<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 SEPTEMBER 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 September 30,1998, 154,058,829 Common Shares,
without par value
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CAMPBELL RESOURCES INC.
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets as at September 30, 1998
and December 31, 1997 ................................................3
Unaudited Consolidated Statements of Income for the Three Months
and the Nine Months Ended September 30, 1998 and 1997 ................4
Unaudited Consolidated Statements of Retained Earnings (Deficit)
for the Nine Months Ended September 30, 1998 and 1997.................4
Unaudited Consolidated Statements of Cash Flows for the Three
Months and the Nine Months Ended September 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 ...........................................12
PART II.OTHER INFORMATION:
ITEM 1. Legal Proceedings....................................................16
ITEM 2. Changes in Securities................................................16
ITEM 3. Defaults Upon Senior Securities......................................16
ITEM 4. Submission of Matters to a Vote
of Security Holders..................................................16
ITEM 5. Other Information....................................................16
ITEM 6. Exhibits and Reports on Form 8-K.....................................16
SIGNATURES...........................................................17
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CAMPBELL RESOURCES INC.
(Incorporated under the laws of Canada)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term deposits (Note 6) $ 38,425 $ 41,735
Receivables 3,601 4,805
Inventories (Note 2) 5,272 7,250
Prepaids 495 995
--------- ---------
Total current assets 47,793 54,785
--------- ---------
OTHER ASSETS 718 986
--------- ---------
NATURAL RESOURCE PROPERTIES 176,581 170,256
Less accumulated depreciation and amortization (107,623) (102,145)
--------- ---------
68,958 68,111
--------- ---------
Total assets $ 117,469 $ 123,882
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,409 $ 3,989
Accrued liabilities 1,357 1,757
Income taxes payable 28 31
--------- ---------
Total current liabilities 3,794 5,777
--------- ---------
OTHER LIABILITIES 3,050 1,442
CONVERTIBLE DEBENTURES (NOTE 3) 6,038 7,341
DEFERRED MINING TAXES 3,642 4,198
SHAREHOLDERS' EQUITY
Capital stock (Note 4) 123,203 121,425
Foreign currency translation adjustment 1,374 408
Deficit (23,632) (16,709)
--------- ---------
Total shareholders' equity 100,945 105,124
--------- ---------
Total liabilities and shareholders' equity $ 117,469 $ 123,882
========= =========
</TABLE>
Commitments and contingencies (Note 5)
3
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CAMPBELL RESOURCES INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of Canadian dollars except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
METAL SALES $ 8,847 $ 12,979 $ 28,369 $ 38,837
-------- -------- -------- --------
EXPENSES
Mining 7,361 11,884 25,918 34,380
General administration 631 774 1,987 2,221
Depreciation and amortization 1,472 2,267 4,733 6,705
Exploration 820 1,704 1,870 4,214
-------- -------- -------- --------
10,284 16,629 34,508 47,520
-------- -------- -------- --------
Loss from operations before writedown
of natural resource properties (1,437) (3,650) (6,139) (8,683)
Writedown of natural resource properties (Note 6) 2,138 2,138
-------- -------- -------- --------
Loss from operations (3,575) (3,650) (8,277) (8,683)
-------- -------- -------- --------
Other income (expense)
Interest and other income 483 474 1,608 1,421
Foreign exchange loss (87) (7) (172)
Convertible debenture interest expense (125) (163) (403) (481)
-------- -------- -------- --------
358 224 1,198 768
-------- -------- -------- --------
Loss before income taxes (3,217) (3,426) (7,079) (7,915)
Income tax recovery (expense) 27 58 156 (6)
-------- -------- -------- --------
NET LOSS $ (3,190) $ (3,368) $ (6,923) $ (7,921)
======== ======== ======== ========
LOSS PER SHARE $ (0.021) $ (0.022) $ (0.052) $ (0.053)
======== ======== ======== ========
</TABLE>
UNAUDITED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 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 (6,923) (7,921)
-------- --------
Balance at end of period $(23,632) $ 15,780
======== ========
</TABLE>
4
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CAMPBELL RESOURCES INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
Three months ended Nine months ended
CASH PROVIDED BY (USED IN): September 30 September 30
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,190) $ (3,368) $ (6,923) $ (7,921)
Items not involving cash
Depreciation and amortization 1,472 2,267 4,733 6,705
Writedown of natural resource properties 2,138 2,138
Deferred mining taxes (recovery) (197) (115) (556) (157)
Other 132 874 1,567 2,607
-------- -------- -------- --------
355 (342) 959 1,234
Net change in non-cash operating working capital 1,158 4,909 1,699 (665)
-------- -------- -------- --------
1,513 4,567 2,658 569
-------- -------- -------- --------
FINANCING ACTIVITIES
Issues of capital stock 41 43 1,778 2,188
Conversion of convertible debentures (12) (1,635) (12)
-------- -------- -------- --------
41 31 143 2,176
-------- -------- -------- --------
INVESTMENT ACTIVITIES
Expenditures on natural resource properties (1,007) (9,126) (7,390) (25,040)
Termination of hedging contracts 9,679 9,679
Proceeds on sale of assets 617
Other 22 135 230
-------- -------- -------- --------
(1,007) 575 (6,638) (15,131)
-------- -------- -------- --------
Effect of exchange rate change on cash
and short-term deposits 309 109 527 323
-------- -------- -------- --------
Increase (decrease) in cash and short-term deposits 856 5,282 (3,310) (12,063)
Cash and short-term deposits at beginning of period 37,569 37,957 41,735 55,302
-------- -------- -------- --------
Cash and short-term deposits at end of period $ 38,425 $ 43,239 $ 38,425 $ 43,239
======== ======== ======== ========
CHANGES IN NON-CASH OPERATING WORKING CAPITAL
Receivables $ 1,022 $ 3,439 $ 1,204 $ 1,095
Inventories and prepaids 1,021 1,423 2,478 321
Accounts payable (711) 85 (1,580) (1,040)
Accrued liabilities (173) (45) (400) (959)
Income taxes payable (1) 7 (3) (82)
-------- -------- -------- --------
$ 1,158 $ 4,909 $ 1,699 $ (665)
======== ======== ======== ========
</TABLE>
5
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CAMPBELL RESOURCES INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 7, conform in all
material respects with accounting principles generally accepted in the United
States.
The results of operations for the first nine months of the year are not
necessarily indicative of the results to be expected for the full year.
2--INVENTORIES
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
Materials and supplies $5,214 $5,519
Work-in-progress 58 1,731
------ ------
$5,272 $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 nine months ended September 30, 1998, debenture holders converted
US$1,180,000 (1997 - US$9,000) of debenture principal into 2,360,000 (1997 -
18,000) common shares of the Company resulting in a balance outstanding at
September 30, 1998 of US$3,957,000 ( December 31, 1997 - US$5,137,000).
6
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4--CAPITAL STOCK
Changes in the issued and outstanding common shares for the nine 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 18 12
Issued to CEMSA 1,770 2,071
Employee Incentive Plan and
Directors' Stock Option Plan 254 143 119 105
-------- -------- -------- --------
Balance at September 30 154,059 $123,203 150,495 $120,793
======== ======== ======== ========
</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 September
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 7,175,000 common shares at prices ranging
from $0.44 to $1.48 per share with such options expiring at various dates to
August 18, 2003.
Loss per share has been calculated using the weighted average number of shares
outstanding during the nine months which was 153,242,000 (1997 - 149,917,000)
and during the three months which was 153,993,000 (1997 - 150,462,000).
5--COMMITMENTS AND CONTINGENCIES
a) At September 30, 1998 the Company had purchased puts enabling it to
deliver 7,500 ounces of gold during 1998 at an average price of US$330
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 330,000 pounds of
copper for delivery in 1998 at an average price of US$0.95 per pound.
b) At September 30, 1998 the Company had sold forward US$11,000,000 to
purchase Canadian dollars during 1998 and 1999 at an average rate of
Cdn$1.4324 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
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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 charge against the assets will be
released when the final tax assessment covering this matter is issued
in favour of the Company by the tax authorities. 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 has
filed 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.
g) The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 Issue may be experienced before, on, or after January 1, 2000,
and, if not addressed, the impact on operations and financial reporting
may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000
8
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Issue affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
6--SUBSEQUENT EVENT
Subsequent to September 30, 1998, the Company sold surplus heavy mobile
equipment for proceeds of US$2,000,000 cash resulting in a loss of $2,138,000
which amount has been provided for in these financial statements.
7--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 Nine months ended
September 30 September 30
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss for period as reported $ (3,190) $ (3,368) $ (6,923) $ (7,921)
Depreciation and amortization (a) 39 (986) 128 (2,842)
Deferred income taxes (b) (187) (1,870) (187) (1,870)
Foreign exchange contracts (e) (537) (1,028)
-------- -------- -------- --------
Net loss for the year in accordance
with United States accounting principles $ (3,875) $ (6,224) $ (8,010) $(12,633)
======== ======== ======== ========
Loss per share for the year in accordance
with United States accounting principles
Basic and fully diluted $ ( 0.03) $ ( 0.04) $ (0.05) $ (0.08)
======== ======== ======== ========
</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 (1997
restated), 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.
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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 US 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 September 30, 1998 are
investments of $nil (1997 - $27,753,000) 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.
After adjusting for the above, under United States accounting
principles the sources of cash from financing activities would be
$143,000 for the nine months and $41,000 for the three months (1997 -
$105,000 and $31,000, respectively), the use of cash for investing
activities would become a source of cash of $21,459,000 for the nine
months and a use of $1,007,000 for the three months (1997 - use of
$1,065,000 and use of $18,925,000, respectively) and the decrease in
cash and short-term deposits would become an increase of $24,787,000
for the nine months and $856,000 for the three months (1997 - decrease
of $68,000 and a decrease of $14,218,000, 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 Nine months ended
September 30 September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash taxes paid $182 $ 50 $439 $222
Cash interest paid $ $ 18 $247 $301
</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.
10
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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 September 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 $13,886,000 (1997 - $14,014,000),
increase long-term investments by $50,000,000 (1997 - $50,000,000),
increase current liabilities by $1,028,000 (1997 - $nil), increase
long-term liabilities by $38,000,000 (1997 - $38,000,000), decrease
deferred mining taxes by $2,275,000 (1997 - $2,462,000), increase
preferred shares by $12,000,000 (1997 - $12,000,000) and reduce
shareholders equity by $12,639,000 (1997 - $11,552,000).
11
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CAMPBELL RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SEPTEMBER 30, 1998
(all dollars are Canadian unless noted otherwise)
FORWARD-LOOKING STATEMENTS
This report contains certain "Forward-Looking Statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and is subject to certain
risks and uncertainties, including those "Risk Factors" set forth in the
Company's current Annual Report on form 10-K for the year ended December 31,
1997. Such factors include, but are not limited to: differences between
estimated and actual ore reserves; changes to exploration, development and
mining plans due to prudent reaction of management to ongoing exploration
results, engineering and financial concerns; and fluctuations in the gold price
which affect the profitability and ore reserves of the Company. Readers are
cautioned not to place undue reliance on those forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect unanticipated events
or developments.
OVERVIEW
Following the $2.1 million writedown of surplus mobile equipment which was sold
for US$2 million cash subsequent to the quarter end, Campbell recorded a loss of
$3.2 million or $0.021 per share for the three months and a loss of $6.9 million
or $0.052 per share for the nine months ended September 30, 1998 compared to a
loss of $3.4 million or $0.022 per share and a loss of $7.9 million or $0.053
per share in the comparable periods of 1997. Excluding this writedown the loss
would have been $1.1 million for the quarter and $4.8 million for the nine
months. Cash flow from operations before the change in operating working capital
increased to $0.4 million in the quarter compared to a cash outflow of $0.3
million in the same period of 1997 but decreased to $1 million in the nine
months compared to $1.2 million in 1997. Gold production decreased by 33% in the
quarter to 19,000 ounces from 28,400 ounces a year earlier and by 21% in the
nine months to 64,300 ounces from 81,700 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 $8.8 million in the third quarter and
27% to $28.4 million in the nine months compared to $13 million and $38.8
million, respectively in 1997. The decrease is primarily attributable to the
decrease in gold production noted above combined with the 12% decrease in the
average US dollar price realized for gold sales during the nine 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 nine months ended September
30, 1998 was US$306 per ounce compared to US$346 in the comparable period of
1997. The average Comex market price of gold was US$294 per ounce in the first
nine months of 1998 compared to US$339 in 1997. The Company has hedged 7,500
ounces of gold production for the balance of 1998 at a price of US$330 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.
12
<PAGE> 13
Revenue from copper production increased to 4.5% of metal sales in the first
nine months of 1998 compared to 3.8% in 1997 as a result of the decrease in gold
production. Copper production increased to 997,000 pounds in the nine months
compared to 988,000 pounds in 1997.
EXPENSES
Mining expense in the third quarter of 1998 was $7.4 million and $25.9 million
in the first nine months compared to $11.9 million and $34.4 million in the
comparable periods of 1997. The overall cash production cost decreased to US$250
per ounce of gold for the third quarter and US$258 for the nine months compared
to US$290 and US$294, respectively in 1997.
The Joe Mann Mine produced 16,670 ounces of gold in the third quarter and 53,230
ounces in the first nine months compared to 17,420 ounces and 53,020 ounces in
the comparable periods of 1997. The tons milled in the first nine months
increased to 222,400 tons compared to 195,200 tons in 1997 while the mill head
grade decreased to 0.258 ounces of gold per ton compared to 0.296 ounces of gold
per ton in 1997. The mill recovery rate was 94% in the first nine months of 1998
compared to 93.8% in 1997. Mill recoveries have been steadily improving over the
last few years following improvements to various components of the mill in 1994
and fine tuning of the process by the mill staff. A record 95% recovery rate was
achieved in the month of August. The lower mill head grades reflect the
scheduled mining of lower grade material.
The cash production cost at the Joe Mann Mine was US$250 per ounce produced in
the third quarter of 1998 and US$268 in the first nine months, the same as for
the comparable period in 1997.
.
The cash production cost at the Santa Gertrudis Mine (which includes ongoing
fixed overheads) decreased to US$211 per ounce in the first nine months compared
to US$341 in the comparable periods of 1997. A total of 2,340 ounces of gold was
produced in the third quarter of 1998 and 11,100 ounces in the first nine months
compared to 10,960 ounces and 28,720 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 $4.7 million in the first
nine months compared to $6.7 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 of gold produced basis, depreciation and amortization for
the first nine months of 1998 was $74 per ounce compared to $83 per ounce in
1997.
Exploration expense decreased to $1.9 million in the first nine months of 1998
compared to $4.2 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 an aggregate US$1.7 million on
exploration at Santa Gertrudis during 1998.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's cash and short-term deposits and working
capital decreased to $38.4 million and $44 million, respectively compared to
$41.7 million and $49 million, respectively at December 31, 1997. The decrease
is primarily attributable to the capital expenditures which primarily related to
completion of the Joe Mann Mine shaft sinking project being in excess of the
cash flow from operations during the period. Cash flow from operations before
the net change in non-cash operating working capital decreased to $1 million in
the first nine months of 1998 compared to $1.2 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 nine months of 1998 include expenditures on
natural resource properties of $7.4 million compared to $25 million in 1997.
Expenditures include $6 million (1997 -$7 million) at the Joe Mann Mine which
includes $4.4 million for the shaft deepening (1997 - $5.1 million), $0.1
million (1997 - $2.9 million) at the Santa Gertrudis Mine, and $1.3 million
(1997 - $15.1 million) at the Cerro Quema property in Panama. In 1997,
investment activities also included the termination of certain gold hedging
contracts relating to the Cerro Quema project for proceeds of $9.7 million.
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 $0.5 million which will be completed when development of the
lower levels commences. The final cost of the project is estimated to be $13.1
million compared to the original budget of $14.5 million. The Company has
delayed full development below the 2350 level due to continuing low gold prices.
Accelerated development of the first level immediately below the 2350 level has
commenced to ensure continued production through to the end of the year 2000.
The Company is continuing to study various Life-of-Mine production plans in an
effort to increase production from the mine and reduce the impact of fixed costs
on the cost per ounce of gold produced. This analysis should be finished in the
fourth quarter and will enable a development decision to be made early in 1999.
Expenditures at the Cerro Quema project primarily relate to revegetation and
environmental work required by the original development plan which were largely
completed during the third quarter. The project has now been placed on a care
and maintenance basis awaiting higher gold prices. Commencing September, 1998,
all costs relating to this project are being expensed.
During the second quarter the Company sold its interest in the Wildcat
exploration property situated in Nevada for 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
million at September 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.
YEAR 2000 PROJECT
As discussed in the Management's Discussion and Analysis of Financial Condition
and Results of Operations that accompanied the December 31, 1997 Audited
Financial Statements, Campbell acknowledged its awareness of the implications of
the year 2000 issue and stated that it believed it would not present a
significant problem for the
14
<PAGE> 15
Company. This was primarily due to the use of off-the-shelf software for the
Company's accounting functions and the limited use of computers in the mine
operations themselves. The Company has substantially completed the process of
cataloguing all computer hardware and software as well as all other
applications and processes which may be date sensitive, including supplies and
services provided by external suppliers, as it relates to the Company's
corporate office and the Joe Mann Mine and is ongoing as it relates to the
Mexican and Panamanian operations. The Company is in the process of engaging
external consultants to assist in identifying which individual personal
computers need to be replaced or upgraded and which software packages need to
be upgraded to ensure they are Year 2000 compliant. This process should be
completed by year end after which the new equipment and software will be
installed. To date the Company is not aware of any significant modifications
required to the non-computer applications at the Joe Mann Mine. The cost to
make the Company's operations Year 2000 compliant has not yet been determined.
15
<PAGE> 16
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
None
ITEM 5. Other Information
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months
ended September 30, 1998.
16
<PAGE> 17
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.
/s/ PAUL J. IRELAND
---------------------------------------------------
Paul J. Ireland
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer and
authorized signatory)
Toronto, Ontario
November 10, 1998
17
<PAGE> 18
CAMPBELL RESOURCES INC.
FORM 10-Q - SEPTEMBER 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 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>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 0.655
<CASH> 38,425
<SECURITIES> 0
<RECEIVABLES> 3,601
<ALLOWANCES> 0
<INVENTORY> 5,272
<CURRENT-ASSETS> 47,793
<PP&E> 176,581
<DEPRECIATION> (107,623)
<TOTAL-ASSETS> 117,469
<CURRENT-LIABILITIES> 3,794
<BONDS> 6,038
0
0
<COMMON> 123,203
<OTHER-SE> (22,258)
<TOTAL-LIABILITY-AND-EQUITY> 117,469
<SALES> 28,369
<TOTAL-REVENUES> 28,369
<CGS> 32,521
<TOTAL-COSTS> 32,521
<OTHER-EXPENSES> 2,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403
<INCOME-PRETAX> (7,079)
<INCOME-TAX> (156)
<INCOME-CONTINUING> (6,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,923)
<EPS-PRIMARY> (0.052)
<EPS-DILUTED> (0.052)
</TABLE>
