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When gold prices started falling last year, it left behind a series of casualties in the mining industry. Many of the victims were highly speculative Canadian junior mining companies sponsored by overzealous investors. One company - Royal Oak - stands out, partly because of its size and partly because of the struggle its management has put up to survive. It is headed by mining veteran Margaret Witte, who is known for her toughness both in negotiations and in dealing with staff and suppliers.
According to industry sources, the Canadian mining industry is littered with ex-Royal Oak employees. Says a Calgarybased analyst: "She has a reputation for firing people and has got through quite a few finance directors and other senior staff."
Under her management, Royal Oak focused on acquiring inactive and highcost mines, the aim being to squeeze out costs to make them profitable through cost-conscious management and technology - a viable strategy when the gold price is high and potentially offering investors hefty gains if cost reductions are delivered.
Caught out
However, like many of its industry peers, Royal Oak quickly became a casualty of the sinking gold price - currently about $300 per ounce, down from its 1996 high of $480 - and, according to analysts, turning the company around will require all the toughness and negotiating skills that Witte can muster.
Says one Vancouver-based analyst: "They were caught out in a big way by the falling gold price. They also failed to reduce the costs enough on some of these mines they bought." He cited the miserly 4% reduction in costs from 1996 to 1997 to $330 million as an example.
In fact, several mines have closed: the Colomac mine in the Northwest Territories was shut down in December 1997 as it became unprofitable because of high production costs; also closed was the Hope Brook mine in September 1997 as reserves were nearly depleted. Royal Oak retains the Giant Mine at Yellowknife in the Northwest Territories, and the Pamour and Nighthawk mines near Timmins, Ontario. Thanks to the closures, operating income was C$3.2 million in the first quarter of this year against an operating loss of C$9.2 million at the same time last year. Also, the closures have allowed average cash...