Royal Oak targets two Kemess projects

Although it recently transferred its head office from Vancouver to Kirkland, Wash., Royal Oak Mines (TSE) is once again casting its sights on Canada’s mountain province. In particular, it is seeking ownership of the Kemess properties in the north-central region.

In a bid to acquire the Kemess South gold-copper project, Royal Oak has 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, for a total value of $95 million. El Condor has a 60% interest in Kemess South, as well as a 100% stake in the Kemess North property.

Meanwhile, Geddes Resources (TSE), which is 39%-owned by Royal Oak, has 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 deal is worth $37 million and Royal Oak would lend Geddes the funds to complete the transaction. Royal Oak would have close to an 80% interest in the project once the acquisitions are completed.

The deal is far from complete, however, as the acquisitions are conditional upon a mining certificate being issued and upon the arrangement of a financial assistance package from the British Columbia government. El Condor’s chief financial officer, Ronald Thiessen, expects to receive approval for a mine development certificate within the next couple of weeks.

Royal Oak President Margaret (Peggy) Witte believes a commitment of $150 million from the provincial government would be reasonable, in return for which the company would extinguish its compensation claims regarding the expropriated Windy Craggy property in the province’s northwest.

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.

Witte, in an hour-long conference call, told analysts and investors that preliminary discussions are under way and that everything is on the table.

El Condor had been discussing an assistance package worth $65 million in interest-free loans. The $150 million in financial support being sought by Royal Oak would help pay for much of the necessary infrastructure, such as a 230-mile hydroelectricity line and a road to provide access to the B.C. Rail line. Other forms of assistance would include training grants, tax holidays, interest-free loans and direct grants. Royal Oak expects to create 350 direct jobs and 700 indirect jobs.

A 1993 prefeasibility study by Kilborn Engineering Pacific estimated minable reserves of 221 million tons grading 0.018 oz. gold per ton and 0.22% copper at a stripping ratio of 1.26-to-1. About 20% of the reserve lies in an overlying, oxidized cap of supergene material, while the balance consists of hypogene ore.

El Condor is managed by the Hunter and Dickinson team, which specializes in developing copper-gold porphyry deposits to an advanced feasibility stage.

A year ago, the company was the subject of a proposed takeover by Spokane-based Pegasus Gold. Despite a 4-month due diligence review confirming Kilborn’s prefeasibility work, Pegasus decided to pass on the deal, stating that the project did not meet its capital investment criteria.

Royal Oak expects Kemess South to produce 220,000-250,000 oz. gold and 65 million lb. copper per year, with the capital cost estimated at $350 million. Royal Oak is looking at Kemess South as strictly a gold project and is considering selling the copper forward, thereby converting it into gold credits. Witte said the project is desirable in so far as it would be a low-cost producer with a 15-to-20-year mine life. Kemess North, which is believed to have extensive exploration potential, may contain an additional 2 million oz. gold.