Royal Oak Mines Proposal Approved

On January 4, 2000, nearly 11 months after Royal Oak Mines Inc. sought protection from its creditors under the CCAA, Mr. Justice James M. Farley of the Ontario Superior Court of Justice approved a Proposal to Royal Oak’s creditors. The Proposal, presented by PricewaterhouseCoopers Inc. (PwC) as Interim Receiver of Royal Oak, will settle more than $600 million in creditor claims by payments of cash and conversion of debt to equity. PwC was represented in its various roles as Monitor, Interim Receiver and Trustee under the Proposal by Kevin P. McElcheran and Steve Weisz of Blake, Cassels & Graydon LLP with assistance from many other Blakes lawyers including Sheila A. Murray (securities) and Silvana M. D’Alimonte, (real estate).

Royal Oak’s CCAA filing on February 15, 1999 stretched the envelope in a number of directions particularly in respect of Debtor in Possession (“DIP”) financing and the expanded role of the court appointed interim receiver in the development of the restructuring plan. The Kemess Mine, Royal Oak’s principal asset, was not completed and required substantial additional financing for tailings dam construction and on-going operational losses. The required funding was only available on a super-priority basis. The Court granted the DIP lender super-priority for many millions of dollars of new funding over the objections of secured creditors whose security was subordinated.

Trilon Financial Corporation, a creditor in the first rung of secured creditor claims, represented by Lorne W. Segal of Goodman & Carr and Peter H. Griffin of Lenczner Slaght Royce Smith Griffin agreed to provide the super-priority financing. Bank of Nova Scotia, a creditor in the second rung, represented by Andrew J.F. Kent and Sarah E. Pepall (now Madame Justice Pepall of the Ontario Court of Justice) of McMillan Binch opposed super-priority funding and sought the appointment of a receiver. The other second rung secured creditors, represented by Peter E. Hamilton and Sean F. Dunphy of Stikeman Elliott argued for tight controls on Royal Oak’s use of any new funds. The third rung secured creditors represented by Jonathan A. Levin and Michael J. MacNaughton of Fasken Martineau DuMoulin were holders of publicly issued notes. The Note holders supported Royal Oak, represented by David E. Baird, Patricia D.S. Jackson and Mario J. Forte of Torys, in its frequent applications for more funding.

On April 16, 1999, the Court followed the Monitor’s recommendation that Royal Oak’s assets be marketed on a “structured” basis which would preserve tax pools which had accrued in Royal Oak. Credit Suisse First Boston was engaged to lead the marketing of the Kemess mine. PwC’s M&A group marketed Royal Oak’s other properties, including the 47,000 acre Pamour and Nighthawk properties in Timmins and the Giant mine in Northwest Territories. The marketing of the Giant mine posed unique challenges because tons of toxic arsenic trioxide, a by-product of the refining process, had been stored at the site over 50 years of mining and would have to be removed as part of the reclamation of the property. The environmental regulator, the federal Department of Indian Affairs and Northern Development, represented by Derrick C.A. Tay and John T. Porter of Meighen Demers, played a key role in the successful sale of the Giant mine and the ultimate success of Royal Oak’s restructuring.

The best bid submitted for the Kemess mine in the marketing process was from Northgate Exploration Limited, a participant with Trilon in the first rung of secured creditor claims and also represented by Lorne W. Segal. Northgate and PwC negotiated a sale agreement for the Kemess mine which would be completed if the Proposal is not implemented. After implementation of the Proposal, Trilon will receive shares representing 48.5 per cent of the votes and 67per cent of the equity of restructured Royal Oak. A team of Fraser Milner lawyers served as Trilon’s principal tax advisors in Royal Oak’s restructuring. Howard J. Kellough, Q.C., of Fraser Milner’s Vancouver office lead the team which included Joel A. Nitikman and G. Lisa Heddema (also of the Vancouver office) and Brian R. Carr and Ted Cook from the Toronto office of Fraser Milner.

The second rung creditors will receive cash and a note. The Note holders will receive non-voting shares representing 30 per cent of the equity. Unsecured creditors will share 2 per cent of the equity and the Common share holders will be diluted to a 1 per cent equity holding representing 51.5 per cent of the votes.

Lawyer(s)

Patricia D.S. Jackson Howard J. Kellough John T. Porter Andrew J.F. Kent Brian R. Carr Sean F. Dunphy Lisa N. Heddema Silvana D'Alimonte David E. Baird Peter Griffin Steven Weisz Joel A. Nitikman Jon Levin Kevin P. McElcheran Mario J. Forte Michael J. MacNaughton Derrick C. Tay Peter E. Hamilton Ted Cook Lorne W. Segal Sheila A. Murray