Doug Ashbury
Northern News Services

NNSL (Sep 30/98) - Buoyed by stronger gold prices, Royal Oak's share price has better than weathered its recent huge writedown announcement.

Share price "has moved up on solid volume and broke through the 28-day moving average," TD Evergreen's Todd Ferguson said.

On Sept. 1, Royal Oak's stock closed at just 60 cents. But on Monday, Sept. 21, the company's shares closed at $1.17, slipping slightly to $1.11 by Thursday's close.

This despite Royal Oak announcing it will take a $122 million ($81 million US) writedown in the third quarter.

After closing last week at $1.14, the stock was up five cents by midday Monday.

"The company plans to make a pre-tax provision of approximately $81 million for the revaluation of the carrying value of its assets to their estimated realizable value," Royal Oak said.

"This writedown will be reflected as a non-cash charge in the consolidated financial statements for the period ending Sept 30."

The company said the writedown was needed due to gold price that has averaged $294 US an ounce so far this year.

Royal Oak's operations include Giant Mine and Kemess mine as well as an operation in Timmins, Ont.

The company said a key part of evaluating the value of its assets was the absence of gold production sold forward.

Historically, Royal Oak has occasionally sold forward to avoid volatility in the gold market.

These historic hedge positions have significantly increased the company's realized gold price with premiums above spot price ranging from $20 US to $93 US an ounce over the past six years.

Currently, the company has no gold production sold forward and is selling all production into the spot market.

Royal Oak is limited in its ability to hedge its gold because of certain debt arrangements.

The writedown is in the carrying value of the company's assets in Yellowknife and Timmins.

At the end of 1997, Royal Oak valued its ore reserves at $350 US. For 1998, Royal Oak will likely value its ore reserves at a gold price of $300 US an ounce.

"We believe it is prudent to take the writedown in third quarter as we do not expect gold price to increase significantly in the near term," Royal Oak president and CEO Margaret Witte said.

"Although we have been successful in reducing average cash costs at our Timmins and Giant operations to below $270 US an ounce in first half of this year, the current gold price is expected to decrease the amount of gold contained in mineable ore reserves and therefore could affect mine life," she said.

"The company has no plans at the present time to temporarily suspend or close down its operations at Timmins and Yellowknife."