B.C. Government offer not enough for Royal Oak Mines

Following several meetings with the government of British Columbia, Royal Oak Mines (TSE) and Geddes Resources (TSE) have withdrawn their respective bids to acquire the Kemess South gold-copper project.

“We are extremely disappointed that the financial assistance of approximately $34 million offered by the provincial government fell well short of the $150 million we were seeking,” said Royal Oak President Margaret (Peggy) Witte. Speaking on behalf of both companies, she added: “The government’s unwillingness to accept our proposed settlement terms has left us with no alternative but to withdraw our respective proposals to acquire El Condor and St. Philips.”

Royal Oak had offered to buy all the outstanding shares of El Condor Resources (VSE) for $4.90 per share plus one-third of a Royal Oak common share. El Condor’s main asset is a 60% interest in Kemess South, situated in the north-central region of British Columbia.

Geddes, which is 39%-owned by Royal Oak, had offered to acquire the other 40% of Kemess South, which is held by St. Philips Resources (TSE), through a bid of $3.25 per share for all outstanding shares.

The acquisitions were conditional upon issuance of a mining certificate and the arrangement of a financial assistance package from the government of British Columbia.

Witte felt a commitment of $150 million from the provincial government would be a fair and reasonable package in return for extinguishing its compensation claims regarding the expropriated Windy Craggy property.

A large part of the financial package was to have gone towards setting up infrastructure, such as a 230-mile power line and an access road to the B.C. Rail line. Other forms of assistance that Royal Oak was seeking included manpower training, tax holidays, direct grants and interest-free loans.

Situated in northwestern British Columbia, Windy Craggy was the major asset of Geddes, which spent $48 million outlining reserves of about 328 million tons grading 1.38% copper, plus credits of gold and cobalt. Geddes has been seeking compensation from the government since June, 1993, when the property was expropriated for inclusion in a new provincial park.

Royal Oak reports that a fairness opinion issued by a Canadian investment bank places a value of $225 million on Windy Craggy, based on today’s copper price and exchange rate. Having waiting almost two years for some form of compensation, Geddes continues to evaluate its options with respect to obtaining reasonable compensation.

British Columbia Mines Minister Anne Edwards expressed disappointment about the failure of the negotiations with Royal Oak, while Employment and Investment Minister Glen Clark stated: “We were prepared to enter into a partnership agreement with Royal Oak that would have included a repayable investment for infrastructure improvements, worker training and a cost-shared exploration fund. However, the province was not prepared to offer grants or direct funding of the type and magnitude that Royal Oak had been proposing.” Royal Oak maintains the project would have created 350 direct full-time jobs and 700 indirect jobs, as well as 600 short-term construction jobs.

Scott Cousens, director of investor relations for El Condor, although obviously disappointed that Royal Oak withdrew its offer, is pleased that the technical due diligence undertaken by Royal Oak and Geddes confirms the 1993 Kilborn prefeasibility study on Kemess South. A year ago, a 4-month due diligence review by Spokane-based Pegasus Gold confirmed Kilborn’s study.

Minable reserves for Kemess South are estimated at 221 million tons grading 0.018 oz. gold per ton and 0.22% copper at a stripping ratio of 1.26-to-1. A milling rate of 44,000 tons per day is expected to produce, on an annual basis, 213,000 oz. gold, 58 million lb. copper and 170,000 oz. silver during a 15-year mine life.