Violent Yellowknife strike hurts Royal Oak’s earnings

Management of Royal Oak Mines (TSE) doesn’t appear to be backing away from asserting its “right to manage” at the Giant gold mine outside this northern community, even though the prolonged labor dispute is affecting its bottom line.

The debt-free company posted net earnings of $740,000 for its latest quarter ended June 30, well below the $2.7 million profit reported for the comparable period a year earlier.

The company noted however, that additional costs of about $1.2 million were incurred at Giant because of the strike, “mostly to provide security to the property and employees against union violence.”

The labor dispute began on May 23, and outbreaks of violence have occurred since Royal Oak brought in replacement workers to keep the mine operating during the strike.

Royal Oak produced a total of 44,227 oz. gold from its Timmins, Ont., and Yellowknife divisions during the second quarter, marginally lower than the 46,533 oz. produced in the comparable 1991 period. Production was up 11% at Timmins, which turned out 23,398 oz. gold, while Giant produced 20,829 oz. gold in the latest quarter.

But the cash cost of production from both operations climbed to US$358 per oz. in the second quarter from US$336 a year ago. At the same time, the average spot price for the yellow metal fell to US$339 per oz. from US$361 in the 1991 second quarter.

Royal Oak had some protection against low gold prices because of its hedging program, but that position is now closed out, leaving the company fully exposed to gold prices. And gold’s performance will take even more importance now that the company has taken on a third mine, Hope Brook in Newfoundland. Hope Brook is expected to produce 60,000 oz. this year, rising to an annual average of 120,000 oz. during the next seven years.

But overhead costs remain lean and the worst of the strike at Giant appears to be over. The company expects an improved third quarter and better progress made toward decreasing the overall average mine-site cash cost of production to this year’s target of US$300 per oz.

The Giant mine is now operating at full capacity with a mixture of replacement workers, staff and union members who crossed the picket line. General manager Terry Byberg told The Northern Miner that the number of miners coming back to work is growing steadily, a development he clearly finds pleasing.

“The majority of people out on strike are excellent miners whose performance would match the best anywhere in Canada,” Byberg said during a site visit in late July.

If an agreement is finally worked out, however, Royal Oak insists it won’t bring back 38 union members it has discharged because of violent or illegal acts since the strike began. “Those people would have to go through the arbitration process,” Byberg said.

There are no new developments in the impasse between the union and Royal Oak, although a mediator is continuing to monitor the situation. Byberg concedes that the company’s hard-line position runs the risk of union resentment that may take time to resolve, even if a settlement is made.

The clash between Royal Oak and the union shows all the signs of a power struggle, and in some respects, is remarkably similar to the 5-month United Auto Workers strike at Caterpillar in the U.S. which made national headlines earlier this year.

Cat also took a hard line based on the principle of “right to manage,” and, to the surprise of many, successfully resolved the dispute in its favor when it threatened to replace 11,000 striking workers.

Staring down the union appears to be part and parcel of Royal Oak President Margaret Witte’s steely determination to ensure Royal Oak remains viable, especially during this tough time of low gold prices. But the union, Local No. 4 of the Canadian Association of Smelter and Allied Workers, doesn’t have a history of making concessions and is taking an equally tough stand. “Times have changed, but the union still thinks it should run the mine,” one union member working at Giant said. “This strike isn’t about wages, and I’m not the only one who feels the union is not representing its members properly.”

Because of the strike and the reduced workforce, mining at Giant is currently focused on working areas that can be mined using fewer people and larger equipment. During the time of the visit, about 60 working places were active, compared with about 100 under normal conditions.

The primary mining method is mechanized cut-and-fill, but a small longhole program is also in place. The majority of the feed comes from pillars (since 1969) and halos of previously mined orebodies. Mining now takes place seven days a week, up from five days a week before the strike, with all ore coming from above the 1650 level.

Rick Allan, chief engineer, said development is “back on track,” following some disruptions in the early days of the strike.

The mine is operating at capacity, but for a variety of reasons, head grades were down considerably in July (from June) when grades averaged 0.33 oz. gold per ton. To turn this around, the company was attempting to determine if the lower grades were the function of the ore being mined, grade control problems, or were related to the milling and roasting side of the operation. “We are working to get our recoveries up by several points, and better than pre-strike,” Byberg said, adding that a head grade of 0.28 oz. gold and throughput of 1,300 tons per day have been budgeted for August. Giant has already turned out about 7 million oz. gold since production began in 1948. At least 15 years more of production are projected based on existing reserves, with proven reserves accounting for seven of those years. The operation also has plenty of exploration potential, both at the mine site directly and on 27 exploration properties covering 122,000 acres nearby. “Under ideal conditions, Giant can produce gold for C$350 per oz.,” Byberg said. “There is still lots of life in this mine yet.”