<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, 1998
[ ] 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 Identification No.)
incorporation or organization)
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:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Shares New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
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 26, 1999, the registrant had outstanding 155,486,121 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$43,599,513(based on the closing price of
such common share of US$0.2813 on such date as reported on the New York Stock
Exchange, Inc. composite listings.)
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of registrant's Proxy Circular relating to an Annual and
Special Meeting of Shareholders scheduled to be held on May 18, 1999 are
incorporated by reference into Part III of this report and certain portions of
the 1998 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, 1998
<TABLE>
<CAPTION>
Page
PART I
<S> <C>
Items 1. and 2. Business and Properties................................................................2
Item 3. Legal Proceedings.....................................................................22
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.....................................................................24
Item 11. Executive Compensation................................................................25
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...............................................................26
</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> <C>
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
1998 0.6447 0.6746 0.7105 0.6343
</TABLE>
(1) The average rate means the average of the exchange rates on the last
day of each month during the year.
On March 26, 1999, the noon buying rate for Cdn. $1.00 was US$0.6607
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
Item 1 and 2 and elsewhere in this report, that may
<PAGE> 5
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 Item 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> 6
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 10 to the Corporation's consolidated financial statements for the year
ended December 31, 1998. 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 acquired the Santa Gertrudis Mine from
Phelps Dodge Corporation. The Santa Gertrudis Mine, an open pit heap leach gold
mine located near the town of Magdalena, Sonora, Mexico, approximately 150 miles
south of Tucson, Arizona, was brought into production in 1991 by its previous
owner. The Corporation holds its interests in Mexico through its wholly-owned
subsidiary, Oro de Sotula, S.A. de C.V. ("Sotula"). In December 1997, mining
operations were temporarily suspended due to low gold prices and insufficient
developed ore reserves. Leaching operations continued until the end of 1998.
Activities are now focussed on an exploration programme to identify 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.
In March 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. 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 in February 1997. In December 1997, as a consequence
of sustained lower gold prices, the
2
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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 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, metallurgy, etc.) 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 300
persons as of December 31, 1998, of which 172 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 1998 and 1997, there were no material strikes or walkouts at the
Joe Mann Mine. In September 1996, the collective bargaining unit at the Joe Mann
Mine, represented by Le Syndicat des Travailleurs-euses de la Mine Meston
("CSN"), consisting of 145 employees, approved a collective bargaining agreement
covering a three year period. In February 1999, CSN agreed to a two year
extension of current agreements with a wage increase of $0.25 per hour and a
gold price participation formula. Also in February 1999, a three year contract,
on the same terms as to wage increase and gold price participation, was approved
by the Metallurgistes Unis d'Amerique covering 27 workers at the Camchib Mill.
See "Employees" on page 10.
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.
3
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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
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
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.
4
<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 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 No. 2 shaft was further
deepened by 1,081 feet to a depth of 3,757 feet to permit six new levels to be
mined. This project was completed in July 1998 at a cost of $13.1 million,
approximately $1.4 million less than budget. (See "Mine Exploration, Development
and New Long Term Mine Plan" on page 7).
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
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approximately 400 hectares. In addition, Meston holds 197 mining claims covering
approximately 3,150 hectares outside of the Joe Mann Mine area. The property is
accessed from Chibougamau by road. Highway 167 leads to the gravel mine access
road, which is approximately 12 miles in length and is serviced by Meston.
GEOLOGY
The deposit represents a classic Archean vein-type deposit with
gold-copper mineralization hosted by quartz veining within three laterally
continuous shear systems. In the mine area, the rocks consist predominantly of
mafic lavas intruded by gabbro sills and feldspar porphyry dykes. The intrusives
appear to have been introduced along a prominent east-west break structure. The
gabbro sills which are moderately magnetic are traceable over widths of 400 to
600 feet and for at least thirty miles along strike. Many late diabase dykes of
varying thicknesses crosscut the sequence and strike northeast.
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.
Early exploration on the 2575 level, initiated in the fall of 1998,
encountered positive results approximately 1,000 feet east of the shaft and led
to the discovery of a new zone situated north of the Main Vein. The new zone
has, to date, been defined between the 2350 and 2575 levels. A crosscut driven
at 1100E to investigate results from three earlier holes drilled from the 2350
level intersected a zone of high-grade mineralization with a true width of 39.2
feet averaging 0.293 ounces gold per ton. Historically, mine widths at Joe Mann
have been approximately 6.0 feet. This new zone is situated approximately 200
feet north of the Main Vein. Drilling to test a 475 foot section of the zone
between 975E and 1450E and the 2350 and 2575 levels is ongoing. At present, it
is thought that the mineralization of the new zone is spatially and genetically
related to a large quartz-feldspar porphyry dyke. There are two limbs of
high-grade ore mineralization which occur at the northern and southern contacts
between the porphyry dyke and a sheared gabbro.
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, 1998 on the basis of a gold price
of US$325 per ounce, and as at December 31, 1997 and December 1996, on the basis
of gold prices of US$375 per ounce.
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PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
Grade Grade Grade
Tons (oz/ton) Tons (oz/ton) Tons (oz/ton)
<S> <C> <C> <C> <C> <C> <C>
Proven 397,305 0.231 489,931 0.239 515,522 0.277
Probable 119,285 0.224 63,486 0.232 211,869 0.245
------- ----- ------- ----- ------- -----
Total 516,590 0.229 553,417 0.238 727,391 0.268
======= ===== ======= ===== ======= =====
</TABLE>
The total estimated diluted proven and probable mineable reserves at
the Joe Mann Mine decreased by 36,827 tons from 553,417 tons at December 31,
1997 to 516,590 tons at December 31, 1998. After taking into account production
during 1998 of 299,000 tons grading 0.252 ounces per ton, the total diluted
proven and probable mineable reserves increased on a net basis during this
period by 262,173 tons. Reserves decreased during 1997 because access to the
mineralization below the 2350 level could only be achieved on completion of the
deepening of the No. 2 production shaft in July 1998. With this completion and
development of the six mining levels below the 2350 feet level, reserves should
return to historical levels.
MINE EXPLORATION, DEVELOPMENT AND NEW LONG-TERM MINE PLAN
In light of sustained lower gold prices some development and diamond
drilling expenditures originally scheduled for 1998 were deferred while analysis
was completed to prepare the new long term mine plan. As a result,17,361 feet of
lateral development and 101,438 feet of diamond drilling were completed in 1998
at an estimated cost of approximately $4,552,000 net of deferred revenue from
development ore compared to an original forecast of 24,915 feet of lateral
development and 72,000 feet of diamond drilling at an estimated cost of
$5,110,000. This compares to 18,513 feet of lateral development and 103,670 feet
of diamond drilling in 1997, completed at a net cost of approximately
$4,871,000. 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. The 1998 programme concentrated on
production development. To date, both widths and grades are somewhat higher
than those encountered in the currently mined areas.
The 1,081 foot deepening of the No. 2 production shaft to facilitate
the opening of six new production levels to a depth of 3,450 feet, commenced in
December, 1996, and was completed in July, 1998 at a cost of $13.1 million. The
No. 2 production shaft is constructed to permit future deepening without
interruption of production.
Following the successful completion of the shaft deepening programme
Campbell considered various alternatives for the further development of the
mine. The new long-term plan calls for the immediate full development of all six
levels between the 2350 level, which is currently being mined, and the shaft
bottom at 3,700 feet. The Plan assumes gold prices of US$300 per ounce in 1999,
US$315 for 2000 and US$325 thereafter. The plan also assumes a
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mill gold recovery rate of 93.8% and a US$/Cdn$ exchange rate of US$1 = Cnd$1.50
for 1999 and 2000 and 1.475 thereafter. The plan is expected to have
significant economic benefits for the Corporation including reduced cash
operating costs.
The long term mine plan envisages mining approximately 1.8 million tons
of ore at an average of 0.258 ounces gold per ton to produce more than 425,000
ounces of gold over the next 6 years. Additional increases in gold production
and lower cash operating costs are expected once the impact of the new zone,
discussed in detail below is taken into account. A key component of the plan
includes the adoption of a 7 day per week mining schedule as compared to the
current 5 day per week schedule and the elimination of the 2 week summer shut
down. The net effect will be to increase the number of days of mining from an
average of 237 days per year to 347 days per year. Due to excess mill capacity,
the mill will operate an average of 260 days per year.
NEW ZONE
Development on the 2575 level is continuing to determine the eastern
extent of mineralization of the new zone, discussed above under Geology on
page 6. In addition, crosscuts are also being driven on the 1100E and 1300E
sections of the 2575 level to enable drilling to test the new zone below the
2575 level.
While the extent and grade of the new zone are not fully known, early
estimations indicate that the zone contains approximately 140,000 tons averaging
0.312 ounces per ton between the 2350 and 2575 levels. Mine management expects
to mine some of this mineralized material begining in the second half of 1999
using cut and fill methods. It is estimated that the new zone will contribute
approximately 8,000 ounces to gold production in 1999, increasing thereafter.
Lateral development is being carried out on the 2750, 2925 and 3100 levels and
it is expected that within two months the 2750 level will have advanced to the
projected depth of the new zone enabling further definition drilling of the
zone.
WEST ZONE
In addition to ore from the Main and South Veins, which are situated
east of the production shaft, the long term mine plan includes initial
production from the West Zone between the 1650 and 1825 levels of the mine.
Further exploration and development in the West Zone is contemplated above the
2350 level with an expected increase in reserves. Results from three raises
completed between the 1650 and 1500 levels indicate vertical continuity for at
least 80 feet.
MINING
Mining is predominantly carried out using the shrinkage stope mining
method and currently all stope production comes from above the 2350 level. In
1998, approximately 67% of the ore came from the shrinkage stopes, 19% from
longhole stoping, and 14% from development muck. 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 services the mine to the 1650 level and is
currently
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inactive, but is maintained to provide standby support for the operation. During
1999 the No. 1 shaft will be withdrawn from service.
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
-------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tons Milled 299,000 266,000 266,000
Gold Grade (oz./ton) 0.252 0.299 0.290
Copper Grade (%) 0.243 0.280 0.302
Gold Produced (ounces) 70,100 73,500 70,400
Copper Produced (000's lbs) 1,316 1,367 1,473
Cash Operating Costs (1) (US$ $257 $264 $272
per oz. of gold)
</TABLE>
(1) Operating costs include all on-site mining, processing and
administrative costs, net of copper and silver by-product credits.
MILLING
Ore from the Joe Mann Mine is transported approximately 40 miles by
truck to the Corporation's Camchib Mill for processing. The Camchib Mill was
commissioned in 1955 and is regularly maintained and is in good working order.
During 1998, the gold recovery rate at the Camchib Mill which processed
ore from the Joe Mann Mine was 94.3% and the copper recovery rate was 94.2%
compared to 93.9% and 96.3% respectively in 1997. The higher gold recovery rate,
despite lower grades, reflects continuing mill circuit improvements and
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
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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, 228 persons were employed as of December 31, 1998
of whom 145 mine workers were covered by a collective bargaining agreement with
Le Syndicat des Travailleurs-euses de la Mine Meston (CSN) and 27 mill workers
were covered by a collective bargaining agreement with Les Metallurgistes Unis
d'Amerique (the United Steelworkers of America). During 1998 and 1997, there
were no material strikes or walkouts at the Joe Mann Mine.
In September 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. The new long- term mine plan includes the adoption of a
7 day per week mining schedule as compared to the current 5 day per week
schedule and the elimination of the 2 week summer shut down. In February 1999,
CSN, the union representing the hourly mine workers, supported the
implementation of the new work schedule and agreed to a two year extension to
the current labour agreement. Also in February 1999, a new three year contract
was agreed to with Les Metallurgistes Unis d'Amerique (the United Steel Workers
of America), the union representing the hourly mill workers, on the same terms
regarding wages and gold price participation as were approved by the CSN. The
agreements provide for a general increase of $0.25 per hour for the mine and
mill workers amounting to an annual cost of $120,000. In addition, a gold price
participation formula has also been approved. For a gold price ranging between
$525 and $625 per ounce, the employees would share an additional $90,000 for
each $25 multiple in this range.
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 $512 per ounce increasing to 3.6% at gold prices of $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, 1998, $548,000 was paid to Repadre under
this agreement compared to $593,000 paid for the year ended December 31, 1997.
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
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<PAGE> 15
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 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 a 100% interest through staged payments aggregating a
maximum of US$1,000,000 over a five year period. During 1996, six 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. During 1998, one optioned
claim was returned to the owner. The present property consists of 44 claims
comprising 22,784 hectares or 87.97 square miles.
The Corporation's subsidiary, Sotula holds both the exploration and
exploitation concessions. To maintain these concessions, Sotula was required
either to incur exploration or development work or to have production revenues
in 1998 amounting to approximately US$1.7 million or US$72 per hectare.
Exploration and development expenditures and production revenues for 1998 were
considerably in excess of this requirement. The excess from 1998 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 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$112,000 was paid for property taxes
during 1998.
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<PAGE> 16
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. Forty-six 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 (1996 reserves were estimated on the basis of a gold price of US$380
per ounce):
PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
Grade Grade Grade
Tonnes g/tonne Tonnes g/tonne Tonnes g/tonnes
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Proven Nil - Nil - 1,287,000 1.87
Probable Nil - Nil - 291,000 1.46
--------- ----
Total Nil - Nil - 1,578,000 1.79
========= ====
</TABLE>
Following cessation of mining activities in December, 1997,
approximately 732,900 tonnes of proven and probable material grading
approximately 1.69 grams per tonne remained. Due to lower gold prices and
because the quantity of material is insufficient to support costs, this material
no longer met the definition of ore reserves and was reclassified as possible
mineralized material. Exploration work is continuing in an effort to identify
additional material which together with this remaining material would be
economic to mine at current gold prices.
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.
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<PAGE> 17
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 and two 85-tonne haulage trucks. 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 6.3:1. Mining equipment is
being regularly maintained in anticipation of resumption of mining operations.
The ore was oxidized and processing utilized 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 were
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 was accomplished by pumping the solutions through a series of carbon
columns. The gold was adsorbed onto the carbon that was subsequently transported
to the plant for stripping using a hot caustic solution. Zinc dust was added to
the gold-laden strip solution to facilitate precipitation of the gold. A filter
system collected the gold-rich zinc precipitate which was then dried. The zinc
precipitate containing 75 to 90% gold and approximately 5% silver was shipped to
the United States for final refining.
Subsequent to 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 76.3% was experienced. Leaching operations
continued until the end of December 1998 when the level of gold production
became uneconomic.
The Phase IV leach pad, completed in mid 1997 to the east of the
existing Phase I pad provides an additional 2.0 million tonne capacity. If
mining operations resume, the recovery process described above will be used.
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
-------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tonnes ore mined - 1,021,000 965,000
Gold Grade (g/tonne) - 1.71 2.06
Gold Recovery (%) - 69.5 84.6
Gold Produced (ounces) 12,300 39,200 54,400
Cash Operating Costs $242(2) $333(1) $227(1)
(US$ per ounce of gold)
</TABLE>
(1) 1996 and 1997 operating costs include all on-site mining, plant,
administration and transportation costs.
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<PAGE> 18
(2) 1998 cash operating costs include overhead costs associated with
keeping the mine infrastructure in place while the exploration work
continues.
During 1998, the Santa Gertrudis Mine produced 12,300 ounces of gold as
a result of the continued application of cyanide solutions to the heaps on the
leach pads. This process was completed in December 1998. Cash operating costs
per ounce of gold for 1998 were US$242 compared to US$333 for 1997. This lower
unit cost is attributable to the cessation of mining operations in December
1997.
EXPLORATION
Exploration expenditures for 1998 were $2.3 million compared to $3.7
million in 1997. During early 1998, exploration efforts at Santa Gertrudis
continued to focus on evaluating large portions of the property that, in the
past, had received little, if any, exploration.
In 1998, the Corporation continued to conduct exploration involving
geological mapping, rock and soil geochemical sampling, trenching and drilling
in an effort to define resources and reserves outside the area of past mining
activity. This effort led to the delineation of a geological resource contained
in five deposits within the Greta area, approximately 7 kilometres southeast of
the mine district. Because the Greta area is situated some distance from the
mine infrastructure and with gold prices at historic lows, the resource
identified is presently uneconomic. Approximately 120 holes totalling in excess
of 10,000 metres were drilled to explore and develop reserves at Santa
Gertrudis in 1998. Should the gold price improve, exploration will resume in the
area to establish mineable reserves.
Ongoing regional exploration led to the discovery of the San Enrique
anomaly, a large soil geochemical anomaly with great potential situated
approximately 7 kilometres south of the mine district. Further exploration on
the anomaly has been delayed because of difficulties in concluding an agreement
with the surface rights owner. As a result the Corporation filed an application
for temporary occupation from the Government of Mexico. The Corporation has been
advised that Temporary Occupation Resolution was granted on March 17, 1999. This
Resolution entitles the Corporation to explore and exploit its claims, which
underlie the property of the surface rights owner, for five years and requires
an annual payment of approximately US$50,000. This amount was established by the
Government of Mexico and is adjusted annually for inflation. A program of
mapping, trenching, drilling and sampling will commence in April, 1999.
In May 1998, the Corporation commenced discussions to acquire the
former gold producing property of Minera Roca Roja which filed for bankruptcy in
September, 1998. On March 26, 1999, the realization value of the Roca Roja
property was appraised at US$1,002,000. The Corporation has indicated to the
trustee in bankruptcy, that it intends to acquire the property. The acquisition
is expected to close on April 14, 1999. The adjoining Roca Roja property, which
consists of approximately 4,568 hectares, has the potential to host mineralized
material which could be developed in the near term given its proximity to the
existing mine infrastructure.
The initial phase of exploration for 1999, covering the first 3 to 4
months, has been budgeted at $750,000. Additional funds will be made available
as results warrant. Efforts will focus on the Roca Roja property, the adjacent
mine district and the San Enrique soil geochemical anomaly.
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<PAGE> 19
In addition, in 1997 Campbell 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 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
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. At December 31, 1998, there were 48 employees of whom 22 were
engaged in exploration activities.
It is expected that approximately 40 employees will continue to be
employed in 1999 to carry out exploration and to ensure that plant and
infrastructure is maintained in anticipation of a restart of mining operations.
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. See "Mine Feasibility and Development" on page 16.
Under Panamanian mining law,
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<PAGE> 20
a 2% net smelter return royalty is payable on production. In addition, an
annual surface tax of approximately US$1.00 per hectare is also payable.
GEOLOGY
The geology at the Cerro Quema Property consists of host volcanic rocks
which originally contained pyrite and very low-grade gold. These rocks have been
highly weathered to result in a concentration of gold near the surface. The
highest grade ore is at the surface, with the grade gradually declining with
depth down to the lower limit of the oxidation boundary. Three near-surface
oxide deposits, the La Pava, Quema West and Quemita, currently comprise the
project, of which the La Pava deposit is the largest. The Quema West and Quemita
deposits are adjacent to each other and approximately 2.5 to 3.0 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.
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.
MINE FEASIBILITY AND DEVELOPMENT
In November, 1996, a positive feasibility study was completed, based on an
assumed gold price of US$400 per ounce, 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 in February, 1997.
In preparing the feasibility study, the Corporation carried out a detailed
review of the data produced by a previous owner on the property and completed
some confirmation drilling and test work. It is believed approximately US$8.5
million was spent on the property, prior to acquisition by the Corporation,
including 17,000 metres of reverse circulation drilling and 4,500 metres of
diamond drilling. In the feasibility study which was prepared on the basis of a
gold price of US$400 per ounce, a probable mineable reserve of 8.8 million
tonnes at a grade of 1.16 grams per tonne was estimated by the Corporation.
Given current gold prices, this reserve is no longer economic and is now
categorized as mineralized material.
Based on a review of the metallurgy of the mineralized material and
proposed mining plans and methods and on test work performed on representative
samples taken from the property, the feasibility study assumes 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.
The feasibility study estimates the capital cost 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 were to
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.
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<PAGE> 21
Construction and upgrading of the access road commenced in late 1996 with
main construction activities being commenced in early 1997, including 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. The fleet of mining equipment, acquired for the Cerro
Quema gold project, was sold in October, 1998 for US$2 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 Corporation, 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 during 1998
and for 1999.
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, and in the State of Sonora, Mexico.
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
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<PAGE> 22
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, 1998, SOQUEM
has spent approximately $2,631,000 on the Meston property and $2,462,000 on the
Chibougamau properties including $83,000 on the Meston properties and $31,000 on
the Chibougamau properties since the effective date of the 1997 amendment. The
Corporation is not responsible for sharing expenditures with respect to the
referenced properties.
During 1998, SOQUEM carried out an induced potential survey and minor
trenching on the Chibougamau properties. A diamond drilling programme is planned
for 1999. On the Meston property, only claim renewal costs were incurred in
1998. Some surface exploration work is scheduled for 1999.
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 required further drilling to determine whether the project could be
economic. The Corporation's interest in the Wildcat property consisted of 315
mining claims held directly and under lease agreements. In November, 1996,
Campbell entered into an option to purchase agreement with Sagebrush Exploration
Inc. pursuant to which Sagebrush acquired the Wildcat property on April 8, 1998
for US$650,000.
CAMPBELL FINANCINGS
On February 8, 1996, the Corporation entered into an underwriting
agreement with First Marathon Securities Limited, Nesbitt Burns Inc. and CIBC
Wood Gundy Securities Inc. (the "Underwriters") pursuant to which the
Corporation sold 18,000,000 Units, each Unit consisting of one Common Share and
one-half of a Common Share Purchase Warrant (a "Warrant"). Each whole Warrant
entitles the holder to purchase one Common Share for US$1.50 on or before
February 26, 1999. The Corporation received approximately US$21,150,000 from the
Underwriters net of underwriting fees and before deducting other expenses of
sale, from the sale of such securities. The 18,000,000 Common Shares and
9,000,000 Warrants were registered under the Securities Act of 1933 (the
"Act"), on a Registration Statement on Form F-10.
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<PAGE> 23
(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. The
warrants expired on February 26, 1999 in accordance with their terms.
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 19, 1999, debenture
holders had converted US$7,712,000 of debenture principal into 15,424,000 Common
Shares. Debentures in the amount of US$3,293,000 remain outstanding as of March
19, 1999.
MESTON DEBENTURES AND PREFERENCE SHARES
During 1991, a predecessor of Meston entered into a corporate
restructuring and financing arrangement (the "Financing") in which it issued to
a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate
Debentures and Notes (the "Guaranteed Debentures") and $12,000,000 of Guaranteed
Non-Cumulative Redeemable Retractable Preferred Shares (the "Preferred Shares")
and renounced Canadian development expenses. The Guaranteed Debentures bear
interest at varying rates and are repayable upon maturity in 2007. The Preferred
Shares are retractable in 2007. In order to secure the obligations in respect of
the Guaranteed Debentures and the Preferred Shares, a subsidiary of the
Corporation entered into an Interest Rate and Currency Exchange Swap Agreement
(the "Swap Agreement") with a major international bank and irrevocably assigned
all amounts receivable under the Swap Agreement directly to the investors. The
proceeds of the Swap Agreement will be used to make all interest payments, repay
the Guaranteed Debentures upon maturity and retract the Preferred Shares.
Accordingly, such bank is primary obligor under the Financing. The Guaranteed
Debentures are subordinate to all current non-trade and future senior
indebtedness of the Corporation and its subsidiary.
ENVIRONMENTAL MATTERS
The Corporation believes that it and its subsidiaries are currently
complying in all material respects with applicable environmental legislation.
During 1995, proposed amendments to the Quebec Mining Act relating particularly
to rehabilitation and restoration plans came into force. This legislation
required that a rehabilitation and restoration plan be submitted for approval
within one year of the legislation coming into force and that a financial
guarantee be furnished with
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<PAGE> 24
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, and for
the Camchib Mill site on Merrill Island, 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 six 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$744,000 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.
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.
20
<PAGE> 25
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 movements 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 no longer economically feasible to continue required
development at the Joe Mann Mine, (see "Mine Exploration, Development and New
Long-Term Mine Plan" on page 7) or to continue commercial production. The cash
operating costs per ounce of gold produced from the Corporation's operations are
set forth 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.
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 and 12. 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.
21
<PAGE> 26
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.
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
22
<PAGE> 27
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. While the local tax authority was requested by the federal tax
authorities to issue a re-assessment which must take into account the basis of
the appeal, 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 Corporation has been advised that this assessment is improper as it
completely ignores the earlier ruling. Accordingly the Corporation 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. 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 1998 Annual Report to Shareholders which information is
incorporated herein by reference and is filed as Exhibit 13.1 to this report. On
March 26, 1999 the closing price of the Common Shares on The Toronto Stock
Exchange was $0.42 and on the New York Stock Exchange composite transactions was
US $0.2813 as reported by the Globe and Mail.
SHAREHOLDERS
As of March 26, 1999, Campbell had 13,008 common shareholders of record.
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)
23
<PAGE> 28
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 1998 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 18 of the
1998 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 1998 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.
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
1999 Annual and Special Meeting of Shareholders scheduled for May 18, 1999 which
information is incorporated herein by reference and is filed as Exhibit 20.1 to
this report.
EXECUTIVE OFFICERS OF REGISTRANT
24
<PAGE> 29
The executive officers of the Corporation, together with the offices of
the Corporation held by them, their ages and their experience since January 1,
1994, 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 8 Certified Management 62
Chief Executive Accountant.
Officer of the
Corporation
Lorna D. Vice President, 11 Lawyer. 47
MacGillivray Secretary and
General Counsel
Paul J. Ireland Vice President, 4 Chartered Accountant. Prior 41
Finance and to September 1994, Manager
Chief Financial of Special Projects, Polaris
Officer 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.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is set out in the Proxy Circular in
connection with the 1999 Annual and Special 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 1999 Annual and Special Meeting of
Shareholders which is incorporated herein by reference and is filed as Exhibit
20.1 to this report.
25
<PAGE> 30
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 155,486,121
Common Shares.
<TABLE>
<CAPTION>
Name Number of Shares % of Class
---- ---------------- ----------
<S> <C> <C>
John O. Kachmar 190,000 (1) (less than) 1%
Lorna D. MacGillivray 81,546 (2) (less than) 1%
Paul J. Ireland 16,638 (3) (less than) 1%
Three executive officers
as a group 288,184 (4) (less than) 1%
</TABLE>
(1) Excludes 1,350,000 Common Shares subject to option, of which 962,500 are
currently exercisable or exercisable within the next 60 days.
(2) Excludes 400,000 Common Shares subject to option, of which 250,000 are
currently exercisable or exercisable within the next 60 days.
(3) Excludes 375,000 Common Shares subject to option of which 281,250 are
currently exercisable or exercisable within the next 60 days.
(4) Excludes 2,125,000 Common Shares subject to option of which 1,493,750 are
currently exercisable or exercisable within the next 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No reportable transactions or relationships involving the registrant and
any of its directors or officers existed during the last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. FINANCIAL STATEMENTS
Auditors' Report
Consolidated Balance Sheets as at December 31, 1998 and 1997
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Retained Earnings (Deficit) -
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -
26
<PAGE> 31
Years Ended December 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All financial Statement Schedules filed as a part of this report are
included in Item 8 of this report and reference is made thereto.
3. EXHIBITS
A refers 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.
B refers to documents previously filed as an exhibit to Campbell's Annual Report
on Form 10-K for the year ended December 31, 1994 (Commission file number
1-8488) and incorporated herein by reference.
C refers 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.
D refers to documents previously filed as an exhibit to Campbell's Annual Report
on Form 10-K for the year ended December 31, 1993 (Commission file number
1-8488) and incorporated herein by reference.
E refers to documents previously filed as an exhibit to Campbell's Current
Report on Form 8-K dated March 28, 1996 (Commission file number 1-8488)and
incorporated herein by reference.
F refers to documents previously filed as an exhibit to Campbell's Annual Report
on Form 10-K for the year ended December 31, 1996 (Commission file number
1-8488) dated March 26, 1997 and incorporated herein by reference.
Exhibits 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)
27
<PAGE> 32
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)
10 Material Contracts
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 Directors' Stock Option Plan (D) (Exhibit 10.8)
Material Contracts
10.6 Royalty Agreement with Repadre Capital Corporation made as of
April 23, 1993. (D) (Exhibit 10.14)
10.7 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)
10.8 Bullion Dealing Master Agreement and Security Agreement between
the Corporation and Citibank dated February 24, 1995 regarding
forward gold sales (B) (Exhibit 10.12)
28
<PAGE> 33
10.9 Purchase and Sale Agreement dated March 4, 1996 between Cyprus
Exploration and Development Corporation, Campbell Resources Inc.
and Compania de Exploracion Mineral, S.A. (E) (Exhibit 1.1)
13.1 Certain Portions of the Annual Report to the Shareholders for the
year ended December 31, 1998 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.]
20.1 Proxy Circular dated March 22, 1999 in connection with the 1999
Annual and Special Meeting of Shareholders scheduled to be held on
May 18, 1999.
21.1 Significant subsidiaries.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed in the fourth quarter of 1998.
(c) EXHIBITS
Exhibits are listed under (a)3 above.
(d) FINANCIAL STATEMENTS SCHEDULES REQUIRED BY REGULATION S-X WHICH ARE
EXCLUDED FROM THE CORPORATION'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1998.
Not applicable
29
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAMPBELL RESOURCES INC.
Dated: March 26, 1999 By:/s/JOHN O. KACHMAR
------------------------
John O. Kachmar
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOHN O. KACHMAR Principal Executive Officer March 26, 1999
- ---------------------------------------- and Director
John O. Kachmar, President and
Chief Executive Officer
/s/ PAUL J. IRELAND Principal Financial and March 26, 1999
- ---------------------------------------- Principal Accounting
Paul J. Ireland, Vice President, Officer
Finance and Chief Financial Officer
/s/ JAMES D. BEATTY March 26, 1999
- ----------------------------------------
James D. Beatty Director
/s/ GRAHAM G. CLOW March 26, 1999
- ----------------------------------------
Graham G. Clow Director
/s/ ROD P. DOUGLAS March 26, 1999
- ----------------------------------------
Rod P. Douglas Director
/s/ JAMES C. McCARTNEY March 26, 1999
- ----------------------------------------
James C. McCartney Q.C. Chairman and Director
/s/ DONALD R. MURPHY March 26, 1999
- ----------------------------------------
Donald R. Murphy Director
- ----------------------------------------
Francis S. O'Kelly Director
/s/ G.E."KURT" PRALLE March 26, 1999
- ----------------------------------------
G.E."Kurt" Pralle Director
/s/ JAMES D. RAYMOND March 26, 1999
- ----------------------------------------
James D. Raymond Director
</TABLE>
30
<PAGE> 35
CAMPBELL RESOURCES INC.
1998 FORM 10-K
EXHIBIT INDEX
EXHIBITS
A refers 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.
B refers to documents previously filed as an exhibit to Campbell's Annual Report
on Form 10-K for the year ended December 31, 1994 (Commission file number
1-8488) and incorporated herein by reference.
C refers 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.
D refers to documents previously filed as an exhibit to Campbell's Annual Report
on Form 10-K for the year ended December 31, 1993 (Commission file number
1-8488) and incorporated herein by reference.
E refers to documents previously filed as an exhibit to Campbell's Current
Report on Form 8-K dated March 28, 1996 (Commission file number 1-8488)and
incorporated herein by reference.
F refers to documents previously filed as an exhibit to Campbell's Annual Report
on Form 10-K for the year ended December 31, 1996 (Commission file number
1-8488) dated March 26, 1997 and incorporated herein by reference.
Exhibits 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)
10 Material Contracts
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 Directors' Stock Option Plan (D) (Exhibit 10.8)
Material Contracts
10.6 Royalty Agreement with Repadre Capital Corporation made as of
April 23, 1993. (D) (Exhibit 10.14)
10.7 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)
10.8 Bullion Dealing Master Agreement and Security Agreement between
the Corporation and Citibank dated February 24, 1995 regarding
forward gold sales (B) (Exhibit 10.12)
10.9 Purchase and Sale Agreement dated March 4, 1996 between Cyprus
Exploration and Development Corporation, Campbell Resources Inc.
and Compania de Exploracion Mineral, S.A. (E) (Exhibit 1.1)
13.1 Annual Report to the Shareholders for the year ended December 31,
1998 [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 22, 1999 in connection with
the 1999 Annual and Special Meeting of Shareholders scheduled to
be held on May 18, 1999 and Form of Proxy
21.1 Significant subsidiaries
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
<PAGE> 1
[LOGO] Campbell
Resources Inc.
1998 Annual Report
[PHOTO OMITTED]
<PAGE> 2
[MAP OMITTED]
Corporate Profile
- --------------------------------------------------------------------------------
Campbell Resources Inc. is a gold mining and exploration company. In 1998,
Campbell produced 82,400 ounces of gold from the Joe Mann Mine in Quebec,
Canada, and the Santa Gertrudis Mine in Sonora, Mexico. The Santa Gertrudis Mine
temporarily ceased mining in December 1997 and is now focussed on exploration.
Campbell also owns the Cerro Quema development stage gold project in Panama,
which is currently awaiting higher gold prices before development continues.
Campbell operates in a financially responsible manner and as a consequence has
maintained a strong balance sheet with cash and short-term deposits of $41.5
million and negligible debt. Continuing with this philosophy, Campbell is
selectively developing its existing assets and continuing to search for quality
gold investment opportunities.
Campbell's common shares are listed on the New York, Toronto, and Montreal stock
exchanges, trading under the symbol "CCH".
- --------------------------------------------------------------------------------
Forward-Looking Statements
Certain information contained in this report contains "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, 1998. 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 these 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.
<PAGE> 3
- ------------------------------
[LOGO] Campbell Resources Inc.
- ------------------------------
Highlights
- ----------------
o Maintained a strong balance sheet with a cash position of $41.5 million
and working capital of $45.7 million
Joe Mann Mine
- -------------------------------------------------------------------------------
o Produced 70,100 ounces at a cash operating cost of US$257 per ounce
o Completed the shaft deepening project at a cost of $13.1 million compared
to a budget of $14.5 million
o Discovered new high grade ore zone that is open on strike and at depth
o Implemented a new long-term mine plan that increases the number of mine
work days per year by 45% and reduces the cash operating costs to US$245
per ounce
Santa Gertrudis Mine
- -------------------------------------------------------------------------------
o Discovered the 4.0 by 2.0 kilometre San Enrique gold-in-soil geochemical
anomaly
o Initiated acquisition of the Roca Roja property, a highly prospective area
with a short-term potential to host at least 100,000 ounces
<TABLE>
<CAPTION>
($in thousands except per share amounts) 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Metal sales $ 36,388 52,635 67,180
Net income (loss) $ (20,848) (40,410) 9,012
Cash flow from operations $ 411 556 21,439
Exploration expenditures $ 2,803 4,659 7,220
--------------------------------------------------------------------------------
Working capital $ 45,689 49,008 65,520
Cash and short-term deposits $ 41,493 41,735 55,302
Total assets $ 102,777 123,882 165,298
Shareholders' equity $ 87,469 105,124 142,058
Shares outstanding (000's) 154,686 151,445 148,588
--------------------------------------------------------------------------------
Per share - Earnings (loss) $ (0.14) (0.27) 0.06
- Cash flow $ -- -- 0.15
--------------------------------------------------------------------------------
Gold Production (ounces)
--------------------------------------------------------------------------------
Joe Mann 70,100 73,500 70,400
Santa Gertrudis 12,300 39,200 54,400
--------------------------------------------------------------------------------
Total gold production 82,400 112,700 124,800
--------------------------------------------------------------------------------
Cash operating cost per ounce (US$) $ 255 288 252
Gold revenue per ounce (US$) $ 304 336 396
--------------------------------------------------------------------------------
</TABLE>
In this report, unless otherwise indicated,
all monetary amounts are stated in Canadian dollars.
1
<PAGE> 4
- ------------------------------
[LOGO] Campbell Resources Inc.
- ------------------------------
Report
TO THE Shareholders
- -------------------------
Historically low gold prices continued to have a negative impact on the
gold mining industry and Campbell Resources in 1998. The gold price averaged
US$294 per ounce in 1998. A combination of speculative short selling and the
continued perceived threat of central bank sales have dominated the markets. The
gold price failed to respond to what would normally be considered bullish
factors including the falling US dollar, the covering of hedge fund short
positions and some renewed investor demand for gold.
Surprisingly, these low gold prices have failed to stem world gold
production, in fact it continues to increase. The biggest supply response will
likely be in the future as reduced exploration and development budgets take
effect. Many gold producers have been living off hedge positions established in
better times and from a reduction in cash operating costs. Weak local currencies
in Australia, South Africa and Canada have also helped maintain, to some extent,
the gold price in those currencies.
Campbell has responded to this environment by continuing to apply
financial discipline in its operations. At the Joe Mann Mine this is evidenced
by the completion of the shaft sinking project approximately $1.4 million under
budget and by the new Mine Plan which has the mine operating seven days a week
instead of the five days a week it has worked since start-up. The Santa
Gertrudis Mine ceased uneconomic mining to focus on exploration and the Cerro
Quema project was put on a care and maintenance basis awaiting higher gold
prices. This discipline has enabled the Company to maintain its strong clean
balance sheet with cash at the year end of $41.5 million.
Financial and Operating Results
In 1998, Campbell reported a loss from operations of $10.1 million and,
after a $12.5 million writedown in the carrying value of its mining interests, a
net loss of $20.8 million, or $0.14 per share compared to a loss of $40.4
million or $0.27 per share in 1997. Cash flow from operations was $0.4 million
compared to $0.6 million in 1997.
Gold production of 82,400 ounces in 1998 decreased from the 112,700 ounces
produced in 1997 as a result of the cessation of mining operations at Santa
Gertrudis in early December 1997.
Cash operating costs in 1998 were US$255 per ounce of gold produced
compared with US$288 per ounce a year earlier. Campbell's realized gold revenue
of US$304 per ounce in 1998 is US$10 above the average COMEX market price for
the year of US$294 as a result of hedging activities. This compares to realized
gold revenue of US$336 per ounce in 1997.
Joe Mann Mine - Quebec, Canada
The Joe Mann Mine in northwestern Quebec experienced a number of
significant developments during 1998. On the operating side, gold production was
70,100 ounces at a cash cost of US$257, down marginally from the 73,500 ounces
at a cash cost of US$264 per ounce, produced in 1997. The lower gold production
was primarily attributable to lower mill head grades which decreased from 0.300
ounces gold per ton in 1997 to 0.252 ounces gold per ton in 1998. Mill
recoveries have however steadily increased reaching 94.3% in 1998 compared with
93.9% a year earlier. Since 1993, recoveries have improved by 3% resulting from
circuit improvements to the mill process in 1994 and efforts by the mill
technical staff.
The project to deepen the No. 2 mine shaft by almost 1,100 feet was
completed at a total cost of $13.1 million, approximately $1.4 million under
budget. The shaft now extends to a depth of more than 3,700 feet below the
surface.
During the course of 1998, senior management and mine staff completed a
re-evaluation of the long-term mine plan at Joe Mann. The new long-term mine
plan calls for the immediate full development of six new levels between the 2350
level, currently the lowest level of mining, and the shaft bottom at 3,700 feet.
This development will provide access to reserves of 1.8 million tons of ore at
an average grade of 0.258 ounces gold per ton. Over the next six years, Joe Mann
is expected to produce more than 425,000 ounces of gold. The cash operating cost
is expected to average US$245 per ounce down from US$260 per ounce figure
previously forecast. Similarly, the total cash cost, which includes all
development and sustained capital expenditures, will also drop from US$285 per
ounce to US$270 per ounce. This will likely be further reduced once the new ore
zone is better defined and incorporated into the long-term mine plan.
2
<PAGE> 5
The new ore zone is situated between the Main Zone and the North Zone,
1,000 feet east of the shaft and has, to date, been defined between the 2350 and
2575 levels. It has a strike length of 425 feet and a down-dip extension of at
least 175 feet and remains open to the east and at depth. The initial crosscut
driven to examine the zone intersected high-grade mineralization with a true
width of 39.2 feet averaging 0.293 ounces gold per ton. Historically, mine
widths at Joe Mann have been approximately 6 feet. Diamond drilling has
continued to intersect high-grade mineralization over substantial widths.
Management is confident that with this wider zone, we will be able to mine the
zone with greater productivity thus lowering the cash operating costs further.
In addition, excess hoist and mill capacities will enable us to increase annual
gold production from the Joe Mann Mine. Production from the new zone will come
on stream during the second half of 1999. Work is continuing to better define
this new discovery and to test its extensions both down-dip and along strike.
Santa Gertrudis Mine - Sonora, Mexico
Through the continued leaching of the heaps, the Santa Gertrudis Mine
produced approximately 12,300 ounces at a cash operating cost of US$242 per
ounce in 1998. Santa Gertrudis is expected to produce a minimal amount of gold
in the first quarter of 1999 from the current leaching process.
Since mining was initiated at Santa Gertrudis, the property has produced
approximately 300,000 ounces of gold and the potential to find additional oxide
mineralization within the 227 square kilometre property is considered to be
excellent. In the first half of 1998, exploration was focused on the Greta area
situated approximately 7 kilometres southeast of the area of past mining. The
Greta area presently has a geological resource of approximately 150,000 ounces;
however, at current gold prices, this resource would be difficult to mine
profitably. As a result Campbell's exploration team shifted its focus to other
areas.
In May 1998, Campbell became aware that the property adjoining the mine
district was for sale. The majority of this property is underlain by the same
favourable geology which hosts the deposits previously mined by Campbell at
Santa Gertrudis. Given the promising geology and proximity to the existing
infrastructure, Campbell has been in discussions with Minera Roca Roja and
subsequently its trustee in bankruptcy. Discussions are continuing. Campbell has
prepared a program of preliminary geological work and intends to carry out a
drill program on several highly prospective targets on the Roca Roja property
that are contiguous with, or extensions of, deposits previously mined at Santa
Gertrudis as soon as an acquisition is completed.
In addition to the extensions of previously mined deposits, structural
mapping has identified a low angle fault which extends from the mine district to
the northwest through the Roca Roja claims and back onto the Santa Gertrudis
property. Current geological interpretation indicates that the block of ground
which hosts the Santa Gertrudis deposits has moved to the southwest along this
fault. By reconstructing the displacement along this fault, it may be possible
to find the roots of the Santa Gertrudis deposits on the newly acquired ground.
Similarly, it may be possible to find the upper portions of the deposits
previously mined on the Roca Roja property. Other structural targets related to
faulting and folding are also apparent and remain to be tested.
Our knowledge of the geology of the mine district, coupled with our nearby
existing infrastructure and the lack of any significant systematic exploration
on these claims, makes them excellent targets for the development of 100,000
ounces of reserves in the near term. Significant potential exists to develop
other reserves on the remainder of the purchased claims. Campbell's target, in
the short term, is to delineate approximately two years worth of production, or
150,000 ounces of mineable reserves, before mining can recommence.
Soil sampling in 1998 resulted in the discovery of the 4.0 by 2.0
kilometre San Enrique gold-in-soil geochemical anomaly situated approximately
7.0 kilometres south of the mine district. Gold-in-soil values ranged up to 10.0
grams gold per tonne while limited mapping and rock sampling returned values of
up to 78.1 grams gold per tonne. The anomaly still remains open to the
southwest. A significant exploration program involving mapping, trenching and
drilling is scheduled to begin in April 1999, once surface access is secured
through the issuance of a temporary occupation order by the Mexican government.
3
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Personnel and Acknowledgements
Campbell's technical and management teams have once again demonstrated
their abilities in improving the Company's performance. From the discovery of a
new ore zone at the Joe Mann Mine, the development and implementation of a new
long-term mine plan, through to the continuing improvement in recoveries at the
mill, employees at the Joe Mann Mine are to be congratulated. We also wish to
acknowledge the contribution made by Le Syndicat de Travailleurs-euses de la
Mine Meston and Les Metallurgistes Unis d'Amerique who have supported the
introduction of a seven day per week work schedule and agreed to extensions of
the collective agreements until 2001. With these changes, necessitated by
historically low gold prices, we believe Joe Mann Mine's operation is secure
through this period of expected low gold prices.
Exploration efforts by our geologists at the Santa Gertrudis property has
been successful in delineating resources in the Greta area. Exploration is
continuing in other areas and, with the increased understanding of the geology
of the property.
We are proud of our 300 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. We will continue to endeavour to add
value to current and future mining projects and to conduct business responsibly
in a manner designed to protect our employees and the natural environment.
Outlook and Growth Strategy
In 1999, Campbell will continue to operate in a financially responsible
manner while developing its existing assets. We will also continue to examine
and evaluate opportunities for acquisition and/or merger.
The discovery of a significant new ore zone at the Joe Mann Mine and the
adoption of the new long-term mine plan with its increased work schedule and
labour agreements, will result in improved productivities and lower cash
operating costs that will see the Joe Mann Mine operations continue beyond 2004.
At the Santa Gertrudis Mine, we will focus on exploration programs to
evaluate the immediate mine area and highly prospective Roca Roja property and
the major San Enrique gold-in-soil geochemical anomaly. Management is confident
that these programs will lead to the resumption of mining operations at Santa
Gertrudis during the second half of1999.
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 grow to become an intermediate-sized,
profitable gold producer.
/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 19, 1999
4
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Review of Operations
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Joe Mann
Mine
QUEBEC, CANADA
[PHOTO OMITTED]
[MAP OMITTED]
Overview
The Joe Mann Mine is a high-grade underground gold mine located
approximately 350 miles north of Montreal in the province of Quebec, Canada. The
mine has been in continuous production since 1987. It has produced approximately
900,000 ounces of gold and currently has geological and mineable reserves of
approximately 800,000 ounces and 500,000 ounces, respectively.
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.
Joe Mann is a vein-type deposit with gold-copper mineralization hosted by quartz
veins within a number of laterally continuous shear systems. To date, the
deposit has been mined along a 3,000 foot strike length, to depths of 2,350
feet. Once development of the six new levels below the 2350 level is completed,
an additional 1,300 foot vertical extent of ore will be made accessible.
Mineralization at the Joe Mann Mine remains open at depth.
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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 a gold and copper
concentrate is produced from a flotation circuit.
Operating Results
Cash operating costs fell 2.7% from US$264 per ounce in 1997 to US$257 per
ounce in 1998 while gold production decreased by 4.6% from 73,500 ounces in 1997
to 70,100 ounces in 1998. The decrease in production is primarily attributable
to lower mill head grades which fell from 0.300 ounces gold per ton in 1997 to
0.252 ounces gold per ton in 1998. Mill recoveries increased to 94.3% in 1998
compared to 93.9% in 1997, which are above the
<TABLE>
<CAPTION>
Production Statistics 1998 1997 1996
================================================================================
<S> <C> <C> <C> <C>
Tons Milled 299,000 266,000 266,000
Gold Grade (oz./ton) 0.252 0.299 0.290
Copper Grade (%) 0.243 0.280 0.302
Gold Recovery (%) 94.3 93.9 93.2
Copper Recovery (%) 94.2 96.3 96.3
Gold Production (oz.) 70,100 73,500 70,400
Copper Production (000's lbs) 1,316 1,367 1,473
Cash Operating Cost
per Ounce Gold (US$) 257 264 272
Reserves
================================================================================
Mineable Ore Reserves (1)
- --------------------------------------------------------------------------------
Proven and Probable
- tonnage 516,590 553,000 727,000
- gold grade (oz./ton) 0.229 0.238 0.268
- copper grade (%) 0.243 0.270 0.260
- contained oz. gold (2) 118,400 131,700 194,900
Possible (3)
- tonnage 1,462,000 1,417,000 1,546,000
- gold grade (oz./ton) 0.255 0.267 0.273
- copper grade (%) 0.250 0.260 0.259
- contained oz. gold (2) 372,900 378,200 422,500
Diluted Geological Reserves
- --------------------------------------------------------------------------------
Proven and Probable
- tonnage 729,000 879,000 969,000
- gold grade (oz./ton) 0.210 0.225 0.249
- copper grade (%) 0.223 0.240 0.250
- contained oz. gold (2) 153,300 197,900 241,300
Possible (3)
- tonnage 2,520,000 2,461,000 2,647,000
- gold grade (oz./ton) 0.261 0.264 0.259
- copper grade (%) 0.240 0.250 0.240
- contained oz. gold (2) 657,800 649,600 685,600
</TABLE>
(1) Mineable reserves at December 31, 1998 have been calculated based on a
gold price of US$325 per ounce. Mineable reserves at December 31, 1997 and
1996 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.
industry average. Since 1993, the year before improvements to the mill were
made, recoveries have increased from 91% to the current 94.3% level. The
increase in recoveries was due to continuing mill circuit modifications and the
work of the mill staff in fine-tuning the process.
The Joe Mann Mine also produces copper and silver as a by-product.
Production of copper in 1998 was 1.3 million pounds, slightly lower than the 1.4
million pounds produced in 1997. Silver production decreased to 24,200 ounces in
1998 compared to 27,500 ounces in 1997.
Long-Term Mine Plan
Following the successful completion of the shaft deepening program in July
1998 at a cost of $13.1 million, approximately $1.4 million less than budgeted,
Campbell considered various alternatives for the further development of the
mine. The long-term plan that was finally adopted calls for the immediate full
development of all six levels between the 2350 level, which is currently being
mined, and the shaft bottom at 3,700 feet. The plan is expected to have
significant economic benefits for the Company including reduced cash operating
costs.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
<TABLE>
<CAPTION>
95 96 97 98
<S> <C> <C> <C> <C>
Gold Production 64.5 70.4 73.5 70.1
(thousands of ounces)
Cash Operating Cost 284 272 264 257
(US$ per ounce)
Gold Reserves 916.7 926.9 847.5 811.1
(thousands of ounces)
</TABLE>
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Review of Operations
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3-D Model of the Joe Mann Mine
[MAP OMITTED]
The plan envisages mining approximately 1.8 million tons of ore at an
average grade of 0.258 ounces gold per ton to produce more than 425,000 ounces
of gold over the next 6 years. The average cash operating cost is forecast to
decrease to US$245 per ounce, compared to a cash operating cost of US$260 as
previously forecast. The total cash cost, including all development and
sustained capital expenditures, will also decrease to US$270 per ounce from
US$285 per ounce. Additional increases in gold production and lower cash
operating costs are expected once the impact of the new ore zone, discussed in
detail below, is taken into account.
In addition to ore from the Main and South Zones, which are situated east
of the production shaft, the plan includes initial production from the West Zone
between the 1650 and 1825 levels of the mine. Further exploration and
development in the West Zone is contemplated above the 2350 level with an
expected increase in reserves. Results from three raises completed between the
1650 and 1300 levels indicate the continuous presence of additional ore above
the 1650 level.
A key component of the plan includes the adoption of a 7 day per week
mining schedule as compared to the current 5 day per week schedule and the
elimination of the 2 week summer shut-down. The net effect will be to increase
the number of days of mining from 237 days per year to 347 days per year. Due to
the excess mill capacity, the mill will operate an average of 260 days per year.
The unions, representing the hourly mine and mill workers, support the
implementation of the new work schedule and management has been successful in
arranging extensions to the current labour agreements to December 2001.
Exploration Results from the 2575 Level
Early exploration on the 2575 level, initiated in the fall of 1998,
encountered impressive results approximately 1,000 feet east of the shaft. A
crosscut driven at 1100E to investigate results from three earlier holes drilled
from the 2350 level intersected a zone of high-grade mineralization with a true
width of 39.2 feet averaging 0.293 ounces gold per ton. Historically, mine
widths at Joe Mann have been approximately 6.0 feet. This new ore zone is
situated approximately 200 feet north of the Main Zone and approximately 40 feet
south of the North Zone. Drilling to test a 475 foot section of the zone between
975E and 1450E and the 2350 and 2575 levels is ongoing.
At present, it is thought that the mineralization of the new ore zone is
spatially and genetically related to a large quartz-feldspar porphyry dyke.
There are two limbs of high-grade ore mineralization which occur at the northern
and southern contacts between the porphyry dyke and a sheared gabbro.
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[PHOTO OMITTED]
Mineralization within the new ore zone is similar to ore found in the Main
Zone and contains up to 15% sulphides within quartz veins. In addition, there
are numerous occurrences of visible gold. Development of the 2575 level is
continuing to determine the eastern extent of mineralization of the new ore
zone. In addition, crosscuts are also being driven on the 1100E and 1300E
sections of the 2575 level to enable drilling to test the new zone below the
2575 level.
While the extent and grade of the new ore zone are not fully known, early
estimations indicate the zone contains a mineable reserve between the 2350 and
2575 levels of approximately 140,000 tons averaging 0.312 ounces gold per ton.
Mine management expects to mine some of this reserve beginning in the second
half of 1999 using cut and fill methods. It is estimated that the new zone will
contribute approximately 8,000 ounces to this year's gold production, increasing
thereafter.
Lateral development is being carried out on the 2750, 2925 and 3100 levels
and it is expected that within two months the 2750 level will have advanced to
the projected depth of the new ore zone enabling further definition drilling of
the zone.
As a result of the discovery of the new ore zone, forecast gold production
has been increased to 78,000 ounces in 1999, up from the previous projection of
70,000 ounces. Total cash operating costs are estimated to be US$250 per ounce.
8
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Santa Gertrudis
Mine
SONORA, MEXICO
[PHOTO OMITTED]
[MAP OMITTED]
Overview
The Santa Gertrudis Mine is an open pit heap leach operation situated
approximately 240 kilometres south of Tucson, Arizona in the state of Sonora,
Mexico. The Santa Gertrudis Mine was in continuous production from 1991 until
1997 and 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 177,000 ounces at an average cash operating cost of US$249 per ounce.
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
(g/t gold). The ore is completely oxidized and amenable to the low-cost heap
leach gold extraction method.
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Operating Results
In 1998, Santa Gertrudis produced 12,300 ounces of gold at a cash cost of
US$242 per ounce compared to the production of 39,200 ounces at a cash operating
cost of US$333 per ounce in 1997. Gold production in 1998 was the result of
continued application of solutions to the heaps on the leach pads. This process
was completed in December 1998.
<TABLE>
<CAPTION>
Production Statistics 1998 1997
================================================================================
<S> <C> <C> <C>
Tonnes mined (ore+waste) -- 7,432,000
Tonnes ore mined -- 1,021,000
Strip Ratio -- 6.28
Gold Grade (grams/metric tonne) -- 1.71
(oz./ton) -- 0.05
Gold Recovery (%) -- 69.5
Gold Production (oz.) 12,300 39,200
Cash Operating Cost
per Ounce Gold (US$) 242 333
Mineral Resources
================================================================================
Possible (1)
- --------------------------------------------------------------------------------
- tonnage (metric tonnes) 1,992,000 2,422,000
- gold grade (grams/metric tonne) 2.08 2.00
(oz./ton) 0.059 0.058
- indicated gold (oz.) 133,000 155,700
</TABLE>
(1) 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
In 1998, the Company continued to conduct exploration involving mapping,
rock and soil geochemical sampling, trenching and drilling in an effort to
define resources and reserves outside the area of past mining activity. This
effort led to the delineation of a geological resource contained in five
deposits within the Greta area, approximately 7 kilometres southeast of the mine
district. Because the Greta area is situated some distance from the mine
infrastructure and with gold prices at historic lows, this resource of 1.8
million tonnes averaging 2.4 g/t gold, or 150,000 ounces, is presently
uneconomic. Should the gold price improve, exploration will resume in the area
to establish mineable reserves.
Ongoing regional exploration led to the discovery of the San Enrique
anomaly, a large soil geochemical anomaly with great potential situated
approximately 7 kilometres south of the mine district.
In May 1998, Campbell commenced discussions to acquire the former gold
producing Roca Roja property. Discussions are continuing with the trustee in
bankruptcy of Minera Roca Roja. The Roca Roja property has the potential to host
reserves which could be
Location Map
[MAP OMITTED]
developed in the near term given its proximity to the existing mine
infrastructure. Campbell is confident that exploration completed in the
short-term will delineate mineable reserves that will sustain mining operations
for at least two years.
In 1998, $2.3 million was spent on exploration at Santa Gertrudis. The
initial phase of exploration for 1999, covering the first 3 to 4 months, has
been budgeted at $750,000. Additional funds will become available as results
warrant. Efforts will focus on the Roca Roja property and the adjacent mine
district, and the San Enrique soil geochemical anomaly.
The Roca Roja Property and the Mine District
Following the decision to re-focus exploration outside of the Greta area,
Campbell began assessing the possibility of acquiring certain claims north, east
and west of the Santa Gertrudis property. As a result of this assessment,
Campbell initiated discussions with Minera Roca Roja, a former gold producer, to
purchase its mineral claims totalling approximately 900 hectares. Preliminary
investigations suggest the potential to find 100,000 ounces of reserves in the
short-term on the Roca Roja property is excellent.
The majority of the Roca Roja property is underlain by the same
stratigraphy as that which hosts the deposits of the mine district. Many of the
previously mined deposits extend north to the Santa Gertrudis property border
and appear to extend into the claim
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Geology of Santa Gertrudis Mine District and Roca Roja Property
[MAP OMITTED]
area. Recent geological investigations support this idea as it is apparent that
the Lola-La Peque structure, a large shear zone discovered earlier, extends
beyond the Santa Gertrudis property onto the Roca Roja property. This shear
zone, now referred to as the La Peque-Escondida structure, has currently been
identified over a strike length of 4 kilometres, of which the eastern 1.5
kilometres is called the Escondida target. Where it is exposed, the shear zone
varies from 9.0 to 11.4 metres in width and one trench has returned a value of
1.7 g/t gold over 10.5 metres. Re-evaluation of the La Peque and Lola targets in
conjunction with additional trenching and preliminary drilling at Escondida will
be completed to examine the potential of this significant structure.
Approximately 1 kilometre south of Escondida, limited mapping on the Roca
Roja property has identified a southwest striking, southeast dipping structure,
the Veronica shear, that bears similarities to the La Peque-Escondida structure.
The Veronica shear, which hosts the Veronica target, has a strike length
of at least 1 kilometre which represents the displaced extensions of the El
Carmen-Mirador-Melissa Northwest zones. These zones are spatially associated
with the Veronica shear, which represents a feeder structure. The Veronica
target has been tested with two preliminary trenches spaced 60 metres apart. The
first trench uncovered an altered limestone and siltstone package and returned a
value of 1.86 g/t gold over 3.2 metres. A second trench, 60 metres southeast of
the first, returned values of 1.09 g/t gold over 3.1 metres, and 1.54 g/t gold
over 1.3 metres.
A second structure parallel to bedding, the Veronica Northwest target, is
situated approximately 750 metres northwest of the Veronica shear and is a
high-priority exploration target. Grab samples from this target returned values
ranging up to 5.29 g/t gold and follow-up channel sampling returned a value of
2.11 g/t gold over 2.3 metres.
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Approximately halfway between the La Peque-Escondida structure and the
past producing pits of the mine district is the southeast trending Real Viejo
shear. The shear consists of two sub-parallel, steeply dipping faults 35 metres
apart which cut siltstones, sandstones and conglomerates. The faults are
characterized by 10 metre wide zones of strong silica-hematite alteration with
abundant quartz veining. Grab samples from the faults have assayed up to 2.046
g/t gold. Trenching is expected to begin shortly.
During 1998 the potential acquisition of the Roca Roja ground resulted in
a resurgence of exploration in and around former targets with remaining
resources in the mine district.
The Melissa Northwest target is one area of particular interest. It is an
extension of the Hilario, a previously mined deposit. The Melissa Northwest
target extends to Santa Gertrudis' property boundary and is likely to extend
beyond into the newly acquired claims. Recent drilling from Melissa Northwest
returned assays of 1.655 g/t gold over 6.0 metres including 2.099 g/t gold over
4.5 metres and a second interval which averaged 1.605 g/t gold over 22.5 metres.
There is strong geological evidence that the structure which hosts Melissa
Northwest could extend beyond the property boundary and be related to the El
Carmen and Mirador targets on the Roca Roja property.
In addition to the faults, shear zones and targets discussed above,
recently completed structural mapping has identified a low angle normal fault,
known as the El Carmen fault, which runs through the Santa Gertrudis property
and the newly acquired claims. It is thought by reconstructing the displacement
along the fault, it may be possible to find the roots of the Santa Gertrudis
deposits on the Roca Roja property. Similarly, it may be possible to find the
upper portions of the deposits previously mined on the Roca Roja property. Other
structural targets on the Roca Roja property related to faulting and folding are
also apparent and remain to be tested.
San Enrique Soil Geochemical Anomaly
In 1998, as part of an ongoing regional soil geochemical survey, a
gold-in-soil geochemical anomaly was defined south of the mine district.
Presently, the anomaly has a north-south strike length of 4.0 kilometres, is
approximately 2.0 kilometres wide and remains open to the southwest.
Within the San Enrique anomaly, four strongly anomalous zones are present.
The core of the anomaly is a zone 750 metres in length with soil sample values
ranging from 0.1 to 2.49 g/t gold. A second zone lies 1 kilometre
north-northwest of the core of the anomaly and coincides with an area of
quartz-pyrite veined felsic dykes. Rock samples returned values of up to 6.026
g/t gold over 0.8 metres. The third strongly anomalous zone is 150 metres
north-northwest of the core of the anomaly and has soil sample values of up to
2.1 g/t gold. The fourth zone is situated approximately 2 kilometres south of
the core of the anomaly with soil values greater than 10.0 g/t gold. Rock grab
samples from the San Enrique anomaly have assayed up to 78.1 g/t gold.
San Enrique
Soil Geochemical
Anomaly
[MAP OMITTED]
12
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Review of Operations
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Airborne geophysical interpretation of the area suggests the main core of
the anomaly occurs within a northwest oriented zone of low magnetic intensity.
The southern portion of the anomaly is situated over a relatively weak magnetic
high, which reflects intrusive activity. The anomaly is cut by three northeast
trending magnetic breaks, interpreted to be faults, and two northwest striking
zones of weak electromagnetic conductivity. The combination of these geophysical
features suggests the presence of several structural intersections. A strong
potassium anomaly is coincident with the soil geochemical anomaly.
The core of the anomaly is underlain by a 45 metre thick unit of
decalcified and silicified siltstone and limestone with abundant quartz-pyrite
veins. The eastern boundary of the geochemical anomaly coincides with a north
trending faulted contact between the limestone and siltstone unit and the
surrounding rocks. This further supports the correlation between the siltstone
and limestone unit and the anomaly. Underlying this siltstone and limestone unit
is a shallow dipping diorite sill that has potential to act as a trap for
gold-bearing fluids.
Following these initial investigations, exploration on the anomaly was
delayed because of difficulties in concluding an agreement with the surface
rights owner. As a result, Campbell filed an application for temporary
occupation with the Government of Mexico. Campbell has been advised that the
temporary occupation resolution was granted on March 17, 1999. A program of
mapping, sampling trenching and drilling in order to fully evaluate the San
Enrique anomaly will commence in early April 1999.
Excellent exploration potential exists at the Santa Gertrudis property and
efforts will be directed to explore the San Enrique geochemical anomaly south of
the mine district. Immediately following acquisition, exploration efforts will
commence on the Roca Roja property north of the mine district. The Company
intends to recommence mining operations once two years' worth of mineable
reserves have been established.
- --------------------------------------------------------------------------------
Cerro Quema Project
Los Santos, Panama
The feasibility study previously completed by Campbell indicates that
Cerro Quema has mineable reserves, based on a gold price of US$400 per ounce, of
8,772,000 tonnes averaging 1.16 g/t gold and projected cash operating costs of
approximately US$180 per ounce. 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$270
to US$315 per ounce range for the last year and appear unlikely to materially
increase during 1999. Campbell has therefore continued to keep 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 there is excellent exploration potential beyond
the existing reserves on the property.
Growth Strategy
During the course of the year, senior management and operations personnel
with assistance from industry consultants, continued to review opportunities
with respect to mergers and acquisitions. While extensive due diligence was
carried out on at least three operations located in the Americas and elsewhere,
no transaction has been concluded due to various factors. These include poor
results from the due diligence, assets burdened by excessive debt levels and an
inability to reach a consensus on value. Management will continue this
disciplined approach to evaluating opportunities in order to complete a
transaction which is accretive to its shareholders.
13
<PAGE> 16
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[LOGO] Campbell Resources Inc.
- ------------------------------
Management's Discussion and Analysis
15 - 18
Management's Responsibility for Financial Reporting
Auditors' Report
19
Consolidated Balance Sheets
20
Consolidated Statements of Operations
Consolidated Statements of Retained Earnings (Deficit)
21
Consolidated Statements of Cash Flows
22
Notes to the Consolidated Financial Statements
23 - 30
Five Year Comparative Summary
Selected Quarterly Financial Data
31
Shareholder Information
32
Corporate Information
Inside Back Cover
14
<PAGE> 17
- ----------------
Financial Review
- ----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
SIGNIFICANT DEVELOPMENTS
DURING 1998
Maintained a Strong Balance Sheet
Campbell Resources and the gold industry as a whole have continued to
experience historically low gold prices over the last year. During 1998,
Campbell continued to operate in a cash preservation mode by reducing operating,
overhead and capital costs wherever possible. As a result its treasury of $41.5
million at year end remains unchanged from the previous year. This financial
strength will allow the Company to move forward in the current low gold price
environment by selectively developing its existing assets and searching for gold
property investment opportunities and possible merger candidates.
Joe Mann Mine Development
The production shaft deepening project at the Joe Mann Mine was completed
during 1998 at a cost of $13.1 million compared to the original budget of $14.5
million. As a result of studies performed during the fall of 1998, a new mine
plan was approved in early 1999 which will result in the full development of all
six new levels accessible from the deepened shaft. The mine will begin operating
7 days per week compared to the current 5 days with no summer shutdown. As a
result the average long-term cash operating cost at the mine is expected to
decrease by approximately US$15 to US$245 per ounce of gold. This new plan is
supported by the unions representing the hourly workers who have agreed to
extend their labour contracts by a further two years.
Santa Gertrudis Exploration
The future of the Santa Gertrudis Mine is dependant on the success of the
current exploration efforts at the site. As a result of work performed during
1998, the focus of the exploration effort will now be concentrated on two main
targets, the significant geochemical soil anomaly measuring 4 kilometres by 2
kilometres discovered on its claims on the south western portion of the
property, and the claims of the neighbouring former gold producer, Minera Roca
Roja, which is in bankruptcy proceedings. The previously announced purchase of
the Roca Roja claims was approved by the bankruptcy judge on February 23, 1999,
with the final purchase price to be determined by appraisal. The Company is in
the process of gaining access to the land containing the geochemical anomaly to
commence drilling.
Campbell has been advised that a Temporary Occupation Resolution was
granted by the Mexican government on March 17, 1999. This Resolution was sought
as a consequence of being unable to come to a satisfactory financial arrangement
with the surface rights holder. Based on recent encouraging progress it is
expected that access to both targets will be possible late in the first quarter
of 1999.
Average Market Gold Price of US$294
The gold price continued to disappoint gold producers and investors alike
during 1998, averaging US$294 per ounce. The falling US dollar, the covering of
some hedge fund short positions and renewed investment demand for gold have all
failed to significantly rally the price. The continued perceived threat of
central bank sales will likely continue to act as a cap on prices although many
are forecasting a slight recovery during 1999. Campbell has incorporated these
lower prices into its normal review of the carrying value of its mining
interests. The Company compared the future estimated net revenues to be
generated from its properties to their carrying amounts assuming gold prices of
US$300 per ounce of gold for 1999, US$315 for 2000 and US$325, thereafter. As a
result of this analysis the Company wrote down the carrying value of its Cerro
Quema project in Panama by $10.2 million. During 1997 the Company wrote down the
carrying amount for the Joe Mann Mine by $28 million. Also during 1998, the
Company incurred a loss on the sale of surplus mining equipment of $2 million,
wrote down obsolete supplies inventory at its Santa Gertrudis mine by $0.5
million and sold its interest in the Wildcat property in Nevada recognizing a
gain of $0.2 million.
FINANCIAL RESULTS
For the year ended December 31, 1998, the Company recorded a loss of $20.8
million, or $0.14 per share, compared to a loss of $40.4 million ($0.27 per
share) in 1997 and income of $9 million ($0.06 per share) in 1996. Excluding the
writedown and loss on sale of mining interests of $12.5 million (1997 - $31.7
million; 1996 - $nil), there was a loss from operations of $10.1 million in 1998
compared to a loss from operations of $12.2 million in 1997 and income from
operations of $6.7 million in 1996. The cessation of uneconomic mining
operations in Mexico in December, 1997 contributed to the 1998 results. The loss
from operations in 1997 compared to income in 1996 is principally due to lower
gold prices, a decrease in gold production and higher mining costs and
exploration expense at the Santa Gertrudis Mine.
15
<PAGE> 18
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[LOGO] Campbell Resources Inc.
- ------------------------------
REVENUE
<TABLE>
<CAPTION>
Gold produced (ounces): 1998 1997 1996
<S> <C> <C> <C>
Joe Mann Mine 70,100 73,500 70,400
Santa Gertrudis Mine 12,300 39,200 54,400
- --------------------------------------------------------------------------------
82,400 112,700 124,800
- --------------------------------------------------------------------------------
Gold revenue per ounce US$304 US$336 US$396
Average market price US$294 US$331 US$388
</TABLE>
Revenue from metal sales decreased in 1998 by 31% to $36.4 million
compared to $52.6 million in 1997 and $67.2 million in 1996. The decrease in
1998 was attributable to a 10% reduction in the gold price realized during the
year and a 27% decrease in gold production to 82,400 ounces compared to 112,700
ounces in 1997. This was offset to an extent by the weakening of the Canadian
dollar by approximately 7%. The decrease in 1997 revenues relative to 1996 was
largely due to lower gold prices and lower gold production attributable to lower
grade material mined at the Santa Gertrudis Mine and the cessation of mining
operations in early December, 1997.
The average gold price realized compared to the average market price is
disclosed in the table above. 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. The Company is currently considering
longer-term hedging strategies for its Joe Mann Mine following the recently
announced decision to fully develop all six levels below the 2350 level.
With respect to gold price hedging, the Company may either sell gold
forward in U.S. dollars or in Canadian dollars. With respect to the Joe Mann
Mine in Canada, the Company may also enter into a U.S. / Canadian dollar forward
sale agreement to fix the sale proceeds on anticipated gold sales 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 12 to Consolidated Financial
Statements).
Revenues from copper production at the Joe Mann Mine accounted for 4.8% of
total revenue in 1998 compared to 3.6% in 1997 and 3.1% in 1996. The increase is
due to the reduction in total revenues as a result of the decrease in gold
production from Santa Gertrudis. Copper production decreased to 1.3 million
pounds compared to 1.4 million pounds in 1997 and 1.5 million pounds in 1996 as
a result of lower copper grades.
EXPENSES
<TABLE>
<CAPTION>
Cash Cost per Ounce 1998 1997 1996
<S> <C> <C> <C>
Joe Mann Mine US$257 US$264 US$272
Santa Gertrudis Mine US$242 US$333 US$227
- --------------------------------------------------------------------------------
Overall US$255 US$288 US$252
</TABLE>
Mining expense decreased to $33.4 million in 1998 compared to $46.7
million in 1997 and $44.7 million in 1996 as a result of the cessation of mining
operations at the Santa Gertrudis Mine in December, 1997. 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.
Joe Mann Mine
Production from the Joe Mann Mine decreased by 4.6% to 70,100 ounces of
gold in 1998 compared to 73,500 ounces in 1997 and 70,400 ounces in 1996. The
decrease is primarily attributable to lower mill head grades of 0.252 ounces of
gold per ton in 1998 compared to 0.30 in 1997 and 0.29 in 1996. Mill recoveries
increased to 94.3% in 1998 compared to 93.9% in 1997 and 93.2% in 1996. As noted
in the third quarter, mill recoveries have been steadily increasing over the
last few years from approximately 91% in 1993 to the current levels of 94.3%.
This has been achieved as a result of the mill improvements in 1994 and the work
of the mill staff in fine tuning the process. The tons of ore milled increased
to 299,000 tons in 1998 compared to 266,000 tons in 1997 and 1996.
The decrease in cash costs per ounce of gold produced in 1998 is largely a
result of the weaker Canadian dollar and for 1997 is primarily attributable to
higher gold production. For 1999 the Joe Mann Mine is expected to produce
approximately 78,000 ounces of gold at a cash cost of US$250 per ounce which
assumes that mining commences from the new ore zone on the 2500 level late in
the second quarter.
16
<PAGE> 19
- ----------------
Financial Review
- ----------------
Santa Gertrudis Mine
During 1998, the Santa Gertrudis Mine produced 12,300 ounces of gold as a
result of the continued application of cyanide solutions to the heaps on the
leach pads. This process was completed in December, 1998. The cash cost per
ounce of US$242 per ounce of gold produced in 1998 is higher than it would
otherwise be as it includes all overhead costs associated with keeping the mine
infrastructure in place while the exploration effort is ongoing.
The 1997 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.
Depreciation and Amortization
Depreciation and amortization expense was $6.2 million in 1998 and $9.6
million in 1997 and 1996. The amortization on a per ounce produced basis was $75
per ounce in 1998 compared to $85 in 1997 and $78 in 1996. The decrease in
amortization per ounce in 1998 is primarily due to the impact of the writedown
of the Joe Mann Mine in 1997. 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 then had a higher depreciable base than the Santa Gertrudis Mine.
Exploration
Total exploration expenditures for 1998 were $2.8 million compared to $4.7
million in 1997 and $7.2 million in 1996. Of this amount, $0.5 million (1997 -
$0.6 million; 1996 - $1.7 million) relates to the Joe Mann Mine and $2.3 million
(1997 - $3.7 million; 1996 - $4.9 million) relates to the Santa Gertrudis Mine.
The Santa Gertrudis expenditures for 1998 were expensed. The Santa Gertrudis
expenditures for 1997 and 1996 and the Joe Mann expenditures for all three years
have been capitalized to mining interests in accordance with the Company's
accounting policies. In addition to the 1998 Santa Gertrudis exploration
expenditures the expense for 1998 includes $2 million (1997 - $5 million; 1996 -
$2.6 million) representing the write-off (1997 and 1996 write-off and
amortization) of exploration costs at the Santa Gertrudis Mine that had been
previously capitalized. The write-off is with respect to individual exploration
target costs where economic mineralization was not identified and the
amortization is with respect to production from the mine during the respective
year.
OTHER INCOME (EXPENSE)
Other income was $2.4 million in 1998 compared to $2.1 million in 1997 and
$3.6 million in 1996. The major component, interest income on short-term
deposits, increased to $2 million from $1.8 million in 1997 and $3.2 million in
1996. The increase during 1998 was due to higher short-term interest rates. The
decrease in 1997 was due to lower interest bearing balances as a result of the
capital expenditure programs at the Cerro Quema project and Joe Mann Mine.
Interest expense on the Company's convertible debentures was $0.5 million
in 1998 compared to $0.6 million in 1997 and $0.7 million in 1996. 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 income tax expense of $0.1 million in 1998 compared
to a recovery of $2 million in 1997 and an expense of $0.6 million in 1996.
Reference should be made to note 7 to the Consolidated Financial Statements for
additional information on the reported tax provisions.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's working capital decreased to $45.7
million compared to $49 million in 1997 and includes cash and short-term
deposits of $41.5 million in 1998 and $41.7 million in 1997. Cash flow from
operations before the net change in non-cash operating working capital decreased
to $0.4 million in 1998 compared to $0.6 million in 1997 and $21.4 million in
1996. Based on a US$300 per ounce average gold price for 1999 and the production
estimates noted above, the Company believes it will achieve a modest positive
operating cash flow in 1999.
The main source of cash for the Company during 1998 was from the sale of
surplus mining equipment and the Wildcat property in Nevada which yielded $3.7
million, and the reduction in operating working capital. The main source of cash
during 1997 was the early termination of various gold hedging instruments
totalling 118,100 ounces which resulted in cash proceeds of $9,679,000. Sources
of cash in 1996, other than from operations, was the issuance of 18 million
common share and purchase warrant units for net proceeds of $28.6 million.
17
<PAGE> 20
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[LOGO] Campbell Resources Inc.
- ------------------------------
Capital Expenditures
Capital expenditures were as follows ($000's):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Joe Mann Mine
- sustaining $ 2,017 $ 2,360 $ 3,951
- shaft deepening 4,452 6,564 1,598
- --------------------------------------------------------------------------------
6,469 8,924 5,549
Santa Gertrudis Mine 82 3,091 4,870
Cerro Quema Project 1,580 17,200 3,411
Other 10 68 138
- --------------------------------------------------------------------------------
$ 8,141 $29,283 $13,968
- --------------------------------------------------------------------------------
</TABLE>
YEAR 2000
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, as it relates to the Company's corporate office and
the Joe Mann Mine. Supplies and services provided by external suppliers are also
being reviewed to obtain assurance they will not be interrupted as a result of
Year 2000 issues. The Company has engaged 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 has largely been completed other than for the Mexican
operations which will be evaluated as part of the feasibility for any future
production decision. New equipment and software will be installed during the
second quarter. 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 is not expected to
be material.
OUTLOOK
For 1999, in addition to continuing to exercise financial discipline,
Campbell will focus its efforts in three areas. First, implementing the new mine
plan at the Joe Mann Mine which will now be expanded to include delineating the
new ore zone. The new zone is known to contain over three hundred thousand tons
of possible ore on the 2500 level and is still open at depth. Given its
proximity to the shaft and the width of the new ore zone this could result in a
significant increase in annual production at a reduced cash cost. Once the zone
is better delineated the long-range mine plan will be updated.
Second, at Santa Gertrudis the focus will be on completing the process of
gaining access to the promising exploration targets in the two main areas of
interest described earlier and initiating the drill program thereon. Campbell
has budgeted US$500,000 for an initial work phase that will last for three to
four months. Thereafter the results will be reviewed and a budget developed for
the balance of the year.
Third, Campbell will continue its search for acquisition or merger
opportunities which are in the best interests of its shareholders. Significant
management and consultant effort was expended again during 1998 conducting site
due diligence on a number of properties. However, due to various factors ranging
from poor results of the due diligence to the price none of these has resulted
in a transaction.
18
<PAGE> 21
Financial Review
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
- --------------------------------------------------------------------------------
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
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 LLP, 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
John O. Kachmar
President and Chief Executive Officer
/s/ Paul J. Ireland
Paul J. Ireland
Vice President, Finance and Chief Financial Officer
AUDITORS' REPORT TO THE SHAREHOLDERS
- --------------------------------------------------------------------------------
We have audited the consolidated balance sheets of Campbell Resources Inc.
as at December 31, 1998 and 1997 and the consolidated statements of operations,
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1998. 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,
1998 and 1997 and the results of its operations and the cash flows for each of
the years in the three-year period ended December 31, 1998 in accordance with
generally accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
February 18, 1999
19
<PAGE> 22
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[LOGO] Campbell Resources Inc.
- ------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
as at December 31, (Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Current assets
Cash and short-term deposits $ 41,493 $ 41,735
Receivables 2,653 4,805
Inventories (note 2) 4,538 7,250
Prepaids 474 995
- --------------------------------------------------------------------------------
Total current assets 49,158 54,785
- --------------------------------------------------------------------------------
Other assets (note 3) 502 986
Mining Interests (note 4) 53,117 68,111
- --------------------------------------------------------------------------------
Total assets $ 102,777 $ 123,882
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,254 $ 3,989
Accrued liabilities 1,215 1,788
- --------------------------------------------------------------------------------
Total current liabilities 3,469 5,777
- --------------------------------------------------------------------------------
Reclamation and other liabilities 2,571 1,442
Convertible debentures (note 5) 5,652 7,341
Deferred mining taxes 3,616 4,198
Shareholders' equity
Capital stock (note 6) 123,632 121,425
Foreign currency translation adjustment 1,394 408
Deficit (37,557) (16,709)
- --------------------------------------------------------------------------------
Total shareholders' equity 87,469 105,124
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 102,777 $ 123,882
================================================================================
</TABLE>
Commitments and contingencies (note 8)
Approved by the Board
/s/ James D. Beatty
Director
/s/ John O. Kachmar
Director
See accompanying notes to the consolidated financial statements.
20
<PAGE> 23
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Financial Review
- ----------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
for the years ended December 31,
(Expressed in thousands of Canadian dollars except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Metal sales $ 36,388 $ 52,635 $ 67,180
- ---------------------------------------------------------------------------------------------------
Expenses
Mining 33,449 46,681 44,667
General administration 2,648 3,203 3,064
Depreciation and amortization 6,211 9,587 9,604
Exploration 4,199 5,315 3,179
- ---------------------------------------------------------------------------------------------------
46,507 64,786 60,514
- ---------------------------------------------------------------------------------------------------
Income (loss) from operations before writedown
and loss on sale of mining interests (10,119) (12,151) 6,666
Writedown and loss on sale of mining interests (note 4) 12,508 31,684
- ---------------------------------------------------------------------------------------------------
Income (loss) from operations (22,627) (43,835) 6,666
- ---------------------------------------------------------------------------------------------------
Other income (expense)
Other income 2,396 2,096 3,595
Convertible debenture interest expense (526) (639) (661)
- ---------------------------------------------------------------------------------------------------
1,870 1,457 2,934
- ---------------------------------------------------------------------------------------------------
Income (loss) before taxes (20,757) (42,378) 9,600
Income and mining taxes (recovery) (note 7) 91 (1,968) 588
- ---------------------------------------------------------------------------------------------------
Net income (loss) $(20,848) $(40,410) $ 9,012
===================================================================================================
Earnings (loss) per share (note 6) $ (0.14) $ (0.27) $ 0.06
===================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
- --------------------------------------------------------------------------------
for the years ended December 31, (Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $(16,709) $23,701 $14,689
Net income (loss) (20,848) (40,410) 9,012
- ---------------------------------------------------------------------------------------------------
Balance at end of year $(37,557) $(16,709) $23,701
===================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
21
<PAGE> 24
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[LOGO] Campbell Resources Inc.
- ------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
for the years ended December 31, (Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities
Net income (loss) $(20,848) $(40,410) $ 9,012
Items not involving cash
Depreciation and amortization 6,211 9,587 9,604
Writedown and loss on sale of mining interests 12,508 30,239
Exploration amortized and written-off 1,980 4,998 2,599
Deferred mining taxes (recovery) (582) (2,569) 358
Other 1,142 (1,289) (134)
- ----------------------------------------------------------------------------------------------------------
411 556 21,439
Net change in non-cash operating working capital 2,551 2,945 (2,478)
- ----------------------------------------------------------------------------------------------------------
2,962 3,501 18,961
- ----------------------------------------------------------------------------------------------------------
Financing activities
Issues of capital stock 2,207 2,820 33,565
Conversion of convertible debentures (2,030) (611) (3,006)
- ----------------------------------------------------------------------------------------------------------
177 2,209 30,559
- ----------------------------------------------------------------------------------------------------------
Investing activities
Expenditures on mining interests (8,141) (29,283) (13,968)
Proceeds on sale of assets 3,876
Termination of hedging contracts 9,679
Acquisition of Cerro Quema gold project (13,185)
Mining tax credits received 669
Decrease in other assets 313 165 214
- ----------------------------------------------------------------------------------------------------------
(3,952) (19,439) (26,270)
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate change on cash and short-term deposits 571 162 (219)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term deposits (242) (13,567) 23,031
Cash and short-term deposits at beginning of year 41,735 55,302 32,271
- ----------------------------------------------------------------------------------------------------------
Cash and short-term deposits at end of year $ 41,493 $ 41,735 $ 55,302
==========================================================================================================
Changes in non-cash operating working capital
Receivables $ 2,152 $ 3,465 $ (433)
Inventories and prepaids 2,707 1,638 (2,997)
Accounts payable (1,735) (1,515) 1,184
Accrued liabilities (573) (643) (232)
- ----------------------------------------------------------------------------------------------------------
$ 2,551 $ 2,945 $ (2,478)
==========================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE> 25
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Financial Review
- ----------------
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 12, 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 and 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.
Mining Interests: 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. Receivables include gold and gold concentrate settled
subsequent to year end, which are recorded at estimated net realizable value.
Commodity and Foreign Exchange Contracts: The Company uses forward and option
contracts to hedge the effect of exchange rate changes on foreign currency
exposures, and forward and option contracts to hedge the effect of price changes
on a portion of the commodities it sells. 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. From time to time, the Company has entered into options
contracts for the sale of commodities not designated as hedges. These contracts
are carried at quoted market values and gains and losses arising from the
changes in the market values of these contracts are recognized in earnings in
the period in which the changes occur.
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.
23
<PAGE> 26
- ------------------------------
[LOGO] Campbell Resources Inc.
- ------------------------------
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 amounts 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.
Comparative Figures: Certain comparative figures have been reclassified to
conform with the current financial statement presentation.
2 INVENTORIES
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Materials and supplies $4,538 $5,519
Work-in-process 1,731
- --------------------------------------------------------------------------------
$4,538 $7,250
================================================================================
</TABLE>
3 OTHER ASSETS
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Advances $ 257 $ 590
Deferred financing costs 434 603
- --------------------------------------------------------------------------------
691 1,193
Accumulated amortization 189 207
- --------------------------------------------------------------------------------
$ 502 $ 986
================================================================================
</TABLE>
4 MINING INTERESTS
<TABLE>
<CAPTION>
1998 1997
Accumulated Accumulated
Depreciation and Depreciation and
Cost Amortization Net Cost Amortization Net
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property, plant
& equipment $ 24,850 $ 16,138 $ 8,712 $ 29,239 $ 14,639 $ 14,600
Mining properties
and deferred
expenditures 149,016 104,611 44,405 122,495 87,506 34,989
Construction in
progress 18,522 18,522
- -----------------------------------------------------------------------------------------------------------------------
$173,866 $120,749 $ 53,117 $170,256 $102,145 $ 68,111
=======================================================================================================================
</TABLE>
During 1998, as part of its periodic evaluation of the carrying value of its
mining interests, the Company wrote down the carrying value of its Cerro Quema
project in Panama by $10,200,000. In 1997 the Company wrote down the carrying
value of the 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. To December 31, 1998, Soquem had incurred total qualifying
expenditures under the new amendment of approximately $83,000 on the Joe Mann
property and $31,000 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 mining interests.
24
<PAGE> 27
- ----------------
Financial Review
- ----------------
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 1998, debenture holders converted US$1,444,000 (1997 - US$454,000; 1996 -
US$2,307,000) of debenture principal into 2,888,000 (1997 - 908,000; 1996 -
4,614,000) common shares of the Company resulting in a balance outstanding at
December 31, 1998 of US$3,693,000 (1997 - US$5,137,000; 1996 - US$5,591,000).
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>
1998 1997 1996
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common shares:
Balance at
beginning
of period 151,445 $121,425 148,588 $118,605 124,466 $ 85,040
Issued:
Conversion of
convertible
debentures 2,888 2,030 908 611 4,614 3,006
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 353 177 179 138 778 718
- -------------------------------------------------------------------------------------------------------------
154,686 $123,632 151,445 $121,425 148,588 $118,605
=============================================================================================================
</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 18, 2003. Changes in the share option plans
are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year 7,250 7,175 5,090
Granted 2,325 450 2,900
Exercised (19) (790)
Expired (2,550) (356) (25)
- --------------------------------------------------------------------------------
Balance at end of year 7,025 7,250 7,175
================================================================================
Average option price at
end of year $ 0.93 $ 1.15 $ 1.18
================================================================================
Options exercisable at
end of year 5,994 6,037 5,319
================================================================================
Average price for options
exercised during year $ n/a $ 0.57 $ 0.82
================================================================================
</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 entitled the
holder to purchase one common share of the Company for US$1.50 on or before
February 26, 1999. All of the warrants expired unexercised.
e) Earnings (loss) per share
The weighted average number of common shares outstanding during the year ended
December 31, 1998 used to calculate the earnings (loss) per common share
amounted to 153,532,000 (1997 - 150,548,000; 1996 - 145,907,000). Outstanding
warrants and options were not dilutive to earnings (loss) per share in any of
the periods presented.
25
<PAGE> 28
- ------------------------------
[LOGO] Campbell Resources Inc.
- ------------------------------
7 INCOME AND MINING TAXES
a) Geographic components
The geographic components of income (loss) before taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Canada $ (6,562) $(32,729) $ 3,089
Mexico (3,855) (9,101) 6,511
Panama (10,340) (548)
- --------------------------------------------------------------------------------
$(20,757) $(42,378) $ 9,600
================================================================================
</TABLE>
The geographic components of income and mining taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current income tax expense:
Canada $ 55 $ 220 $ 229
Mexico 618 381 1
- --------------------------------------------------------------------------------
673 601 230
Deferred mining tax expense
(recovery) - Canada (582) (2,569) 358
- --------------------------------------------------------------------------------
$ 91 $(1,968) $ 588
================================================================================
</TABLE>
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, 1998, the Company and its subsidiaries had operating losses for
income tax purposes in Canada approximating $640,000 and in Mexico approximating
$19,100,000 which are available to reduce taxes in future years and expire over
the period to the year 2007. In addition, the Company and its subsidiaries had
net capital losses for income tax purposes in Canada of approximately
$15,100,000 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 Canadian Federal income tax purposes in excess of carrying values
for financial statement purposes of approximately $61,000,000 in Canada and
$12,500,000 in its foreign subsidiaries. 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>
1998 1997 1996
<S> <C> <C> <C>
Expected income tax
provision (recovery) using
statutory income tax rates $ (8,341) $(16,785) $ 4,173
Resource allowance (67) (167) (1,800)
Mining taxes (recovery) (582) (2,569) 358
Tax benefit of losses
not currently recognized 7,541 16,952 1,235
Non-deductible expenses 867
Utilization of prior year losses
carried forward (2,922)
Foreign earnings subject
to different tax rates (687)
Other 673 601 231
- --------------------------------------------------------------------------------
Income and mining tax
provision (recovery) $ 91 $ (1,968) $ 588
================================================================================
</TABLE>
8 COMMITMENTS AND CONTINGENCIES
a) At December 31, 1998 the Company had sold calls for 33,200 ounces of gold
in 2001 and 20,000 ounces of gold in 2002 at approximately US$350 per
ounce.
b) At December 31, 1998, the Company had sold forward US$7,000,000 to
purchase Canadian dollars during 1999 at an average rate of Cdn$1.4473 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 $512 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
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.
26
<PAGE> 29
- ----------------
Financial Review
- ----------------
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 improper 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 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.
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. Although the Company is
addressing this issue, it is not possible to be certain that all aspects
of the Year 2000 Issue affecting the entity, including those related to
the efforts of customers, suppliers, or other third parties, will be fully
resolved.
9 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,
1998, the estimated projected benefit obligation was approximately $2,754,000
(1997 - $2,659,000) and the market value of assets aggregated $3,508,000 (1997 -
$3,410,000).
27
<PAGE> 30
- ------------------------------
[LOGO] Campbell Resources Inc.
- ------------------------------
10 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>
1998 1997 1996
<S> <C> <C> <C>
Revenue:
Canada $31,030 $35,443 $38,226
Mexico 5,358 17,192 28,954
- --------------------------------------------------------------------------------
$36,388 $52,635 $67,180
================================================================================
</TABLE>
Revenues are attributed to countries based on the source of the production.
During 1998 the Company sold approximately 35% (1997- 28%; 1996 - 24%) of its
product to one smelter.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Mining interests:
Canada $33,054 $32,688 $59,821
Mexico 10,963 12,182 13,472
Panama 9,100 22,632 16,596
Other 609 683
- --------------------------------------------------------------------------------
$53,117 $68,111 $90,572
================================================================================
</TABLE>
11 FAIR VALUE AND CREDIT RISK DISCLOSURES
At December 31, 1998 the fair value of the Company's convertible debentures was
estimated to be $5,840,000 (1997 - $8,810,000) compared to the carrying amount
of $5,652,000 (1997 - $7,341,000) 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 based on their short-term
maturities.
The fair value of the Company's foreign currency hedging contracts is a loss of
approximately $576,000 (1997 - $505,000).
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.
12 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>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) for year
as reported $(20,848) $(40,410) $ 9,012
Depreciation and
amortization (a) (9,389) 19,061 (1,513)
Deferred income taxes (b) 285 (6,083) (158)
Foreign exchange
contracts (f) (576)
- --------------------------------------------------------------------------------
Net income (loss) for the
year in accordance with
United States accounting
principles $(30,528) $(27,432) $ 7,341
- --------------------------------------------------------------------------------
Other comprehensive
income (loss):
Foreign currency
translation adjustments 986 656 (73)
- --------------------------------------------------------------------------------
Comprehensive income (loss)
for the year in accordance
with United States
accounting principles $(29,542) $(26,776) $ 7,268
================================================================================
Earnings (loss) per share
for the year in accordance
with United States
accounting principles
Basic and fully diluted $ (0.20) $ (0.18) $ 0.05
================================================================================
</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. Under Canadian accounting
principles capital assets should be written down to the net recoverable amount
if this exceeds the carrying amount, whereas under United States accounting
principles if the future net cash flows is less than the carrying amount the
capital asset should be written down to its fair value.
28
<PAGE> 31
- ----------------
Financial Review
- ----------------
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>
1998 1997
<S> <C> <C>
Noncurrent deferred tax assets:
Mining interests $ 37,956 $ 32,136
Operating loss carry forwards 6,745 6,309
Other 1,676 1,352
- --------------------------------------------------------------------------------
46,377 39,797
Valuation allowance 45,281 38,057
- --------------------------------------------------------------------------------
$ 1,096 $ 1,740
- --------------------------------------------------------------------------------
Current deferred tax liabilities:
Inventory $ 987 $ 1,679
Noncurrent deferred tax liabilities:
Mining interests 869 1,736
Other 109 61
- --------------------------------------------------------------------------------
$ 1,965 $ 3,476
Net deferred tax liabilities $ (869) $ (1,736)
================================================================================
</TABLE>
The tax loss carry forwards disclosed in note 7(c) and other temporary
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, 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 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 prior years
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 1998
of 5.50% (1997 - 5.15-6.30%; 1996 - 5.25-5.70%); 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 1998, 1997 and
1996 were $0.21, $0.43 and $0.72, 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, 1998, 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
$31,432,000 (1997 - net loss $27,951,000; 1996 net income of $6,385,000) and a
loss of $0.20 (1997 loss of $0.19; 1996 earnings of $0.04).
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, 1998 are investments of
$nil (1997 - $28,097,000; 1996 - $49,427,000) 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.
For the year ended December 31, 1998, under United States accounting principles
the sources of cash from financing activities would be $177,000 (1997 -
$138,000; 1996 - $29,303,000) the sources of cash from investing activities
would be $24,145,000 (1997 - source of $3,962,000; 1996 - use of $74,441,000)
and there would be a increase in cash and short-term deposits of $27,855,000
(1997 - increase of $7,763,000; 1996 - decrease of $26,396,000).
The following additional disclosures are also required:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash taxes paid $770 $695 $565
Cash interest paid $502 $616 $596
</TABLE>
29
<PAGE> 32
- ------------------------------
[LOGO] Campbell Resources Inc.
- ------------------------------
e) Contingent Liability
Under United States accounting principles the contingent liability disclosed in
note 8 (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.
g) Balance Sheets
The cumulative effect of the application of United States accounting principles,
noted in (a) to (f) above, on the consolidated balance sheets of the Company as
at December 31, 1998 and 1997 would be to decrease cash and short-term deposits
and increase short-term investments each by $nil (1997 - $28,097,000), decrease
mining interests by $23,403,000 (1997 - $14,014,000), increase other liabilities
by $576,000 (1997 $nil), increase long-term investments by $50,000,000 (1997 -
$50,000,000), increase long-term liabilities by $38,000,000 (1997 -
$38,000,000), decrease deferred mining taxes by $2,747,000 (1997 - $2,462,000),
increase preferred shares by $12,000,000 (1997 - $12,000,000) and reduce
shareholders equity by $21,232,000 (1997 - $11,552,000).
h) Other Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. The Company will be
required to implement SFAS No. 133 for its fiscal year ending December 31, 2000.
The Company has not yet determined the impact, if any, of the adoption of SFAS
No. 133 on its reported financial position, results of operations or cash flows.
30
<PAGE> 33
- ----------------
Financial Review
- ----------------
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
Year Ended December 31 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating results (in thousands):
Metal sales $ 36,388 52,635 67,180 67,418 46,940
Net income (loss) $ (20,848) (40,410) 9,012 10,461 5,307
Cash flow from operations (before change in
non-cash operating working capital) $ 411 556 21,439 18,703 5,970
Capital Expenditures $ 8,141 29,283 13,968 7,934 6,889
Financial position (in thousands):
Cash and short-term deposits $ 41,493 41,735 55,302 32,271 23,172
Total assets $ 102,777 123,882 165,298 123,703 113,780
Long-term debt $ 5,652 7,341 7,657 10,782 15,438
Shareholders' equity $ 87,469 105,124 142,058 99,554 84,800
Per share data:
Net income (loss) per share $ (0.14) (0.27) 0.06 0.09 0.05
Book value per share $ 0.57 0.69 0.96 0.80 0.72
Operational statistics:
Gold production - ounces 82,400 112,700 124,800 120,100 81,300
Gold revenue per ounce - US dollars $ 304 336 396 402 410
Cash cost per ounce - US dollars $ 255 288 252 247 293
Shares outstanding (in thousands):
At year end 154,686 151,445 148,588 124,466 117,528
Weighted average during year 153,532 150,548 145,907 121,214 117,274
Foreign exchange rate - US dollars:
Year end/average $0.65/0.67 0.70/0.73 0.73/0.73 0.73/0.73 0.71/0.73
High/low $0.71/0.63 0.75/0.69 0.75/0.72 0.75/0.70 0.76/0.71
</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, 1998
Metal sales $ 10,281 9,241 8,847 8,019
Loss from operations $ (2,151) (2,551) (3,575) (14,350)
Net loss $ (1,730) (2,003) (3,190) (13,925)
Net loss per share $ (0.01) (0.01) (0.02) (0.09)
Year ended December 31, 1997
Metal sales $ 12,289 13,569 12,979 13,798
Loss from operations $ (3,260) (1,773) (3,650) (35,152)
Net loss $ (2,782) (1,771) (3,368) (32,489)
Net loss per share $ (0.02) (0.01) (0.02) (0.21)
</TABLE>
31
<PAGE> 34
- ------------------------------
[LOGO] Campbell Resources Inc.
- ------------------------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
Campbell Resources Inc. common shares are listed on the New York, Toronto and
Montreal stock exchanges and trade under the symbol "CCH".
Quarterly Trading Statistics
<TABLE>
<CAPTION>
Common Share Prices
- ----------------------------------------------------------------------------------------------
Toronto Stock Exchange New York Stock Exchange
(Cdn$) (US$)
- ----------------------------------------------------------------------------------------------
High Low Volume High Low Volume
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
4th Quarter 0.65 0.34 1,416,133 0.47 0.22 18,271,600
3rd Quarter 0.56 0.35 1,171,353 0.41 0.25 16,252,500
2nd Quarter 0.70 0.46 2,599,624 0.50 0.31 21,353,109
1st Quarter 0.80 0.50 2,496,000 0.63 0.34 24,880,500
- ----------------------------------------------------------------------------------------------
1997
- ----------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC OMITTED]
CCH.TO Closing Closing Bid Spot
Share Price Gold Price
<<<NEED PLOT POINTS FOR THIS GRAPH>>>
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
- ---------------------
Corporate Information
- ---------------------
BOARD OF DIRECTORS
James D. Beatty (2,3)
Chief Executive Officer
Trinity Capital Corporation
Graham G. Clow
President & Chief Executive Officer
Manhattan Minerals Corporation
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 LLP
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 & Chief Executive Officer
Paul J. Ireland
Vice President, Finance & Chief Financial Officer
Lorna D. MacGillivray
Vice President, Secretary & General Counsel
William S. Hamilton
Manager, Exploration Santa Gertrudis
Steven Dawson
Manager, Investor Relations
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) 76668
Fax: (52-631) 76668
Dave Loder, General Manager
Cerro Quema Project
Minera Cerro Quema, S.A.
Phone: (507) 996-9978
Fax: (507) 996-2780
George J. Simchuk, Vice President
& 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> 36
Campbell Resources Inc.
120 Adelaide Street West, Suite 1910
Toronto, Ontario, Canada M5H 1T1
Telephone: (416) 366-5201
Fax: (416) 367-3294
<PAGE> 1
CAMPBELL RESOURCES INC.
Suite 1910, 120 Adelaide Street West
Toronto, Ontario M5H 1T1
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that the Annual and Special Meeting of
Shareholders of Campbell Resources Inc. (the "Corporation") will be held at the
Toronto Board of Trade, Room "Ketchum", 3rd floor, Adelaide Street Entrance, 1
First Canadian Place, Toronto, Ontario on Tuesday, May 18th, 1999 at 10:00 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, 1998;
2. to elect directors for the ensuing year;
3. to consider and, if deemed advisable, to approve an increase
in the maximum number of Common Shares that may be issued and
reserved for issuance pursuant to the Employee Incentive Plan;
4. to appoint auditors for the ensuing year and to authorize the
Directors to fix their remuneration; and
5. 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 29, 1999 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 14, 1999. 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 22, 1999.
<PAGE> 2
CAMPBELL RESOURCES INC.
PROXY CIRCULAR
ANNUAL AND SPECIAL 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 AND SPECIAL
MEETING OF SHAREHOLDERS (THE "MEETING") TO BE HELD ON MAY 18, 1999 AT THE
TORONTO BOARD OF TRADE, ROOM "KETCHUM", 3RD FLOOR, ADELAIDE STREET ENTRANCE, 1
FIRST CANADIAN PLACE, TORONTO, ONTARIO. The record date for determination of
shareholders entitled to receive notice of the Meeting is March 29, 1999. 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 10, 1999, 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 14, 1999.
All dollar amounts contained in this Proxy Circular are expressed in
Canadian dollars unless specifically stated otherwise. As of March 22, 1999, the
Noon Buying Rate in New York City for Canadian dollars was U.S.$0.6632.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of March 22, 1999, the Corporation had outstanding 155,486,121
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 22, 1999, the
following are the only parties 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. 12,000,000(1) 7.8%
790 North Milwaukee Street
Milwaukee, WI 53202
David A. Rocker 8,698,000(2) 5.6%
Rocker Partners, L.P.
Suite 1759, 45 Rockefeller Plaza
New York, New York 10111
</TABLE>
1. Based on U.S. Securities and Exchange Commission Schedule 13G filing
dated January 13, 1999.
2. Based on U.S. Securities and Exchange Commission Schedule 13G filing
dated January 27, 1999. Includes: (i) 6,880,800 shares of Campbell
Resources Inc. common stock owned by Rocker Partners, L.P., a New York
limited partnership and (ii) 1,817,200 shares of Campbell Resources
Inc. common stock owned by Compass Holdings, Ltd., a corporation
organized under the International Business Companies Ordinance of the
British Virgin Islands. David A. Rocker has sole voting and dispositive
power over such 8,698,000 shares by virtue of his position as the sole
managing partner of Rocker Partners, L.P. and, through Rocker Offshore
Management Company, Inc. as investment adviser to Compass Holdings,
Ltd.
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 22,
1999. 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 54 2,500(1) *
Toronto, Ontario Capital Corporation, Toronto,
Ontario, investment company.
</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>
Graham G. Clow Mining Engineer; President & Chief 1996 48 2,500(2) *
North Vancouver, BC Executive Officer, Manhattan
Minerals Corp., Vancouver, BC;
prior to June, 1998, Senior Vice
President, Operations, Breakwater
Resources Ltd., President,
CanZinco Ltd., Toronto, Ontario;
prior to June, 1996, President,
Granduc Mining Corporation;
Toronto, Ontario, mining
companies.
Roderick P. Douglas Mining Engineer; Director of 1994 73 10,000(3) *
Vancouver, BC Ashton Mining of Canada Inc.,
Vancouver, BC, mining company.
John O. Kachmar President and Chief Executive 1992 62 190,000(4) *
Toronto, Ontario Officer of the Corporation.
James C. McCartney Q.C. Chairman of the Corporation; 1993 61 75,000(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 55 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 57 5,000(7) *
New York, New York Glamis Gold Ltd., Vancouver, BC;
mining company.
G. E. "Kurt" Pralle Mining and Metallurgical 1993 64 100,000(7) *
Ramsey, New Jersey Consultant.
</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 73 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 250,000 Common Shares subject to option.
(3) Excludes 350,000 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 22, 1999, the directors and officers of the Corporation as
a group beneficially owned 493,184 Common Shares representing approximately 0.3%
of the outstanding Common Shares of the Corporation excluding 5,925,000 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 $125,250 to the 9 incumbent directors in their
capacities as such during the fiscal period ended December 31, 1998.
In 1998, 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 $74,000 in 1998. The policy contains a deductible clause of
$250,000 payable by the Corporation.
In 1998, Mr. Francis S. O'Kelly, a director of the Corporation,
provided consulting services to the Corporation for an aggregate of US$3,000.
In 1998, 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 $71,594 was paid to McCarthy Tetrault for legal services in 1998.
DIRECTORS' STOCK OPTION PLAN
At December 31, 1998, options to acquire an aggregate of 3,900,000
Common Shares were outstanding under the Directors' Stock Option Plan. During
1998, options to acquire an aggregate of 1,600,000 common shares at $0.44 were
granted, primarily to replace options to acquire 1,400,000 common shares which
expired on August 17, 1998, in accordance with their terms. These options expire
on August 18, 2003. No options were exercised by the Directors during 1998.
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, 1998, 1997 and 1996 (to the
extent required by the Regulation) in respect of the individuals who were at
December 31, 1998, 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 $100,000 (the" Named
Executive Officers"):
7
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
================================================================================================================================
Annual Compensation Long-Term Compensation
---------------------------------------------------------------------------
Awards Payouts
---------------------------------
Securities
Under Restricted
Other Options/ Shares or
Annual SARs Restricted LTIP All Other
Name and Salary Bonus Compensation granted Share Units Payouts Compensation
Principal Position Year ($) ($) ($)(2) (#) ($) ($) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John O. Kachmar 1998 285,000 -- - 600,000 Nil Nil 17,250(3)
President & Chief 1997 285,000 70,000(1) - -- Nil Nil 18,000(3)
Executive Officer 1996 225,000 200,000 - 450,000 Nil Nil 18,000(3)
- --------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray 1998 130,000 -- - 150,000 Nil Nil Nil
Vice President, 1997 130,000 15,000 - -- Nil Nil Nil
Secretary & General 1996 115,000 56,500 - 150,000 Nil Nil 3,000(3)
Counsel
- --------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland 1998 130,000 -- - 75,000 Nil Nil Nil
Vice President, Finance 1997 130,000 15,000 - -- Nil Nil Nil
& Chief Financial 1996 115,000 56,500 - 150,000 Nil Nil Nil
Officer
================================================================================================================================
</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) Perquisites and other personal benefits for the Named Executive
Officers did not exceed the lesser of $50,000 and 10% of total annual
salary and bonus.
(3) Represents director's fees.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
====================================================================================================================================
% of Total Market Value of
Options/SARs Securities Underlying
Securities Under Granted to Exercise Options/SARs on
Options/SARs Employees or Base Price Date of Grant Expiration
Name Granted($)(1) in Fiscal Year ($/Security)(3) ($/Security) Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John O. Kachmar 400,000(1)(2) 55.2% .44 .44 18/08/2003
President & CEO
- ------------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray 150,000(1) 20.7% .44 .44 18/08/2003
Vice President, Secretary &
General Counsel
- ------------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland 75,000(1) 10.4% .44 .44 18/08/2003
Vice President, Finance &
Chief Financial Officer
====================================================================================================================================
</TABLE>
8
<PAGE> 10
Notes:
(1) These options were granted on August 18, 1998, are for a term of 5
years and are accompanied by SARs. The options are exercisable as to
25% immediately with 25% becoming exercisable cumulatively on each of
the first, second and third anniversary date of the grant.
(2) Excludes options to acquire 200,000 Common Shares granted during 1998
under the Directors' Stock Option Plan which are also for a 5 year term
and are fully exercisable at $0.44 per Common Share.
(3) The exercise price represents the average of the closing prices of the
Corporation's Common Shares on The Toronto Stock Exchange during the
five days prior to the date of grant.
The following table (presented in accordance with the Regulation) sets
forth information concerning the exercise of stock options and SAR's by Named
Executive Officers in 1998 and the number and the unrealized value of
exercisable and unexercisable stock options held by Named Executive Officers at
December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL
YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
===============================================================================================================================
Securities, Aggregate Unexercised
Acquired Value Options/SARs at Value of Unexercised in-
on Exercise Realized FY-End (#) the-Money Options/SARs at FY-
Name (#) ($) Exercisable/Unexercisable End ($) Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John O. Kachmar Nil Nil 962,500(1)/387,500 NIL/NIL
President & CEO
- -------------------------------------------------------------------------------------------------------------------------------
Lorna D. MacGillivray Nil Nil 250,000/150,000 NIL/NIL
Vice President, Secretary
& General Counsel
- -------------------------------------------------------------------------------------------------------------------------------
Paul J. Ireland Nil Nil 281,250/93,750 NIL/NIL
Vice President, Finance &
Chief Financial Officer
===============================================================================================================================
</TABLE>
Note:
(1) Includes options granted under the Directors' Stock Option Plan to
acquire 200,000 Common Shares exercisable at $0.44 share, 100,000
Common Shares at $0.57 per share and 100,000 Common Shares at $1.48 per
share.
9
<PAGE> 11
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.
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 1998, options to purchase 625,000 Common Shares were granted
under the Share Option Plan to Named Executive Officers and options to purchase
100,000 Common Shares were granted to employees who are not Named Executive
Officers. These options were granted primarily to replace options to acquire
575,000 Common Shares which expired on August 17, 1998, in accordance with their
terms. These options are exercisable at $0.44 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, 1998, a total of 3,125,000 Common Shares were
issuable upon exercise of options under the Share Option Plan including
1,675,000 Common Shares issuable upon exercise of options held by the three
Named Executive Officers. Such options are exercisable at exercise prices
ranging from $0.44 to $1.48 per share. These options expire between August 10,
1999 and August 18, 2003.
10
<PAGE> 12
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 1998, 17,606
Common Shares were issued to Lorna D. MacGillivray in respect of which Campbell
contributed $2,875 and 285,654 Common Shares were issued to employees who are
not Named Executive Officers in respect of which Campbell contributed $47,066
pursuant to the Share Purchase Plan. This plan has been suspended pending the
approval of issuance of additional Common Shares pursuant to Item No. 3 of the
Notice of Meeting.
SHARE BONUS PLAN
The Share Bonus Plan is intended to promote the interests of Campbell
and its shareholders by permitting the Board of Directors or the Compensation
Committee, in its discretion, to issue Campbell Common Shares to full-time
salaried employees of Campbell as a bonus in recognition of services provided to
Campbell by such employee. The issue of Common Shares to such employee may be
subject to such terms and conditions as are determined by the Board of Directors
or the Compensation Committee. During 1998, no Common Shares were issued
pursuant to the Share Bonus Plan.
SHARE LOAN PLAN
The Share Loan Plan is intended to provide an additional incentive to
motivate full time officers who will make important contributions to the success
of Campbell by assisting such persons to acquire shares of the Corporation. The
Compensation Committee may in its discretion make loans to full time officers of
the Corporation. Such loans shall be subject to such terms and conditions
including rates of interest, if any, as the Compensation Committee may consider
appropriate. During 1998, 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.
11
<PAGE> 13
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.
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 8 years of credited services, Ms. MacGillivray had 5.4 years of
credited service and Mr. Ireland had 2 years of credited service under the
Pension Plan at December 31, 1998.
EMPLOYMENT CONTRACTS
On December 1, 1994, 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 and provides 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 agreement 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.
12
<PAGE> 14
On December 1, 1994, 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 and provides 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 agreement 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 December 10, 1996, the Corporation entered into an employment
agreement with Mr. Paul J. Ireland as Vice President, Finance and Chief
Financial Officer. The agreement stipulates a base salary of $130,000 effective
January 1, 1997 and provides that in the event that his employment is
terminated, he will be entitled to be paid up to twenty-four months' salary and
benefits. In the event of a change of control, as defined, Mr. Ireland will be
entitled to resign within six months thereof and be paid twenty-four months'
salary and benefits. The agreement 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:
13
<PAGE> 15
- 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 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, 1998, the Compensation Committee considered the long term
incentive arrangements of the Corporation. The level of outstanding and expiring
stock options under the Employee Incentive Plan were reviewed. The Committee
considered the recommendation of the Chief Executive Officer that only
replacement stock options and a limited number of new options to one Named
Executive Officer and one senior employee who is not a Named Executive Officer
be granted. 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 achieving its long-term goals.
The Committee also considered and determined to replace expiring
options to directors under the Directors' Stock Option Plan at its August
meeting.
Given the historical low gold prices, it was determined that base
salary and annual incentive compensation of senior executives should not be
reviewed.
14
<PAGE> 16
Base salaries including that of the Chief Executive Officer were
maintained at existing levels and no annual incentive awards were awarded 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.
March 22, 1999 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, 1993 and ending December 31, 1998.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* BETWEEN CAMPBELL RESOURCES
INC., THE TSE 300 INDEX AND TSE GOLD AND PRECIOUS METALS INDEX
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CCH Stock 100 87.50 150.00 142.05 60.23 40.91
TSE 300 Composite 100 99.82 114.33 146.73 168.71 166.03
Gold and Precious
Metals 100 90.23 98.74 107.78 61.27 57.26
</TABLE>
*$100 INVESTED ON 12/31/93 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS.
15
<PAGE> 17
APPROVAL OF ISSUANCE OF ADDITIONAL SHARES
PURSUANT TO THE EMPLOYEE INCENTIVE PLAN
(ITEM NO. 3 OF NOTICE OF MEETING)
A maximum of 6,760,000 Common Shares are currently available under the
Employee Incentive Plan (including all Common Shares issued since inception of
the Plan in 1989). This number, together with 5,000,000 available under the
Directors' Stock Option Plan, was based on 10% of the issued and outstanding
Common Shares in December, 1994 when the limits were set in accordance with the
Regulations of The Toronto Stock Exchange.
It is proposed that approval be given for an additional 3,500,000
Common Shares for use under the Employee Incentive Plan. No change is proposed
to the number of Common Shares available under the Directors' Stock Option Plan.
This would bring the aggregate number reserved under both the Employee Incentive
Plan and the Directors' Stock Option Plan to 10% of the number of Common Shares
currently issued and outstanding. Prior to 1995, the maximum number of Common
Shares available for use under the Plan was set at 10% of the number of Common
Shares issued and outstanding at the previous year end.
Since 1989, 2,217,801 Common Shares have been issued pursuant to the
Share Option Plan, 1,122,760 Common Shares have been issued pursuant to the
Share Purchase Plan and 207,900 Common Shares have been issued under the Share
Bonus Plan. In addition, 3,125,000 Common Shares are reserved for issuance
pursuant to outstanding stock options.
As a consequence, all Common Shares available under the Employee
Incentive Plan have been issued or reserved for issuance. The Corporation has
discontinued offering its Share Purchase Plan to employees until additional
Common Shares are approved for issuance under the Employee Incentive Plan by the
shareholders. During 1998, approximately one Named Executive Officer and 44
employees who are not Named Executive Officers participated in the Share
Purchase Plan. In addition, three Named Executive Officers and eight employees
who are not Named Executive Officers hold stock options.
The Board of Directors believes that it is in the best interests of the
Corporation to be able to offer the Share Purchase Plan and encourage regular
purchases of the Corporation's Common Shares by employees. In addition, the
Corporation needs the ability to use the Share Option Plan to offer long term
incentives to senior employees.
Approval of the increase of an additional 3,500,000 Common Shares for
use under the Employee Incentive Plan will require the favourable votes of a
majority of the votes cast thereon at the Meeting, excluding Common Shares held
by those eligible to participate in the Employee Incentive Plan, and also the
approval of the regulatory authorities having jurisdiction over the Common
Shares of the Corporation. UNLESS SUCH AUTHORIZATION IS WITHHELD, THE PERSONS
NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE AT THE MEETING FOR THE
APPROVAL OF ADDITIONAL SHARES TO BE ISSUED AND RESERVED FOR ISSUANCE PURSUANT TO
THE EMPLOYEE INCENTIVE PLAN.
16
<PAGE> 18
APPOINTMENT OF AUDITORS
(ITEM NO. 4 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 LLP, 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 LLP 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 and Special
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 2000
Annual Meeting must comply with the provisions of the Act and be deposited at
the Corporation's head office not later than February 18, 2000 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.
17
<PAGE> 19
MISCELLANEOUS
The Corporation files with the United States Securities and Exchange
Commission an annual report on Form 10-K containing certain information with
respect to the Corporation and its business and properties, including financial
statements and related schedules. A copy of this Form 10-K will be filed with
Canadian securities commissions in lieu of an Annual Information Form. Upon the
written request of any beneficial owner of the Corporation's Common Shares, the
Corporation will mail to such owner, without charge, a copy of its Form 10-K for
the fiscal year ended December 31, 1998. 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 22, 1999
18
<PAGE> 20
FORM OF PROXY
CAMPBELL RESOURCES INC.
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND THE BOARD OF
DIRECTORS FOR USE AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
ON TUESDAY, MAY 18, 1999.
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 [ ] AGAINST [ ] WITHOLD FROM VOTING [ ] in respect of approval
to increase the maximum number of Common Shares that may be issued
and reserved for issuance pursuant to the Employee Incentive Plan.
3. FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the appointment of
KPMG as auditors for the coming year and authorizing the directors
to fix remuneration.
4. 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, FOR THE APPROVAL OF AN INCREASE IN THE
MAXIMUM NUMBER OF COMMON SHARES THAT MAY BE ISSUED AND RESERVED FOR ISSUANCE
PURSUANT TO THE EMPLOYEE INCENTIVE PLAN 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 , 1999.
---------------------------------------------------------------------
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.
PRINTED IN CANADA
<PAGE> 1
EXHIBIT 21.1
CAMPBELL RESOURCES INC.
SIGNIFICANT SUBSIDIARIES
December 31, 1998
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 Mexico 100%
(ii) Sotula Gold Corp.
Oro de Sotula, S.A. de C.V.
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, 1998 of our
report dated February 18, 1999 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 Directors' Stock
Option Plan and to the reference to our firm under the caption "Experts" in the
prospectuses related to these Registration Statements.
KPMG LLP
Chartered Accountants
March 26, 1999
Toronto, Canada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of operations and
consolidated statements of cash flows and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 0.65
<CASH> 41,493
<SECURITIES> 0
<RECEIVABLES> 2,653
<ALLOWANCES> 0
<INVENTORY> 4,538
<CURRENT-ASSETS> 49,158
<PP&E> 173,866
<DEPRECIATION> 120,749
<TOTAL-ASSETS> 102,777
<CURRENT-LIABILITIES> 3,469
<BONDS> 5,652
0
0
<COMMON> 123,632
<OTHER-SE> (36,163)
<TOTAL-LIABILITY-AND-EQUITY> 102,777
<SALES> 36,388
<TOTAL-REVENUES> 36,388
<CGS> 43,859
<TOTAL-COSTS> 43,859
<OTHER-EXPENSES> 12,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 526
<INCOME-PRETAX> (20,757)
<INCOME-TAX> 91
<INCOME-CONTINUING> (20,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,848)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
