Royal Oak gives new life to northern Colomac mine

The drama surrounding Royal Oak Mines’ (TSE) takeover bid for Lac Minerals (TSE) is overshadowing the startup of the Colomac gold mine 137 miles north of Yellowknife, N.W.T.

Royal Oak expects to produce 75,000 oz. gold from the operation in 1994 and increase this to 170,000 oz. in 1995, at an estimated cash cost of US$275 per oz.

The startup of the operation is no small accomplishment, considering that Royal Oak President Margaret (Peggy) Witte came to national prominence in the late 1980s when she took on the project and raised about $150 million to develop it into a mine. It was an ambitious undertaking and few were surprised when Witte was eventually squeezed out by a major company that went on to build the mine and a new 10,000-ton-per-day mill.

Colomac was not a success for its new owner, however. Project costs soared to more than $200 million, gold prices weakened and operating problems surfaced. The new owner was forced to close down after one year of production. In 1993, Witte bought back the mine, free of all encumbrances, in a swap-for-shares deal that worked out roughly to 5 cents on the dollar.

Witte says Royal Oak has worked hard to ensure a successful startup at Colomac. And she expressed confidence that the mine and mill “will perform to design capacity, resulting in a very profitable operation.”

About 4.3 million tons of waste have been prestripped from the open pit during the past four months in preparation for startup. Ore and waste are being mined at a rate of more than 40,000 tons per day, which is much higher than the rate the previous owner had achieved. A stockpile of about 800,000 tons has been established, to ensure continuity of mill operations. With the startup of Colomac, Royal Oak has four mining operations in Canada. The company produced 69,969 oz. gold from all of its mines during the quarter ended June 30, which is comparable to the 70,369 oz. produced during the same period in 1993. The company was able to reduce its overall cash costs to US$298 per oz. in the second quarter, a 6% decrease from US$317 per oz. in the first quarter of this year.

Royal Oak has one of the most successful gold-hedging programs in the industry. This program resulted in the company receiving an average realized price of US$455 per oz. in the second quarter, compared with the average spot price of US$380 per oz. Earnings for the second quarter were $11 million, compared with $2.9 million in the second quarter of 1993.