-----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, LOx6a6C074N1itL3DdElF3tSSaSfCALMVOQCyWVtmoS0yX/Krh9FmXrbwXTujYYr HFRFwJixpP+kqy+QqoemEw== 0000041304-96-000009.txt : 19960806 0000041304-96-000009.hdr.sgml : 19960806 ACCESSION NUMBER: 0000041304-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960805 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: 96603482 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 June 30, 1996 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 NONE (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) c/o Royal Oak Mines (U.S.A.) Inc. 5501 Lakeview Drive Kirkland, Washington U.S.A. 98033 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (206) 822-8992 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 July 31, 1996 was 140,244,029. 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........................................ * Item 1. Consolidated Financial Statements of Royal Oak Mines Inc. and Subsidiaries (All statements are unaudited except for the December 31, 1995 Consolidated Balance Sheet, which has been audited.) Consolidated Balance Sheets - June 30, 1996 and December 31, 1995........................................ * Consolidated Statements of Income - Three and Six Months Ended June 30, 1996 and 1995................................... * Consolidated Statements of Cash Flow - Three and Six Months Ended June 30, 1996 and 1995................................... * Notes to Consolidated Financial Statements (unaudited)...... * Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. * PART II - OTHER INFORMATION........................................... * Item 2. Submission of Matters to a Vote of Security Holders......... * Item 6. Exhibits and Reports on Form 8-K............................ * Signatures............................................................ * 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) 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 $428,963 ======== ======== The accompanying notes are an integral part of the Consolidated Financial Statements.
Consolidated Statements of Income (unaudited - Cdn$ 000's 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 $0.11 ======== ======== ======== ======== Weighted average number of common shares outstanding (000's) 138,196 119,021 135,006 116,754 ======== ======== ======== ======== The accompanying notes are an integral part of the Consolidated Financial Statements.
Consolidated Statements of Cash Flow (unaudited - Cdn$ 000's) 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.
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 ended Six months 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. 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 ===== ===== ===== =====
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, El Condor Resources Ltd., St. Philips Resources Inc. and Consolidated Professor Mines Limited. 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 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 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 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. 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. The following 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 ======== ======== ======== ======== 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 contained approximately 4.1 million ounces of gold and one billion pounds of copper. 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 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 $16.2 million. The purchase price, net of cash acquired on the acquisition of $0.3 million, has been assigned as follows: Capital assets $15.8 million Miscellaneous net assets 0.1 million ----- Purchase price, net of cash acquired $15.9 million ===== 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. 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations - --------------------- Revenue 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 quarter 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. Expenses 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 planned shutdown of the Hope Brook Mill in the months of March and April 1996, but operations were recommenced May 1. 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 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 large strengthening of the Canadian dollar compared to the U.S. 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 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. Income Taxes 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 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. 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 to transport supplies during the year 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, the 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 B.C. 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 on 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 B.C. Government. Also during 1996, the Company made $6.3 million of additional investments in Mountain Minerals Co. Ltd. and Asia Minerals Corp., two strategic long-term investments. Asia Minerals Corp. 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 B.C. Government. Approximately $102 million of the total will be spent on various 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 its current cash position, amounts available under the Credit Facility provided by a Canadian chartered bank, vendor financing, compensation from the B.C. Government and its investment and economic assistance package, the cash flow from existing operations and the proceeds of a debt financing 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. PART II - OTHER INFORMATION Item 2. Submission of Matters to a Vote of Security Holders. (A) The Company's Annual and Special Meeting of Shareholders was held on May 17, 1996. (C) Three proposals were submitted for shareholder approval, all of which were passed with the following voting results: 1) All seven of the Company's directors were re-elected to serve until the next annual meeting of shareholders, based on the votes as tabulated below:
Votes Votes abstained Nominee Votes for withheld or not voted - ---------------------- ---------- -------- --------------- Margaret K. Witte 79,962,831 60,442 710,131 Ross F. Burns 79,979,571 43,702 710,131 William J.V. Sheridan 79,988,451 34,822 710,131 J. Conrad Lavigne 79,947,612 75,661 710,131 John L. May 79,892,337 130,936 710,131 George W. Oughtred 79,982,766 40,507 710,131 Matthew Gaasenbeek 79,981,706 41,567 710,131
2) The reappointment of Arthur Andersen & Co., Chartered Accountants, as independent auditors was approved with 80,137,100 votes for, 283,067 votes withheld and 313,237 votes abstaining or not voted. 3) The proposal to approve stock options granted to senior officers and directors of the Company was approved with 73,517,576 votes for, 6,448,247 votes withheld and 727,581 votes abstaining or not voted. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule. (b) Reports on Form 8-K. None. 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: August 5, 1996 By /s/ Margaret K. Witte ------------------------ Margaret K. Witte President and Chief Executive Officer Date: August 5, 1996 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 6-MOS DEC-31-1996 JUN-30-1996 1.3651 14,797 24,886 7,505 0 72,829 128,542 481,045 45,355 580,118 57,234 0 0 0 376,316 83,643 580,118 105,846 105,846 100,451 100,451 0 0 0 7,834 2,729 5,105 0 0 0 5,105 0.04 0.04
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