NNSL (Mar 20/98) - The company, which owns Giant Mine in Yellowknife, was experiencing what chief executive officer Peggy Witte described this week as a "short term liquidity problem."

Royal Oak last week was in technical default on senior secured debentures -- loans -- because it was in violation of a covenant which specifies it can not carry more than $3 million in payables more than 90 days overdue.

The cash crunch came about when it became clear that the $430-million Kemess gold project in northern B.C. would cost $40 million more to develop than originally planned, said Witte.

The company is currently seeking a $50-million to $60-million investment to carry the project to completion.

Once in operation, Kemess is expected to produce 250,000 ounces of gold a year at an average cost of $128 an ounce -- more than 160 dollars below current market value. Royal Oak has also suggested former Giant Mine workers laid off in recent months could find work at Kemess.

Kemess is now 92 per cent complete, said Witte, but the project's mechanical contractor walked off the job Monday night for non-payment. Royal Oak is currently looking for a new contractor.

In all, the project has about $27 million in overdue payables, said Witte.

The only cash flow the company has at this time is coming from its Giant and Timmins projects.

With costs pared to the bone, Giant is producing gold for $275 and ounce, just below market prices.