<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-8488
CAMPBELL RESOURCES INC.
(Exact name of registrant as specified in its charter)
Canada
(Jurisdiction of Incorporation)
Not Applicable
(I.R.S. Employer Identification No.)
120 Adelaide Street West, Suite 1910, Toronto,
Ontario M5H 1T1
(Address of principal executive offices)
(416) 366-5201
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each Exchange on which Registered
Common Shares New York Stock Exchange
Common Share Purchase Warrants New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
--- ---
At March 14, 1997, the registrant had outstanding 150,357,876 common shares,
without nominal or par value, the only class of registrant's stock outstanding,
and the aggregate market value of the voting stock held by non-affiliates at
such date was $172,911,557 (Canadian).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of registrant's Proxy Circular relating to an Annual Meeting of
Shareholders scheduled to be held on April 24, 1997 are incorporated by
reference into Part III of this report and certain portions of the 1996 Annual
Report to shareholders are incorporated herein by reference into Parts I, II,
and IV of this report. These portions of such Proxy Circular and Annual Report
are filed as exhibits to this Form 10K.
<PAGE> 3
CAMPBELL RESOURCES INC.
Index
Annual Report on Form 10-K for
Year Ended December 31, 1996
Page
PART I
Items 1. and 2. Business and Properties..................................2
Item 3. Legal Proceedings.......................................21
Item 4. Submission of Matters to a Vote of
Security Holders........................................22
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.........................22
Item 6. Selected Financial Data.................................22
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations........23
Item 8. Financial Statements and Supplementary
Data....................................................23
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure....................................23
PART III
Item 10. Directors and Executive Officers
of the Registrant.......................................23
Item 11. Executive Compensation..................................24
Item 12. Security Ownership of Certain Beneficial
Owners and Management...................................26
Item 13. Certain Relationships and Related Transactions..........27
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................27
<PAGE> 4
CURRENCY AND METRIC EQUIVALENTS
Unless otherwise indicated, all dollar amounts herein are expressed in
Canadian dollars. Amounts expressed in United States dollars are preceded by the
symbol "US$". The following table sets forth, for each of the years indicated,
certain information concerning the exchange rate for translating Canadian
dollars into United States dollars based upon the noon buying rate in the City
of New York for cable transfers in Canadian dollars and certified for customs
purposes by the Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
Rate at Average
December 31 Rate (1) High Low
----------- ---- ---- ---
<S> <C> <C> <C> <C>
1992 0.7865 0.8273 0.8757 0.7761
1993 0.7544 0.7751 0.7954 0.7478
1994 0.7129 0.7301 0.7632 0.7105
1995 0.7323 0.7286 0.7431 0.7076
1996 0.7301 0.7332 0.7513 0.7235
</TABLE>
(1) The average rate means the average of the exchange rates on the last
day of each month during the year.
On March 14, 1997, the Noon Buying Rate for Cdn. $1.00 was US $0.7324.
TONNAGES referred to in this document are to either short tons equal to
2,000 pounds, referred to herein as tons, or to metric tonnes, equal to 2,204.6
pounds and referred to herein as tonnes or metric tonnes. A reference herein to
OUNCES means a troy ounce which is equal to 31.103 grams. To convert grams per
tonne to ounces per ton, multiply grams per tonne by 0.029. Distances are
referred to either as miles, equal to 1.6093 kilometres; feet, equal to 0.305
metres; kilometres, equal to 0.621 miles; or metres, equal to 3.28 feet. Acreage
is referred to as acres, which represents 0.4046 hectares, or hectares, equal to
2.471 acres.
As used throughout this report, the term "PROVEN (MEASURED) RESERVES"
means reserves for which (a) quantities are computed from dimensions revealed in
outcrops, trenches, workings or drill holes; (b) grade and/or quality are
computed from the results of detailed sampling and (c) the sites for inspection,
sampling and measurement are spaced so closely and the geologic character is so
well defined that size, shape, depth, and mineral content of reserves are
well-established. The term "PROBABLE (INDICATED) RESERVES" means reserves for
which quantity and grade and/or quality are computed from information similar to
that used for proven (measured) reserves, but the sites for inspection, sampling
and measurement are farther apart or are otherwise less adequately spaced. The
degree of assurance, although lower than that for proven (measured) reserves, is
high enough to assume continuity between points of observation.
<PAGE> 5
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
GENERAL
Campbell Resources Inc. ("Campbell" or the "Corporation") was
incorporated in June 1950 under the laws of British Columbia. On September 8,
1982, the Corporation was continued under the Canada Business Corporations Act
and on June 8, 1983, in connection with an amalgamation of three other
companies, the name of the Corporation was changed from GM Resources Limited to
Campbell Resources Inc.
The Corporation is a gold mining and natural resource company whose
principal assets are the Joe Mann gold mine (the "Joe Mann Mine") located in the
Chibougamau area of northwestern Quebec, the Santa Gertrudis gold mine (the
"Santa Gertrudis Mine") located in the State of Sonora, Mexico and the Cerro
Quema gold property (the "Cerro Quema Property") located in the southern Azuero
Peninsula in the Los Santos province of Panama. Segmented financial information
with respect to the Corporation's domestic and foreign operations is set out in
Note 12 to the Corporation's financial statements for the year ended December
31, 1996. This information is included under Item 14.
The Joe Mann Mine, an underground gold mine owned by Meston Resources
Inc., a wholly-owned subsidiary of the Corporation, is located near the town of
Chibougamau, approximately 350 miles north of Montreal, Quebec. The Joe Mann
Mine was brought into production by Campbell in 1987.
In July 1994, the Corporation directly and through its subsidiary,
Sotula Gold Corp., acquired all of the shares of three Mexican companies which
held the Santa Gertrudis Mine from Phelps Dodge Corporation for $11.1 million
net of cash acquired. The Santa Gertrudis Mine is an open pit heap leach gold
mine located near the town of Magdalena, Mexico, approximately 150 miles south
of Tucson, Arizona. The Santa Gertrudis Mine was brought into production in 1991
by its previous owner. The Corporation also conducts an active exploration
programme for precious metals in the State of Sonora, where the Corporation has
maintained an exploration office since 1970. The Corporation holds its interests
in Mexico through its wholly-owned subsidiary, Oro de Sotula, S.A. de C.V.
("Sotula"). Sotula was formed in September 1994 through the merger of the
Corporation's four wholly-owned Mexican subsidiaries..
On March 4, 1996, the Corporation acquired all of the shares of Minera
Cerro Quema, S.A., a Panamanian corporation ("Minera"), whose primary asset is
the Cerro Quema Property. Such shares were purchased from Cyprus Exploration and
Development Corporation, a Delaware corporation ("Cyprus"), of Englewood,
Colorado, for a price of US$8,372,000 cash, pursuant to the exercise by the
Corporation of a right of first refusal which the Corporation had acquired from
Compania de Exploracion Mineral, S.A.("CEMSA"), a private Panamanian
corporation. At the time of such acquisition, Minera was a wholly-owned
subsidiary of Cyprus.
2
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Cyprus originally acquired an 80% interest in the Cerro Quema Property
through a combination of work commitment expenditures and option payments under
a 1990 option to joint venture agreement with CEMSA. In 1994, Cyprus increased
its interest to 100%, with CEMSA retaining a 3.5% net smelter return royalty
(the "Royalty") and a right of first refusal on the sale of the Cerro Quema
Property by Cyprus.
In December 1995, Cyprus notified CEMSA that it had received an offer,
which it considered acceptable, which offer triggered the right of first
refusal. The Corporation acquired CEMSA's right of first refusal for aggregate
consideration of US$500,000 cash and 1,460,000 Common Shares of the Corporation
(the "Common Shares") payable as set forth below.
CEMSA also agreed to reduce its Royalty from 3.5% to 2% of net smelter
returns with respect to that portion of its Royalty relating to precious metals
produced from the Cerro Quema Property. In consideration for this reduction, the
Corporation has issued a further 1,040,000 Common Shares to CEMSA as described
below.
On March 4, 1996, the Corporation completed its acquisition of Minera
from Cyprus. On completion of this acquisition, the Corporation paid US$250,000
cash and issued 730,000 Common Shares to CEMSA. In addition, private placement
warrants were issued to CEMSA which warrants were exercisable by CEMSA to
acquire 1,770,000 Common Shares without further consideration at the time of
approval of a positive feasibility study by the Corporation's Board.
In November 1996, a positive feasibility study was completed and
presented to the Board of Directors on the basis of which approval was given to
proceed with pre-production development including road construction and
preparation of construction tender documents. Following completion of some
additional test work and receipt of required permitting and exploitation
concessions, final approval for the project was given on February 20, 1997.
Subsequent to this approval the Corporation paid to CEMSA the remaining
US$250,000 cash and, upon exercise of private placement warrants, issued to
CEMSA the 730,000 Common Shares for the right of first refusal and 1,040,000
Common Shares in consideration of the royalty reduction.
The Corporation continues to have, as one of its primary business
objectives, the acquisition of additional sources of gold production through the
acquisition of producing mines or semi-developed properties, preferably low cost
heap leach operations. It is evaluating a number of such investment
opportunities in Latin America.
The Corporation sells metals on international markets at prices which
fluctuate daily based on world market supply and demand and is in competition
with other mining companies, insofar as they produce the same product, in a
market where price and quality advantages can not be claimed by any of the
market participants.
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<PAGE> 7
Factors which allow producers to remain competitive in the market over
the long-term are the quality (grade) and size of the orebody, cost of
production and the proximity to market. In all these factors the Corporation is
competitive to greater or lesser degrees; but because of the number of companies
and variables involved, no individual or group of producers can be pointed to as
being in direct competition with Campbell.
Except as otherwise noted herein, there have been no recent changes
with respect to properties which the Corporation owns, or in which it has
significant interests, which have materially affected operating profits. Except
as herein noted, to the knowledge of the Corporation, it and its subsidiaries
are in compliance with all environmental laws and regulations in effect in all
jurisdictions in which operations are being conducted.
Campbell and its wholly-owned subsidiaries employed 506 persons as of
December 31, 1996, of which 353 were covered by collective bargaining
agreements. The relationship of Campbell and its subsidiaries with their
employees and contractors is considered by Campbell to be satisfactory. See
"Employees" on pages 10 and 14.
During 1996 and 1995, there were no material strikes or walkouts at the
Joe Mann Mine. On September 14, 1996, the collective bargaining unit at the Joe
Mann Mine, represented by Le Syndicat des Travailleurs-euses de la Mine Meston
("CSN"), consisting of 184 employees, approved a collective bargaining agreement
covering a three year period with wage increases of 0.73% in the first year and
1.22% and in the second and third years. On February 8, 1996, a three year
contract was approved by the Metallurgistes Unis d'Amerique covering 29 workers
at the Camchib Mill, under which the salary was maintained at current levels for
the first year with levels for the second and third years to be increased at the
same rate as was agreed to with CSN.
In April 1996, the Corporation concluded an agreement with the National
Union of Miners, Metallurgists and Similar Workers of the Mexican Republic,
which represents the 151 hourly employees at the Santa Gertrudis Mine, for a
two-year term, which provides for a 22% increase in wages during the first year
of the agreement with a wage re-opener after the first year.
4
<PAGE> 8
INTERCORPORATE RELATIONSHIPS
The following chart illustrates the principal subsidiaries of the
Corporation, together with the jurisdiction of incorporation of each company and
the significant properties held by each company:
CAMPBELL RESOURCES INC.
(Canada)
100%
SOTULA GOLD CORP.
(Canada)
<TABLE>
100% 100% 100%
<S> <C> <C>
MESTON RESOURCES INC. ORO DE SOTULA, S.A. de C.V. MINERA CERRO QUEMA, S.A.
(Quebec) (Mexico) (Panama)
Joe Mann Mine Santa Gertrudis Mine Cerro Quema Gold Property
Chibougamau Exploration Exploration Properties
Properties
Camchib Mill
</TABLE>
THE JOE MANN MINE
HISTORY
The Joe Mann property was acquired in July 1980 by Meston Lake
Resources Inc. ("Meston Lake"), a predecessor of Meston Resources Inc.
("Meston") (a wholly-owned subsidiary of the Corporation).
The original deposit was discovered in 1950. A three compartment
exploration shaft was sunk and some 859,000 tons of ore grading 0.176 oz/ton of
gold had been mined and milled until June 1975 when rising costs coupled with
poor recoveries prohibited further mining. Subsequently, Meston Lake acquired
the mine and the shaft was dewatered in 1980 before financial and corporate
problems put a halt to the operation.
Campbell became involved in the Joe Mann property in 1983 when it
acquired a minority position in Meston Lake and entered into a management
agreement under which it designed and
5
<PAGE> 9
implemented an exploration programme and aided in the financing of this
programme with the objective of determining the commercial viability of the
project.
The mine was dewatered in early 1985 and in June of that year, an
underground exploration programme began. The exploration programme resulted in
the discovery of 800,000 tons of ore reserves and prompted the decision to
re-start production. Commercial production began on April 2, 1987 with proven
and probable mineable reserves of 910,000 tons grading 0.22 ounces of gold per
ton at December 31, 1986. During 1987, Campbell also increased its ownership in
the mine to 100%. The mine has been in continuous production since 1987. To
date, the deposit has been mined along a 3,000 foot strike length to a depth of
2,350 feet and remains open at depth.
At the Joe Mann Mine, the Corporation's subsidiary Meston holds a
number of mining concessions and a mining lease along with 25 mining claims
surrounding the concessions. Under Quebec mining law, the Corporation's interest
in the mining concessions and lease is maintained in good standing by payment of
an annual rental fee of $25.00 per hectare or by the completion of $25.00 of
exploration and development work annually per hectare. As to mining claims, a
fee of $22.00 per claim must be paid and $500 of exploration work incurred every
two years. Exploration expenses may be carried forward to future years and may
be applied to claims within a 3.2 square kilometre block distance. Current work
credits will entitle the Corporation to retain currently held mining claims for
in excess of twenty years. Under the exploration agreements with SOQUEM
described under "Mineral Exploration Properties--Chibougamau Exploration
Properties" on page 16, SOQUEM pays the annual fees and incurs the expenditures
necessary to keep the applicable mining claims in good standing.
LOCATION AND ACCESS
The Joe Mann Mine is located approximately 40 miles south of
Chibougamau, Quebec which is approximately 350 miles north of Montreal. The
property consists of mining concessions covering 90 hectares, a mining lease
covering 14.8 hectares and 25 mining claims covering approximately 400
hectares. In addition, Meston holds 197 mining claims covering approximately
3,150 hectares outside of the Joe Mann Mine area.
The property is accessed from Chibougamau by road. Highway 167 leads to
the gravel mine access road, which is approximately 12 miles in length and is
serviced by Meston.
GEOLOGY
The deposit represents a classic Archean vein-type deposit with
gold-copper mineralization hosted by quartz veining within three laterally
continuous shear systems. In the mine area, the rocks consist predominantly of
mafic lavas intruded by gabbro sills and feldspar porphyry dykes. The intrusives
appear to have been introduced along a prominent east-west break structure. The
gabbro sills which are moderately magnetic are traceable over widths of 400 to
600 feet and for at least thirty miles along strike. Many late diabase dykes of
varying thicknesses crosscut the sequence and strike northeast.
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<PAGE> 10
Two principal veins account for approximately 70% of the known reserves
and 100% of the current production. The Main Vein is located north of the No. 1
shaft and has an east-west strike length of approximately 3,000 feet with an 80
degree dip to the north. The Main Vein contains about 41% of the reserves. The
South Vein accounts for 29% of reserves and is located about 350 feet south of
the Main Vein between the No. 1 shaft and the No. 2 production shaft. The South
Vein has a strike length of about 3,000 feet in an east-west direction and a
north dip. Exploration results indicate that the ore zones continue and are open
at depth. In September 1996, a $14.5 million project was approved to deepen the
No. 2 production shaft by 1,100 feet to facilitate the opening of six new
production levels. For further discussion of the shaft deepening project, see
"Mine Exploration and Development" below.
MINEABLE RESERVES
Mineable reserves at the Joe Mann Mine are continually updated by
management to reflect operations and exploration activity and are periodically
reviewed by independent consultants.
The following table summarizes diluted mineable reserves estimated by
management:
PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995 December 31, 1994
Grade Grade Grade
Tons (oz/ton) Tons (oz/ton) Tons (oz/ton)
<S> <C> <C> <C> <C> <C> <C>
Proven 515,522 0.277 664,000 0.264 736,539 0.273
Probable 211,869 0.245 210,840 0.295 310,656 0.262
------- ----- ------- ----- ------- -----
Total 727,391 0.268 874,840 0.272 1,047,195 0.27
======= ===== ======= ===== ========= ====
</TABLE>
Total diluted proven and probable mineable reserves at the Joe Mann
Mine decreased by 147,449 tons from 874,840 tons at December 31, 1995 to 727,391
tons at December 31, 1996. This decrease reflects the development of known
reserves above the 2350 foot level, the deepest level currently accessible from
the No. 2 production shaft. After taking into account production during 1996 of
265,600 tons grading 0.290 ounces per ton, total diluted proven and probable
mineable reserves increased on a net basis during this period by 118,151 tons.
Access to the mineralization below the 2350 foot level will be achieved on
completion of the deepening of the No. 2 production shaft which is expected to
be completed by mid 1998.
MINE EXPLORATION AND DEVELOPMENT
Extensive lateral mine development and underground diamond drilling
were carried out during the last two years. In 1996, 19,300 feet of lateral
development and 192,300 feet of diamond drilling were completed at a cost of
approximately $5,750,000. This compares to 24,500 feet of lateral development
and 204,000 feet of diamond drilling completed during 1995 at a cost of
$5,900,000. As a consequence of the programme, continuity of strong gold
mineralization has been confirmed to a depth of 3,700 feet, 1,350 feet below the
current deepest production level of
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the mine and mineralization remains open at depth. To date, widths are
consistent with and grades are somewhat higher than those encountered in the
currently mined areas.
Total development and diamond drilling expenditures in 1997 are
projected at $4,600,000 which will fund 13,300 feet of lateral development and
106,500 feet of diamond drilling. These activities will concentrate on
exploration of the West Zone and the main orebody above the 2350 foot level of
the mine.
A 1,100 foot deepening of the No. 2 production shaft, that will
facilitate the opening of six new production levels to a depth of 3,780 feet,
was approved in September, 1996. The capital costs of the shaft deepening will
be approximately $14.5 million. The shaft deepening commenced in December 1996
and is expected to be completed by mid 1998. The No. 2 production shaft is
constructed to permit future deepening without interruption of production.
WEST ZONE EXPLORATION POTENTIAL
Currently, most of the mining at the Joe Mann Mine is carried out to
the east of the No. 2 production shaft. Exploration drilling from surface in
1994, testing the area west of the shaft, discovered significant gold
mineralization. The proximity of this zone to the existing shaft, combined with
the excess hoisting and milling capacity of the operation, make this an
attractive target that could favourably impact both production levels and unit
cost at the Joe Mann Mine.
In April 1995, a $1.35 million underground exploration programme was
approved to investigate the West Zone. The programme commenced in June, 1995. An
exploration drift along the 1650 foot level encountered gold mineralization
1,820 feet west of the No. 2 production shaft. A 455 foot interval along the
drift averaged 0.27 ounces of gold per ton across a 6.0 foot width. The zone was
tested both above and below the drift by 197 short drill holes totalling 43,000
feet. To test the depth potential of the West Zone, 18 deep holes were drilled
from the 1650 foot level exploration drift. These holes encountered a number of
ore grade gold mineralization down to depths of 3,600 feet and also confirmed
that the West Zone approaches the shaft at depth. This underground exploration
has confirmed that the West Zone has a strong similarity in grade and width to
the main producing ore body. In 1997, a second exploration drift is being
driven, along the 1825 foot level, 2,200 feet west of the No. 2 production shaft
from which 35,000 feet of drilling is planned. Based on the geology and results
to date, management believes that there is good potential for a new economic
orebody in this area.
MINING
Mining is predominantly carried out using the shrinkage stope mining
method and currently all stope production comes from above the 2350 foot level.
In 1996, 73% of the ore came from the shrinkage stopes, 13% from longhole
stoping and 14% from development. .
During 1992, the No. 2 shaft was deepened to a depth of 2,676 feet.
This deepening project opened up four new levels between the 1825 and 2350 foot
levels. The production capacity of the No. 2 shaft system is estimated to be
2,000 tons per day assuming 12 hours of
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<PAGE> 12
hoisting per day. The No. 1 shaft is now inactive, but is maintained to provide
standby support for the operation.
Mining operations in the stopes utilize jackleg drills and high
explosives to break the rock. Ore is loaded into five-ton ore cars at stope
draw-points and trammed by electric locomotives to an ore pass. Mucked ore is
passed through a rock breaker then hoisted to the surface. All production and
development ore is hoisted from the No. 2 productiob shaft to the surface. The
equipment used in the mining operations is regularly maintained and is in good
working order.
The following table sets out production from the Joe Mann Mine for the
past three years:
<TABLE>
<CAPTION>
JOE MANN MINE
PRODUCTION SUMMARY
Year ended December 31
--------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tons Milled 265,600 282,000 290,000
Gold Grade (oz./ton) 0.290 0.252 0.233
Copper Grade (%) 0.302 0.291 0.232
Gold Produced (ounces) 70,400 64,500 61,100
Copper Produced (000's lbs) 1,473 1,494 1,200
Operating Costs (1) (US$ per oz. $ 272 $ 284 $ 299
of gold)
</TABLE>
(1) Operating costs include smelting and refining charges, net of copper
and silver by-product credits.
MILLING
Ore from the Joe Mann Mine is transported approximately 40 miles by
truck to the Corporation's Camchib Mill for processing. The Camchib Mill was
commissioned in 1955 and is regularly maintained.
During 1996, the gold recovery rate at the Camchib Mill which processed
ore from the Joe Mann Mine was 93.2% and the copper recovery rate was 96.3%
compared to 92.7% and 95.7% respectively in 1995. These higher recovery rates
reflect the continuing success of mill improvements made in late 1994. The mill
process includes three separate circuits; a gravity circuit, a flotation circuit
and a cyanide circuit. Original design capacity at the Camchib Mill was 3,500
tons per day as a flotation mill. The Camchib Mill was modified to include a
cyanide circuit. Gold recovered from the gravity and cyanide circuits is formed
into dore bars on site and is shipped to the Royal Canadian Mint for refining.
The flotation circuit uses standard technology to produce a copper-gold
concentrate. The copper-gold concentrate is shipped by rail to Noranda Inc.'s
Horne Smelter in Rouyn/Noranda, Quebec for smelting and refining.
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<PAGE> 13
EMPLOYEES
At the Joe Mann Mine, 260 persons were employed as of December 31, 1996
of whom 202 were covered by collective bargaining agreements with Le Syndicat
des Travailleurs-euses de la Mine Meston (CSN) with respect to the mine workers
and with Les Metallurgistes Unis d'Amerique (the United Steelworkers of America)
with respect to mill workers.
During 1996 and 1995, there were no material strikes or walkouts at the
Joe Mann Mine. On September 14, 1996, the collective bargaining unit at the Joe
Mann Mine, represented by CSN, consisting of 174 employees, approved a
collective bargaining agreement covering a three year period with wage increases
of 0.73% in the first year and 1.22% and in the second and third years. On
February 8, 1996, a three year contract was approved by the Metallurgistes Unis
d'Amerique covering 28 workers at the Camchib Mill, under which the salary was
maintained at current levels for the first year with levels for the second and
third years to be increased at the same rate as was agreed to with CSN.
NET SMELTER ROYALTY
In May 1993, Meston sold a graduated net smelter return royalty to
Repadre Capital Corporation, a subsidiary of Dundee Bancorp Inc., for $3 million
cash. The royalty, based on production from the Joe Mann Mine, is 1.8% at gold
prices up to Cdn$500 per ounce increasing to 3.6% at gold prices of Cdn$625 per
ounce and greater. A 2% royalty is also payable on copper production in excess
of 5 million pounds per year and silver production in excess of 1 million ounces
per year. For the year end December 31, 1996, $781,000 was paid to Repadre under
this agreement compared to $702,000 paid for the year ended December 31, 1995.
THE SANTA GERTRUDIS MINE
HISTORY
The previous owner of the Santa Gertrudis Mine, Phelps Dodge
Corporation, through its Mexican exploration subsidiary, began to explore the
Santa Gertrudis district in 1984. The district was recognized to have potential
for sediment-hosted gold in fine-grained chemiclastic rocks similar to the gold
deposits of the Carlin trend in Nevada. By April 1986, the first deposit was
discovered and as exploration continued, an additional eight deposits were
discovered soon thereafter. A preliminary feasibility study was completed in
1987 and the final feasibility study completed in October 1988. In 1989,
Compania Minera Santa Gertrudis was formed for the purpose of holding the
concessions where deposits had been identified and for the eventual mining of
the deposits. The decision to begin production was made in 1989 and facility
construction started in May 1990.
The first shipment of gold precipitate from the initial 2,000 metric
tonne of ore per day heap leach facility was made in June 1991. The initial
capital investment was US$28.4 million including pre-operating costs of US$5.9
million. In 1992, an expansion was completed increasing mine production to 3,000
metric tonnes of ore per day.
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<PAGE> 14
LOCATION, ACCESS AND INFRASTRUCTURE
The Santa Gertrudis Mine is located mid-way between Tucson, Arizona and
Hermosillo, Sonora, Mexico, 80 miles south of the United States-Mexico border.
The property is accessible by road which is paved except for the last 20 miles.
The town of Magdalena is located about an hour drive from the site. The Santa
Gertrudis Mine consists of a series of open pits, a heap leach facility, a
processing plant and associated facilities. In September, 1995, the Santa
Gertrudis property was expanded by 27.4 square miles to encompass a total land
position of approximately 75 square miles. Approximately half of the new
property was acquired through staking with the other half acquired through
option agreements that allow the Corporation to earn a 100% interest through
staged payments aggregating a maximum of US $1,000,000 over a five year period.
During 1996, an additional 12 square miles were added to the land position
through staking.
At the Santa Gertrudis mine, the Corporation's subsidiary Sotula holds
both exploration and exploitation concessions. In 1996, to maintain these
concessions, Sotula was required either to carry out exploration work or have
production amounting to approximately $31.00 per hectare and annual fees were
required to be paid. Exploration work and production significantly in excess of
the required $600,000 were carried out and an aggregate of $50,000 was paid for
taxes on the approximate 22,000 hectare property. The Corporation's planned
exploration programmes exceed estimated work requirements in the foreseeable
future.
The mine site includes a diesel power plant, four-bay maintenance shop,
warehouse, modern office and telecommunications network, medical building,
recovery plant, kitchen, recreational building and residential quarters for
employees.
GEOLOGY
The gold deposits are generally located within a nine mile by two mile
belt of sedimentary rocks that trends northwesterly along the southern range
front of Cerro Azul. Mineralization occurs throughout the stratigraphic section;
however, economically significant deposits are preferentially hosted by limey
siltstone and carbonate rocks. The Santa Gertrudis deposits have strong
geological similarities to the deposits in the Carlin trend in Nevada.
Mineralized zones are usually completely oxidized and other Carlin features such
as siliceous alteration, jasperoid zones, carbonaceous material and low angle
thrusting are also present at Santa Gertrudis. Thirty-eight gold deposits and
occurrences, including the recent discoveries of La Truena and Greta, have been
identified in the District. Additional prospects are in the early stages of
exploration.
11
<PAGE> 15
MINEABLE RESERVES
The following table summarizes mineable reserves estimated by
management:
<TABLE>
<CAPTION>
SANTA GERTRUDIS MINEABLE RESERVES
December 31, 1996 December 31, 1995 December 31, 1994
Grade Grade Grade
Tonnes g/tonne Tonnes g/tonne Tonnes g/tonnes
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Proven 1,287,000 1.87 1,008,000 2.28 861,000 2.21
Probable 291,000 1.46 297,000 1.85 168,000 1.86
------- ---- ------- ---- -------- ----
Total 1,578,000 1.79 1,305,000 2.18 1,029,000 2.15
========= ==== ========= ==== ========= ====
</TABLE>
Production during 1996 was approximately 965,000 tonnes grading 2.06 grams
per tonne. Approximately 1,238,000 tonnes of additional proven and probable
reserves grading approximately 1.59 grams per tonne were added to ore reserves.
This resulted in an overall increase in proven and probable reserves of 273,000
tonnes net of production during the period.
Since the acquisition of the Santa Gertrudis Mine in July, 1994, based on
the ore placed on the leach pads and the gold recovered, a recovery rate of
approximately 72% has been experienced and is expected to continue.
OPERATIONS
Mining is on a continuous, round-the-clock basis with hydraulic shovels,
front-end loaders, drills and a fleet of twelve 50-tonne haulage trucks. Two
85-tonne haulage trucks were acquired in 1996 to allow more efficient and lower
cost stripping of new deposits. The average mining rate is approximately 32,000
tonnes per day of which approximately 3,000 tonnes is ore representing a strip
ratio of 9.8:1. The ore is oxidized and processing utilizes conventional heap
leach technology. Approximately 70% of the ore is crushed to minus two inches
before delivery to the leach pads and the remaining 30%, representing fines, is
amenable to direct delivery to the leach pads. Sodium cyanide solutions are
dripped over the ore piles on the leach pads and the gold-enriched solutions
are collected in solution ponds. Extraction of the gold from the gold-enriched
leach solutions is accomplished by pumping the solutions through a series of
carbon columns. The gold is adsorbed onto the carbon that is subsequently
transported to the plant for stripping using a hot caustic solution. Zinc dust
is added to the gold-laden strip solution to facilitate precipitation of the
gold. A filter system collects the gold-rich zinc precipitate which is then
dried. The zinc precipitate containing 75 to 90% gold and approximately 5%
silver is shipped for final refining.
During 1996, gold production at Santa Gertrudis was predominantly from the
Dora, Maribel, Katman and El Toro pits. All producing pits are within four
kilometres of the crusher and leach pads. In 1997, the majority of gold
production will be from the Dora, Katman and El Toro deposits with the new La
Truena deposit commencing production late in the year. The La Truena deposit is
located approximately seven kilometres from the crusher and leach pads. Road
12
<PAGE> 16
construction is expected to cost approximately US$250,000 and is expected to
commence in the second quarter of 1997.
In 1995, feasibility and condemnation work was completed for a Phase IV
leach pad to be constructed to the east of the existing Phase I pad. The Phase
IV leach pad will provide an additional 2.0 million tonne capacity at a cost of
approximately US$500,000. Construction of the Phase IV leach pad is expected to
be completed by May 1, 1997.
The following table sets out production from the Santa Gertrudis Mine for
the past three years:
<TABLE>
<CAPTION>
SANTA GERTRUDIS MINE
PRODUCTION SUMMARY
Year ended December 31
- - --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Dry Tonnes leached 965,000 1,135,000 928,085
Gold Grade (g/tonne) 2.06 2.17 1.98
Gold Recovery (%) 72.5 72.0 70.5
Gold Produced (ounces) 54,400 55,600 41,570
Cash Operating Costs (1) $227 $205 $301
(US$ per ounce of gold)
</TABLE>
(1) Operating costs include mining, plant, administration and transportation
costs.
Cash operating costs per ounce of gold for 1996 were US$227 compared to US$205
for 1995. This higher cost is primarily attributable to the higher waste to ore
strip ratio in 1996.
EXPLORATION
The identification of additional ore reserves is a priority at Santa
Gertrudis. A team of ten exploration geologists continued a comprehensive
exploration programme that began in late 1994. Reconnaissance mapping,
prospecting, detailed geological mapping, sampling, drilling and trenching are
being systematically applied across the property. In 1996, the exploration
programme proved successful in identifying new gold occurrences, new prospective
areas and approximately 1,238,000 tonnes of mineable reserves grading 1.59 grams
of gold per tonne. These 1,238,000 tonnes are included in the table captioned
"Santa Gertrudis Mineable Reserves" on page 12.
In 1996, approximately $5.0 million was spent on exploration and reserve
definition on the Santa Gertrudis property. A total of 16,000 metres of drilling
in 153 holes tested for extensions to existing deposits and completed reserve
definition work in the main mine area. Of an additional 210 drill holes
totalling 23,000 metres, approximately 30% tested exploration targets in the
main mine area and the remaining 70% tested 18 exploration targets in other
parts of the property.
13
<PAGE> 17
Exploration in 1996 met with success in two key areas, La Truena and Greta. The
La Truena deposit was discovered by prospecting at the end of 1995 and a 7,000
metre drill program subsequently identified a 50,000 ounce gold reserve. La
Truena consists of three subparallel zones that have been traced a minimum of
450 metres along strike. The gold zones remain open in several directions.
Additional exploration drilling is a priority for 1997 on extensions of these
zones and on a number of nearby alteration zones.
The Greta area, covering about six square miles, is located 4.5 miles southeast
of the current mining operations. Numerous gold showings with values as high as
70 grams of gold per tonne have been identified by mapping and follow-up
trenching. In 1996, 39 drill holes totalling 4,300 metres tested 8 individual
targets in this area. Of several significant drill intersections, the best
include 7.43 grams per tonne over 10.3 metres, 4.68 grams per tonne over 18.0
metres and 9.47 grams per tonne over 4.5 metres. The gold mineralization is
associated with jasperoid lenses which are characteristic of Carlin-type gold
deposits. Follow-up work is planned for several targets in this area in 1997.
The identification of additional ore deposits remains a priority at Santa
Gertrudis. In 1997, with a budget of $4.3 million, the exploration program will
include mapping, geochemistry, prospecting, trenching and drilling as well as
the integration of airborne geophysical and remote sensing data.
EMPLOYEES
The Santa Gertrudis Mine employed 232 persons at December 31, 1996 of whom
151 were covered by a collective bargaining agreement. In April 1996, the
Corporation concluded an agreement with the National Union of Miners,
Metallurgists and Similar Workers of the Mexican Republic ("Union") for a two
year term with the Union representing the employees covered by such agreement
which provides for a 22% increase in wages during the first year of the
agreement with a wage re-opener after the first year.
THE CERRO QUEMA PROPERTY
HISTORY
The Cerro Quema Property was acquired on March 4, 1996. The history of the
Property is described above in Items 1 and 2 "Business and Properties" under the
caption "General".
LOCATION, ACCESS AND INFRASTRUCTURE
The Cerro Quema Property is located approximately 250 km southwest of
Panama City, on the southern Azuero Peninsula of Panama. The property is
accessible by road and close to hydroelectric power. The regional city of Chitre
is approximately 50 km north of the property. Chitre has a population of 35,000
and is served by an airport which has two regular daily flights from Panama
City.
At the Cerro Quema Property, the Corporation's subsidiary, Minera Cerro
Quema held exploration concessions covering approximately 20,000 hectares which
comprise the Cerro Quema
14
<PAGE> 18
Property. These exploration concessions were converted to three extraction
concessions in February, 1997. Pre-extraction activities, which must commence
within one year of the date of the extraction concession, commenced in December,
1996. Under Panamanian mining law, a 2% net smelter return royalty is payable on
production. In addition, an annual surface tax of approximately US$1.00 per
hectare is also payable.
GEOLOGY
The geology at the Cerro Quema Property consists of host volcanic rocks
which originally contained pyrite and very low-grade gold. These rocks have been
highly weathered to result in a concentration of gold near the surface. The
highest grade ore is at the surface, with the grade gradually declining with
depth down to the lower limit of the oxidation boundary. Three near-surface
oxide deposits, the La Pava, Quema West and Quemita, currently comprise the
project, of which the La Pava deposit is the largest. The Quema West and Quemita
deposits are adjacent to each other and approximately 2.5 to 3.0 km from the La
Pava deposit.
The local topography consists of steep canyons and narrow ridges with
little or no extended flat or gently sloping areas. Below the steeper ridge
crests and canyons that form the core of the project area, the topography,
although still mountainous, is not as extreme and some wider canyons or valleys
and rolling hills are present.
MINEABLE RESERVES
In preparing a positive feasibility, the Corporation, in conjunction with
its consultants, has carried out a detailed review of the data produced by
Cyprus on the property and has completed some confirmation drilling and test
work. It is believed that Cyprus spent approximately US$8.5 million on work on
the property, including 17,000 metres of reverse circulation drilling and 4,500
metres of diamond drilling. The following table sets out the probable mineable
reserves as estimated by the Corporation in the feasibility study.
Grade
-----
Tonnes g/tonne
------ -------
Probable 8.8 million tonnes 1.16
Based on a review of the metallurgy of these ore reserves and proposed
mining plans and methods and on test work performed on representative samples
taken from the property, the Corporation expects that a stripping ratio of
0.64:1 and gold recoveries of 86% can be achieved in an open pit heap leach
operation. The oxidized nature of the gold mineralization accounts for the
favourable indicated recoveries.
MINE FEASIBILITY AND DEVELOPMENT
In November, 1996, a positive feasibility study was completed and
presented to the Board of Directors on the basis of which approval was given to
proceed with pre-production development including road construction and
preparation of construction tender documents. Following completion of some
additional test work and receipt of required permitting and exploitation
concessions, final approval for the project was given on February 20, 1997.
15
<PAGE> 19
The positive feasibility study estimates the capital costs to develop an
open pit heap leach mine capable of producing 50,000 ounces of gold annually at
US$32.8 million which includes provisions for contingencies. The capital costs
will be funded from available cash and through debt financing, if necessary.
Based on existing reserves the feasibility study indicates an estimated minimum
mine life of six years.
Construction and upgrading of the access road commenced in mid-November
and was completed in late February, 1997. During the 1997 dry season, which
extends from December to April, main construction activities will include the La
Pava haul road, earthmoving and levelling of the general plant site area, and
initial construction of leach pad pond stability dams and the camp
infrastructure. Pre-production mining will commence towards the end of the third
quarter of 1997. When production commences, the Cerro Quema Mine will have
approximately 170 employees.
EXPLORATION POTENTIAL
A large portion of the 75 square mile property has only been covered by
reconnaissance exploration, usually including stream sediment sampling and rock
sampling on exposed ridges. More extensive road access that has been built
within the past year will allow for exploration of a number of existing
prospective exploration targets. An exploration program is expected to be
initiated in mid-1998, once access and infrastructure is in place.
MINERAL EXPLORATION PROPERTIES
The Corporation has interests in precious and base metal properties in the
Chibougamau region of northwestern Quebec, in the State of Sonora, Mexico and in
the State of Nevada.
CHIBOUGAMAU EXPLORATION PROPERTIES
Meston owns extensive exploration properties in the Chibougamau area,
including mining claims and several former producing mines. These former
producing mines include the S-3, Lac Chib, Kokko Creek, Quebec Chibougamau and
the Main Mine.
In June 1992, Meston entered into two agreements with the Societe
quebecoise d'exploration miniere ("SOQUEM") under which SOQUEM may expend up to
$7 million towards exploration programmes on the Meston and Chibougamau
properties. During 1995, these agreements were amended to extend their term and
increase the expenditures. Under the revised terms, SOQUEM can earn a 50%
interest in the 197 claim Meston property (excluding the Joe Mann Mine), in
exchange for spending $4.2 million (increased from $4 million) by January 6,
1999 (originally June 1, 1997). SOQUEM can also earn a 50% interest in the
Chibougamau properties, which comprises 396 claims and three mining concessions,
by spending $3.15 million (increased from $3 million) by January 6, 1998
(originally June 1, 1997). Should SOQUEM not spend the amounts set out above,
SOQUEM will earn no interest in the properties. Meston has retained the right of
first refusal to treat any ore produced from these properties at its Camchib
Mill. If either party fails to fund its pro rata share of expenditures once
SOQUEM has earned its 50% interest,
16
<PAGE> 20
the defaulting party will have its interest diluted. If either party's interest
is diluted to 15% or lower, such party's interest will automatically revert to a
3% net smelter return.
From the inception of the programme to December 31, 1996, SOQUEM has spent
approximately $2,205,000 million on the Meston property and $2,136,000 million
on the Chibougamau properties. The Company is not responsible for sharing
expenditures with respect to the referenced properties.
During 1996, SOQUEM continued surface exploration on both properties
consisting of geological mapping, geophysical surveying, stripping and trenching
including approximately 19,000 feet of diamond drilling in 22 holes on the
Meston property and 15,000 feet of diamond drilling in 12 holes on the
Chibougamau properties.
MEXICAN EXPLORATION PROPERTIES
In addition to the Santa Gertrudis Mine, Sotula currently holds eight
exploration properties covering approximately 3,500 hectares as well as 2,000
hectares under option in Sonora State. During 1996, approximately $600,000 was
expended on these gold properties and evaluation of acquisition prospects.
Approximately $400,000 is budgeted for exploration outside of the Santa
Gertrudis property in 1997.
WILDCAT PROPERTY
In January, 1995, Campbell acquired the Wildcat advanced exploration gold
property located in Nevada from Lac Minerals (USA), Inc. for US$300,000. This
property is located 80 miles northeast of Reno, Nevada. This area will require
further drilling to determine whether the project could be economic.
Near-surface higher grade oxide material would be amenable to low cost open pit
heap leach mining. The Corporation's interest in the Wildcat property consists
of 315 mining claims held directly and under lease agreements. Annual federal
and county rental/maintenance fees amounted to US$33,000 in 1996. There are no
work assessment requirements. Advance royalty payments of US$29,000 per year are
payable pursuant to lease agreements. In November, 1996, Campbell entered into
an option to purchase agreement with Sagebrush Exploration Inc. pursuant to
which Sagebrush may acquire the Wildcat property until November, 1997 for
US$650,000.
CAMPBELL FINANCINGS
On February 8, 1996, the Corporation entered into an underwriting
agreement with First Marathon Securities Limited, Nesbitt Burns Inc. and CIBC
Wood Gundy Securities Inc. (the "Underwriters") pursuant to which the
Corporation sold 18,000,000 Units, each Unit consisting of one Common Share and
one-half of a Common Share Purchase Warrant (a "Warrant"). Each whole Warrant
entitles the holder to purchase one Common Share for US$1.50 on or before
February 26, 1999. The Corporation received approximately US$21,150,000 from the
Underwriters net of underwriting fees and before deducting other expenses of
sale, from the sale of such securities. The 18,000,000 Common Shares and
9,000,000 Warrants were registered under the Securities Act of 1933 (the "Act"),
on a Registration Statement on Form F-10 (Registration No. 333-770). Reference
is made to the Prospectus, dated February 9, 1996,
17
<PAGE> 21
contained in said Registration Statement for a description of the details of
such offering and to the Warrant Indenture, referred to in such Registration
Statement for the terms of the Warrants. The Corporation has separately
registered under the Act the 9,000,000 Common Shares issuable upon the exercise
of the Warrants pursuant to a Registration Statement on Form F-3 (Registration
No.333-1882) which was declared effective on July 25, 1996.
In July, 1994, concurrent with the acquisition of Santa Gertrudis, the
Corporation entered into an underwriting agreement with First Marathon
Securities Limited pursuant to which the Corporation sold US$11,005,000
aggregate principal amount of 7 1/2% Convertible Subordinated Debentures
(Unsecured) (the "7 1/2% Debentures"). The 7 1/2% Debentures will mature on July
21, 2004, the tenth anniversary of their date of issue. The 7 1/2% Debentures
are convertible at the option of the holder into Common Shares at any time prior
to maturity at a conversion price of US$0.50 per Common Share. The 7 1/2%
Debentures are redeemable for cash at any time after the fifth anniversary of
the date of issue and, at the Corporation's option, may be redeemed in Common
Shares on the basis of one Common Share for each US$0.50 of 7 1/2% Debenture
principal being redeemed. The right of the Corporation to redeem the 7 1/2%
Debentures for cash or Common Shares is conditional on the average price of the
Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to
redemption. The Corporation may, at its option, repay the 7 1/2% Debentures at
maturity by issuing Common Shares of the Corporation at the conversion price of
US$0.50 per Common Share. At December 31, 1996, debenture holders had converted
US$5,414,000 of debenture principal into 10,828,000 Common Shares. Debentures in
the amount of US$5,591,000 remain outstanding as of March 14, 1997.
MESTON DEBENTURES AND PREFERENCE SHARES
During 1991, a predecessor of Meston entered into a corporate
restructuring and financing arrangement (the "Financing") in which it issued to
a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate
Debentures and Notes (the "Guaranteed Debentures") and $12,000,000 of Guaranteed
Non-Cumulative Redeemable Retractable Preferred Shares (the "Preferred Shares")
and renounced Canadian development expenses. The Guaranteed Debentures bear
interest at varying rates and are repayable upon maturity in 2007. The Preferred
Shares are retractable in 2007. In order to secure the obligations in respect of
the Guaranteed Debentures and the Preferred Shares, a subsidiary of the
Corporation entered into an Interest Rate and Currency Exchange Swap Agreement
(the "Swap Agreement") with a major international bank and irrevocably assigned
all amounts receivable under the Swap Agreement directly to the investors. The
proceeds of the Swap Agreement will be used to make all interest payments, repay
the Guaranteed Debentures upon maturity and retract the Preferred Shares.
Accordingly, such bank is primary obligor under the Financing. The Guaranteed
Debentures are subordinate to all current non-trade and future senior
indebtedness of the Corporation and its subsidiary.
ENVIRONMENTAL MATTERS
The Corporation believes that it and its subsidiaries are currently
complying in all material respects with applicable environmental legislation.
During 1995, proposed amendments to the Quebec Mining Act relating particularly
to rehabilitation and restoration plans came into force. This legislation
required that a rehabilitation and restoration plan be submitted for approval
within one year of the legislation coming into force and that a financial
guarantee be furnished with
18
<PAGE> 22
respect to such plan. The Corporation filed a preliminary rehabilitation and
restoration plan on March 9, 1996, and will file additional information required
thereunder within the extensions granted by Quebec mining authorities. Annual
financial guarantees are required to be filed in connection with the
rehabilitation and restoration plan within 15 days of approval of the plan. The
Corporation estimates that these annual amounts will range from $95,000 in the
first year to $658,000 in the fourth year. The Corporation currently accrues for
the estimated site restoration costs at the Joe Mann Mine over the estimated
life of the mine. At the Joe Mann Mine, the total cost of completing the work
contemplated under the rehabilitation plan filed on March 9, 1996 is estimated
at $1,500,000. This work is to be completed over a four year period and as a
consequence is not anticipated to have a material effect on the Corporation's
financial condition.
At the Santa Gertrudis Mine in Mexico, general guidelines indicate that
total reclamation costs could be approximately $2 million. This estimated cost
will be more than exceeded by the salvage value of plant and equipment. The
Corporation currently accrues for the estimated site restoration costs at the
Santa Gertrudis Mine over the estimated life of the mine.
On an ongoing basis, environmental compliance costs are not material at
the Joe Mann Mine or the Santa Gertrudis operation.
At the newly acquired Cerro Quema Property in Panama, the feasibility
study indicates rehabilitation costs of up to US$2,000,000 which will be covered
by the salvage value of the plant and equipment. Three environmental studies
were filed. A Preliminary Evaluation and an Environmental Reconnaissance study
were filed by the previous owner and an Environmental Viability study was filed
by the Corporation and was approved in December, 1996. Based on current
legislation and the recent experience of other mining projects, the Corporation
believes that environmental compliance can be achieved without material impact
on the economics of the Project.
RISK FACTORS
MINING RISKS
The Corporation is subject to the risks typical in the mining business
including uncertainty of success in exploration and development; operational
risks including unusual and unexpected geological formations, rock bursts,
particularly as mining moves into deeper levels, cave-ins, flooding and other
conditions involved in the drilling and removal of material as well as
environmental damage and other hazards; risks that intended production schedules
or estimated costs will not be achieved; and risks of fluctuations in the price
of gold and currency exchange rates.
The Cerro Quema Property is a low grade open pit heap leach project
located in a region of steep topography which experiences seasonally heavy
rainfall. While the rainfall has been taken into account in preparing the
feasibility study, and the Corporation believes that its impact on the project
can be managed; there can be no assurance that excessive rainfall will not have
an unforeseen negative impact on the construction schedule, operating
conditions, recovery rates or environmental compliance.
19
<PAGE> 23
While the feasibility study for the Cerro Quema project was carefully
prepared by experienced engineers and advisors, no assurance can be given that
the Cerro Quema Project will be completed as contemplated in the feasibility
study for the estimated costs or within the estimated time schedule. Also no
assurance can be given that the intended production schedule or estimated
operating costs can be achieved. While appropriate testing has been carried out
by the Corporation and its independent mining experts, there can be no assurance
that recovery rates achieved in small scale laboratory tests will be achieved
under onsite conditions or in production scale leaching.
Gold prices are subject to volatile price movements over short periods of
time and are affected by numerous factors, all of which are beyond the
Corporation's control, including expectations for inflation, levels of interest
rates, the demand for gold, global or regional political, economic and banking
crises and production rates in major gold producing regions. The demand for and
supply of gold also affect gold prices but not in the same manner as those of
the vast majority of other commodities. The aggregate effect of these factors is
impossible to predict.
If the Corporation's realization on gold sales were to decrease
significantly and remain at such a level for any substantial period, the
Corporation could determine that it is not economically feasible to continue
commercial production. The operating costs per ounce of gold produced from the
Corporation's operations are set forth under "Business and Properties" on pages
9 and 13 herein.
The figures for ore reserves presented herein are estimates and no
assurance can be given that the anticipated tonnages and grades will be achieved
or the indicated level of recovery realized. As well, lead times required for
pit preparation and development in open pit mining operations can affect
production schedules. Gold price fluctuations may render ore reserves containing
relatively lower grades of gold mineralization uneconomic. Moreover, short-term
operating factors relating to the ore reserves, such as the need for orderly
development of ore bodies or the processing of new or different ore grades, may
cause the Corporation to be unprofitable in any particular accounting period.
The Corporation carries insurance to protect against certain risks in such
amounts as it considers adequate. Risks not insured against include
environmental pollution, mine flooding, landslides or other natural hazards
relating to climate or topography as well as other hazards which cannot be
insured against or which the Corporation may elect not to insure against.
COMPETITION
The Corporation competes with other mining companies in connection with
the acquisition of mining claims and leases on gold and other precious metals
prospects and in connection with the recruitment and retention of qualified
employees.
There is significant competition for the limited number of gold
acquisition opportunities in North America and Latin America. As a result of
this competition, some of which is with companies with greater financial
resources than the Corporation, the Corporation may be unable to continue to
acquire attractive gold mining properties on terms it considers acceptable.
20
<PAGE> 24
Since there is a world market for gold, the Corporation believes that no
single company has sufficient market power to materially affect the price or
supply of gold in the world market.
RISKS OF FOREIGN OPERATIONS
The operations at Santa Gertrudis and Cerro Quema are subject to the
federal, state and local laws of Mexico and Panama, respectively, including laws
and regulations relating to mining operations, environmental protection and
reclamation, labour relations and safety, land acquisition and mineral tenure,
expropriation of property and taxation and repatriation of profits. Future
changes in these laws or regulations or in their application are beyond the
control of the Corporation and may adversely affect its operations.
The Corporation believes the present attitude of the Mexican government
toward foreign investment and the mining industry is favourable. However, in
view of recent political and economic events in Mexico, including political
assassinations, currency devaluation, inflation and domestic banking failures,
investors should consider the risks associated with projects in Mexico.
Over the last few years, Panama has modified its laws relating to mining
and the taxation of mining operations to stimulate foreign and local investment
in the mining sector. These include provisions that permit the duty-free
importation of all equipment, spare parts and materials required for mining
operations and the duty-free export of all minerals produced. There is an income
tax rebate for income from any mine commencing production before February, 1998
equal to 20% of the tax that would otherwise be payable and which results in an
effective tax rate of approximately 28% (subject to a further 6% withholding tax
on dividends paid from Panama). The Corporation views these legislative changes
as reflecting an increasingly supportive regulatory climate for mining
investment in Panama.
ITEM 3. LEGAL PROCEEDINGS
In 1994, Sotula received income tax reassessments claiming payment of
income taxes relating to income earned in 1988 and 1989. At December 31, 1995,
the total amount claimed, including interest, penalties and inflationary
adjustments was approximately Mexican pesos 5,100,000. The Corporation believed
that these reassessments were improperly issued and the subsidiary appealed the
reassessments. In connection with the appeal, the Corporation pledged Mexican
pesos 5,200,000 (Canadian $920,000), which amount was included in cash and
short-term deposits at December 31, 1995, to secure a bond posted with the tax
authorities as security for the potential liability of the reassessments. During
1996, Sotula was successful in its appeal of these reassessments and the
security was released.
During 1996, the Corporation's Mexican subsidiary received import duty
assessments claiming the subsidiary's interest in certain pieces of machinery
and equipment with an approximate value of US$2,200,000 and levying taxes,
penalties, interest and inflationary adjustments for a further Mexican pesos
9,200,000. The claim against the subsidiary's assets and the additional amount
payable arose as a result of the subsidiary not presenting certain import
documentation to tax authorities by a prescribed date in connection with their
audit of imports of the claimed machinery and equipment during 1990 and 1991
when the mine was not owned by the Corporation. The Corporation, which has all
of the required documentation, has not provided
21
<PAGE> 25
for these amounts in its financial statements on the basis of professional
advice received indicating the basis for these assessments to be weak and
accordingly has appealed the assessments on March 5, 1997 before the Local Tax
Legal Administration for Revenues in Nogales, Sonora.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter, no matters were submitted to the shareholders
for approval through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET PRICE RANGES FOR COMMON SHARES
Information relating to the market prices for the Common Shares appears on
page 32 of the 1996 Annual Report to Shareholders which information is
incorporated herein by reference and is filed as Exhibit 13.1 to this document.
On March 14, 1997 the closing price of the Common Shares on The Toronto Stock
Exchange was $1.15 and on the New York Stock Exchange was US $0.875 as reported
by the Globe and Mail.
SHAREHOLDERS
As of March 14, 1997, Campbell had 13,298 common shareholders of record.
DIVIDEND RECORD AND POLICY
The Corporation has not paid a dividend on its common shares since 1984.
The Corporation's policy is to retain earnings to finance future growth.
Dividends on the common shares paid to non residents of Canada will generally be
subject to withholding tax under the Income Tax Act (Canada) at the rate of 25%.
Such rate may be subject to reduction under the provisions of a tax treaty
between Canada and the country in which the recipient is resident. The
Canada-U.S. Income Tax Convention (1980) provides for a general reduction in the
rate of withholding tax to 15% on dividends paid on shares of a corporation
resident in Canada (such as the Corporation) to a resident of the United States,
and also provides for a further reduction to 10% where the beneficial owner of
the dividend is a corporation, resident in the United States, which owns at
least 10% of the voting shares of the corporation paying the dividend, which
figure is reduced to 6% for dividends paid in 1996 and 5% for dividends paid
after 1996.
ITEM 6. SELECTED FINANCIAL DATA
Information relating to this item appears on page 31 of the 1996 Annual
Report to Shareholders which is incorporated herein by reference and is filed as
Exhibit 13.1 to this document.
22
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information relating to this item appears on pages 15 and through 19 of
the 1996 Annual Report to Shareholders which information is incorporated herein
by reference and is filed as Exhibit 13.1 to this document.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information relating to this item appears on pages 20 through 31 of the
1996 Annual Report to Shareholders which information is incorporated herein by
reference and is filed as Exhibit 13.1 to this document.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no disagreements on accounting and financial disclosure that
require mention in this Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information relating to the Directors of Campbell is set out in
the Election of Directors section of the Proxy Circular in connection with the
1997 Annual Meeting of Shareholders scheduled for April 24, 1997 which is
incorporated herein by reference and is filed as Exhibit 20.1 to this document.
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Corporation, together with the offices of
the Corporation held by them, their ages and their experience since January 1,
1992, is set out below:
<TABLE>
Years in Other Position and Age
-------- ------------------ ---
Name Office Office Business Experience
- - ---- ------ ------ -------------------
<S> <C> <C> <C> <C>
John O. Kachmar President and 6 Certified Management 60
Chief Executive Accountant. Prior to August
Officer of the 1993, President of Northgate
Corporation Exploration Limited; prior to
May 1992, Executive Vice
President of Northgate
Exploration Limited; Toronto,
Ontario, mining companies
</TABLE>
23
<PAGE> 27
<TABLE>
<S> <C> <C> <C> <C>
Lorna D. Vice President, 9 Lawyer. Vice President, 45
MacGillivray Secretary and Secretary and General Counsel
General Counsel of the Corporation; prior to
August 1993, Vice President
and Secretary of the
Corporation, Northgate
Exploration Limited, and
Sonora Gold Corp., Toronto,
Ontario, mining companies.
Paul J. Ireland Vice President, 2 Chartered Accountant. Prior 39
Finance to September 1994, Manager
of Special Projects, Polaris
Realty (Canada)Limited,
Toronto, Ontario, real estate
company; prior to August
1992, Senior Manager KPMG
Peat Marwick Thorne,
Toronto, Ontario, independent
audit firm.
Gary A. Cohoon Vice President, 1 Geologist. Prior to November 48
Exploration 1995, General Manager,
Exploration and Development
of the Corporation; prior to
December 1993, independent
geological consultant.
</TABLE>
There are no family relationships existing among any of the executive
officers, directors, or nominees for same of the Corporation.
As a foreign private issuer pursuant to Rule 3a12-3 under the Securities
Exchange Act of 1934 ("Exchange Act"), the registrant is not subject to Section
16 of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item not set out below is set out in the
Proxy Circular in connection with the 1997 Annual Meeting of Shareholders which
is incorporated herein by reference and is filed as Exhibit 20.1 to this
document.
Fiscal Year-End Option/SAR Values
The table below sets forth the fiscal year-end value of unexercised
options and stock appreciation rights (SARs) for each of the executive officers
named in the Summary Compensation Table set out in the Proxy Circular in
connection with the 1997 Annual Meeting of Shareholders.
24
<PAGE> 28
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value At
Assumed Annual Rates of
Stock Price Appreciation for
Option Term
Number of Percent of Exercise or
Securities Total Base Price
Underlying Options/SARs ($/Sh)
Option/SARs Granted To (d) Expiration
Granted (#) Employees In Date
(b) Fiscal Year (e)
Name (a) (c) 5% ($) 10% ($)
(f) (g)
<S> <C> <C> <C> <C> <C> <C>
John O. Kachmar 350,000(1,2) 19% $1.48 15/08/2001 $140,000 $315,000
President & CEO
Lorna D. 150,000 (1) 8% $1.48 15/08/2001 $60,000 $135,000
MacGillivray
V. P., Secretary &
General Counsel
Paul J. Ireland 150,000 (1) 8% $1.48 15/08/2001 $60,000 $135,000
V. P., Finance
Gary A. Cohoon 100,000 (1) 5% $1.48 15/08/2001 $40,000 $90,000
V. P., Exploration
</TABLE>
NOTES:
(1) These options were granted on August 14, 1996 and are for a term for 5
years. The options are exercisable as to 25% immediately with 25% becoming
exercisable cumulatively on each of the first, second and third
anniversary date of the grant.
(2) Excludes options to acquire 100,000 Common Shares granted during 1996
under the Directors' Stock Option Plan.
(3) The exercise price represents the average of the closing prices of the
Corporation's Common Shares on The Toronto Stock Exchange during the five
days prior to the date of grant.
Performance Graph
The line graph set forth below provides a comparison of the registrant's
cumulative shareholder return on its Common Shares against the cumulative total
shareholder return of the TSE 300 Stock Index and The TSE Gold and Precious
Metals Index . Such shareholder return is the sum of the dividends paid and the
change in the price of stock, and assumes $100 invested on December 31, 1991 in
the registrant's Common Shares, the TSE 300 Stock Index and the TSE Gold &
Precious Metals Index.
25
<PAGE> 29
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
BETWEEN CAMPBELL RESOURCES INC., THE TSE 300 INDEX AND GOLD AND
PRECIOUS METALS INDEX
[GRAPH]
<TABLE>
<CAPTION>
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
CCH Stock Price 100 82.61 191.3 167.39 286.96 271.74
TSE 300 Composite 100 98.57 130.65 130.42 149.37 191.71
Gold and Silver 100 107.61 221.02 199.43 218.23 238.22
</TABLE>
*$100 INVESTED ON 12/31/91 IN STOCK OF INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
Information required under this item not set out below is set out in the
Proxy Circular, in connection with the 1997 Annual Meeting of Shareholders which
is incorporated herein by reference and is filed as Exhibit 20.1 to this
document.
The following table lists the number of shares of Common Shares
beneficially owned by each executive officer listed in the table under the
caption "Executive Compensation". The percentage ownership calculation for each
owner has been made on the basis that there are outstanding 150,357,876 Common
Shares.
Name Number of Shares % of Class
---- ---------------- ----------
John O. Kachmar 125,000 (1) < 1%
Lorna D. MacGillivray 56,051 (2) < 1%
Paul J. Ireland 16,638 (3) < 1%
Gary A. Cohoon 14,854 (4) < 1%
Four executive officers
as a group 212,543 (5) < 1%
(1) Excludes 1,350,000 Common Shares subject to option, of which 1,037,500 are
currently exercisable or exercisable within the next 60 days.
(2) Excludes 400,000 Common Shares subject to option, of which 237,500 are
currently exercisable or exercisable within the next 60 days.
(3) Excludes 300,000 Common Shares subject to option of which 150,000 are
currently exercisable or exercisable within the next 60 days.
(4) Excludes 325,000 Common Shares subject to option of which 137,500 are
currently exercisable or exercisable within the next 60 days.
26
<PAGE> 30
(5) Excludes 2,375,000 Common Shares subject to option of which 1,562,500 are
currently exercisable or exercisable within the next 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No reportable transactions or relationships involving the registrant and
any of its directors or officers existed during the last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Report:
1. FINANCIAL STATEMENTS
Auditors' Report
Consolidated Balance Sheets as at December 31, 1996 and 1995
Consolidated Statements of Income -
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Retained Earnings (Deficit) -
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994
Notes to the Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
(a) None
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed in the fourth quarter of 1996. During
the first quarter of 1997, the Corporation filed a Current Report on Form 8-K
dated February 21, 1997.
(c) EXHIBITS
References to A refer to documentation previously filed as an exhibit to
Campbell's Annual Report on Form 10-K for the year ended December 31, 1987 and
incorporated herein by reference.
27
<PAGE> 31
References to B refer to documents previously filed as an exhibit to Campbell's
Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference.
References to C refer to documents previously filed as an exhibit to Campbell's
registration statement on Form S-8 (Registration No. 33-28296) and incorporated
herein by reference.
References to D refer to documents previously filed as an exhibit to Campbell's
Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated
herein by reference.
References to E refer to documents previously filed as an exhibit to Campbell's
Current Report on Form 8-K dated February 28, 1996 and incorporated herein by
reference.
References to F refer to documents previously filed as an exhibit to Campbell's
Current Report on Form 8-K dated March 28, 1996 and incorporated herein by
reference.
References to G refer to documents previously filed as an exhibit to Campbell's
Annual Report on Form 10-K for the year ended December 31, 1995 dated April 12,
1996 and incorporated herein by reference.
3 Articles of Incorporation and By-Laws
-------------------------------------
3.1 Articles of Continuance dated September 7, 1982 (A)
3.2 Articles of Amendment dated November 1, 1982 (A)
3.3 Articles of Amendment dated April 15, 1983 (A)
3.4 Articles of Amendment dated June 8, 1983 (A)
3.5 Articles of Amendment dated September 13, 1983 (A)
3.6 Articles of Amendment dated January 31, 1984 (A)
3.7 Articles of Amendment dated November 8, 1984 (A)
3.8 Articles of Amendment constituted by special resolution of
shareholders dated November 7, 1984 (A)
3.9 Articles of Amendment dated September 11, 1985 (A)
3.10 Articles of Amendment dated December 2, 1987 (A)
3.11 By-Law No. 1 as amended and as in effect on the date hereof
(A)
3.12 Amendment of By-Law No. 1 (A)
4 Instruments Defining the Rights of Security Holders Including
-------------------------------------------------------------
Indentures
----------
28
<PAGE> 32
4.1 Trust Indenture made as of July 21, 1994 between the
Corporation and Montreal Trust Company of Canada regarding the
7 1/2% Convertible Subordinated Debentures (B)
4.2 Warrant Indenture made as of February 21, 1996 between the
Corporation and Montreal Trust Company of Canada, as Warrant
Trustee, regarding the Common Share Purchase Warrants (E)
10 Management Contracts and Compensatory Plans and Arrangements
------------------------------------------------------------
10.1 The Corporation's Employee Incentive Plan (C)
10.2 Amended Employment agreement dated December 1, 1994 between
the Corporation and John O. Kachmar (B)
10.3 Amended Employment agreement dated December 1, 1994 between
the Corporation and Lorna D. MacGillivray (B)
10.4 Amended Employment agreement dated December 10, 1996 between
the Corporation and Paul J. Ireland
10.5 Consulting agreement dated November 12, 1993 between the
Corporation and Francis S. O'Kelly (D)
10.6 Directors' Stock Option Plan (D)
Material Contracts
- - ------------------
10.7 Royalty Agreement with Repadre Capital Corporation made as of
April 23, 1993 (D)
10.8 Stock Purchase Agreement dated July 6, 1994 between the
Corporation, Sotula Gold Corp., Sonoran Mining Corporation and
Compania Minera Zapata S. de R.L. de C.V. relating to the
purchase of Santa Gertrudis (B)
10.9 Bullion Dealing Master Agreement and Security Agreement
between the Corporation and Citibank dated February 24, 1995
regarding forward gold sales (B)
10.10 Asset Purchase Agreement dated January 27, 1995 between
Campbell Gold Exploration Inc. and Lac Minerals (USA), Inc.
regarding the Wildcat Property. (B)
10.11 Underwriting Agreement, dated February 8, 1996, between the
Corporation and First Marathon Securities Limited, Nesbitt
Burns Inc. and CIBC Wood Gundy Securities Inc. regarding the
public offering of common shares and common share purchase
warrants. (E)
29
<PAGE> 33
10.12 Purchase and Sale Agreement dated March 4, 1996 between Cyprus
Exploration and Development Corporation, Campbell Resources
Inc. and Compania de Exploracion Mineral, S.A. (F)
13.1 Certain Portions of the Annual Report to the Shareholders for
the year ended December 31, 1996 contained on pages 15 to 32
inclusive.
20.1 Proxy Circular dated March 13, 1997 in connection with the
1997 Annual Meeting of Shareholders scheduled to be held on
April 24, 1997.
21.1 Significant subsidiaries.
23.1 Consent of KPMG.
27.1 Financial Data Schedule
30
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAMPBELL RESOURCES INC.
Dated: March 26, 1997 By:/s/JOHN O. KACHMAR
---------------------
John O. Kachmar
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ JOHN O. KACHMAR Principal Executive Officer March 26, 1997
- - --------------------------------
John O. Kachmar, President and
Chief Executive Officer and Director
/s/ PAUL J. IRELAND Principal Financial and March 26, 1997
- - -------------------------------- Accounting Officer
Paul J. Ireland, Vice President,
Finance
/s/ JAMES D. BEATTY March 26, 1997
- - --------------------------------
James D. Beatty, Director
/s/ GRAHAM G. CLOW March 26, 1997
- - --------------------------------
Graham G. Clow, Director
/s/ ROD P. DOUGLAS March 26, 1997
- - --------------------------------
Rod P. Douglas, Director
/s/ JAMES C. McCARTNEY March 26, 1997
- - --------------------------------
James C. McCartney, Q.C.
Chairman and Director
/s/ DONALD R. MURPHY March 26, 1997
- - --------------------------------
Donald R. Murphy, Director
Francis S. O'Kelly March 26, 1997
- - --------------------------------
Francis S. O'Kelly, Director
/s/ G.E."KURT" PRALLE March 26, 1997
- - --------------------------------
G.E."Kurt" Pralle, Director
/s/ JAMES D. RAYMOND March 26, 1997
- - --------------------------------
James D. Raymond, Director
</TABLE>
31
<PAGE> 35
CAMPBELL RESOURCES INC.
1996 FORM 10-K
EXHIBIT INDEX
10.4 Amended Employment agreement dated December 1, 1996 between the
Corporation and Paul J. Ireland (7 pages)
13.1 Certain portions of the 1996 Annual Report to Shareholders contained
on pages 15-32 inclusive (19 pages)
20.1 Notice and Proxy Circular dated March 13, 1997 in connection with
the 1996 Annual Meeting of Shareholders scheduled to be held on
April 24, 1997 and Form of Proxy (20 pages)
21.1 Significant subsidiaries
23.1 Consent of KPMG
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.4
THIS AGREEMENT entered into the 1st day of December, 1996.
BETWEEN: CAMPBELL RESOURCES INC.
a corporation incorporated under
the laws of Canada
(hereinafter called the "CAMPBELL")
-and-
PAUL J. IRELAND
of the City of Toronto, in the
Municipality of Metropolitan Toronto
(hereinafter called the "EMPLOYEE")
WHEREAS the Employee is employed as an executive officer of Campbell
pursuant to an Employment Agreement dated the 1st day of October, 1994
(the "1994 Agreement");
AND WHEREAS Campbell wishes to enter into this agreement with the
Employee to replace the 1994 Agreement and to amend certain terms and
conditions of his continued employment as Vice President, Finance of
Campbell, including certain rights in the event of a Change of Control,
as more particularly described herein;
NOW THEREFORE THIS AGREEMENT WITNESSETH that for other good and
valuable consideration, and the sum of one dollar ($1.00) now paid by each party
hereto to the other (the receipt whereof is hereby by each of them
acknowledged), the parties here covenant and agree as follows:
1. The Employee shall be employed as Vice President, Finance of Campbell on a
full time basis and shall perform such duties and exercise such powers as are
from time to time assigned to the Employee. The Employee shall also serve as a
director, officer or employee of such affiliates or associates of Campbell as
Campbell may from time to time require. The Employee shall devote his full time
and attention to the affairs of Campbell and its affiliates and associates.
2. The Employee shall be paid an annual salary of $130,000, payable monthly in
arrears. Salary reviews shall be carried out by the Compensation Committee of
the Board of Directors on a periodic basis.
3. While employed by Campbell, the Employee shall be entitled to health and
other benefits, as set out on Schedule A which are provided to senior employees
by Campbell under its benefit plans subject to such eligibility and other
requirements as may apply. Campbell shall provide pension benefits through
participation in a Campbell Pension Plan or at Campbell's option, through
contributions made to the Employee's RRSP, such pension benefits to be in
accordance with Campbell's policy for senior employees.
<PAGE> 2
4. The Employee shall be entitled to four weeks annual vacation to be taken at
such time as Campbell may prescribe. Only two weeks of this vacation entitlement
may be carried forward from year to year provided that no vacation entitlement
may be carried forward for more than one year.
5. Subject to the provisions of paragraph 8 hereof, the employee's employment
under this agreement may be terminated as follows:
(a) by the Employee, upon three months notice in writing;
(b) in the event of a Change of Control, as defined in paragraph 13, the
Employee shall have the right, within six months thereof on thirty days
notice in writing to Campbell, to resign his position as Vice President,
Finance and any other directorships or offices that he may hold as a
result of his employment with Campbell and upon such resignation to be
paid forthwith twenty-four months salary by way of lump sum payment plus
benefits as set out in paragraphs 7 and 8 below. In addition, the
employee shall be entitled to have an additional twenty-four months of
credited service from the date of resignation added to his pension
entitlement under the Pension Plan. Such credited service is to be
calculated on the basis that the Employee had been employed for the
additional twenty-four months at a salary equal to that paid to the
Employee at the time of such resignation;
(c) by Campbell, for cause, at any time forthwith, without notice
or payment in lieu of notice. For greater certainty, cause
shall not include the refusal of the Employee to accept either
a relocation from his existing city of residence or a change
in the nature of employment that would lessen the status,
authority or responsibility of the Employee; or
(d) by Campbell, upon payment forthwith of a lump sum amount equal
to twenty-four months salary in lieu of notice plus benefits
as set out in paragraphs 7 and 8 below.
6. For the purposes of this agreement, the salary payable to the Employee under
subparagraphs 5(b) or (d) is in lieu of notice or other compensation to which
the Employee may otherwise be entitled and the Employee shall be under no
obligation to act to mitigate any payment due hereunder or otherwise suffer a
reduction of any payment due hereunder to the Employee by virtue of any
compensation or payments which the Employee may receive after cessation of
employment by Campbell from any other source whatsoever.
7. In the event that the Employee resigns under subparagraph 5(b) or the
Employee's employment is terminated under subparagraph 5(d), the Employee shall
be entitled to continuation of the benefits set out in paragraph 3 for
twenty-four months from the date of resignation or termination or payment
forthwith by Campbell of a lump sum amount in lieu thereof.
8. The Employee's outstanding rights if any at the time of resignation or
termination under Campbell's Employee Incentive Plan shall continue for
twenty-four months from the date of
<PAGE> 3
resignation or termination except that the Employee's right under any stock
options outstanding at the time of resignation or termination shall immediately
become fully exercisable and shall expire at the close of business on the
ninetieth day following the date of resignation or termination or the next
business day if the ninetieth day is not a business day. Should the Employee
exercise outstanding options, Campbell shall deliver the share certificate(s)
representing the shares issued pursuant to the exercise of options against
payment to Campbell of the aggregate exercise price at a closing to be held
within five (5) business days of receipt by Campbell of notice of exercise of
option in writing. If the Employee has not previously elected to participate in
the share purchase plan of the Employee Incentive Plan, he shall be deemed not
to have any outstanding rights under such plan.
9. In the event that the Employee becomes permanently disabled, the Employee or
Campbell may terminate this agreement by giving 90 days notice in writing
provided that the Employee shall be entitled to receive long term disability
benefits under Campbell's long term disability policy and provided that Campbell
agrees to pay to the Employee, a monthly amount equal to the amount of the
Employee's monthly salary not covered by the benefits under Campbell's long term
disability policy along with the other benefits to which the Employee would be
entitled for twenty-four months from the date that the Employee becomes
permanently disabled. In the event that the Employee is not entitled to receive
long term disability benefits under Campbell's long term disability policy or
Campbell will not agree to pay the Employee the amount not covered by the long
term disability policy of Campbell, then Campbell will only be entitled to
terminate this agreement pursuant to subparagraph 5(d). For the purposes of this
paragraph, permanent disability means any medical condition, as determined by a
legally qualified medical practitioner selected by Campbell which to a
substantial degree, prevents or impairs the Employee from performing his
obligations and duties and has existed for a continuous period of more than 120
days in any 365 consecutive days or for periods aggregating 185 days in any 365
consecutive days and in the opinion of the medical practitioner is like to
continue.
10. It is agreed by the Employee and Campbell that the notice periods and
payments provided in paragraph 5 are reasonable and fair, given all the
circumstances, and that no other notice periods, express or implied, shall
apply.
11. In the event that the Employee exercises his right of resignation under
subparagraph 5(b), or is terminated under subparagraph 5(d) subject to any
restriction in the right of Campbell to grant an indemnity to the Employee
pursuant to the provisions of the Canada Business Corporations Act, Campbell
hereby agrees to indemnify and save the Employee, his heirs, executors,
administrators and other legal personal representatives, harmless from and
against any and all losses, claims, actions, suits, proceedings, damages,
liabilities, charges, or expenses of whatsoever nature or kind, (including,
without limitation, any investigation expenses or other expenses and
disbursements incurred in connection with testifying or otherwise participating
in any legal or other proceedings before any court or regulatory authority) ,
that the Employee may sustain or incur, arising from or connected with or in
respect of any actions, suits or proceedings proposed, commenced or prosecuted
against the Employee or to which the Employee may be or may become subject, by
reason of or in respect of, anything done or permitted by the Employee in or
about the execution of the duties of the Employee in his role as an executive
officer or
<PAGE> 4
employee of Campbell, or any of its associated or affiliated companies, or by
reason of his acting or having acted as an executive officer of Campbell, or any
of its associated or affiliated companies and from all other costs, charges and
expenses that the Employee may sustain or incur by reason of or arising from or
in any manner connected with or in relation to his employment by Campbell or the
affairs thereof.
In case any action or other proceedings is brought against the
Employee, in respect of which indemnity may be sought hereunder, the Employee
shall give Campbell prompt notice of any such action or other proceeding of
which the Employee has knowledge, and Campbell shall undertake the investigation
and defence thereof on behalf of the Employee, including employment of counsel
acceptable to the Employee and payment of all fees and expenses.
No admission of liability and no settlement of any action or other
proceedings brought against the Employee shall be made without the consent of
Campbell and the Employee, such consent not to be unreasonably withheld.
Notwithstanding that Campbell agrees to undertake the investigation and
defence of any action or other proceeding brought against the Employee, the
Employee shall have the right to employ separate counsel in any such proceeding
and participate in the defence thereof, but Campbell shall not be liable to pay
the fees and expenses of such counsel unless:
(a) employment of such counsel has been authorized by Campbell, or
(b) Campbell has not assumed the defence of the action or other
proceedings within a reasonable period of time after receiving
notice thereof, or
(c) the named parties to any such action or other proceedings
include Campbell and the Employee, and the Employee shall have
been advised by counsel that there may be a conflict of
interest between Campbell and the Employee, or
(d) there are one or more legal defences available to the Employee
which are different from or in addition to those available to
Campbell.
The indemnity herein provided to the Employee shall not apply in the
event and to the extent that a court of competent jurisdiction in a final
judgement shall determine that the Employee was guilty of gross negligence or
fraud.
12. In the event that the Employee exercises his right of resignation under
subparagraph 5(b) or is terminated under subparagraph 5(d), Campbell hereby
agrees, effective the date of such resignation, to release, remise, acquit and
forever discharge the Employee, his heirs, executors, administrators and other
legal personal representatives and all of the Employee's respective lands,
assets, properties, estates and effects whatsoever and wheresoever situate, of
and from any and all liabilities of every nature and kind, whether contingent or
otherwise, debts, sum and sums of money, accounts, dues, contracts, agreements,
indemnity, covenants, whether express or implied, claims, demands, legal costs,
interest, loss or injury of every kind or nature
<PAGE> 5
whatsoever, actions, suits damages, causes of action, manner of actions, claims,
counter-claims and demands whatsoever and however arising either at law or in
equity or otherwise, against the Employee which Campbell ever had, has at the
date of such resignation or which Campbell, its successors or assigns or any of
them, at any time thereafter can, shall, or may have, for or by reason of, or in
any way arising from, any cause, matter or thing whatsoever existing up to the
date of such resignation, including, without limitation, any matter arising out
of or in any way related to or connected with or by reason of the Employee's
having been an executive officer or employee of Campbell, or any of its
associated or affiliated companies, or by virtue of the employment of the
Employee by Campbell. The release and discharge provided herein shall not apply
in circumstances in which a court of competent jurisdiction in a final judgment
shall determine that the Employee was guilty of gross negligence or fraud.
For greater certainty, this release and discharge does not waive
Campbell's right to collect money loaned to the Employee which is validly owing
and outstanding at the time of exercise of the right of resignation or
termination of employment.
13. For purposes of this agreement, "CHANGE OF CONTROL" means at any time from
the Effective Date of this agreement:
(a) a change of one-third or more of the directors of Campbell
unless approved by a majority of the Board of Directors; or
(b) any acquisition of twenty per cent (20%) or more of the common
shares of Campbell, or voting rights in respect thereof, by
any person or company which is accompanied by a request by
that person for representation on the Board of Directors of
Campbell and which acquisition is not approved by a majority
of the directors of Campbell;
14. Any notice or other communication required or permitted to be given or made
hereunder shall be in writing and shall be well and sufficiently given or made
if (a) enclosed in a sealed envelope and delivered in person to the party hereto
to whom it is addressed (or in the case of Campbell, to the receptionist or
other responsible employee, not being the Employee) at the relevant address set
forth below; or (b) telexed, telegraphed, telecopied or sent by other means of
recorded electronic communication if to Campbell, addressed to the President,
Suite 1910, 120 Adelaide Street West, Toronto, Ontario M5H 1T1 and if to the
Employee, addressed to him at his most recent address as shown on the records of
Campbell.
Any notice or other communication so given or made shall be deemed to
have been given or made and to have been received on the day of delivery, if
delivered, and the day of sending, if sent by telex, telegraph, telecopy or
other means of recorded electronic communication, provided such delivery or
sending is during normal business hours on a business day or if not on the next
business day thereafter. Either party hereto may change his or its address for
notice by notice to the other party hereto given in the manner aforesaid.
15. No provision of this agreement may be modified or amended unless such
modification or
<PAGE> 6
amendment is authorized by the Board of Directors or a Committee thereof and is
agreed to in writing, signed by the Employee and Campbell. No waiver by either
party hereto or any breach by the other party hereto of any condition or
provision of this agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the time or any
prior or subsequent time.
16. This agreement contains all of the terms and conditions agreed by the
parties hereto and supersedes all prior agreements and understandings. No
agreements or representations, oral or otherwise, express or implied, with
respect to the employment of the Employee by Campbell have been made by either
party which are not set forth expressly in this agreement.
17. This agreement may not be assigned by either party without consent.
18. This agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators and successors.
19. This agreement shall be subject to and governed by the laws of the Province
of Ontario. The Courts of Ontario shall have exclusive jurisdiction with respect
to any dispute or other matter arising hereunder.
20. The invalidity, illegality or unenforceability of any provision hereof shall
not in any way affect or impair the validity, legality or enforceability of the
remaining provisions hereof.
21. The legal fees and other costs and expenses pertaining to the enforcement of
this agreement or any of the terms hereof shall be borne by Campbell and shall
be paid forthwith upon demand by the Employee on submission of duly receipted
accounts.
22. The Employee acknowledges and agrees that he has been given full opportunity
to obtain independent legal advice with respect to this agreement and executes
this agreement voluntarily and with full knowledge of the rights granted and
obligations imposed hereby.
IN WITNESS WHEREOF Campbell has hereunto affixed its corporate seal
under the hands of its proper officers in that behalf duly authorized and the
Employee has hereto affixed his hand and seal.
CAMPBELL RESOURCES INC.
/s/JAMES C. MCCARTNEY
------------------------------
James C. McCartney, Chairman
c/s
/s/JOHN O. KACHMAR
------------------------------
John O. Kachmar, President and Chief
Executive Officer
/s/CHEVAUNE MORRIS /s/PAUL J. IRELAND l.s
- - ----------------------------- ----------------------------
WITNESS AS TO THE SIGNATURE PAUL J. IRELAND
OF THE EMPLOYEE
<PAGE> 7
SCHEDULE "A"
Health and other benefits of Paul J. Ireland
Car allowance of approximately $400/month
Travel insurance coverage of $500,000
Membership in the Board of Trade
Employee Incentive Plan - Share Incentive Plan - Stock Options
- participation under Share Purchase Plan and eligibility in
the Share Bonus Plan
Medical-dental and other benefits under policy with Metropolitan Life
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
OVERVIEW
The Company recorded net income for the year of $9 million or $0.062 per
share compared to $10.5 million in 1995 or $0.086 per share and $5.3 million or
$0.045 per share in 1994. The decrease in earnings during 1996 primarily results
from an increase in exploration expense at the Santa Gertrudis Mine, increased
depreciation and amortization at the Joe Mann Mine, and lower realized copper
prices offset in part by higher interest income. Income in 1995 also included
$1.6 million being the balance of the deferred hedging gain that arose in 1991
for which there was no comparable in 1996. The increase in income in 1995
primarily results from the inclusion of the results of the Santa Gertrudis Mine
in Mexico for the full year as compared to approximately five months during
1994. Net income for the fourth quarter of 1996 decreased to $0.9 million
compared to $3.6 million in 1995 as expected, primarily due to the scheduled
decrease in gold production from the Santa Gertrudis Mine as discussed further
below.
Significant events at Campbell during 1996 which impact current and future
results include the acquisition of the Cerro Quema gold project in Panama and
the subsequent completion of a positive feasibility study thereon, the approval
of the shaft deepening project at the Joe Mann Mine, continued exploration
success at the Santa Gertrudis Mine and an equity offering which raised net
proceeds of $28.6 million to fund future capital expenditure programs and
potential acquisitions.
The following table summarizes certain key statistics:
<TABLE>
<CAPTION>
1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gold produced (ounces) 124,800 120,100 81,300
Gold revenue per ounce US$396 US$402 US$410
Average Comex market price US$388 US$384 US$384
Cash production cost per ounce US$252 US$247 US$293
</TABLE>
- - --------------------------------------------------------------------------------
REVENUE
Revenue from metal sales decreased marginally in 1996 to $67.2 million
compared to $67.4 million in 1995 and $46.9 million in 1994. The 4% increase in
gold production during 1996 compared to 1995 was offset by a reduction in the
overall gold price per ounce recorded as the 1995 comparable included US$10 per
ounce relating to the recognition of deferred revenue from past hedging gains.
In addition, copper revenues were lower in 1996 compared to 1995 due to lower
copper prices and there was also an increase in gold revenue from the Joe Mann
Mine's development ore that was deferred for accounting purposes. The 44%
increase in revenue in 1995 compared to 1994 is primarily attributable to the
48% increase in gold production to 120,100 ounces of gold from 81,300 ounces in
1994, offset in part by the reduction in the recognition of the deferred revenue
from past hedging gains.
The average realized gold price compared to the average Comex market price
is disclosed in the table above. The difference between the realized price and
the market price is primarily attributable to the Company's hedging activities
and, for 1995 and 1994, the recognition of the deferred hedging gain that arose
in 1991. The deferred hedging gain included in metal sales was $1.6 million
(US$10 per ounce) in 1995 and $3.2 million for 1994 (US$29 per ounce). This gain
was fully amortized by June 30, 1995.
Campbell's general policy, as approved by the Board of Directors, is to
hedge a maximum of 50% of its gold production for up to two years, dependent on
market conditions and planned capital expenditure commitments. Due to the
Company's future capital commitments with respect to the Cerro Quema project in
Panama, Campbell may undertake to hedge up to 150,000 ounces of gold production
from this project. At December 31, 1996, 62,500 ounces has been hedged (see Note
10(a) to Consolidated Financial Statements). Dependent on market conditions, the
Company may also undertake a similar sized program with respect to its shaft
deepening project at the Joe Mann Mine.
15
<PAGE> 2
With respect to gold price hedging, the Company either sells gold forward
in US dollars or in Canadian dollars. Where the gold sold forward is denominated
in US dollars and the sale relates to the Joe Mann Mine in Canada, then the
Company may also enter into a US / Canadian dollar forward sale agreement to fix
the sale proceeds in Canadian dollars and therefore fund the operating and
capital expenses of the Canadian operation. As disclosed in the notes to the
financial statements, under Canadian GAAP the Company recognizes the gain or
loss on these financial instruments in sales revenue when the related production
is delivered as they are considered hedges of future production revenue.
Similarly, with respect to the Mexican operation, the Company may enter into
forward currency agreements to sell US dollars and purchase Mexican pesos to
fund the Mexican operations. The Company recognizes the gain or loss on these
financial instruments on settlement as part of the cost of purchased goods as
they are considered hedges of the cost of goods to be purchased. Under U.S.
GAAP, foreign exchange forward contracts would be marked to market at the
balance sheet date and any gains or losses included in income at that time (see
note 14(d) to Consolidated Financial Statements).
Revenues from copper production at the Joe Mann Mine accounted for 3.1% of
total revenue in 1996 compared to 4% in 1995 and 1994. Copper production
remained constant in 1996 compared to 1995 at 1.5 million pounds and 1.2 million
pounds in 1994. The increase in 1995 is due to higher mill head copper grades
and higher recoveries.
EXPENSES
Mining expense increased to $44.5 million in 1996 compared to $43.1 million
in 1995 and $34.8 million in 1994. The cash production cost per ounce of gold
produced was US$252 in 1996 compared to US$247 in 1995 and US$293 in 1994.
Joe Mann Mine
The cash production cost at the Joe Mann Mine for 1996 was US$272 per ounce
of gold produced compared to US$284 in 1995 and US$299 in 1994. In Canadian
dollars, the cash cost was $371 per ounce of gold produced in 1996, $389 in 1995
and $408 in 1994. The decrease in the Canadian dollar cash cost per ounce in
1996 is attributable to higher gold production. The decrease in 1995 was
attributable to higher gold production and the increased copper by-product
credits.
The Joe Mann Mine increased production by 5,900 ounces of gold to 70,400
ounces in 1996 compared to 64,500 ounces in 1995. The increase in the average
mill head grade for the year to 0.29 ounces of gold per ton compared to 0.252
ounces per ton in 1995 together with the increased mill recoveries at 93.2% in
1996 compared to 92.7% in 1995 more than offset the decrease in tons milled to
265,600 tons in 1996 compared to 281,700 tons in 1995. The higher head grades
result from a continued emphasis on dilution control in the shrinkage stopes
together with the scheduled mining during 1996 of some higher grade shrinkage
and long-hole stopes. The increase in production by 3,400 ounces in 1995
compared to 61,100 ounces in 1994, was due to an increase in mill head gold
grades to 0.252 ounces per ton from 0.233 ounces per ton in 1994 marginally
offset by a decrease in tonnage milled to 281,700 tons from 290,000 tons in
1994. The increase in gold grade and the reduction in tons milled in 1995
compared to 1994 was attributable to successful emphasis on mine grade control
resulting in lower dilution as well as significant reductions in the amount of
lower grade development ore processed. The Company expects to produce
approximately 70,000 ounces of gold at a cash cost of US$280 per ounce from the
Joe Mann Mine in 1997.
16
<PAGE> 3
Santa Gertrudis Mine
The cash production cost at the Santa Gertrudis Mine for 1996 was US$227
per ounce of gold produced compared to US$205 in 1995. For the period since
acquisition in July, 1994, to December 31, 1994, the cash cost was US$287 per
ounce of gold produced. The increase in the cash cost per ounce in 1996 is
primarily due to the increase in the effective waste to ore strip ratio (the
Company defers the cost of waste in excess of the pit average strip ratio) from
6 : 1 in 1995 to 8:1 in 1996. This has been offset in part by the impact in
early 1996 of the higher grade ore that was placed on the leach pads in the last
quarter of 1995. The reduction in the cash cost per ounce in 1995 compared to
1994 was due to the increase in gold production, the impact of the devaluation
of the Mexican peso, reductions in mine personnel since acquisition and other
cost savings.
The Santa Gertrudis Mine produced 54,400 ounces of gold in 1996 compared to
55,600 in 1995 and 16,300 ounces from the date acquired on July 20 to December
31, 1994. Gold produced in the fourth quarter of 1996 decreased to 10,300 ounces
compared to 16,900 ounces in the fourth quarter of 1995 as scheduled. The
decrease is due to both lower grade ore deposits currently being mined and a
decrease in the tonnes of ore mined as equipment was used to strip the Dora
Phase 2B pit in preparation for production commencing in the first quarter of
1997. For 1996, 0.98 million tonnes of ore were placed on the leach pads with an
average grade of 2.04 grams per tonne compared to 1.2 million tonnes with a
grade of 2.17 grams per tonne in 1995 and 0.3 million tonnes with a grade of
1.93 grams per tonne for the period since acquisition to December 31, 1994. The
Company expects to produce approximately 55,000 ounces of gold at a cash cost of
US$250 per ounce from the Santa Gertrudis Mine in 1997. The increase in the cash
cost is due to the anticipated increase in the effective strip ratio to 9.5:1.
General Administration
General administration expense was $3.1 million in 1996 compared to $2.8
million in 1995 and $2.2 million in 1994. The increase in 1995 is primarily
attributable to higher capital and business taxes and the provision of more
comprehensive investor services.
Depreciation and Amortization
Depreciation and amortization expense was $9.8 million in 1996 compared to
$8.3 million in 1995 and $6.5 million in 1994. The amortization on a per ounce
produced basis was $78 per ounce in 1996 compared to $69 in 1995 and $79 in
1994. The increase in depreciation per ounce in 1996 is due to a refinement in
the amortization process at the Joe Mann Mine. The decrease in depreciation per
ounce in 1995 is due to the inclusion of Santa Gertrudis Mine production for the
whole year compared to five months in 1994 and, to a lesser extent, the increase
in reserves at the Joe Mann Mine during the year.
Exploration
Total exploration expenditures for 1996 were $7.2 million compared to $4.5
million in 1995 and $1.9 million in 1994. Of this amount, $1.7 million (1995 -
$1.2 million; 1994 - $0.8 million) relates to the Joe Mann Mine and $4.9 million
(1995 - $2.8 million; 1994 - $0.4 million) relates to the Santa Gertrudis Mine.
These amounts have been capitalized to natural resource properties in accordance
with the Company's accounting policies. The balance of the exploration
expenditures of $0.6 million (1995 - $0.5 million; 1994 - $0.7 million) relates
to grass roots exploration in Mexico and was expensed. In addition to grass
roots exploration, the expense for 1996 includes $2.6 million (1995 - $1.3
million; 1994 - nil) representing the amortization and / or write-off of
exploration costs at the Santa Gertrudis Mine that had been previously
capitalized. The amortization is with respect to production from the mine during
the year and the write-off is with respect to individual exploration target
costs where economic mineralization was not identified. The Company expects to
spend approximately $5 million on exploration in Mexico and $0.9 million at the
Joe Mann Mine during 1997.
17
<PAGE> 4
OTHER INCOME (EXPENSE)
Other income was $3.6 million in 1996 compared to $1.3 million in 1995 and
$3.5 million in 1994. Interest income on short-term deposits increased to $3.2
million from $1.7 million in 1995 and $1.0 million in 1994. The increase in 1996
is due to the increase in the interest bearing balances following the public
share issue for US$22.5 million in early 1996. The increase in 1995 was due to
the increase in interest bearing balances and interest rates. Included in other
income in 1994 is the gain of $3 million on the sale of the Company's 30%
interest in the La Colorada Mine.
Interest expense on the Company's convertible debentures which were issued
in July, 1994, was $0.7 million in 1996 compared to $1.2 million in 1995 and
$0.6 million in 1994. The decrease in 1996 is attributable to the conversion of
a portion of the debentures to common shares during 1995 and 1996 (see Note 6 to
Consolidated Financial Statements).
INCOME TAXES
The Company recorded income tax expense of $0.6 million in 1996 compared to
$1 million in 1995 and $0.4 million in 1994. Reference should be made to Note 9
to the Consolidated Financial Statements for additional information on the
reported tax provisions.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's working capital increased 64% to $65.5
million compared to $40 million in 1995 and includes cash and short-term
deposits of $55.3 million in 1996 and $32.3 million in 1995. Cash flow from
operations before the net change in non-cash operating working capital increased
15% to $21.4 million in 1996 compared to $18.7 million in 1995 and $6 million in
1994.
Shareholders' Equity
As disclosed in Note 7 to the Financial Statements, in February, 1996 the
Company issued 18 million units comprising one common share and one half common
share purchase warrant at a unit price of US$1.25 per unit for net proceeds of
$28.6 million. The Company believes these proceeds, together with existing cash
resources and future cash flows, will be sufficient to fund the construction of
the Cerro Quema gold project, complete the $14.5 million shaft deepening project
at the Joe Mann mine as well as leave sufficient reserves for future operations
and acquisition opportunities as they arise. As a result of this issue, net
income for the year of $9 million, the conversion of US$2.2 million of
convertible debentures into common shares of the Company, and the shares issued
as partial payment to acquire the Cerro Quema project, Campbell's shareholders'
equity increased to $142.1 million at December 31, 1996 from $99.6 million at
December 31, 1995.
Capital Expenditures
As noted above and in Note 2 to the Consolidated Financial Statements, the
Company acquired the Cerro Quema gold project in March, 1996, for a total cost
including expenses of approximately $13.2 million of which $1.3 million
represented the issue of shares to the former holder of the right of first
refusal on the property and the balance was paid in cash. The Company completed
a final feasibility study in November, 1996 and proceeded to the next phase of
the project performing additional metallurgical tests and commencing
construction of the access road. On February 20, 1997, the Board of Directors
authorized the Company to proceed with construction of the project. The next
phase, which includes the earthworks for the construction of the leach pads,
plant and haul roads has now started. In addition, in March, 1997 the Company
made the final payment to CEMSA for the right of first refusal and the reduction
in the royalty from 3.5% to 2%. The project has probable mineable reserves of
8.8 million tonnes grading 1.16 grams of gold per tonne for approximately
327,200 contained ounces of gold. Total construction costs are estimated at
US$32.8 million most of which will be incurred in 1997 and 1998. The Company is
targeting mid 1998 for the commencement of commercial production.
18
<PAGE> 5
In September of 1996 Campbell announced that it was proceeding with the
deepening of the shaft at the Joe Mann Mine by a further 1,100 feet to access
ore below the current mine workings. Construction on this project began in
December, 1996 and is estimated to take 18 months to complete at a cost of $14.5
million.
During 1996, in addition to the acquisition of the Cerro Quema project
noted above, the Company also spent $14.4 million on capital expenditures
including $5.5 million at the Joe Mann Mine of which $1.6 million is for the
shaft deepening, $1.7 million for capital additions at the Santa Gertrudis Mine
mainly for haulage trucks, $4.9 million for exploration at Santa Gertrudis and
$3.4 million at the Cerro Quema project. Capital expenditures during 1995
totalled $7.9 million including $4 million at the Joe Mann Mine, $1.6 million at
the Santa Gertrudis Mine in addition to the deferred exploration of $2.8
million. Investing activities during 1994 include the acquisition of the Santa
Gertrudis Mine for $11.1 million, net of cash acquired, $5.9 million at the Joe
Mann Mine and $0.5 million at the Santa Gertrudis Mine. For 1997, in addition to
the construction of the Cerro Quema project and Santa Gertrudis exploration
expenditures, the Company expects to incur capital expenditures at the Joe Mann
Mine of approximately $11.3 million including $8.6 million on the shaft
deepening project, and approximately $1 million at the Santa Gertrudis Mine.
OUTLOOK
Campbell anticipates 1997 production of 125,000 ounces of gold at a cash
cost of approximately US$265 per ounce. The current low gold price compared to
1996 and the scheduling of production from both the Joe Mann Mine and Santa
Gertrudis Mine during the year will result in a net loss during the first
quarter of 1997. Dependant on gold prices, this should reverse as production
increases during the remainder of the year. For 1997 much of the Company's focus
will be on cost control, both operating and capital costs, particularly in light
of the significant fall in gold prices since year end.
Campbell's construction projects at the Cerro Quema property in Panama and
at the Joe Mann Mine will require close scrutiny by management to ensure these
projects are completed on time and on budget. Exploration at the Santa Gertrudis
Mine will again be a top priority for the Company as evidenced by the commitment
of $4.3 million in funding as we build on the significant knowledge gained to
date on the property.
Campbell's cash position and strong Balance Sheet will ensure it has the
financial strength to complete its current projects and continue its search for
and evaluation of other acquisition targets in its continuing efforts to expand.
The profitability of the Company is directly influenced by the price of
gold, the Company's ability to control its costs, the lead times required for
pit preparation and development at the Santa Gertrudis Mine and the relative
Canadian, US and Mexican foreign exchange rates. The price of gold and the
relative exchange rates are volatile and beyond the Company's control although
it does engage in some limited hedging from time-to-time to protect against a
portion of the volatility.
19
<PAGE> 6
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
- - --------------------------------------------------------------------------------
To the Shareholders of Campbell Resources Inc.:
The accompanying consolidated financial statements of the Company were
prepared by management in accordance with accounting principles generally
accepted in Canada, consistently applied and within the framework of the summary
of significant accounting policies in these consolidated financial statements.
Management is responsible for all information in the annual report. All
financial and operating data in the annual report is consistent, where
appropriate, with that contained in the consolidated financial statements.
A system of internal accounting control is maintained in order to provide
reasonable assurance that assets are safeguarded and that transactions are
properly recorded and executed in accordance with management's authorization.
This system includes established policies and procedures, the selection and
training of qualified personnel and an organization providing for appropriate
delegation of authority and segregation of responsibilities.
The Board of Directors discharges its responsibilities for the consolidated
financial statements primarily through the activities of its Audit Committee
composed of three directors, none of whom are members of management. This
Committee meets with management to assure that it is performing its
responsibility to maintain financial controls and systems and to approve the
annual consolidated financial statements of the Company. The Audit Committee
also meets with the independent auditors to discuss the results of their audit,
their review of internal accounting controls and their audit report prior to
submitting the consolidated financial statements to the Board of Directors for
approval.
The consolidated financial statements have been audited on behalf of the
shareholders by the Company's independent auditors, KPMG, in accordance with
generally accepted auditing standards. The auditors' report outlines the scope
of their examination and their opinion on the consolidated financial statements.
/s/ John O. Kachmar /s/ Paul J. Ireland
- - ----------------------------- ----------------------------
John O. Kachmar Paul J. Ireland
President and Vice President, Finance
Chief Executive Officer
AUDITOR'S REPORT TO THE SHAREHOLDERS
- - --------------------------------------------------------------------------------
We have audited the consolidated balance sheets of Campbell Resources Inc.
as at December 31, 1996 and 1995 and the consolidated statements of income,
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1996 and 1995 and the results of its operations and the cash flows for each of
the years in the three-year period ended December 31, 1996 in accordance with
generally accepted accounting principles.
/s/ KPMG
- - ------------------------------
Chartered Accountants
Toronto, Canada
February 21, 1997
20
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
as at December 31, 1996 and 1995
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and short-term deposits $ 55,302 $ 32,271
Receivables 8,270 7,837
Inventories (note 3) 9,134 6,387
Prepaids 749 499
- - --------------------------------------------------------------------------------
Total current assets 73,455 46,994
- - --------------------------------------------------------------------------------
Other assets (note 4) 1,271 2,713
- - --------------------------------------------------------------------------------
Natural resource properties 149,879 121,526
Less accumulated depreciation and amortization (59,307) (47,530)
- - --------------------------------------------------------------------------------
90,572 73,996
- - --------------------------------------------------------------------------------
Total assets $ 165,298 $ 123,703
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,504 $ 4,320
Accrued liabilities 2,337 2,591
Income taxes payable 94 123
- - --------------------------------------------------------------------------------
Total current liabilities 7,935 7,034
- - --------------------------------------------------------------------------------
Other liabilities 881 593
Convertible debentures (note 6) 7,657 10,782
Deferred mining taxes 6,767 5,740
Shareholders' equity
Capital stock (note 7) 118,605 85,040
Foreign currency translation adjustment (248) (175)
Retained earnings 23,701 14,689
- - --------------------------------------------------------------------------------
Total shareholders' equity 142,058 99,554
- - --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 165,298 $ 123,703
================================================================================
</TABLE>
Commitments and contingencies (note 10)
Approved by the Board
/s/ John O. Kachmar
----------------------------------
Director
/s/ James D. Beatty
----------------------------------
Director
See accompanying notes to the consolidated financial statements.
21
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
- - --------------------------------------------------------------------------------
for the Years Ended December 31, 1996, 1995 and 1994 (Expressed in thousands of
Canadian dollars except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metal sales $ 67,180 $ 67,418 $ 46,940
- - ------------------------------------------------------------------------------------------
Expenses
Mining 44,501 43,101 34,822
General administration 3,064 2,846 2,182
Depreciation and amortization 9,770 8,344 6,467
Exploration 3,179 1,838 661
- - ------------------------------------------------------------------------------------------
60,514 56,129 44,132
- - ------------------------------------------------------------------------------------------
Income from operations 6,666 11,289 2,808
- - ------------------------------------------------------------------------------------------
Other income (expense)
Other income (note 8) 3,595 1,318 3,512
Convertible debenture interest expense (661) (1,166) (571)
- - ------------------------------------------------------------------------------------------
2,934 152 2,941
- - ------------------------------------------------------------------------------------------
Income before income taxes 9,600 11,441 5,749
Income taxes (note 9) 588 980 442
- - ------------------------------------------------------------------------------------------
Net income $ 9,012 $ 10,461 $ 5,307
==========================================================================================
Earnings per share $ 0.062 $ 0.086 $ 0.045
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
- - --------------------------------------------------------------------------------
for the Years Ended December 31, 1996, 1995 and 1994
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1996 1995 1994
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $14,689 $ 4,228 $(1,079)
Net income 9,012 10,461 5,307
- - ----------------------------------------------------------------------
Balance at end of year $23,701 $14,689 $ 4,228
======================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------
for the Years Ended December 31, 1996, 1995 and 1994
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1996 1995 1994
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities
Net income $ 9,012 $ 10,461 $ 5,307
Items not involving cash
Depreciation and amortization 9,604 8,199 6,467
Recognition of deferred hedging gains (1,603) (3,206)
Deferred mining taxes 358 318
Gain on sale of the La Colorada property (2,956)
Other 2,465 1,328 358
- - ---------------------------------------------------------------------------------------------------
21,439 18,703 5,970
Net change in non-cash operating working capital (2,478) (1,978) (4,956)
- - ---------------------------------------------------------------------------------------------------
18,961 16,725 1,014
- - ---------------------------------------------------------------------------------------------------
Financing activities
Issues of capital stock 33,565 4,519 164
Reduction of convertible debentures (3,006) (3,998)
Proceeds from issue of convertible debentures, net 13,874
- - ---------------------------------------------------------------------------------------------------
30,559 521 14,038
- - ---------------------------------------------------------------------------------------------------
Investment activities
Expenditures on natural resource properties (13,968) (7,934) (6,889)
Acquisition of Cerro Quema gold project (13,185)
Mining tax credits received 669 1,175 2,977
Decrease (increase) in other assets 214 226 (880)
Acquisition of Santa Gertrudis, net of cash acquired (11,054)
Proceeds from sale of assets 6,915
- - ---------------------------------------------------------------------------------------------------
(26,270) (6,533) (8,931)
- - ---------------------------------------------------------------------------------------------------
Effect of exchange rate change on cash
and short-term deposits (219) (1,614) (744)
- - ---------------------------------------------------------------------------------------------------
Increase in cash and short-term deposits 23,031 9,099 5,377
Cash and short-term deposits at beginning of year 32,271 23,172 17,795
- - ---------------------------------------------------------------------------------------------------
Cash and short-term deposits at end of year $ 55,302 $ 32,271 $ 23,172
===================================================================================================
Changes in non-cash operating working capital
Receivables $ (433) $ (1,190) $ (2,763)
Inventories and prepaids (2,997) (934) (786)
Accounts payable 1,184 1,032 110
Accrued liabilities (203) (739) (1,676)
Income taxes payable (29) (147) 159
- - ---------------------------------------------------------------------------------------------------
$ (2,478) $ (1,978) $ (4,956)
===================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE> 10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of Canadian dollars)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared by management in
accordance with accounting principles generally accepted in Canada which, except
as described in note 14, conform in all material respects with accounting
principles generally accepted in the United States. Management makes various
estimates and assumptions in determining the reported amounts of assets and
liabilities, revenues and expenses for each period presented, and in the
disclosure of commitments and contingencies. Changes in the estimates and
assumptions will occur based on the passage of time and the occurrence of
certain future events. The principal accounting policies followed by the
Company, which have been consistently applied, are summarized as follows:
Intercorporate Investments: The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated on consolidation.
Cash and Short-Term Deposits: Cash and short-term deposits includes short-term
money market instruments which are highly liquid to be held to maturity and are
carried at amortized cost which approximates market. The Company's policy is to
invest in highly rated instruments and to limit the amount of credit exposure to
any one institution.
Currency Translation: The U.S. dollar is considered to be the functional
currency of the Company's Mexican operations as most of those activities are
conducted in U.S. dollars. Monetary assets and liabilities of the Mexican
operations are translated from Mexican pesos into U.S. dollars at the year end
rate of exchange and non-monetary assets and liabilities are translated at
historical rates of exchange. Exchange gains or losses are included in the
determination of earnings. The U.S. dollar financial statements of the Mexican
operations are translated into Canadian dollars at the year end rate of exchange
for the balance sheet and the average rate of exchange for the year for the
statement of income. Exchange gains or losses are included as a separate
component of shareholders' equity. The Panamanian operations are translated into
Canadian dollars using the temporal method whereby monetary assets and
liabilities are translated at the year end rate of exchange and non-monetary
assets and liabilities are translated at historical rates of exchange. Gains and
losses on foreign currency transactions are included in the determination of
earnings.
Inventories: Mining and milling materials and supplies are valued at the lower
of average cost and net replacement cost. Ore in stockpiles is valued at the
lower of average cost and net realizable value. Mining costs associated with
waste rock removal are deferred and charged to mining expense on the basis of
the average stripping ratio for each pit. The direct production costs associated
with ore on leach pads are deferred and amortized as the contained gold is
recovered. Direct production costs include direct labour, benefits, supplies and
equipment operating costs and maintenance.
Mineral Exploration and Development: Exploration expenditures are charged to
income in the period incurred except where these costs relate to specific
properties for which economically recoverable reserves exist, in which case they
are deferred. Significant property payments for active exploration properties
are capitalized. If no mineable ore body is discovered, previously capitalized
costs are expensed. Development costs incurred to expand existing capacity,
develop new ore bodies and develop property substantially in advance of
production are capitalized.
Depreciation and Amortization: Mining properties and deferred mine development
costs are amortized using the unit-of-production method over the life of the
estimated ore reserves. Depreciation of other assets is provided on the
straight-line basis over their estimated useful lives. Mining properties and
deferred expenditures are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be
recoverable. If estimated future cash flows expected to result from the use of
the properties and their eventual disposition are less than the carrying amount,
then these properties are written down to their estimated recoverable amount
determined on a non-discounted basis.
Recognition of Metals Revenue: Gold and copper revenues are recognized at the
time of production. Gains and losses on futures contracts and other instruments
that effectively establish prices for future production are not recognized in
income until reflected in sales revenue when the related production is
delivered.
Site Restoration: Provisions are established for estimated future costs of site
restoration of mining properties, including the removal of production facilities
at the end of their useful lives. Costs are based upon estimates of the
anticipated method and extent of site restoration to meet current legal and
industry standards. These standards are continually changing and the estimated
provision is reviewed annually. The amount of the provision is amortized over
the estimated life of the underlying asset and the annual charge, determined on
the same basis as the amortization of the underlying asset, is included in
depreciation and amortization.
24
<PAGE> 11
Comparative Figures: Certain comparative figures have been reclassified to
conform with the current financial statement presentation.
2 ACQUISITION OF CERRO QUEMA GOLD PROJECT
On January 26, 1996 the Company purchased the right of first refusal to
acquire a 100% interest in the shares of Minera Cerro Quema, S.A., whose primary
asset is the Cerro Quema gold project in Panama. Concurrently the Company
exercised the right of first refusal and purchased the shares for US$8,372,000
cash closing on March 4, 1996. The Company paid the former holder of the right
of first refusal ("CEMSA") US$250,000 cash and issued 730,000 common shares on
closing and an additional US$250,000 cash and 730,000 common shares in March,
1997 following approval by the Board of Directors of a positive feasibility
study for the Cerro Quema gold project. The cost of the acquisition including
expenses, but excluding the payment to CEMSA in 1997, amounted to $13,185,000
and has been included in natural resource properties. In addition, CEMSA has
agreed to a reduction in the precious metals net smelter royalty on the Cerro
Quema property from 3.5% to 2% in consideration for which the Company issued an
additional 1,040,000 common shares also in March, 1997.
3 INVENTORIES
<TABLE>
<CAPTION>
1996 1995
- - -------------------------------------------------------
<S> <C> <C>
Materials and supplies $5,813 $4,490
Ore in stockpiles 3,321 1,897
- - -------------------------------------------------------
$9,134 $6,387
=======================================================
</TABLE>
4 OTHER ASSETS
<TABLE>
<CAPTION>
1996 1995
- - -------------------------------------------------------
<S> <C> <C>
Advances $ 775 $1,008
Deferred financing costs 657 928
Cash deposit securing
tax appeal 920
- - -------------------------------------------------------
1,432 2,856
Accumulated amortization 161 143
- - -------------------------------------------------------
$1,271 $2,713
=======================================================
</TABLE>
During 1996, the cash deposit securing the tax appeal was released to the
Company on the successful conclusion of the appeal.
5 NATURAL RESOURCE PROPERTIES
(a) In June 1993, the Company entered into an agreement with the Government of
Canada and the Government of Quebec pursuant to which the Company agreed to
incur $3,900,000 of exploration and development expenses on the Joe Mann Mine of
which the Government of Canada and the Government of Quebec will each fund 25%.
By the end of the agreement, March 31, 1995, the Company had incurred the
required total of $3,900,000 (1994 - $3,284,000; 1993 - $700,000) of eligible
exploration and development expenses and had received government funding in the
amount of $1,852,500 (1994 - $1,247,000; 1993 - $487,500). The balance
outstanding was received in February, 1996. The Company accounted for the
government funding using the cost reduction method reflecting the funding
received in the period the related expenditure was incurred.
(b) During 1992, the Company entered into agreements under which the Societe
Quebecoise d'Exploration Miniere ("Soquem") could earn a 50% interest in the Joe
Mann property (excluding the Joe Mann Mine) by spending $4,000,000 on
exploration programs on the property by June 1, 1997 and could earn a 50%
interest in the Company's other properties in the Chibougamau area by spending
$3,000,000 on exploration programs by June 1, 1997. During 1995, these
agreements were modified to extend both the date that the expenditures must be
incurred by and the amount to January 6, 1999 and $4,200,000 for the Joe Mann
property and January 6, 1998 and $3,150,000 for the Chibougamau property. At
December 31, 1996, Soquem had incurred total qualifying expenditures of
approximately $2,205,000 (1995 - $1,750,000) on the Joe Mann property and
$2,136,000 (1995 - $1,925,000) on the Chibougamau area property.
6 CONVERTIBLE DEBENTURES
In July 1994, the Company issued US$11,005,000 of 7.5% Convertible Subordinated
Debentures (Unsecured). The debentures are unsecured, bear interest at 7.5%
payable in arrears on June 1 and December 1 each year and mature on July 21,
2004. The debentures are convertible at the option of the holder into common
shares of the Company at any time prior to maturity at a conversion of US$0.50
per common share. The debentures are redeemable for cash at any time after the
fifth anniversary of the date of issue or, at the Company's option, may be
redeemed in common shares on the basis of one common share for each US$0.50 of
debenture principal being redeemed. The right of the Company to redeem the
debentures for cash or common shares is conditional on the average price of the
Common Shares exceeding US$0.50 during a period of 20 consecutive days prior to
notice of redemption. The Company may, at its option, repay the debenture at
maturity by issuing common shares of the Company at the conversion price of
US$0.50 per common share.
25
<PAGE> 12
During 1996, debenture holders converted US$2,307,000 (1995 - US$3,107,000;
1994 - nil) of debenture principal into 4,614,000 (1995 - 6,214,000; 1994 - nil)
common shares of the Company resulting in a balance outstanding at December 31,
1996 of US$5,591,000 (1995 - US$7,898,000; 1994 - US$11,005,000).
7 CAPITAL STOCK
a) Authorized shares
Preference shares - unlimited, issuable in series without par value
Common shares - unlimited
b) Issued and outstanding shares (in thousands):
<TABLE>
<CAPTION>
Number
of Shares Amount
- - -------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1993 117,225 $ 80,357
Employees Incentive Plan
and Directors' Stock
Option Plan 303 164
- - -------------------------------------------------------
Balance, December 31, 1994 117,528 80,521
Conversion of convertible
debentures 6,214 3,998
Employee Incentive Plan
and Directors' Stock
Option Plan 724 521
- - -------------------------------------------------------
Balance, December 31, 1995 124,466 85,040
Conversion of convertible
debentures 4,614 3,006
Public issue for cash 18,000 28,585
Issued to CEMSA (Note 2) 730 1,256
Employee Incentive Plan
and Directors' Stock
Option Plan 778 718
- - -------------------------------------------------------
Balance, December 31, 1996 148,588 $118,605
=======================================================
</TABLE>
On February 21, 1996, the Company issued 18,000,000 units consisting of
18,000,000 common shares and 9,000,000 warrants from treasury at US$1.25 per
unit for total proceeds, after underwriting fees and other costs, of
US$20,950,000. The warrants entitle the holder to purchase one common share of
the Company for US$1.50 on or before February 26, 1999.
The weighted average number of common shares outstanding during the year
ended December 31, 1996 amounted to 145,907,000 (1995 - 121,214,000; 1994 -
117,274,000).
c) Reservations of capital stock
At December 31, 1996, in addition to the shares reserved for issuance under
the terms of the common share purchase warrants, convertible debentures (see
note 6) and the balance of the Cerro Quema first right of refusal and royalty
reduction cost (see note 2), the Company has reserved 3,895,335 common shares
for future issuance under the Employee Incentive Plan and 4,650,000 common
shares for future issuance under the Directors' Stock Option Plan.
The Employee Incentive Plan comprises a Share Option Plan, a Share Purchase
Plan, a Share Bonus Plan and a Share Loan Plan.
Options granted under the Directors' and Employee share option plans expire
not later than five years from the date on which they were granted and all
current options expire on or before December 11, 2001. Changes in the share
option plans are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- - -------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning
of year 5,090 4,925 3,530
Granted 2,900 900 2,625
Exercised (790) (585) (150)
Expired (25) (150) (1,080)
- - -------------------------------------------------------
Balance at end of year 7,175 5,090 4,925
=======================================================
Average option price
at end of year $1.18 $0.95 $0.85
Options exercisable
at end of year 5,319 3,940 3,131
Average price for options
exercised during year $0.82 $0.60 $0.57
</TABLE>
The Share Purchase Plan calls for Company contributions of an amount equal
to 50 per cent of the employees' contributions, which can amount to a maximum of
5 per cent of their basic annual salaries or wages. The common shares are issued
on a quarterly basis at market value.
Under the Share Bonus Plan, shares can be issued to full-time salaried
employees as a bonus in recognition of services as determined by the
Compensation Committee or the Board of Directors.
The Share Loan Plan provides the Compensation Committee or the Board of
Directors the discretion to make loans to full time employees to enable them to
acquire shares in the Company. No loans are outstanding under this plan.
8 OTHER INCOME
<TABLE>
<CAPTION>
1996 1995 1994
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 3,167 $ 1,722 $ 1,027
Other income 520 69 (13)
Currency translation
gains (losses) (92) (473) (458)
Gain on sale of 30%
interest in
La Colorada mine 2,956
- - ----------------------------------------------------------------
$ 3,595 $ 1,318 $ 3,512
================================================================
</TABLE>
In 1994, the Company's former joint venture partner exercised its option to
acquire the Company's 30% interest in the La Colorada mine in Sonora, Mexico,
including the 1% net smelter return for US$5,350,000. The sale resulted in a
gain of $2,956,000 which is included in other income.
26
<PAGE> 13
9 INCOME TAXES
a) Geographic components
The geographic components of income before income taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- - -----------------------------------------------
<S> <C> <C> <C>
Canada $ 3,089 $ 2,371 $1,411
Mexico 6,511 9,070 4,338
- - -----------------------------------------------
$ 9,600 $11,441 $5,749
===============================================
</TABLE>
The geographic components of income taxes is as follows:
Current income tax expense:
<TABLE>
<S> <C> <C> <C>
Canada $229 $246 $182
Mexico 1 416 260
- - ------------------------------------------------------------
230 662 442
Deferred mining tax expense
- Canada 358 318
- - ------------------------------------------------------------
$588 $980 $442
============================================================
</TABLE>
(b) Deferred income taxes
The payment of certain income taxes is deferred due to the recognition of
amounts for tax purposes in different periods than for accounting purposes. The
principal timing difference is depreciation and amortization.
(c) Effective tax rate
The effective income tax rate differs from the combined Canadian federal
and provincial basic statutory income tax rates. The principal factors causing
this difference are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
Combined basic
statutory rate 43.7% 43.0% 42.0%
- - -----------------------------------------------------------------------
Expected provision
based on combined
basic statutory rates $ 4,173 $ 4,932 $ 2,417
Resource allowance (1,800) (543) (360)
Mining taxes 358 318
Utilization of prior year
losses carried forward (2,922) (3,666) (1,830)
Foreign earnings subject
to different tax rates (687) (847) (370)
Tax benefit not currently
recognized 1,235 119 297
Other 231 667 288
- - -----------------------------------------------------------------------
$ 588 $ 980 $ 442
=======================================================================
</TABLE>
(d) Loss carryforwards
At December 31, 1996, the Company and its subsidiaries had operating losses
for income tax purposes in Canada approximating $370,000 and in Mexico
approximating $8,300,000 which are available to reduce taxes in future years and
expire over the period to the year 2003. In addition, the Company has
non-operating losses for income tax purposes in Canada of approximately
$10,600,000 available to apply against future taxable capital gains. The Company
has an additional $17,200,000 of non-operating loss carryforwards which have
been denied by the tax authorities. The Company is objecting to the tax
authorities' position. The Company also had unclaimed deductions for income tax
purposes in excess of carrying values for financial statement purposes in the
amount of approximately $20,600,000. The potential future benefit of these tax
savings has not been recorded in the accounts.
10 COMMITMENTS AND CONTINGENCIES
(a) At December 31, 1996 the Company's forward hedging program consisted of the
following:
<TABLE>
<CAPTION>
1997 1999 2000
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Gold (ounces):
Fixed forward contracts
- amount 17,500
- average price (US$) $ 448
Put contracts
- amount 30,000
- average price (US$) $ 380
Participating forwards
- amount 25,000 20,000
- average price (US$) $ 434 $ 450
Copper
(thousands of pounds):
Fixed forward contracts
- amount 660
- average price (US$) $ 1.02
</TABLE>
(b) At December 31, 1996, the Company had sold forward US$8,200,000 to purchase
Canadian dollars during 1997 at an average rate of Cdn$1.351 to the US dollar.
(c) The Company's Joe Mann Mine is subject to a graduated net smelter return
royalty increasing from 1.8% up to a gold price of Canadian $500 per ounce to
3.6% at a gold price of Canadian $625 per ounce.
27
<PAGE> 14
(d) During 1996, the Company's Mexican subsidiary received import duty
assessments claiming the subsidiary's interest in certain pieces of machinery
and equipment with an approximate value of US$2,200,000 and levying taxes,
penalties, interest and inflationary adjustments for a further Mexican pesos
9,200,000. The claim against the subsidiary's assets and the additional amount
payable arose as a result of the subsidiary not presenting certain import
documentation to tax authorities by a prescribed date in connection with their
audit of imports of the claimed machinery and equipment during 1990 and 1991
when the mine was not owned by the Company. The Company, which has all of the
required documentation, has not provided for these amounts in these financial
statements on the basis of professional advice received indicating the basis for
these assessments to be weak and accordingly intends to appeal the assessments.
(e) During 1991, a subsidiary of the Company entered into a corporate
restructuring and financing arrangement ("Arrangement") in which it issued to a
group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate
Debentures and Notes ("Debentures") and $12,000,000 of Guaranteed Non-Cumulative
Redeemable Retractable Preferred Shares ("Preferred Shares"). The Debentures are
unsecured, subordinate to all existing non-trade debt and future senior debt,
bear interest at varying rates, are repayable upon maturity in 2007, and cannot
be prepaid. The Preferred Shares are redeemable at any time at an amount of
$240,000 per Preferred Share, rank equally and parri passu with the common
shares for dividends when declared, and are retractable in 2007. In order to
secure the performance of the Debentures and Preferred Shares the Company's
subsidiary entered into an Interest Rate and Currency Exchange Swap Agreement
("Swap Agreement") with a major international bank. The Swap Agreement provides
for the conversion of one floating rate interest basis to another and for
differences in the timing of payments so as to match the interest payment
requirements under the Debentures, repay the Debentures upon maturity and
retract the Preferred Shares. All payments are denominated in Canadian dollars.
The Company's subsidiary placed Canadian dollar deposits with the counter party
to the Swap agreement which deposits have been charged to secure the performance
under the Swap agreement. These deposits earn interest at Canadian Bankers
Acceptance rates. The Swap Agreement was irrevocably assigned directly to the
investors. Accordingly the bank is the primary obligor under the Arrangement.
11 PENSION PLAN
The Company maintains a defined benefit pension plan for certain employees
which provides benefits based on length of service and remuneration. The most
recent actuarial valuation of the plan was as at December 31, 1993. As at
December 31, 1996, the estimated projected benefit obligation was approximately
$2,271,000 (1995 - $2,179,000) and the market value of assets aggregated
$3,555,000 (1995 - $3,225,000).
12 SEGMENTED DATA
The Company's operations consist principally of the exploration,
development, mining and processing of precious metals in Canada, Mexico and
Panama.
The following is a summary of the Company's operations by geographic area :
<TABLE>
<CAPTION>
1996 1995 1994
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Canada $ 38,226 $ 38,209 $ 36,422
Mexico 28,954 29,209 10,518
- - -----------------------------------------------------------------------------
$ 67,180 $ 67,418 $ 46,940
=============================================================================
Income (loss) from operations:
Canada $ (152) $ 2,002 $ 1,175
Mexico 6,818 9,287 1,633
- - -----------------------------------------------------------------------------
$ 6,666 $ 11,289 $ 2,808
=============================================================================
Identifiable assets:
Canada $ 70,892 $ 70,279 $ 74,677
Mexico 25,755 19,880 17,433
Panama 16,719
Corporate 51,932 33,544 21,670
- - -----------------------------------------------------------------------------
$ 165,298 $123,703 $113,780
=============================================================================
</TABLE>
Corporate assets primarily consist of cash and short-term deposits.
13 FAIR VALUE AND CREDIT RISK DISCLOSURES
At December 31, 1996 the fair value of the Company's convertible debentures
was estimated to be $14,500,000 (1995 - $24,000,000) compared to the carrying
amount of $7,657,000 (1995 - $10,782,000) based on a quoted price. The carrying
amount of cash and short-term deposits, receivables and accounts payable in the
consolidated balance sheets approximates fair value.
The fair value of the Company's off-balance sheet financial instruments is
based on the notional gain or loss accrued using the market prices on the
reporting date and at December 31, 1996 was approximately $1,460,000 (1995 -
$750,000) for the forward gold and copper sales and approximately $45,000 (1995
- - - a loss of $225,000) for the foreign currency contracts.
28
<PAGE> 15
The Company is exposed to credit-related losses in the event of
non-performance by counter parties to financial instruments but does not expect
any counter parties to fail to meet their obligations. The Company deals with
only highly rated counter parties, normally major financial institutions
including banks. The credit risk exposure of derivative instruments is
represented by the fair value of contracts with a positive fair value at the
reporting date. The credit risk amounts to the maximum amount that would be at
risk if the counter parties failed completely to perform under the contracts.
14 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The effect on the financial statements of differences between generally
accepted accounting principles (GAAP) in Canada and the U.S. is outlined below:
(a) Deferred Income Taxes
If the Company had changed from the deferred method of accounting for
deferred income taxes under Canadian GAAP to the liability method under U.S.
GAAP at January 1, 1993, in accordance with Financial Accounting Standards Board
Statement No. 109, then the financial statements would reflect the cumulative
effect of such a change in accounting methodology in 1993 and adjustments for
the application of Statement No. 109 during 1996, 1995 and 1994. The effects on
the consolidated statement of earnings of the above differences are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- - ------------------------------------------------------------------
<S> <C> <C> <C>
Net income under
Canadian GAAP $ 9,012 $10,461 $5,307
Application of liability
method under FAS 109 (1,363) 5,199
- - ------------------------------------------------------------------
Net income under
U.S. GAAP $ 7,649 $15,660 $5,307
==================================================================
Net income per share
under U.S. GAAP $ 0.05 $0.13 $ 0.05
==================================================================
</TABLE>
Net income per share under U.S. GAAP is based on a weighted average number
of common shares and common share equivalents outstanding using the treasury
stock method during 1996 of 146,959,000 (1995 - 123,467,000; 1994 -
117,459,000). Fully diluted net income per share is not materially dilutive.
Deferred income taxes and retained earnings under U.S. GAAP at December 31, 1996
would be a liability of $1,904,000 (1995 - $541,000) and $27,537,000 (1995 -
$19,888,000), respectively.
Significant components of the Company's deferred tax assets and liabilities
under U.S. GAAP disclosure requirements are as follows:
<TABLE>
<CAPTION>
1996 1995
- - -------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Resource property $12,571 $10,469
Net operating loss
carryforwards 2,989 3,637
Other 1,000
- - -------------------------------------------------------
16,560 14,106
Valuation allowance 7,166 7,305
- - -------------------------------------------------------
$ 9,394 $ 6,801
- - -------------------------------------------------------
Deferred tax liabilities:
Resource property
- Mining tax $ 6,357 $ 5,815
Other 4,941 1,527
- - -------------------------------------------------------
$11,298 $ 7,342
- - -------------------------------------------------------
Net deferred tax liability $ 1,904 $ 541
=======================================================
</TABLE>
The tax loss carry forwards disclosed in note 9(d) have been tax effected
for purposes of the above disclosure at the rate of 34% for Mexican tax losses
and 44.62% for Canadian tax losses. Excluding the deferred mining tax liability
for the resource property which is carried on the Canadian GAAP Balance Sheet at
December 31, 1996 at $6,767,000, the unclaimed deductions for income tax
purposes in excess of carrying values for financial statement purposes disclosed
in note 9(d) have been tax effected in the disclosure above at the rate
effective in the applicable jurisdiction, which averages 42%.
(b) Statements of Cash Flows
Under Canadian accounting principles, the issuance of common shares on the
conversion of convertible debentures and as part of the purchase consideration
for the acquisition of the Cerro Quema project has been reflected as a financing
activity in the consolidated statements of cash flows. Under United States
accounting principles, these non-cash transactions would have been excluded from
financing activities and separately disclosed in the notes to the consolidated
financial statements.
Included in cash and short-term deposits at December 31, 1996 are
investments of $49,427,000 (1995 nil) with maturities on acquisition of greater
than 90 days. Under U.S. GAAP these investments would not be included in cash
and short-term deposits.
29
<PAGE> 16
After adjusting for the above, for U.S. GAAP purposes the sources of cash
from financing activities would be $29,303,000 the use of cash for investing
activities would be $74,441,000 and there would be a decrease in cash and
short-term deposits for the year ending December 31, 1996 of $26,396,000
resulting in a cash and short-term deposits balance at December 31, 1996 of
$5,875,000 and a short-term investments balance of $49,427,000.
The following additional disclosures are also required:
<TABLE>
<CAPTION>
1996 1995 1994
- - -------------------------------------------------------
<S> <C> <C> <C>
Cash taxes paid $1,009 $1,527 $ 680
Cash interest paid $ 596 $ 993 $ 427
</TABLE>
(c) Contingent Liability
Under U.S. GAAP the contingent liability disclosed in note 10 (e) would be
reflected in the balance sheet. Accordingly, for U.S. GAAP total assets and
liabilities would increase by $50 million. The increase in assets represents
investments (non-current) comprising Canadian dollar payments under the Swap
agreement and Canadian dollar deposits with the counter party to the Swap
agreement. The liabilities (non-current) represent the Guaranteed Subordinate
Debentures and Notes of $38 million and the Guaranteed Non-Cumulative Redeemable
Retractable Preferred Shares of $12 million which would be included outside of
shareholders' equity.
(d) Foreign Exchange Contracts
In accordance with Canadian GAAP, certain long-term foreign exchange
contracts are considered to be hedges of sales revenue denominated in foreign
currencies or the cost of goods to be purchased in foreign currencies. Gains and
losses related to changes in market values of such contracts are deferred and
recognized when the contract is settled as part of sales revenue or the cost of
purchased goods as appropriate. Under U.S. GAAP, changes in the market value of
the contracts would be included in current earnings. The impact of this GAAP
difference has not been material during the reporting periods presented.
30
<PAGE> 17
FIVE YEAR COMPARATIVE SUMMARY
OF SELECTED FINANCIAL DATA
- - --------------------------------------------------------------------------------
(Expressed in thousands of Canadian dollars, except for share and exchange rate
data)
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Metal sales $ 67,180 $ 67,418 $ 46,940 $ 30,668 $ 34,840
Income (loss) from continuing operations 9,012 10,461 5,307 (1,743) (910)
Net income (loss) 9,012 10,461 5,307 (3,493) (910)
Earnings (loss) per share
- from continuing operations 0.06 0.09 0.05 (0.02) (0.01)
- Net income (loss) 0.06 0.09 0.05 (0.03) (0.01)
Total assets 165,298 123,703 113,780 91,916 86,951
Long-term debt 7,657 10,782 15,438 -- --
Deferred hedging gain -- -- 1,603 4,809 8,302
Shareholders' equity 142,058 99,554 84,800 79,278 68,165
Book value per share 0.96 0.80 0.72 0.68 0.69
Gold production - ounces 125,000 120,000 81,000 55,000 70,000
Foreign exchange rate - US dollars
Year end/average 0.73/0.73 0.73/0.73 0.71/0.73 0.76/0.78 0.79/0.83
High/low 0.75/0.72 0.75/0.70 0.76/0.71 0.80/0.74 0.88/0.77
Shares outstanding (in thousands)
At year end 148,588 124,466 117,528 117,225 99,298
Weighted average during year 145,907 121,214 117,274 106,051 99,252
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Expressed in thousands of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Metal sales $18,397 $18,733 $16,191 $13,859
Operating income 3,227 2,862 837 (260)
Net income 3,466 3,227 1,465 854
Earnings per share 0.02 0.02 0.01 0.01
- - ---------------------------------------------------------------------------------------
Year ended December 31, 1995
Metal sales $16,493 $16,445 $16,191 $18,289
Operating income 2,493 2,422 2,438 3,936
Net income 2,010 2,586 2,258 3,607
Earnings per share 0.02 0.02 0.02 0.03
- - ---------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 18
SHAREHOLDER INFORMATION
- - --------------------------------------------------------------------------------
Campbell Resources Inc. common shares are listed on the New York, Toronto
and Montreal stock exchanges and trade under the symbol 'CCH'. The warrants are
listed on the New York Stock Exchange trading under the symbol 'CCH.ws' and on
the Toronto and Montreal stock exchanges trading under the symbol 'CCH.wt'.
Each warrant entitles the holder to purchase one common share of Campbell
Resources Inc. for US$1.50 on or before February 26, 1999. There are 9.0 million
warrants issued and outstanding.
Campbell Resources is included in the TSE 300 and TSE 200 Indexes.
QUARTERLY TRADING STATISTICS
COMMON SHARE PRICES
<TABLE>
<CAPTION>
Toronto Stock Exchange New York Stock Exchange
(Cdn$) (US$)
- - -------------------------------------------------------------------------
High Low Volume High Low Volume
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
4th Quarter 1.60 1.20 2,454,280 1.250 0.875 10,471,000
3rd Quarter 1.70 1.35 3,342,945 1.250 1.00 12,038,100
2nd Quarter 1.82 1.53 8,256,690 1.375 1.125 16,728,300
1st Quarter 1.98 1.36 16,823,841 1.500 0.937 33,223,300
- - -------------------------------------------------------------------------
1995
4th Quarter 1.44 1.05 12,115,775 1.125 0.75 18,697,200
3rd Quarter 1.30 0.98 8,134,279 1.00 0.625 15,842,500
2nd Quarter 1.25 0.95 7,249,193 0.875 0.625 14,820,500
1st Quarter 1.10 0.80 4,662,321 0.75 0.50 12,765,700
- - -------------------------------------------------------------------------
<CAPTION>
WARRANT PRICES
- - -------------------------------------------------------------------------
Toronto Stock Exchange New York Stock Exchange
(Cdn$) (US$)
- - -------------------------------------------------------------------------
High Low Volume High Low Volume
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
4th Quarter 0.60 0.48 485,500 0.437 0.375 198,300
3rd Quarter 0.62 0.40 902,050 0.562 0.406 342,000
2nd Quarter 0.78 0.50 1,390,550 -- -- --
1st Quarter 0.65 0.40 1,426,100 -- -- --
</TABLE>
Trading began February 26,1996 Trading began July 26,1996
- - -------------------------------------------------------------------------------
TRANSFER AGENTS
<TABLE>
<S> <C> <C>
MONTREAL TRUST COMPANY MONTREAL TRUST COMPANY CHASEMELLON SHAREHOLDER SERVICES
151 Front Street West Place Montreal Trust 85 Challenger Road
8th Floor 1800 McGill College Avenue Overpeck Center
Toronto, Ontario M5J 2N1 Montreal, Quebec Ridgefield Park, New Jersey
Phone: (416) 981-9500 H3A 3K9 U.S.A. 07660
Fax: (416) 981-9800
</TABLE>
FINANCIAL PUBLICATIONS
A copy of the Annual Report on Form 10-K filed with the U.S. Securities and
Exchange Commission, or copies of the Annual Report and Quarterly Reports may be
obtained without charge, upon request.
INQUIRIES
Inquiries regarding shareholder-related matters, including change of
address notifications, can be directed to the Secretary or to the Transfer
Agent.
Questions regarding the Company's operating and financial performance may
be directed to the Manager, Investor Relations at (416) 366-5201.
32
<PAGE> 1
[LOGO]
CAMPBELL RESOURCES INC.
Suite 1910, 120 Adelaide Street West
Toronto, Ontario M5H 1T1
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that the Annual Meeting of Shareholders of Campbell
Resources Inc. (the "Corporation") will be held at the Board of Trade of
Metropolitan Toronto, Boardroom "A", 4th floor, Adelaide Street Entrance, 1
First Canadian Place, Toronto, Ontario on Thursday, April 24, 1997 at 9:30 A.M.
(Eastern Daylight Saving Time) for the following purposes:
1. to receive the Consolidated Financial Statements of the Corporation
and Auditors' Report thereon for the fiscal year ended December 31,
1996;
2. to elect directors for the ensuing year;
3. to appoint auditors for the ensuing year and to authorize the
Directors to fix their remuneration; and
4. to transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The Board of Directors of the Corporation has fixed the close of business on
March 18, 1997 as the record date for the determination of shareholders entitled
to notice of and to vote at the Meeting and any adjournment thereof.
If you do not expect to be present at the Meeting, please sign, date and
fill in the enclosed form of proxy and return it by mail in the enclosed
addressed envelope. All instruments appointing proxies to be used at the Meeting
must be deposited with the Secretary of the Corporation at the Corporation's
office in Toronto, or at the office of the Corporation's transfer agent,
Montreal Trust Company, in Toronto not later than 5:00 p.m. (Eastern Daylight
Saving Time) on Tuesday, April 22, 1997. Shares represented by instruments
appointing proxies that are not so deposited will not be voted at the Meeting.
By Order of the Board of Directors
/s/ Lorna D. MacGillivray
---------------------------------------------
Lorna D. MacGillivray
Vice President, Secretary and General Counsel
Dated: March 13, 1997.
<PAGE> 2
CAMPBELL RESOURCES INC.
PROXY CIRCULAR
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY
THE MANAGEMENT AND BOARD OF DIRECTORS OF CAMPBELL RESOURCES INC. (THE
"CORPORATION" OR "CAMPBELL") OF PROXIES TO BE VOTED AT THE ANNUAL MEETING OF
SHAREHOLDERS (THE "MEETING") TO BE HELD ON APRIL 24, 1997 AT THE BOARD OF TRADE
OF METROPOLITAN TORONTO, BOARDROOM "A", 4TH FLOOR, ADELAIDE STREET ENTRANCE, 1
FIRST CANADIAN PLACE, TORONTO, ONTARIO. The record date for determination of
shareholders entitled to receive notice of the Meeting is March 18, 1997. If a
person has acquired ownership of shares since that date he may, in accordance
with the provisions of the Canada Business Corporations Act, produce properly
endorsed share certificates or otherwise establish that he owns such shares and
demand, not later than the close of business on April 14, 1997, to be included
in the list of shareholders entitled to vote at the Meeting, in which case the
transferee is entitled to vote his shares at the Meeting.
EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON, WHO NEED NOT BE A
SHAREHOLDER, OTHER THAN THE PERSONS SPECIFIED IN THE ENCLOSED FORM OF PROXY TO
ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING. SUCH RIGHT MAY BE
EXERCISED BY STRIKING OUT THE NAMES OF MANAGEMENT'S NOMINEES IN THE ENCLOSED
FORM OF PROXY AND INSERTING THE NAME OF THE PERSON TO BE APPOINTED IN THE BLANK
SPACE PROVIDED IN THE FORM OF PROXY, SIGNING THE FORM OF PROXY AND RETURNING IT
IN THE REPLY ENVELOPE PROVIDED.
Any person giving a proxy may revoke it by depositing an instrument in
writing executed by him or by his attorney authorized in writing at the
registered office of the Corporation at any time up to the close of business on
the last business day preceding the Meeting or any adjournment thereof or with
the Chairman at the Meeting or in any other manner permitted by law. ALL
PROPERLY EXECUTED PROXIES, NOT THERETOFORE REVOKED, WILL BE VOTED ON ANY POLL
TAKEN AT THE MEETING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED THEREIN. IF
NO INSTRUCTIONS ARE GIVEN WITH RESPECT TO ANY PARTICULAR MATTER, THE PROXY
AUTHORIZES A VOTE IN FAVOUR OF SUCH MATTER AND IT WILL BY VOTED ACCORDINGLY.
Proxies must be received by the Corporation not later than 5:00 p.m. (Eastern
Daylight Saving Time) on Tuesday, April 22, 1997.
All dollar amounts contained in this Proxy Circular are expressed in
Canadian dollars unless specifically stated otherwise. As of March 13, 1997, the
Noon Buying Rate in New York City for Canadian dollars was U.S.$0.7335
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of March 13, 1997, the Corporation had outstanding 150,357,876
Common Shares entitled to be voted at the Meeting. Each Common Share is entitled
to one vote.
1
<PAGE> 3
To the knowledge of the Corporation, as of March 13, 1997, the
following is the only party who beneficially owned or exercised control or
direction over more than 5% of the Common Shares of the Corporation:
<TABLE>
<CAPTION>
Name and Address Number of Common Shares Percentage of Class
- - ---------------- ----------------------- -------------------
<S> <C> <C>
Heartland Advisors, Inc. 7,665,000(1) 5.1%
790 North Milwaukee Street
Milwaukee, WI 53202
<FN>
1. Based on U.S. Securities and Exchange Commission Schedule 13G filing
dated February 12, 1997).
</FN>
</TABLE>
ELECTION OF DIRECTORS
(ITEM NO. 2 OF NOTICE OF MEETING)
Shareholders will be asked to elect nine directors to serve, subject to
the Corporation's by-laws, until the next annual meeting of shareholders or
until their respective successors have been duly elected or appointed. IT IS THE
INTENTION OF THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY TO VOTE AT THE
MEETING FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED BELOW. IF ANY SUCH
NOMINEE SHOULD BE UNABLE TO SERVE, AN EVENT NOT CURRENTLY ANTICIPATED, PROXIES
WILL BE VOTED FOR SUCH PERSON AS SHALL BE DESIGNATED BY THE BOARD OF DIRECTORS
OF THE CORPORATION TO REPLACE SUCH NOMINEE.
The following table sets forth certain information concerning the
persons to be nominated for election as directors of the Corporation, including
their beneficial ownership of Common Shares of the Corporation as of March 13,
1997. Unless otherwise indicated, each nominee holds sole voting and investment
power over his shares.
<TABLE>
<CAPTION>
Number
of
Name & Municipality of Principal Occupation Director Common Percent
Residence and Business Experience Since Age Shares of Class
- - ---------------------- ----------------------- -------- --- ------ --------
<S> <C> <C> <C> <C> <C>
James D. Beatty Chief Executive Officer, Trinity 1983 52 2,500(1) *
Toronto, Ontario Capital Corporation, Toronto,
Ontario, investment company.
Graham G. Clow Mining Engineer; Senior Vice 1996 46 2,500(2) -
Oakville, Ontario President, North American
Operations, Breakwater Resources Ltd.,
President, CanZinco Ltd., Toronto, Ontario;
prior to June, 1996, President, Granduc
Mining Corporation; prior to June, 1993,
Vice President, Project Development,
Curragh Inc., Toronto, Ontario, mining
companies.
</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
Number
of
Name & Municipality of Principal Occupation Director Common Percent
Residence and Business Experience Since Age Shares of Class
- - ---------------------- ----------------------- -------- --- ------ --------
<S> <C> <C> <C> <C> <C>
Roderick P. Douglas Mining Engineer; Director of Ashton 1994 71 10,000(3) *
Vancouver, B.C. Mining of Canada Inc., Vancouver,
B.C., mining company.
John O. Kachmar President and Chief Executive Officer 1992 60 125,000(4) *
Toronto, Ontario of the Corporation; prior to August
1993, President of Northgate
Exploration Limited, Toronto,
Ontario, mining company.
James C. McCartney Q.C. Chairman of the Corporation; 1993 59 30,000(5) *
Toronto, Ontario Partner, McCarthy Tetrault,
Barristers & Solicitors, Toronto,
Ontario; Director of Algoma Steel
Inc., Sault Ste Marie, Ontario, steel
company.
Donald R. Murphy President, Societe de developpement 1987 53 nil(1)(6) -
Rouyn/Noranda, Quebec de la Baie James, Matagami, Quebec,
government owned corporation; Director of
MSV Resources Inc., Montreal, Quebec; and
Espalau Mining Corporation, Val d'Or,
Quebec; mining companies.
Francis S. O'Kelly Mining Engineer; Director of 1993 55 5,000(7) *
New York, New York Rayrock Yellowknife Resources Inc.,
Toronto, Ontario and Glamis Gold
Ltd., Vancouver, B.C.; mining
companies.
G. E. "Kurt" Pralle Mining and Metallurgical Consultant; 1993 62 100,000(7) *
Ramsey, New Jersey prior to August 1993, Vice-President
and Senior Mining Engineer,
Citicorp, New York, New York.
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
Number
of
Name & Municipality of Principal Occupation Director Common Percent
Residence and Business Experience Since Age Shares of Class
- - --------- ----------------------- ----- --- ------ --------
<S> <C> <C> <C> <C> <C>
James D. Raymond Corporate Investor and Director; 1979 71 10,000(8) *
Montreal, Quebec Director of Cineplex Odeon
Corporation, Toronto, Ontario, entertainment
company; Canadian 88, Calgary, Alberta, oil
and gas company; Denbridge Capital
Corporation, Toronto, Ontario investment
company; Agritek Bio Ingredients Corporation,
Montreal, Quebec, international research and
marketing company of natural biotechnological
livestock feed additive ingredients.
</TABLE>
Notes:
(1) Excludes 500,000 Common Shares subject to option.
(2) Excludes 150,000 Common Shares subject to option.
(3) Excludes 250,000 Common Shares subject to option.
(4) Excludes 1,350,000 Common Shares subject to option.
(5) Excludes 800,000 Common Shares subject to option.
(6) Excludes 26,110 Common Shares held by Societe de developpement de la
Baie James of which Mr. Murphy is President.
(7) Excludes 400,000 Common Shares subject to option.
(8) Excludes 600,000 Common Shares subject to option.
* Less than 1% of the outstanding Common Shares.
As of March 13, 1997, the directors and officers of the Corporation as
a group beneficially owned 372,443 Common Shares representing approximately 0.3%
of the outstanding Common Shares of the Corporation excluding 5,975,000 Common
Shares subject to option. The information as to Common Shares beneficially owned
or over which control or direction is exercised, not being within the knowledge
of the Corporation, has been furnished by the respective directors and officers
individually.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee of the Board of Directors consists of three
directors, Messrs. Kachmar, McCartney and Raymond and has substantially all of
the powers of the Board of Directors, except those required by law to be
exercised by the Board of Directors. The Audit Committee of the Board of
Directors consists of three directors, Messrs. Beatty, Douglas and Murphy. The
Audit Committee reviews the Corporation's financial statements and audit
procedures and reports thereon to the Board of Directors. The Compensation
Committee consists of three directors, Messrs. Beatty, McCartney and Pralle. The
Compensation Committee considers and approves compensation, remuneration and
incentive arrangements for officers and senior employees of Campbell. The
Corporation does not have a nominating committee.
4
<PAGE> 6
CORPORATE GOVERNANCE
In December, 1994, The Toronto Stock Exchange (the "Exchange") Committee on
corporate governance in Canada released a report (the "Report") containing
guidelines for effective corporate governance for corporations listed on the
Exchange. The Report has been adopted by the Exchange and corporations listed on
the Exchange are required to disclose their corporate governance practices and
to provide an explanation where those practices differ from the guidelines.
The Corporation's Board of Directors (the "Board") is currently comprised of
nine persons including seven directors who are not officers or employees of the
Corporation and are unrelated to management. The Chairman and the President and
Chief Executive Officer are the remaining members of the Board. As recommended
by the Report, the positions of Chairman of the Board and Chief Executive
Officer are separate. Accordingly, a majority of the Board is unrelated to
management and is in a position to review and evaluate management's activities
and to act independently of management.
The Board is empowered by the Corporation's incorporating documents and by-laws
to manage, or supervise the management of the affairs and business of the
Corporation. The Board is not involved in the day-to-day activities of the
Corporation. The Board performs its functions through quarterly and special
meetings and has delegated certain of its responsibilities to those committees
described above under "Committees of the Board of Directors".
The Report recommends that committees of the Board be comprised of persons who
are not officers or employees of the Corporation. The Audit and Compensation
Committees are comprised of non-management persons. However, the Board has
determined that due to the technical nature of the Corporation's business, its
Executive Committee would be more effective by having the President and Chief
Executive Officer on that Committee. Unless specifically directed by the Board,
the Executive Committee may not approve capital expenditures or dispositions or
borrowing other than in the ordinary course of carrying out the Corporation's
business, in excess of $3,000,000. In practice, the Executive Committee does not
give final approval to transactions but rather makes its recommendations to the
full Board.
The Board itself has assumed general responsibility for development and
monitoring of corporate governance issues.
The Board is actively involved in establishing corporate strategies and
monitoring achievement thereof including optimization of performance of the
Corporation's current operations and achieving growth through acquisitions. The
Board monitors the performance of current mining operations through receipt of
monthly reports, the holding of quarterly meetings and its review and approval
of an annual financial forecast presented by management. Consideration and
approval of an acquisition of mining properties or other companies is carried
out by the full Board. Outside consultants and professionals are engaged and
report to the Board as required.
5
<PAGE> 7
The Board has identified the principal risks associated with the Corporation's
business. These risks and the steps taken to minimize such risks are reviewed on
an ongoing basis at the regularly scheduled quarterly meetings of the Board.
In 1990, the Board adopted an Environmental Policy, as recommended by the Mining
Association of Canada, which is administered at each site by an environmental
committee comprised of the President and Chief Executive Officer, the General
Manager and the environmental officer of the site. The President and Chief
Executive Officer reports to the Board on a quarterly basis which enables the
Board to monitor the effectiveness of compliance with environmental policy.
The Board also approves a Treasury and Investment Policy which governs
investment of the Corporation's cash and foreign exchange and currency hedging.
Compliance with this policy is reviewed by the Board and the Audit Committee on
a quarterly basis.
The Board has delegated responsibility for communication with the public and the
Corporation's shareholders to its Vice President, Secretary and General Counsel
and its Manager of Investor Relations. Procedures are in place to ensure timely
dissemination of information about the Corporation. Any significant shareholder
concerns which may be communicated to the above persons are communicated to the
Board at its regularly scheduled quarterly meetings.
The responsibility of monitoring the effectiveness of the Corporation's internal
financial information systems has been delegated to the Vice President, Finance
who reports to the Board on a quarterly basis. The duty of monitoring the
technical affairs of the Corporation falls to the President and Chief Executive
Officer who is a member of the Board and of the environmental committees.
A program for succession of management and training has not been adopted. Given
the availability of trained mining industry personnel in Canada and the size of
the Corporation, management personnel who are already trained are engaged as
required to fill vacancies.
The Corporation does not have a standing nominating committee for directors nor
does it have an ongoing process for the training or evaluation of performance of
directors, as recommended by the Report. The Corporation is a medium sized
company which is still in a growth stage and accordingly, a variety of
technical, legal and financial experience at the Board level is important. When
it is determined that additional expertise is required on the Board, a number of
candidates are considered and the full Board meets with a proposed nominee. The
decision to nominate or appoint an additional director is taken by the Board as
a whole. In August, 1996, in order to add technical expertise to the Board,
given extensive development projects being undertaken by the Corporation, Mr.
Graham G. Clow, an experienced mining engineer, was appointed a director
following the above process.
6
<PAGE> 8
The performance of the management team is reviewed annually by the Compensation
Committee in the context of the Corporation's success in meeting its objectives
which are established as part of the review of the annual financial forecast.
This Committee is comprised solely of non-management members being the Chairman
and two independent directors. The philosophy of the Compensation Committee is
stated below under "Report on Executive Compensation". In addition, the
Compensation Committee periodically reviews the compensation paid to members of
the Board and makes recommendations to the Board on compensation of directors.
COMPENSATION OF DIRECTORS
All directors of the Corporation receive an annual director's fee of
$6,000 and an attendance fee of $750 per meeting and out-of-pocket expenses
relating to attendance at a board or committee meeting. The Corporation paid
aggregate remuneration of $140,250 to the 9 incumbent directors and 1 former
director in their capacities as such during the fiscal period ended December 31,
1996.
In 1996, the Corporation purchased directors' and officers' liability
insurance with a liability limit of $10,000,000 for which the Corporation paid
an annual premium of $57,780 in 1996. The policy contains a deductible clause of
$250,000 payable by the Corporation.
In 1996, the Corporation entered into an agreement with Mr. Francis S.
O'Kelly, a director of the Corporation, pursuant to which Mr. O'Kelly agreed to
provide consulting services to the Corporation on a part-time basis for a
monthly fee of US$1,500. Pursuant to this agreement, the Corporation paid Mr.
O'Kelly US$18,000 in 1996.
In 1996, the Corporation continued to engage the law firm McCarthy
Tetrault of which James C. McCartney, Q. C., a director and chairman of the
Corporation, is a senior partner to provide legal advice to the Corporation. An
aggregate of $149,000 was paid to McCarthy Tetrault for legal services in 1996.
DIRECTORS' STOCK OPTION PLAN
At December 31, 1996, options to acquire an aggregate of 3,700,000
Common Shares were outstanding under the Directors' Stock Option Plan.
During 1996, options to acquire an aggregate of 1,050,000 Common Shares
exercisable between $1.26 and $1.48 per share were granted. During the year, two
directors exercised options to acquire an aggregate of 130,000 Common Shares at
$0.57 per share.
EXECUTIVE COMPENSATION
The following table (presented in accordance with the regulation (the
"Regulation") made under the Securities Act (Ontario)) sets forth all annual and
long-term compensation for services
7
<PAGE> 9
in all capacities to the Corporation and its subsidiaries for the fiscal years
ended December 31, 1996, 1995 and 1994 (to the extent required by the
Regulation) in respect of the individuals who were at December 31, 1996, the
Chief Executive Officer and the other most highly compensated individuals who
were serving as executive officers of the Corporation and whose total salary and
bonus exceeded $100,000 (the" Named Executive Officers"):
SUMMARY COMPENSATION TABLE
================================================================================
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- ------------------------------------
Awards Payouts
------------------------- -------
Securities
Under Restricted
Other Options/ Shares or
Annual SARs Restricted LTIP All Other
Name and Salary Bonus Compensation granted Share Units Payouts Compensation
Principal Position Year ($) ($) ($)(3) (#) ($) ($) ($)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John O. Kachmar 1996 225,000 200,000 -- 450,000 Nil Nil 18,000(4)
President & Chief 1995 225,000 170,000(1) -- -- Nil Nil 12,500(4)
Executive Officer 1994 225,000 89,000(2) -- 300,000 Nil Nil 9,500(4)
- - ------------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray 1996 115,000 56,500 -- 150,000 Nil Nil 3,000(4)
Vice President, 1995 115,000 52,500 (1) -- -- Nil Nil Nil
Secretary & General 1994 100,000 19,692 (2) -- 200,000 Nil Nil 5,500(4)
Counsel
- - ------------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland 1996 115,000 56,500 -- 150,000 Nil Nil Nil
Vice President, Finance 1995 106,000 52,500(1) -- -- Nil Nil Nil
1994 27,000(5) 2,000(5) -- 150,000 Nil Nil Nil
- - ------------------------------------------------------------------------------------------------------------------------------------
Gary A. Cohoon 1996 115,000 31,500 -- 100,000 Nil Nil Nil
Vice President, 1995 106,000(6) 2,100 -- 150,000 Nil Nil Nil
Exploration 1994 -- -- -- -- Nil Nil Nil
====================================================================================================================================
</TABLE>
Notes:
(1) Of the $170,000 bonus paid to Mr. Kachmar, $40,000 was paid in cash and
the balance paid through the issuance of 50,000 Common Shares issued
net of income tax. Of the $52,500 bonuses paid to each of Ms.
MacGillivray and Mr. Ireland, $20,000 was paid in cash and the balance
through the issuance of 12,500 Common Shares issued net of income tax.
(2) Of $89,000 bonus paid to Mr. Kachmar, $15,000 was paid in cash and the
balance paid through the issuance of 50,000 Common Shares issued net of
income tax. Of the $19,692 bonus paid to Ms. MacGillivray, $8,000 was
paid in cash and the balance through the issuance of 7,900 Common
Shares issued net of income tax.
(3) Perquisites and other personal benefits for the Named Executive
Officers did not exceed
8
<PAGE> 10
the lesser of $50,000 and 10% of total annual salary and bonus.
(4) Represents director's fees.
(5) Represents compensation for the period from September 26, 1994 when Mr.
Ireland joined the Corporation until December 31, 1994.
(6) Includes compensation in all capacities for the full year. Mr. Cohoon
became an executive officer on November 13, 1995.
The following table (presented in accordance with the Regulation) sets
forth stock options granted under the Share Option Plan (the "Option Plan")
portion of the Employee Incentive Plan, during the fiscal year ended December
31, 1996 to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
================================================================================
<TABLE>
<CAPTION>
% of Total
Options/SARs Market Value of
Securities Under Granted to Exercise Securities Underlying
Options/SARs Employees or Base Price Options/SARs on Date Expiration
Name Granted($)(1) in Fiscal Year ($/Security)(3) of Grant ($/Security) Date
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John O. Kachmar 350,000(1)(2) 19% 1.48 1.48 15/08/2001
President and CEO
- - ----------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray 150,000(1) 8% 1.48 1.48 15/08/2001
Vice President, Secretary
and General Counsel
- - ----------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland 150,000(1) 8% 1.48 1.48 15/08/2001
Vice President, Finance
- - ----------------------------------------------------------------------------------------------------------------------------------
Gary A. Cohoon 100,000(1) 5% 1.48 1.48 15/08/2001
Vice President, Exploration
====================================================================================================================================
</TABLE>
Notes:
(1) These options were granted on August 14, 1996 and are for a term of 5
years. The options are exercisable as to 25% immediately with 25%
becoming exercisable cumulatively on each of the first, second and
third anniversary date of the grant.
(2) Excludes options to acquire 100,000 Common Shares granted during 1996
under the Directors' Stock Option Plan.
(3) The exercise price represents the average of the closing prices of the
Corporation's Common Shares on The Toronto Stock Exchange during the
five days prior to the date of grant.
9
<PAGE> 11
The following table (presented in accordance with the Regulation) sets
forth information concerning the exercise of stock options and SAR's by Named
Executive Officers in 1996 and the number and the unrealized value of
exercisable and unexercisable stock options held by Named Executive Officers at
December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL
YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
================================================================================
<TABLE>
<CAPTION>
Securities, Aggregate Unexercised
Acquired Value Options/SARs at Value of Unexercised in-
on Exercise Realized FY-End (#) the-Money Options/SARs at FY-
Name (#) ($) Exercisable/Unexercisable End ($) Exercisable/Unexercisable
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John O. Kachmar Nil Nil 1,037,500(1)/312,500 $260,000(1)/34,000
President and CEO
- - --------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray 38,820(2) $107,000(2) 237,500/162,500 $ 56,500/34,000
Vice President, Secretary
and General Counsel
- - --------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland Nil Nil 150,000/150,000 $ 76,500/25,500
Vice President, Finance
- - --------------------------------------------------------------------------------------------------------------------------------
Gary A Cohoon Nil Nil 137,500/187,500 $ 22,750/22,750
Vice President,
Exploration
================================================================================================================================
</TABLE>
Note:
(1) Includes options granted under the Directors' Stock Option Plan to
acquire 100,000 Common Shares exercisable at $0.57 share, 200,000
Common Shares at $1.10 per share and 100,000 Common Shares at $1.48 per
share.
(2) Represents the deemed value of 100,000 Common Shares at a market value
of $1.64 per share, less the exercise price of $0.57 per share. After
tax withheld by the Corporation, 38,820 Common Shares were issued at
$1.64 per share.
EMPLOYEE INCENTIVE PLAN
The Corporation maintains an Employee Incentive Plan consisting of the
Share Purchase Plan, the Share Option Plan, the Share Bonus Plan and the Share
Loan Plan. Directors who are not officers do not participate in the Employee
Incentive Plan.
SHARE OPTION PLAN
The Share Option Plan is intended to promote the interests of Campbell
and its shareholders by making provisions for stock options as an additional
incentive to attract, retain and motivate officers and salaried employees.
Grants are made at the discretion of the Board of Directors or a committee of
the board comprised of members, a majority of whom are not eligible to
participate in the Plan (the
10
<PAGE> 12
"Compensation Committee"). The Board of Directors or the Compensation Committee
may, in its discretion, determine which officers or employees will be granted
options, the number of Common Shares to be the subject of each option, the
purchase price of such shares and the duration of the options, which may not
exceed five years. The Board of Directors or the Compensation Committee may also
impose other terms and conditions respecting any option granted as it may
consider appropriate or necessary.
Freestanding "SARs" are not provided for under the Share Option Plan.
The options may, at the discretion of the Board of Directors or the Compensation
Committee, be accompanied by SARs which entitle the holder to elect to terminate
his or her options, in whole or in part and, in lieu of receiving the Common
Shares ("Option Shares") to which the terminated options relate, elect to
receive that number of Common Shares, disregarding fractions, which have a total
value equal to the product of the number of Option Shares times the difference
between the fair value (at the date of such election) and the option price per
share of the Option Shares, less any amount withheld on account of income taxes,
which income taxes will be remitted on the employee's behalf by the Corporation.
All currently outstanding options are accompanied by SARs.
During 1996, options to purchase 750,000 Common Shares were granted
under the Share Option Plan to four officers who are Named Executive Officers
defined under the Regulation and options to purchase 1,100,000 Common Shares
were granted to employees and officers who are not Named Executive Officers.
These options are exercisable at $1.48 per share and are exercisable as to 25%
immediately, with a further 25% becoming exercisable cumulatively on each of the
first, second and third anniversary dates and are accompanied by SARs. All of
the options were granted for a term of five years.
During 1996, one Named Executive Officer exercised SAR's attached to
options to acquire 100,000 Common Shares to acquire 38,820 Common Shares (see
table on page 10) and employees who were not Named Executive Officers exercised
options to acquire an aggregate of 560,000 Common Shares for an aggregate
consideration of $517,950.
As at December 31, 1996, a total of 3,475,000 Common Shares were
issuable upon exercise of options under the Plan including 1,975,000 Common
Shares issuable upon exercise of options held by the four Named Executive
Officers. Such options are exercisable at exercise prices ranging from $0.57 to
$1.48 per share. These options expire between August 17, 1998 and August 15,
2001.
SHARE PURCHASE PLAN
The Share Purchase Plan is designed to encourage employees of Campbell
to purchase Common Shares on a regular basis. Employees of Campbell who have
been continuously employed by Campbell for at least one year, or less at the
discretion of the Compensation Committee or the Board of Directors, are eligible
each January 1 to participate in the Share Purchase Plan. Each eligible employee
may contribute up to 5% of his or her basic salary to the Share Purchase Plan
through monthly deductions. On a quarterly basis, Campbell will contribute an
amount equal to 50% of the employee's contributions to such date and each
participating employee will then be issued Common Shares having a value equal to
the aggregate amounts contributed by such employee and Campbell. In 1996, 5,886
Common Shares
11
<PAGE> 13
were issued to Lorna D. MacGillivray in respect of which Campbell contributed
$2,875 and 5,887 Common Shares were issued to Gary A. Cohoon in respect of which
Campbell contributed $2,875 and 37,449 Common Shares were issued to employees
who are not Named Executive Officers in respect of which Campbell contributed
$18,381 pursuant to the Share Purchase Plan.
SHARE BONUS PLAN
The Share Bonus Plan is intended to promote the interests of Campbell
and its shareholders by permitting the Board of Directors or the Compensation
Committee, in its discretion, to issue Campbell Common Shares to full-time
salaried employees of Campbell as a bonus in recognition of services provided to
Campbell by such employee. The issue of Common Shares to such employee may be
subject to such terms and conditions as are determined by the Board of Directors
or the Compensation Committee. During 1996, no Common Shares were issued
pursuant to the Share Bonus Plan.
SHARE LOAN PLAN
The Share Loan Plan is intended to provide an additional incentive to
motivate full time officers who will make important contributions to the success
of Campbell by assisting such persons to acquire shares of the Corporation. The
Compensation Committee may in its discretion make loans to full time officers of
the Corporation. Such loans shall be subject to such terms and conditions
including rates of interest, if any, as the Compensation Committee may consider
appropriate. During 1996, no loans were granted and no loans are outstanding
under the Share Loan Plan.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
No directors or officers of the Corporation are indebted to the
Corporation.
PENSION PLAN
The Corporation has a defined benefit pension plan (the "Pension Plan")
available on a voluntary basis to all employees of the Corporation and its
subsidiaries other than those who are subject to the provisions of a collective
agreement. The Pension Plan provides a pension equal to 2% of the average annual
salary not including bonuses and other compensation during the three most highly
paid years for each year of credited service subject to the maximum benefit
limitation applicable to registered pension plans under the Income Tax Act
(Canada). Benefits under the Pension Plan vest after two years. Early retirement
is permitted after age 55, subject to reductions. The Pension Plan also provides
that certain members may be designated as "Class A" non-contributory members.
Head office and certain senior employees have been designated as "Class A"
non-contributory members.
The following table sets forth the benefits calculated under the
Pension Plan at various salary levels and years of employment on the assumption
such benefits become payable upon retirement at age
12
<PAGE> 14
sixty-five. Benefits under the Pension Plan are not reduced by social security
or other offset amounts. The payment of such benefits is subject to the maximum
benefit limitation applicable to registered pension plans under the Income Tax
Act (Canada) which currently is $1,722 for each year of service.
PENSION PLAN TABLE
================================================================================
<TABLE>
<CAPTION>
Years of Service
-------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000 $30,000 $40,000 $50,000 $60,000 $70,000
- - ----------------------------------------------------------------------------------------------------------------------
125,000 37,500 50,000 62,500 75,000 87,500
- - ----------------------------------------------------------------------------------------------------------------------
150,000 45,000 60,000 75,000 90,000 105,000
- - ----------------------------------------------------------------------------------------------------------------------
175,000 52,500 70,000 87,500 105,000 122,500
- - ----------------------------------------------------------------------------------------------------------------------
200,000 60,000 80,000 100,000 120,000 140,000
======================================================================================================================
</TABLE>
The Chief Executive Officer does not participate in the Pension Plan.
Ms. MacGillivray had 3.4 years of credited service under the Pension Plan at
December 31, 1996. No other Named Executive Officer participates in the Plan.
EMPLOYMENT CONTRACTS
On August 1, 1993, the Corporation entered into an employment agreement
with Mr. Kachmar as President and Chief Executive Officer. The agreement
stipulates, among other things, a base salary of $285,000 per annum effective
January 1, 1997. On December 1, 1994, Mr. Kachmar's agreement was amended to
provide that in the event that Mr. Kachmar's employment is terminated, he will
be entitled to be paid up to thirty-six months' salary and benefits. In the
event of a change of control, as defined, Mr. Kachmar will be entitled to resign
within six months thereof and be paid thirty-six months' salary and benefits.
The amendment also provides that in the event of resignation or termination,
options held by Mr. Kachmar will immediately become fully exercisable. Such
options will expire ninety days after resignation or termination.
On August 1, 1993, the Corporation entered into an employment agreement
with Ms. MacGillivray as Vice President, Secretary and General Counsel. The
agreement stipulates among other things, a base salary of $130,000 per annum
effective January 1, 1997. On December 1, 1994, Ms. MacGillivray's agreement was
amended to provide that in the event that Ms. MacGillivray's employment is
terminated, she will be entitled to be paid up to twenty-four months' salary and
benefits. In the event of a change of control, as defined, Ms. MacGillivray will
be entitled to resign within six months thereof and be paid twenty-four months'
salary and benefits. The amendment also provides that in the event of
resignation or termination, options held by Ms. MacGillivray will immediately
become fully exercisable. Such options will expire ninety days after resignation
or termination.
On October 1, 1994, the Corporation entered into an employment
agreement with Mr. Paul J.
13
<PAGE> 15
Ireland as Vice President, Finance. The agreement stipulated a base salary of
$130,000 effective January 1, 1997. On December 10, 1996, Mr. Ireland's
agreement was amended to provide that in the event that his employment is
terminated, he will be entitled to be paid up to twenty-four months' salary and
benefits. In the event of a change of control, as defined, Mr. Ireland will be
entitled to resign within six months thereof and be paid twenty-four months'
salary and benefits. The amendment also provides that in the event of
resignation or termination, options held by Mr. Ireland will immediately become
fully exercisable. Such options will expire ninety days after resignation or
termination.
COMPOSITION OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors considers and
approves compensation, remuneration and incentive arrangements for directors,
officers and senior employees of the Corporation. The members of the
Compensation Committee are James C. McCartney, Q.C. (Chairman), James D. Beatty
and G. E. "Kurt" Pralle. Mr. McCartney is Chairman of the Corporation and he is
also Chairman of the Compensation Committee. Mr. McCartney is a senior partner
with the law firm McCarthy Tetrault which provides legal advice to the
Corporation. Neither Mr. Beatty nor Mr. Pralle is, nor was, at any time, an
officer or employee of the Corporation or any of its subsidiaries. The Committee
held its first meeting on February 28, 1994, at which an executive compensation
philosophy and policy, to be followed by the Committee in its future
consideration of executive compensation and incentive arrangements, was
approved.
EXECUTIVE COMPENSATION PHILOSOPHY AND POLICY
The Corporation's Executive Compensation Policy is primarily based on a
pay for performance philosophy. The main objective of the policy is the
alignment of all financial reward systems with shareholder interests. The
compensation structure must also reflect the Corporation's current financial
position and the scope of its operations. As a consequence, a heavy emphasis is
placed on the long-term business objectives of creating wealth, decreasing risk
by expanding operations, and providing returns to the Corporation's
shareholders.
The particular elements of the executive compensation program for
senior executives of the Corporation, designed to encourage, compensate and
reward employees on the basis of individual and corporate performance, may be
summarized as follows:
- BASE SALARY The program is designed to attract and retain executive
officers by delivering a competitive rate of base pay. Market
competitive rates will be determined by comparison with average
compensation levels of comparable mining companies. It is believed that
the average pay of these companies is a reasonable reference point from
which to target and manage base pay, while recognizing the need for
executive level experience and skills in the current phase which will
further the Corporation's achievement of its growth objectives.
- ANNUAL INCENTIVE COMPENSATION The Corporation currently does not
offer a short-term variable pay or incentive plan but may in future
implement an annual incentive plan. The Corporation's
14
<PAGE> 16
Employee Incentive Plan has a Share Bonus Plan component which may be
used to provide annual incentive compensation. The use of this plan can
combine both short and longer term incentives and, through increased
shareholding, would also align the interests of executive officers with
those of the Corporation's shareholders. Grants of annual bonuses would
be based on the employee's contribution towards the Corporation's
success in meeting its goals.
- STOCK OPTION PROGRAMS The Corporation strongly believes that by
providing those persons who have substantial responsibility for the
management and growth of the Corporation with an opportunity to acquire
the Corporation's stock, the interests of shareholders and executives
will be increasingly aligned. The number of stock options that will be
granted to executive officers will be based on competitive practices of
comparable mining companies and will reflect an emphasis on long-term
performance awards. Options will generally become exercisable gradually
over their term and will generally be for a five-year term.
REPORT ON EXECUTIVE COMPENSATION
In August, 1996, the Compensation Committee approved the granting of
additional stock options to executive officers of the Corporation under the
Employee Incentive Plan. In approving this grant of additional options, the
Committee took into account the number, terms and pricing of previously
outstanding options and the employee's level of responsibility and potential
contribution to the Corporation's achieving its long-term goals.
The Committee also reviewed and recommended the granting of additional
options to directors under the Directors' Stock Option Plan at its August
meeting.
Base salary and annual incentive compensation of senior executives were
reviewed by the Committee on December 9, 1996. Corporate performance relative to
1996 objectives was reviewed and the market performance of the Corporation's
Common Shares was compared to key market indices. The Committee also reviewed
the compensation arrangements of a peer group of five Canadian based gold
producers of similar size and circumstance. The recommendations of John O.
Kachmar, the Corporation's Chief Executive Officer, were taken into account by
the Committee.
During this review, the Committee considered the appropriate balance
between the three components of executive compensation: base salary, annual
incentive compensation and long-term incentives. While base salaries were
increased, the cash compensation of executive officers was maintained in the
lower half of the peer group levels.
CHIEF EXECUTIVE OFFICER COMPENSATION
In considering compensation of the Chief Executive Officer, the
Committee reviewed the Chief Executive Officer's performance in establishing and
pursuing a strategic direction for the Corporation; building and maintaining a
sound management team; providing leadership and implementing a course of action
to achieve the Corporation's goals and objectives, taking the necessary actions
to ensure that the
15
<PAGE> 17
Corporation is profitable and pursuing all growth opportunities.
In addition, the Committee considered the Chief Executive Officer's
contribution to the achievement of the Corporation's 1996 objectives. The Chief
Executive Officer's contribution in this area represented the most important
factor in the grant of the annual incentive award as set out in the Summary
Compensation Table. The Chief Executive Officer's compensation package was
compared to the peer group levels as discussed above. Both Mr. Kachmar's base
salary and annual incentive are in the lower half of the peer group levels. Mr.
Kachmar's base salary, which was established when he joined the Corporation in
August, 1993 and his annual incentive award were increased to ensure that his
compensation remains competitive with those of peer group companies.
March 13, 1997 COMPENSATION COMMITTEE
James D. Beatty
James C. McCartney, Q.C.
G. E. "Kurt" Pralle
SHAREHOLDER RETURN PERFORMANCE GRAPH
The chart below (as required by the Regulation) compares the yearly
percentage change in the cumulative total shareholder return on the
Corporation's Common Shares against the cumulative total shareholder return of
The TSE 300 Stock Index for the five fiscal year periods commencing December 31,
1991 and ending December 31, 1996.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
BETWEEN CAMPBELL RESOURCES INC. AND THE TSE 300 INDEX
[LINE GRAPH]
<TABLE>
<CAPTION>
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
CCH Stock Price 100 82.61 191.3 167.39 286.96 271.74
TSE 300 Composite 100 98.57 130.65 130.42 149.37 191.71
</TABLE>
*$100 INVESTED ON 12/31/91 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
16
<PAGE> 18
APPOINTMENT OF AUDITORS
(ITEM NO. 3 OF NOTICE OF MEETING)
UNLESS SUCH AUTHORIZATION IS WITHHELD, THE PERSONS NAMED IN THE
ENCLOSED FORM OF PROXY INTEND TO VOTE AT THE MEETING FOR THE RE-APPOINTMENT OF
KPMG, CHARTERED ACCOUNTANTS, AS AUDITORS OF THE CORPORATION TO HOLD OFFICE UNTIL
THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND TO AUTHORIZE THE BOARD OF DIRECTORS
TO FIX THEIR REMUNERATION. Representatives of KPMG are expected to be present at
the Meeting and will have the opportunity to make statements if they so desire
and will be available to respond to appropriate questions.
OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
Management does not know of any matters to be presented to the Meeting
other than those specifically set forth in the Notice of Annual Meeting of
Shareholders. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING AND ARE
SUBMITTED TO A VOTE, ALL PROXIES WILL BE VOTED IN ACCORDANCE WITH THE BEST
JUDGMENT OF THE PERSONS NAMED THEREIN.
PROPOSALS BY SHAREHOLDERS
Pursuant to the Canada Business Corporations Act (the "Act"),
resolutions intended to be presented by shareholders for action at the 1998
Annual Meeting must comply with the provisions of the Act and be deposited at
the Corporation's head office not later than January 24, 1998 in order to be
included in the Proxy Circular and form of proxy relating to such Meeting.
SOLICITATION OF PROXIES
The Corporation will bear the cost of this proxy solicitation. The
Corporation will reimburse banks, brokerage firms and other custodians, nominees
and fiduciaries for reasonable expenses incurred by them in sending proxy
material to beneficial owners of Common Shares and requesting authority to
execute proxies. In addition to the use of the mails, proxies may be solicited
by telephone or facsimile and in person, by the directors, officers and regular
employees of the Corporation, none of whom will receive any extra compensation
therefor.
MISCELLANEOUS
The Corporation files with the United States Securities and Exchange
Commission an annual report on Form 10-K containing certain information with
respect to the Corporation and its business and properties, including financial
statements and related schedules. A copy of this Form 10-K will be filed with
Canadian securities commissions in lieu of an Annual Information Form. Upon the
written request of any beneficial owner of the Corporation's Common Shares, the
Corporation will mail to such owner, without charge, a copy of its Form 10-K for
the fiscal year ended December 31, 1996. Requests for copies of the Form 10-K
should be addressed to:
Manager, Investor Relations
Campbell Resources Inc.
120 Adelaide Street West, Suite 1910
Toronto, Ontario, Canada M5H 1T1
17
<PAGE> 19
APPROVAL BY DIRECTORS
The Board of Directors of the Corporation has approved the contents of
this Proxy Circular and has approved its being sent to shareholders.
By Order of the Board of Directors
/s/ Lorna D. MacGillivray
---------------------------------------------
Lorna D. MacGillivray
Vice President, Secretary and General Counsel
Dated: March 13, 1997
18
<PAGE> 20
FORM OF PROXY CAMPBELL RESOURCES INC.
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND THE BOARD OF
DIRECTORS FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON THURSDAY,
APRIL 24, 1997.
The undersigned shareholder of CAMPBELL RESOURCES INC. (the
"Corporation") hereby nominates, constitutes and appoints James C. McCartney or,
failing him, John O. Kachmar, or failing him, Lorna D. MacGillivray, or, instead
of any of them _______________________________________________________ lawful
attorney and proxy of the undersigned, with full power of substitution to vote
in respect of all common shares held by the undersigned at the above noted
meeting or any and all adjournments thereof in the following manner:
1. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the election of the
directors.
2. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the appointment of KPMG
as auditors for the coming year and authorizing the directors to fix
remuneration.
3. Upon such other matters (none known at the time of solicitation of this
proxy) as may properly be brought before the Meeting or any and all
adjournments thereof.
The shares represented by this proxy will be voted as directed by the
shareholder. IF NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE
ELECTION OF ALL NOMINEES AS DIRECTORS, AND FOR THE APPOINTMENT OF KPMG AS
AUDITORS. THE PROXY CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO AMENDMENTS
OR VARIATIONS TO THE MATTERS IDENTIFIED IN THE nOTICE OF MEETING AND ANY OTHER
matters which may prOPERLY COME BEFORE THE MEETING.
YOU HAVE THE RIGHT TO APPOINT ANY PERSON (WHO NEED NOT BE A
SHAREHOLDER) TO ATTEND AND ACT ON YOUR BEHALF AT THE MEETING. IF YOU DESIRE TO
EXERCISE SUCH RIGHT, STRIKE OUT THE NAMES OF THE BOARD'S NOMINEES AND INSERT THE
NAME OF SUCH OTHER PERSON IN THE BLANK SPACE PROVIDED.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and the Proxy Circular.
Dated this day of , 1997.
- - ----------------------------------------
Signature of Holder
This form of proxy must be dated and signed exactly as your name
appears herein. When signing in a fiduciary or representative capacity, please
give full title as such. In the case of joint shareholders, each must sign.
Proxies from a corporation must be signed under corporate seal by an officer
thereof, or by an attorney thereof duly authorized in writing.
If this proxy is not dated in the space above, it will be deemed to
bear the date on which it is mailed by management.
<PAGE> 1
EXHIBIT 21.1
CAMPBELL RESOURCES INC.
SIGNIFICANT SUBSIDIARIES
December 31, 1996
The following signficant subsidiaries are consolidated in the financial
statements submitted as a part of this report:
Jurisdiction of Percentage of
Incorporation Voting
Securities
Owned
Controlled by Campbell:
Meston Resources Inc. Quebec 100%
Sotula Gold Corp. Canada 100%
Controlled by Campbell & Sotula Gold Corp. Mexico 100%
Oro de Sotula, S.A. de C.V.
Controlled by Meston Resources Inc.
Minera Cerro Quema, S.A. Panama 100%
<PAGE> 1
(KPMG LOGO)
CHARTERED ACCOUNTANTS
Securities and Exchange Commission
450 Fifth St. North West
Washington, DC 20259
U.S.A.
March 26, 1997
We hereby consent to the inclusion in the Annual Report on Form 10-K of Campbell
Resources Inc. (the "Corporation") for the year ended December 31, 1996 of our
report dated February 21, 1997 which appears under Item 14 of the aforementioned
Annual Report on Form 10-K, as amended.
KPMG
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted rom the
consolidated balance sheets, consolidated statements of income and consol-
dated statements of cash flows and is qualified in its entirety by reference to
such financial staements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 55,302
<SECURITIES> 0
<RECEIVABLES> 8,270
<ALLOWANCES> 0
<INVENTORY> 9,143
<CURRENT-ASSETS> 73,455
<PP&E> 149,879
<DEPRECIATION> 59,307
<TOTAL-ASSETS> 165,298
<CURRENT-LIABILITIES> 7,935
<BONDS> 7,657
0
0
<COMMON> 118,605
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 165,298
<SALES> 67,180
<TOTAL-REVENUES> 67,180
<CGS> 44,501
<TOTAL-COSTS> 60,514
<OTHER-EXPENSES> 92
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 661
<INCOME-PRETAX> 9,600
<INCOME-TAX> 588
<INCOME-CONTINUING> 9,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,012
<EPS-PRIMARY> 0.062
<EPS-DILUTED> 0.062
</TABLE>
