SEC to revoke ROYAL Oak Mines
2006-09-05 16:57 ET - Street Wire
by Mike Caswell
The U.S. Securities and Exchange Commission is seeking to revoke ROYAL Oak Mines Inc., the leftover shell of a once-promising $1.1-billion miner that traded at $8 on the Toronto Stock Exchange. The company now sits at 1.1 cents on the lowly pink sheets, and the SEC says it should not even have a listing there. It filed for bankruptcy protection in 1999 when gold slipped below $300 (U.S.) per ounce, making its mines unprofitable.
ROYAL Oak and its former chief executive officer, Peggy Kent (then known as Peggy Witte), left a lasting mark on the city of Yellowknife as they battled an entrenched union to bring down costs at the struggling Giant gold mine, a mainstay of the town's economy.
ROYAL Oak bought the mine in 1990, but with gold prices falling from $400 (U.S.) and the mine's workers among the highest paid in Canada, it faced challenges. Ms. Kent fired 13 mine employees in the first year of ownership, including several union activists, and said she was out to cut costs when the union contract expired in the spring of 1992.
The ensuing labour dispute became headline news after striking miner Roger Warren murdered nine replacement workers in an underground explosion. "Anybody could have been running the mine and had they not rolled over and given the union what they wanted, anybody would have ended up in a strike," Ms. Kent recently told Business Edge magazine. The strike was so long, bitter and replayed in the news, it became the subject of a 1996 movie.
The workers and the company eventually came to terms, but with gold dropping to $300 (U.S.), the mine's days were numbered, and people started leaving town. "There was doom and gloom ... everyone knew that these mines were getting old," says Peter Neugebauer, director of economic development for the City of Yellowknife.
The mine closed in 1999, when ROYAL Oak filed for bankruptcy protection, although new owners did limited work until 2004.
As it turned out, the closure of the Giant mine and the nearby Con mine was not the death blow some locals anticipated. Diamond exploration had been gradually expanding in the Northwest Territories, and its benefits kept the economy booming. "When [the mines] finally closed their doors it didn't matter," says Mr. Neugebauer.
This was no assistance to ROYAL Oak, which had no interest in diamonds.
With the Giant mine looking to be near the end of its life, Ms. Kent staked the future of the company on one of B.C.'s most promising gold projects, Kemess. ROYAL Oak planned to spend $390-million to turn the prospect into a 250,000-ounce-per-year mine.
Analysts said the move was a big gamble. With the company losing $135-million in 1997 and $396-million in 1998, Kemess would have to generate some serious cash for ROYAL Oak. Unfortunately for shareholders, the company ran out of money while facing a big bill to fix the mine's shallow tailings pond. Creditors forced ROYAL Oak into bankruptcy and the stock hit a seven-cent low before the TSX halted trading.
Northgate Minerals Corp. bought the mine for $180-million (U.S.) and it still operates today, producing 280,000 ounces of gold per year. Receivers sold the company's other assets, which included the Giant mine and some smaller mines in Ontario.
Ms. Kent blames lagging metal prices for ROYAL Oak's demise. "As gold started to drop below $325 and the copper price started to drop as well ... we couldn't make ends meet," she told Business Edge. The company operated as ROYAL Oak Ventures for a while, still holding a 5-per-cent interest in Kemess, but Northgate bought the minority holding in 2003.
Although the company called itself ROYAL Oak Ventures after the bankruptcy, the SEC still refers to it as ROYAL Oak Mines. "The company is delinquent in its periodic filings with the Commission, having not filed any periodic reports since it filed a Form 10-K for the period ended December 31, 1998," this week's SEC notice says.
The SEC has also suspended ROYAL Oak for 15 days. It last traded on Aug. 25 for 1.1 cents.
After ROYAL Oak Ms. Kent bought a cow-packing plant in Washington State, which ended badly amidst a mad cow scare. She is now the president of Century Mining Corp., a TSX Venture Exchange listing that owns the producing Sigma and Lamaque gold mines in Quebec. The stock had a run to $1.89 this March after it began production at Lamaque, but it has since fallen to 98 cents.
The stock touts seem to be divided on Century. Jay Taylor recommended selling this February at 32 cents, citing unspecified "management concerns," while Brien Lundin said buy at $1.47 in April for Ms. Kent's audacity.
