is otherwise the subject of credit support provided by the
Company or any of its Restricted Subsidiaries, (b) is recourse to or obligates
the Company or any of its Restricted Subsidiaries in any way, or (c) subjects
any property or asset of the Company or any of its Restricted Subsidiaries
directly or indirectly, contingently or otherwise, to the satisfaction of such
Indebtedness or other obligation, (v) neither the Company nor any of its
Restricted Subsidiaries has any contract, agreement, arrangement or
understanding with such Subsidiary other than on terms as favorable to the
Company or such Restricted Subsidiary as those that might be obtained at the
time from Persons that are not Affiliates of the Company, and (vi) neither the
Company nor any of its Restricted Subsidiaries has any obligations (a) to
subscribe for additional shares of Capital Stock of such Subsidiary, or (b) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Company's Board of Directors shall be evidenced to the Trustee by filing
with the trustee a certified certificate stating that such designation complies
with the foregoing conditions. The Company's Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however,
that immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing, including, without limitation,
under the covenants described under "-- Certain Covenants -- Limitation on
Indebtedness" and "-- Certain Covenants -- Limitation on Liens," assuming the
incurrence by the Company and its Restricted Subsidiaries at the time of such
designation of all existing Indebtedness and Liens of the Unrestricted
Subsidiary to be so designated as a Restricted Subsidiary. In the event of any
Disposition involving the Company in which the Company is not the Surviving
Person, the Board of Directors of the Surviving Person may (x) prior to such
Disposition, designate any of its Subsidiaries, and any of the Company's
Subsidiaries being acquired pursuant to such Disposition that are not Restricted
Subsidiaries, as Unrestricted Subsidiaries, and (y) after such Disposition,
designate any of its direct or indirect Subsidiaries as an Unrestricted
Subsidiary under the same conditions and in the same manner as the Company under
the terms of the Indenture.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"wholly owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than directors' qualifying
shares or similar legally required de minimis holdings) which normally have the
right to vote in the election of directors are owned by such Person or any
wholly owned Subsidiary of such Person.
"Working Capital Facility" means the existing working capital facility
provided to the Company pursuant to a credit agreement between BNS and the
Company dated February 15, 1996, and any agreement, as the same may be amended
from time to time, and any agreement evidencing the refinancing, modification,
replacement, renewal, restatement, refunding, deferral, extension, substitution,
supplement, reissuance or resale thereof.
DESCRIPTION OF NOTES
The Notes evidence the same indebtedness as that which will be evidenced by
the Exchange Notes and are entitled to the benefits of the Indenture. The form
and terms of the Notes are the same as the form and terms of the Exchange Notes
(which replace the Notes) except that none of the Notes (or the related
guarantees) was registered under the Securities Act. Therefore, the Notes may
not be offered or sold within
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the United States or to, or for the account or benefit of, U.S. persons except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act. Accordingly, the Notes bear
legends restricting the transfer thereof. In addition, with certain exceptions,
the Notes may not be sold or transferred to, or acquired on behalf of, any
pension or welfare plan (as described in Section 3 of the Employee Retirement
Income Security Act of 1974). For a description of the terms of the Exchange
Notes, see "Description of Exchange Notes."
EXCHANGE OFFER AND REGISTRATION RIGHTS
The Company, the Guarantor and the Initial Purchasers entered into the
Registration Rights Agreement on August 12, 1996 pursuant to which each of the
Company and the Guarantor agreed, for the benefit of the Holders, that it would,
at its own cost (i) within 45 days after the Issue Date (September 26, 1996),
file a registration statement under the Securities Act with the Commission with
respect to the Exchange Notes (which obligation has been satisfied by the filing
of the Registration Statement of which this Prospectus is a part) and (ii) use
its best efforts to cause such registration statement to be declared effective
under the Securities Act within 120 days after the Issue Date (December 10,
1996). Upon the Registration Statement being declared effective, the Company and
the Guarantor will offer the Exchange Notes (and the related guarantees) in
exchange for surrender of the Notes and the related guarantees. The Company and
the Guarantor will keep the Exchange Offer open for not less than 20 business
days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the Holders of the Notes. For each of the Notes
surrendered pursuant to the Exchange Offer, the Holder who has surrendered such
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Note and a related guarantee. Interest on each Exchange Note
will accrue from the last interest payment date on which interest was paid on
the Note surrendered in exchange therefor or, if no interest has been paid on
such Note, from the original issue date of the Note. Under existing Commission
interpretations, the Exchange Notes (and the related guarantees) would be freely
transferable by Holders thereof, other than affiliates of the Company and the
Guarantor, after the Exchange Offer, without further registration under the
Securities Act, if the Holder of the Exchange Notes represents that it is
acquiring the Exchange Notes in the ordinary course of business, that it has no
arrangement or understanding with any person to participate in the distribution
of the Exchange Notes and that it is not an affiliate of any of the Company and
the Guarantor, as such terms are interpreted by the Commission; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Exchange Offer will have a prospectus delivery requirement with respect to
resales of such Exchange Notes. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Notes) with the prospectus contained in the
Registration Statement. The Company and the Guarantor have agreed for a period
of 180 days after consummation of the Exchange Offer (or such longer period as
may be required under the Securities Act) to make available a prospectus meeting
requirements of the Securities Act to Participating Broker-Dealers and other
persons, if any, with similar prospectus delivery requirements for use in
connection with any resale of such Exchange Notes.
Each Holder who wishes to exchange its Notes for Exchange Notes in the
Exchange Offer will be required to represent that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business and that
at the time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
affiliate of any of the Company or the Guarantor.
If the Holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
applicable Exchange Notes. If the Holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Guarantor to effect such an Exchange Offer, or
if for any other reason the Exchange Offer is not
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consummated within 180 days after the original issue date of the Notes (February
8, 1997), or, under certain circumstances, if the Initial Purchasers shall so
request, each of the Company and the Guarantor, jointly and severally, will, at
its cost, (a) as promptly as practicable, file a shelf registration statement
covering resales of the Notes (a "Shelf Registration Statement"), (b) use its
best efforts to cause such Shelf Registration Statement to be declared effective
under the Securities Act and (c) use its best efforts to keep effective such
Shelf Registration Statement until the earlier of three years after the Issue
Date and such time as all of the applicable Notes have been sold thereunder. The
Company will, in the event of the filing of a Shelf Registration Statement,
provide to each Holder of the Notes copies of the prospectus which is a part of
such Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes (and the related
guarantees). A Holder that sells its Notes pursuant to a Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such Holder (including
certain indemnification obligations).
Although the Company and the Guarantor have filed the registration
statement described above, there can be no assurance that such registration
statement will become effective. If the Company and the Guarantor fail to comply
with the above provisions or if such registration statement fails to become
effective, then the Company shall pay, as liquidated damages, additional
interest ("Liquidated Damages"), to the Holders of the Notes as follows:
(i) if the Registration Statement or Shelf Registration Statement is
not filed within 45 days following the Issue Date (which requirement has
been satisfied by the filing with the Commission of the Registration
Statement of which this Prospectus is a part), Liquidated Damages shall
accrue at a rate of 0.50% per annum of the principal amount of the Notes
for the first 90 days commencing on the 46th day after the Issue Date, such
Liquidated Damages rate increasing by an additional 0.50% per annum of the
principal amount of the Notes at the beginning of each subsequent 90-day
period;
(ii) if the Registration Statement or Shelf Registration Statement is
not declared effective within 120 days following the Issue Date, then,
commencing on the 121st day after the Issue Date, Liquidated Damages shall
accrue at a rate of 0.50% per annum of the principal amount of the Notes
for the first 90 days immediately following the 121st day after the Issue
Date, such Liquidated Damages rate increasing by an additional 0.50% per
annum of the principal amount of the Notes at the beginning of each
subsequent 90-day period; or
(iii) if (A) the Company and the Guarantor have not exchanged Notes
validly tendered in accordance with the terms of the Exchange Offer on or
prior to 180 days after the Issue Date or (B) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the time
prior to the third anniversary of the Issue Date (unless all the Notes have
been sold thereunder), then Liquidated Damages shall accrue at a rate of
0.50% per annum of the principal amount of the Notes for the first 90 days
commencing on (x) the 181st day after the Issue Date, in the case of (A)
above, or (y) the day such Shelf Registration Statement ceases to be
effective in the case of (B) above, such Liquidated Damages rate increasing
by an additional 0.50% per annum of the principal amount of the Notes at
the beginning of each subsequent 90-day period;
provided, however, that the Liquidated Damages rate may not exceed in the
aggregate 2.0% per annum of the principal amount of the Notes; and provided,
further, that (1) upon the filing of the Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Registration Statement or Shelf Registration Statement (in
the case of (ii) above), or (3) upon the exchange of Notes for all Notes
tendered (in the case of clause (iii)(A) above), or upon the effectiveness of
the Shelf Registration Statement which had ceased to remain effective (in the
case of clause (iii)(B) above), Liquidated Damages as a result of such clause
(or the relevant subclause thereof), as the case may be, shall cease to accrue.
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Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Notes. The amount of Liquidated Damages will be determined by multiplying
the applicable Liquidated Damages rate by the principal amount of the Notes
multiplied by a fraction, the numerator of which is the number of days such
Liquidated Damages rate was applicable during such period (determined on the
basis of a 360-day year comprised of 12 30-day months), and the denominator of
which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
CERTAIN INCOME TAX CONSIDERATIONS
THE DISCUSSION BELOW IS INTENDED TO BE A GENERAL DESCRIPTION OF THE
CANADIAN AND UNITED STATES TAX CONSIDERATIONS MATERIAL TO AN INVESTMENT IN THE
EXCHANGE NOTES AND THE NOTES. IT DOES NOT TAKE INTO ACCOUNT THE INDIVIDUAL
CIRCUMSTANCES OF ANY PARTICULAR INVESTOR. THEREFORE, PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE EXCHANGE NOTES.
FOR INFORMATION WITH RESPECT TO THE TAX CONSEQUENCES OF THE EXCHANGE OFFER,
SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER."
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to a person (a "United States holder") who
becomes a beneficial owner of Exchange Notes pursuant to this Exchange Offer (or
who acquired Notes in the Offering) and who, for the purposes of the Income Tax
Act (Canada) (the "Canadian Tax Act") and at all relevant times, is not resident
in Canada, deals at arm's length with the Company and does not use or hold (and
is not deemed or considered to use or hold) the Notes or Exchange Notes in
carrying on a business in Canada. Special rules which are not discussed in this
summary, may apply to a United States holder that is an insurer that carries on
an insurance business in Canada and elsewhere. For purposes of the Canadian Tax
Act, related persons (as therein defined) are deemed not to deal at arm's length
and it is a question of fact whether persons not related to each other deal at
arm's length.
This summary is based on the current provisions of the Canadian Tax Act,
the regulations thereunder (the "Canadian Regulations") in force on the date
hereof, all specific proposals to amend the Canadian Tax Act and the Canadian
Regulations publicly announced by the Minister of Finance (Canada) prior to the
date hereof and counsel's understanding of the published administrative
practices of Revenue Canada, Customs, Excise & Taxation ("Revenue Canada"). This
summary does not take into account or anticipate any other changes in law or
administrative practice, whether by legislative, governmental or judicial
decision or action, nor does it take into account provincial, territorial or
foreign income tax legislation or considerations.
Under the Canadian Tax Act, payments by the Company to a United States
holder of interest, principal or premium, if any, on the Notes should not be
subject to Canadian withholding tax. Under the Canadian Tax Act, payments by the
Company to a United States holder of interest, principal or premium, if any, on
the Exchange Notes will not be subject to Canadian withholding tax.
No other taxes on income (including taxable capital gains) will be payable
by a United States holder solely as a consequence of the ownership, acquisition
or disposition of the Exchange Notes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Notes or the
Exchange Notes by a United States Holder (as defined below). This summary deals
only with United States Holders that will hold the Notes or the Exchange Notes
as capital assets. The discussion does not cover all aspects of federal taxation
that may be relevant to, or
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the actual tax effect that any of the matters described herein will have on, the
acquisition, ownership or disposition of the Notes or the Exchange Notes by
particular investors, and does not address state, local, foreign or other tax
laws. In particular, this summary does not discuss all of the tax considerations
that may be relevant to certain types of investors subject to special treatment
under the federal income tax laws (such as banks, insurance companies, investors
liable for the alternative minimum tax, individual retirement accounts and other
tax-deferred accounts, tax-exempt organizations, dealers in securities or
currencies, investors that will hold the Notes or the Exchange Notes as part of
straddles, hedging transactions or conversion transactions for federal tax
purposes or investors whose functional currency is not the United States
Dollars).
As used herein, the term "United States Holder" means a beneficial owner of
the Notes or the Exchange Notes that is (i) a citizen or resident of the United
States for United States federal income tax purposes, (ii) a corporation created
or organized under the laws of the United States or any State thereof, (iii) a
person or entity that is otherwise subject to United States federal income tax
on a net income basis in respect of income derived from the Notes or the
Exchange Notes, or (iv) a partnership to the extent the interest therein is
owned by a person who is described in clause (i), (ii) or (iii) of this
paragraph.
The following discussion assumes that the payment of Additional Amounts or
Liquidated Damages are remote contingencies, which the Company believes to be
the case. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed regulations thereunder, published rulings
and court decisions, all as currently in effect and all subject to change at any
time, perhaps with retroactive effect.
INTEREST
Interest (including any Additional Amounts and any Liquidated Damages) paid
on a Note or an Exchange Note will be taxable to a United States Holder as
ordinary income at the time it is received or accrued, depending on the holder's
method of accounting for tax purposes. Interest paid by the Company on the Notes
or the Exchange Notes generally will constitute income from sources outside the
United States. Prospective investors should consult their tax advisers
concerning the applicability of the source of income rules to income
attributable to the Notes or the Exchange Notes.
ACQUISITION PREMIUM
If a United States Holder acquires an Exchange Note or has acquired a Note,
in each case, for an amount more than its redemption price, the Holder may elect
to amortize such bond premium on a yield to maturity basis.
EFFECT OF CANADIAN WITHHOLDING TAXES
For United States federal income tax purposes, if payments on the Notes or
the Exchange Notes were subject to Canadian withholding taxes, United States
Holders will be treated as having actually received the amount of Canadian taxes
withheld by the Company with respect to a Note or an Exchange Note, as the case
may be, and then having paid over such withheld taxes to the Canadian taxing
authorities. Such treatment will be required regardless of whether the Company
is required to pay Additional Amounts so that the amount of Canadian withholding
taxes does not reduce the net amount actually received by the holder of such
Note or Exchange Note. As a result of this rule, the amount of interest income
included in gross income for United States federal income tax purposes by a
United States Holder with respect to a payment of interest may be greater than
the amount of cash actually received (or receivable) by the United States Holder
from the Company with respect to such payment.
Subject to certain limitations, a United States Holder will generally be
entitled to a credit against the United States federal income tax liability, or
a deduction in computing its United States federal taxable income, for Canadian
income taxes withheld by the Company (which, as described above, will include
Additional Amounts paid by the Company with respect to such taxes). Prospective
participants should consult their tax advisors as to the United States federal
income tax consequences of Canadian withholding taxes and the availability of a
foreign tax credit or deduction.
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PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES
In general, a United States Holder's tax basis in an Exchange Note will
equal the price paid for the Note for which such Exchange Note was exchanged
pursuant to the Exchange Offer. A United States Holder generally will recognize
gain or loss on the sale, exchange, retirement, redemption or other disposition
of a Note or an Exchange Note (or portion therof) equal to the difference
between the amount realized on such disposition and the United States Holder's
tax basis in the Note or the Exchange Note (or portion thereof). Except to the
extent attributable to accrued but unpaid interest, gain or loss recognized on
such disposition of a Note or an Exchange Note will be capital gain or loss and
will be longterm capital gain or loss if such Note or Exchange Note was held for
more than one year. Any such gain will generally be United States source gain.
A purchase of an Exchange Note or Note in a subsequent resale may be
affected by the market discount provisions of the Code. These rules generally
provide that subject to a statutorily defined de minimis exception, if a United
States Holder purchases an Exchange Note (or purchased a Note) at a "market
discount," as defined below, and thereafter recognizes gain upon a disposition
of the Exchange Note (including dispositions by gift or redemption), the lesser
of such gain (or appreciation, in the case of gift) or the portion of the market
discount that has accrued ("accrued market discount") while the Exchange Note
(and its predecessor Note, if any) was held by such United States Holder will be
treated as ordinary interest income at the time of disposition rather than as
capital gain. For an Exchange Note or a Note, "market discount" is the excess of
the stated redemption price at maturity over the tax basis immediately after its
acquisition by a United States Holder. Market discount generally will accrue
ratably during the period from the date of acquisition to the maturity date of
the Exchange Note, unless the United States Holder elects to accrue such
discount on the basis of the constant yield method.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a Note acquired at a market discount) may
elect to include the accrued market discount in income currently either ratably
or using the constant yield method. Once made, such an election applies to all
other obligations that the United States Holder purchases at a market discount
during the taxable year for which the election is made and in all subsequent
taxable years of the United States Holder, unless the Internal Revenue Service
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of an Exchange Note in
the hands of the United States Holder will be increased by the accrued market
discount thereon as it is includible in income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest (including any Additional Amounts and any Liquidated
Damages) and principal on, and the proceeds of sale or other disposition of the
Notes or the Exchange Notes payable to a United States Holder may be subject to
information reporting requirements, and backup withholding at a rate of 31% will
apply to such payments if the United States Holder fails to provide an accurate
taxpayer identification number or to report all interest and dividends required
to be shown on its federal income tax returns. Certain United States Holders
(including, among others, corporations) are not subject to backup withholding.
United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes issued in exchange for the Notes (and the related
guarantees) initially will be represented by a single permanent global
certificate in definitive, fully registered form (the "Global Exchange Note").
Notwithstanding the foregoing, Notes held in certificated form, if any, will be
exchanged solely for Exchange Notes in certificated form. As of the date of this
Prospectus, no Notes were held in certificated form. The Global Exchange Note
will be deposited upon issuance with, or on behalf of, the Depository Trust
Company, New York, New York and registered in the name of a nominee of DTC. The
Global Exchange Note will be subject to certain restrictions on transfer set
forth therein.
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The Global Exchange Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Exchange Note, DTC or its
custodian will credit, on its internal system, the principal amount of Exchange
Notes of the individual beneficial interests represented by such Global Exchange
Note to the respective accounts of persons who have accounts with such
depositary and (ii) ownership of beneficial interests in the Global Exchange
Note will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Exchange
Note for all purposes under the Indenture. No beneficial owner of an interest in
the Global Exchange Note will be able to transfer that interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture with respect to the Exchange Notes.
Payments of the principal of, premium, if any, interest, Additional Amounts
and Liquidated Damages, if any, on the Global Exchange Note will be made to DTC
or its nominee, as the case may be, as the registered owner thereof. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Exchange Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest, Additional Amounts or Liquidated Damages,
if any, in respect of the Global Exchange Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Exchange Note as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Exchange Note held
through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery in definitive
form of a Security for any reason, including to sell Exchange Notes to persons
in states which require physical delivery of the Exchange Notes, or to pledge
such securities, such holder must transfer its interest in the Global Exchange
Note, in accordance with the normal procedures of DTC and with the procedures
set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such participant has or participants have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Exchange Note for Certificated Securities, which it
will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
103
110
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Notes among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Exchange Note and a successor depositary
is not appointed by the Company within 90 days, certificated securities will be
issued in exchange for the Global Exchange Note.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Prospectus,
as it may be amended or supplemented from time to time, may be used by any
person subject to the prospectus delivery requirements of the Securities Act,
including a broker-dealer in connection with resales of Exchange Notes received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company and the
Guarantor have agreed that, for a period of 180 days after the Expiration Date,
they will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
January 6, 1997 (90 days after commencement of the Exchange Offer), all dealers
effecting transactions in the Exchange Notes may be required to deliver a
Prospectus.
Neither the Company nor the Guarantor will receive any proceeds from any
sales of the Exchange Notes by broker-dealers. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to the purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, the Company or the
Guarantor will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company and the Guarantor have
agreed to pay certain expenses incident to the Exchange Offer, other than
commission or concessions of any brokers or dealers, and will indemnify the
holders of the Exchange Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company or the Guarantor of the happening of any
event which makes any statement in the Prospectus untrue in any material respect
or which requires the making of any changes in the Prospectus in order to make
the statements therein not misleading (which notice the Company and the
Guarantor agree to deliver promptly to such broker-dealer), such broker-dealer
will suspend use of the Prospectus until the Company or the Guarantor have
amended or supplemented the Prospectus to correct such misstatement or omission
and have furnished copies of the amended or supplemental Prospectus to such
broker-dealer.
104
111
VALIDITY OF EXCHANGE NOTES
Certain legal matters relating to validity of the Exchange Notes will be
passed upon for the Company by Lang Michener, Toronto, Ontario with respect to
matters of Canadian law and by Wachtell, Lipton, Rosen & Katz, New York, New
York with respect to matters of United States law. William J.V. Sheridan, a
director and the Secretary of the Company, is a partner of Lang Michener.
EXPERTS
The financial statements for each of the three fiscal years in the period
ended December 31, 1995 included in this Prospectus have been audited by Arthur
Andersen & Co., independent chartered accountants, as stated in their report
herein with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving such
report.
105
112
GLOSSARY OF CERTAIN MINING TERMS
ASSAY -- The testing of a rock sample to determine its mineral content.
CASH COST PER OUNCE -- Includes all site operating expenses but excludes capital
and exploration expenditures, depreciation, post-closure restoration
accruals, finance and corporate administrative expenses; divided by units
produced. Cash costs has the same meaning, except not on a unit production
basis.
CHALCOPYRITE -- A sulphide mineral of copper and iron, a common ore of copper.
CIP -- Carbon-in-pulp.
CONCENTRATE -- A fine powdery product containing the valuable metal from which
most of the waste material in the ore has been eliminated and discarded.
CONTAINED OUNCES -- Reserves are estimated to encompass a stated number of
ounces of gold in place. The number of ounces ultimately recovered and
available depends upon mining efficiency and processing efficiency.
CONTANGO -- Contango on gold is the positive difference between the spot market
gold price and the forward market gold price. It is often expressed as an
interest rate and is the difference between inter-bank deposit rates and
gold lending rates.
CYANIDATION -- A method of extracting gold or silver by dissolving it in a weak
solution of sodium or potassium cyanide.
DECLINE -- A sloping underground opening for machine access from level to level
or from surface; also called a "ramp."
DILUTION -- The effect of waste or low grade ore being included and removed
along with the ore in the mining process, subsequently lowering the grade
of the ore.
DORE -- Unrefined gold consisting of 60% to 90% gold which will be further
refined to almost pure gold by a smelter or refinery.
DRILLING --
Blasthole: Drilling holes deep into rock to place an explosive charge that
breaks up the rock.
Diamond: Drilling with a hollow bit with a diamond cutting rim to produce a
cylindrical core that is used for geological study and assays. Used in mine
exploration.
DYKE -- A tabular intrusive igneous rock that cuts across or along pre-existing
country rock.
EN ECHELON -- Refers to geological features that are in an overlapping or
staggered arrangement and collectively form a linear zone.
FELDSPAR -- A group of abundant rock-forming minerals of the general formula, M
Al (Al, Si3) where M can be K, Na, Ca, Ba or Fe. Feldspars are the most
widespread of any mineral group and constitute 60% of the earth's crust.
FLOTATION -- A milling process by which some mineral particles are induced to
become attached to bubbles of froth and float, and others to sink so that
the valuable minerals are concentrated and separated from the worthless
gangue.
FLUID BED ROASTER -- The use of a rising current of hot air (or other gas) to
suspend finely ground particles of concentrate. The hot gases react with
the material to oxidize sulphide mineralization.
FOOTWALL -- The mass of rock beneath a geological structure (ore body, fault,
etc.).
FORWARD SELLING -- An agreement to sell a certain quantity of future production
at a set future date at a predetermined price.
GANGUE -- Valueless rock or mineral aggregates in an ore that cannot be avoided
in mining.
106
113
GRADE -- The amount of valuable mineral in each ton of ore, expressed as troy
ounces per ton for precious metals and as a percentage for other metals.
Cut-off grade: The minimum content level at which an ore body can be
economically mined.
HEAP LEACHING -- A low-cost process in which ore is placed in a large heap on an
impermeable pad. A weak cyanide solution is sprinkled or dripped over the
heap and is collected at the bottom after percolating through the ore and
dissolving the metals.
HYPOGENE ZONE -- Ores, or mineralized material, formed by an upward moving
enrichment process, typically found beneath the supergene.
JURASSIC -- A geological period which identifies the formation date of the
strata. Jurassic is in the Mesozoic era.
MILL -- A plant where ore is ground fine and undergoes physical or chemical
treatment to extract the valuable metals.
MILL FEED GRADES -- The average grade of ore processed in a mill over a given
period of time.
MINEABLE ORE RESERVES -- Ore reserves which include allowances for dilution in
mining and take into account losses which are likely to occur in mining.
All ore reserves reported by Royal Oak are mineable ore reserves.
MINERAL DEPOSIT -- A deposit of mineralization which may or may not be ore, the
determination of which requires a comprehensive feasibility study.
MINERALIZATION -- Rock containing minerals or metals of economic interest.
MINERALIZED MATERIAL -- A natural aggregate of one or more minerals which either
is not sufficiently delineated as to size, tonnage and grade or, even if so
delineated, cannot be economically extracted at the time of the reserve
determination and, accordingly, cannot be classified as mineable ore
reserves.
NET PROFIT INTEREST -- The excess of gross income from the sale of minerals over
all expenses properly incurred with respect to production of such mineral
products in accordance with GAAP, excluding taxes on income.
NET SMELTER RETURN -- Cash or actual metal recoveries per ton of concentrate
delivered to the smelter net of metallurgical recovery losses,
transportation costs and smelter treatment-refining charges and deductions.
ORE -- Mineralization that can be mined at a profit.
ORE BODY -- A mineral deposit that can be mined at a profit under existing
economic conditions.
ORE RESERVES -- The tonnage and grade of an economically and legally extractable
ore body.
PORPHYRY -- An igneous rock in which a number of mineral crystals are
conspicuously much larger than the majority of the crystals which make up
the rock. These large crystals are often of the mineral feldspar. Porphyry
copper and gold deposits are mineral deposits hosted in large intrusive
igneous bodies made up of porphyritic rock. These deposits usually contain
very fine disseminations of minerals containing gold and copper.
PROBABLE ORE RESERVES -- Ore reserves that have reasonable geologic continuity
but cannot be considered proven because inspection and measurement
locations are not detailed enough to estimate accurately the size, shape,
and mineral content of the body. The degree of assurance, although lower
than that for proven reserves, is high enough to assume continuity between
points of observation.
PROVEN ORE RESERVES -- Ore reserves that can be accurately estimated by
establishing the size, shape, and mineral content of an ore body by
inspection and closely spaced samples.
PYRITE -- A common sulfide mineral, shiny and yellow in color and composed of
sulphur and iron, sometimes known as "fool's gold."
107
114
RAISE -- A vertical hole between mine levels used to move ore or waste rock or
to provide ventilation.
RAMP -- An inclined underground tunnel which provides access for exploration or
a connection between levels or a mine.
REFINING -- The final stage of metal production in which impurities are removed
from the molten metal.
RESOURCE -- Mineralization based on geological evidence and assumed continuity.
May or may not be supported by samples but is supported by geological,
geochemical, geophysical or other data.
REVERSE CIRCULATION DRILLING -- A process that uses a drill with a dual-wall
pipe through which compressed air travels down the outside channel,
returning bit-cut chips up the interior channel for sampling.
SAG OR SEMI-AUTOGENOUS GRINDING MILL -- A large diameter grinding mill utilizing
steel balls and large rock pieces to grind ore from a coarse feed size to a
relatively small particle size.
SHAFT -- A vertical or steeply inclined opening providing access to a mine for
equipment, personnel and supplies and to hoist out ore and waste. It can
also be used for ventilation and as an auxiliary exit from the mine.
SPOT DEFERRED CONTRACT -- A spot deferred contract is like a forward sale except
Royal Oak has the option to extend the contract (roll it over). The
ultimate delivery date and sale price are not fixed on the contract. It is
rolled over, the new contract price is based on the price at maturity in
the old contract plus a contango premium on the rollover date.
STOPE -- An excavation in a mine from which ore is being, or has been,
extracted.
STRIP RATIO -- The ratio of waste tons mined to total tons mined.
SULPHIDES -- Compounds of sulphur with other metallic elements.
SUPERGENE -- Ores or mineralized material formed by downward moving enrichment
process.
TAILINGS -- The material that remains after all metals considered economical
have been removed from ore during milling.
TONNE -- One metric ton or 2,204.62 pounds.
TONS -- Short tons. Two thousand pounds.
WASTE ROCK -- Barren rock in a mine, or mineralized material, that is too low in
grade to be economically mined and milled.
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115
ROYAL OAK MINES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Chartered Accountants........................................... F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-3
Consolidated Statements of Income and Retained Earnings for the years ended December
31, 1993, 1994 and 1995.......................................................... F-4
Consolidated Statements of Cash Flow for the years ended December 31, 1993, 1994 and
1995............................................................................. F-5
Notes to the Annual Consolidated Financial Statements............................... F-6
Unaudited Consolidated Financial Statements (except for the December 31, 1995
Consolidated Balance Sheet, which has been audited):
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995............... F-22
Consolidated Statements of Income and Retained Earnings for the periods ended June
30, 1996 and 1995................................................................ F-23
Consolidated Statements of Cash Flow for the periods ended June 30, 1996 and 1995... F-24
Notes to the Unaudited Consolidated Financial Statements............................ F-25
F-1
116
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Shareholders of Royal Oak Mines Inc.:
We have audited the consolidated balance sheets of Royal Oak Mines Inc. as
at December 31, 1995 and 1994 and the consolidated statements of income and
retained earnings and cash flow for the years ended December 31, 1995, 1994 and
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1995 and 1994 and the results of its operations and its cash flows for the years
ended December 31, 1995, 1994 and 1993 in accordance with generally accepted
accounting principles.
Arthur Andersen & Co.
Chartered Accountants
Vancouver, British Columbia
February 16, 1996
(except as to note 14(b), which is as of February 27, 1996)
F-2
117
ROYAL OAK MINES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
DECEMBER 31
---------------------
1995 1994
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $139,410 $148,524
Short-term investments (note 2)...................................... 2,971 30,413
Receivables.......................................................... 7,138 6,842
Inventories (note 3)................................................. 46,136 36,250
Prepaid expenses..................................................... 5,620 4,821
-------- --------
201,275 226,850
PROPERTY, PLANT AND EQUIPMENT (note 4)................................. 191,381 137,954
LONG-TERM INVESTMENTS (note 5)......................................... 36,307 19,270
-------- --------
$428,963 $384,074
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable..................................................... $ 13,640 $ 12,654
Accrued payroll costs................................................ 5,267 5,650
Deferred revenue (note 6)............................................ 4,523 1,282
Income taxes payable (note 8)........................................ 3,350 2,415
Other current liabilities............................................ 15,654 13,799
-------- --------
42,434 35,800
DEFERRED REVENUE AND OTHER LIABILITIES (note 6)........................ 40,800 39,742
DEFERRED INCOME TAXES (note 8)......................................... 5,064 5,064
MINORITY INTEREST IN SUBSIDIARY COMPANIES.............................. 170 737
-------- --------
88,468 81,343
-------- --------
CONTINGENCIES AND COMMITMENTS (note 11)
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 7)
Common stock
Authorized -- unlimited
Outstanding -- 119,118,714; (1994 -- 114,494,747)................. 261,957 247,362
RETAINED EARNINGS...................................................... 78,538 55,369
-------- --------
340,495 302,731
-------- --------
$428,963 $384,074
======== ========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-3
118
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of Canadian dollars except per share amounts)
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
REVENUE.................................................... $208,311 $162,111 $135,326
-------- -------- --------
EXPENSES
Operating................................................ 182,214 117,790 110,258
Royalties and marketing.................................. 2,535 2,490 1,248
Administrative and corporate............................. 8,549 5,271 3,411
Depreciation and amortization............................ 14,895 8,525 4,998
Provision for (Recovery of) loss on foreign currency
contracts (note 6(b))................................. (5,244) 15,267 --
-------- -------- --------
202,949 149,343 119,915
-------- -------- --------
OPERATING INCOME........................................... 5,362 12,768 15,411
OTHER INCOME (EXPENSES)
Interest and other income, net (note 9).................. 20,902 7,074 2,289
Write-down of resource properties and other assets....... (891) -- (388)
Gain on issuance of shares by associated company (note
5).................................................... -- 3,020 --
Other.................................................... (619) (85) (1,508)
-------- -------- --------
NET INCOME BEFORE UNDERNOTED............................... 24,754 22,777 15,804
Income taxes (note 8).................................... (1,542) (636) (215)
Minority interest........................................ 594 -- 136
Equity in income (loss) of associated companies.......... (637) 25 (102)
-------- -------- --------
NET INCOME................................................. 23,169 22,166 15,623
RETAINED EARNINGS -- BEGINNING OF YEAR..................... 55,369 33,203 17,580
-------- -------- --------
RETAINED EARNINGS -- END OF YEAR........................... $ 78,538 $ 55,369 $ 33,203
======== ======== ========
EARNINGS PER SHARE -- BASIC (note 7)....................... $ 0.20 $ 0.22 $ 0.19
======== ======== ========
EARNINGS PER SHARE -- FULLY DILUTED........................ $ 0.20 $ 0.22 $ 0.18
======== ======== ========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
119
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands of Canadian dollars)
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income for the year.................................... $ 23,169 $ 22,166 $ 15,623
Items not affecting cash:
Depreciation and amortization............................ 14,895 8,525 4,998
Provision for (Recovery of) loss on foreign currency
contracts............................................. (5,244) 15,267 --
Write-down of resource properties and other assets....... 891 -- 388
Gain on issuance of shares by associated company......... -- (3,020) --
Other.................................................... 43 187 (595)
-------- -------- -------
33,754 43,125 20,414
Net change in non-cash working capital (note 12)........... (7,588) (9,914) (1,571)
-------- -------- -------
CASH FLOW FROM OPERATIONS.................................. 26,166 33,211 18,843
-------- -------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase in deferred revenue, net........................ 5,593 22,768 78
Issue of common shares (note 7(a))....................... 14,595 95,203 87,804
Accrued reclamation on acquisition (note 4).............. 3,000 -- --
Other.................................................... (300) 1,037 --
-------- -------- -------
22,888 119,008 87,882
-------- -------- -------
CASH USED IN INVESTING ACTIVITIES:
Net additions to property, plant and equipment........... (66,018) (52,461) (26,803)
Investments, net of sales................................ (19,025) (415) (12,746)
Other.................................................... (567) (50) (251)
-------- -------- -------
(85,610) (52,926) (39,800)
-------- -------- -------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS
DURING THE YEAR.......................................... (36,556) 99,293 66,925
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR....... 178,937 79,644 12,719
-------- -------- -------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR............. $142,381 $178,937 $ 79,644
======== ======== =======
Cash paid for:
Income taxes............................................. $ 1,542 $ 636 $ 215
Interest expense......................................... $ 298 $ 62 $ 97
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
120
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Royal Oak Mines Inc. (the
"Company"), amalgamated under the laws of Ontario, have been prepared by
management in Canadian dollars in accordance with accounting principles
generally accepted in Canada. In all material respects, these accounting
policies are in conformity with accounting policies generally accepted in the
United States except as disclosed in note 13.
Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. The Company's principal subsidiaries include: Arctic
Precious Metals, Inc., Beaverhouse Resources Ltd., 934962 Ontario Inc. and
Witteck Development Inc. (all 100% owned); Ronnoco Gold Mines Limited (87%
owned).
Joint ventures are accounted for on the proportionate consolidation method.
Cash equivalents
The Company defines cash equivalents as highly liquid financial instruments
purchased with a maturity of ninety days or less.
Short-term investments
Short-term investments are recorded at the lower of cost or quoted market
value.
Inventories
Bullion which is in process but not yet in deliverable form is recorded at
estimated realizable value. Stores and operating supplies are recorded at the
lower of average cost or replacement cost.
Property, plant and equipment
(i) Plant and equipment and mining properties are recorded at cost.
(ii) For underground operations, development expenditures incurred to expose
ore, increase production or extend the life of a mine which is currently in
production are capitalized.
(iii) For open pit operations, mining costs are deferred when the ratio of waste
tons mined to ore tons mined exceeds the estimated life-of-mine strip
ratio. These deferred costs are charged to operating costs when the actual
ratio is below the life-of-mine strip ratio.
(iv) Exploration, development and other pre-production expenditures incurred on
projects under development are capitalized.
(v) Costs relating to the acquisition and exploration of non-producing
properties on which economically recoverable ore reserves have yet to be
identified are capitalized. The ultimate recovery of these costs depends
upon the discovery and development of economic ore reserves or the sale of
the mineral rights. When it has been established that a mineral property
has development potential, the exploration costs incurred are reclassified
to the category of mining properties. If an exploration property is
abandoned, the capitalized costs for that property are charged to income.
The amounts shown for non-producing properties do not necessarily reflect
present or future values.
F-6
121
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(vi) Depreciation and amortization of plant and equipment, mining properties and
capitalized expenditures are provided on the unit-of-production method
based upon estimated total mineral inventory.
(vii) Reviews are undertaken regularly to evaluate the carrying values of
operating mines and development properties. If it is determined that the
net recoverable amount is significantly less than the carrying value and
the impairment in value is permanent, a write-down is made with a charge to
income.
Investments in associated companies
Investments in associated companies in which the Company has significant
influence are accounted for by the equity method.
Reclamation and site restoration costs
Estimated reclamation and site restoration costs are charged against income
on the unit-of-production method based upon estimated total mineral inventory.
Ongoing reclamation activities are charged against income as incurred.
Revenue recognition
Revenue from gold production is recognized when the ore is mined and
processed at the on-site facility. Revenue is subject to adjustment on final
settlement to reflect changes in metal prices, weights and assays.
Hedging transactions
Hedging transactions include spot deferred contracts, forward sale
contracts and option contracts. Contracted prices on spot deferred and forward
sales contracts are recognized in revenue as production is delivered against the
commitment. If actual delivery is not made against a particular spot deferred
contract at the time of maturity, losses, if any, are recognized at that time.
Gains arising from the early liquidation of hedges are deferred and are
recognized in revenue when the original contract would have matured.
Net proceeds realized on the sale of options are deferred and are
recognized in revenue on the expiry date for options which expire or are
repurchased, or on the delivery date for options which have been exercised and
for which the settlement of the underlying ounces has been deferred.
Income taxes
The Company follows the deferral method of applying the tax allocation
basis of accounting for income taxes. Under this method, timing differences
between the period when income or expenses are reported for tax purposes and the
period when they are recorded for accounting purposes result in provisions or
recoveries of deferred income taxes.
Foreign currency translation
Financial statements of the Company's principal United States subsidiary,
Arctic Precious Metals, Inc., are translated into Canadian dollars using the
temporal method. Under this method, monetary assets and liabilities are
translated at the year-end exchange rate and non-monetary assets and liabilities
and operating results are translated at the historical exchange rate prevailing
at the date of the transaction. Gains and losses arising from the translation of
the financial statements are included in the results of operations.
F-7
122
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
Segmented information
The Company operates within one dominant industry segment, gold mining,
carried out in the Northwest Territories, Newfoundland, and Ontario, Canada.
Comparative figures
Certain of prior years' amounts have been reclassified to conform with the
current year's presentation.
2. FAIR VALUES OF CERTAIN FINANCIAL INSTRUMENTS
The carrying amount and fair value of the following financial instruments
are:
DECEMBER 31
--------------------------------------------
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Cash and cash equivalents......................... $139,410 $139,410 $148,524 $148,524
Short-term investments............................ $ 2,971 $ 4,536 $ 30,413 $ 30,594
The fair value of short-term investments is based on quoted market values.
3. INVENTORIES
DECEMBER 31
-------------------
1995 1994
------- -------
Bullion in process..................................................... $18,574 $16,386
Stores and operating supplies.......................................... 27,562 19,864
------- -------
$46,136 $36,250
======= =======
4. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31
--------------------
1995 1994
----------------------------------- --------
NET NET
ACCUMULATED BOOK BOOK
COST AMORTIZATION VALUE VALUE
-------- ----------- -------- --------
Plant and Equipment............................... $ 75,391 $ 14,570 $ 60,821 $ 53,500
Mining Properties and Deferred Development........ 127,058 22,061 104,997 62,732
Exploration Costs and other Non-producing
Properties...................................... 25,563 -- 25,563 21,722
-------- ------- -------- --------
$228,012 $ 36,631 $191,381 $137,954
======== ======= ======== ========
Mining Properties and Deferred Development includes $20,890,000 (1994 --
$5,898,000) which comprises mining properties that are under development and are
expected to be put into production over the next five years. Depreciation and
amortization of these costs will be provided in the future based on the unit-
of-production method.
F-8
123
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The following is a summary of the net book value of the Property, Plant and
Equipment by location:
MINING
PROPERTIES DECEMBER 31
PLANT AND AND DEFERRED EXPLORATION --------------------
EQUIPMENT DEVELOPMENT AND OTHER 1995 1994
--------- ------------ ----------- -------- --------
Division
NWT -- Giant......................... $18,258 $ 17,458 $14,220 $ 49,936 $ 38,384
NWT -- Colomac....................... 15,630 29,692 596 45,918 44,121
Ontario.............................. 13,376 39,735 4,106 57,217 33,881
Newfoundland......................... 8,420 9,228 2,049 19,697 18,983
British Columbia..................... 850 8,884 996 10,730 --
U.S.................................. 4,287 -- 3,596 7,883 2,585
------- -------- ------- -------- --------
$60,821 $104,997 $25,563 $191,381 $137,954
======= ======== ======= ======== ========
During fiscal 1995, the Company acquired 100% of the Red Mountain property
located in northwestern British Columbia for $1. The Company assumed the
environmental liabilities, estimated at $3.0 million, as part of this purchase.
The Company is committed to spend $3.0 million in exploration and development on
the Red Mountain property over three years. The vendor will receive a 1% net
smelter return royalty on all production from the property and on production
over 1.85 million ounces, an additional $10.00 per ounce is payable.
5. LONG-TERM INVESTMENTS
DECEMBER 31
------------------
1995 1994
------- -------
Partially-owned companies fully acquired subsequent to year end (note
14):
Geddes Resources Limited............................................... $12,143 $ 9,769
El Condor Resources Ltd................................................ 7,408 --
St. Philips Resources Inc.............................................. 7,331 --
------- -------
26,882 9,769
Mountain Minerals Co. Ltd................................................ 7,056 6,419
Other.................................................................... 2,369 3,082
------- -------
$36,307 $19,270
======= =======
In 1994, Mountain Minerals Co. Ltd. ("Mountain Minerals") issued additional
share capital which reduced the Company's equity interest from 51% to 41%. As a
result of this share issuance by Mountain Minerals, the Company recorded a gain
on dilution of $3,020,000. During 1995, the Company increased its interest in
Mountain Minerals to 45% by way of open market purchases.
F-9
124
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
6. DEFERRED REVENUE AND OTHER LIABILITIES
DECEMBER 31
------------------
1995 1994
------- -------
Deferred revenue......................................................... $29,711 $24,118
Provision for loss on foreign currency contracts......................... 10,023 15,267
Accrued reclamation costs................................................ 4,852 602
Other.................................................................... 737 1,037
------- -------
45,323 41,024
Less current portion..................................................... 4,523 1,282
------- -------
$40,800 $39,742
======= =======
(a) Deferred Revenue
The following table summarizes the years in which the deferred revenue is
expected to be recorded in income.
YEAR AMOUNT
---------------------------------------------------------- -------
1996...................................................... $ 4,523
1997...................................................... 7,293
1998...................................................... 7,612
1999...................................................... 10,283
-------
$29,711
=======
(b) Provision for loss on foreign currency contracts
In prior years, to protect the Company from foreign currency fluctuations
and to provide a minimum Canadian dollar conversion rate for its U.S. dollar
gold sales revenue, the Company entered into foreign currency contracts for
conversion into Canadian dollars. These contracts were associated with the
Company's contractual obligation to deliver future gold production at specified
prices in U.S. dollars. At the end of 1995, the Company had contracts to deliver
approximately US$116 million (1994 -- US$119 million) at an average exchange
rate of 1.2806 (1994 -- 1.2744) Cdn $/US$. In 1994, the Company began marking to
market these foreign currency contracts because of the significant weakening of
the Canadian dollar since the time these contracts had first been entered into.
The Company follows a policy of rolling forward these contracts as they mature
and expects to delay delivery of U.S. dollars against these contracts.
7. CAPITAL STOCK
(a) Changes in Capital Stock
Authorized: An unlimited number of special shares issuable in series and an
unlimited number of common shares.
Issued, outstanding and fully paid -- special: nil (1994 -- nil)
F-10
125
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
Issued, outstanding and fully paid -- common:
NUMBER OF
SHARES AMOUNT
---------- --------
BALANCE, DECEMBER 31, 1992......................................... 69,946,751 $ 64,355
Issued via special warrants........................................ 9,000,000 25,200
Acquisition of Colomac Mine........................................ 3,500,000 7,875
Acquisition of gross production royalty on Colomac property........ 1,000,000 4,000
Issued via unit offering........................................... 6,000,000 42,000
Exercise of warrants -- Series 1................................... 6,941,393 11,453
Exercise of warrants -- Series 2................................... 5,000 16
Employee gain sharing program...................................... 78,102 152
Issued for share purchase options.................................. 484,967 600
Share issue costs.................................................. (3,492)
----------- --------
BALANCE, DECEMBER 31, 1993......................................... 96,956,213 152,159
Issued via public offering......................................... 17,400,000 100,050
Exercise of warrants -- Series 2................................... 19,000 61
Issued for share purchase options.................................. 119,534 132
Share issue costs.................................................. -- (5,040)
----------- --------
BALANCE, DECEMBER 31, 1994......................................... 114,494,747 247,362
Exercise of warrants -- Series 2................................... 4,475,300 14,545
Issued for share purchase options.................................. 148,667 190
Issued to acquire Witteck Development Inc.......................... 1,924,816 8,854
Share issue costs.................................................. -- (140)
----------- --------
BALANCE, DECEMBER 31, 1995
Issued and outstanding............................................. 121,043,530 270,811
Company shares held by Witteck Development Inc. (note 7(b))........ (1,924,816) (8,854)
----------- --------
Balance, December 31, 1995 for financial reporting purposes........ 119,118,714 $261,957
=========== ========
(b) Acquisition of Witteck Development Inc.
During 1995, the Board of Directors and the shareholders approved the
acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose
sole asset is an investment in the Company of 1,924,816 shares. This investment
has been recorded as a reduction of capital stock on the balance sheet.
Consequently, the shares of the Company that are held by Witteck have been
excluded from the determination of earnings per share information.
(c) Warrants
During the year, 4,475,300 Series 2 warrants were exercised and converted
into common shares at a price of $3.25 per share.
At December 31, 1995, the Company had 3,000,000 Series 3 warrants
outstanding which were issued in 1993. Each warrant entitles the holder to
purchase one common share of the Company at a price of $8.75 per share until May
30, 1996.
F-11
126
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(d) Weighted Average Number of Common Shares
Earnings per share has been calculated on the basis of the weighted average
number of common shares outstanding for the year which was 117,900,306 shares
(1994 -- 101,399,347; 1993 -- 84,073,179).
(e) Stock Options
The Company grants stock options to employees and directors in recognition
of their service to the Company.
The following table outlines activity with respect to the Company's stock
options:
NUMBER OF SHARES PRICE PER SHARE
---------------- ---------------
OUTSTANDING, DECEMBER 31, 1992............................... 1,103,834 $0.48 - $2.04
Granted...................................................... 1,360,000
Exercised.................................................... (484,967) $0.48 - $3.95
Cancelled/Expired............................................ (572,500)
---------
OUTSTANDING, DECEMBER 31, 1993............................... 1,406,367 $0.48 - $6.25
Granted...................................................... 1,100,000
Exercised.................................................... (119,534) $0.48 - $2.85
Cancelled/Expired............................................ (166,000)
---------
OUTSTANDING, DECEMBER 31, 1994............................... 2,220,833 $0.48 - $6.25
Granted...................................................... 605,000
Exercised.................................................... (148,667) $0.90 - $2.85
Cancelled/Expired............................................ (215,000)
---------
OUTSTANDING, DECEMBER 31, 1995............................... 2,462,166 $0.48 - $6.25
=========
F-12
127
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
8. INCOME TAXES
The provisions for income tax are analyzed in the following table to show
the taxes that would be payable by applying statutory tax rates to the Company's
pre-tax earnings, and the taxes actually provided in the accounts:
DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
Pre-tax income, as reported................................. $24,754 $22,777 $15,804
Combined statutory tax rates................................ 43% 43% 44%
Tax at combined statutory rates............................. $10,644 $ 9,794 $ 6,954
Adjust for tax effect of:
Resource allowance........................................ (771) (3,782) (2,233)
Non-taxable portion of capital gains...................... (829) (547) --
Deductible financing costs................................ (1,152) (860) (393)
Other..................................................... 43 -- --
Utilization of previously unrecognized deferred tax assets
and net adjustment to deferred taxes...................... (7,157) (4,605) (4,328)
Foreign earnings subject to different tax rates............. (117) -- --
Large corporation capital tax............................... 639 336 215
Corporate minimum tax....................................... 242 300 --
------- ------- -------
$ 1,542 $ 636 $ 215
======= ======= =======
For income tax purposes, the Company has tax deductions available to be
utilized in future years totalling $167 million. When claimed, a substantial
portion of these tax deductions will result in the creation of deferred income
tax liabilities.
The Company also has $16 million of earned depletion and mining exploration
depletion base carry forward available to be deducted against certain future
resource profits.
Because of reorganizations undertaken by the Company, utilization of tax
deductions and earned depletion base may be restricted.
9. INTEREST AND OTHER INCOME, NET
Interest and other income is comprised of:
DECEMBER 31
-----------------------------
1995 1994 1993
------- ------ ------
Interest income............................................... $10,640 $4,078 $2,194
Gain on sale of securities.................................... 8,309 1,290 19
Other, net.................................................... 1,953 1,706 76
------- ------ ------
$20,902 $7,074 $2,289
======= ====== ======
10. EMPLOYEE BENEFIT PLANS
The Company has defined benefit and defined contribution pension plans
covering substantially all of its regular full-time employees. Pension benefits
are based, in defined benefit plans, on employees' earnings and
F-13
128
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
years of service. Most of the plans are funded currently by contributions from
the Company, based on periodic actuarial valuations. Contributions to its
defined contribution plan are based on a specific percentage of base earnings.
The market related value of the defined benefit pension plans' assets was
$35,359,000 at December 31, 1995 (1994 -- $32,226,000) and the actuarial present
value of accrued pension benefits was $31,321,000 at December 31, 1995 (1994 --
$30,789,000). The total pension expense for the year was $1,324,000 (1994 --
$1,163,000; 1993 -- $908,000).
11. CONTINGENCIES AND COMMITMENTS
(a) Legal Claim
On September 18, 1992, nine miners were murdered in an underground
explosion at the Company's Giant Mine. A member of the union which was on strike
at the time was charged and convicted of nine counts of second degree murder. In
September, 1994, dependents of the deceased miners sued the Company and two of
its officers and directors, along with 23 other named defendants including
Procon Miners Inc., Pinkerton's of Canada Limited, the Government of the
Northwest Territories, and National Automobile, Aerospace and Agricultural
Implement Workers Union of Canada, for losses allegedly suffered as a result of
the explosion. The claim against the Company and all defendants but one, totals
approximately $10.8 million plus taxes, interest and costs. The claim against
the two officers and directors and all other defendants, excluding the Company,
totals approximately $33.65 million plus taxes, interest and costs.
The claim is being vigorously defended. Counsel for the Company's insurer
has stated that, based on allegations in the amended Statement of Claim -- being
the only pleading filed to date -- any liability that might be imposed would be
within the Company's liability insurance coverage. The Company believes that the
claim is without merit.
(b) Laws and Regulations
The Company's current and proposed mining and exploration activities are
subject to various laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect its employees, the general public and the environment and believes
its operations are in compliance with all applicable laws and regulations, in
all material respects. The Company has made, and expects to make in the future,
submissions and expenditures to comply with such laws and regulations.
Where estimated reclamation and closure costs are reasonably determinable,
the Company has recorded a provision for environmental liabilities based on
management's estimate of these costs. Such estimates are subject to adjustment
based on changes in laws and regulations and as new information becomes
available.
The Company is from time to time involved in various claims, legal
proceedings and complaints arising in the ordinary course of business. The
Company is also subject to reassessment for income and mining taxes for certain
years. It does not believe that adverse decisions in any potential tax
reassessments or any amount which it may be required to pay by reason thereof
will have a material adverse effect on the financial condition or future results
of operations of the Company.
(c) Forward Sales and Hedging Contracts
The Company engages in hedging transactions to minimize the impact of
fluctuations in gold, oil and foreign currency prices.
F-14
129
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The credit risk related to hedging activities is limited to the unrealized
gains on outstanding contracts based on current market prices. The Company
believes it has minimized credit risk by dealing with large credit-worthy
institutions and by limiting credit exposure to each.
(i) At December 31, 1995 the Company had contractual arrangements, in
U.S. and Canadian dollars, to deliver the following ounces of gold:
GOLD FORWARD SALES PRICE OF FORWARD SALES
YEAR (OZ.) (PER OZ.)
----------------------------------------------- ------------------ ----------------------
1996........................................... 39,028 US$385
1997........................................... 140,000 Cdn $614
1998........................................... 140,000 Cdn $629
1999........................................... 140,000 Cdn $654
2000........................................... -- --
-------
459,028
=======
Delivery under these contracts can be deferred at the Company's option for
up to five years depending on the individual contract.
(ii) The Company's call option position as at December 31, 1995 was as
follows:
GOLD CALL
OPTIONS SOLD STRIKE PRICE
YEAR (OZ.) (PER OZ.)
----------------------------------------------------------- ------------ ------------
1996....................................................... 305,000 US$410
1997....................................................... 187,792 Cdn $624
1998....................................................... 200,000 Cdn $639
1999....................................................... 200,000 Cdn $664
2000....................................................... -- --
-------
892,792
=======
If called, the Company has the ability to delay delivery of these ounces by
entering into fixed forward or spot deferred contracts originating with the same
number of ounces and strike prices as in the exercised option.
(iii) At December 31, 1995, the Company's obligations to sell U.S. dollars
were as follows:
EXCHANGE
U.S. DOLLARS RATE (CDN CARRYING FAIR
YEAR (000'S) $/US$) AMOUNT VALUE
------------------------------------ ------------ ----------- -------- --------
1996................................ US$ 106,229 1.2807 $ (9,190) $ (9,190)
1997................................ US$ 9,636 1.2801 (833) (833)
1998-2000........................... -- -- -- --
---------- ------ -------- --------
US$ 115,865 1.2806 $(10,023) $(10,023)
========== ====== ======== ========
F-15
130
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The Company marks to market these contracts based on the applicable
exchange rate at the date of the balance sheet. See note 6(b).
(iv) At December 31, 1995 the Company had oil swap agreements to hedge the
cost of Western Texas Intermediate ("WTI") crude oil to be used for the
operations of the Colomac Mine. These agreements call for settlement as
follows:
YEAR BARRELS OF WTI PURCHASED PRICE PER BARREL
--------------------------------------------- ------------------------ ----------------
1996......................................... 200,000 US$17.40
1997......................................... 200,000 US$16.85
1998-2000.................................... -- --
-------
400,000
=======
(d) Operating Royalties
(i) Under the terms of the Hope Brook Mine Asset Purchase Agreement, the
Company is obligated to pay an operating royalty when the average price
of gold exceeds US$380 per ounce. Amounts payable vary between
$1,300,000 and $3,300,000 annually depending on the average price of
gold. In respect of 1995, the Company was obligated to pay $1,300,000
(1994 -- $1,300,000; 1993 -- nil). Obligations under this agreement
expire in 1996.
(ii) Under the terms of the Colomac Mine Asset Purchase Agreement, the
Company is obligated to pay an operating royalty when the average price
of gold exceeds US$400 per ounce. Amounts payable vary between $1.0
million and $2.0 million annually depending on the average price of
gold. In respect of 1995, no amount was payable under this royalty (1994
-- nil; 1993 -- nil). Obligations under this agreement are expected to
expire in 1999.
12. NET CHANGE IN NON-CASH WORKING CAPITAL
DECEMBER 31
--------------------------------
1995 1994 1993
------- -------- -------
Cash provided by (used for):
Receivables.............................................. $ (296) $ (3,905) $ 2,973
Inventories.............................................. (9,886) (17,530) (6,862)
Prepaid expenses......................................... (799) (1,533) (427)
Accounts payable......................................... 986 (1,498) 2,922
Accrued payroll costs.................................... (383) 1,717 (63)
Income taxes payable..................................... 935 802 (115)
Other current liabilities................................ 1,855 12,071 1
Mountain Minerals deconsolidation........................ -- (38) --
------- ------- -------
$(7,588) $ (9,914) $(1,571)
======= ======= =======
F-16
131
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of net income in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP") to net income in accordance with United
States generally accepted accounting principles ("U.S. GAAP") is as follows:
DECEMBER 31
-----------------------------
1995 1994 1993
------- ------- -------
Net income in accordance with Canadian GAAP.................... $23,169 $22,166 $15,623
Decrease:
Depreciation and amortization................................ (5,633) (2,188) (1,683)
Employee benefit plans....................................... (359) -- --
------- ------- -------
Net income in accordance with U.S. GAAP........................ $17,177 $19,978 $13,940
======= ======= =======
Earnings per share in accordance with U.S. GAAP:
Primary earnings............................................. $ 0.15 $ 0.19 $ 0.17
Fully diluted earnings....................................... $ 0.15 $ 0.19 $ 0.16
The effects on the balance sheets of the Company at December 31, prepared
in accordance with U.S. GAAP, are:
DECEMBER 31
---------------------------
1995 1994 1993
------- ------ ------
Decrease:
Property, plant and equipment.................................. $11,794 $6,161 $3,973
Prepaid expenses (pension asset)............................... 359 -- --
------- ------ ------
Retained earnings.............................................. $12,153 $6,161 $3,973
======= ====== ======
(a) Depreciation and Amortization
Under U.S. GAAP, depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas under
Canadian GAAP, total mineral inventory may be used in the calculations.
(b) Employee Benefit Plans
Under U.S. GAAP, for defined benefit pension plans, the projected benefit
obligation should be discounted using interest rates at which the obligation
could be effectively settled whereas under Canadian GAAP, the projected benefit
obligation may be discounted using interest rates which are consistent with
long-term assumptions. Also, under U.S. GAAP, experience gains and losses as
well as adjustments arising from changes in assumptions must be amortized only
if it exceeds a specified range. Under Canadian GAAP, these amounts must be
amortized over the expected average remaining service life of the employee group
regardless of the amount.
Pension expense is determined each year based on actuarial recommendations.
The actuarial assumptions applied in determining the expense in accordance with
U.S. GAAP include a discount rate on the benefit obligation, rate of
compensation increases and long-term rate of return on the plan assets of 8.5%,
7.0% and 8.5%, respectively. Assets of the plans are held in a range of
investments, which include fixed-income securities, equities and money market
securities. At January 1, 1987, as a result of an actuarial valuation of the
plans, a surplus was identified which is being amortized over the estimated
average remaining service lives of the employees (EARSL) which, for the
Company's defined benefit pension plans, ranges from 12 to 18 years.
F-17
132
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The components of pension expense, for the Company's defined benefit
pension plans, calculated in accordance with U.S. GAAP are as follows:
DECEMBER 31
-----------------------------
1995 1994 1993
------- ------- -------
Service cost -- benefits earned during the year................ $ 1,374 $ 1,292 $ 944
Interest cost on projected benefit obligation.................. 2,541 2,445 2,267
Return on assets............................................... (4,999) (169) (2,448)
Other.......................................................... 2,575 (2,586) (92)
------- ------- -------
$ 1,491 $ 982 $ 671
======= ======= =======
The funded status and differences between amounts expensed and amounts
funded calculated under U.S. GAAP for the Company's defined benefit pension
plans are as follows:
DECEMBER 31
-----------------------------------------------------------------
1995 1994
------------------------------- -------------------------------
PLANS WHERE PLAN WHERE PLANS WHERE PLAN WHERE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
Plans' assets at market value.................. $29,912 $ 8,743 $27,070 $ 7,657
------- ------ ------- ------
Projected benefits based on:
Employment service to date and present pay
levels
Vested.................................... 20,144 8,787 18,731 8,323
Non-vested................................ 68 42 983 40
Additional amount related to compensation
increases................................. 3,246 -- 2,712 --
------- ------ ------- ------
Projected benefit obligations.................. 23,458 8,829 22,426 8,363
------- ------ ------- ------
Plans' assets in excess of (less than)
projected benefit obligations................ 6,454 (86) 4,644 (706)
Unamortized January 1, 1987 surplus, net....... (1,932) (774) (2,148) (863)
Unamortized net experience (gains) losses...... (3,055) 1,029 (1,243) 1,320
Unamortized prior service cost................. -- 1,408 -- 1,515
------- ------ ------- ------
$ 1,467 $ 1,577 $ 1,253 $ 1,266
======= ====== ======= ======
Difference between amounts charged to
operations and amounts funded................ $3,044 $2,519
------- -------
------- -------
In addition to the defined benefit pension plans noted above, the Company
maintains a defined contribution pension plan for certain of its hourly
employees. Under this plan, the Company contributes 2.5% of each member's base
earnings to the pension plan. The pension expense for the year under this
pension plan was $192,000 (1994 -- $181,000; 1993 -- $237,000).
F-18
133
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(c) Income Taxes
In accordance with the Financial Accounting Standards Board Statement No.
109 ("SFAS 109"), U.S. GAAP requires that income taxes be accounted for by the
liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial statement reporting and
the tax bases of the assets and liabilities and are measured at the enacted tax
rates that will be in effect when the differences are expected to reverse. Such
differences principally arise from the timing of income and expense recognition
for accounting and tax purposes. The application of SFAS 109 would have no
material effect on the assets, liabilities or operations for the years presented
in these consolidated financial statements as additional deferred tax assets
arising from the table of reconciling items have been offset by the recording of
an additional valuation allowance. The following additional disclosures with
respect to income taxes are required by U.S. GAAP:
DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
Deferred Tax Liabilities:
Exploration expenditures................................... $ 4,643 $ 5,519 $ 5,985
Mining properties and deferred development................. 6,979 941 (835)
Pension asset.............................................. 985 997 957
Investments................................................ 1,057 1,057 --
Other...................................................... -- 58 --
------- ------- -------
$13,664 $ 8,572 $ 6,107
======= ======= =======
Deferred Tax Assets:
Provision for loss on foreign currency contracts........... $ 3,567 $ 5,343 $ --
Operating losses........................................... -- -- 1,043
Property, plant and equipment.............................. 7,670 6,126 10,569
Accrued reclamation costs.................................. 648 163 49
Other...................................................... 1,030 571 595
Valuation allowance........................................ (2,134) (4,838) (9,034)
------- ------- -------
$10,781 $ 7,365 $ 3,222
======= ======= =======
The net change in the valuation allowance from 1994 to 1995 was a decrease
of $2,704,000. The Company decreased its beginning-of-the-year balance of the
valuation allowance by approximately $3,063,000 to reflect changes in
circumstances.
14. SUBSEQUENT ACQUISITIONS
(a) Acquisition of Geddes Resources Limited, El Condor Resources Ltd. and St.
Philips Resources Inc.
On January 11, 1996, the Company acquired all of the outstanding shares of
Geddes Resources Limited ("Geddes"), El Condor Resources Ltd. ("El Condor") and
St. Philips Resources Inc. ("St. Philips") not already owned by the Company
pursuant to a series of signed agreements (the "Plan of Arrangement") on the
following terms:
Geddes: 0.30 shares of the Company for each share of Geddes.
El Condor: 0.95 shares of the Company plus $2.00 cash for each share of El
Condor.
St. Philips: $3.40 cash for each share of St. Philips.
F-19
134
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The Company issued 19,011,883 common shares and paid approximately $56
million in cash pursuant to the Plan of Arrangement. The January 11, 1996
closing price on the Toronto Stock Exchange for the Company's common shares was
$6.00. This price was used to value the common shares issued under the Plan of
Arrangement.
The following outlines the details of the purchase price and its allocation
to the assets and liabilities acquired:
GEDDES EL CONDOR ST. PHILIPS TOTAL
------- --------- ----------- --------
Purchase price:
Cash paid, including open market purchases....... $ 3,220 $ 34,222 $38,562 $ 76,004
Issue of common shares........................... 37,650 76,421 -- 114,071
------- -------- ------- --------
$40,870 $ 110,643 $38,562 $190,075
======= ======== ======= ========
Allocated to:
Cash and cash equivalents........................ $ 561 $ 1 $ 378 $ 940
Property, plant and equipment.................... 40,619 111,407 38,336 190,362
Other assets..................................... 31 151 9 191
Total liabilities................................ (341) (916) (161) (1,418)
------- -------- ------- --------
$40,870 $ 110,643 $38,562 $190,075
======= ======== ======= ========
The Company incurred transaction and other costs totaling $3,649,000. In
May 1993, the Company had purchased an approximate 39% interest in Geddes. See
note 5 for the year-end carrying amount. These transaction and other costs
together with the carrying amount of the initial purchase of Geddes have been
allocated to property, plant and equipment.
The following is a condensed consolidated balance sheet of the Company as
at January 11, 1996, after giving effect to the acquisitions:
JANUARY 11, DECEMBER 31,
1996 1995
----------- ------------
Cash and cash equivalents........................................... $ 79,982 $139,410
Other current assets................................................ 62,057 61,865
-------- --------
142,039 201,275
Property, plant and equipment....................................... 394,583 191,381
Long-term investments............................................... 9,445 36,307
-------- --------
546,067 428,963
======== ========
Current liabilities................................................. $ 43,852 $ 42,434
Long-term liabilities and other..................................... 47,649 46,034
-------- --------
91,501 88,468
Capital stock
(Outstanding: January 11, 1996 -- 138,130,597).................... 376,028 261,957
Retained earnings(a)................................................ 78,538 78,538
-------- --------
$ 546,067 $428,963
======== ========
F-20
135
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(a) Income for the interim period has been ignored for the purposes of this
comparative balance sheet.
These acquisitions were linked to the resolution of the claim for
compensation from the Government of British Columbia (the "B.C. Government")
which, in 1993, appropriated the Windy Craggy property from Geddes and declared
the area a provincial park. Under the terms of an agreement among the B.C.
Government, the Company and Geddes, the B.C. Government has agreed to an
economic assistance package and compensation valued at $166 million. The
majority of these funds are payable to the Company over the next three years.
(b) Offer to Purchase Consolidated Professor Mines Limited
On February 5, 1996, the Company made a public offer to purchase all of the
outstanding common shares of Consolidated Professor Mines Limited ("Consolidated
Professor") at a cash price of $0.80 per share for a total purchase price of
approximately $16 million. On February 27, 1996 the Company acquired 16,135,891
common shares of Consolidated Professor representing 81.2% of the outstanding
common shares and extended its offer to purchase all of the common shares until
March 29, 1996.
F-21
136
ROYAL OAK MINES INC.
CONSOLIDATED BALANCE SHEETS
(unaudited -- Cdn$ 000s)
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
ASSETS
Current Assets
Cash and cash equivalents.......................................... $ 14,797 $139,410
Short-term investments............................................. 24,886 2,971
Receivables........................................................ 7,505 7,138
Inventories (note 4)............................................... 72,829 46,136
Prepaid expenses................................................... 8,525 5,620
-------- --------
Total Current Assets............................................ 128,542 201,275
Property, Plant and Equipment, net................................... 435,690 191,381
Long-term Investments................................................ 15,886 36,307
-------- --------
TOTAL ASSETS......................................................... $580,118 $428,963
======== ========
LIABILITIES
Current Liabilities
Accounts payable................................................... $ 9,585 $ 13,640
Accrued payroll.................................................... 3,870 5,267
Current portion of deferred revenue................................ 16,491 4,523
Income taxes payable............................................... 3,751 3,350
Other current liabilities.......................................... 23,537 15,654
-------- --------
Total Current Liabilities....................................... 57,234 42,434
Deferred Revenue..................................................... 38,318 25,188
Other Liabilities.................................................... 17,397 15,612
Deferred Income Taxes................................................ 7,070 5,064
Minority Interest in Subsidiary Companies............................ 140 170
-------- --------
TOTAL LIABILITIES.................................................... 120,159 88,468
-------- --------
SHAREHOLDERS' EQUITY
Capital Stock (note 11)
Common stock
Authorized -- unlimited
Outstanding -- 138,218,430 (Dec. 31, 1995 -- 119,118,714)....... 376,316 261,957
Retained Earnings.................................................... 83,643 78,538
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................................... 459,959 340,495
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $580,118 $428,963
======== ========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-22
137
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(unaudited -- Cdn$ 000s except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- --------------------
1996 1995 1996 1995
-------- ------- -------- --------
REVENUE............................................ $ 54,797 $53,453 $105,846 $100,839
------- ------- -------- --------
EXPENSES
Operating........................................ 39,354 45,650 81,383 89,714
Royalties and marketing.......................... 846 889 1,408 1,108
Administrative and corporate..................... 2,712 3,323 4,861 4,945
Depreciation and amortization.................... 6,131 2,988 11,366 6,270
Exploration...................................... 1,449 141 2,409 254
Recovery of loss on foreign currency contracts... (209) (3,772) (976) (3,772)
------- ------- -------- --------
Total operating expenses...................... 50,283 49,219 100,451 98,519
------- ------- -------- --------
OPERATING INCOME................................... 4,514 4,234 5,395 2,320
Interest and other income, net (note 3)............ 1,119 6,357 2,462 12,135
------- ------- -------- --------
NET INCOME BEFORE UNDERNOTED....................... 5,633 10,591 7,857 14,455
Income and mining taxes -- current............... (368) (653) (723) (969)
Income and mining taxes -- deferred.............. (1,466) -- (2,006) --
Minority interest................................ (80) 9 (53) 9
Equity in income (loss) of associated
companies..................................... 30 (199) 30 (244)
------- ------- -------- --------
NET INCOME......................................... 3,749 9,748 5,105 13,251
RETAINED EARNINGS -- BEGINNING OF PERIOD........... 79,894 58,872 78,538 55,369
------- ------- -------- --------
RETAINED EARNINGS -- END OF PERIOD................. $ 83,643 $68,620 $ 83,643 $ 68,620
======= ======= ======== ========
EARNINGS PER SHARE................................. $0.03 $0.08 $0.04 $0.11
======= ======= ======== ========
Weighted average number of common shares
outstanding (000s)............................... 138,196 119,021 135,006 116,754
======= ======= ======== ========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-23
138
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited -- Cdn$ 000s)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- --------- --------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Consolidated net income for the period.......... $ 3,749 $ 9,748 $ 5,105 $ 13,251
Items not affecting cash:
Depreciation and amortization................ 6,131 2,988 11,366 6,270
Deferred income tax.......................... 1,466 -- 2,006 --
Recovery of loss on foreign currency
contracts.................................. (209) (3,772) (976) (3,772)
Other........................................ 51 596 169 235
-------- -------- --------- --------
CASH FLOW......................................... 11,188 9,560 17,670 15,984
Net change in non-cash working capital (note 5)... (10,999) (3,265) (27,132) (8,302)
-------- -------- --------- --------
Net cash provided by (used in) operating
activities...................................... 189 6,295 (9,462) 7,682
-------- -------- --------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Increase in deferred revenue, net............... 19,112 2,267 25,097 6,692
Issue of common shares (note 11)................ 359 69 114,359 14,575
Other........................................... 994 (74) 2,424 (146)
-------- -------- --------- --------
Net cash provided by financing activities......... 20,465 2,262 141,880 21,121
-------- -------- --------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Investment in Kemess capital assets through
purchase of companies (note 8)............... -- -- (201,976) --
Decrease in long-term investments (note 8)...... -- -- 26,882 --
Investment in capital assets through purchase of
Consolidated Professor Mines Limited (note
9)........................................... (2,592) -- (15,844) --
Investment in other capital assets, net......... (12,788) (9,591) (32,216) (17,288)
Investment in exploration and non-producing
properties, net.............................. (3,626) (3,432) (5,692) (5,655)
Change in other assets.......................... (3,027) (1,364) (6,270) (1,684)
-------- -------- --------- --------
Net cash used in investing activities............. (22,033) (14,387) (235,116) (24,627)
-------- -------- --------- --------
INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS DURING PERIOD....................... (1,379) (5,830) (102,698) 4,176
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF
PERIOD.......................................... 41,062 188,943 142,381 178,937
-------- -------- --------- --------
CASH AND SHORT-TERM INVESTMENTS AT END OF
PERIOD.......................................... $ 39,683 $183,113 $ 39,683 $183,113
======== ======== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................... $47 $44 $86 $96
Income taxes................................. $175 $110 $530 $426
Cash consists of cash and short-term investments.
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-24
139
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
1. INTERIM FINANCIAL STATEMENTS ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP") which, in the case of Royal Oak Mines Inc. (the
"Company"), differ in certain material respects from United States generally
accepted accounting principles ("U.S. GAAP"), as described in Note 7. Also, such
statements do not include all of the disclosures required by generally accepted
accounting principles for annual statements. In the opinion of management all
adjustments considered necessary for fair presentation have been included in
these statements. Operating results for the three and six months ended June 30,
1996, are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1996. For further information, see the Company's
Consolidated Financial Statements, including the accounting policies and notes
thereto, included in the Annual Report to Shareholders and Annual Report on Form
10-K for the year ended December 31, 1995.
The calculations of net earnings per share are based upon the weighted
average number of common shares of the Company outstanding during each period
(except as set forth in Note 11(b)). When outstanding convertible instruments
materially dilute earnings per share, fully diluted earnings per share are
disclosed.
2. PRESENTATION
Certain amounts for 1995 have been reclassified to conform with the current
year's presentation.
3. INTEREST AND OTHER INCOME, NET
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30 JUNE 30
---------------- -----------------
1996 1995 1996 1995
------ ------ ------ -------
Interest income.......................................... $ 336 $2,470 $1,360 $ 4,988
Gain on sale of securities and other..................... 783 3,887 1,102 7,147
------ ------ ------ -------
Interest and other income, net........................... $1,119 $6,357 $2,462 $12,135
====== ====== ====== =======
4. INVENTORIES
JUNE 30, DECEMBER 31,
1996 1995
------- -----------
Bullion in process.................................................... $20,879 $ 18,574
Stores and operating supplies......................................... 51,950 27,562
-------
Inventories........................................................... $72,829 $ 46,136
======= ===========
The increase in stores and operating supplies resulted from the need to
bring in up to one year's supply of operating and maintenance materials over a
winter road to the Colomac mine site during the first quarter. Due to the remote
nature of the Colomac mine, the most effective way to manage the stores and
operating supplies inventory is to transport them over a winter ice road from
January to March. The freight costs associated with this inventory have been
included in the cost of the inventory and will be charged to operations
throughout the year as the inventory is utilized.
F-25
140
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
5. NET CHANGE IN NON-CASH WORKING CAPITAL
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
Cash provided by (used in):
Receivables..................................... $ (96) $ 1,763 $ (366) $ 1,727
Inventories..................................... 1,733 10,368 (26,693) (14,670)
Prepaid expenses................................ (2,059) (1,198) (2,904) (1,819)
Accounts payable, accrued payroll and other
current liabilities.......................... (10,815) (15,461) 2,431 5,410
Income taxes payable............................ 238 1,263 400 1,050
-------- -------- -------- --------
Net change in non-cash working capital............ $(10,999) $ (3,265) $(27,132) $ (8,302)
======== ======== ======== ========
6. RECLAMATION AND ENVIRONMENTAL REMEDIATION
The Company's current and proposed mining and exploration activities are
subject to various laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect its employees, the general public and the environment and believes
its operations are in compliance with all applicable laws and regulations, in
all material respects. The Company has, and expects to in the future, comply
with such laws and regulations, including making all required expenditures.
Where estimated reclamation and closure costs are reasonably determinable,
the Company has recorded a provision for environmental liabilities, using the
unit-of-production method, based on management's estimate of these costs. Such
estimates are subject to adjustment based on changes in laws and regulations and
as new information becomes available.
7. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of net income in accordance with Canadian GAAP to net income
in accordance with U.S. GAAP is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Net income in accordance with Canadian GAAP........... $ 3,749 $ 9,748 $ 5,105 $13,251
Adjustments:
Depreciation and amortization....................... (1,517) (2,547) (2,233) (3,489)
Income taxes........................................ 531 -- 782 --
------- ------- ------- -------
Net income in accordance with U.S. GAAP............... $ 2,763 $ 7,201 $ 3,654 $ 9,762
======= ======= ======= =======
Earnings per share in accordance with U.S. GAAP....... $ 0.02 $ 0.06 $ 0.03 $ 0.08
======= ======= ======= =======
F-26
141
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The effects on the balance sheets of the Company at June 30, prepared in
accordance with U.S. GAAP, are:
JUNE 30
--------------------
1996 1995
-------- -------
Increase (decrease):
Property, plant and equipment........................................ $ 66,877 $(9,650)
Prepaid expenses (pension asset)..................................... $ (359) --
Deferred income taxes................................................ $ 80,122 --
Retained earnings.................................................... $(13,604) $(9,650)
Statement of Financial Accounting Standards No. 109 requires that a
deferred tax liability be recognized for differences between the assigned values
and the tax bases of the assets and liabilities recognized in a business
combination involving a purchase of stock. Canadian GAAP does not require
similar recognition. Accordingly, during the six months ended June 30, 1996, a
difference between U.S. GAAP and Canadian GAAP arose for the deferred tax
liabilities associated with the excess of the assigned values and the tax bases
of assets acquired in the acquisition of Geddes Resources Limited ("Geddes"), El
Condor Resources Ltd. ("El Condor"), St. Philips Resources Inc. ("St. Philips")
and Consolidated Professor Mines Limited ("Consolidated Professor"). The effect
of these differences is to increase property, plant and equipment and deferred
income taxes by $80.9 million as of June 30, 1996.
8. ACQUISITION OF GEDDES RESOURCES LIMITED, EL CONDOR RESOURCES LTD. AND ST.
PHILIPS RESOURCES INC.
On January 11, 1996, the Company acquired all of the outstanding shares of
Geddes, El Condor and St. Philips not already owned by the Company pursuant to
an agreement (the "Plan of Arrangement") on the following terms:
Geddes: 0.30 shares of the Company for each share of Geddes.
El Condor: 0.95 shares of the Company plus $2.00 cash for each share of El Condor.
St. Philips: $3.40 cash for each share of St. Philips.
As a result of these transactions, the Company issued 19,011,883 common
shares of the Company and paid approximately $56 million in cash pursuant to the
Plan of Arrangement. The January 11, 1996 closing price on The Toronto Stock
Exchange for the Company's common shares was $6.00. This price was used to value
the common shares issued under the Plan of Arrangement. At the time of
acquisition, St. Philips, with its wholly owned subsidiary, and El Condor
jointly owned the Kemess South property. El Condor owned 100% of the Kemess
North property.
As at December 31, 1995, the Company's investment in Geddes, El Condor and
St. Philips amounted to approximately $26.9 million and was included in
long-term investments.
F-27
142
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The following outlines the details of the purchase price and its allocation
to the assets and liabilities acquired:
GEDDES EL CONDOR ST. PHILIPS TOTAL
------- --------- ----------- --------
Purchase price:
Cash paid, including open market purchases....... $ 3,220 $ 34,222 $38,562 $ 76,004
Issue of common shares........................... 37,650 76,421 -- 114,071
------- -------- ------- --------
40,870 110,643 38,562 190,075
Initial carrying value of Geddes................. 9,192 -- -- 9,192
Transaction and other costs...................... 2,290 680 679 3,649
------- -------- ------- --------
52,352 111,323 39,241 202,916
Cash and cash equivalents acquired from
companies..................................... (561) (1) (378) (940)
------- -------- ------- --------
Total.............................................. $51,791 $ 111,322 $38,863 $201,976
======= ======== ======= ========
Allocated to:
Property, plant and equipment.................... $52,101 $ 112,087 $39,015 $203,203
Other assets..................................... 31 151 9 191
Total liabilities................................ (341) (916) (161) (1,418)
------- -------- ------- --------
Total.............................................. $51,791 $ 111,322 $38,863 $201,976
======= ======== ======= ========
These transactions were linked to the resolution of the claim by Geddes for
compensation from the Government of British Columbia (the "B.C. Government")
which, in 1993, declared the area, including the Windy Craggy property, a
provincial park. Under the terms of an agreement among the B.C. Government, the
Company and Geddes, the B.C. Government has agreed to an economic assistance and
investment package and to compensation valued, in the aggregate, at up to $166
million. The majority of these funds are payable to the Company over the next
three years.
The following shows pro forma what the results of operations would have
been if the acquisition had occurred at the beginning of the period:
SIX MONTHS ENDED
JUNE 30
----------------------
1996 1995
-------- --------
Revenue.............................................................. $105,846 $100,839
Net income........................................................... $ 5,105 $ 10,976
Earnings per share -- basic.......................................... $ 0.04 $ 0.08
Earnings per share -- fully diluted.................................. $ 0.04 $ 0.08
On April 29, 1996, the Project Approval Certificate (formerly known as the
Mine Development Certificate) for the Kemess South project was received from the
B.C. Government following resolution of provincial environmental assessment
matters. Federal approval under the Environmental Assessment Act (Canada) and
the Fisheries Act (Canada) is expected shortly and will facilitate completion of
all infrastructure impacting on viable lakes and streams in the project area.
The Kemess South gold-copper project in north central British Columbia is
scheduled to commence production in the first half of 1998. The mineable ore
reserves at year-end 1995 at Kemess South contained approximately 4.1 million
ounces of gold and one billion pounds of copper.
F-28
143
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The Company is proceeding with the development and construction of the
Kemess South project. Engineering on the project is estimated to be 65%
complete. Certain of the construction contracts for the plant and infrastructure
facilities have been awarded and the remainder are expected to be awarded in the
next few months.
Construction on the project commenced in early July. As of July 31, 1996,
approximately $122.0 million has been committed on the project.
The capital cost of the Kemess South project has been estimated at $390
million, including contingency and start-up costs but excluding the cost of
acquisition of the property. Financing for the Kemess South project will include
up to $166 million by way of an economic assistance and investment package and
compensation from the B.C. Government. The Company's wholly owned subsidiary,
Kemess Mines Inc. (formerly Geddes Resources Limited) has already received the
first of two equal payments of compensation from the B.C. Government in the sum
of $14.5 million in April 1996, the final compensation payment being due in
April 1997. The Company will fund the balance of the capital cost from cash in
treasury, future operating cash flow and debt. At this time, the Company has no
plans to issue any new equity in connection with this project.
The Company will apply for and seek to obtain all necessary permits,
licences, approvals and other authorizations for the Kemess South project as
project development continues.
9. ACQUISITION OF CONSOLIDATED PROFESSOR MINES LIMITED
On February 5, 1996, the Company made a public offer to purchase all of the
outstanding common shares of Consolidated Professor consisting of approximately
20 million common shares, at a cash price of $0.80 per share. By June 30, 1996,
the Company had purchased all shares tendered and acquired all remaining shares
in accordance with compulsory acquisition procedures, for a total purchase price
of $16.2 million. The purchase price, net of cash acquired on the acquisition of
$0.3 million, has been assigned as follows:
(MILLION)
Capital assets............................................ $15.8
Miscellaneous net assets.................................. 0.1
-----
Purchase price, net of cash acquired...................... $15.9
=====
The acquisition is part of the Company's strategic plan to increase ore
reserves and production at its Ontario Division. Consolidated Professor has a
100% interest in the Duport Gold project in the Kenora mining district in
northwestern Ontario. The Company intends to review production plans and
continue the mine permitting process initiated by the former owners of
Consolidated Professor.
10. CREDIT LINE
The Company entered into a $28 million unsecured, revolving line of credit
with a major Canadian bank in the first quarter of 1996. This line will be used
as necessary to finance working capital for current operations. At June 30,
1996, no amounts were outstanding under this facility.
F-29
144
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
11. CAPITAL STOCK
(a) Changes in capital
NUMBER OF
SHARES AMOUNT
---------- --------
Balance, December 31, 1994............................................ 114,494,747 $247,362
Exercise of warrants Series 2......................................... 4,475,300 14,545
Issued for share purchase options..................................... 50,667 78
Share issue and other related costs................................... -- (48)
----------- --------
Balance, June 30, 1995 issued and outstanding......................... 119,020,714 $261,937
=========== ========
Balance, December 31, 1995............................................ 121,043,530 $270,811
Issued to acquire Geddes and El Condor (See note 8)................... 19,011,883 114,071
Issued for share purchase options..................................... 87,833 288
----------- --------
Balance, June 30, 1996 issued and outstanding......................... 140,143,246 385,170
Company shares held by Witteck Development Inc. (see note 11(b))...... (1,924,816) (8,854)
----------- --------
Balance, June 30, 1996 for financial reporting purposes............... 138,218,430 $376,316
=========== ========
(B) COMPANY SHARES HELD BY WITTECK DEVELOPMENT INC.
During 1995, the Board of Directors and the shareholders approved the
acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose
sole asset is an investment in the Company of 1,924,816 common shares of the
Company. This investment has been recorded as a reduction of capital stock on
the balance sheet. Consequently, the common shares of the Company that are held
by Witteck may not be voted and have been excluded from the determination of
earnings per share information.
F-30
145
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AS
AMENDED OR SUPPLEMENTED AT THE TIME OF DELIVERY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ROYAL OAK MINES INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION NOR TO ANY PERSON WHO HAS NOT RECEIVED A COPY OF EACH CURRENT
AMENDMENT OR SUPPLEMENT HERETO. NEITHER THE DELIVERY OF THIS PROSPECTUS OR OF
ANY AMENDMENT OR SUPPLEMENT HERETO, NOR ANY SALE MADE HEREUNDER AND THEREUNDER,
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ROYAL OAK MINES INC.
SINCE SUCH RESPECTIVE DATES.
------------------
TABLE OF CONTENTS
PAGE
------
Available Information.................. 2
Information Incorporated by
Reference............................ 3
Exchange Rate Data..................... 3
Prospectus Summary..................... 4
Risk Factors........................... 16
The Exchange Offer..................... 23
Certain Federal Income Tax Consequences
of the Exchange Offer................ 30
Capitalization......................... 31
Selected Historical Consolidated
Financial and Operating Data......... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 34
Business............................... 42
Management............................. 63
Description of Share Capital........... 69
Certain Relationships and Related
Transactions......................... 71
Security Ownership..................... 72
Description of Credit Facility......... 72
Description of Exchange Notes.......... 73
Description of Notes................... 97
Exchange Offer and Registration
Rights............................... 98
Certain Income Tax Considerations...... 100
Book-Entry; Delivery and Form.......... 102
Plan of Distribution................... 104
Validity of Exchange Notes............. 105
Experts................................ 105
Glossary of Certain Mining Terms....... 106
Index to Consolidated Financial
Statements........................... F-1
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
ROYAL OAK MINES INC.
OFFER TO EXCHANGE
US$175,000,000
11% SENIOR SUBORDINATED
NOTES DUE 2006
FOR
SERIES B 11% SENIOR SUBORDINATED
NOTES DUE 2006
LOGO
- ------------------------------------------------------
- ------------------------------------------------------
146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Ontario Business Corporations Act, each of the Company and the
Guarantor may indemnify a present or former director or officer or a person who
acts or acted at such corporation's request as a director or officer of another
corporation of which the Company or the Guarantor, as the case may be, is or was
a shareholder or creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
his position with the Company or the Guarantor, as the case may be, and provided
that the director or officer acted honestly and in good faith with a view to the
best interests of the Company or the Guarantor, as the case may be, and, in the
case of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, had reasonable grounds for believing that his conduct was
lawful. Such indemnification may be made in connection with a derivative action
only with court approval. A director or officer is entitled to indemnification
from the Company or the Guarantor as a matter of right if he was substantially
successful on the merits and fulfilled the conditions set forth above.
In accordance with the Ontario Business Corporations Act, the By-laws of
each of the Company and the Guarantor provide for indemnification of a director
or officer, a former director or officer, or a person who acts or acted at such
corporation's request as a director or officer of a corporation of which Company
or the Guarantor, as the case may be, is or was a shareholder or creditor and
his heirs and legal representatives against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative proceeding
to which he is made a party by reason of being or having been a director or
officer of the Company or the Guarantor or such other corporation if he acted
honestly and in good faith with a view to the best interests of the Company or
the Guarantor, as the case may be, or, in the case of a criminal or
administrative action or proceeding that is enforced by monetary penalty, he had
reasonable grounds in believing that his conduct was lawful.
A policy of directors' and officers' liability insurance is maintained by
the Company which insures the directors and officers of the Company and its
subsidiaries, including the Guarantor, for losses as a result of claims based
upon the acts or omissions of such individuals as directors and officers of the
Company or its subsidiaries (including the Guarantor), including liabilities
arising under the Securities Act, and also reimburses the Company for payments
made pursuant to the indemnity provisions under the Ontario Business
Corporations Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company or
the Guarantor pursuant to the foregoing provision, the Company and the Guarantor
have been informed that in the opinion of the U.S. Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
3.1 Certificate of Amalgamation of the Company dated January 1, 1992 (incorporated by
reference to the Company's Form 20-F for the year ended December 31, 1991).
3.2 General By-Law No. 3 of the Company dated July 23, 1991 (incorporated by reference
to the Company's Form 20-F for the year ended December 31, 1991).
3.3 Constituting documents of the Guarantor.
3.4 By-Law Number 8 of the Guarantor.
4.1 Indenture, dated as of August 12, 1996, by and among the Company, the Guarantor
and Mellon Bank, F.S.B.
II-1
147
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit B thereto).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.
5.2 Opinion of Lang Michener.
10.1 Registration Rights Agreement, dated as of August 12, 1996, by and among the
Company, the Guarantor, BT Securities Corporation and Scotia Capital Markets (USA)
Inc.*
10.2 Credit Agreement, dated as of February 15, 1996 by and between the Company and The
Bank of Nova Scotia.*
10.3 Amending Agreement, dated as of August 5, 1996, by and between the Company and The
Bank of Nova Scotia.*
10.4 Employment Agreement, dated as of July 21, 1995, between Margaret K. Witte, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1995).
10.5 Employment Agreement, dated as of July 21, 1995, between Ross F. Burns, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1995).
10.6 Employment Agreement, dated as of July 21, 1995, between J. Graham Eacott, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1996 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995)
10.7 Employment Agreement, dated as of July 21, 1995, between John R. Smrke, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1995 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995).
10.8 Employment Agreement, dated as of July 21, 1995, between Edmund Szol, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1995 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995).
10.9 Employment Agreement, dated as of July 21, 1995, between James H. Wood, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1995 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995).
12.1 Statements re computation of ratios.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).
23.3 Consent of Lang Michener (contained in Exhibit 5.2).
24.1 Powers of Attorney of Directors and Officers of Royal Oak Mines Inc. (incorporated
by reference to the signature pages of the Registration Statement on Form S-4,
registration no. 333-11117, filed with the Commission on August 30, 1996).
24.2 Powers of Attorney of Directors and Officers of Kemess Mines Inc. (incorporated by
reference to the signature pages of the Registration Statement on Form S-4,
registration no. 333-11117, filed with the Commission on August 30, 1996).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of Mellon Bank,
F.S.B. under the Trust Indenture Act of 1939.*
99.1 Form of Letter of Transmittal for the 11% Senior Subordinated Notes due 2006.
99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form
W-9.*
99.3 Form of Notice of Guaranteed Delivery.
- ---------------
* Included as an exhibit to the Registration Statement on Form S-4,
registration no. 333-11117, filed with the Commission on August 30, 1996.
II-2
148
22. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
2. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of an action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Kirkland,
State of Washington, on October 7, 1996.
ROYAL OAK MINES INC.
By: /s/ MARGARET K. WITTE
---------------------------------
Margaret K. Witte,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the indicated capacities on October 7, 1996.
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
* Director and Vice President, Exploration
- ---------------------------------------------
Ross F. Burns
* Director
- ---------------------------------------------
Matthew Gaasenbeek
* Director
- ---------------------------------------------
J. Conrad Lavigne
* Director
- ---------------------------------------------
John L. May
* Director
- ---------------------------------------------
George W. Oughtred
* Director and Secretary
- ---------------------------------------------
William J.V. Sheridan
/S/ MARGARET K. WITTE Director, Chairman of the Board, President and
- --------------------------------------------- Chief Executive Officer
Margaret K. Witte
* Chief Financial Officer (principal financial
- --------------------------------------------- and accounting officer)
James H. Wood
*By: /s/ WILLIAM J.V. SHERIDAN
----------------------------------
Attorney-in-Fact
II-4
150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Kirkland,
State of Washington, on October 7, 1996.
KEMESS MINES INC.
By: /s/ MARGARET K. WITTE
---------------------------------
Margaret K. Witte,
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the indicated capacities on October 7, 1996.
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
* Vice President, Exploration
- ---------------------------------------------
Ross F. Burns
* Director
- ---------------------------------------------
Nancy Deshaw
* Director and Secretary
- ---------------------------------------------
William J.V. Sheridan
* President
- ---------------------------------------------
John R. Smrke
/s/ MARGARET K. WITTE Director, Chairman of the Board and Chief
- --------------------------------------------- Executive Officer
Margaret K. Witte
* Chief Financial Officer (principal financial
- --------------------------------------------- and accounting officer)
James H. Wood
*By: /s/ WILLIAM J.V. SHERIDAN
----------------------------------------
Attorney-in-Fact
II-5
151
Pursuant to the requirements of the Securities Act of 1933, the undersigned
has signed this amendment to the registration statement solely in the capacity
of the duly authorized representative of each of Royal Oak Mines Inc. and Kemess
Mines Inc. in the United States, in the City of Toronto, Country of Canada on
October 7, 1996.
ARCTIC PRECIOUS METALS INC.
By: /s/ WILLIAM J.V. SHERIDAN
---------------------------------
William J.V. Sheridan
Director
II-6
152
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
----- ---------------------------------------------------------------------------
3.1 Certificate of Amalgamation of the Company dated January 1, 1992
(incorporated by reference to the Company's Form 20-F for the year ended
December 31, 1991).
3.2 General By-Law No. 3 of the Company dated July 23, 1991 (incorporated by
reference to the Company's Form 20-F for the year ended December 31, 1991).
3.3 Constituting documents of the Guarantor.
3.4 By-Law Number 8 of the Guarantor.
4.1 Indenture, dated as of August 12, 1996, by and among the Company, the
Guarantor and Mellon Bank, F.S.B.
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit B thereto).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.
5.2 Opinion of Lang Michener.
10.1 Registration Rights Agreement, dated as of August 12, 1996, by and among
the Company, the Guarantor, BT Securities Corporation and Scotia Capital
Markets (USA) Inc.*
10.2 Credit Agreement, dated as of February 15, 1996, by and between the Company
and The Bank of Nova Scotia.*
10.3 Amending Agreement, dated as of August 5, 1996, by and between the Company
and The Bank of Nova Scotia.*
10.4 Employment Agreement, dated as of July 21, 1995, between Margaret K. Witte,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by
reference to the Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1995).
10.5 Employment Agreement, dated as of July 21, 1995, between Ross F. Burns,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by
reference to the Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1995).
10.6 Employment Agreement, dated as of July 21, 1995, between J. Graham Eacott,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1996 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
10.7 Employment Agreement, dated as of July 21, 1995, between John R. Smrke,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
10.8 Employment Agreement, dated as of July 21, 1995, between Edmund Szol,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
10.9 Employment Agreement, dated as of July 21, 1995, between James H. Wood,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
12.1 Statements re computation of ratios.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).
23.3 Consent of Lang Michener (contained in Exhibit 5.2).
24.1 Powers of Attorney of Directors and Officers of Royal Oak Mines Inc.
(incorporated by the reference to the signature pages of the Registration
Statement on Form S-4, registration no. 333-11117, filed with the
Commission on August 30, 1996).
153
EXHIBIT
NUMBER DESCRIPTION
----- ---------------------------------------------------------------------------
24.2 Powers of Attorney of Directors and Officers of Kemess Mines Inc.
(incorporated by the reference to the signature pages of the Registration
Statement on Form S-4, registration no. 333-11117, filed with the
Commission on August 30, 1996).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of Mellon
Bank, F.S.B. under the Trust Indenture Act of 1939.*
99.1 Form of Letter of Transmittal for the 11% Senior Subordinated Notes due
2006.
99.2 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.*
99.3 Form of Notice of Guaranteed Delivery.
- ---------------
* Included as an exhibit to the Registration Statement on Form S-4, registration
no. 333-11117, filed with the Commission on August 30, 1996.