<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, 1997
[ ] 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 Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Adelaide Street West, Suite 1910, Toronto, Ontario M5H 1T1 Not Applicable
- -------------------------------------------------------------- --------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (416) 366-5201
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Shares New York Stock Exchange
Common Share Purchase Warrants New York Stock Exchange
</TABLE>
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 / /
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 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]
At March 27, 1998, the registrant had outstanding 152,462,861 common shares,
without nominal or par value, the only class of registrant's stock outstanding.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates at such date was US$66,511,311 (based on the closing price of
such common share of US$0.4375 on such date as reported on the New York Stock
Exchange, Inc. composite listings.)
<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 May 19, 1998 are incorporated by reference
into Part III of this report and certain portions of the 1997 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 10-K.
<PAGE> 3
CAMPBELL RESOURCES INC.
Index
Annual Report on Form 10-K for
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Items 1. and 2. Business and Properties.................................................. 2
Item 3. Legal Proceedings........................................................ 23
Item 4. Submission of Matters to a Vote of
Security Holders......................................................... 23
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.......................................... 23
Item 6. Selected Financial Data.................................................. 24
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations......................... 24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............... 24
Item 8. Financial Statements and Supplementary
Data..................................................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 24
PART III
Item 10. Directors and Executive Officers
of the Registrant........................................................ 25
Item 11. Executive Compensation................................................... 26
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................................... 26
Item 13. Certain Relationships and Related Transactions........................... 26
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................................. 27
</TABLE>
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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>
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
1997 0.6999 0.7198 0.7487 0.6961
</TABLE>
(1) The average rate means the average of the exchange rates on the last
day of each month during the year.
On March 27, 1998, the noon buying rate for Cdn. $1.00 was US $0.7069.
TONNAGES referred to in this report 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; hectares, equal to
2.471 acres; or square miles equal to 640 acres or 258.99 hectares.
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.
Cautionary "Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995.
This report contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the safe-harbor created by such section. Such forward-looking statements
concern the Corporation's operations, economic performance and financial
condition. Such statements involve known and unknown risks, uncertainties and
other factors, including those identified under the "Risk Factors" section in
Items 1 and 2 and elsewhere in this report, that may cause the actual results,
performance or achievements of the Corporation, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to: differences between estimated and actual ore reserves
and recovery rates; failure of plant, equipment or processes to operate in
accordance with expectations and specifications; changes to exploration,
development and mining plans due to prudent reaction of management to ongoing
exploration results, engineering and financial concerns; environmental costs;
and fluctuations in gold price which affect the profitability and ore reserves
of the Corporation. These risks and uncertainties are the normal risks involved
in mining. Readers are cautioned not to put undue reliance on forward-looking
statements. See "Risk Factors", and elsewhere in Items 1 and 2, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7". The forward-looking statements are made as of the date
of this report, and the Corporation assumes no obligation to update the
forward-looking statements or to update the reasons why actual results could
differ from those projected in the forward-looking statements.
<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 11 to the Corporation's consolidated financial statements for the year
ended December 31, 1997. Such financial statements are filed as a part of Item
14 of this report.
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 which is 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. 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. 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. In
December 1997, mining, operations were suspended due to low gold prices and
insufficient developed ore reserves. Leaching operations will continue until the
level of gold production is uneconomic, currently estimated to be into the
second half of 1998. The Corporation continues to conduct an active gold
exploration programme on the Santa Gertrudis property focussed on identifying
additional ore reserves sufficient to permit mining operations to resume at a
rate that is economic at the then prevailing gold price. There can be no
assurance that gold prices will rise to a level or that sufficient ore reserves
will be discovered and developed that will make it economic to resume mining
operations.
2
<PAGE> 6
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. Cyprus held a 100% interest in the Cerro Quema Property
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 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 November 1996, a positive feasibility study, at an assumed gold
price of US$400 per ounce, 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 21, 1997. At the time of this approval, the Corporation
also paid to CEMSA the remaining US$250,000 cash and, 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.
In December 1997, as a consequence of sustained lower gold prices, the
Corporation decided to defer further development of Cerro Quema until the gold
price reaches a level that will ensure economic viability of the project. There
can be no assurance that such gold prices will be attained.
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 developed properties. It is evaluating a
number of such investment opportunities in North and South 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
3
<PAGE> 7
as they produce the same product, in a market where price and quality advantages
can not be claimed by any of the market participants.
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 approximately 354
persons as of December 31, 1997, of which 228 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 15.
During 1997 and 1996, 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 (described below), 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 December 1997, the Corporation concluded an agreement with the
National Union of Miners, Metallurgists and Similar Workers of the Mexican
Republic, which represented the 143 hourly employees at the Santa Gertrudis
Mine, with respect to the cessation of mining operations and termination of all
employees covered by the agreement.
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)
SOTULA GOLD CORP. 100% 100% MESTON RESOURCES INC.
(Canada) (Quebec)
Joe Mann Mine
Chibougamau Exploration Properties
Camchib Mill
100% 100%
ORO DE SOTULA, S.A. de C.V. MINERA CERRO QUEMA, S.A.
(Mexico) (Panama)
Santa Gertrudis Mine Cerro Quema Property
Exploration Properties
[ FLOW CHART ]
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).
5
<PAGE> 9
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 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 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. 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. 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. During 1997 and 1998, the shaft is being
deepened by 1,081 feet to a depth of 3,757 feet to permit six new levels to be
mined. This project is under budget and on schedule to be completed by
approximately June 1, 1998. (See "Mine Exploration and Development" on page 8).
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 pages 17 and 18, 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.
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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.
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.
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 and calculated as at December 31, 1997 on the basis of gold prices of
US$300 per ounce in 1998, US$325 in 1999 and US$375 thereafter and as at
December 31, 1996 and 1995, on the basis of gold prices of US$375:
PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
Grade Grade Grade
Tons (oz/ton) Tons (oz/ton) Tons (oz/ton)
<S> <C> <C> <C> <C> <C> <C>
Proven 489,931 0.239 515,522 0.277 664,000 0.264
Probable 63,486 0.232 211,869 0.245 210,840 0.295
------- ----- ------- ----- ------- -----
Total 553,417 0.238 727,391 0.268 874,840 0.272
======= ===== ======= ===== ========= =====
</TABLE>
The total diluted proven and probable mineable reserves at the Joe Mann
Mine decreased by 173,974 tons from 727,391 tons at December 31, 1996 to 553,417
tons at December 31, 1997. After taking into account production during 1997 of
266,439 tons grading 0.299 ounces per ton, the total diluted proven and probable
mineable reserves increased on a net basis during this period
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by 92,465 tons. The decrease from December 31, 1996 to 1997 reflects the
development of remaining known reserves above the 2350 foot level, the deepest
level currently accessible from the No. 2 production shaft. 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 1997, 18,513 feet of lateral
development and 103,670 feet of diamond drilling were completed at a cost of
approximately $4,871,000 net of deferred revenue from development ore. This
compares to 19,300 feet of lateral development and 192,300 feet of diamond
drilling completed during 1996 at a cost of $5,750,000. As a consequence of this
programme, continuity of gold mineralization has been confirmed to a depth of
3,700 feet, 1,350 feet below the current deepest production level of 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 1998 are
currently projected at $4,733,000 which will fund 24,915 feet of lateral
development and 72,000 feet of diamond drilling; however these capital
expenditures are currently being analysed, in light of sustained lower gold
prices, to determine whether any expenditures can be postponed without
negatively impacting future production. These activities will concentrate on
exploration of the West Zone and the main orebody above the 2350 foot level of
the mine.
The 1,081 foot deepening of the No. 2 production shaft to facilitate
the opening of six new production levels to a depth of 3,757 feet, was commenced
in December, 1996. The capital costs of the shaft deepening will be
approximately $13.5 million of which approximately $8.2 million had been
incurred up to December 31, 1997. The shaft deepening 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
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1650 foot level exploration drift. These holes encountered ore grade gold
mineralization down to depths of 3,600 feet and also confirmed that the West
Zone approaches the shaft at depth.
During 1997, three additional exploration drifts were commenced, along
the 1825, 2000 and 2175 foot levels, west of the No. 2 production shaft from
which approximately 30,000 feet of drilling was completed. The drill results to
date confirm the presence of ore-grade intersections. In order to confirm ore
continuity and conserve cash in view of lower gold prices, a decision was made
to suspend further development on the 2175 foot level for the time being. A
raise is being driven from the 1825 to the 1650 foot level in the centre of the
mineralization to enable further sampling and analysis of the continuity of the
West Zone. If the continuity is confirmed, similar raises will be completed
between the 2175, 2000 and 1825 foot levels to further examine the continuity of
the West Zone at depth. Based on the geology and results to date, management
continues to consider the potential of the West Zone to be good and is
optimistic that an economic orebody will be defined 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 1997, 68% of the ore came from the shrinkage stopes, 14% from longhole
stoping and 18% from development. The production capacity of the No. 2 shaft
system is estimated to be 2,000 tons per day assuming 12 hours of 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 production 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:
JOE MANN MINE
PRODUCTION SUMMARY
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Tons Milled 266,000 266,000 282,000
Gold Grade (oz./ton) 0.299 0.290 0.252
Copper Grade (%) 0.280 0.302 0.291
Gold Produced (ounces) 73,500 70,400 64,500
Copper Produced (000's lbs) 1,367 1,473 1,494
Cash Operating Costs (1)
(US$ per oz of gold) $ 264 $ 272 $ 284
</TABLE>
(1) Operating costs include smelting and refining charges, net of copper
and silver by-product credits.
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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 1997, the gold recovery rate at the Camchib Mill which processed
ore from the Joe Mann Mine was 93.9% and the copper recovery rate was 96.3%
compared to 93.2% and 96.3% respectively in 1996. The higher gold recovery rate
reflects the higher millhead grade and the mill circuit improvements made in
late 1994 and the continued subsequent refinements to the process. 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.
EMPLOYEES
At the Joe Mann Mine, 256 persons were employed as of December 31, 1997
of whom 174 were covered by a collective bargaining agreement with Le Syndicat
des Travailleurs-euses de la Mine Meston (CSN) with respect to the mine workers
and 27 were covered by a collective bargaining agreement with Les Metallurgistes
Unis d'Amerique (the United Steelworkers of America) with respect to mill
workers.
During 1997 and 1996, 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, 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, under which the
wage structure 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 ended December 31, 1997, $593,000 was paid to Repadre
under this agreement compared to $781,000 paid for the year ended December 31,
1996.
10
<PAGE> 14
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. See also page 2 for history of Santa
Gertrudis.
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.
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 Mine property was expanded by 28.2 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 100% interest
through staged payments aggregating a maximum of US$1,000,000 over a five year
period. During 1996, 6 square miles were added to the property through staking.
During 1997, one of the five option agreements entered into in 1995 was
exercised with total payments, including previous option payments, of
US$200,000. The claims acquired include the recently developed La Trinidad
deposit. Also during 1997, an additional 22.87 square miles were acquired
through staking and a lottery process. One claim acquired in 1995 was reduced in
size by 11.6 square miles after initial work had defined the ground with most
prospective interest. The present property consists of 45 claims comprising
23,678 hectares or 91.42 square miles.
The Corporation's subsidiary, Sotula holds both exploration and
exploitation concessions. To maintain these concessions, Sotula was required
either to incur exploration or development work or to have production revenues
in 1997 amounting to approximately US$1.1 million or US$47 per hectare.
Exploration and development expenditures and production revenues for 1997 were
considerably in excess of this requirement. The excess from 1997 and prior years
can be carried-forward and should be sufficient to cover requirements for the
foreseeable future on all of the strategic claims. Some claims may be dropped or
reduced in size in the future if additional
11
<PAGE> 15
work fails to indicate potential for economic mineralization. However, prior
years' work plus planned exploration expenditures exceed estimated work
requirements for the foreseeable future on all claims. In addition, an aggregate
of US$74,000 was paid for property taxes during 1997.
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 Trinidad and Greta, have
been identified in the District. Additional prospects are in the early stages of
exploration.
MINEABLE RESERVES
The following table summarizes mineable reserves estimated by
management:
PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
Grade Grade Grade
Tonnes g/tonne Tonnes g/tonne Tonnes g/tonnes
------ ------- --------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Proven Nil - 1,287,000 1.87 1,008,000 2.28
Probable Nil - 291,000 1.46 297,000 1.85
--------- ---- ---------- ----
Total Nil - 1,578,000 1.79 1,305,000 2.18
========= ==== ========== ====
</TABLE>
Production during 1997 was approximately 1,021,380 tonnes grading 1.71
grams per tonne. Approximately 175,891 tonnes of additional proven and probable
reserves grading approximately 0.93 grams per tonne were added to reserves
during 1997. This resulted in an overall decrease in proven and probable
material to 732,862 tonnes grading approximately 1.69 grams per tonne net of
production during the period. Due to lower gold prices and because the quantity
of material is insufficient to support costs, this material no longer meets the
definition of reserves and has been reclassified as possible mineralized
material.
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. Leaching operations will continue until
the level of gold production is uneconomic, currently estimated to be into the
second half of 1998.
12
<PAGE> 16
OPERATIONS
Current low gold prices and insufficient developed ore resulted in
mining operations being suspended on December 7, 1997 to permit focus to be
placed on building ore reserves through exploration. Mining operations will
resume when sufficient reserves have been discovered and developed to enable
mining to be carried out at a rate that is economic at the then prevailing gold
price. There can be no assurance that gold prices will rise to a level or that
sufficient ore reserves will be discovered and developed that will make it
economic to resume mining operations.
Until December, 1997, mining had been carried out 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 during 1997 was approximately 22,000 tonnes
per day of which approximately 3,000 tonnes was ore representing a strip ratio
of 6.3. The ore is oxidized and processing utilizes conventional heap leach
technology. Approximately 70% of the ore was crushed to minus three inches
before delivery to the leach pads and the remaining 30%, representing fines, was
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 to
the United States for final refining.
A Phase IV leach pad was completed in mid 1997 to the east of the
existing Phase I pad at a cost of approximately US$400,000. The Phase IV leach
pad provides an additional 2.0 million tonne capacity.
The following table sets out production from the Santa Gertrudis Mine
for the past three years:
SANTA GERTRUDIS MINE
PRODUCTION SUMMARY
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1997 1996 1995
---------- -------- ----------
<S> <C> <C> <C>
Tonnes ore mined 1,021,000 965,000 1,135,000
Gold Grade (g/tonne) 1.71 2.06 2.17
Gold Recovery (%) 69.5 84.6 66.4
Gold Produced (ounces) 39,200 54,400 55,600
Cash Operating Costs (1) $ 333 $ 227 $ 205
(US$ per ounce of gold)
</TABLE>
(1) Operating costs include mining, plant, administration and
transportation costs.
13
<PAGE> 17
Cash operating costs per ounce of gold for 1997 were US$333 compared to
US$227 for 1996. This higher unit cost is primarily attributable to the reduced
gold production.
EXPLORATION
Exploration expenditures for 1997 were $3.7 million compared to $4.9
million in 1996. Exploration initiated at the beginning of the year at Santa
Gertrudis was primarily designed to delineate easily accessible deposits that
would provide near-term production. While efforts to find mineralization within
the mine area were successful, finding easily accessible, near-surface economic
deposits around the mine was difficult. At mid-year, exploration was re-focused
to begin evaluating large portions of the property that, in the past, had
received little, if any, exploration. More than 250 holes totalling in excess of
26,800 metres were drilled to explore and develop reserves at Santa Gertrudis in
1997.
Three major structures with significant gold-bearing potential were
identified southeast of the mine following completion of a comprehensive
compilation program. These major structures were the focus of exploration during
the remaining portion of 1997 and will continue to be the focus of exploration
in 1998. The La Gloria shear zone is a structure that is associated with three
exploration targets known as the El Tigre, Nadia and Tracy zones. These three
zones extend over a 1.1 kilometre section of the La Gloria shear zone, leaving
approximately 4.4 kilometres of the structure as yet unexplored. The Tracy zone
was discovered during exploration along a resistivity low anomaly interpreted to
represent a fault structure detected by airborne geophysical surveying.
Subsequent trenching and drilling has confirmed the presence of mineralization
at depth. The Tracy zone has a known strike length of 125 metres and ranges in
width up to 38 metres and remains open along strike to the south and at depth.
Further south along the La Gloria shear zone are the Nadia and El Tigre zones.
Many of the drill holes testing the El Tigre zone intersected economic grades of
oxidized mineralization. The Nadia zone, located between the Tracy and El Tigre
has undergone initial exploration including sampling, mapping and trenching with
encouraging results.
A second structure known as the Ontario shear zone occurs as a splay
branching off of the La Gloria shear zone. Trenching, channel sampling and
drilling have delineated a 450 metre-long target area associated with the
Ontario shear that hosts the Greta Northeast, Greta Hill, Greta Ontario and
Greta Sur zones. To date more than half of the holes returned multi-gram
intersections over widths of up to 4.5 metres. The 500 metre-long interval
between the junction of the Ontario and La Gloria shear zones and the
southwestern most drilling on the Greta Shear also appears promising with two
surface samples assaying 23.09 and 13.91 grams gold per tonne.
A program of soil sampling, trenching and preliminary drilling is
continuing to evaluate the Esperanza, Lupita and Lupita South zones which are
associated with the 5 kilometre-long Esperanza-Lupita fault zone, situated
southeast of the Ontario shear zone. Sampling has returned high gold values of
up to 267 grams per tonne over 0.5 metres.
Additional focused exploration is planned for targets on all three
structures in order to establish new oxide reserves which may permit mining to
re-commence. In addition, Campbell has started to investigate the potential for
deeper gold-bearing sulphide mineralization. A report by independent mineral
consultants concluded that the property has potential for a deep Carlin-type
target and that the geology, structure, geochemistry, geophysics and
mineralization are similar to the Post-Betze deposit located in Nevada's Carlin
Trend. Results of Campbell's
14
<PAGE> 18
exploration efforts and the independent report supporting the similarities
between Santa Gertrudis and the Carlin Trend prompted management to seek a joint
venture partner in order to undertake a systematic exploration program to
evaluate the deep sulphide potential. Several senior mining companies with
experience in exploring for and mining Carlin-type orebodies have visited the
property and concurred that there appears to be excellent potential for the
property hosting Carlin-type orebodies; however the current prevailing low gold
prices have resulted in exploration budgets being drastically cut within the
gold mining industry making it difficult to consummate a joint venture
exploration program at this time.
EMPLOYEES
During 1997, the Santa Gertrudis Mine employed approximately 230 persons
of whom approximately 150 were covered by a collective bargaining agreement. In
December, 1997, the Corporation concluded an agreement with the National Union
of Miners, Metallurgists and Similar Workers of the Mexican Republic ("Union")
pursuant to which mining operations were suspended and 143 employees covered by
the collective bargaining agreement were terminated. An additional 55 employees
not covered by the collective agreement were also terminated. The aggregate cost
of these terminations was approximately US$637,000. It is expected that
approximately 48 employees will continue to be employed while leaching
continues. See "Operations" above.
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, S.A. held exploration concessions covering approximately 20,000 hectares
which comprise the Cerro Quema Property. These exploration concessions were
converted to three extraction concessions totalling 15,000 hectares in
February, 1997. Pre-extraction activities, which must commence within one year
of the date of the extraction concession, commenced in December, 1996. The
mining law permits a reduction or cessation of activities if prevailing
economic conditions hinder continuing activities. 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.
15
<PAGE> 19
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 kilometres 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 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 based on a gold price of US$400 per ounce.
<TABLE>
<CAPTION>
Tonnes Grade g/tonne
------ -------------
<S> <C> <C>
Probable 8.8 million tonnes 1.16
</TABLE>
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 21, 1997.
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. At such time as production may commence, the Cerro Quema
Mine is expected to have approximately 170 employees.
16
<PAGE> 20
Construction and upgrading of the access road commenced in mid-November
and was completed in late February, 1997. During the 1997 dry season, from
December 1996 to April 1997, main construction activities included the start of
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. Total construction and equipment cost incurred to December 31,
1997 was US$13.4 million.
In June, 1997 construction at the Cerro Quema gold project was temporarily
suspended by government order following heavy rainfalls which created high
levels of sedimentation in the local rivers. The Company, working in conjunction
with the Panamanian authorities, resolved the problem by completing a program of
sedimentation control and revegetation. As a result of these environmental
efforts, a resolution was passed lifting restrictions on the project's
development. In December 1997, as a consequence of sustained lower gold prices,
the Corporation decided to defer further development of Cerro Quema until the
gold price reaches a level that will ensure economic viability of the project.
The project has been placed on a care and maintenance basis for 1998.
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 will be initiated when
economics permit the project to proceed and once access and infrastructure are
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 could 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. In July 1997, these agreements were further amended
to provide that, SOQUEM can earn a 50% interest in the Meston property which
comprises 148 claims and one mining concession (and excludes the Joe Mann Mine),
in exchange for spending $1.6 million in the five year period ending June 1,
2002 and a 50% interest in the Chibougamau properties, which comprises 198
claims and three mining concessions, by spending $750,000 in the five year
period ending June 1, 2002. During 1997, 4 claims located northwest of the Joe
Mann Mine were added to the Meston property agreement, excluding the lateral and
at depth extension of the Main Zone of the Joe Mann Mine protected by a 500 foot
wide corridor north of the Main Zone. A separate third agreement was also
entered into with SOQUEM covering 4 claims and one mining concession located
northeast of the Joe Mann Mine, excluding
17
<PAGE> 21
the lateral and at depth extension of the Main Zone of the Joe Mann Mine
protected by a 500 foot wide corridor north of the Main Zone, pursuant to which
SOQUEM can earn a 3.5% net smelter return by expending $400,000 over the five
year period ending June 1, 2002. Meston has the right to repurchase the net
smelter return, if earned, for $600,000 on or before June 1, 2002 or $1,000,000
on or before June 1, 2007. Amounts expended under this agreement shall also be
credited against the spending requirements under the Meston property agreement.
As additional consideration for the 1997 amendments, SOQUEM agreed to fund
$100,000 of underground drilling on the North Zone of the Joe Mann Mine. This
amount was credited to the $1.6 million of required expenditures on the Meston
property
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, 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 in 1992 to December 31, 1997, SOQUEM
has spent approximately $2,620,000 on the Meston property and $2,450,000 on the
Chibougamau properties including $72,000 on the Meston properties and $19,000 on
the Chibougamau properties since the effective date of the 1997 amendment. The
Company is not responsible for sharing expenditures with respect to the
referenced properties.
During 1997, under the Meston property agreement, SOQUEM explored the
Norhart structure located 2,800 feet north of the Joe Mann Mine, subparallel to
the Joe Mann system. Nine diamond drill holes were completed totalling 9,820
feet and some stripping was carried out to expose the vein for 300 feet along
strike. In 1998, a $320,000 drilling program is planned pending involvement of a
third party. Under the Chibougamau property agreement two diamond drill holes
were completed into the extension of the Henderson-Portage shear zone. Minor
gold and copper values were intersected. During 1998, a $270,000 drill programme
is planned on the same shear zone.
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 1997, approximately $47,000 was
expended on these gold properties and evaluation of acquisition prospects. No
exploration work is budgeted for exploration outside of the Santa Gertrudis
property for 1998.
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 1997. There are no
work assessment
18
<PAGE> 22
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.
An initial payment of Cdn$100,000 was received on signing of the option
agreement. This agreement has been extended until May 29, 1998 in consideration
for which Sagebrush has paid Campbell a further Cdn$200,000 which will be
credited towards the exercise price. Campbell has been advised that the option
will be exercised on or before March 31, 1998.
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, 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
notice of 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. To March 20, 1998, debenture
holders had converted US$6,352,000 of debenture principal into 12,704,000 Common
Shares. Debentures in the amount of US$4,653,000 remain outstanding as of March
20, 1998.
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
19
<PAGE> 23
$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 respect to such plan. The Corporation filed a
preliminary rehabilitation and restoration plan on March 9, 1996, and has filed
additional information required thereunder within the extensions granted by
Quebec mining authorities. The plan is pending approval. 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 $2,000,000. 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, based on general guidelines total
reclamation costs are currently estimated at US$384,000 which has been accrued
in the Corporation's books. This estimated cost will be more than exceeded by
the salvage value of plant and equipment. Only limited reclamation will be
carried out while the exploration programme continues.
On an ongoing basis, environmental compliance costs are not material at
the Joe Mann Mine or the Santa Gertrudis operation.
At the 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. See Mine feasibility development on pages 16 and 17
for a discussion of stop work orders issued by Panamanian authorities in June,
1997 as a consequence of heavy rainfall and sedimentation problems.
20
<PAGE> 24
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; given the difficulties experienced during 1997, (see "Mine
Feasibility and Development" on pages 16 and 17), 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.
While the feasibility study for the Cerro Quema project was carefully
prepared by experienced engineers and advisors, no assurance can be given that
gold prices will improve to a level that the Cerro Quema Project can proceed or
that it can 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, sales of gold by central banks, the demand for gold, global or regional
political, economic and banking crises and production rates in major gold
producing regions. The aggregate effect of these factors is impossible to
predict with any degree of certainty. Although the Corporation does engage in
some limited hedging from time to time to protect against a portion of the
volatility (as described in Management's Discussion and Analysis and the notes
to the consolidated financial statements included in Exhibit 13.1 of this
report), a significant portion of the price movement in gold is not protected.
If the Corporation's realization on gold sales were to decrease further or
remain at the current level for any substantial period, the Corporation could
determine that it is not economically feasible to undertake required development
at the Joe Mann Mine, (see "Mine Exploration and Development" on page 8) or to
continue commercial production. The cash 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. With sustained lower gold prices, mining
operations at Santa Gertrudis have been suspended and the Cerro Quema project
has been placed on care and maintenance. As a consequence, the Corporation is
primarily dependant on production from one operation, the Joe Mann Mine.
21
<PAGE> 25
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. In addition, no assurance can be
given that the gold price estimates on which the reserve calculations are based
can be achieved. See "Mineable Reserves" on pages 7, 12 and 16. As well, lead
times required for underground stope and open pit preparation and development in
mining operations can affect production decisions and 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 political
risk, 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 and South 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.
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. The Corporation
views these legislative changes as reflecting an increasingly supportive
regulatory climate for mining investment in Panama.
22
<PAGE> 26
ITEM 3. LEGAL PROCEEDINGS
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 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 appealed the assessments
on March 5, 1997 before the Local Tax Legal Administration for Revenues in
Nogales, Sonora. On May 26th, 1997, the Corporation was advised that it was
successful in its appeal and that Mexican pesos 9,200,000 was not payable. The
local tax authority has been requested by the federal tax authorities to issue a
re-assessment which must take into account the basis on which the appeal was
based. The charge against certain pieces of machinery and equipment will be
released when the final tax assessment is issued.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the Corporation's fiscal year covered by this
report, no matters were submitted to the shareholders for approval through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY 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 1997 Annual Report to Shareholders which information is
incorporated herein by reference and is filed as Exhibit 13.1 to this report. On
March 27, 1998 the closing price of the Common Shares on The Toronto Stock
Exchange was $0.63 and on the New York Stock Exchange composite transactions was
US $0.4375 as reported by the Globe and Mail.
SHAREHOLDERS
As of March 27, 1998, Campbell had 13,008 common shareholders of record.
23
<PAGE> 27
DIVIDEND RECORD AND POLICY
The Corporation has not paid a dividend on its common shares since 1984.
The Corporation's present 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 5% 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.
ITEM 6. SELECTED FINANCIAL DATA
Information relating to this item appears under the caption "Five Year
Comparative Summary of Selected Financial Data" on page 31 of the 1997 Annual
Report to Shareholders which information is incorporated herein by reference and
is filed as Exhibit 13.1 to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information relating to this item appears on pages 15 through 19 of
the 1997 Annual Report to Shareholders which information is incorporated herein
by reference and is filed as Exhibit 13.1 to this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information relating to this item appears on pages 20 through 30 and under
the caption "Selected Quarterly Financial Data (unaudited)" on page 31 of the
1997 Annual Report to Shareholders which information is incorporated herein by
reference and is filed as Exhibit 13.1 to this report.
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.
24
<PAGE> 28
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
1998 Annual Meeting of Shareholders scheduled for May 19, 1998 which information
is incorporated herein by reference and is filed as Exhibit 20.1 to this report.
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,
1993, is set out below:
<TABLE>
<CAPTION>
Years in Other Position and Age
Name Office Office Business Experience
- ---- ------ ------ -------------------
<S> <C> <C> <C>
John O. Kachmar President and 7 Certified Management 61
Chief Executive Accountant. Prior to August
Officer of the 1993, President of Northgate
Corporation Exploration Limited, Toronto,
Ontario, mining company
Lorna D. Vice President, 10 Lawyer. Vice President, 46
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, 3 Chartered Accountant. Prior 40
Finance to September 1994, Manager
of Special Projects, Polaris
Realty (Canada) Limited,
Toronto, Ontario, real estate
company.
</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.
25
<PAGE> 29
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is set out in the Proxy Circular in
connection with the 1998 Annual Meeting of Shareholders which is incorporated
herein by reference and is filed as Exhibit 20.1 to this report.
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 1998 Annual Meeting of Shareholders which
is incorporated herein by reference and is filed as Exhibit 20.1 to this report.
The following table lists the number of Common Shares beneficially owned
by each executive officer listed in the table under the caption "Executive
Compensation" in the Proxy Circular. The percentage ownership calculation for
each owner has been made on the basis that there are outstanding 152,462,861
Common Shares.
<TABLE>
<CAPTION>
Name Number of Shares % of Class
---- ---------------- ----------
<S> <C> <C>
John O. Kachmar 175,000 (1) < 1%
Lorna D. MacGillivray 65,870 (2) < 1%
Paul J. Ireland 16,638 (3) < 1%
Gary A. Cohoon 27,093 (4) < 1%
Four executive officers
as a group 284,601 (5) < 1%
</TABLE>
(1) Excludes 1,350,000 Common Shares subject to option, of which 1,175,500
are currently exercisable or exercisable within the next 60 days.
(2) Excludes 400,000 Common Shares subject to option, of which 325,000 are
currently exercisable or exercisable within the next 60 days.
(3) Excludes 300,000 Common Shares subject to option of which 225,000 are
currently exercisable or exercisable within the next 60 days.
(4) Excludes 325,000 Common Shares subject to option of which 237,500 are
currently exercisable or exercisable within the next 60 days.
(5) Excludes 2,375,000 Common Shares subject to option of which 1,963,000
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.
26
<PAGE> 30
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, 1997 and 1996
Consolidated Statements of Income -
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Retained Earnings (Deficit) -
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995
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 1997. During
the first quarter of 1998, the Corporation filed a Current Report on Form 8-K
dated March 3, 1998.
(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.
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.
(d) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X WHICH ARE
EXCLUDED FROM THE CORPORATION'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1997.
Not applicable
27
<PAGE> 31
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.
References to H refer to documents previously filed as an exhibit to Campbell's
Annual Report on Form 10-K for the year ended December 31, 1996 dated March 26,
1997 and incorporated herein by reference.
References in parentheses are references to the Exhibit No. of the filing
indicated.
3 Articles of Incorporation and By-Laws
3.1 Articles of Continuance dated September 7, 1982 (A) (Exhibit 3.1)
3.2 Articles of Amendment dated November 1, 1982 (A) (Exhibit 3.2)
3.3 Articles of Amendment dated April 15, 1983 (A) (Exhibit 3.3)
3.4 Articles of Amendment dated June 8, 1983 (A) (Exhibit 3.4)
3.5 Articles of Amendment dated September 13, 1983 (A) (Exhibit 3.5)
3.6 Articles of Amendment dated January 31, 1984 (A) (Exhibit 3.6)
3.7 Articles of Amendment dated November 8, 1984 (A) (Exhibit 3.7)
3.8 Articles of Amendment constituted by special resolution of shareholders
dated November 7, 1984 (A) (Exhibit 3.8)
3.9 Articles of Amendment dated September 11, 1985 (A) (Exhibit 3.9)
3.10 Articles of Amendment dated December 2, 1987 (A) (Exhibit 3.10)
3.11 By-Law No. 1 as amended and as in effect on the date hereof (A)
(Exhibit 3.12)
3.12 Amendment of By-Law No. 1 (A) (Exhibit 3.11)
4 Instruments Defining the Rights of Security Holders Including
Indentures
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) (Exhibit 4.1)
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) (Exhibit 4.1)
28
<PAGE> 32
10 Management Contracts and Compensatory Plans and Arrangements
10.1 The Corporation's Employee Incentive Plan (C) (Exhibit 4(i))
10.2 Amended Employment agreement dated December 1, 1994 between the
Corporation and John O. Kachmar (B) (Exhibit 10.2)
10.3 Amended Employment agreement dated December 1, 1994 between the
Corporation and Lorna D. MacGillivray (B) (Exhibit 10.3)
10.4 Amended Employment agreement dated December 10, 1996 between the
Corporation and Paul J. Ireland (H) (Exhibit 10.4)
10.5 Letter agreement between the Corporation and Gary A Cohoon with
respect to his resignation as an officer of the Corporation
(7 pages)
10.6 Consulting agreement dated November 12, 1993 between the Corporation
and Francis S. O'Kelly (D) (Exhibit 10.7)
10.7 Directors' Stock Option Plan (D) (Exhibit 10.8)
Material Contracts
10.8 Royalty Agreement with Repadre Capital Corporation made as of April 23,
1993. (D) (Exhibit 10.14)
10.9 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) (Exhibit 10.11)
10.10 Bullion Dealing Master Agreement and Security Agreement between the
Corporation and Citibank dated February 24, 1995 regarding forward gold
sales (B) (Exhibit 10.12)
10.11 Asset Purchase Agreement dated January 27, 1995 between Campbell Gold
Exploration Inc. and Lac Minerals (USA), Inc. regarding the Wildcat
Property. (B) (Exhibit 10.13)
10.12 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) (Exhibit 1.1)
10.13 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) (Exhibit 1.1)
13.1 Certain portions of the Annual Report to the Shareholders for the year
ended December 31, 1997 contained on pages 15 to 32 inclusive. [Note:
Such Annual Report, except for those portions thereof which are
expressly incorporated by reference in this Report on Form 10-K,
is furnished for the information of the Securities and Exchange
Commission and is not deemed ""filed'' as part of the filing of
this Report on Form 10-K.]
29
<PAGE> 33
20.1 Proxy Circular dated March 20, 1998 in connection with the 1998 Annual
Meeting of Shareholders scheduled to be held on May 19, 1998.
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 27, 1998 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 27, 1998
- --------------------------------------
John O. Kachmar, President and
Chief Executive Officer and Director
/s/ PAUL J. IRELAND Principal Financial and March 27, 1998
- -------------------------------------- Accounting Officer
Paul J. Ireland, Vice President,
Finance
/s/ JAMES D. BEATTY March 27, 1998
- --------------------------------------
James D. Beatty, Director
/s/ GRAHAM G. CLOW March 27, 1998
- --------------------------------------
Graham G. Clow, Director
/s/ ROD P. DOUGLAS March 27, 1998
- --------------------------------------
Rod P. Douglas, Director
/s/ JAMES C. McCARTNEY March 27, 1998
- --------------------------------------
James C. McCartney, Q.C.
Chairman and Director
/s/ DONALD R. MURPHY March 27, 1998
- --------------------------------------
Donald R. Murphy, Director
/s/ FRANCIS S. O'KELLY March 27, 1998
- --------------------------------------
Francis S. O'Kelly, Director
/s/ G.E."KURT" PRALLE March 27, 1998
- --------------------------------------
G.E."Kurt" Pralle, Director
/s/ JAMES D. RAYMOND March 27, 1998
- --------------------------------------
James D. Raymond, Director
</TABLE>
31
<PAGE> 35
CAMPBELL RESOURCES INC.
1997 FORM 10-K
EXHIBIT INDEX
10.5 Letter agreement between the Corporation and Gary A Cohoon with
respect to his resignation as an officer of the Corporation
13.1 Annual Report to the Shareholders for the year ended December 31, 1997
[Note: Such Annual Report, except for those portions thereof which are
expressly incorporated by reference in this Report on Form 10-K, is
furnished for the information of the Securities and Exchange Commission
and is not deemed ""filed'' as part of the filing of this Report on
Form 10-K.]
20.1 Notice and Proxy Circular dated March 20, 1998 in connection with the
1997 Annual Meeting of Shareholders scheduled to be held on May 19,
1998 and Form of Proxy
21.1 Significant subsidiaries
23.1 Consent of KPMG
27.1 Financial Data Schedule
<PAGE> 1
Exhibit 10.5
October 24, 1997
Mr. Gary A. Cohoon
Calle de la Paz, No. 11
Valle Escondido
Hermosillo, Sonora 83200 Mexico
WITHOUT PREJUDICE PERSONAL & CONFIDENTIAL
- ----------------- -----------------------
Dear Mr. Cohoon:
The following sets out the terms and conditions of the offer of Campbell
Resources Inc. and its subsidiaries (the "Company") outlined to you verbally on
October 24, 1997 with respect to the termination of your employment effective
November 1, 1997. As discussed, this termination is the result of the Company's
need to down-size in light of sustained lower gold prices.
In return for your execution and delivery of a full and complete release and
indemnity of the Company of all liabilities, payments and all other obligations
in respect of your employment by the Company and termination of such employment
in the form attached hereto as Schedule "A", the Company is prepared to agree to
the following:
1) The Company will continue paying an amount equivalent to your current
salary, less required deductions, on a semi-monthly basis until August
31, 1998 less the amount required to repay amounts owed to the Company
(US$2,000) less amounts owed to you for recent expenses and mileage
allowances, and rent payable to you for the months of October, November
and December, 1997 with respect to the Toronto apartment which the
Company has use of, amortized over the ten month period;
2) The Company will continue major medical and dental coverage for you and
your spouse until August 31, 1998 or until you find alternate
employment. Long term disability, and accidental death and
dismemberment insurance will terminate on October 31, 1997. You shall
continue to be entitled to participate in the Share Purchase Plan until
August 31, 1998.
3) You will continue to be entitled to participation in the Ore Reserve
Incentive program for the year ended December 31, 1997.
4) In addition, as you have requested, and subject to approval of the
Board of Directors, to be sought at a meeting scheduled to be held on
November 19,1997, stock options to purchase 325,000 common shares
exercisable at prices ranging from $0.57 to$1.48, which would otherwise
expire on October 31, 1997, shall continue to be exercisable until
March 31, 1998, in accordance with the terms of their grant, and shall
terminate if unexercised by Tuesday March 31, 1998.
5) In addition to the payments and other continuing benefits described
above, the
<PAGE> 2
Company will enter into a consulting agreement with you pursuant to
which you will provide six (6) days of services per month at a daily
fee of Cdn$550 for a six month period ending on April 30, 1998 as set
out in the form of agreement attached hereto as Schedule B. As set out
therein, you shall covenant and agree not to solicit any Company
employee and shall covenant and agree not to compete with the Company
in any manner with respect to its Santa Gertrudis property within a 50
kilometre radius of its current property boundaries for a period of
twelve months from the expiry of that consulting agreement. Following
completion of that consulting agreement, you will immediately return to
the Company, all Company property which you may have in your possession
or under your control, including any copies thereof.
6) As a term and condition of your acceptance of this offer, you hereby
covenant and agree to keep confidential and not to disclose the terms
and conditions of this offer, except as required by law or to your
counsel or your immediate family. You further agree not to make any
comments, negative or otherwise, to anyone with respect to the Company,
its employees, officers and directors or its properties and you shall
keep all knowledge and information which you possess with respect to
the Company's properties and operations confidential.
This offer shall expire at 4:00 pm Toronto time on Friday, October 31st, 1997.
Should you find the terms and conditions set out above acceptable, please
indicate your acceptance by signing and returning the attached release and
indemnity with a executed copy of this letter.
Yours very truly
CAMPBELL RESOURCES INC.
"Lorna D. MacGillivray"
Lorna D. MacGillivray "Nadia Ecclestone"
Vice President, Secretary and General Counsel ------------------
Witness
Agreed and accepted this day of , 1997.
"Loraly Munoz" "Gary A. Cohoon"
- -------------- ----------------
Witness Gary A. Cohoon
<PAGE> 3
SCHEDULE "A"
RELEASE AND INDEMNITY
---------------------
WHEREAS the employment of Gary A. Cohoon (the "Employee") with Campbell
Resources Inc. ("CAMPBELL ") was terminated on November 1, 1997;
AND WHEREAS the Employee has agreed to accept the terms of settlement
outlined in the letter attached hereto as Schedule "A" and other good and
valuable consideration in settlement of all claims which The Employee may have
by reason of the above-noted termination;
NOW THEREFORE WITNESSETH that in consideration of the terms of
settlement outlined above, the Employee releases and forever discharges CAMPBELL
and any corporations associated therewith or related thereto and their
respective Boards of Directors, officers, employees and agents (hereinafter
collectively referred to the "RELEASEES") from any and all actions, causes of
action, claims and demands arising from the employment of the Employee with the
RELEASEES or the termination of that employment, including any claims pursuant
to the Employment Standards Act for vacation pay, termination pay and severance
pay which are included in the terms of settlement referred to above.
FOR THE SAID CONSIDERATION the Employee further agrees not to make any
claim or take any proceedings against any other individual, partnership,
association, trust, unincorporated organization or corporation with respect to
any matters which may have arisen between the Employee and the RELEASEES or any
one of them for contribution or indemnity or other relief over.
AND FURTHERMORE, for the aforesaid consideration, the Employee hereby
agrees to indemnify and save harmless the RELEASEES from any and all claims or
demands under the income tax laws of Mexico, the Income Tax Act of Canada, the
Income Tax Act of the Province of Ontario, the Canada Pension Plan, the
Unemployment Insurance Act of Canada, including any regulations made thereunder
and any other statute or regulations, for or in respect of any amount found to
be due in excess of those amounts withheld and remitted by the RELEASEES, if
any, in respect of income tax, Canada Pension Plan premiums or unemployment
insurance premiums or benefit overpayments or any other tax, premium, payment or
levy from all or any part of the said consideration and any interest or
penalties relating thereto and any costs or expenses incurred in defending such
claims or demands.
AND the Employee HEREBY FURTHER DECLARES that he has had the
opportunity to seek independent legal advice with respect to the terms of
settlement as well as this document and he fully understands them. The Employee
hereby voluntarily accepts the said terms for the purpose of making full and
final compromise, adjustments and settlement of all claims as aforesaid.
<PAGE> 4
THIS RELEASE AND INDEMNITY shall be deemed to have been made in and
shall be construed in accordance with the laws of the Province of Ontario.
THIS RELEASE AND INDEMNITY shall enure to the benefit of and be binding
upon The Employee and the RELEASEES and their respective heirs, executors,
administrators and legal personal representatives, successors and assigns.
IN WITNESS WHEREOF the undersigned has executed this document at
Hermosillo, Sonora_______, on the 30th day of October __, 1997 and set his hand
thereto.
SIGNED in the presence of
"Loraly Munoz" "Gary A. Cohoon"
-------------- ----------------
Witness Gary A. Cohoon
<PAGE> 5
Schedule "B"
November 1, 1997
Mr. Gary A. Cohoon
Calle de la Paz, No. 11
Valle Escondido
Hermosillo, Sonora 83200
Mexico
Dear Gary,
RE: Consulting Agreement
The following sets out the terms and conditions pursuant to which you have
agreed to provide your services to Campbell Resources Inc. and its subsidiaries
("Campbell") on the terms and conditions set out below:
1. Commencing November 1, 1997, you will provide consulting services as
requested on a part time basis until April 30, 1998 or such later date as you
and Campbell may agree. You will perform the function of Consulting Geologist
for Campbell taking direction from the President and Chief Executive Officer and
such other Campbell personnel as he shall direct. This agreement may be extended
with Campbell's and your consent in writing.
2. Campbell agrees to pay to you a consulting fee of Cdn$550.00 per day
for a maximum of six (6) days per month. Should Campbell require your services
in excess of the six (6) days, the terms, details and scheduling of such
services will be agreed to in writing between you and the President and Chief
Executive Officer prior to commencement of such service.
3. During the initial period, it is anticipated that your six (6) days per
month will be spent on work relating to preparation of the monthly report,
pursuit of potential joint venture partners for a deep drilling program on the
Santa Gertrudis property and consultation of the Santa Gertrudis exploration
program; however, this should diminish such that in the later months of this
agreement, you should be available within the six (6) days to work on special
projects assigned by the President and Chief Executive Officer. Should you be
requested by the Exploration Project Manager, during the month of November, to
provide your services, in connection with completion of the geochemistry study
on the Santa Gertrudis property, in addition to the six (6) days contemplated
therein, you will be paid for such service at your per diem rate of $550. Any
work, in addition to that discussed above, requested and approved by the
President and Chief Executive Officer will also be paid at this per diem rate.
Following completion of each project, you will submit a written report
summarizing your work to the President and Chief Executive Officer.
4. You agree that you will be required to travel to the Campbell's
operations and to its
<PAGE> 6
head office or elsewhere. You will use your best efforts to be available during
such periods as Campbell requests. Campbell will provide a work schedule in
writing for the subsequent month seven days prior to the commencement of the
month. Changes may be made by mutual written agreement
5. You will submit a monthly invoice covering days worked during the prior
month. This invoice will be paid out of our parent company's office in
accordance with your direction.
6. It is agreed that, if travel is required, you will be reimbursed for
reasonable travel expenses for which you will submit an expense account
accompanied by receipts for expenses incurred.
7. All reimbursements provided for in this agreement shall be paid within
5 business days of submission of expense report forms with attached original
invoices.
8. You agree that you will not discuss and will keep confidential all
information relating to the Project and upon termination of this agreement, will
return to Campbell all equipment, keys, documents, maps, reports, material or
other data relating to the Project or belonging to Campbell which you may have
in your possession.
9. You agree not to directly or indirectly acquire any interest in or do
any work on any Property within a distance of fifty (50) kilometres of the Santa
Gertrudis Property during the term of this agreement and for a period of six (6)
months from the termination of this agreement without the written consent of
Campbell.
10. For a period of one year from the date hereof, you agree not to solicit
for hire, nor to hire, as an employee, agent, independent contractor, or
otherwise, any then current employee of the Company or its affiliates.
11. Any notice or other communication required or permitted to be given or
made hereunder shall be in writing and shall be sent, telexed, telegraphed,
telecopied or sent by other means of recorded electronic communication to
Campbell, addressed to the President and Chief Executive Officer, Suite 1910,
Toronto, On M5H 1T1 (Fax: (416) 367-3294) and if to the you, mailed, telecopied
or delivered to you at your 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.
12. Any modification or amendment of this agreement shall be in writing,
signed by you 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.
<PAGE> 7
13. 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, have been
made by to you by Campbell which are not set forth expressly in this agreement.
14. If any provision of this Agreement is held invalid or unenforceable by
any court of final jurisdiction, it is the intent of the parties that all other
provisions of this Agreement be construed or remain fully valid, enforceable,
and binding on the parties.
15. This Agreement shall be deemed to have been made in the Province of
Ontario, and it shall be construed in accordance with, and governed by, the laws
of the Province of Ontario as applied to contracts that are executed and
performed entirely in Ontario, without regard to principles of conflicts of law.
Please confirm your agreement to the above by signing and returning this letter
in duplicate.
Yours very truly
Campbell Resources Inc.
Lorna D. MacGillivray -------------------
Vice President, Secretary and General Counsel Witness
Agreed to this day of , 1997
-------------------
Gary C. Cohoon Witness
<PAGE> 1
[CAMPBELL RESOURCES INC. LOGO]
1997 ANNUAL REPORT
[PHOTOS]
<PAGE> 2
[MAP OF LOCATION OF COMPANY PROJECTS]
CORPORATE PROFILE
Campbell Resources Inc. is a producing gold mining company. In 1997
Campbell produced 113,000 ounces of gold from the Joe Mann Mine in Quebec,
Canada, and the Santa Gertrudis Mine in Sonora, Mexico. In addition Campbell
owns the Cerro Quema development stage gold project in Panama which is currently
awaiting higher gold prices before development continues.
The Company has a strong balance sheet with cash and short-term
deposits of $41.7 million and negligible debt. To enhance shareholder value
during this period of low gold prices, Campbell will continue to improve
operating efficiencies so that costs can be kept to a minimum.
The Company is continuing to explore and develop on its mine properties
in Quebec and Mexico. In addition, Campbell, with its strong treasury, is
evaluating opportunities for potential acquisition that could significantly
enhance annual gold production and improve the Company's reserve base.
Campbell's common shares and share purchase warrants are listed on the
New York, Toronto, and Montreal stock exchanges, trading under the symbol "CCH",
"CCH.ws" and "CCH.wt".
<PAGE> 3
HIGHLIGHTS
CASH OF $41.7 MILLION AND WORKING CAPITAL OF $49 MILLION
GENERATED $9.7 MILLION OF CASH THROUGH THE EARLY TERMINATION
OF CERTAIN GOLD HEDGING CONTRACTS. RESTRUCTURED THE BALANCE
OF THE GOLD HEDGING PROGRAM TO NOW PROVIDE 45,000 OUNCES
OF PROTECTION FOR 1998 AT A MINIMUM PRICE OF US$327 PER OUNCE
INCREASED GOLD PRODUCTION AT THE JOE MANN MINE TO 73,500 OUNCES
AT A LOWERED CASH OPERATING COST OF US$264 PER OUNCE
COMPLETED THE SHAFT SINKING PHASE OF THE PROJECT
TO DEEPEN THE SHAFT AT THE JOE MANN MINE
ON TIME AND UNDER BUDGET
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
($ in thousands except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Metal sales $ 52,635 67,180 67,418
Net income (loss) $ (40,410) 9,012 10,461
Cash flow from operations $ 556 21,439 18,703
Exploration expenditures $ 4,659 7,220 4,457
- -----------------------------------------------------------------------------------
Working capital $ 49,008 65,520 39,960
Cash and short-term deposits $ 41,735 55,302 32,271
Total assets $ 123,882 165,298 123,703
Shareholders' equity $ 105,124 142,058 99,554
Shares outstanding (000's) 151,445 148,588 124,466
- -----------------------------------------------------------------------------------
Per share -- Earnings (loss) $ (0.27) 0.06 0.09
-- Cash flow $ -- 0.15 0.15
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Gold Production (ounces)
Joe Mann 73,500 70,400 64,500
Santa Gertrudis 39,200 54,400 55,600
- -----------------------------------------------------------------------------------
Total gold production 112,700 124,800 120,100
- -----------------------------------------------------------------------------------
Cash operating cost per ounce (US$) $ 288 252 247
Gold revenue per ounce (US$) $ 336 396 402
Gold reserves
Proven and Probable
(contained ounces) 525,000 660,000 392,000
Possible
(indicated ounces) 805,000 759,000 643,000
- -----------------------------------------------------------------------------------
</TABLE>
In this report, unless otherwise indicated, all monetary amounts are stated in
Canadian dollars.
1
<PAGE> 4
REPORT TO THE SHAREHOLDERS
This past year was a difficult year for Campbell Resources and the gold
mining industry as a whole. Gold prices continued the downward trend that
started in 1996, reaching an 18-year low of US$278 per ounce in January, 1998 as
central bank selling and speculative short positions created negative sentiment
toward the metal. The price has since rallied and is now trading in a narrow
range between US$290 and US$305 per ounce. Most industry players anticipate that
the gold price will remain relatively volatile for the next year or so,
particularly until the composition of the new European Central Bank's reserve
base is finalized.
At current gold prices, indications are that more than half of the
world's gold mine production is uneconomic. There have already been many
announced mine closures and write-downs, project delays and reduced exploration
budgets. These market conditions coupled with the uncertainty in the gold price
have made it necessary for the Company's management to conduct a detailed
examination of its operations in order to re-focus efforts in critical areas. As
a consequence, Campbell wrote down the carrying value of the Joe Mann Mine by
$28 million, ceased mining at the Santa Gertrudis Mine in Mexico, and suspended
development of the Cerro Quema project in Panama. Exploration and development
programs were also re-evaluated and adjusted accordingly. The goal of this
ongoing evaluation is to minimize current cash outlays in such a way that
near-term and future production will not be impacted.
Campbell had operating achievements worth noting despite this year's
difficulties. The Joe Mann Mine in northwestern Quebec achieved a fourth
consecutive year's increase in gold production yielding 73,500 ounces of gold
while cash operating costs were lowered to US$264 per ounce. It is anticipated
that the Joe Mann Mine will maintain this level of production in 1998. The shaft
deepening and lateral development program initiated at the Joe Mann Mine in late
1996 is progressing extremely well with the shaft sinking portion of the program
now completed on time and under budget. The Company continues to review its
options with respect to partially delaying the total development of the lower
mine levels in order to conserve capital where such delays would not severely
impact future operations.
The Company has maintained a strong cash position of $41.7 million
despite the lower revenues and higher unit costs incurred in 1997. The cash and
short-term deposits make up the majority of year-end working capital of $49
million which will help fund necessary exploration and development at the Joe
Mann Mine, advance high priority exploration targets outside the immediate mine
area at Santa Gertrudis, and provide capital towards potential further gold
acquisitions in 1998.
FINANCIAL AND OPERATING RESULTS
For the year ended December 31, 1997 Campbell recorded a loss of $40.4
million, or $0.27 per share, compared to net income of $9 million, or $0.06 per
share in 1996. Excluding write-downs and closure costs of $31.7 million, there
was a loss from operations of $12.2 million in 1997 compared to income from
operations of $6.7 million in 1996. The loss from operations in 1997 was
primarily due to lower gold prices, and a decrease in gold production and higher
mining costs at the Santa Gertrudis Mine.
Gold production of 113,000 ounces in 1997 decreased from the 125,000
ounces produced in 1996. The lower production was attributable to a combination
of mining lower grade ore at the Santa Gertrudis Mine and the cessation of
mining operations at Santa Gertrudis in early December 1997.
Cash operating costs in 1997 were US$288 per ounce of gold produced
compared with US$252 per ounce a year earlier. Campbell's realized gold revenue
of US$336 per ounce in 1997 is US$5 above the average COMEX market price for the
year of US$331 as a result of hedging activities. This compares to realized gold
revenue of US$396 per ounce in 1996.
During the third quarter of 1997, the Company terminated part of its
gold hedging program resulting in the receipt of cash proceeds of $9.7 million.
Subsequent to the year end, Campbell restructured its existing hedging program
for 1998 and currently has 45,000 ounces hedged at US$327 per ounce.
Exploration spending of $4.7 million in 1997 resulted in the
identification of favourable targets at both the Joe Mann and Santa Gertrudis
properties. Several of these targets may be upgraded to reserves over the next
few years through focused exploration and development.
2
<PAGE> 5
JOE MANN MINE, CANADA
The Joe Mann Mine in Quebec experienced an excellent year in 1997 with
gold production of 73,500 ounces, an increase of 4.5% over 1996. Cash operating
costs were further reduced by US$8 per ounce to US$264 per ounce. In 1997, mill
head grades were 0.30 ounces per ton, 3.4% higher than the 0.29 ounce per ton
material milled a year earlier. The higher grade ore was the result of better
than expected grades in some stopes. The mine also produced 1.4 million pounds
of copper and 28,000 ounces of silver in 1997.
The shaft sinking portion of the project to deepen the No. 2 mine shaft
by almost 1,100 feet was completed in December on schedule and under budget. The
shaft now extends to a depth of more than 3,700 feet below the surface. Lateral
development to connect the ore and waste pass systems will be completed by the
first half of 1998. Once this phase of development is completed, the total cost
of the shaft deepening project is expected to be approximately $1 million less
the budgeted cost of $14.5 million. Subsequently, lateral development will be
initiated on the six new production levels to access the more than 335,000
ounces of possible reserves.
Last year, more than 104,000 feet of exploration and ore definition
drilling was completed at Joe Mann. As of December 31, 1997 proven, probable and
possible geological reserves at the Joe Mann Mine were 848,000 ounces.
SANTA GERTRUDIS MINE, MEXICO
Gold production at the Santa Gertrudis Mine of 39,200 ounces was less
than projected for 1997 and costs increased to US$333 per ounce. A decision was
made to cease mining operations at Santa Gertrudis in December 1997 after
attempts to find a sufficient supply of easily mineable, high-grade ore were
unsuccessful. Despite the cessation of mining activity, Santa Gertrudis will
continue to produce gold in 1998 as ore presently on the pads continues to be
leached. In 1998 Campbell expects Santa Gertrudis will produce between 12,000
and 15,000 ounces of gold at a significantly lower cash operating cost.
Since mining was initiated at Santa Gertrudis, the property has yielded
approximately 300,000 ounces of gold and the potential to find additional oxide
mineralization within the 92 square-mile property is considered to be excellent.
The 1998 exploration program will follow-up on exploration targets identified so
far. Campbell remains committed to Santa Gertrudis and is presently
concentrating its efforts on exploring outside the immediate mine area in order
to define new reserves so that we may recommence mining and increase production
as soon as possible.
In addition to near-surface oxide reserves, Campbell has started to
investigate the potential for deeper gold-bearing sulphide mineralization.
Results of Campbell's exploration efforts and an independent mineral industry
consultant's report supporting the similarities between Santa Gertrudis and the
Carlin Trend prompted management to seek a joint venture partner to evaluate the
potential for deep sulphide mineralization. Campbell received significant
expressions of interest, however, the current gold price environment and reduced
exploration budgets resulted in no firm offers. Campbell still believes in the
deep sulphide potential of the property but will continue to focus on
exploration of near-surface oxide mineralization until gold prices and
exploration budgets recover.
CERRO QUEMA PROJECT, PANAMA
During the first half of 1997 construction of the mine access road and
the haulage roads to the main La Pava pit was initiated. In addition,
construction of the camp site infrastructure and initial earthworks on the
valley leach pad was started.
In June, construction at the Cerro Quema gold project was temporarily
suspended by order of the Office of Mineral Resources, Ministry of Commerce and
Industry in Panama following heavy rainfalls which created high levels of
sedimentation in the local rivers. The Company, working in conjunction with the
Panamanian authorities, resolved the problem by completing a program of
sedimentation control and revegetation. As a result of these environmental
efforts, a resolution was passed lifting restrictions on the project's
development.
Unfortunately, low gold prices have made it necessary to put the
project on a care and maintenance basis until the price of gold improves.
3
<PAGE> 6
PERSONNEL AND ACKNOWLEDGEMENTS
One of Campbell's key strengths lies in its highly effective technical
and management teams which have a proven record for improving the profitability
at its mining operations. We will continue to apply these skills to add value to
current and future mining projects.
The Company provides employment for approximately 350 employees in
Canada, Mexico and Panama. We are proud of our employees, whose skills,
dedication and enthusiasm not only provide the foundation for the Company but
also determine the direction and growth of the Company in the future. It is the
Company's policy to conduct business responsibly in a manner designed to protect
its employees and the natural environment.
OUTLOOK AND STRATEGY
In 1997 the gold mining industry suffered a setback resulting from a
significant drop in the price of gold. This set back has made Campbell's
management re-assess every aspect of its business from exploration through to
development and production at its mine properties, in addition to administrative
costs at its corporate office. In order to minimize losses and preserve its cash
position and strong balance sheet, Campbell has suspended mining at Santa
Gertrudis and development of Cerro Quema and has re-evaluated capital and
exploration expenditures. As a result, Campbell is a more efficient mining
company well positioned for growth in the coming year.
Management remains confident about the long-term prospects for growth
in the Company and for an increase in the price of gold.
We are committed to enhancing shareholder value by striving to increase
gold production and reserves through exploration on our mine properties and
through the acquisition of compatible assets. We will also improve shareholder
value by continuing to improve efficiencies at our existing operations.
With its strong working capital position and negligible debt, Campbell
is well-positioned to investigate possible acquisitions that will provide the
Company with additional low-cost gold production.
In 1997, Campbell engaged outside consultants to assist in identifying
suitable acquisition and/or merger targets. As a result of these efforts,
Campbell conducted due diligence on several candidates and is pursuing a number
of opportunities. To date, our efforts have not yet resulted in a transaction
and Campbell is naturally disappointed with this outcome. However, in order to
ensure that shareholders obtain the maximum accretion from any acquisition, the
Company has been selective in the assets it has reviewed. We have established
specific criteria for an acquisition including that the property should be at or
nearing commercial production; the property should be capable of sustaining
annual gold production of approximately 60,000 ounces at a projected cash cost
in the lower to middle quartile of North American gold producers of between
US$175 and US$250 per ounce for a minimum five year period and the property
should have significant exploration potential.
We are confident that a program of focused exploration, prudent capital
and exploration expenditures and the ultimate acquisition of a compatible,
high-quality asset will see Campbell through this period of depressed gold
prices.
/s/ James C. McCartney
- ----------------------
James C. McCartney
Chairman of the Board
/s/ John O. Kachmar
- --------------------
John O. Kachmar
President & Chief Executive Officer
Toronto, Ontario
March 12, 1998
4
<PAGE> 7
JOE MANN MINE
Quebec, Canada
[PHOTO]
OVERVIEW
The Joe Mann Mine is a high-grade underground gold mine located
approximately 350 miles north of Montreal in the Province of Quebec. The mine
has been in continuous production for more than 10 years. It has produced over
810,000 ounces of gold and currently has geological reserves of 848,000 ounces
and mineable reserves of 510,000 ounces. These existing reserves project a
further 8 year mine life and the deposit remains open at depth and along strike.
In addition, the gold zone west of the shaft is being explored and developed.
The Joe Mann Mine is located within the Abitibi Greenstone belt, which
is one of the world's most prolific gold producing regions, hosting over 250
mines. The Joe Mann Mine is a vein-type deposit with gold-copper mineralization
hosted by quartz veining within three laterally continuous shear systems. To
date the deposit has been mined along a 3,000 foot strike length, to depths of
2,350 feet.
[MAP OF LOCATION OF JOE MANN MINE]
5
<PAGE> 8
Mining is predominantly carried out using the shrinkage stope mining
method. Ore is then processed at the Company's mill facilities, where gold is
recovered through gravity and cyanidation circuits; and gold and copper
concentrate is produced from a flotation circuit.
The Joe Mann Mine currently has mineable reserves and geological
reserves as stated in the table below.
<TABLE>
<CAPTION>
PRODUCTION STATISTICS 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Tons Milled 266,000 266,000 282,000
Gold Grade (oz./ton) 0.299 0.290 0.252
Copper Grade (%) 0.280 0.302 0.291
Gold Recovery (%) 93.9 93.2 92.7
Copper Recovery (%) 96.3 96.3 95.7
Gold Production (oz.) 73,500 70,400 64,500
Copper Production (000's lbs) 1,367 1,473 1,494
Cash Operating Cost
per Ounce Gold (US$) 264 272 284
<CAPTION>
RESERVES
- ----------------------------------------------------------------
MINEABLE ORE RESERVES (1)
- ----------------------------------------------------------------
<S> <C> <C> <C>
Proven and Probable
- tonnage 553,000 727,000 875,000
- gold grade(oz./ton) 0.238 0.268 0.272
- copper grade (%) 0.270 0.260 0.260
- contained oz. gold (2) 131,700 194,900 237,900
Possible (3)
- tonnage 1,417,000 1,546,000 217,000
- gold grade(oz./ton) 0.267 0.273 0.302
- copper grade (%) 0.260 0.259 0.250
- contained oz. gold (2) 378,200 422,500 65,600
<CAPTION>
DILUTED GEOLOGICAL RESERVES
- ----------------------------------------------------------------
<S> <C> <C> <C>
Proven and Probable
- tonnage 879,000 969,000 1,159,000
- gold grade(oz./ton) 0.225 0.249 0.260
- copper grade (%) 0.240 0.250 0.280
- contained oz. gold (2) 197,900 241,300 300,800
Possible 3
- tonnage 2,461,000 2,647,000 2,378,000
- gold grade(oz./ton) 0.264 0.259 0.259
- copper grade (%) 0.250 0.240 0.270
- contained oz. gold (2) 649,600 685,600 615,900
</TABLE>
(1) - MINEABLE RESERVES AT DECEMBER 31, 1997 HAVE BEEN CALCULATED BASED ON
A GOLD PRICE OF US$300 PER OUNCE FOR 1998, US$325 PER OUNCE FOR 1999,
AND US$375 THEREAFTER. MINEABLE RESERVES AT DECEMBER 31, 1996 AND 1995
WERE BASED ON A GOLD PRICE OF US$375 PER OUNCE.
(2) - ACTUAL RECOVERED OUNCES WILL DEPEND ON METALLURGICAL RECOVERY RATES.
(3) - THE POSSIBLE CATEGORY INCLUDES MATERIAL BASED LARGELY ON ASSUMED
CONTINUITY OR REPETITION FOR WHICH THERE ARE REASONABLE GEOLOGICAL
INDICATIONS BUT FOR WHICH THERE ARE LIMITED SAMPLES AND MEASUREMENTS.
OPERATING RESULTS
The past year saw continued improvement at the Joe Mann Mine. Gold
production increased by 4.5% from 70,400 ounces in 1996 to 73,500 ounces in 1997
while cash operating costs fell 2.9% from US$272 per ounce in 1996 to US$264 per
ounce in 1997. The primary reasons for the improved performance were improved
mill head grades and improved mill recoveries. Mill head grades rose from 0.29
ounces of gold per ton in 1996 to 0.30 ounces of gold per ton in 1997. Mill
recoveries rose from 93.2% in 1996 to 93.9% in 1997 in part due to continuing
mill circuit improvements.
The Joe Mann Mine also has by-product production of copper and silver.
Production of copper in 1997 was 1.4 million pounds, slightly lower than the 1.5
million pounds produced in 1996. Silver production increased to 28,000 ounces in
1997 compared to 26,000 a year earlier.
Following the drop in gold prices in 1997, the Company prepared a new
life-of-mine plan for the Joe Mann Mine, calculating mineable reserves based on
a gold price of US$300 per ounce in 1998, US$325 per ounce in 1999 and US$375
thereafter. As a result of this new plan the Company has concluded that the
carrying value of the Joe Mann Mine is impaired and recorded a write down of $28
million before taxes, or $25.7 million net of the drawdown of related deferred
mining taxes.
[BAR GRAPH]
6
<PAGE> 9
DEVELOPMENT OF THE MAIN OREBODY AT DEPTH
In the third quarter of 1996, a mine feasibility study was completed
and approved to commence the deepening of the No. 2 production shaft. The shaft
sinking portion of the project was completed on time and under budget and the
shaft now extends to a depth of more than 3,700 feet below surface. Lateral
development to connect the ore and waste pass systems will be completed by the
first half of 1998. Current forecasts indicate the project will be approximately
$1 million under the budgeted costs of $14.5 million.
With the handover of the project from the contractor to management at
the end of the first half of 1998, the Company will review its options with
respect to possibly delaying the total development of the lower mine levels in
order to conserve capital. Any delays in development will not impact near-term
production and will be carried out, to the extent possible, in a manner that
will minimize the impact on future production.
Development completed in 1997 was targeted towards near-term production
from the Main Zone while at the same time facilitating development of deeper
levels for production in the future. Development for 1997 totalled approximately
19,000 feet and was completed above the 2350 foot level. Exploration and
production definition drilling at the Joe Mann Mine totalled approximately
104,000 feet.
Joe Mann Mine
Longitudinal section looking North
[Illustration of Joe Mann Mine]
7
<PAGE> 10
UNDERGROUND EXPLORATION OF THE WEST ZONE
Significant gold mineralization was discovered in an area west of the
No. 2 shaft during a surface exploration drill program in 1994. An exploration
drift was advanced on the 1650 foot level and an interval of 455 feet averaging
0.27 ounces of gold was cut beginning 1,820 feet west of the No. 2 shaft. The
exploration potential of the West Zone was subsequently tested above and below
the 1650 foot level with a number of drill holes.
In 1997, three additional exploration drifts were commenced along the
1825, 2000 and 2175 foot levels, west of the No. 2 shaft. In addition, almost
30,000 feet of exploration drilling was completed. The results of the drilling
to date confirm the presence of ore-grade intersections. In order to confirm ore
continuity and conserve capital in view of lower gold prices, a decision was
made to suspend further development on the 2175 foot level, for the time being.
A raise is being driven from the 1825 foot level to the 1650 foot level in the
centre of the mineralization to enable further sampling and analysis of the
continuity of the West Zone. If the continuity is confirmed, similar raises will
be completed between the 2175, 2000 and 1825 foot levels to further examine the
continuity of the West Zone at depth. The Company continues to consider the
potential of the West Zone to be good and is optimistic that an economic orebody
will be defined in this area.
GOLD PRODUCTION AT THE JOE MANN MINE IS EXPECTED TO BE 73,000 OUNCES IN 1998 AT
AN ESTIMATED CASH OPERATING COST OF US$275 PER OUNCE.
Daniel Petit operates a remote control mucking machine to recover broken ore
from the 16-A-5 stope.
[PHOTO]
8
<PAGE> 11
SANTA GERTRUDIS MINE
Sonora, Mexico
[PHOTO]
OVERVIEW
The Santa Gertrudis Mine is an open pit heap leach operation situated
approximately 150 miles south of Tucson, Arizona in northwestern Mexico. Gold
production in 1997 amounted to 39,200 ounces at a cash operating cost of US$333
per ounce. As a result of a lack of higher grade deposits to supplement the
lower grade production, Campbell decided to cease mining operations in late
1997, but will continue to heap leach ore presently on the leach pads.
Ore deposits mined at Santa Gertrudis have strong geological
similarities to the prolific gold mines found within the Carlin Trend in Nevada.
The Santa Gertrudis orebodies are preferentially hosted by silty carbonate
rocks, but have a strong element of structural control. The gold mineralization
is finely disseminated with ore grades typically averaging 2.0 grams of gold per
tonne (gpt gold). The ore is completely oxidized and amenable to the low cost
heap leach gold extraction method.
[MAP OF LOCATION OF SANTA GERTRUDIS MINE]
9
<PAGE> 12
The Santa Gertrudis Mine has been in continuous production since 1991
and has produced approximately 300,000 ounces of gold during this time period.
Since Campbell's acquisition of the property in mid-1994, it has produced more
than 165,000 ounces at an average cash operating cost of US$250 per ounce.
During this period the Company's exploration team has discovered and delineated
additional reserves replacing those that have been mined. Campbell remains
committed to the property and has embarked on an exploration program to define
additional oxide reserves outside the old mining area in 1998.
OPERATING RESULTS
The decrease in production to 39,200 ounces of gold in 1997 from 54,400
ounces in 1996 was largely attributable to the low grade of the ore mined from
the Dora, Katman and El Toro pits, all of which are now mined out, and the La
Trinidad pit which has some remaining ore, should operations resume. As a
result, the average grade mined in 1997 fell to 1.71 gpt gold from 2.06 gpt gold
in 1997.
High rainfall resulting from the El Nino weather effect was also, to
varying degrees, responsible for lower production. As a result, the average cash
operating cost rose to US$333 per ounce from US$227 per ounce in 1996. A
decision was made to cease mining operations in December 1997 until sufficient
ore reserves have been delineated to ensure resumption of operations.
<TABLE>
<CAPTION>
PRODUCTION STATISTICS 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Tonnes mined (ore+waste) 7,432,000 10,397,000
Tonnes ore mined 1,021,000 965,000
Strip Ratio 6.28 9.8
Gold Grade (grams/metric tonne) 1.71 2.06
(oz./ton) 0.05 0.060
Gold Recovery (%) 69.5 84.6
Gold Production (oz.) 39,200 54,400
Cash Operating Cost
per Ounce Gold (US$) 333 227
<CAPTION>
ORE RESERVES & MINERAL RESOURCES
- ------------------------------------------------------------------------
<S> <C> <C>
Proven and Probable(1)
- ------------------------------------------------------------------------
- tonnage (metric tonnes) NIL 1,578,000
- gold grade (grams/metric tonne) 1.79
(oz./ton) 0.052
- indicated gold (oz.) 90,900
Possible (2)
- ------------------------------------------------------------------------
- tonnage (metric tonnes) 2,422,000 1,141,000
- gold grade (grams/metric tonne) 2.00 1.99
(oz./ton) 0.058 0.058
- indicated gold (oz.) 155,700 73,100
</TABLE>
(1) - MINEABLE RESERVES.
(2) - DILUTED GEOLOGICAL RESOURCES - THE POSSIBLE CATEGORY INCLUDES
MATERIAL BASED LARGELY ON ASSUMED CONTINUITY OR REPETITION FOR WHICH
THERE ARE REASONABLE GEOLOGICAL INDICATIONS BUT FOR WHICH THERE ARE
LIMITED SAMPLES AND MEASUREMENTS.
EXPLORATION AND RESERVE DEVELOPMENT
Exploration initiated at the beginning of the year was primarily
designed to delineate easily accessible deposits that would provide near-term
production. While efforts to find mineralization within the mine area were
successful, finding easily accessible, near-surface economic deposits in this
area was difficult. At mid-year, exploration efforts were re-focused to begin
evaluating large portions of the property that, in the past, had received
little, if any, exploration. Almost 250 holes totalling more than 26,000 metres
were drilled to explore for and develop reserves at Santa Gertrudis in 1997.
Most of the exploration outside the immediate mine area was focused on
a portion of the property southeast of the mine where the compilation of
geochemical, geophysical and geological data combined with radar and satellite
imagery and airborne geophysical surveys defined major structures with
significant gold-bearing potential.
The compilation has identified 5 major parallel structures each in
excess of 5 kilometres long that could have acted as traps for upward migrating
gold-bearing solutions. The main mineralized targets occur where these trap
structures intersect younger faults which may have acted as conduits or feeder
systems for gold-bearing fluids. Other possible mineralized targets may occur
above the trap fault where mineralizing solutions may have breached the
impermeable barrier. Work in 1997 was focused on the La Gloria Norte and
Esperanza trap structures and their associated feeders structures.
The La Gloria shear zone is a 5 kilometre-long northerly trending
feeder structure which intersects the La Gloria Norte trap structure. In this
area there are highly prospective exploration targets known as the El Tigre,
Nadia and Tracy zones. It is also appears that the northern extension of the La
Gloria shear extends into previously delineated mineralized bodies known as the
La Gloria Jasperoid and La Gloria Deep zone. A total of 27 holes encompassing
3,260 metres were drilled to explore Tracy, Nadia and El Tigre. These three
zones extend over a 1.1 kilometre section of the La Gloria shear zone, leaving
approximately 3.9 kilometres of the structure as yet unexplored.
The Tracy zone was discovered after following up a geophysical anomaly.
Grab samples taken from the area returned values of 12.4 and 32.6 gpt gold. This
initial program was followed up with detailed mapping, trenching, channel
sampling and
10
<PAGE> 13
[GEOLOGICAL COMPILATION OF THE GRETA AREA]
reverse circulation drilling with the first trench returning an assay from
channel samples of 3.3 gpt gold across 46.55 metres. Gold mineralization is
associated with highly altered and sheared sedimentary rocks intruded by
lamprophyre dykes. The lamprophyre dykes originate deep within the earth's crust
indicating the mineralizing fluids are derived from a much deeper source.
Another trench south of the first trench returned a value of 7.6 gpt gold over
3.2 metres indicating the presence of high-grade mineralization over a 50-metre
strike length.
Subsequent drilling confirmed the presence of mineralization at depth
with values of 1.034 gpt gold over 6.0 metres from hole TY-101 and 3.739 gpt
gold over 4.5 metres from hole TY-103. Hole TY-101 was drilled below the
high-grade channel sample and TY-103 was drilled 80 metres south of TY-101.
Other drill results included TY-105 with 4.08 gpt gold over 4 metres and TY-106
returned 4.975 gpt gold over 1.5 metres. The Tracy zone has a known strike
length of 125 metres and ranges in width up to 38 metres.
11
<PAGE> 14
Further south along the La Gloria shear, a total of 21 holes were
drilled to test the El Tigre zone. Some of the better intersections from these
holes include 2.56 gpt gold over 7.5 metres in TIG-107, 1.4 gpt gold over 1.5
metres in TIG-108, 3.35 gpt gold over 1.5 metres in TIG-110, 7.048 gpt gold over
6.0 metres in TIG-111, 1.75 gpt gold over 3.0 metres in TIG-114, 0.85 gpt gold
in TIG-115, and 1.352 gpt gold over 7.5 metres in TIG-117.
The Nadia zone, located between the Tracy and El Tigre zones, has
undergone initial exploration including soil geochemical sampling, mapping and
trenching with encouraging results. The initial soil sample taken from the zone
returned a value of 5.6 gpt gold and subsequent trenching returned an assay of
1.616 gpt gold over 1.6 metres. Additional focused exploration is planned for
the Tracy, Nadia and El Tigre zones for 1998 in order to establish new economic
oxide reserves so that the resumption of mining can be considered in the near
future.
The Ontario shear zone also acts as a feeder structure which occurs as
a splay branching off of the La Gloria shear zone in a northeasterly direction,
Geochemical soil sampling, trenching, channel sampling and drilling have
delineated a 450 metre-long target area associated with the Ontario shear that
hosts the Greta Northeast, Greta Hill, Greta Ontario and Greta Sur zones. A
total of 35 holes comprising 3,620 metres were drilled with more than half of
the holes reporting multi-gram intersections over widths of up to 4.5 metres.
The 500-metre-long interval between the junction of the Ontario and La Gloria
shear zones and the southwestern most drilling on the Greta shear also appears
promising with two surface samples assaying 23.09 gpt gold and 13.91 gpt gold.
Additional exploration will be completed in this region in 1998.
The second possible trap structure which received significant effort in
1997 was the Esperanza structure. A program of soil sampling, trenching and
preliminary drilling is continuing to evaluate the Esperanza splay fault, Lupita
and Lupita Sur zones as well as a zone of high-grade mineralization. Three areas
of sampling and trenching have identified a breach of the Esperanza structure
that has a strike length of 60 metres above the Esperanza fault over a true
width of 1.8 metres. Values from trenches include 43.1 gpt gold over 3.8 metres,
23.9 gpt gold over 4 metres, 2.84 gpt gold over 1.5 metres and 267 gpt gold over
0.5 metres. Additional work is planned both above and below the Esperanza trap
fault.
More than 15 high priority oxide targets have been identified by soil
geochemistry along three of the five major trap structures at Santa Gertrudis.
Along with the potential to find additional oxide deposits, there is
significant potential to find larger volumes of deeper gold-bearing sulphide
mineralization at Santa Gertrudis. Results of Campbell's exploration efforts and
an independent mineral industry consultant's report supporting the similarities
between Santa Gertrudis and the Carlin Trend prompted management to seek a joint
venture partner to evaluate the potential for deep sulphide mineralization. The
Company received significant interest in the deep sulphide potential of the
property from major gold mining companies who visited the property with a view
to participating in a joint venture exploration program. The level of interest
was high, however, the current gold price environment and reduced exploration
budgets resulted in no firm offers to participate at this time. Campbell still
believes in the deep sulphide potential of the property but in the short-term,
will continue to focus on exploration of near-surface, oxide mineralization
until gold prices and exploration budgets recover.
GOLD PRODUCTION OF UP TO 15,000 OUNCES FROM CONTINUED LEACHING IS PROJECTED FOR
1998 AT A LOW CASH OPERATING COST. FOCUSED EXPLORATION WILL BE COMPLETED IN
ORDER TO DEFINE ADDITIONAL RESERVES AND RESUME PRODUCTION IN THE YEARS TO COME.
[PHOTO: Structural geologist, Scott Anderson examines high-grade
mineralization from a trench near the Esperanza Fault.]
12
<PAGE> 15
CERRO QUEMA PROJECT
Los Santos, Panama
During the first half of 1997 construction of the mine access roads and
haulage roads to the main La Pava pit were initiated. In addition construction
of the camp site and earthworks on the valley leach pads was also started.
In June of 1997, construction at the project was temporarily suspended
by order of the Office of Mineral Resources, Ministry of Commerce and Industry
in Panama following early heavy rainfall which created high levels of
sedimentation in the local rivers. The Company, working in conjunction with the
Panamanian authorities, resolved the problem by completing a program of
sedimentation control and revegetation. More than 25,000 seedlings were planted
in areas of slope instability. As a result of these environmental efforts, a
resolution was passed lifting restrictions on the project's development.
ORE RESERVES
<TABLE>
<CAPTION>
Proven and Probable (1)
<S> <C> <C>
- tonnage (metric tonnes) 8,772,000
- gold grade (grams/metric tonne) 1.16
(oz./ton) 0.034
- contained gold (2) (oz.) 327,200
</TABLE>
1 - MINEABLE RESERVES BASED ON A GOLD PRICE OF US$400 PER OUNCE. BASED ON
A GOLD PRICE OF US$375 PER OUNCE, THE MINEABLE OUNCES OF CONTAINED GOLD
WOULD DECREASE BY APPROXIMATELY 2,200 OUNCES.
2 - ACTUAL RECOVERED OUNCES WILL DEPEND ON METALLURGICAL RECOVERY RATES.
The feasibility study completed last year indicates Cerro Quema has
mineable reserves of 8,772,000 tonnes averaging 1.16 gpt gold and projected cash
operating costs of approximately US$180 per ounce. Remaining capital costs
associated with the project are in the order of US$100 to US$110 per ounce. Gold
prices have remained in the US$280 to US$305 range for the last three months and
appear unlikely to materially increase during 1998. Campbell has therefore put
the project on a care and maintenance basis pending an improvement in the price
of gold.
Should gold prices improve significantly, construction at Cerro Quema
will recommence and once finished the project will produce approximately 50,000
ounces of gold annually. The Company believes that there is excellent
exploration potential beyond the existing reserves on the property.
[MAP OF CERRO QUEMA PROJECT LOCATION]
13
<PAGE> 16
[ILLUSTRATION OF GOLD BRICKS]
Management's Discussion and Analysis Pages 15 to 19
- --------------------------------------------------------------------------------
Management's Responsibility
Auditors' Report Page 20
- --------------------------------------------------------------------------------
Consolidated Balance Sheets Page 21
- --------------------------------------------------------------------------------
Consolidated Statements of Income
Consolidated Statements of Retained Earnings (Deficit) Page 22
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows Page 23
- --------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements Pages 24 to 30
- --------------------------------------------------------------------------------
Five Year Comparative Summary
Selected Quarterly Financial Data Page 31
- --------------------------------------------------------------------------------
Shareholder Information Page 32
- --------------------------------------------------------------------------------
Corporate Information Inside Back Cover
- --------------------------------------------------------------------------------
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1997 - A YEAR OF FALLING GOLD PRICES
The past year has been extremely difficult for the gold industry. Gold
prices continued the downward trend that started in 1996 through 1997 and into
early 1998 reaching an 18 year low of US$278 per ounce in January, 1998 as
central bank selling and speculative short positions created negative sentiment
towards the metal. The price has since rallied slightly from these lows and has
settled in a narrow band between US$290 - US$305 per ounce. Most industry
players anticipate that gold will remain relatively volatile for the next year
or so, particularly until the composition of the new European Central Bank's
reserve base is finalized.
At current gold prices, indications are that more than half of the
world's gold mine production is uneconomic. There have already been many
announced mine closures and writedowns, project delays and reduced exploration
budgets. Campbell has not been immune to these same influences. As gold prices
persisted at current levels, Campbell conducted a review of the circumstances at
each of the Company's three operations.
JOE MANN MINE: The Company has prepared a new life-of-mine plan for the
Joe Mann Mine calculating mineable reserves based on a gold price of US$300 in
1998, US$325 in 1999 and US$375 thereafter. As a result of this new plan, the
Company has concluded that the carrying value of the Joe Mann Mine is
overstated. Accordingly, a writedown of $28 million before taxes, or $25.7
million net of the drawdown of related deferred mining taxes, has been provided
in the financial statements. In other developments, the shaft sinking project
continued on schedule during 1997. Current forecasts indicate that the project
will be approximately $1 million under the originally budgeted $14.5 million on
completion and handover to mine personnel in late Spring, 1998. The Company
continues to review its options with respect to possibly delaying the total
development of the lower mine levels in order to conserve capital where such
delays would not severely impact future operations. The mine operations had an
excellent year producing 73,500 ounces of gold at a cash cost of US$264 per
ounce.
SANTA GERTRUDIS MINE: As previously announced, the Santa Gertrudis Mine
ceased mining in early December of 1997. The grade of the remaining developed
deposits was insufficient to enable them to be mined economically on their own
without additional sources of higher grade production. It was also evident that
the exploration efforts, which had managed to replace ore mined on an ongoing
basis in each of the last three years, were unable to locate the required higher
grade ore in the time frame available. The estimated severance and other closure
costs of $1.9 million have been included in writedown and closure costs in the
statements of income. The focus at Santa Gertrudis for 1998 will be an
exploration program following up on the numerous priority targets approximately
7 kilometres south-east of the mine area. Preliminary indications are
encouraging and the Company hopes that sufficient oxidized resources can be
located to enable mining to resume in the future. Any such resumption in
operations will be dependant on the gold price and the cost of the limited
development that would be required. There can be no assurance that gold prices
will rise to a level or that sufficient ore reserves will be discovered and
developed that will make it economic to resume mining operations.
The Company received significant interest in the deep sulphide
potential of the property from larger gold mining companies who were invited to
visit the property with a view to participating in a joint venture exploration
program. However, while their level of interest was high, the current gold price
environment, and reduced exploration budgets resulted in no firm offers to
participate at this time. Campbell still believes in the deep sulphide potential
of the property but in the short-term will continue to focus on exploration of
near surface oxide mineralization until gold prices and exploration budgets
recover.
At December 31, 1997, the net book value of the Santa Gertrudis Mine
included in natural resource properties was $12.2 million comprising $3.6
million of plant and equipment, $5.7 million for property cost and $2.9 million
for deferred exploration. The Company has concluded that no provision is
required to reduce the carrying value of these amounts at this time on the basis
that the estimated value of the plant and equipment exceeds their carrying
amount and on the basis of the positive indications from the ongoing exploration
program.
15
<PAGE> 18
CERRO QUEMA PROJECT: The Cerro Quema gold project has effectively been
placed on a care and maintenance basis for 1998 due to the project being
uneconomic at a current gold price of US$300. The Company has concluded that no
provision against the carrying value of this asset is required based on
long-term assumed gold prices of US$375 per ounce.
FINANCIAL RESULTS
For the year ended December 31, 1997, the Company recorded a loss of
$40.4 million, or $0.27 per share, compared to net income of $9 million ($0.06
per share) in 1996 and $10.5 million ($0.09 per share) in 1995. Excluding the
writedown and closure costs of $31.7 million, there was a loss from operations
of $12.2 million in 1997 compared to income from operations of $6.7 million in
1996 and $11.3 million in 1995. The loss from operations in 1997 is principally
due to lower gold prices, a decrease in gold production and higher mining costs
and exploration expense at the Santa Gertrudis Mine. The decrease in net income
in 1996 compared to 1995 was primarily due to increased depreciation and
amortization charges at the Joe Mann Mine and an increase in exploration expense
at the Santa Gertrudis Mine.
REVENUE
<TABLE>
<CAPTION>
Gold produced (ounces): 1997 1996 1995
<S> <C> <C> <C>
Joe Mann Mine 73,500 70,400 64,500
Santa Gertrudis Mine 39,200 54,400 55,600
- ----------------------------------------------------------------
112,700 124,800 120,100
================================================================
Gold revenue per ounce US$336 US$396 US$402
Average market price US$331 US$388 US$384
- ----------------------------------------------------------------
</TABLE>
Revenue from metal sales decreased in 1997 by 21.2% to $52.6 million
compared to $67.2 million in 1996 and $67.4 million in 1995. The decrease in
1997 was attributable to a 15% decrease in the gold price realized during the
year and a 9.7% decrease in gold production to 112,700 ounces compared to
124,800 ounces in 1996. The decrease in gold production was attributable to
lower grade material mined at the Santa Gertrudis Mine and the cessation of
mining operations at Santa Gertrudis in early December, 1997. Revenue in 1996
was comparable to 1995 as the 4% increase in gold production during 1996 was
offset by a reduction in the overall gold price per ounce recorded after
reflecting past hedging gains.
The average gold price realized compared to the average market price is
disclosed in the previous table. The difference between the price realized and
the market price is primarily attributable to the Company's limited hedging
activities. Campbell's general policy 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.
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,
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. 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 13 to Consolidated Financial Statements).
Revenues from copper production at the Joe Mann Mine accounted for 3.6%
of total revenue in 1997 compared to 3.1% in 1996 and 4% in 1995. Copper
production decreased to 1.4 million pounds compared to 1.5 million pounds in
1996 and 1995. The Company has sold forward its estimated 1998 copper production
at US$0.95 per pound.
EXPENSES
<TABLE>
<CAPTION>
Cash Cost per ounce: 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Joe Mann Mine US$264 US$272 US$284
Santa Gertrudis Mine US$333 US$227 US$205
- ----------------------------------------------------------------
Overall US$288 US$252 US$247
================================================================
</TABLE>
Mining expense increased to $46.7 million in 1997 compared to $44.7
million in 1996 and $43.4 million in 1995. The increase in 1997 compared to 1996
was primarily due to mining ore at Santa Gertrudis with higher waste to ore
ratios compared to 1996.
16
<PAGE> 19
JOE MANN MINE
The Joe Mann Mine increased production by 4.5% to 73,500 ounces of gold
in 1997 compared to 70,400 ounces in 1996 and 64,500 ounces in 1995. The
increase is primarily attributable to higher mill head grades of 0.30 ounces of
gold per ton in 1997 compared to 0.29 in 1996 and 0.252 in 1995. Mill recoveries
also increased to 93.9% in 1997 compared to 93.2% in 1996 and 92.7% in 1995,
largely as a result of the higher mill head grades and continuing mill circuit
improvements. The tons of ore milled remained constant at approximately 266,000
tons in 1997 and 1996 compared to 282,000 tons in 1995. The higher head grades
result from the scheduled mining during 1997 and 1996 of some higher grade
shrinkage and long-hole stopes together with the continued emphasis on dilution
control.
The decrease in cash costs per ounce of gold produced in 1997 and 1996
is primarily attributable to higher gold production in each of those years. For
1998, the Joe Mann Mine is expected to produce approximately 73,000 ounces of
gold at a cash cost of US$275 per ounce.
SANTA GERTRUDIS MINE
For the year ended December 31, 1997, 1.02 million tonnes of ore were
mined with an average grade of 1.71 grams per tonne compared to 0.97 million
tonnes with a grade of 2.06 grams per tonne in 1996 and 1.14 million tonnes with
a grade of 2.17 grams per tonne in 1995. The 28% decrease in gold production
during 1997 was primarily attributable to the lower ore grades mined. The main
sources of production were the Dora, Katman and El Toro pits, all of which are
now mined out, and the La Trinidad pit which has some remaining mineralized
material should mining resume.
The cash production cost per ounce of gold, excluding the severance and
related closure costs, increased by 47% compared to 1996 as a result of the
lower gold production and the fixed nature of a portion of the mine's costs. In
addition to the continuing exploration effort noted above, the Company will
continue applying solution to the leach pads during 1998 and estimates it may
produce approximately 12,000 to 15,000 ounces from the leach pads in 1998.
Subsequently a solution treatment program will be undertaken to neutralize the
remaining toxic elements.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $9.6 million in 1997 and 1996
and $8.1 million in 1995. The amortization on a per ounce produced basis was $85
per ounce in 1997 compared to $78 in 1996 and $69 in 1995. The increase in
amortization per ounce in 1997 is due to a higher proportion of gold production
being generated from the Joe Mann Mine which has a higher depreciable base than
the Santa Gertrudis Mine.
EXPLORATION
Total exploration expenditures for 1997 were $4.7 million compared to
$7.2 million in 1996 and $4.5 million in 1995. Of this amount, $0.6 million
(1996 - $1.7 million; 1995 - $1.2 million) relates to the Joe Mann Mine and $3.7
million (1996 - $4.9 million; 1995 - $2.8 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 $0.3 million (1996 - $0.6 million; 1995 - $0.5
million) relates to grass roots exploration in Mexico and was expensed. In
addition to grass roots exploration, the expense for 1997 includes $5 million
(1996 - $2.6 million; 1995 - $1.3 million) 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 $1.4 million on exploration at Santa Gertrudis
for the first six months of 1998 and $0.3 million at the Joe Mann Mine for the
year.
OTHER INCOME (EXPENSE)
Other income was $2.1 million in 1997 compared to $3.6 million in 1996
and $1.3 million in 1995. The major component, interest income on short-term
deposits, decreased to $1.8 million from $3.2 million in 1996 and $1.7 million
in 1995. The decrease in 1997 was due to a decrease in interest bearing balances
as a result of the capital expenditure programs at the Cerro Quema project and
Joe Mann Mine. The increase in 1996 was due to the increase in the interest
bearing balances following the public share issue for US$22.5 million in early
1996.
17
<PAGE> 20
Interest expense on the Company's convertible debentures was $0.6
million in 1997 compared to $0.7 million in 1996 and $1.2 million in 1995. The
decrease is attributable to the continuing conversion of a portion of the
debentures to common shares (see note 5 to Consolidated Financial Statements).
INCOME TAXES
The Company recorded an income tax recovery of $2 million in 1997 as a
result of the draw down of deferred mining taxes compared to an expense of $0.6
million in 1996 and $1 million in 1995. Reference should be made to note 8 to
the Consolidated Financial Statements for additional information on the reported
tax provisions.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's working capital decreased to $49
million compared to $65.5 million in 1996 and includes cash and short-term
deposits of $41.7 million in 1997 and $55.3 million in 1996. Cash flow from
operations before the net change in non-cash operating working capital decreased
to $0.6 million in 1997 compared to $21.4 million in 1996 and $18.7 million in
1995. The decrease in cash flow is due to the decrease in gold sales revenue and
the increase in mining costs discussed above. Based on a US$300 per ounce
average gold price for 1998 and the production estimates noted above, the
Company believes it will achieve a modest positive operating cash flow in 1998.
The main source of cash for the Company during 1997 was the early
termination of various gold hedging instruments totalling 118,100 ounces. The
Company received cash proceeds of $9,679,000 which was credited against the cost
of the Cerro Quema project to which they related. Sources of cash in 1996, other
than from operations, was the issuance of 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.
CAPITAL EXPENDITURES
During 1997, the Company spent $31.2 million (1996 - $14.4 million;
1995 - $7.9 million) on capital expenditures including $8.9 million (1996 - $5.5
million; 1995 - $4 million) at the Joe Mann Mine of which $6.6 million (1996 -
$1.6 million; 1995 - $ nil) is for the shaft deepening, $1.3 million (1996 -
$1.7 million; 1995 - $1.6 million) for capital additions at the Santa Gertrudis
Mine, $3.7 million (1996 - $4.9 million; 1995 - $2.8 million) for exploration at
Santa Gertrudis and $17.2 million (1996 - $3.4 million; 1995 - $ nil) at the
Cerro Quema project.
OUTLOOK
Campbell will continue to focus on conserving its cash through the
continued prudent management of its assets. It will also continue to pursue
acquisition and/or merger targets. During 1997, the Company engaged outside
consultants to assist in locating suitable acquisitions or possible merger
partners. As a result of these efforts Campbell conducted due diligence
procedures on several targets and made an offer for one of those. To date these
efforts have not resulted in a transaction. Campbell is naturally disappointed
that it has been unable to consummate a transaction this year. However, to
ensure shareholders obtain the maximum accretion from any acquisition, the
Company has been selective in the assets it has reviewed. The Company
established specific criteria for an acquisition including that the property
should already be at or approaching commercial production, produce at least
60,000 ounces of gold a year at a projected cash cost in the US$175-US$250 range
and have a mine life of at least five years with significant potential to extend
that. Campbell believes its strong cash position and lack of debt should enable
it to be appropriately selective in locating the right opportunity.
The continuing low gold price is obviously of much concern. Campbell
will continue to engage in prudent fiscal management to preserve working capital
and maintain cash flow. Should gold prices continue at these levels during 1998,
the Company may have to re-evaluate its new life-of-mine plan for the Joe Mann
Mine. It may be necessary to assume lower gold prices than at present which
would likely decrease ore reserves and amend the life-of-mine plan and the
carrying value of the mine. Campbell will complete the shaft deepening program
to access the ore below the 2350 foot level at the Joe Mann Mine during the
first half of 1998 at a cost of approximately $5.2 million. Further capital
expenditures for underground development at the Joe Mann Mine are currently
being analysed to determine whether any can be postponed without negatively
impacting future production. These decisions will also take into account the
prevailing gold price.
18
<PAGE> 21
Campbell anticipates 1998 production of 88,000 ounces of gold at a cash cost of
approximately US$245 per ounce. Through a re-structuring of its hedge book
subsequent to the year end, the Company now has 45,000 ounces of this production
hedged through the use of purchased puts at an average of US$327 per ounce of
gold.
Computer based systems are used to a limited extent in parts of the
Company's business processes. Campbell is aware of the implications of the year
2000 issue which is the concern that computer programs will create errors
because the programs were written using fewer than the four digits required to
unambiguously define the applicable year. Campbell believes that the year 2000
issue will not pose a significant problem for the Company as it understands
minimal modifications will be required to the off-the-shelf software currently
employed. Initiatives with key suppliers will be undertaken during 1998 to
address year 2000 compliance of their systems.
The profitability of the Company is directly influenced by the price of
gold, the Company's ability to control its costs 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> 22
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
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Campbell Resources
Inc. as at December 31, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of its operations and the cash flows for each
of the years in the three-year period ended December 31, 1997 in accordance with
generally accepted accounting principles.
KPMG
Chartered Accountants
Toronto, Canada
March 9, 1998
20
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
as at December 31
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
ASSETS
Current assets
<S> <C> <C>
Cash and short-term deposits $ 41,735 $ 55,302
Receivables 4,805 8,270
Inventories (note 2) 7,250 9,134
Prepaids 995 749
- --------------------------------------------------------------------------------
Total current assets 54,785 73,455
- --------------------------------------------------------------------------------
Other assets (note 3) 986 1,271
- --------------------------------------------------------------------------------
Natural resource properties (note 4) 170,256 149,879
Less accumulated depreciation and amortization (102,145) (59,307)
- --------------------------------------------------------------------------------
68,111 90,572
- --------------------------------------------------------------------------------
Total assets $ 123,882 $ 165,298
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,989 $ 5,504
Accrued liabilities 1,757 2,337
Income taxes payable 31 94
- --------------------------------------------------------------------------------
Total current liabilities 5,777 7,935
- --------------------------------------------------------------------------------
Other liabilities 1,442 881
Convertible debentures (note 5) 7,341 7,657
Deferred mining taxes 4,198 6,767
Shareholders' equity
Capital stock (note 6) 121,425 118,605
Foreign currency translation adjustment 408 (248)
Retained earnings (deficit) (16,709) 23,701
- --------------------------------------------------------------------------------
Total shareholders' equity 105,124 142,058
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 123,882 $ 165,298
- --------------------------------------------------------------------------------
</TABLE>
Commitments and contingencies (note 9)
Approved by the Board
/s/ James D. Beatty
-------------------
Director
/s/ John O. Kachmar
-------------------
Director
See accompanying notes to the consolidated financial statements.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF INCOME
for the Years Ended December 31
(Expressed in thousands of Canadian dollars except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
METAL SALES $ 52,635 $67,180 $67,418
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Mining 46,681 44,667 43,373
General administration 3,203 3,064 2,846
Depreciation and amortization 9,587 9,604 8,072
Exploration 5,315 3,179 1,838
- -------------------------------------------------------------------------------------------------------------------
64,786 60,514 56,129
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations before writedown
and closure costs of natural resource properties (12,151) 6,666 11,289
Writedown and closure costs of natural resource properties 31,684
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (43,835) 6,666 11,289
- -------------------------------------------------------------------------------------------------------------------
Other income (expense)
Other income (note 7) 2,096 3,595 1,318
Convertible debenture interest expense (639) (661) (1,166)
- -------------------------------------------------------------------------------------------------------------------
1,457 2,934 152
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes (42,378) 9,600 11,441
Income and mining taxes (recovery) (note 8) (1,968) 588 980
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $(40,410) $9,012 $10,461
===================================================================================================================
Earnings (loss) per share (note 6) $(0.27) $0.06 $0.09
===================================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
for the Years Ended December 31
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $23,701 $14,689 $4,228
Net income (loss) (40,410) 9,012 10,461
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year $(16,709) $23,701 $14,689
===================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Years Ended December 31
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $(40,410) $ 9,012 $10,461
Items not involving cash
Depreciation and amortization 9,587 9,604 8,199
Writedown of natural resource properties 30,239
Exploration amortized and written-off 4,998 2,599
Recognition of deferred hedging gains (1,603)
Deferred mining taxes (recovery) (2,569) 358 318
Other (1,289) (134) 1,328
- -------------------------------------------------------------------------------------------------------------------
556 21,439 18,703
Net change in non-cash operating working capital 2,945 (2,478) (1,978)
- -------------------------------------------------------------------------------------------------------------------
3,501 18,961 16,725
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issues of capital stock 2,820 33,565 4,519
Conversion of convertible debentures (611) (3,006) (3,998)
- -------------------------------------------------------------------------------------------------------------------
2,209 30,559 521
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Expenditures on natural resource properties (29,283) (13,968) (7,934)
Termination of hedging contracts 9,679
Acquisition of Cerro Quema gold project (13,185)
Mining tax credits received 669 1,175
Decrease in other assets 165 214 226
- -------------------------------------------------------------------------------------------------------------------
(19,439) (26,270) (6,533)
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate change on cash
and short-term deposits 162 (219) (1,614)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term deposits (13,567) 23,031 9,099
Cash and short-term deposits at beginning of year 55,302 32,271 23,172
- -------------------------------------------------------------------------------------------------------------------
Cash and short-term deposits at end of year $41,735 $55,302 $32,271
===================================================================================================================
Changes in non-cash operating working capital
Receivables $3,465 $(433) $(1,190)
Inventories and prepaids 1,638 (2,997) (934)
Accounts payable (1,515) 1,184 1,032
Accrued liabilities (580) (203) (739)
Income taxes payable (63) (29) (147)
- -------------------------------------------------------------------------------------------------------------------
$2,945 $(2,478) $(1,978)
===================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE> 26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amount 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 and, except as described
in note 13, conform in all material respects with accounting principles
generally accepted in the United States. 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, intended 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.
INVENTORIES: Mining and milling materials and supplies are valued at the lower
of average cost and net replacement cost. Work-in-process is valued at the lower
of average production cost or net realizable value. Production costs include
direct labour, benefits, supplies and equipment operating costs and maintenance.
NATURAL RESOURCE PROPERTIES: Plant and equipment are recorded at cost with
depreciation generally provided either on the unit-of-production method over the
estimated economic life of the mine to which they relate or on the straight-line
method over their estimated useful lives.
Mining properties and deferred mining expenditures are recorded at cost and are
depleted on the unit-of-production method over the estimated economic life of
the mine to which they relate. Development costs incurred to expand existing
capacity, develop new ore bodies and develop property substantially in advance
of production are capitalized.
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.
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 net 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.
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
mining costs.
RECOGNITION OF METALS REVENUE: Gold and copper revenues are recognized at the
time of production. Gains and losses on hedging instruments that effectively
establish prices for future production are not recognized in income until
reflected in sales revenue when the related production is delivered.
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. Accordingly, the Mexican operations are translated
from Mexican pesos into U.S. 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. 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.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenue and expense during the period. Actual results could differ from
estimates. During the fiscal periods presented, management has made a number of
significant estimates and valuation assumptions, including estimates of the net
realizable value of accounts receivable, inventory, the useful lives of capital
assets, the recoverability of net resource properties, the future costs
associated with environmental and site restoration matters, and the fair value
of financial assets and liabilities. These estimates and valuation assumptions
are based on current information and management's planned course of action, as
well as assumptions about future business and economic conditions. Should the
underlying valuation assumptions and estimates change, the recorded amounts
could change by a material amount.
24
<PAGE> 27
COMPARATIVE FIGURES: Certain comparative figures have been reclassified to
conform with the current financial statement presentation.
<TABLE>
<CAPTION>
2 INVENTORIES
-----------------------------------------------------------
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Materials and supplies $5,519 $5,813
Work-in-process 1,731 3,321
- ----------------------------------------------------------------
$7,250 $9,134
- ----------------------------------------------------------------
3 OTHER ASSETS
-----------------------------------------------------------
1997 1996
- ----------------------------------------------------------------
Advances $ 590 $ 775
Deferred financing costs 603 657
- ----------------------------------------------------------------
1,193 1,432
Accumulated amortization 207 161
- ----------------------------------------------------------------
$986 $1,271
- ----------------------------------------------------------------
</TABLE>
4 NATURAL RESOURCE PROPERTIES
------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
Accumulated Accumulated
Depreciation and Depreciation and
Cost Amortization Net Cost Amortization Net
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property, plant
and equipment $29,239 $14,639 $14,600 $21,883 $11,851 $10,032
Mining properties
and deferred
expenditures 122,495 87,506 34,989 121,337 47,456 73,881
Construction in
progress 18,522 - 18,522 6,659 - 6,659
- --------------------------------------------------------------------------------------------------
$170,256 $102,145 $68,111 $149,879 $59,307 $90,572
- --------------------------------------------------------------------------------------------------
</TABLE>
During 1997, as part of its periodic evaluation of the carrying value of its
natural resource properties, the Company wrote down the carrying value of its
Joe Mann Mine by $28,000,000.
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) and in the Company's other
properties in the Chibougamau area by incurring specified amounts on exploration
on those properties. To July 1, 1997, Soquem had incurred total qualifying
expenditures under the previous agreements of $2,548,000 on the Joe Mann
property and $2,431,000 on the Chibougamau property. Effective July 2, 1997, the
agreements were modified to provide that Soquem spend an additional $1,600,000
on the Joe Mann property and an additional $750,000 on the Chibougamau property
from the effective date until June 1, 2002 to earn a 50% interest in each of the
properties. At December 31, 1997, Soquem had incurred total qualifying
expenditures under the new amendment of approximately $72,000 on the Joe Mann
property and $19,000 on the Chibougamau area property.
On January 26, 1996 the Company purchased the right of first refusal to acquire
a 100% interest in the shares of Minera Cerro Quema, SA, 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 on February 21, 1997
following approval by the Board of Directors of a positive feasibility study for
the Cerro Quema gold project. The aggregate cost of the acquisition, including
the cost of reducing the royalty payable to CEMSA from 3.5% to 2% through the
issuance of 1,040,000 common shares, and expenses, amounted to $15,598,000 and
has been included in natural resource properties.
5 CONVERTIBLE DEBENTURES
-----------------------
In July 1994, the Company issued US$11,005,000 of 7.5% Convertible Subordinated
Debentures. 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.
During 1997, debenture holders converted US$454,000 (1996 - US$2,307,000; 1995 -
US$3,107,000) of debenture principal into 908,000 (1996 - 4,614,000; 1995 -
6,214,000) common shares of the Company resulting in a balance outstanding at
December 31, 1997 of US$5,137,000 (1996 - US$5,591,000; 1995 - US$7,898,000).
25
<PAGE> 28
6 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>
1997 1996 1995
- -----------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common shares:
Balance at
beginning
of year 148,588 $118,605 124,466 $ 85,040 117,528 $80,521
Issued:
Conversion of
convertible
debentures 908 611 4,614 3,006 6,214 3,998
Public issue
for cash 18,000 28,585
Issued to CEMSA
(Note 4) 1,770 2,071 730 1,256
Employee
Incentive Plan
and Directors'
Stock Option
Plan 179 138 778 718 724 521
- ------------------------------------------------------------------------------
151,445 $121,425 148,588 $118,605 124,466 $85,040
==============================================================================
</TABLE>
c) EMPLOYEE INCENTIVE PLAN
The Employee Incentive Plan comprises a Share Option Plan, a Share Purchase
Plan, a Share Bonus Plan and a Share Loan Plan. 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.
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 August 13, 2002.
Changes in the share options outstanding under the plans are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year 7,175 5,090 4,925
Granted 450 2,900 900
Exercised (19) (790) (585)
Expired (356) (25) (150)
- ----------------------------------------------------------------
Balance at end of year 7,250 7,175 5,090
================================================================
Average option price at end of year $1.15 $1.18 $0.95
================================================================
Options exercisable at end of year 6,037 5,319 3,940
================================================================
Average price for options
exercised during year $0.57 $0.82 $0.60
================================================================
</TABLE>
d) COMMON SHARE PURCHASE WARRANTS
As part of a public offering of units consisting of common shares and warrants
in February, 1996, the Company issued 9,000,000 warrants which entitle the
holder to purchase one common share of the Company for US$1.50 on or before
February 26, 1999, all of which remain outstanding at December 31, 1997.
e) EARNINGS (LOSS) PER SHARE
The weighted average number of common shares outstanding during the year ended
December 31, 1997 used to calculate the earnings (loss) per common share
amounted to 150,548,000 (1996 - 145,907,000; 1995 - 121,214,000). Outstanding
warrants and options were not dilutive to earnings (loss) per share in any of
the periods presented.
7 OTHER INCOME
Other income comprises:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,781 $3,167 $ 1,722
Other income 243 520 69
Currency translation gains (losses) 72 (92) (473)
- ------------------------------------------------------------------
$ 2,096 $3,595 $ 1,318
==================================================================
</TABLE>
8 INCOME AND MINING TAXES
a) GEOGRAPHIC COMPONENTS
The geographic components of income (loss) before taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Canada $(32,729) $3,089 $ 2,371
Mexico (9,101) 6,511 9,070
Panama (548)
- ----------------------------------------------------------------
$(42,378) $9,600 $11,441
================================================================
</TABLE>
The geographic components of income and mining taxes is as follows:
<TABLE>
<CAPTION>
Current income tax expense:
<S> <C> <C> <C>
Canada $ 220 $ 229 $ 246
Mexico 381 1 416
- -----------------------------------------------------------------
601 230 662
Deferred mining tax expense (recovery)
Canada (2,569) 358 318
- -----------------------------------------------------------------
$ (1,968) $ 588 $ 980
=================================================================
</TABLE>
26
<PAGE> 29
b) DEFERRED MINING TAXES
The payment of certain mining 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) LOSS CARRY FORWARDS
At December 31, 1997, the Company and its subsidiaries had operating losses for
income tax purposes in Canada approximating $1,920,000 and in Mexico
approximating $16,042,000 which are available to reduce taxes in future years
and expire over the period to the year 2004. In addition, the Company and its
subsidiaries had net capital losses for income tax purposes in Canada of
approximately $10,600,000 available to apply against future taxable capital
gains. The Company's subsidiary has an additional $17,200,000 of net capital
loss carry forwards which have not been accepted 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 $59,000,000. The
potential future benefit of these tax losses and deductions has not been
recognized in these financial statements.
d) EFFECTIVE TAX RATE
The provision for (recovery of) income taxes varies from the amounts that would
be computed by applying the Canadian federal and provincial statutory tax rates
of approximately 40% to income before taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax provision
(recovery) using statutory
income tax rates $(16,785) $4,173 $4,932
Resource allowance (167) (1,800) (543)
Mining taxes (recovery) (2,569) 358 318
Utilization of prior year losses
carried forward (2,922) (3,666)
Foreign earnings subject to different
tax rates (687) (847)
Tax benefit not currently recognized 16,952 1,235 119
Other 601 231 667
- ----------------------------------------------------------------
Income and mining tax provision
(recovery) $(1,968) $ 588 $ 980
================================================================
</TABLE>
9 COMMITMENTS AND CONTINGENCIES
a) At December 31, 1997 the Company's subsidiary had sold forward
12,000 ounces of gold for delivery in 1998 under spot deferred
contracts at an average price of US$340 per ounce. In addition, the
Company had sold calls for 33,200 ounces of gold in 2001 and 20,000
ounces of gold in 2002 at an average of US$440 per ounce. Subsequent to
December 31, 1997, the Company purchased puts enabling it to deliver
45,000 ounces of gold during 1998 at an average price of US$327 per
ounce. The purchase of the puts was funded by the buy-back of the spot
deferred contract and reducing the strike price on the calls to US$350
per ounce of gold. The Company has also sold forward 1,320,000 pounds
of copper for delivery in 1998 at an average price of US$0.95 per
pound.
b) At December 31, 1997, the Company's subsidiary had sold forward
US$14,000,000 to purchase Canadian dollars during 1998 at an average
rate of Cdn$1.3882 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.
d) During 1996, the Company's Mexican subsidiary received import duty
assessments following an audit 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. On May 26, 1997, the
Company received notice that it was successful in its appeal against
the assessments and that the Mexican pesos 9,200,000 was not payable.
The tax authorities have the ability to issue another tax assessment in
connection with their audit but any such assessment must take into
account the supporting documentation in the Company's possession that
was presented at the appeal. The charge against the assets will be
released when the final tax assessment covering this matter is issued
by the tax authorities.
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.
27
<PAGE> 30
f) The Company is from time to time involved in various claims, legal
proceedings and reassessments for income, mining and other taxes, arising in the
ordinary course of business. The Company's current and proposed mining and
exploration activities are subject to various laws and regulations governing the
protection of the environment. These laws and regulations are continually
changing and are generally becoming more restrictive. The Company conducts its
operations so as to protect its employees, the general public and the
environment and, to the best of its knowledge, believes its operations are in
compliance with all applicable laws and regulations, in all material respects.
The Company has made, and expects to make in the future, submissions and
expenditures to comply with such laws and regulations. Where estimated
reclamation and closure costs are reasonably determinable, the Company has
recorded a provision for environmental liabilities based on management's
estimate of these costs. Such estimates are subject to adjustment based on
changes in laws and regulations and as new information becomes available.
10 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, 1996. As at December 31,
1997, the estimated projected benefit obligation was approximately $2,659,000
(1996 - $2,271,000) and the market value of assets aggregated $3,410,000 (1996 -
$3,555,000).
11 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>
1997 1996 1995
- ------------------------------------------------------------------
Revenue:
<S> <C> <C> <C>
Canada $ 35,443 $ 38,226 $ 38,209
Mexico 17,192 28,954 29,209
- --------------------------------------------------------------------
$ 52,635 $ 67,180 $ 67,418
====================================================================
Income (loss) from operations:
Canada $ (32,476) $ (152) $ 2,002
Mexico (9,541) 6,818 9,287
Panama (1,818)
- --------------------------------------------------------------------
$ (43,835) $ 6,666 $ 11,289
====================================================================
Identifiable assets:
Canada $ 40,436 $ 70,892 $ 70,279
Mexico 18,922 25,755 19,880
Panama 22,784 16,719
Corporate 41,740 51,932 33,544
- --------------------------------------------------------------------
$ 123,882 $1 65,298 $123,703
====================================================================
</TABLE>
Corporate assets primarily consist of cash and short-term deposits.
12 FAIR VALUE AND CREDIT RISK DISCLOSURES
At December 31, 1997 the fair value of the Company's convertible debentures was
estimated to be $8,810,000 (1996 - $14,500,000) compared to the carrying amount
of $7,341,000 (1996 - $7,657,000) 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, 1997 was a gain of approximately $234,000 (1996 -
$1,460,000) for the forward gold and copper contracts and a loss of
approximately $505,000 (1996 - a gain of $45,000) for the foreign currency
contracts.
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 represents the maximum amount that would be at risk if the counter parties
failed completely to perform under the contracts.
28
<PAGE> 31
13 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The reconciliation of net income (loss) determined in
accordance with generally accepted accounting principles in
Canada to net income (loss) determined under accounting
principles which are generally accepted in the United States
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) for year
as reported $(40,410) $ 9,012 $ 10,461
Depreciation and amortization (a) 19,061 (1,513) (2,654)
Deferred income taxes (b) (6,083) (158) 8,586
- ------------------------------------------------------------------------------------
Net income (loss) for the year
in accordance with United States
accounting principles $(27,432) $ 7,341 $ 16,393
====================================================================================
Earnings (loss) per share for the year
in accordance with United States
accounting principles
Basic and fully diluted $ (0.18) $ 0.05 $ 0.14
====================================================================================
</TABLE>
Differences between Canadian and United States accounting
principles as they affect the Company's financial statements
are as follows:
a) DEPRECIATION AND AMORTIZATION
Under Canadian accounting principles, depreciation and
amortization may be calculated on the unit-of-production
method based upon the estimated mine life, whereas under
United States accounting principles the calculations are made
based upon proven and probable mineable reserves.
b) DEFERRED INCOME TAXES
Under Canadian accounting principles income and mining taxes
may be accounted for under the deferral method. Under United
States accounting principles the asset and liability method
(FAS 109) is used, whereby deferred tax assets and liabilities
are recognized for the deferred taxes attributable to
differences between book value and the tax basis of the
Company's assets and liabilities.
Significant components of the Company's deferred tax assets
and liabilities under United States accounting principles are
as follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Noncurrent deferred tax assets:
Natural resource properties $32,136 $25,464
Operating loss carry forwards 6,309 2,989
Other 1,352 1,000
- ----------------------------------------------------------------
39,797 29,453
Valuation allowance 38,057 19,799
- ----------------------------------------------------------------
$ 1,740 $ 9,654
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Current deferred tax liabilities:
Inventory $ 1,679 $3,380
Noncurrent deferred tax liabilities
Natural resource properties 1,736 2,935
Other 61 1,560
- ----------------------------------------------------------------
$ 3,476 $7,875
- ----------------------------------------------------------------
Net deferred tax assets (liabilities) $(1,736) $1,779
================================================================
</TABLE>
The tax loss carry forwards disclosed in note 8(c) and other temporary timing
differences giving rise to deferred taxes have been tax effected for purposes of
the above disclosure at the tax rate effective in the applicable jurisdiction,
that is, 40% for Canada and 34% for Mexico.
c) STOCK OPTIONS
Beginning in 1996, United States accounting principles allow, but do not require
companies to record compensation cost for stock option plans at fair value. The
Company has chosen to continue to account for stock options using the intrinsic
value method as permitted under Canadian and United States accounting
principles. The new United States accounting pronouncement does, however,
require the disclosure of pro forma net income and earnings per share
information as if the Company had accounted for its employee stock options
issued in 1995, 1996 and 1997 under the fair value method. Accordingly, the fair
value of these options has been estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for each year;
risk free interest rates for 1997 of 5.15-6.30% (1996 - 5.25-5.70%; 1995 -
6.65-6.95%); dividend yields of 0%; volatility factors of the expected market
price of the Company's common shares of 55%; and a weighted average expected
life of the options of four years.
The weighted average grant date fair values of options issued in 1997, 1996 and
1995 were $0.43, $0.72 and $0.63, respectively. For purposes of pro forma
disclosures, the estimated fair value of the options is expensed over the
options' vesting period, which is three years in the case of employees and
immediately in the case of Directors. For the year ended December 31, 1997, the
Company's pro forma net income (loss) and earnings (loss) per share in
accordance with United States accounting principles are a net loss of
$27,951,000 (1996 and 1995 net income of $6,385,000 and $15,940,000,
respectively) and a loss of $0.19 (1996 and 1995 earnings of $0.04 and $0.13,
respectively).
29
<PAGE> 32
d) 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, 1997 are investments of
$28,097,000 (1996 - $49,427,000; 1995 - $ nil) with maturities on acquisition of
greater than 90 days. Under United States accounting principles these
investments would not be included in cash and short-term deposits.
For the year ended December 31, 1997, under United States accounting principles
the sources of cash from financing activities would be $138,000 (1996 -
$29,303,000; 1995 - $521,000) the sources of cash from investing activities
would be $3,962,000 (1996 - use of $74,441,000; 1995 - use of $6,533,000) and
there would be an increase in cash and short-term deposits of $7,763,000 (1996
decrease of $26,396,000; 1995 - increase of $9,099,000).
The following additional disclosure requirements are also required:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Cash Taxes Paid $695 $565 $751
Cash Interest Paid $616 $596 $993
</TABLE>
e) CONTINGENT LIABILITY
Under United States accounting principles the contingent liability disclosed in
note 9 (e) would be reflected in the balance sheet. Accordingly, under United
States accounting principles 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.
f) FOREIGN EXCHANGE CONTRACTS
In accordance with Canadian accounting principles, 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 United States accounting
principles, changes in the market value of the contracts would be included in
current earnings. The impact of this difference between Canadian and United
States accounting principles has not been material during the reporting periods
presented.
g) BALANCE SHEETS
The cumulative effect of the application of United States accounting principles,
noted in (a) to (e) above, on the consolidated balance sheets of the Company as
at December 31, 1997 and 1996 would be to decrease cash and short-term deposits
and increase short-term investments each by $28,097,000 (1996 - $49,427,000),
decrease natural resource properties by $14,014,000 (1996 - $33,076,000),
increase long-term investments by $50,000,000 (1996 - $50,000,000), increase
long-term liabilities by $38,000,000 (1996 - $38,000,000), decrease deferred
mining taxes by $2,462,000 (1996 - $8,546,000), increase preferred shares by
$12,000,000 (1996 - $12,000,000) and reduce shareholders equity by $11,552,000
(1996 - $24,530,000).
30
<PAGE> 33
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 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Metal sales $ 52,635 67,180 67,418 46,940 30,668
Income (loss) from continuing operations $ (40,410) 9,012 10,461 5,307 (1,743)
Net income (loss) $ (40,410) 9,012 10,461 5,307 (3,493)
Earnings (loss) per share
- from continuing operations $ (0.27) 0.06 0.09 0.05 (0.02)
- Net income (loss) $ (0.27) 0.06 0.09 0.05 (0.03)
Total assets $ 123,882 165,298 123,703 113,780 91,916
Long-term debt $ 7,341 7,657 10,782 15,438 -
Deferred hedging gain - - - 1,603 4,809
Shareholders' equity $ 105,124 142,058 99,554 84,800 79,278
Book value per share $ 0.69 0.96 0.80 0.72 0.68
Gold production - ounces 113,000 125,000 120,000 81,000 55,000
Foreign exchange rate - US dollars
Year end/average $ 0.70/0.73 0.73/0.73 0.73/0.73 0.71/0.73 0.76/0.78
High/low $ 0.75/0.69 0.75/0.72 0.75/0.70 0.76/0.71 0.80/0.74
Shares outstanding (in thousands)
At year end 151,445 148,588 124,466 117,528 117,225
Weighted average during year 150,548 145,907 121,214 117,274 106,051
- ------------------------------------------------------------------------------------------------------------------
</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, 1997
Metal sales $ 12,289 13,569 12,979 13,798
Income (loss) from operations $ (3,260) (1,773) (3,650) (35,152)
Net income (loss) $ (2,782) (1,771) (3,368) (32,489)
Earnings (loss) per share $ (0.02) (0.01) (0.02) (0.21)
- ---------------------------------------------------------------------------------------
Year ended December 31, 1996
Metal sales $ 18,397 18,733 16,191 13,859
Income (loss) from operations $ 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
- ---------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
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$1.50 on or before February 26, 1999. There are
9.0 million warrants issued and outstanding.
QUARTERLY TRADING STATISTICS
<TABLE>
<CAPTION>
COMMON SHARE PRICES
- --------------------------------------------------------------------------
TORONTO STOCK EXCHANGE NEW YORK STOCK EXCHANGE
(CDN$) (US$)
HIGH LOW VOLUME HIGH LOW VOLUME
- --------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 1.02 0.51 2,311,854 0.75 0.34 34,417,134
3rd Quarter 1.00 0.68 2,348,237 0.81 0.50 15,816,900
2nd Quarter 1.12 0.85 3,595,200 0.81 0.56 14,138,200
1st Quarter 1.30 1.01 3,589,700 1.00 0.75 21,623,200
- --------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 1.60 1.20 2,454,280 1.25 0.88 10,471,000
3rd Quarter 1.70 1.35 3,342,945 1.25 1.00 12,038,100
2nd Quarter 1.82 1.53 8,256,690 1.38 1.13 16,728,300
1st Quarter 1.98 1.36 16,823,841 1.50 0.94 33,223,300
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WARRANT PRICES
- --------------------------------------------------------------------------
TORONTO STOCK EXCHANGE NEW YORK STOCK EXCHANGE
(CDN$) (US$)
- --------------------------------------------------------------------------
HIGH LOW VOLUME HIGH LOW VOLUME
- --------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 0.22 0.05 234,200 0.16 0.05 645,500
3rd Quarter 0.22 0.12 103,500 0.19 0.13 777,200
2nd Quarter 0.38 0.18 352,300 0.31 0.19 302,900
1st Quarter 0.46 0.36 223,100 0.41 0.28 120,100
- --------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 0.60 0.48 485,500 0.44 0.38 198,300
3rd Quarter 0.62 0.40 902,050 0.56 0.41 342,000
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
[LINE GRAPH]
[PLOT POINTS TO COME]
TRANSFER AGENT
MONTREAL TRUST COMPANY
151 Front Street West
8th Floor
Toronto, Ontario M5J 2N1
Phone: (416) 981-9500
Fax: (416) 981-9800
MONTREAL TRUST COMPANY
Place Montreal Trust
1800 McGill College Avenue
Montreal, Quebec
H3A 3K9
CHASEMELLON SHAREHOLDER SERVICES
85 Challenger Road
Overpeck Center
Ridgefield Park, New Jersey
U.S.A. 07660
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> 35
SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
- --------------------------------------
James D. Beatty (2,3)
Chief Executive Officer
Trinity Capital Corporation
Graham G. Clow
Senior Vice President N.A. Operations
Breakwater Resources Ltd.
Rod P. Douglas (2)
Mining Engineer
John O. Kachmar (1)
President & Chief Executive Officer
Campbell Resources Inc.
James C. McCartney, Q.C. (1,3)
Partner, Law Firm of McCarthy Tetrault
Donald R. Murphy (2)
President, Societe de developpement
de la Baie James
Francis S. O'Kelly
Mining Engineer
G.E. 'Kurt' Pralle (3)
Mining Engineer
James D. Raymond (1)
Private Investor
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
LEGAL COUNSEL
- --------------------------------------
McCarthy Tetrault
Toronto, Ontario
AUDITORS
- --------------------------------------
KPMG
Toronto, Ontario
PRINCIPAL SUBSIDIARIES
- --------------------------------------
Meston Resources Inc. (Quebec, Canada)
Oro de Sotula, S.A. de C.V. (Mexico)
Dr. Guillermo Salas Piza, Chairman
Minera Cerro Quema, S.A. (Panama)
OFFICERS AND SENIOR MANAGEMENT
- --------------------------------------
James C. McCartney, Q.C.
Chairman of the Board
John O. Kachmar
President and Chief Executive Officer
Paul J. Ireland
Vice President, Finance
Lorna D. MacGillivray
Vice President, Secretary and General Counsel
William S. Hamilton
Manager, Exploration Santa Gertrudis
Steven Dawson
Manager, Investor Relations
Gary A. Cohoon
Consulting Exploration Geologist
OPERATIONS
- --------------------------------------
Joe Mann Mine
Meston Resources Inc.
Phone: (418) 745-2537
Fax: (418) 745-3238
Alain Coulombe, General Manager
Santa Gertrudis Mine
Oro de Sotula S.A. de C.V.
Phone: (52-631) 85099
Fax: (52-631) 81141
Dave Loder, General Manager
Cerro Quema Project
Minera Cerro Quema, S.A.
Phone: (507) 995-8293
Fax: (507) 995-8295
George J. Simchuk, Vice President
and General Manager
CORPORATE HEAD OFFICE
- --------------------------------------
CAMPBELL RESOURCES INC.
120 Adelaide Street West
Suite 1910
Toronto, Ontario
Canada M5H 1T1
Phone: (416) 366-5201
Fax: (416) 367-3294
e-mail: [email protected]
Production: Walter J. Mishko & Co. Inc.
Design: Kirkwood Communications Inc.
Printed in Canada on re-cycled paper
using vegetable based inks
<PAGE> 1
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 Ontario Club, 30
Wellington St. West, Commerce Court South, The Engineer's Room, 5th Floor,
Toronto, Ontario on Tuesday, May 19th, 1998 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, 1997;
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 30, 1998 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 Friday, May 15, 1998. 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
Lorna D. MacGillivray
Vice President, Secretary and General Counsel
Dated: March 20, 1998.
<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 MAY 19, 1998 AT THE ONTARIO CLUB, 30
WELLINGTON ST. WEST, COMMERCE COURT SOUTH, 5TH FLOOR THE ENGINEER'S ROOM,
TORONTO, ONTARIO. The record date for determination of shareholders entitled to
receive notice of the Meeting is March 30, 1998. 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 May 11, 1998, 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 Friday, May 15, 1998.
All dollar amounts contained in this Proxy Circular are expressed in
Canadian dollars unless specifically stated otherwise. As of March 20, 1998, the
Noon Buying Rate in New York City for Canadian dollars was U.S.$0.7051.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of March 20, 1998, the Corporation had outstanding 152,462,861
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 20, 1998, 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. 15,715,000(1) 10.3%
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>
1. Based on U.S. Securities and Exchange Commission Schedule 13G filing
dated January 8, 1998).
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 20,
1998. 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 53 2,500(1) *
Toronto, Ontario Capital Corporation, Toronto,
Ontario, investment company.
Graham G. Clow Mining Engineer; Senior Vice 1996 47 2,500(2) *
Oakville, Ontario President, 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 72 10,000(3) *
Vancouver, B.C. Mining of Canada Inc., Vancouver,
B.C., mining company.
John O. Kachmar President and Chief Executive Officer 1992 61 175,000(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 60 50,000(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 54 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 56 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 63 100,000(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 Private Investor and Director; 1979 72 10,000(8) *
Montreal, Quebec Director of Cineplex Odeon
Corporation, Toronto, Ontario,
entertainment company; Canadian 88
Energy Corporation, Calgary,
Alberta, oil and gas company;
Denbridge Capital Corporation,
Toronto, Ontario, manufacturers
radar and electronics.
</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 20, 1998, the directors and officers of the Corporation as
a group beneficially owned 437,008 Common Shares representing approximately 0.3%
of the outstanding Common Shares of the Corporation excluding 5,650,000 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.
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
6
<PAGE> 8
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 $131,250 to the 9 incumbent directors in their
capacities as such during the fiscal period ended December 31, 1997.
In 1997, the Corporation purchased directors' and officers' liability
insurance with a liability limit of $20,000,000 for which the Corporation paid
an annual premium of $71,280 in 1997. The policy contains a deductible clause of
$250,000 payable by the Corporation.
In 1997, Mr. Francis S. O'Kelly, a director of the Corporation,
provided consulting services to the Corporation on a part-time basis for a
monthly fee of US$1,500. This arrangement was terminated on October 31, 1997.
The Corporation paid Mr. O'Kelly US$15,000 in respect of such services in 1997.
In 1997, 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 $11,700 was paid to McCarthy Tetrault for legal services in 1997.
DIRECTORS' STOCK OPTION PLAN
At December 31, 1997, options to acquire an aggregate of 3,700,000
Common Shares were outstanding under the Directors' Stock Option Plan. During
1997, no options were granted or exercised under the Directors' Stock Option
Plan.
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 in all capacities to the Corporation and its
subsidiaries for the fiscal years ended December 31, 1997, 1996 and 1995 (to the
extent required by the Regulation) in respect of the individuals who were at
December 31, 1997, 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 $100,000 (the "Named
Executive Officers"):
7
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation Long-Term Compensation
-----------------------------------------------------------------------------------
Awards Payouts
-------------------------------------
Securities
Under Restricted
Other Options/ Shares or
Annual SARs Restricted LTIP All Other
Name and Salary Bonus Compensation granted Share Units Payouts Compensation
Principal Position Year ($) ($) ($)(3) (#) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John O. Kachmar 1997 285,000 70,000(1) -- -- Nil Nil 18,000(4)
President & Chief 1996 225,000 200,000 -- 450,000 Nil Nil 18,000(4)
Executive Officer 1995 225,000 170,000(2) -- -- Nil Nil 12,500(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray 1997 130,000 15,000 -- -- Nil Nil Nil
Vice President, 1996 115,000 56,500 -- 150,000 Nil Nil 3,000(4)
Secretary & General 1995 115,000 52,500 (2) -- -- Nil Nil Nil
Counsel
- ------------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland 1997 130,000 15,000 -- -- Nil Nil Nil
Vice President, Finance 1996 115,000 56,500 -- 150,000 Nil Nil Nil
1995 106,000 52,500 (2) -- -- Nil Nil Nil
- ------------------------------------------------------------------------------------------------------------------------------------
Gary A. Cohoon 1997 108,333(5) -- -- -- Nil Nil 108,333(5)
Vice President, 1996 115,000 31,500 -- 100,000 Nil Nil Nil
Exploration 1995 106,000(6) 2,100 -- 150,000 Nil Nil Nil
====================================================================================================================================
</TABLE>
Notes:
(1) Of the $70,000 bonus paid to Mr. Kachmar, $15,000 was paid in cash,
$27,500 was paid through the issuance of 50,000 Common Shares issued
net of tax.
(2) 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.
(3) Perquisites and other personal benefits for the Named Executive
Officers did not exceed the lesser of $50,000 and 10% of total annual
salary and bonus.
(4) Represents director's fees.
(5) Salary includes compensation to October 31, 1997. Other compensation
reflects amounts paid or payable in respect of the resignation of the
Named Executive Officer.
(6) Includes compensation in all capacities for the full year. Mr. Cohoon
became an executive officer on November 13, 1995.
8
<PAGE> 10
The following table (presented in accordance with the Regulation) sets
forth information concerning the exercise of stock options and SAR's by Named
Executive Officers in 1997 and the number and the unrealized value of
exercisable and unexercisable stock options held by Named Executive Officers at
December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL
YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
=================================================================================================================================
Securities, Aggregate Unexercised
Acquired Value Options/SARs at Value of Unexercised in-
on Exercise Realized FY-End (#) the-Money Options/SARs at FY-
Name (#) ($) Exercisable/Unexercisable End ($) Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John O. Kachmar Nil Nil 1,175,000(1)/175,000 NIL/NIL
President and CEO
- ---------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray Nil Nil 325,000/75,000 NIL/NIL
Vice President, Secretary
and General Counsel
- ---------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland Nil Nil 225,000/75,000 NIL/NIL
Vice President, Finance
- ---------------------------------------------------------------------------------------------------------------------------------
Gary A Cohoon Nil Nil 237,500/87,500 NIL/NIL
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.
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 "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.
9
<PAGE> 11
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 1997 no options were granted under the Share Option Plan to
Named Executive Officers and options to purchase 450,000 Common Shares were
granted to employees who are not Named Executive Officers. These options are
exercisable at $0.89 to $0.94 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.
As at December 31, 1997, a total of 3,450,000 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 1997, 10,828
Common Shares were issued to Lorna D. MacGillivray in respect of which Campbell
contributed $2,875 and 12,239 Common Shares were issued to Gary A. Cohoon in
respect of which Campbell contributed $3,250 and 137,168 Common Shares were
issued to employees who are not Named Executive Officers in respect of which
Campbell contributed $42,389 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
10
<PAGE> 12
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
1997, 50,000 Common Shares were issued to a Named Executive Officer 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 1997, 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 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.
11
<PAGE> 13
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>
Three Named Executive Officers participate in the Pension Plan. Mr.
Kachmar had 7 years of credited services, Ms. MacGillivray had 4.4 years of
credited service and Mr. Ireland had 1 year of credited service under the
Pension Plan at December 31, 1997. 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. 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.
12
<PAGE> 14
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. In 1994, the
Committee established an executive compensation philosophy and policy to be
followed in its future consideration of executive compensation and incentive
arrangements.
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 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 share
holding, would also align the interests of executive officers with
those of the Corporation's shareholders. Grants of annual bonuses would
be based on the
13
<PAGE> 15
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, 1997, the Compensation Committee reviewed the long term
incentive arrangements of the Corporation. The level of outstanding stock
options under the Employee Incentive Plan was discussed. The Committee
considered the recommendation of the Chief Executive Officer that only a limited
number of new options be granted to three senior employees who are not Named
Executive Officers. In approving the grant of options, the Committee took into
account the number, terms and pricing of previously outstanding options.
Consideration was also given to the employee's level of responsibility and
potential contribution to the Corporation's achieving its long-term goals.
The Committee also considered and determined not to grant 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 10, 1997. Corporate performance relative
to 1997 objectives was reviewed. The Committee also reviewed the compensation
arrangements of a peer group of five Canadian based gold producers of similar
size and circumstance.
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. Based on the recommendations of
John O. Kachmar, the Corporation's Chief Executive Officer, base salaries were
maintained at the existing level and annual incentive awards were reduced to
reflect the difficult circumstances facing the Corporation at sustained lower
gold prices. Cash compensation of executive officers was maintained in the lower
half of the peer group levels. In addition, the Committee determined that
further incentive awards, based on specific criteria to be determined by the
Chairman of the Committee in consultation with the Chief Executive Officer,
could be considered in the future when the Corporation's growth objectives are
met.
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
14
<PAGE> 16
action to achieve the Corporation's goals and objectives, taking the necessary
actions to ensure that the Corporation is profitable and pursuing all growth
opportunities.
The Chief Executive Officer's contribution in ensuring that all growth
opportunities are pursued was 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
increased in December, 1996 effective at the beginning of 1997 was maintained.
The level of his annual incentive award was decreased to reflect the difficult
conditions facing the Corporation with sustained lower gold prices.
March 20, 1998 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 and the TSE Gold and Precious Metals Index for the five
fiscal year periods commencing December 31, 1992 and ending December 31, 1997.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* BETWEEN CAMPBELL
RESOURCES INC. AND THE TSE 300 INDEX AND THE TSE GOLD AND PRECIOUS METALS INDEX
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec 31,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CCH Stock 100 231.58 202.63 347.37 328.95 139.47
TSE 300 Composite 100 132.55 132.31 151.54 194.49 223.62
Gold and Precious
Metals 100 205.40 185.33 202.80 221.38 125.85
</TABLE>
*$100 INVESTED ON 12/31/92 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS.
15
<PAGE> 17
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 1999
Annual Meeting must comply with the provisions of the Act and be deposited at
the Corporation's head office not later than January 24, 1999 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. In addition, the Corporation has retained D.F. King & Co. Inc. to
assist in the solicitation of proxies for a fee of US$2,500 plus reimbursement
of reasonable out-of-pocket expenses.
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
16
<PAGE> 18
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, 1997. 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
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
Lorna D. MacGillivray
Vice President, Secretary and General Counsel
Dated: March 20, 1998
17
<PAGE> 19
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 TUESDAY, MAY 19,
1998.
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 , 1998.
---------------------------------------------------------
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, 1997
The following significant subsidiaries are consolidated in the financial
statements submitted as a part of this report:
<TABLE>
<CAPTION>
Jurisdiction of Percentage of
Incorporation Voting
Securities
Owned
<S> <C> <C>
Controlled by Campbell Resources Inc.:
Meston Resources Inc. Quebec 100%
Sotula Gold Corp. Canada 100%
Controlled by (i) Campbell Resources Inc.
and (ii) Sotula
Gold Corp. Oro de Sotula,
S.A. de C.V Mexico 100%
Controlled by Meston Resources Inc.
Minera Cerro Quema, S.A Panama 100%
</TABLE>
<PAGE> 1
Securities and Exchange Commission
450 Fifth St. N.W.
Washington, DC 20259
USA
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
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,
1997 of our report dated March 9, 1998 which appears under Item 14 of the
aforementioned Annual Report on Form 10-K.
We also consent to the incorporation by reference of our report in the
Registration Statements on Form S-8 (Registration Nos. 33-28296 and
33-91824)pertaining to the Corporation's Employee Incentive Plan and Director's
Stock Option Plan and on Form F-3 pertaining to the Common Shares underlying
Share Purchase Warrants (Registration No. 333-1882) and to the reference to our
firm under the caption "Experts" in the prospectuses related to these
Registration Statements.
March 27, 1998 Independent Chartered Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 41,735
<SECURITIES> 0
<RECEIVABLES> 4,805
<ALLOWANCES> 0
<INVENTORY> 7,250
<CURRENT-ASSETS> 54,785
<PP&E> 170,256
<DEPRECIATION> 102,145
<TOTAL-ASSETS> 123,882
<CURRENT-LIABILITIES> 5,777
<BONDS> 7,341
0
0
<COMMON> 121,425
<OTHER-SE> (16,301)
<TOTAL-LIABILITY-AND-EQUITY> 123,882
<SALES> 52,635
<TOTAL-REVENUES> 52,635
<CGS> 61,583
<TOTAL-COSTS> 61,583
<OTHER-EXPENSES> 31,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 639
<INCOME-PRETAX> (42,378)
<INCOME-TAX> (1,968)
<INCOME-CONTINUING> (40,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,410)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
