<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8488
CAMPBELL RESOURCES INC.
(Exact Name of registrant as specified in its charter)
Under the Canada Business Corporations Act
(Jurisdiction of Incorporation)
I.R.S. Employer Identification No - Not Applicable
120 ADELAIDE ST. WEST, SUITE 1910
TORONTO, ONTARIO M5H 1T1 CANADA
TELEPHONE - (416) 366-5201
(Address, including zip code, and telephone number
including area code of registrants principal executive offices)
----------------------------------------
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, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Shares Outstanding as of June 30,1998, 153,989,152 Common Shares, without
par value
<PAGE> 2
CAMPBELL RESOURCES INC.
Table of Contents
Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets as at June 30, 1998 and
December 31, 1997.....................................................3
Unaudited Consolidated Statements of Income for the Three Months
and the Six Months Ended June 30, 1998 and 1997 ......................4
Unaudited Consolidated Statements of Retained Earnings (Deficit) for
the Six Months Ended June 30, 1998 and 1997...........................4
Unaudited Consolidated Statements of Cash Flows for the Three
Months and the Six Months Ended June 30, 1998 and 1997................5
Notes to the Unaudited Consolidated Financial Statements .............6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...........................................11
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings....................................................14
ITEM 2. Changes in Securities................................................14
ITEM 3. Defaults Upon Senior Securities......................................14
ITEM 4. Submission of Matters to a Vote
of Security Holders..................................................14
ITEM 5. Other Information....................................................14
ITEM 6. Exhibits and Reports on Form 8-K.....................................14
SIGNATURES...........................................................15
2
<PAGE> 3
CAMPBELL RESOURCES INC.
(Incorporated under the laws of Canada)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
JUNE 30 December 31
1998 1997
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term deposits $ 37,569 $ 41,735
Receivables 4,623 4,805
Inventories (Note 2) 5,825 7,250
Prepaids 963 995
--------- ---------
Total current assets 48,980 54,785
--------- ---------
OTHER ASSETS 736 986
--------- ---------
NATURAL RESOURCE PROPERTIES 176,825 170,256
Less accumulated depreciation and amortization (105,569) (102,145)
--------- ---------
71,256 68,111
--------- ---------
Total assets $ 120,972 $ 123,882
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,120 $ 3,989
Accrued liabilities 1,530 1,757
Income taxes payable 29 31
--------- ---------
Total current liabilities 4,679 5,777
--------- ---------
OTHER LIABILITIES 3,045 1,442
CONVERTIBLE DEBENTURES (NOTE 3) 5,823 7,341
DEFERRED MINING TAXES 3,839 4,198
SHAREHOLDERS' EQUITY
Capital stock (Note 4) 123,162 121,425
Foreign currency translation adjustment 866 408
Deficit (20,442) (16,709)
--------- ---------
Total shareholders' equity 103,586 105,124
--------- ---------
Total liabilities and shareholders' equity $ 120,972 $ 123,882
========= =========
</TABLE>
Commitments and contingencies (Note 5)
3
<PAGE> 4
CAMPBELL RESOURCES INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of Canadian dollars except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
METAL SALES $ 9,241 $ 13,569 $ 19,522 $ 25,858
-------- -------- -------- --------
EXPENSES
Mining 9,033 10,914 18,557 22,496
General administration 661 707 1,356 1,447
Depreciation and amortization 1,640 2,311 3,261 4,438
Exploration 458 1,445 1,050 2,510
-------- -------- -------- --------
11,792 15,377 24,224 30,891
-------- -------- -------- --------
Loss from operations (2,551) (1,808) (4,702) (5,033)
-------- -------- -------- --------
Other income (expense)
Interest and other income 670 375 1,125 947
Foreign exchange loss (12) (54) (7) (85)
Convertible debenture interest expense (132) (169) (278) (318)
-------- -------- -------- --------
526 152 840 544
-------- -------- -------- --------
Loss before income taxes (2,025) (1,656) (3,862) (4,489)
Income tax recovery (expense) 22 (115) 129 (64)
-------- -------- -------- --------
NET LOSS ($ 2,003) ($ 1,771) ($ 3,733) ($ 4,553)
======== ======== ======== ========
LOSS PER SHARE ($ 0.013) ($ 0.012) ($ 0.024) ($ 0.030)
======== ======== ======== ========
</TABLE>
UNAUDITED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Balance at beginning of period ($16,709) $ 23,701
Net loss (3,733) (4,553)
-------- --------
Balance at end of period ($20,442) $ 19,148
======== ========
</TABLE>
4
<PAGE> 5
CAMPBELL RESOURCES INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
Three months ended Six months ended
CASH PROVIDED BY (USED IN): June 30 June 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ($ 2,003) ($ 1,771) ($ 3,733) ($ 4,553)
Items not involving cash
Depreciation and amortization 1,640 2,311 3,261 4,438
Deferred mining taxes (recovery) (151) 58 (359) (42)
Other 14 781 1,435 1,733
-------- -------- -------- --------
(500) 1,379 604 1,576
Net change in non-cash operating working capital 1,918 (5,040) 541 (5,574)
-------- -------- -------- --------
1,418 (3,661) 1,145 (3,998)
-------- -------- -------- --------
FINANCING ACTIVITIES
Issues of capital stock 1,005 41 1,737 2,145
Conversion of convertible debentures (966) (1,635)
-------- -------- -------- --------
39 41 102 2,145
-------- -------- -------- --------
INVESTMENT ACTIVITIES
Expenditures on natural resource properties (3,392) (6,695) (6,383) (15,914)
Proceeds on sale of assets 617 617
Other (50) 22 135 208
-------- -------- -------- --------
(2,825) (6,673) (5,631) (15,706)
-------- -------- -------- --------
Effect of exchange rate change on cash
and short-term deposits 284 141 218 214
-------- -------- -------- --------
Decrease in cash and short-term deposits (1,084) (10,152) (4,166) (17,345)
Cash and short-term deposits at beginning of period 38,653 48,109 41,735 55,302
-------- -------- -------- --------
Cash and short-term deposits at end of period $ 37,569 $ 37,957 $ 37,569 $ 37,957
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN NON-CASH OPERATING WORKING CAPITAL
<S> <C> <C> <C> <C>
Receivables $ 1,355 ($2,435) $ 182 ($2,344)
Inventories and prepaids 1,133 (1,141) 1,457 (1,102)
Accounts payable 4 (6) (869) (1,125)
Accrued liabilities (572) (1,377) (227) (914)
Income taxes payable (2) (81) (2) (89)
------- ------- ------- -------
$ 1,918 ($5,040) $ 541 ($5,574)
======= ======= ======= =======
</TABLE>
5
<PAGE> 6
CAMPBELL RESOURCES INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998
(Tabular amounts are expressed in thousands of Canadian dollars)
1--GENERAL
These unaudited consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of results for
the interim periods presented. The unaudited financial statements presented
herein have been prepared in accordance with the instructions to Form 10-Q and
do not include all the information and note disclosures required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the financial statements and related footnotes included in
the Company's annual report on Form 10-K for the year ended December 31, 1997.
The financial statements are prepared in accordance with accounting principles
generally accepted in Canada and, except as described in note 6, conform in all
material respects with accounting principles generally accepted in the United
States.
The results of operations for the first six months of the year are not
necessarily indicative of the results to be expected for the full year.
2--INVENTORIES
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
<S> <C> <C>
Materials and supplies $5,286 $5,519
Work-in-progress 539 1,731
------ ------
$5,825 $7,250
====== ======
</TABLE>
3 -- 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 the six months ended June 30, 1998, debenture holders converted
US$1,180,000 (1997 - US$nil) of debenture principal into 2,360,000 (1997 - nil)
common shares of the Company resulting in a balance outstanding at June 30, 1998
of US$3,957,000 ( December 31, 1997 - US$5,137,000).
6
<PAGE> 7
4--CAPITAL STOCK
Changes in the issued and outstanding common shares for the six months are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common shares:
Balance at beginning of period 151,445 $121,425 148,588 $118,605
Issued:
Conversion of convertible debentures 2,360 1,635
Issued to CEMSA 1,770 2,071
Employee Incentive Plan and
Directors' Stock Option Plan 184 102 83 74
-------- -------- -------- --------
Balance at June 30 153,989 $123,162 150,441 $120,750
======== ======== ======== ========
</TABLE>
The Company has 9,000,000 warrants outstanding which arose as a result of the
public issue of units in 1996 that entitle the holders to purchase one common
share of the Company for US$1.50 on or before February 26, 1999. As of June 30,
1998, in addition to the shares reserved for issuance under the terms of the
common share purchase warrants and convertible debentures (see note 3) there
were outstanding stock options under the Directors Stock Option Plan and the
Employee Incentive Plan to purchase 6,825,000 common shares at prices ranging
from $0.57 to $1.48 per share with such options expiring at various dates to
August 13, 2002.
Loss per share has been calculated using the weighted average number of shares
outstanding during the six months which was 152,862,000 (1997 - 149,645,000) and
during the three months which was 152,986,000 (1997 - 150,403,000).
5--COMMITMENTS AND CONTINGENCIES
a) At June 30, 1998 the Company had purchased puts enabling it to deliver
20,000 ounces of gold during 1998 at an average price of US$328 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 price of
US$350 per ounce. The Company has also sold forward 660,000 pounds of
copper for delivery in 1998 at an average price of US$0.95 per pound.
b) At June 30, 1998 the Company had sold forward US$14,000,000 to purchase
Canadian dollars during 1998 and 1999 at an average rate of Cdn$1.4192
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
7
<PAGE> 8
assessments and that the Mexican pesos 9,200,000 was not payable. On
May 6, 1998, the tax authorities issued a tax assessment identical to
that issued in 1996 except that the amounts claimed have increased to
Mexican pesos 18,000,000 as a result of inflation and additional
interest. The Company has been advised that this assessment is illegal
as it completely ignores the earlier ruling. Accordingly the Company
intends to file a new appeal before the Federal Tax Court to nullify
the assessment. No provision has been made in the financial statements
for the amounts assessed on the basis of the earlier ruling and the
legal advice received.
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 pari 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.
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.
8
<PAGE> 9
6--DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The reconciliation of net loss determined in accordance with generally accepted
accounting principles in Canada to net loss determined under accounting
principles which are generally accepted in the United States is as follows:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss for period as reported $(2,003) $(1,771) $(3,733) $(4,553)
Depreciation and amortization (a) 43 (983) 89 (1,856)
Foreign exchange contracts (e) (491) (491)
------- ------- ------- -------
Net loss for the year in accordance
with United States accounting principles $(2,451) $(2,754) $(4,135) $(6,409)
======= ======= ======= =======
Loss per share for the year in accordance
with United States accounting principles
Basic and fully diluted $ ( 0.02) $ ( 0.02) $ (0.03) $ (0.04)
======= ======= ======= =======
</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. For purposes of United States accounting principles the
calculations (1997 restated) 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. The impact of this difference
has not been material (1997 restated) during the reporting periods
presented.
c) 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 and as
consideration for the reduction in the royalty thereon, has been
reflected as a financing activity in the consolidated statements of
cash flows. Under U.S. accounting principles these non-cash
transactions would have been excluded from financing and investing
activities and disclosed in the notes to the financial statements.
Included in cash and short-term deposits at June 30, 1998 are
investments of $nil (1997 - $17,932,000) with maturities on acquisition
of greater than 90 days. Under United States accounting principles
these investments
9
<PAGE> 10
would not be included in cash and short-term deposits.
After adjusting for the above, under United States accounting
principles the sources of cash for operating activities would be
$1,145,000 for the six months and $1,418,000 for the three months ended
June 30, 1998 (1997 - use of $3,998,000 and use of $3,661,000,
respectively), sources of cash from financing activities would be
$102,000 for the six months and $39,000 for the three months (1997 -
$74,000 and $41,000, respectively), the use of cash for investing
activities would become a source of cash of $22,466,000 for the six
months and $7,030,000 for the three months (1997 - source of
$17,860,000 and use of $1,925,000, respectively) and the decrease in
cash and short-term deposits would become an increase of $23,931,000
for the six months and $8,771,000 for the three months (1997 - increase
of $14,150,000 and a decrease of $5,404,000, respectively).
Additional disclosures required under United States accounting
principles with respect to the Statements of Cash Flows are as follows:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash taxes paid $157 $110 $257 $172
Cash interest paid $246 $275 $247 $283
</TABLE>
d) Contingent Liability
Under United States accounting principles the contingent liability
disclosed in note 5 (e) would be reflected in the balance sheet.
Accordingly, for 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.
e) Foreign Exchange Contracts
In accordance with Canadian accounting principles, long-term foreign
exchange contracts are considered to be hedges of sales revenue
denominated 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. Under United States
accounting principles, changes in the market value of certain foreign
exchange contracts would be included in current earnings.
f) 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 June 30, 1998 and December 31, 1997 would
be to decrease cash and short-term deposits and increase short-term
investments each by $nil (1997 - $28,097,000), decrease natural
resource properties by $13,925,000 (1997 - $14,014,000), increase
long-term investments by $50,000,000 (1997 - $50,000,000), increase
long-term liabilities by $38,491,000 (1997 - $38,000,000), decrease
deferred mining taxes by $2,462,000 (1997 - $2,462,000), increase
preferred shares by $12,000,000 (1997 - $12,000,000) and reduce
shareholders equity by $11,954,000 (1997 - $11,552,000).
10
<PAGE> 11
CAMPBELL RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
JUNE 30, 1998
(all dollars are Canadian unless noted otherwise)
OVERVIEW
Continuing low gold prices resulted in Campbell recording a loss of $2 million
or $0.013 per share for the three months and a loss of $3.7 million or $0.024
per share for the six months ended June 30, 1998 compared to a loss of $1.8
million or $0.012 per share and a loss of $4.6 million or $0.030 per share in
the comparable periods of 1997. Cash flow from operations before the change in
operating working capital decreased to $0.6 million in the half compared to $1.6
million in the first half of 1997. Gold production decreased by 24% in the
quarter to 21,100 ounces from 27,900 ounces a year earlier and by 15% in the six
months to 45,300 ounces from 53,400 ounces as a result of the cessation of
mining operations at the Santa Gertrudis Mine in Mexico.
REVENUE
Revenue from metal sales decreased 32% to $9.2 million in the second quarter and
25% to $19.5 million in the six months compared to $13.6 million and $25.9
million, respectively in 1997. The decrease is primarily attributable to the
decrease in gold production noted above combined with the 15% decrease in the
average price realized for gold sales during the six months compared to the same
period of 1997, partially offset by the impact of the weaker Canadian dollar.
The average price realized for gold produced in the six months ended June 30,
1998 was US$302 compared to US$354 in the comparable period of 1997. The average
Comex market price was US$297 in the first six months of 1998 compared to US$347
in 1997. The Company has hedged 20,000 ounces of gold production for the balance
of 1998 at a price of US$328 per ounce of gold through the use of purchased put
options which give the Company the right, but not the obligation to sell at
these prices. Campbell's general policy is to hedge up to 50% of its gold
production for up to two years, dependent on market conditions and capital
expenditure commitments.
Revenue from copper production remained constant at 4.3% of metal sales in the
first six months of 1998. Copper production increased to 691,000 pounds compared
to 676,000 pounds in 1997.
EXPENSES
Mining expense in the first six months of 1998 was $18.6 million and $9 million
in the second quarter compared to $22.5 million and $10.9 million in the
comparable periods of 1997. The overall cash production cost decreased to US$264
per ounce of gold for the six months and US$267 for the second quarter compared
to US$295 and US$271, respectively in 1997.
The Joe Mann Mine produced 36,560 ounces of gold in the first six months and
18,380 in the second quarter compared to 35,600 ounces and 18,520 ounces in the
comparable periods of 1997. The tons milled in the first half increased to
157,200 tons compared to 133,600 tons in 1997 while the mill head grade
decreased to 0.252 ounces of gold per ton compared to 0.290 ounces of gold per
ton in 1997. The mill recovery rate was 93.7% in the six months compared to
93.8% in 1997. The lower mill head grades reflect the scheduled mining of lower
grade material.
11
<PAGE> 12
The cash production cost at the Joe Mann Mine was US$278 per ounce produced in
the first six months of 1998 and US$269 in the second quarter compared to US$276
and US$258 for the comparative periods in 1997. The increase in cash costs due
to the increase in tons of ore milled and the decrease in the copper by-product
credits were offset by the weakening in the Canadian dollar. In Canadian dollars
the cash cost increased to $400 per ounce for the six months from $378 per ounce
a year earlier.
The cash production cost at the Santa Gertrudis Mine decreased to US$201 per
ounce in the first six months and US$263 in the second quarter compared to
US$333 and US$298 in the comparable periods of 1997. A total of 8,780 ounces of
gold was produced in the first half of 1998 and 2,760 in the second quarter
compared to 17,760 ounces and 9,400 ounces in the comparable periods of 1997,
when mining operations were still continuing. Leaching operations will continue
during 1998 for as long as the process generates positive cash flow, now
estimated to be late 1998.
Depreciation and amortization expense decreased to $3.3 million in the first six
months compared to $4.4 million in 1997 primarily due to lower gold production
resulting from the cessation of mining operations at Santa Gertrudis and the
impact of the writedown of the Joe Mann Mine in the fourth quarter of 1997. On a
per ounce produced basis, depreciation and amortization for the first six months
of 1998 was $72 per ounce compared to $84 per ounce in 1997.
Exploration expense decreased to $1.1 million in the first half of 1998 compared
to $2.5 million in the comparable period of 1997. Commencing January 1, 1998 the
Company began directly expensing exploration performed on the Santa Gertrudis
property in accordance with its stated accounting policies. The Company will
revert to capitalising these expenditures in the future should an economic ore
body be defined as a result of the current exploration efforts. The Company is
currently budgeting to spend US$1.7 million on exploration at Santa Gertrudis
during 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's cash and short-term deposits and working capital
decreased to $37.6 million and $44.3 million, respectively compared to $41.7
million and $49 million, respectively at December 31, 1997. The decrease is
primarily attributable to the cash flow from operations being inadequate to fund
capital expenditures. Cash flow from operations before the net change in
non-cash operating working capital decreased to $0.6 million in the first six
months of 1998 compared to $1.6 million in 1997. The decrease is primarily due
to the decrease in gold prices and gold production as noted above.
Investment activities in the first six months of 1998 include expenditures on
natural resource properties of $6.4 million compared to $15.9 million in 1997.
Expenditures include $5.1 million (1997 -$4.5 million) at the Joe Mann Mine
which includes $4.1 million for the shaft deepening (1997 - $3.2 million), $0.1
million (1997 - $2.4 million) at the Santa Gertrudis Mine, and $1.2 million
(1997 - $9 million) at the Cerro Quema property in Panama.
The shaft deepening project at the Joe Mann Mine is now substantially complete
other than construction of the sump system and other peripheral work with an
estimated cost of $0.9 million. The final cost of the project is estimated to be
$13.1 million compared to the original budget of $14.5 million. The Company is
continuing to review its options with respect to delaying the lateral
development of the Joe Mann Mine below the 2350 level and will make a decision
during the third quarter. Expenditures at the Cerro Quema project primarily
relate to revegetation which should be completed during the third quarter.
Thereafter the project will be placed on a care and maintenance basis awaiting
higher gold prices.
During the second quarter the Company sold its interest in the Wildcat
exploration property situated in Nevada for
12
<PAGE> 13
proceeds of $0.6 million recognising a gain of $0.2 million which amount is
included in interest and other income.
The Company's principal sources of liquidity are cash flow from the Joe Mann and
Santa Gertrudis mines and the Company's working capital which amounted to $44.3
million at June 30, 1998. The Company is subject to the normal risks and
uncertainties associated with mining, including fluctuations in gold prices, the
relative U.S./Mexican/Canadian exchange rates, the ability of the Company to
meet its production estimates and any unforeseen environmental problems.
13
<PAGE> 14
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not Applicable
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held on May 19, 1998, the
shareholders voted on election of a slate of nine directors
comprised of Messrs. Beatty, Clow, Douglas, Kachmar, McCartney,
Murphy, O'Kelly, Pralle, and Raymond. 93,365,901 votes were cast in
favour of election of the slate with 16,265,650 withheld.
At this meeting, the shareholders also voted on the re-appointment
of KPMG as auditors for the coming year and authorizing the
directors to fix remuneration. 109,009,744 votes were cast in favour
of this item and 779,977 votes were withheld.
ITEM 5. Other Information
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are being filed with this report.
(b No reports on Form 8-K were filed during the three months
ended June 30, 1998.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
"PAUL J. IRELAND"
-----------------
Paul J. Ireland
Vice President, Finance and Chief Financial Officer
Toronto, Ontario
August 12, 1998
15
<PAGE> 16
CAMPBELL RESOURCES INC.
FORM 10-Q - JUNE 30, 1998
EXHIBIT INDEX
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of income and consolidated statements of cash flows and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 0.68
<CASH> 37,569
<SECURITIES> 0
<RECEIVABLES> 4,623
<ALLOWANCES> 0
<INVENTORY> 5,825
<CURRENT-ASSETS> 48,980
<PP&E> 176,825
<DEPRECIATION> (105,569)
<TOTAL-ASSETS> 120,972
<CURRENT-LIABILITIES> 4,679
<BONDS> 5,823
123,162
0
<COMMON> 0
<OTHER-SE> (19,576)
<TOTAL-LIABILITY-AND-EQUITY> 120,972
<SALES> 19,522
<TOTAL-REVENUES> 19,522
<CGS> 22,868
<TOTAL-COSTS> 22,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> (3,862)
<INCOME-TAX> (129)
<INCOME-CONTINUING> (3,733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,733)
<EPS-PRIMARY> (0.024)
<EPS-DILUTED> (0.024)
</TABLE>
