-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QX6Tn2VbsbF9fUoPKw0VMKkaHHaWvfe6d4NbU2HXEtiP3jugy99vNJE8m37hW0TL 3IUqZFAV2cXAZHFkuDH7Aw== 0000041304-97-000010.txt : 19970520 0000041304-97-000010.hdr.sgml : 19970520 ACCESSION NUMBER: 0000041304-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL OAK MINES INC CENTRAL INDEX KEY: 0000041304 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04350 FILM NUMBER: 97607352 BUSINESS ADDRESS: STREET 1: 5501 LAKEVIEW DR CITY: KIRKLAND STATE: WA ZIP: 98033 BUSINESS PHONE: 6046828320 MAIL ADDRESS: STREET 1: 5501 LAKEVIEW DR CITY: KIRKLAND STATE: WA ZIP: 98033 10-Q 1 ============================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File Number 1-4350 ROYAL OAK MINES INC. (Exact name of registrant as specified in its charter) ONTARIO, CANADA 98-0160821 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) c/o Royal Oak Mines (USA) Inc. 5501 Lakeview Drive Kirkland, Washington U.S.A. 98033 (Address of principal executive (Postal/Zip Code) offices) (425) 822-8992 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No _ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common shares outstanding as of April 30, 1997 was 140,795,079. This includes 1,924,816 shares which are owned by a wholly owned subsidiary of the Company and may not be voted, and are not considered outstanding for accounting matters, including earnings per share calculations. ============================================================================= INDEX Page PART I - FINANCIAL INFORMATION........................................ 3 Item 1. Consolidated Financial Statements of Royal Oak Mines Inc. and Subsidiaries (All statements are unaudited except for the December 31, 1996 Consolidated Balance Sheet, which has been audited.) Consolidated Balance Sheets - March 31, 1997 and December 31, 1996........................................ 4 Consolidated Statements of Income - Three Months Ended March 31, 1997 and 1996.................................. 5 Consolidated Statements of Cash Flow - Three Months Ended March 31, 1997 and 1996............................ 6 Notes to Consolidated Financial Statements (unaudited)...... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................14 PART II - OTHER INFORMATION...........................................18 Item 6. Exhibits and Reports on Form 8-K............................18 Signatures............................................................19 In this Report, unless otherwise indicated, all dollar amounts are expressed in Canadian dollars. PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements All tabular amounts are in thousands of Canadian dollars, except as indicated. (see Notes 1 and 7). Consolidated Balance Sheets (unaudited - Cdn$ 000's) March 31 December 31 1997 1996 (audited) ======== =========== ASSETS Current Assets Cash and cash equivalents $113,761 $197,766 Marketable securities 590 590 Receivables 50,858 17,492 Inventories (note 4) 82,965 61,844 Prepaid expenses 14,011 7,729 -------- --------- Total Current Assets 262,185 285,421 Property, Plant and Equipment, net 494,181 482,733 Long-Term Investments 44,006 44,255 Deferred Charges and Other Assets 9,835 9,221 -------- -------- TOTAL ASSETS $810,207 $821,630 ======== ======== LIABILITIES Current Liabilities Accounts payable $ 16,268 $21,094 Accrued payroll costs 3,579 3,514 Accrued reclamation costs 6,668 -- Deferred revenue and capital leases 14,722 13,508 Income and other taxes payable 4,478 3,894 Senior subordinated notes interest payable 3,189 10,180 Other current liabilities 27,968 20,383 -------- ------- Total Current Liabilities 76,872 72,573 Deferred Revenue and Other Liabilities 34,720 35,205 Deferred Reclamation Costs 12,084 17,622 Senior Subordinated Notes (note 12) 242,218 239,680 Deferred Income Taxes 843 5,064 Minority Interest in Subsidiary Companies 105 120 -------- -------- TOTAL LIABILITIES 366,842 370,264 -------- -------- SHAREHOLDERS' EQUITY Capital Stock (note 11) Common stock Authorized - unlimited Outstanding - 138,870,263 (Dec. 31, 1996 - 138,845,263) 378,925 378,813 Retained Earnings 64,440 72,553 -------- ------- TOTAL SHAREHOLDERS' EQUITY 443,365 451,366 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $810,207 $821,630 ======== ======== The accompanying notes are an integral part of the Consolidated Financial Statements.
Consolidated Statements of Income (unaudited - Cdn$ 000's except per share amounts) Three months ended March 31 ------------------ 1997 1996 ======== ======== REVENUE $ 47,484 $ 51,049 -------- -------- EXPENSES Operating 43,052 42,029 Royalties and marketing 424 562 Administrative and corporate 2,652 2,149 Depreciation and amortization 5,792 5,076 Reclamation 1,130 159 Exploration and other 1,347 960 Provision for (Recovery of) loss on foreign currency contracts 2,518 (767) -------- -------- Total operating expenses 56,915 50,168 -------- -------- OPERATING INCOME (LOSS) (9,431) 881 OTHER INCOME (EXPENSE) Interest and other income, net (note 3) 1,952 1,382 Interest expense (118) (39) Senior subordinated notes interest (6,344) -- Senior subordinated notes interest capitalized 4,420 -- Foreign currency translation on senior subordinated notes (2,538) -- -------- -------- NET INCOME (LOSS) BEFORE UNDERNOTED (12,059) 2,224 Income and mining taxes - current (326) (355) Income and mining taxes - deferred 4,221 (540) Minority interest 36 27 Equity in income of associated companies 15 -- -------- -------- NET INCOME (LOSS) (8,113) 1,356 RETAINED EARNINGS - BEGINNING OF PERIOD 72,553 78,538 -------- -------- RETAINED EARNINGS - END OF PERIOD $ 64,440 $ 79,894 ======== ======== EARNINGS PER SHARE $(0.06) $0.01 ======== ======== Weighted average number of common shares outstanding (000's) 138,845 131,817 ======== ======== The accompanying notes are an integral part of the Consolidated Financial Statements.
Consolidated Statements of Cash Flow (unaudited - Cdn$ 000's) Three months ended March 31 ------------------ 1997 1996 ======== ======== CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Consolidated net income (loss) for the period $ (8,113) $ 1,356 Items not affecting cash: Depreciation and amortization 5,792 5,076 Reclamation 1,130 159 Deferred income tax (4,221) 540 Provision for (Recovery of) loss on foreign currency contracts 2,518 (767) Foreign currency translation on senior subordinated notes 2,538 -- Deferred charges and other (132) 118 -------- -------- CASH FLOW (488) 6,482 Net change in other operating items (65,763) (10,148) -------- -------- Net cash used in operating activities (66,251) (3,666) -------- -------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Issue of common shares 112 114,000 Capital lease payable (278) (80) Deferred credits -- 1,510 -------- ------- Net cash provided by (used in) financing activities (166) 115,430 -------- ------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Investment in Kemess capital assets through purchase of companies -- (201,976) Decrease in long-term investments -- 26,882 Investment in capital assets through purchase of Consolidated Professor Mines Limited -- (13,252) Investment in other capital assets, net (15,310) (19,428) Investment in exploration and non-producing properties, net (1,691) (2,066) Change in other assets (587) (3,243) -------- -------- Net cash used in investing activities (17,588) (213,083) -------- -------- INCREASE (DECREASE) IN CASH AND MARKETABLE SECURITIES DURING PERIOD (84,005) (101,319) CASH AND MARKETABLE SECURITIES AT BEGINNING OF PERIOD 198,356 142,381 -------- -------- CASH AND MARKETABLE SECURITIES AT END OF PERIOD $114,351 $ 41,062 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 13,317 $ 39 Income taxes $ 40 $ 355 Cash consists of cash and short-term investments. The accompanying notes are an integral part of the Consolidated Financial Statements.
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 months ended March 31, 1997, are not necessarily indicative of the results that may be expected for the full year ending December 31, 1997. 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, 1996. 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 1996 have been reclassified to conform with the current year's presentation. 3. Interest and Other Income, Net Three months ended March 31 ------------------ 1997 1996 ------ ------ Interest income $1,977 $1,024 Gain on sale of securities -- 446 Other, net (25) (88) ------ ------ Interest and other income, net $1,952 $1,382 ====== ======
4. Inventories March 31 December 31 1997 1996 ------- ----------- Bullion in process $24,715 $25,687 Stores and operating supplies 58,250 36,157 ------- ------- Inventories $82,965 $61,844 ======= =======
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 location 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. 5. Net Change in Other Operating Items Three months ended March 31 ------------------ 1997 1996 -------- -------- Cash provided by (used in): Receivables $(33,366) $ (270) Inventories (21,121) (28,426) Prepaid expenses (6,282) (845) Accounts payable, accrued payroll and other current liabilities 2,274 13,246 Deferred revenue (1,184) 5,985 Income taxes payable 584 162 Long-term reclamation reclassified to current period (6,668) -- -------- -------- Net change in other operating items $(65,763) $(10,148) ======== ========
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 believes it has complied, and expects in the future to 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 March 31 ------------------ 1997 1996 ------- ------- Net income in accordance with Canadian GAAP $(8,113) $ 1,356 Adjustments: Depreciation and amortization (778) (716) Income taxes -- 251 ------- ------- Net income in accordance with U.S. GAAP $(8,891) $ 891 ======= ======= Earnings (loss) per share in accordance with U.S. GAAP $(0.07) $ 0.01 ====== ======
The effects on the balance sheets of the Company at March 31, prepared in accordance with U.S. GAAP, are: March 31 -------------------- 1997 1996 -------- -------- Increase (decrease): Property, plant and equipment $ 3,944 $ 66,995 Prepaid expenses (pension asset) $ (552) (359) Deferred income taxes $ 19,377 79,254 Retained earnings $(15,985) $(12,618)
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 three months ended March 31, 1997, 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 and Consolidated Professor Mines Limited. The effect of these differences is to increase property, plant and equipment and deferred income taxes by $21.0 million as of March 31, 1997. 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 Resources Limited ("Geddes"), El Condor Resources Ltd. ("El Condor") and St. Philips Resources Inc. ("St. Philips") not already owned by the Company pursuant to an arrangement (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 of the Company 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. The following table outlines the details of the purchase price and its allocation to the assets and liabilities acquired: El St. Geddes Condor 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 ======== ======== ======== ========
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 Mines Limited ("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 $16.3 million. The purchase price, net of cash acquired on the acquisition of $0.3 million, has been assigned as follows: Capital assets $15.9 million Miscellaneous net assets 0.1 million ----- Purchase price, net of cash acquired $16.0 million ===== 10. Credit Line The Company has a $28 million unsecured, revolving line of credit with a major Canadian bank. This line will be used as necessary to finance working capital for current operations. At March 31, 1997, the Company had drawn $2.9 million in the form of letters of credit. 11. Capital Stock (a) Changes in capital Number of shares Amount ----------- -------- 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 50,000 110 Share issue and other related costs -- (181) ----------- -------- Balance, March 31, 1996 issued and outstanding 140,105,413 384,811 Company shares held by Witteck Development Inc. (see note 11(b)) (1,924,816) (8,854) ----------- -------- Balance, March 31, 1996 for financial reporting purposes 138,180,597 $375,957 =========== ======== Balance, December 31, 1996 140,770,079 $387,667 Issued for share purchase options 25,000 112 ----------- -------- Balance, March 31, 1997 issued and outstanding 140,795,079 387,779 Company shares held by Witteck Development Inc. (see note 11(b)) (1,924,816) (8,854) ----------- -------- Balance, March 31, 1997 for financial reporting purposes 138,870,263 $378,925 =========== ========
(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. 12. Long-Term Debt On August 12, 1996, the Company completed the sale of US$175 million principal amount of 11% Senior Subordinated Notes due 2006 (the "Notes"). The Notes were sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 and to certain other accredited institutional buyers. On October 9, 1996, an exchange offer was made to exchange the Notes for Series B 11% Senior Subordinated Notes due 2006 (the "Series B Notes"), pursuant to a Registration Statement on Form S-4 filed under the Securities Act of 1933, as amended. This exchange offer expired on November 5, 1996, and all US$175 million principal amount of Notes were exchanged for Series B Notes. The Series B Notes are unsecured senior subordinated obligations of the Company and, as such, will be subordinated in right of payment to all existing and future senior indebtedness of the Company. The Series B Notes are guaranteed by Kemess Mines Inc., a wholly owned subsidiary of the Company. The Series B Notes and interest payments are denominated in U.S. dollars. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations The Company recorded a net loss of $8.1 million ($0.06 per share) for the first quarter of 1997, compared to net income of $1.4 million ($0.01 per share) for the first quarter of 1996. Lower gold production and average realized gold price in the first quarter of 1997 versus 1996, combined with the foreign exchange impact of a weakening Canadian dollar adversely affected operating results in the first quarter. Revenue - ------- Revenue from the sale of gold decreased 7% to $47.5 million during the first quarter of 1997, compared to $51.0 million in the same period of 1996. A 3% decrease in the average realized price to US$411 per ounce in the first quarter of 1997 from US$423 in the same period 1996, together with a 4% decrease in production to 85,080 oz (88,196 in 1996) accounted for the decrease. The following table sets forth the Company s gold production, average realized price and average cash production cost for the comparable periods. Three months ended March 31 ------------------ 1997 1996 ------ ------ Gold Production (oz) Northwest Territories Division -Giant Mine 22,848 21,661 -Colomac Mine 29,880 28,799 Ontario Division 25,151 23,197 Newfoundland Division 7,201 14,539 ------ ------ 85,080 88,196 ====== ====== Average Spot Gold Price (US$/oz) $351 $400 Average Realized Gold Price (US$/oz) $411 $423 Cash cost (Cdn$/oz) $506 $477 Cash cost (US$/oz) $372 $348
The decrease in gold production at Newfoundland resulted from the fact the mill was temporarily shut down in January and February. Mining operations continued during this period and ore was stockpiled. In 1996 the mill was shut down for a similar period in March and April. This shutdown enabled the Company to reduce operating costs. As previously announced, the Company plans to permanently close the Hope Brook operations in the third quarter of this year when economic ore reserves will be depleted. Expenses - -------- Operating expenses increased to $43.1 million in the first quarter of 1997 from $42.0 million in the same period 1996. This was principally due to increased operating costs at the Colomac Mine, and higher-than-budgeted repair and maintenance costs at certain of the other mines. Mining costs incurred during January and February 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 1997. Operating costs on a per ounce basis increased 7% to US$372 in the first quarter of 1997 from US$348 in the same period in 1996. In light of the current market conditions and continuing weak gold prices the Company is currently evaluating all high cash cost production areas with a view to suspending mining operations which are unprofitable. Royalty and marketing expenses declined in the first quarter of 1997 compared to the comparable period of 1996 as a result of the expiry of the Hope Brook Royalty Agreement at the end of 1996. This decrease was partly offset by increased royalties at the Timmins operations as a result of the higher percentage of production coming from the Nighthawk Mine. Administrative and corporate expenses increased in the first quarter of 1997 to $2.7 million from $2.1 million in the same period in 1996. This increase is mainly attributable to the increase in costs associated with staff additions and related costs at the corporate office to manage the future growth of the Company. Reclamation costs increased to $1.1 million in the first quarter of 1997 from $0.2 million in the same period in 1996. Management makes a provision for future reclamation costs on the ultimate closure of a mine or abandonment of a property. Estimated reclamation and site restoration costs are charged against income on the unit-of-production method based upon the estimated gold contained in total mineral inventory. Write-down of reserve estimates in 1996, particularly at the Colomac Mine, have increased this provision in 1997. Exploration expenses increased in the first quarter of 1997 to $1.3 million from $1.0 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. The gold price used in estimating the company s ore reserves at December 31, 1996 was $527 (US$390) per ounce of gold. The market price for gold is currently below these levels. If the Company determines that its reserves should be calculated at a significantly lower price than used at December 31, 1996, there would likely be a material reduction in the amount of gold reserves. Should such a reduction occur, material write-downs of the Company's investment in mining properties and/or increased amortization charges may be required. The Company enters into foreign currency contracts for protection from fluctuation in the U.S. dollar-Canadian dollar exchange rate, and to provide for a minimum Canadian dollar conversion rate for it's U.S. dollar gold sales revenue. These contracts are marked-to-market on a monthly basis. As a result of the weakening of the Canadian dollar in the first quarter of 1997 from year-end 1996 exchange rates, the Company provided for a loss on foreign currency contracts of $2.5 million. In the same period in 1996 the Company provided for a recovery of $0.8 million. The Company's Senior Subordinated Notes are denominated in United States dollars. Generally accepted accounting principles require the translation of these Notes at the exchange rate in effect at the balance sheet date. This resulted in the Company providing for a loss on translation of its Senior Subordinated Notes of $2.5 million. These Notes are not repayable until 2006 and the Company will continue to provide for any foreign exchange gains or losses on these notes as exchange rates fluctuate in the future. These Notes were issued in August 1996 and accordingly no similar provision was necessary in the first quarter of 1996. The Company provided for interest expense on these Notes of $6.3 million in the first quarter of 1997, of which $4.4 million was capitalized. Liquidity and Capital Resources At March 31, 1997 the Company had cash, cash equivalents and marketable securities of $114 million compared to $198.4 million at December 31, 1996. During the first quarter of 1997 the Company reclassified $27.7 million of marketable securities to Long-Term Investments as it considered these to be strategic to the Company's future. If in the future the strategic nature of these investments should change, in the opinion of management, they would be reclassified to marketable securities. Net cash used in operating activities was $66.3 million in the first quarter of 1997 compared to $3.7 million in the same period in 1996. Net changes to other operating items are set out in Note 5 to the Consolidated Financial Statements. The primary uses of the cash invested in working capital were an increase in inventory at the Colomac Mine as operating supplies are transported to Colomac in the first quarter of each year over a winter road; an interest payment associated with the Company's Senior Subordinated Notes, and an increase in accounts receivable on the Kemess project. In April, 1997 the Company's wholly-owned subsidiary, Kemess Mines Inc., received from the Government of British Columbia the second of two equal compensation payments of $14.5 million, the first of which was received in April 1996. The company remains confident in its capital cost estimate for the Kemess project of $390 million, except for potential levies from the Government of British Columbia to clear access for power line construction. Construction is now approximately 50% complete. Steelwork for buildings and facilities is being erected on foundations and major services have been installed. Mining equipment is being delivered to site in preparation for the pre- production stripping of the open pit in July of this year. Significant progress is being made on construction of the tailings dam and on clearing the corridor for installation of the power line. Approximately $325 million of the total capital cost has been committed in purchase orders and construction contracts. The Company will focus on successful completion of the Kemess project and on operating its lower cash cost mines to maximize operating cash flow. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS With the exception of historical statements, the matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on numerous variables and assumptions that are inherently uncertain and could cause actual results to be materially more or less favorable than projected, including without limitation general economic and competitive conditions and other factors. Among such factors are those related to volatility in the price of gold, copper and other commodities, changes in interest and foreign exchange rates, government regulation and agency action, competing land claims, the accuracy of estimates of ore reserves and mineral inventory, environmental costs and risks, unanticipated processing, access, transportation of supplies, water availability or other problems, other factors relating to the Company's ability successfully to complete development projects within projected capital budgets or to carry on mining operations within projected operating budgets and the risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission, including without limitation the Company s Annual Report on Form 10-K for the year ended December 31, 1996, Part I:, Item 7, Risks and Uncertainties. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule. (b) Reports on Form 8-K. A report on Form 8-K was filed on February 13, 1997, regarding a press release from Royal Oak Mines Inc., announcing the 1996 results of operations. A report on Form 8-K was filed on February 26, 1997, regarding a press release from Royal Oak Mines Inc., announcing a petition from the Tsay Keh Dene Band to stay the Kemess project. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROYAL OAK MINES INC. Date: May 15, 1997 By /s/ Margaret K. Witte ------------------------ Margaret K. Witte President and Chief Executive Officer Date: May 15, 1997 By /s/ James H. Wood ------------------------ James H. Wood Chief Financial Officer EXHIBIT INDEX Exhibit Method of Filing - ------- ---------------- 27. Financial Data Schedule Filed herewith EX-27 2
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 CANADIAN 3-MOS DEC-31-1997 MAR-31-1997 1.3841 113,761 590 50,858 0 82,965 262,185 555,575 61,394 810,207 76,872 242,218 0 0 378,925 64,440 810,207 47,484 47,484 56,915 56,915 0 0 118 (4,218) (3,895) (8,113) 0 0 0 (8,113) (0.06) (0.06)
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