Royal Oak exceeds forecast, 1991 earnings top $8 million

Gold producer Royal Oak Mines (TSE) exceeded its earnings forecast in 1991, even though its revenues were adversely affected by declining gold prices and a strengthening Canadian dollar.

Royal Oak President Margaret Witte noted that gold production from conventional operations was up 10% over the previous year, while the average cash cost of production was down by US$68 per oz. to US$327. As a result of the improved operating performance, the company posted net earnings of $8.64 million for 1991, compared to a loss of $56 million in 1990. Royal Oak produced 194,952 oz. gold last year from its mines at Yellowknife, N.W.T., and Timmins, Ont., compared with 176,219 oz. in 1990. An additional 20,486 oz. gold was produced in 1990 from the uneconomic tailings retreatment project in Yellowknife which was shut down in December, 1990. Both operations set production records last November and December which enabled the company to lower its average cost of production to a new low of US$319 per oz. in the 1991 fourth quarter. A total of 53,214 oz. gold was produced during this period, compared with 52,668 oz. in the fourth quarter of 1990 when cash production costs averaged US$444 per oz.

Royal Oak recorded net income of $4 million on revenues of $25.2 million for its 1991 fourth quarter, which compares to a net loss of $51.5 million in the comparable period in 1990.

Royal Oak acquired the Yellowknife and Pamour mines late in 1990 from the creditors of Giant Resources of Australia. Since then, the mines have been returned to profitability and acquisition costs have been repaid. The company is now debt-free, with working capital of over $4 million.

Royal Oak is continuing a review of the Hope Brook gold mine in Newfoundland which it plans to acquire from Hope Brook Gold, a subsidiary of BP Canada (TSE). Completion of the acquisition is conditional on the due diligence review, receipt of environmental permits, and on the resolving of labor and government-related issues.

If all goes as planned, the mine could be reopened next summer under a new operating plan aimed at making the operation economic at current gold prices. Hope Brook would boost Royal Oak’s annual gold production by 60% to about 320,000 oz. per year.