Royal Oak proposes corporate amalgamation

Special shareholders’ meetings will be held in early June to consider a proposal to amalgamate Royal Oak Resources (TSE) and four associated companies into a new, Vancouver-based intermediate gold producer. The amalgamated company, to be known as Royal Oak Mines, would have two mines with 200,000 oz. gold production annually, gross yearly cash flow of about $15 million, five development-stage mines, and 130 mineral properties in Canada and the U.S.

The amalgamation was unanimously recommended by independent committees drawn from the boards of Royal Oak, Giant Yellowknife Gold Mines (TSE), Pamour (TSE), Pamorex Minerals (TSE) and Akaitcho Yellowknife Gold Mines (TSE).

Royal Oak and its affiliates currently own directly and indirectly 64.9% of Pamour’s outstanding common shares, 58.3% of Giant Yellowknife, 52.8% of Pamorex, and 44.5% of outstanding Akaitcho common shares.

Margaret Witte, president of each of the amalgamating companies, beneficially owns 17.4% of outstanding Royal Oak shares while Teck (TSE) beneficially owns 18.4% of outstanding Royal Oak shares. Both Witte and Teck intend to vote their common shares in favor of the amalgamation.

The independent committees of each company consulted with outside legal and financial advisers to recommend exchange ratios: one new company share for each Royal Oak common share; two for every three Pamour common shares; 13 for every two Giant Yellowknife common shares; two for every five Pamorex common shares; and one for every five Akaitcho common shares.

Royal Oak said the amalgamation would result in a company with a broad shareholder base that will increase the liquidity of its shares, “plus eliminate the inevitable discounts and undervaluation by financial markets that exist because of the indirect and partial holdings.” Administrative costs are also expected to be significantly reduced.

This amalgamation should culminate previous measures to rationalize the group’s various operations located for the most part in the Northwest Territories and in the Timmins gold camp of Ontario.

About 120 people were laid off late last year in the administrative, exploration and mining sectors, as offices were closed or streamlined, and unprofitable operations shut down.

For example, 48 workers were laid off when management decided to close down the unprofitable mining of narrow vein deposits in the Timmins camp, and 28 were laid off when operations ceased at the tailings retreatment plant at the Giant mine.

That rationalization is now essentially complete, and assuming all approvals are received, the amalgamated company would focus on strengthening its position as a profitable, intermediate gold producer, something of an endangered species in Canada these days.

The new company’s two main producers — the Giant mine in Yellowknife and the Pamour No. 1 (including the Hoyle deposit) in Timmins — are each expected to produce 100,000 oz. gold annually.

Royal Oak Mines will also have a series of gold properties under development. These include the Nighthawk Lake deposit in the Timmins camp, the Supercrest mine in Yellowknife (a former producer), and Matachewan in northern Ontario. The two remaining development properties, Broulan and Coniaurum, are also located in the Timmins camp.

In order to maximize the value of its exploration dollar, the company will be focusing its exploration efforts near existing operations where mining infrastructure is already in place.

If all goes as planned, Margaret Witte will not only have bounced back from being squeezed out of the Colomac gold project she advanced from exploration to development, but will have also poised herself to head up one of Canada’s more significant gold producers.

What’s next for the irrepressible Witte? It’s only idle chit-chat, but no one would be surprised if she made a bid for the soon-to-be mothballed Colomac gold mine in the Northwest Territories — for say, 10 cents on the dollar — and made it work.