Doug Ashbury
Northern News Services

NNSL (Dec 11/98) - Rating agency Standard & Poors has lowered two credit ratings on Giant Mine owner Royal Oak Mines Inc.

S&P dropped its corporate credit rating of Royal Oak and its subordinated debt rating of the company.

S&P ratings are a classification of stocks according to risk. The ratings are issued by Standard & Poors Corp., a subsidiary of McGraw-Hill Companies.

Top ratings are in the triple A, double A, A and triple B categories.

Royal Oak's corporate credit rating was dropped to triple C from single B-minus. The company's subordinated debt rating was dropped to double C from triple C. The new ratings were made Tuesday.

D ratings are given to companies in the process of reorganization. Reorganization is the financial restructuring of a company in bankruptcy.

"The (Royal Oak) ratings remain on CreditWatch with negative implications pending the company's efforts to refinance its two-year bridge loan," S&P said.

The downgrade reflects the acute financial risk that Royal Oak Mines faces as a result of the liquidity problems experienced during the past year, which have led to increased debt and interest burden, says Mary Lue Bill, an S&P analyst in Toronto.

Total debt is now 70 per cent of capitalization.

On Sept. 30, Royal Oak had a working capital deficiency of $76 million.

During the year's first three quarters, the company lost $140 million, including a $86 million writedown of mine assets and other long-term investments based on $300 US per-ounce gold price.

As well, the company recently paid some creditors with stock in lieu of cash.

On the positive side, S&P adds, Royal Oak's Kemess mine did go into production in October and expects to produce 278,000 ounces of gold at a estimated cash cost of $240 US an ounce.